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Mixed Earnings Put Gold Mining ETFs in Focus

With gold prices on the tear in the first quarter of 2016 thanks to safe-haven demand, the gold mining industry has once again grabbed investors’ attention. Bearish bets on this long-abandoned space have started to ease lately. This makes it more important to look at the Q1 earnings of gold mining companies.

While the sector is not yet out of the woods, the undercurrent looks favorable. At least Q4 earnings delivered by some sector bellwethers give such cues. After all, the Zacks Industry Rank of the sector is in the top 23% segment, at the time of writing.
Let’s peek into the earnings picture. 

Two gold mining companies Barrick Gold Corporation (ABX) and Newmont Mining Corporation (NEM) came up with their earnings reports lately. While Barrick Gold reported mixed results, Newmont beat on both lines (read: Where Will Gold Mining ETFs Go From Here?).

Barrick Gold’s Q1 Earnings in Focus
 
Barrick Gold’s adjusted earnings per share of $0.11 beat the Zacks Consensus Estimate by a penny. Earnings also increased considerably by 120% from the year-ago quarter figure of $0.05 per share.
 
Revenues fell around 14% year over year to $1,930 million in the reported quarter and missed the Zacks Consensus Estimate of $1,972 million. Average realized price of gold fell 3.1% year over year to $1,181 per ounce in the quarter while all-in costs tumbled 26% to $758 per ounce, and all-in sustaining costs dropped about 24% to $706 per ounce.
 
For 2016, the company reiterated its gold production outlook and expects to produce 5-5.5 million ounces of gold at all-in sustaining costs of $760–$810 per ounce (down from previous guidance of $775-$825 per ounce). Also, the company plans to reduce its total debt by at least $2 billion in 2016.
 
Investors valued the company’s cost-cutting efforts and following earnings released on April 26, the stock gained about 8.9% (as of April 28, 2016).
 
Newmont’s Q1 Earnings in Focus
 
Newmont’s adjusted earnings were $0.34 per share, above the Zacks Consensus Estimate of $0.21. Earnings declined about 26.1% year over year. Newmont's revenues went up 3% year over year to $2,032 million in the reported quarter. Revenues topped the Zacks Consensus Estimate of $1,786 million.
 
 
In the first quarter of 2016, average net realized gold price was $1,194 per ounce and average net realized copper price was $2.02 per pound, representing a year-over-year decline of 0.7% and 13.7%, respectively.
 
Following the earnings announcement on April 20, the stock gained about 8.3% (as of April 28, 2016).
 
ETF Impact
 
The aforementioned companies have considerable exposure in large-cap funds like Market Vectors Gold Miners ETF (GDX), iShares MSCI Global Gold Miners (RING) and PowerShares Global Gold & Precious Metals (PSAU) (see all precious metal ETFs here).
 
In PSAU, NEM (8.18%) and ABX (7.86%) combine to make up about 16.04% of total assets. More than 24% of RING goes to ABX (12.80%) and NEM (11.23%). In GDX too, ABX and NEM take the top two spots with a respective share of 8.51% and 7.57% (read: Best ETFs to Play Gold Now - Metal or Miners?).
 
Bottom Line
 
Investors should note that though the gold mining companies and the related ETFs secured solid gains in the last ten trading days (as of April 28, 2016), the strength was partly reflective of earnings and partly due to a still-dovish Fed. Still, investors can play the latest earnings-led bullishness and a strong industry rank via the ETF route. However, we are not sure of how long this surge will last. So, gold bugs should tread cautiously while playing these metal-oriented investments (read: Short Gold with These ETFs).
 

 
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
BARRICK GOLD CP (ABX): Free Stock Analysis Report
 
NEWMONT MINING (NEM): Free Stock Analysis Report
 
MKT VEC-GOLD MI (GDX): ETF Research Reports
 
PWRSH-GLBL GOLD (PSAU): ETF Research Reports
 
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Zacks Investment Research
 
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