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Newmont (NEM) to Report Q1 Earnings: A Beat in the Cards?


Gold miner Newmont Mining Corporation NEM is scheduled to report first-quarter 2017 results after the closing bell on Apr 24.

Last quarter, the company delivered a negative earnings surprise of 15.38%. Its adjusted earnings of 33 cents per share for the quarter trailed the Zacks Consensus Estimate of 39 cents. Newmont has beaten the Zacks Estimate in two of the trailing four quarters, with an average positive surprise of 25.92%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Newmont, in its fourth-quarter call, said that it sees attributable gold production to be in the range of 4.9–5.4 million ounces in 2017. Production at Merian and Long Canyon mines is expected to compensate the impact of declines at Twin Creeks and Yanacocha. Attributable copper production has been forecast between 40,000–60,000 tons for 2017.

Newmont continues to invest in a number of growth projects including Long Canyon in Nevada and Merian in Suriname. The company remains committed to invest in projects that combine the best value with the most favorable technical and geopolitical attributes. The company expects to beef up its exploration and advanced projects expenditure by 22% this year. Around two-thirds of this expenditure is expected to fund more brownfields and greenfields exploration.

The company also remains committed to deleverage its balance sheet. Newmont repaid debt worth $1.3 billion in 2016 utilizing proceeds from the sale of its stake in PT Newmont Nusa Tenggara ("PTNNT"). The company remains on track to pay down further debt in 2017.

Newmont is also making notable progress with its cost and efficiency improvement programs, which should lend support to its March quarter results. Strong operational performance is also allowing the company to generate positive free cash flow. The company’s free cash flow more than doubled year over year to $784 million in 2016.

Newmont, in Aug 2015, closed the acquisition of Cripple Creek & Victor CC&V gold mine in Colorado from AngloGold Ashanti Ltd. for $820 million. The acquisition provides an opportunity for Newmont to improve mine life. With this acquisition, it can add profitable gold production and save direct mining costs by up to 10% through improved productivity and optimization. The company expects gold production from CC&V to be between 400,000 and 450,000 ounces in 2017, at AISC in the range of $730–$780.

Newmont also recently landed an agreement to explore and develop a highly prospective gold district in Canada’s Yukon Territory through a private placement with Goldstrike Resources. The deal allows Newmont to earn up to 80% equity in Goldstrike’s Plateau property through exploration investment. The deal reinforces Newmont’s long-term growth pipeline and leverages its exploration capabilities.

Newmont’s shares have outperformed the Mining-Gold industry in the past one year, helped by its cost and debt reduction and operational efficiency improvement actions. The company’s shares have gained 7.9% over this period compared with the industry’s gain of 0.2%.

However, Newmont is exposed to a volatile gold price environment and challenges in the copper market. Oversupply in the market also poses a threat on copper prices.

An expected increase in unit costs in 2017 as reflected by the company’s guidance is also a concern. While Newmont reduced its gold all-in sustaining costs (AISC) by 2% year over year to $912 per ounce in 2016, the company expects AISC to increase this year to between $940 and $1,000 per ounce. The increase is partly due to a shift in the allocation of cost between copper and gold production and higher investment in advanced project and exploration.

Newmont Mining Corporation Price and EPS Surprise

Newmont Mining Corporation Price and EPS Surprise | Newmont Mining Corporation Quote

Earnings Whispers

Our proven model shows that Newmont is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for Newmont is +21.74% as the Most Accurate Estimate stands at 28 cents while the Zacks Consensus Estimate is pegged at 23 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Newmont currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Newmont’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

Other Stocks to Consider

Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Chemours Company CC has an Earnings ESP of +4.08% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle Corporation ALB has an Earnings ESP of +2.11% and carries a Zacks Rank #2.

Franco-Nevada Corporation FNV has an Earnings ESP of +15% and carries a Zacks Rank #3.

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