Inflation and lower metal prices have continued to exert pressure on precious metals miners' margins in 3Q, Stifel GMP analysts have forecast.
In a precious metals 3Q earnings preview note to clients, the analysts wrote that inflation continued to apply upward pressure on miners’ costs, primarily on key consumables, including steel, cyanide, and reagent prices.
However, they noted that conversations with various management teams have suggested that there has been some slowing in the rate of inflation on key consumables.
READ: Pure Gold Mining impresses Stifel GMP analysts on culture, attitudes, and leadership during mine tour
The analysts added that the timing of sales could have a significant impact on revenue for precious metal miners, given the volatility experienced in gold and silver prices over the course of the quarter.
“Timing of sales impact on revenues becomes apparent when looking at gold prices, ending 2Q at approximately $1,799/oz and subsequently declining to about $1,660/oz by the end of 3Q,” they wrote.
“Silver price volatility during the quarter, down 15% quarter over quarter, is also expected to have a similar impact.”
Continued pressure on precious metals prices
Regarding their near-term outlook for precious metals prices, Stifel’s analysts adjusted their forecast to an average gold price of $1,700/oz for 4Q, 2022.
“Given the current global macro instability continuing to put pressure on precious metal prices, we have tempered our 2023 gold price to $1,723/oz and maintained our long-term gold price at $1,750/oz,” they wrote.
The analysts also lowered their 2023, 2023, and 2025 prices for silver by 8%, 6%, and 3%, but maintained their long-term price of $24/oz for 2026 and beyond.
“Looking ahead, we continue to see volatility impacting gold prices as global macro instability continues, a strong USD suggesting that the Fed will continue the aggressive rate hikes, and the geopolitical implications from the Russian-Ukraine war put pressure on precious metal prices,” the analysts concluded.
Precious metals producers to watch
As third-quarter earnings season kicks off, gold producers to watch include Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF), which this week earned repeat ‘Buy’ ratings from Canaccord Genuity and Barclays analysts following the news that the construction of the Lafigue project in Cote d'Ivoire has been approved following the completion of a definitive feasibility study.
With the resumption of full-time mill operations at its PureGold mine in Red Lake, Ontario, Pure Gold Mining Inc (TSX-V:PGM, LSE:PUR, OTC:LRTNF) achieved its 3Q gold production guidance, posting record monthly gold production in August.
Steppe Gold Limited (TSX:STGO, OTCQX:STPGF) also delivered a 28% jump in 3Q production, with it forecast by Stifel analysts in an earlier note to clients that between operating cash flow generated and a working capital inventory release that the company could have generated more than $6 million in free cash flow during the quarter.
In an operational update released today, DRDGOLD Ltd (NYSE:DRD, JSE:DRD, OTC:DRDGF) also posted a 1% quarter-over-quarter increase in its gold production for 3Q.
Further, Gold Resource Corporation (NYSE-A:GORO, ETR:GIH) recently reported a cash balance of $22 million for 3Q, driven by the sale of 5,478 ounces of gold and 225,012 ounces of silver during the quarter.
Contact the author at emily.jarvie@proactiveinvestors.com
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