Many of the world's top gold producers are likely to report lower earnings per share results for the 2021 third quarter compared with the prior quarter and year-ago period as prices remain off the highs seen in 2020.

But industry observers are less interested in the numbers, which remain positive, than in hints of gold miners' future business strategies.

Of 10 major gold producers analyzed by S&P Global Market Intelligence, analysts' consensus estimates predict six will report lower earnings this quarter than in the second quarter. Only one of the companies, Yamana Gold Inc., is expected to report higher third-quarter results this year than in 2020.

Analysts expect each of the top 10 gold companies to report a positive net income per share, ranging from six cents to 90 cents per share, for the quarter. Analysts expect earnings per share to be down compared with the prior year for most top gold miners, despite estimates that revenue is likely higher for seven of the 10 gold miners than in the previous year.

Gold price

The price of gold is down this year after rallying sharply in 2020. That is because economic recovery from the COVID-19 pandemic along with higher yields has fewer investors turning to gold investment as a safe haven, according to James Steel, chief precious metals analyst at HSBC Securities (USA) Inc.

"Rising inflation levels have not buoyed gold. Gold may remain under pressure, but we believe a price floor is close at hand," Steel wrote in an Oct. 5 outlook on the commodity. "Real rates will remain negative, and trade risks could support gold going forward."

There were "modestly negative" flows from gold-backed exchange-traded funds in the third quarter, backing up the idea that some investors may no longer be reaching for gold as a safe haven investment this year, said Juan Carlos Artigas, head of research at the World Gold Council.

"But, strategic investors continue to be an important part of the market because there are growing concerns about inflation and the inflation shock that may occur and that it may not be as transitory as some people believe," Artigas said in an interview. "It may potentially be more permanent."

Analysts seek hints about next year

As the challenges of 2021 fade, the C-suite will need to address longer-term strategies and outlooks across the mining and metal space in their third-quarter earnings calls, wrote BMO Capital Markets analyst Jackie Przybylowski in an earnings season preview published Oct. 18.

"Instead of dwelling on the numbers, we are more likely to be focused on management commentary into 2022," Przybylowski said.

Analysts said companies should discuss growth opportunities, dealing with inflation and capital return programs.

"Many investors already have an eye on year-end and will be looking to protect downside risk or to crystallize losses for tax purposes," Przybylowski wrote. "For this reason, we expect a more favorable response to companies with fewer potential near-term downside events or external (including geopolitical or commodity price) risks."

As third-quarter earnings are released, the analyst is not expecting any significant beats or misses across metals and mining companies. As an exception, Przybylowski noted BMO expects Newmont Corp. earnings to come in below consensus. However, the analyst stated that weaker results are likely priced into the company's shares already. Analysts expect the Colorado-based gold producer to report earnings per share of 82 cents for the third quarter.

'Indifferent to gold'

Two top gold mining companies, Agnico Eagle Mines Ltd. and Kirkland Lake Gold Ltd., recently announced a merger that would cement Agnico's place as the largest gold producer in Canada. During a Sept. 28 call about the merger, Agnico CEO Sean Boyd noted the move comes amid lots of talk about the need for the gold industry to consolidate.

"The industry is in a period right now where a lot of investors are indifferent about gold," Boyd said. "And investors are looking for those high-quality, low-risk businesses that are generating significant free cash flow, and this does that, and we'll talk about how that plays out as we go forward."

Investors lack of interest in gold has created company valuations in the sector that remain "very attractive," said Sean Fieler, chief investment officer and president of hedge fund Equinox Partners LP, in an interview with Market Intelligence. The majority of junior miners and many senior miners are trading at a discount to their net asset value, Fieler added.

"There's a lot of value in the space," Fieler said of gold companies. "We'll see, again this quarter, concerns about inflation and inflation being less transitory. The longer you run persistent inflation against a stagnant price deck for gold, you're going to get margin pressure. That's a big short-term concern, but I think that's more than discounted in the price of these companies currently."

One big question heading into the third quarter, Fieler added, is whether major gold companies will double down on a recent trend of increasing dividend yields and share buybacks.