Poor Q3 earnings take toll on mining shares

Lower metal prices blamed for third quarter decline in earnings

Teck's Antamina copper and zinc mine in Peru is among the company's metal-producing properties. Metals are playing a major role in the recent decline of earnings among top miners | Submitted

Share prices for major mining companies, including B.C.’s Teck Resources (TECK.B, NYSE: TECK) and Goldcorp Inc. (TSX: G, NYSE: GG), have taken significant hits in recent days, thanks to poor third quarter earnings.

Goldcorp’s shares dropped 18% in a single day, October 25, although they were back up by 4% Friday in mid-day trading.

Teck’s shares dropped 21% over a three-day period, between October 23 and 25, in response to a 23% decline in earnings. Goldcorp. posted a $101 million net loss in Q3, while Teck posted a 23% drop in Q3 adjusted profits, compared to Q3 2017.

Teck and Goldcorp – B.C.’s largest mining companies – aren’t the only mining majors seeing their earnings and share prices drop.

Newmont Mining,  (NYSE:NEM), the world’s second largest gold miner, posted a $161 million net loss in Q3 and saw share prices drop by about 9% over a two-day period, October 24 to 25.

Other mining companies have also seen their share prices slide, even without having yet posted their third quarter financials.

B2Gold Corp. (TSX:BTO) experienced a 6.76% share price drop October 25, even though the company had not yet posted its third quarter financials. Shares were back up 2.72% Friday, as of mid-day trading.

The earnings decline for mining companies is due to lower metal prices.

Mickey Fulp, publisher of the Mercenary Geologist, has characterized copper prices as “caprictious” but says the long-term fundamentals are solid.

As he pointed out in a recent Mercenary Musing, copper prices hit a 3.5-year high in June, but have since fallen about 14%.

“The ongoing talking head chatter on tariffs and the so-called ‘trade war’ between the US and China continues to weigh on all base metal markets and especially for copper,” he wrote.

But he said major infrastructure projects in China would suggest the long-term demand for copper will remain strong.

As for Teck’s principal commodities – copper, metallurgical coal, zinc and, more recently, oil – metallurgical coal prices were up 10% so far this year compared to Q3 2017 to US$172 per tonne. Copper and zinc prices were down 11% and 18% respectively over the quarter.

As for Teck’s newest commodity, oil, the discount on Western Canadian Select, compared with West Texas Intermediate, was US$22.25 per barrel, compared with just US$9.94 per barrel in the third quarter of 2017.

nbennett@biv.com

@nbennett_biv