Newmont Mining: Production Woes May Offset Strong Earnings for 2011
Newmont Mining (NYSE:NEM) released its third quarter earnings a few days back, posting record Q3 revenues, primarily due to high gold and copper prices in the period. Putting a damper on these strong earnings was the announcement that the company has lowered its production outlook at some of its mines for 2011. Newmont, primarily a gold miner, competes with other international gold producers like Barrick Gold Corporation (NYSE:ABX), AngloGold Ashanti Ltd. (NYSE:AU) and Goldcorp Inc. (NYSE:GG)
We currently have a $76 price estimate for Newmont’s stock, implying a nearly 10% premium to the market price.
See our complete analysis for Newmont Mining here.
Production Woes Force Newmont to Reduce 2011 Outlook
Although Newmont was able to post record Q3 revenues with the high gold prices, production woes at certain locations may spoil the party for the company’s 2011 annual results. Lower ore grades and mill throughput has forced Newmont to revise its 2011 production outlook at Nevada, Yanacocha in Peru, and mining regions in Australia. Moreover, regional issues continue to trouble Newmont – the company was forced to close its operations near the Yanacocha mine in Peru as local protesters damaged mining equipment and demanded $72 million for development of the region. Similar protests have been going on in various rural parts of Peru, posing a potential threat to more than 200 mining establishments in the country.
High gold and copper prices will continue to rake in profits for the company
Global economic instability has led to gold touching new highs as investors look for safe investment options. Although gold is off its peak price of over $1900 per ounce in September, we believe that investor and domestic demand for gold remains high. We expect the gold price to remain strong in the near-term, allowing the company’s profits to remain strong.
The price of copper has corrected from its peak at the start of the year as the Chinese started to clear off their inventory of copper. Copper prices may move up by the end of the year as Chinese importers start re-stocking the metal. We also see growth in copper shipments in 2011 and 2012
The margin expansion resulting from the high gold and copper prices has been offset slightly by high fuel costs which have pushed up the mining costs. We believe that Newmont’s planned projects and resource base make the company fundamentally strong.
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