Newmont’s Earnings Preview: Lower Gold And Copper Prices To Impact Results
Newmont Mining (NYSE: NEM) will announce its first quarter earnings results on Thursday, April 24. The company is expected to announce lower revenues due to a combination of lower copper and gold prices and lower shipment volumes in the case of copper.
Newmont will report a fall in quarterly shipment volumes of copper concentrate as a result of halting copper concentrate exports from its Batu Hijau mines in Indonesia since January this year. This was due to certain regulatory changes proposed by the Indonesian government which have affected mining companies operating in Indonesia. Newmont contends that the new rules violate its agreement with the government. Batu Hijau accounts for a sizeable chunk of Newmont’s copper shipment volumes and this development will significantly impact sales volumes. However, Indonesian mines account for only a minuscule portion of gold shipments. Thus, gold shipments for Newmont will not be greatly impacted.
However, lower average gold and copper prices in this quarter as compared to the same period last year are expected to lower the company’s quarterly revenues year over year.((Gold Price Charts, Kitco))
You can check out our full analysis for Newmont Mining here:
Production And Shipment Volumes
The company had halted its exports from Indonesia in January pending negotiations with the government over regulatory changes impacting mineral exports from Indonesia. The Indonesian government had imposed an export ban on unprocessed mineral exports with effect from 12 January 2014. Though last minute changes to the export ban permitted Newmont’s copper concentrate exports, the government also imposed an export duty of 25% which will rise to 60% by 2016. The company contends that this violates its agreement with the Indonesian government. Though the Indonesian government has recently displayed some leniency in its stance on the tax issue, it has still not been resolved and Newmont is yet to resume its exports of copper concentrate. Thus, the company will see a fall in its copper shipments as Indonesia accounts for nearly half of Newmont’s attributable production as of 2013. [1]
While the situation in Indonesia will significantly impact the company’s copper shipments, its impact on gold shipments will be negligible. Indonesia accounts for only 23,000 ounces of attributable gold production out of 5.1 million ounces overall as of 2013. Thus, gold shipments will not be significantly affected. The company presented a marginal decline in its estimates of attributable gold production for 2014 of 4.6-4.9 million ounces against 5.1 million ounces in 2013. Though the company has not released attributable production data in advance of the earnings announcement, quarterly gold shipment volumes are not expected to vary drastically from the year ago period. [2]
Gold And Copper Prices
Gold prices in Q1 2014 were far below their corresponding values in Q1 2013. Gold prices have fallen sharply over the course of the last year, reacting to cues from the Federal Reserve regarding QE tapering. Moving forward, the pace at which the Fed tapers QE will largely depend on macroeconomic data pertaining to the US economy. Lower prevailing gold prices are expected to result in lower year over year revenues from gold mining operations for Newmont in the first quarter.
Copper prices in Q1 2014 were lower than their corresponding values in Q1 2013. The prices of the metal are to a large extent influenced by Chinese demand for it. China is the largest consumer of copper in the world, accounting for nearly 40% of the total world consumption of copper. Slower economic growth in China has led to a moderation in copper prices. This is expected to result in lower year over year revenues from copper mining operations for Newmont in this quarter. [3]
Other Developments
The company continued its strategy of divesting its non-core assets in this quarter. The sale of its Midas gold mine to Klondex, announced last year, was completed in February. Another similar step taken was the divestment of its equity stake in uranium producer Paladin Energy in March 2014. The company’s long-term strategy is to focus on developing assets that offer sustainable value to the company with a clear focus on gold and copper. [4]
What To Watch Out For
It will be interesting to note whether the management maintains its attributable production and sales estimates for the whole year in view of the prevailing gold and copper prices. We will also be looking out for further updates from the management regarding the issue of export taxes levied by the Indonesian government on copper exports. A satisfactory resolution of this issue is necessary for the resumption of Newmont’s exports from Indonesia.
Notes:
- Indonesian Government Relaxes Its Stance in Tax Dispute with Freeport and Newmont, Forbes [↩]
- Newmont Announces Fourth Quarter and Full Year Financial and Operating Results and Provides Three Year Outlook, Newmont Press Release [↩]
- LME Copper Prices, LME [↩]
- Newmont Continues to Divest Non-Core Assets with Sale of 5.4% Equity Interest in Paladin Energy, Newmont Press Release [↩]