Newmont (NEM) Q2 Earnings: Will The Stock Beat Estimates?

Gold miner Newmont Mining Corporation (NYSE:NEM) is scheduled to report second-quarter 2016 results after the closing bell on Jul 20.

Last quarter, the company had delivered a positive earnings surprise of roughly 61.90%. Newmont has beaten the Zacks Consensus Estimate in three of the trailing four quarters, by an average of 3.88%.

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

Factors to Consider

During its first-quarter 2016 earnings call, Newmont provided its outlook and expects 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. It anticipates its outlook to remain stable thereafter, in the range of 4.5–5 million ounces through 2020. Newmont sees attributable copper production in the range of 120,000–160,000 tons in 2016 and 2017.

Newmont continues to invest in growth projects in a calculated manner, and expects to produce between 5.2–5.7 million ounces of gold annually by 2017. 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 production to commence in the first half of 2017. The company has also begun commercial production from its Phoenix copper leach project in Nevada. Moreover, Newmont’s Merian project is on track to start production in the second half of 2016.

In Aug 2015, Newmont closed the acquisition of Cripple Creek & Victor (CC&V) gold mine in Colorado from AngloGold Ashanti Ltd. for $820 million, and a 2.5% net smelter return royalty on potential future gold production from underground ore. This acquisition represents an opportunity for the company to improve its mine life. Also, it believes that with this buyout, it can add profitable gold production and save direct mining costs by up to 10% through improved productivity and optimization.

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

In Jun 2016, Newmont and PT Amman Mineral Internasional (PT AMI) entered into a binding share sale and purchase agreement. The agreement is for the sale of Newmont’s interest in PT Newmont Nusa Tenggara (PTNNT), which operates the Batu Hijau copper and gold mine in Indonesia.

Newmont will sell its 48.5% stake in PTNNT for $1.3 billion. While $920 million from this will be paid in cash at the closing of the deal, the remaining $403 million is tied to the metal price upside and development of the Elang copper reserve. Nusa Tenggara Mining Corporation, majorly owned by Sumitomo Corporation, has also agreed to sell its stake to PT AMI. Newmont has taken this decision to lower its debt and create shareholder value by funding highest margin projects. The deal is expected to conclude in the third quarter, post regulatory approvals and fulfillment of other conditions.

Newmont is also making significant progress with its cost and efficiency improvement programs. It is expected to gain from its cost reductions actions in the June quarter.

NEWMONT MINING Price and EPS Surprise

NEWMONT MINING Price and EPS Surprise | NEWMONT MINING Quote

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 28 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 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:

B2Gold Corp. (NYSE:BTG) has an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).

Barrick Gold Corporation (NYSE:ABX) has an Earnings ESP of +14.29% and a Zacks Rank #1 (Strong Buy).

Richmont Mines Inc. (TO:RIC) has an Earnings ESP of +40.00% and a Zacks Rank #1 (Strong Buy).