Newmont Beats on Q1 Earnings, Misses on Revs - Analyst Blog

Gold mining giant Newmont Mining Corporation's NEM first-quarter 2014 adjusted earnings of 22 cents a share slumped roughly 69% from the year-ago quarter's earnings of 70 cents a share. However, the result beat the Zacks Consensus Estimate of 18 cents.

On a reported basis, the company posted net income from continuing operations of $117 million or 23 cents per share in the quarter, down from net earnings of $314 million or 63 cents per share a year ago. The bottom line was largely impacted by declines in average realized gold and copper pricing, offset by improved production and stable operating costs.

Newmont's revenues fell nearly 19.4% year over year to $1,764 million in the quarter and missed the Zacks Consensus Estimate of $1,829 million.

Newmont's attributable gold and copper productions were 1,210 million ounces and 24 million pounds in the quarter, respectively, up 4% and 20% year over year, respectively. Higher gold production came from better performances at Australia/New Zealand and Africa operations.

Gold and copper cost applicable to sales CAS were $751 per ounce and $2.71 per pound, respectively, down 1% and up 19% year over year, respectively. Gold and copper All-in sustaining costs (AISCs) of $1,034 per ounce and $3.67 per pound, respectively in the quarter, were down 8% and up 9% year over year, respectively. The company generated cost savings of $82 million in gold AISC which equals to $1,034 per ounce in the first quarter.

Regional Performance
 
North America
 
Gold production at the Carlin mine decreased 1% year over year to 228,000 ounces in the reported quarter due to planned lower grades at Mill 6. Production at La Herradura decreased 49% year over year to 28,000 ounces due to the suspension of the explosives permit related to a land dispute.

Gold production at Phoenix increased 4% year over year to 53,000 ounces owing to moderate higher grades at the Phoenix mill. At Twin Creeks, gold production declined 3% year over year to 96,000 ounces resulting from lower production following the sale of the Midas mine, partly offset by higher mill throughput at Autoclave.

South America
 
Attributable gold production at Yanacocha in Peru slipped 25% year over year to 107,000 ounces on account of a planned stripping phase at the Tapado Oeste pit.

Australia/New Zealand
 
Gold production at the Boddington mine in Australia declined 2% year over year to 174,000 ounces in the reported quarter due to lower ore grade. Copper production at this mine remained flat with the prior-year quarter at 8 million pounds in the first quarter.

Production at Tanami increased 40% year over year to 84,000 ounces due to higher grades from the Auron ore body and lower mining dilution from improved mining practices. At Waihi, gold production declined 10% year over year to 27,000 ounces resulting from lower ore grade milled and a build-up of gold in circuit inventory, partly offset by a higher throughput.

Indonesia

At the Batu Hijau mine in Indonesia, attributable gold and copper production increased 14% and 11% year over year to 8,000 ounces and 10 million pounds, respectively, in the reported quarter on account of higher ore grade and higher gold and copper recovery.

Africa
 
Attributable gold production at Newmont's Ahafo mine in Ghana declined 16% from the last-year quarter to 105,000 ounces based on lower ore grade processed. The new Akyem project in Ghana, which started its operations in Oct 2013, is performing well and its attributable gold production for the reported quarter was 120,000 ounces.
 
Financial Position
 
Newmont had cash and cash equivalents of $1,475 million as of Mar 31, 2014, up 7% from $1,378 million as of Mar 31, 2013. The company's long-term debt decreased roughly 3.6% year over year to $6,146 million.

Newmont closed a term loan of $575 million which provides for a single, delayed drawdown through Jul 15, 2014, with a maturity date five years from drawdown. In addition to the closing of the term loan, the company also renewed its $3 billion corporate revolving credit facility, extending its maturity date by two years to Mar 31, 2019.
 
Outlook

Newmont's attributable gold production expectation for 2014 is 4.6–4.9 million ounces and for 2015 and 2016, it is anticipated to be within 4.8–5.2 million ounces. Copper production for 2014 is anticipated to be in the range of 95–110 million pounds, and for 2015, it is expected to be in the range of 145–160 million pounds. For 2016, it is expected to be in the range of 125–140 million pounds.

Newmont continues to expect gold and copper CAS between $740 and $790 per ounce and $2.00 and $2.25 per pound, respectively, in 2014. For 2015, the company expects gold and copper CAS to lie between $690 and $740 per ounce and $1.20 and $1.45 per pound, respectively. For 2016, it anticipates gold and copper CAS to be between $740 and $790 per ounce and $1.40 and $1.65 per pound, respectively.

A mine plan optimization at the Ahafo operation in Africa is on the cards, which has resulted in an increased production outlook of between 790,000 to 870,000 ounces from the earlier forecast of 785,000 to 850,000 ounces for the region at a revised CAS of $510 to $555 per ounce from $575 to $625 per ounce in 2014.

In 2014, Newmont will be investing roughly $1.3 to $1.4 billion in consolidated capital expenditures. The company decreased its interest expense expectation of $25 million. The tax rate is expected to be within 37–40% due to the tax treatment of the sale of Midas and higher taxes in Peru.

Newmont currently carries a Zacks Rank #3 (Hold).

Other companies in the gold mining industry worth considering are AngloGold Ashanti Ltd. AU, Lake Shore Gold Corp. LSG, Gold Fields Ltd. GFI, all carrying a Zacks Rank #1 (Strong Buy).