Detour Gold Stock Could Take a Hit After Its Upcoming Earnings

Detour Gold [stock_market_widget type="inline" template="generic" color="default" assets="DGC.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has received a solid shot in the arm of late, jumping more than 30% in the past month thanks to the gold price rally. This is not surprising as the gold miner was in a solid position to take advantage of higher gold prices thanks to an improvement in its sales profile and lower costs.

Weak gold prices were a problem for Detour the last time it released earnings. So don’t be surprised to see the company delivering better-than-expected results when its second-quarter earnings report comes out on July 30. But before that happens, there are a few things that investors have to keep in mind that could derail the company’s performance.

The Headline Numbers

Wall Street doesn’t expect a great performance from Detour Gold. Its revenue is expected to shrink 3.3% year over year, while earnings per share is expected to drop to just $0.04 as compared to $0.12 in the prior-year period.

In the year-ago period, Detour had delivered gold production of just over 154,000 ounces at total cash costs of $723 an ounce and all-in sustaining costs of $1,305 an ounce. For 2019, Detour Gold expects to deliver production between 570,000 ounces and 605,000 ounces of gold, which would be lower than the 2018 production of 621,128 ounces.

So investors can expect the company to deliver weaker production numbers this time, and that will definitely impact its top line. The lower production this year can be attributed to the declining grades at Detour.

For instance, in the first quarter, the company’s head grade had dropped to 1.0 grams per ton of gold, down from 1.17 grams per ton in the year-ago quarter. The lower grades and weaker production this quarter are also going to hang heavily over the company’s bottom line.

However, there’s one factor that could help Detour deliver better-than-expected results.

Higher Gold Prices Will Be a Tailwind

In the second quarter of 2018, Detour had recorded an average realized price of $1,305 for each ounce of gold sold. Now, the price of the yellow metal stayed well above the $1,300 an ounce mark during the month of June. So there’s a good chance that Detour might have enjoyed better-realized prices this time as compared to the prior-year period.

This could bump up the company’s top line this time. But at the same time, investors should not forget that Detour’s bottom line performance could take a hit on account of higher costs. The company has called for cash costs between $790 and $840 an ounce, along with all-in sustaining costs of $1,175 an ounce to $1,250 an ounce.

The higher cash cost profile as compared to the prior-year period will weigh on Detour this time. As such, considering all the pros and cons, investors need to wait and watch before taking a call on the stock as it might not be able to benefit big time from a rise in gold prices.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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