Gold miners are reporting their second-quarter earnings right now and, for the most part, they are awesome. If it’s one thing that gold-producing businesses have learned over the last few years, it’s that there’s no need to hedge the price at which they sell their gold. The outlook for the spot price of gold has been so uniformly strong that virtually no mining company engages in a major hedging program to protect their profits. There hasn’t been any need, especially with the spot price hitting new records all the time.
One benchmark company that’s a good indicator as to the health of the gold mining industry is Yamana Gold Inc. (NYSE/AUY). The company is currently worth about $10.0 billion in stock market capitalization and I refer to as one of the top mid-cap gold miners within the industry. The stock is highly liquid and is well followed by the Street.
Yamana is a Canadian gold mining company with significant gold production and development properties in Brazil, Argentina, Chile, Mexico, and Central America. The company is producing gold and other precious metals at intermediate-company production levels, in addition to a significant amount of copper. Recently, the company reported record financial results for its second quarter. New records were achieved in revenues, cash flow, and earnings.
According to the company, its revenues grew to $573.3 million in the second quarter on the sale of 220,376 ounces of gold (excluding its Alumbrera operations), 2.1 million ounces of silver, and 41.6 million pounds of copper. This compares with revenues of $351.4 million generated in the same quarter last year on the sale of 186,921 ounces of gold (excluding Alumbrera), 2.6 million ounces of silver and 31.6 million pounds of copper (excluding Alumbrera). Any way you cut it, this is excellent growth.
Yamana generated record net earnings of $194.7 million during the latest quarter, representing an increase of 178% compared to earnings of $70.1 million generated in the second quarter of 2010. Earnings per share increased 189% to $0.26 on a basic and diluted basis. Cash flow generated from operations (before changes in working capital) grew to $331.0 million, or $0.44 per share, compared to $194.3 million, or $0.26 per share, for the second quarter of 2010.
Company management cited that its financial success was due to strong cost controls, an increase in gold, silver and copper volumes, and higher prices for all commodities. Yamana finished the second quarter with $520.9 million in cash, representing an increase of $190.4 million since December 31, 2010.
Even the technology sector can’t seem to touch the growth rates currently being achieved in the gold-mining business. It’s the one industry now that seems flush with cash and great prospects for the future. Right now, the big investment banks are saying that investors should be buying gold. In fact, equity investors should have been buying gold years ago. With the age of austerity upon us, a weaker dollar and inflationary pressures revealing themselves, gold should be one of the top outperformers over the next few years.