http://business.financialpost.com/2012/07/10/gold-miners-set-for-weaker-q2-earnings/

Gold miners set for weaker Q2 earnings

Peter Koven Jul 10, 2012 – 12:15 PM ET | Last Updated: Jul 10, 2012 1:25 PM ET

The second quarter earnings season for gold miners begins in two weeks, and it looks like it could be a volatile one.

Stifel Nicolaus analysts Josh Wolfson and George Topping predicted that sector earnings will drop 15% compared to the first quarter, driven by a 5% drop in gold prices, a 2% decline in production and a 2% increase in costs. And even though Q2 gold prices were higher than the same quarter in 2011, they expect earnings to decline 10% year-over-year due to lower production, much lower prices for byproduct metals (like silver and copper), and an 18% jump in total cash costs.

Of the 13 companies they cover (a mix of large and small producers), eight are expected to report lower earnings per share compared to the first quarter. And they list several companies that could slash their production forecasts, including Goldcorp Inc., Eldorado Gold Corp. and Osisko Mining Corp.

Want some more bad news? The analysts do not expect a single company under their coverage to report positive free cash flow, because rising capital spending commitments are outpacing operating cash flow. And given the “disproportionate” increase in capital costs that is required to bring on production growth, they noted that companies are more vulnerable to weaker metal prices than they used to be.

Obviously, this all reflects a volatile operating environment, and gold miners are responding to it. Mr. Wolfson and Mr. Topping wrote that capital preservation is a focus for the companies as they deal with high industry inflation, rising political risks and weak financing conditions. But they also expect companies to look seriously at acquisition opportunities. M&A activity picked up a little bit in the second quarter after a very slow start to the year.