Newmont Mining (NEM) has recently released its quarterly earnings. The company has reported net income of $315 million, or $0.63 per share, down 44% from the result of the first quarter of 2012. Analysts were expecting net income of $0.77 per share (analyst estimates sourced from Yahoo! Finance). Estimates have been recently declining due to falling gold prices. Estimates for NEM's earnings have fallen 23% in the last 90 days. The company did not manage to deliver results according to estimates. NEM has blamed lower grade and recovery at Carlin and Twin Creeks--both mines are situated in Nevada. The stock was down 4.62% on the day of the report.
In its earnings call, NEM stated that lower production has impacted financial results for the first quarter of the year. It is no wonder investors did not receive the report warmly. However, NEM confirmed that it is on track to meet full year production guidance of 4.8 million to 5.1 million ounces of gold. The guidance on copper production was confirmed too. NEM states that the company is working to turn the performance around by cost and efficiency improvements. Additionally, NEM states that the transition to higher grade ore at Batu Hijau mine in Indonesia would help improve free cash flow after 2014.
NEM has $6.4 billion of debt. The debt schedule is very comfortable. $541 million of convertible senior notes are due 2014. After a 3-year gap, $476 million of convertible senior notes are due 2017. Although the total amount of debt is significant, the schedule is easy. Debt is not a problem for Newmont mining.
NEM's dividend is correlated to gold prices. Currently, NEM presents one of the best yields in gold stocks. Newmont Mining's board approved a second quarter gold price linked dividend of $0.35, which brings a yield of 4.32%. If gold prices increase, the yield would increase too.
Cash and cash equivalents have decreased 12% in comparison with the results of the end of 2012. If NEM's cash position does not deteriorate further, the dividend policy would remain unchanged. Gold Resource Corporation (GORO) has recently slashed its dividend by 50%. This fact could make some investors nervous about the dividends of other gold miners. NEM is one of the best yielding companies in the sector. One could suspect that NEM can make a similar move. However, I don't think so. NEM has stated that dividend policy is one of the company's priorities. There are no cash shortage problems. This means that the company has no need to rush for additional cash sources.
Now it's time to turn to the future of the stock. NEM has problems other than falling gold prices. The company realizes that, and has presented the solutions. The impact of the solutions that the company offers will be seen in the next year. Next earnings release would be very important for NEM. If the company misses estimates, investors would start to seriously doubt whether the company can deliver full-year results according to its own guidance. NEM is one of the best-yielding stocks in the gold mining sector. However, the stock is volatile now and could not suit risk-averse investors. I think that NEM has downside risks in the near term, although the long-term outlook for the company is bullish.