Tuesday, August 10, 2010

Jaguar Mining (NYSE:JAG) Struggles on Controlling Costs

An interesting story is emerging as gold miners release their earnings. This quarter there seems to be the haves and have nots, and the have nots, like Jaguar Mining (NYSE:JAG), who recorded a loss in the latest quarter, are going to get punished by investors because of the high expectations accompanying record high gold prices.

The thinking seems to be if a gold miner can't make it at these gold prices, when will they make it. Those who fail will have to answer that question in order to be taken seriously.

With Jaguar Mining, they lost $5.9 million in their latest quarter, after generating a profit last year in the same period, where they earned $9.7 million, or 12 cents a share.

Revenue did experience a 12.5 percent increase, coming in at $36.9 million, up from last year's $32.8 million.

Rather than being a positive though, it highlights the inability to control costs. Having 12.5 percent more revenue and far less earnings points to major problems.

The reason for the increase in operating costs was "a significant decrease in run-of-mine grades, primarily caused by abnormally high dilution," according to the company.

That just means they didn't find as much gold in the ore as they thought they would, and it cost more to extract it, and also added to decreased gold production.

Jaguar isn't the only gold miner to experience this, as Northgate Minerals (AMEX:NXG) (TSE:NGX) had a very similar experience, with increased operational costs the major factor, with lower production the result as well.

Lower grades mean lower production, which means higher costs.

Gold miners will have to work on lowering operational costs in these types of situations if they want to thrive, or even survive. Again, if a company can't succeed in record gold price environment, when will a company succeed?

The number for cost per ounce of gold soared to $746 an ounce for Jaguar, surging from $447 an ounce last year. Production consequently fell to 30,586 ounces.

As investors absorb the data and results, they're pummeling the company, which in New York has plunged to $6.26 a share, losing $1.84, or 22.72 percent, as of 3:23 PM EDT.

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