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Newmont (NEM): Stock Poised to Beat Earnings in Q1?

Gold miner Newmont Mining Corporation NEM is scheduled to report first-quarter 2016 results after the closing bell on Apr 20.
Last quarter, the company had delivered a negative earnings surprise of roughly 71.43%. Newmont slipped into a loss in the quarter, on a reported basis, hurt by lower gold and copper pricing. Newmont has beaten the Zacks Consensus Estimate in three of the trailing four quarters by an average of 15.68%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Newmont updated its long-term production and cost outlook in Dec 2015. The company anticipates attributable gold production to increase from a range of 4.8–5.3 million ounces in 2016 to 5.2–5.7 million ounces in 2017, and remain stable thereafter in a range of 4.5–5 million ounces through 2020.

Newmont foresees attributable copper production in the range of 120,000–160,000 tons in 2016 and 2017. However, it expects a decline in copper production to 70,000 and 110,000 tons by 2018 owing to depletion of higher grade Phase 6 ore at Batu Hijau that year.

In Mar 2016, Newmont completed the sale of its 19.45% equity stake in Australia-based miner, Regis Resources Ltd. for aggregate net proceeds of $182 million. The divestment reinforces Newmont’s balance sheet and allows it to focus more on its core business. The company has executed roughly $1.9 billion in non-core asset sales since mid 2013 which enabled it to cut debt, invest in new, profitable production and deliver value to shareholders.

Newmont remains committed to de-lever its balance sheet. It paid $200 million for its current term loan and $250 million for project debt in Ghana and Indonesia in 2015. The company remains on track to pay down further debt in 2016.

The company is pursuing a number of projects including Long Canyon in Nevada and Merian in Suriname. Newmont remains optimistic about its Long Canyon project in Nevada and expects potential start of production in first-half 2017. Moreover, Newmont’s Merian project remains on track to start production in second-half 2016. Newmont is also moving ahead with its The Tanami expansion project in Australia. The expansion is expected to come on stream in 2017.

However, the volatile gold price environment remains a concern. A strong greenback and slowdown in China continue to weigh on gold prices. Newmont’s average realized gold prices fell 9% in fourth-quarter 2015, hurting its revenues.

Newmont still faces challenges in the copper market stemming from the oversupply of the metal. Copper – an important barometer for the global economy – is a major industrial metal and plays a significant role, especially in emerging countries. However, oversupply in the market (with production exceeding demand) poses a threat to copper prices.

Earnings Whispers

Our proven model shows that Newmont is likely to beat earnings this quarter because it has the right combination of two key ingredients. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen.

Zacks ESP: Earnings ESP for Newmont is +31.58%. This is because the Most Accurate Estimate stands at 25 cents, while the Zacks Consensus Estimate is pegged at 19 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.  

Zacks Rank: Newmont has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.  

Stocks that Warrant a Look

Here are some companies in the mining space you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Barrick Gold Corporation ABX has an Earnings ESP of +11.11% and a Zacks Rank #3.

Agnico Eagle Mines Limited AEM has an Earnings ESP of +50% and a Zacks Rank #3.

IAMGOLD Corp. IAG has an Earnings ESP of +42.86% and a Zacks Rank #3.

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NEWMONT MINING (NEM): Free Stock Analysis Report
BARRICK GOLD CP (ABX): Free Stock Analysis Report
AGNICO EAGLE (AEM): Free Stock Analysis Report
IAMGOLD CORP (IAG): Free Stock Analysis Report
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