Canadian gold miners are expected to report a sharp jump in quarterly profits in coming weeks,

By Julie Gordon

TORONTO (Reuters) - Canadian gold miners are expected to report a sharp jump in quarterly profits in coming weeks, though cost increases and foreign exchange rates are likely to limit the benefits of record bullion prices.

Gold prices averaged $1,227 an ounce in the third quarter, a 28 percent increase over the same period of 2009, with spot prices climbing to near-daily highs and hitting a record of $1,315.80 on Sept 30.

The world's top two gold miners, Barrick Gold (ABX.TO: Quote) and Goldcorp (G.TO: Quote), are expected to post 50 percent increases in earnings over the previous year, according to Thomson Reuters I/B/E/S.

No. 3 Kinross Gold (K.TO: Quote), which closed a $7.1 billion deal to buy Red Back Mining in September, is expected post a nearly 100 percent increase in adjusted earnings.

While analysts see high bullion prices leading to strong gains, they warn of other factors that are likely to temper the results.

"Quite typically, investors unrealistically expect higher gold prices to drop right to the bottom line," said Dahlman Rose analyst Adam Graf. "And that just never happens because, for one thing, higher gold prices always lead to higher costs."

With the labor pool tightening, unfavorable exchange rates curbing profits and heftier royalties to pay out, miners will likely see higher costs hold back their results, Graf said.

Goldcorp and Agnico-Eagle (AEM.TO: Quote) will kick off the flurry of earnings reports next Wednesday, followed by Barrick and Eldorado Gold (ELD.TO: Quote) on Thursday, and then Newmont Mining (NMC.TO: Quote), Yamana Gold (YRI.TO: Quote), Iamgold (IMG.TO: Quote) and Kinross in the following week.

EXPANSION DRIVE

As the demand for gold surges, analysts are eager for updates on acquisitions, exploration activity and mine expansion.

In a note to clients, Morgan Stanley analyst Mark Liinamaa highlighted Barrick as the top-performing stock of the past six months. He said he was watching for updates on the Cortez Hills environmental assessment.

The Toronto-based gold giant is also expected give updates on its three other development projects, and on opportunities to extend the life of some of its operating mines.

Goldcorp should see some production from its Penasquito mine, which came online in mid-September, while Kinross is expected to see a slight increase in production from the two mines acquired through its purchase of Red Back.

"Kinross has now set themselves up with a pretty good growth profile," said U.S. Global Investor fund manager Ralph Aldis. "They are going to have to deliver on that."

Aldis added that he would be watching for updates from the miners on plans to bring recent acquisitions online and to expand current resources.

"For the seniors, (expansion) is almost everything," Aldis said. "They've bought a lot of stuff and they still haven't developed it, and they're kind of hurting."