Miners Should Hint At Earnings Ahead Of Time To Curb Volatility - RBC Capital Markets
(Kitco News) - Mining companies should disclose more information prior to the release of their earnings reports in order to limit share price volatility, according to RBC Capital Markets.
“It is essential for the North American precious metal producers to improve the level of public disclosure ahead of quarterly earnings,” Dan Rollins, director of Global Mining Research at RBC Capital Markets, wrote in a note published on Tuesday.
The reason behind Rollins’ thinking is a significant increase in share volatility among North American gold producers during the last couple of years. The trend is largely driven by investors, who are caught off guard each time an earnings report is released, the note explained.
“While many companies have begun to take a more proactive approach, we believe more work can be done,” Rollins said.
More disclosure from mining companies is paramount here, including estimated production figures and updated future expenses, the note stated. Analysts and traders could benefit from this kind of information about the mining companies they are carefully watching.
“While operational risk will always be inherent, we believe providing more detailed quarterly disclosure should reduce the risk of missing consensus earnings,” Rollins added.
RBC Capital Markets recently noticed that when mining companies report better-than-expected figures, they see above normal buying sprees, while others that fall short of estimates, report bigger selloffs than usual.
The note pointed out that the firms that missed their earnings forecasts in 2016 and 2017 were immediately punished by underperforming the gold mining sector by 3.5%. This is a much higher percentage when compared to the 2013-2015 timeframe when the underperformance to the gold market was only 2.2%, Rollins explained.
Part of the increase is also due to a drop in mining research, said Matt Barasch, portfolio manager with RBC Dominion.
“Everybody had these big analyst teams, and they were able to go out and see the mines and kick the tires. Whereas today, that just doesn’t exist anymore,” Barasch said. “It’s incumbent upon the companies now to be much more transparent. Otherwise, the ability for investors to understand what’s about to happen when these companies report earnings is a lot more limited than 10 years ago.”
On top of that, increased share volatility has also been encouraged by growing popularity of other assets, such as cryptocurrencies as well as exchange-traded funds (ETFs), according to RBC.