How AuRico Earnings Could Bounce Back

AuRico Gold will release its quarterly report on Thursday, and the entire mining industry has faced the huge challenge of adapting to lower gold prices. Yet while AuRico earnings will almost certainly fall dramatically from year-ago levels, there are some signs that the gold miner could rebound in the long run as its strategic vision takes hold and starts producing sales growth again.

Like many miners, AuRico has a combination of existing properties and promising prospects on which it's hinging its future success. Between its relatively low-cost Mexican operations and its recent expansion of its key Canadian mine, the company hopes to produce much higher amounts of gold in the near future, even with prices having fallen. Let's take an early look at what's been happening with AuRico Gold over the past quarter and what we're likely to see in its quarterly report.

Stats on AuRico Gold

Source: Yahoo! Finance.

Which way will AuRico earnings move this quarter?
In recent months, analysts have cut back on their views for AuRico earnings, with a $0.03 reduction in June-quarter estimates being consistent with roughly 50% cuts in full-year 2013 and 2014 projections. The stock has predictably behaved badly, with shares down 17% since early May.

We've already gotten a sense of how AuRico performed this quarter from its preliminary operational results last month. The company produced about 48,000 ounces of gold during the quarter, with cash costs creeping upward by about $10 per ounce. Those figures are mostly consistent with the weaker end of the guidance ranges that AuRico provided for the full 2013 year, although the key Young-Davidson mine in Canada led to higher costs and lower production than its guidance ranges predicted.

Still, the company faces some pressures from the drop in gold. In its preliminary report, AuRico said that it might have to take impairment charges against its assets in order to reflect lower expectations for gold prices in the future. Such an impairment shouldn't come as a big shock to investors, but it nevertheless could create a one-time hit to earnings.

One nice thing AuRico has managed to do is to sustain its $0.04 per share dividend. Competitors have chosen to cut dividends as gold prices have fallen, as even industry giant Newmont Mining reduced its payout twice this year, with the total cut lopping more than 40% off its quarterly payout. Silver Wheaton also cut its dividend, adopting a smoothing approach that will look at operating results over the past four quarters in setting the payout. AuRico has said that it will move next year to a dividend policy that pays 20% of operating cash flow quarterly, which will essentially tie the payout to gold prices going forward.

In the AuRico earnings report, watch to see how the company's profit margins fare as it faces cost pressures and falling proceeds from metal sales. With gold miners across the industry seeing margins squeezed, the question isn't whether AuRico will be affected but rather by how much. In order to bounce back, the expansion at Young-Davidson will have to meet investors' greatest expectations in the long run.

AuRico would benefit from a rebound in gold, but your best plays could be elsewhere. The Motley Fool's new free report, "The Best Way to Play Gold Right Now," dissects the recent volatility and provides a guide for gold investing. Click here to read the full report today!

Click here to add AuRico Gold to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

The article How AuRico Earnings Could Bounce Back originally appeared on Fool.com.

Fool contributor Dan Caplinger owns shares of Silver Wheaton. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.