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Second-Quarter Results Show Impact of Gold Price Plunge

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Expect additional spending reductions ahead.

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Earnings season continued in the gold patch this week, giving investors and analysts a closer look at the effects of a falling gold price on miners in the second quarter.

With gold down more than 20% so far this year, analysts at Stifel Nicolaus recently estimated that the gold miners they cover would report an average 20% drop in EBITDA in Q2, compared with the previous quarter, according to the Financial Post.

Indeed, last week, Goldcorp (NYSE:GG) president and CEO Chuck Jeannes noted that the company's revenues and operating cash flows were significantly impacted by lower realized gold prices in the second quarter.

Goldcorp reported a net loss of $1.93 billion, or $2.38 per share, in Q2 resulting from a non-cash impairment charge related to exploration potential at its Peñasquito mine in Mexico. This compares to net earnings of $268 million, or $.33 per share in the second quarter of 2012. Goldcorp's average realized gold price in Q2 2013 was $1,358 per ounce, down from $1,596 in the same quarter of 2012.

"Almost half of our total quarterly gold and silver sales occurred in the month of June, which coincided with a period of particularly weak prices for the metals," said Jeannes, in a statement.

Also last week, Newmont Mining (NYSE:NEM) reported a non-cash impairment charge in its Q2 results -- primarily related to the impact of lower gold and copper prices on long-term assets at its Boddington and Tanami mines in Australia -- which resulted in a $2 billion net loss, or $4.06 per share, in the quarter.

Looking ahead, many miners point to further spending reductions in the near to medium term. Goldcorp, for example, says it is reviewing its short-term operating plans with a focus on cost containment as well as "on improving operating cash flow through optimal mine planning in a lower cost price environment."

Similarly, Kinross Gold (NYSE:KGC) said on Wednesday that it has "intensified" its focus on margins, cost reduction, and cash flow as a result of the gold price drop. Kinross recorded a net loss of $2.5 billion, or $2.17 per share, in Q2, which it also says is "largely as a result of lower short-term and long-term gold price assumptions." The company says it does not expect to make a decision on whether to proceed with a Tasiast mill expansion until 2015 at the earliest.

On Thursday, it was Barrick Gold's (NYSE:ABX) turn, as the miner reported a second-quarter net loss of $8.56 billion, or $8.55 per share, reflecting $8.7 billion in after-tax impairment charges, which it says were "largely driven by significant decreases in long-term metal price assumptions" following the sharp declines in spot prices in the second quarter.

Barrick has also said it expects to reduce capital spending at its Pascua-Lama project by $1.5 billion to $1.8 billion in 2013-2014 and announced Thursday that it is cutting its quarterly dividend to $.05 per share. On Wednesday, Kinross also suspended its semi-annual dividend.

Newmont, which uses a gold price-linked dividend policy, also cut its dividend to $.25 per share in July, based on the average London P.M. Fix of $1,415 per ounce for the second quarter of 2013. In April, the company's quarterly dividend was $.35 per share based on the first quarter average gold price of $1,632 per ounce.

Barrick ended Thursday's trading session down 0.9%, while Kinross fell 2%.

Twitter: @helenbnichols
No positions in stocks mentioned.
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