It goes without saying that beating guidance is a good way to earn favour from investors. The market has been simply brutal to mining companies that failed to meet their own expectations — or those of analysts — in the last 12 months (just ask Agnico-Eagle Mines Ltd).
So which companies do a good job of meeting guidance, and which don’t? Canaccord Genuity base metal analysts Gary Lampard and Orest Wowkodaw compared the companies in their coverage universe on three parameters (production guidance, cost guidance and analyst estimates) and found that most of them have fallen short of expectations in the last two years. They believe the miners that consistently beat guidance deserve premium valuations. In practice, it doesn’t always work that way:
Production guidance: Uranium miners Cameco Corp. and Uranium One Inc. were the only two companies that met or exceeded their production forecasts in both 2010 and 2011. That hasn’t helped the stocks, which have performed poorly in the post-Fukushima environment. Paladin Energy Ltd., First Quantum Minerals Ltd., Inmet Mining Corp. and Xinergy Ltd. delivered the biggest misses.Cost guidance: Cameco and Uranium One delivered ahead of their cost guidance in 2010 and 2011, as did Inmet and Freeport-McMoRan Copper & Gold Inc. The laggards list is a long one and is led by First Quantum and Capstone Mining Corp.
Consensus analyst EPS estimates: Freeport and Teck Resources Ltd. performed best against analyst earnings estimates in 2011. But most of the companies in the study missed consensus estimates by 15% or more. In fact, several of them missed consensus in every quarter of 2011, including Capstone, First Quantum, Inmet, Xinergy, Imperial Metals Corp., Forbes & Manhattan Coal Corp. and Polaris Minerals Corp.