The mining industry is housed within the broader Zacks Basic Materials sector. The Q2 earnings picture for this sector looks glum. Basic Materials is among the Zacks sectors that are expected to see a double-digit decline in earnings in the June quarter. Overall earnings for the space are projected to fall 34.8% on 10.3% lower revenues, per the latest Earnings Outlook.
The mining industry had a turbulent 2018, dragged down by a slump in metals prices. Metal prices remained subdued last year due to the trade tussle between the United States and China. Further, concerns over a slowdown in China, the biggest metal consumer, also weighed on prices. Gold and silver prices dropped in 2018 primarily owing to global trade tensions and a stronger dollar.
Nevertheless, precious metals regained lost ground during the first half of 2019. In particular, gold prices have broken above the $1,400 an ounce threshold and traded at levels last seen in 2013.
Gold has enjoyed a bullish run this year, hitting a six-year high in June. The prices of the yellow metal are up roughly 10% year to date. Higher gold prices augur well for gold mining companies in Q2.
Uncertainties over the U.S.-China standoff, a weaker U.S. dollar and geopolitical tensions have triggered the safe haven demand for gold so far this year. Gold prices are also finding support from U.S. Federal Reserve’s dovish tone. The Fed has signaled a possible cut in benchmark interest rate later this month.
Meanwhile, the gold mining industry is facing serious supply problems. Gold production is likely to drop eventually, as new discoveries remain scarce, existing resources are dwindling and grades are declining. The big players in the gold mining space are taking the consolidation route to boost their production as well as growth profile amid depleting gold reserves.
Copper also had a rough 2018 with prices of the red metal falling around 20% for the year. Prices of this major industrial metal, which is considered an important barometer for the global economy, slumped to their lowest levels in more than a year in December amid concerns over demand for the metal due to U.S.-China trade tensions and a weakening Chinese economy.
After starting 2019 on a strong note, Copper has lost steam again. Copper prices on the London Metal Exchange (“LME”) fell by double digits in Q2 as investors fret over weak demand from China, the world’s biggest consumer, amid the U.S.-China trade friction and a slowing global economy. Notably, prices of the red metal touched a six-month low in June. Tepid manufacturing data from China has raised concerns of weaker demand for the commodity.
Coming to iron ore, this major steel-making raw material has been on a tear this year with prices surging roughly 70% amid supply constraints. The mine disaster in Brazil and supply disruptions in Australia have triggered a spurt in the prices. Iron ore mining companies are expected to gain from higher prices in Q2.
Meanwhile, miners are committed to whittle down operational costs and capital spending, improve operating efficiency within existing mines, pay down debt, eliminate non-core assets and concentrate 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 Q2.
How to Pick the Winners?
Given the large number of players operating in the mining space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim down 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%.
Below we list five mining stocks that have the right combination of elements to pull off positive surprises this earnings season:
Kinross Gold Corporation KGC has an Earnings ESP of +36.36% and sports a Zacks Rank #1. The company delivered a positive earnings surprise of 600% in the last reported quarter. The company is scheduled to report Q2 results on Jul 31.
Kinross Gold Corporation Price and EPS Surprise
Kinross Gold Corporation price-eps-surprise | Kinross Gold Corporation Quote
Franco-Nevada Corporation FNV has an Earnings ESP of +2.65% and carries a Zacks Rank #1. The company delivered a positive earnings surprise of 25% in the last reported quarter. It is expected to report Q2 results on Aug 14. You can see the complete list of today’s Zacks #1 Rank stocks here.
Franco-Nevada Corporation Price and EPS Surprise
Franco-Nevada Corporation price-eps-surprise | Franco-Nevada Corporation Quote
New Gold Inc. NGD has an Earnings ESP of +33.33% and a Zacks Rank #2. The company beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, delivering an average positive surprise of around 141.7%. The company is scheduled to report Q2 results on Aug 1.
New Gold Inc. Price and EPS Surprise
New Gold Inc. price-eps-surprise | New Gold Inc. Quote
Barrick Gold Corporation GOLD, carrying a Zacks Rank #2, has an Earnings ESP of +13.51%. The company delivered a positive earnings surprise of 10% in the last reported quarter. The company is scheduled to report Q2 results on Aug 12.
Barrick Gold Corporation Price and EPS Surprise
Barrick Gold Corporation price-eps-surprise | Barrick Gold Corporation Quote
Cleveland-Cliffs Inc. CLF has an Earnings ESP of +6.77% and carries a Zacks Rank #2. The company delivered a positive earnings surprise of 42.9% in the last reported quarter. It is slated to report Q2 results on Jul 19.
Cleveland-Cliffs Inc. Price and EPS Surprise
Cleveland-Cliffs Inc. price-eps-surprise | Cleveland-Cliffs Inc. Quote
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