The Zacks Mining – Gold industry is housed within the broader Zacks Basic Materials sector. The Q1 earnings picture for this sector looks glum. Basic Materials is among the Zacks sectors that are expected to see the biggest decline in earnings in the first quarter. Overall earnings for the space are projected to fall 17.8% on 0.7% lower revenues, per the latest Earnings Preview. 

Gold mining companies’ first-quarter results are expected to reflect the benefits of higher gold prices and efforts to boost operating efficiency and reduce costs. We have handpicked a few gold miners, Kinross Gold Corporation KGC, Sandstorm Gold Ltd. SAND and IAMGOLD Corporation IAG, which are set to beat earnings estimates this earnings season.

How Have Things Shaped Up for These Companies?

Gold prices are shooting up this year as worries over the global trade war have boosted the safe-haven demand for bullion.  Prices of the yellow metal have zoomed roughly 27% year to date, largely attributable to aggressive trade policies, including sweeping new import tariffs announced by President Donald Trump, which have intensified global trade tensions and heightened investor anxiety. Also, central banks worldwide have been accumulating gold reserves, led by risks arising from Trump’s policies. 

Gold prices catapulted to a record high of $3,500 per ounce on April 22 as the U.S. dollar tumbled amid President Trump's criticism of Federal Reserve Chair Jerome Powell and call for an immediate reduction in interest rates. Gold prices climbed nearly 19% in the first quarter. 

Higher prices are expected to have supported the performance of gold miners in the first quarter. On the flip side, higher mining costs, triggered by inflationary pressure on all aspects of input costs, particularly labor, fuel and electricity, are likely to have been a drag. Nevertheless, miners remain committed to whittling down operational costs and capital spending, improving operating efficiency within existing mines, paying down debt, eliminating non-core assets and concentrating on their highest ore-grade assets. Some of these companies have also taken steps to bring down their all-in sustaining costs — the most important cost metric of miners. These actions are expected to support their margins in Q1.

How to Pick Winners?

Given the large number of players operating in the gold mining space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim the list with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Zacks Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.

Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next announcements. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as much as 70%.

Our Choices

Below we list three gold mining stocks that have the right combination of elements to pull off positive surprises this earnings season:

Kinross Gold has an Earnings ESP of +11.07% and a Zacks Rank #2. It is slated to report on May 6. 

Kinross surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. It delivered a trailing four-quarter earnings surprise of around 23.7%, on average. The Zacks Consensus Estimate for first-quarter earnings stands at 22 cents. KGC is expected to have gained from higher average realized gold prices. Tasiast and Paracatu mines are expected to have continued their strong production performance, driving overall production, partly masked by higher production costs. 

(Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Kinross Gold Corporation Price and EPS Surprise

Kinross Gold Corporation price-eps-surprise | Kinross Gold Corporation Quote

Sandstorm Gold has an Earnings ESP of +6.67% and carries a Zacks Rank #2. The company is scheduled to report on May 6. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sandstorm Gold missed the Zacks Consensus Estimate in three of the trailing four quarters while beat once. It delivered a trailing four-quarter negative earnings surprise of around 65.8%, on average. The Zacks Consensus Estimate for SAND’s first-quarter earnings is pegged at 5 cents. SAND is expected to have benefited from strong sales and operating margins in the first quarter. Higher selling prices of gold are also likely to have aided Sandstorm Gold’s results in the quarter. These are expected to have been partly offset by a higher cost of sales.

IAMGOLD has an Earnings ESP of +9.69% and a Zacks Rank #3. It is slated to report on May 6. 

IAMGOLD beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once. It delivered a trailing four-quarter earnings surprise of around 147.6%, on average. The Zacks Consensus Estimate for first-quarter earnings stands at 10 cents. The company is expected to have benefited from strong production volumes and prices in the first quarter. The ramp-up at Cote Gold and continued strong performance at Essakane and Westwood are likely to have aided production. This is likely to have been partly offset by higher costs.

Iamgold Corporation Price and EPS Surprise

Iamgold Corporation price-eps-surprise | Iamgold Corporation Quote

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This article originally published on Zacks Investment Research (zacks.com).

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