Newmont Mining (NYSE:NEM) will release its third quarter earnings results on October 31. The company has already released attributable production data for the quarter. The production for gold was higher than in the comparable period last year, while that of copper dipped slightly. However, shipments of gold increased while those of copper dropped marginally year-over-year. The average price of gold in the third quarter this year was much lower than the price over the same period last year. Considering that shipment figures haven’t risen spectacularly but the fall in price for both gold and copper has been quite steep, we conclude that Newmont will report lower revenues on a year-over-year basis. ((Gold Price Charts, Kitco))
In the third quarter, Newmont announced that it had signed a Letter of Intent (LOI) to sell its Midas gold mine operation in Nevada to Waterton Global Resource Management, Inc. In the event that the proposed deal didn’t go through, the LOI was to stand terminated on October 14, 2013, unless extended by mutual agreement of both parties. The company has not come out with an update on the transaction so far. 
At the Denver Gold Forum, Newmont also announced that it is now looking to acquire more copper assets in a bid to diversify its business. 
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We have a Trefis price estimate for Newmont Mining of $22, which represents a 22% downside to the current market price.
Q3 2013 Production
Newmont reported third quarter attributable gold and copper production of 1.283 million ounces and 34 million pounds respectively. The production of gold was higher compared to the previous year’s comparable period figure of 1.239 million ounces, and that of copper was lower than the Q3 2012 figure of 35 million pounds. Attributable gold and copper sales were 1.263 million ounces and 35 million pounds respectively. These compare to the figures of 1.210 million ounces of gold and 37 million pounds of copper last year. 
Although the company didn’t report the realized price for gold and copper in the production report, it will definitely be much lower than last year considering the market price charts. 
Newmont has maintained its full year 2013 attributable gold production figure of 4.8–5.1 million ounces but reduced copper production expectations to 135-145 million pounds from 150–170 million pounds. The revision in copper production expectations is due to lower than expected mill throughput at Boddington and lower than expected ore grade processed at Batu Hijau.
Gold And Copper Prices
The price of gold this year has been reacting largely to the Federal Reserve Bank’s various pronouncements and hints about continuing or tapering down monetary stimulus measures, better known as Quantitative Easing (QE). The first steep fall in price came in April when the minutes from the Federal Open Market Committee (FOMC) meetings suggested that the bank may stop its bond purchasing program well before the end of 2013. 
A second steep fall in prices occurred in June when the Federal Reserve Bank chairman Ben Bernanke announced his intention to reduce the quantitative easing program or possibly withdraw it later in the year, if the U.S. economy and job market were to improve. 
However, gold prices again started inching upwards in July when a second announcement from Mr. Bernanke suggested that economic data continued to remain weak and the Federal Reserve may continue with monetary easing for the time being. In the wake of some positive economic data ahead of the monetary policy review meeting of the Federal Reserve in mid-September, the market largely expected the bank to begin a gradual QE tapering process. Accordingly, the price of gold began falling in September. Since then, the price of gold has been inching upwards gradually as the Federal Reserve opted not to commence the QE tapering process for the time being. 
On the whole, the average price of gold for the third quarter this year has been much lower than in the third quarter last year. The impact of this quarter’s low prices will be felt in Q4 dividends because Newmont links quarterly dividend to the previous quarter’s realized gold price.
Copper prices this year have been trending lower than last year mainly due to the slow economic growth rate in China. Since China accounts for nearly 40% of the total world consumption of copper, its economy has a significant impact on copper prices. The country is in the process of reorienting its economy away from investment in capital assets and towards greater domestic consumption. While copper prices on the LME inched upwards continuously in the third quarter after bottoming out at the end of June, the average price level was much lower than in Q3 2012.
In the earnings call, we will watch out for any updates on the Midas gold mine deal and Newmont’s view on gold prices going ahead.Notes:
- Newmont Mining Press Release, Newmont Mining [↩]
- Newmont At Denver Gold Forum: More Copper In Portfolio, Final Call On Conga In 2015, Trefis [↩]
- Newmont Announces Third Quarter Attributable Gold and Copper Production and Sales, Newmont Press Release [↩]
- LME Copper Prices, LME [↩]
- Falling Gold Prices Take Shine Off Mining Majors, Trefis [↩]
- Weak Gold Prices And Impairment Will Dull Barrick Gold’s Results, Trefis [↩]
- Gold prices drop as markets brace for Fed tapering, Syria fears wane, Investing.com [↩]