Expecting Soft Results From Newmont’s On Weak Production And Prices

by Trefis Team
Newmont Mining
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Newmont Mining (NYSE:NEM) will release its first quarter earnings results on April 29. The company has already released attributable production data for the quarter. The production of gold is substantially lower than in the comparable period last year while that of copper is marginally higher. However, shipments of both gold and copper declined year-over-year. The average price of gold for the first quarter this year was lower than the price in the same quarter last year. Combined with the shipment figures, we conclude that Newmont will report lower revenues on a year-over-year basis. ((Gold Price Charts, Kitco))

A significant piece of bad news was the sudden and sharp drop in gold prices witnessed in the last few weeks. Since the decline occurred in April, the first quarter results won’t be impacted, but the results in the subsequent quarters will bear the effects. Meanwhile, the company’s crucial Conga project remains in limbo over concerns regarding its environmental viability. (See: Newmont’s Stalled Conga Project In Peru Adds Risk To Outlook)

A piece of good news did come in the form of willingness on the Indonesian government’s part to grant more time to Newmont and Freeport McMoran to build smelters in order to avoid an export ban. [1]

See our complete analysis for Newmont here

Q1 2013 Production

Newmont reported first quarter attributable gold and copper production of 1.165 million ounces and 38 million pounds respectively. While the production of gold was lower compared to the previous year’s comparable period figure of 1.307 million ounces, copper was higher than previous year’s figure of 35 million pounds. Attributable gold and copper sales were 1.142 million ounces and 31 million pounds respectively. These compare to the figures of 1.290 million ounces of gold and 31 million pounds of copper last year. [2] The average realized prices were reported at approximately $1,631 per ounce of gold and $3.13 per pound of copper.

Production in the first quarter declined year-over-year due to lower mill availability as a result of cold weather in Nevada as well as lower than planned ore grades at Twin Creeks and Carlin in the same region. Newmont expects production to increase in the second half of the year due to greater mill throughput in Nevada and ramping up of first production at Akyem in Ghana. Sales in the first quarter suffered due to shipping delays.

Newmont has maintained its full year 2013 attributable gold and copper production of 4.8–5.1 million ounces and 150–170 million pounds, respectively.

Tumbling Gold And Copper Prices Will Impact Future Results

The last few days have been extraordinary for the gold market. The price has plunged dramatically and the panic generated in the market is leading to yet higher selling and lower prices. This phenomenon cannot be explained by a single event, but rather a combination of events occurring in tandem. Broadly, the primary factors driving gold prices are believed to be the Federal Reserve Bank’s monetary policy, European economic woes, inflation data, and the slowing Chinese economy. In a previous article, we explained these factors and their impact on gold prices and mining companies. You can read it here.

There are conflicting opinions in the market over whether the commodity super cycle has come to an end. In either case, the price outlook for most commodities is bearish for the foreseeable future. Copper is often called “Dr. Copper”, for being a bellwether of the world economy due to its close correlation to economic growth. It is used by many industries and prices typically rise when the world economy is growing. Hence, macroeconomic factors are important for copper and Newmont. ((LME Copper Prices, LME))

Global macroeconomic conditions remained challenging this quarter. The events in Cyprus disturbed the nascent positive sentiment in Europe, and also had an adverse impact on base metal prices like copper. Also, China reported a year-over-year Gross Domestic Product (GDP) growth rate of 7.7% for the first quarter of 2013 – this was lower than the growth rate of 7.9% reported in Q4 2012. Since the country accounts for almost 40% of global copper consumption, China’s economic conditions have a significant impact on prices of commodities like copper. The Chinese stockpiled a lot of copper last year, which has affected purchases related to restocking, especially since industrial production figures for the first quarter point to lower consumption of the metal. The steep drop in copper prices observed in February, came after China announced steps to curb the rapid rise in real estate prices, by making it tougher to purchase homes. Almost 40% of the worldwide demand for copper comes from the construction industry. [3]

We have a Trefis price estimate for Newmont Mining of $41 which will be revised after the first quarter earnings results.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Indonesia could ease smelter rules for Freeport, Newmont -minister, Reuters []
  2. Newmont Announces First Quarter Attributable Gold and Copper Production and Sales, Newmont Press Release []
  3. China GDP Growth Slows to 7.7%, WSJ []
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