Newmont (NEM) Q3 Earnings: Will The Stock Beat Estimates?

Gold miner Newmont Mining Corporation (NYSE:NEM) is scheduled to report third-quarter 2016 results after the closing bell on Oct 26.

Last quarter, the company had delivered a positive earnings surprise of roughly 57.14%. Newmont has beaten the Zacks Consensus Estimate in three of the trailing four quarters, with an average surprise of 17.17%.
Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Newmont continues to invest in growth projects that are likely to boost its production performance. 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 which is expected to start of production in first-half 2017. The company’s Merian project recently started commercial production. The Tanami expansion project in Australia is also expected to come on stream in 2017.

Newmont is also making significant progress with its cost and efficiency improvement programs. Successful cost reductions are allowing the company to generate positive free cash flow. The company reduced its gold all-in sustaining costs (AISCs) by roughly 10% in 2015. Further, gold and copper AISCs declined in second-quarter 2016.

Moreover, Newmont remains committed to de-lever its balance sheet. Newmont 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’s move to divest its stake in PTNNT (the operator of the Batu Hijau mine in Indonesia) will allow it to pare debt and invest in high margin projects.

Newmont anticipates attributable gold production to increase from a range of 4.7-5.0 million ounces in 2016 to 4.9-5.4 million ounces in 2017, and remain stable thereafter in a range of 4.5-5 million ounces through 2020.
The company projects copper AISC to average in the band of $2.20-$2.40 per pound in 2016 and increase to $2.30-$2.60 per pound in 2017 due to timing on sustaining capital spend. It is anticipated to further increase to the range of $2.75-$2.95 per pound in 2018 due to stripping at Boddington.

Earnings Whispers

Our proven model does not conclusively show that Newmont is likely to beat estimates this quarter. 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. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Newmont is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate both stand at 52 cents.

Zacks Rank: Newmont has a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Chemours Company (NYSE:CC) has an Earnings ESP of +25.71% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

B2Gold Corp. (NYSE:BTG) has an Earnings ESP of +25% and carries a Zacks Rank #2.

The Dow Chemical Company (NYSE:DOW) has an Earnings ESP of +1.25% and also carries a Zacks Rank #2.

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