DENVER - (BUSINESS WIRE) - Newmont Mining Corporation (NYSE: NEM) announced it will report fourth quarter and full year 2015 operations and financial results after the market closes on Wednesday, February 17, 2016. A conference call will be held on Thursday, February 18, 2016 at 9:30 a.m. Eastern Time (7:30 a.m. Mountain Time); it will also be carried on the Company's website.
- See more here.
Newmont Mining Corporation (Newmont) is a global mining company that is focused on the production and exploration of gold and copper. The company is primarily a gold producer with operations and/or assets in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Suriname. Its business segments include North America, South America, Asia Pacific and Africa. Newmont's North America segment consists primarily of Carlin, Phoenix, CC&V and Twin Creeks in the state of Nevada in the United States. The company's South America segment consists primarily of Yanacocha in Peru. Its Asia Pacific segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia, and Batu Hijau in Indonesia. The Africa segment consists primarily of Ahafo and Akyem in Ghana. Newmont's product at its gold operations is dore bars. Dore is an alloy consisting primarily of gold, as well as silver and other metals.
In the fourth quarter of 2014, Barrick Gold Corporation (NYSE:ABX) reported EPS of $0.17, while the analyst estimate was $0.10 - a surprise of 70.00%.
In the first quarter of 2015, the gold company reported EPS of $0.46 versus analyst estimates of $0.23 - a surprise of 100.00%.
In the third quarter of 2015, the gold company reported EPS of $0.23 versus analyst estimates of $0.17 - a surprise of 35.30%.
I will examine the impact of the three earnings announcements on the value of NEM.
First event study:
Event day: "Newmont Announces Fourth Quarter and Full Year 2014 Operating and Financial Results and 2015 Outlook Newmont Mining Corporation" (February 19, 2015 4:06 PM).
"DENVER - (BUSINESS WIRE) -
Newmont Mining Corporation ("Newmont" or "the Company") announced fourth quarter and full year 2014 results, including $1.5 billion in operating cash flow, $524 million of cost savings^{1} and production in line with guidance for the year.
- Net income: Reported quarterly and full year net income attributable to shareholders from continuing operations of $39 million or $0.08 per share for the fourth quarter and $548 million or $1.10 per share for the full year; adjusted net income^{2} was $86 million or $0.17 per share for the quarter and $545 million or $1.09 per share for the year
[...]".
(Source)
Event window (from January 21, 2015 to March 19, 2015): 20 days prior to the event day plus the event day plus 20 days post the event day.
This was "Good News", since EPS actual was more than 2.5% more than expected. It was +70.00% surprise (65.85% more than EPS est. + 2.5%).
I use the 250-trading day period prior to the event window as the estimation window (from January 23, 2014 to January 20, 2015) for this announcement ("Good News").
So, I will estimate the 2-factor model parameters (intercept and the beta coefficients) of the function Rnem = f(Rsnp500; Rcomex.), where Mkt = S&P 500 over the 250 days prior to the event period.
I run the regression tool in Excel to estimate the beta coefficients:
Coefficients | Standard Error | t Stat | P-value | |
Intercept | -2,3659E-05 | 0,001536639 | -0,0154 | 0,987728 |
S&P500 | 0,462017222 | 0,20690214 | 2,233023 | 0,026444 |
COMEX | -0,3228522 | 0,169810266 | -1,90125 | 0,058433 |
Rnem* = -0,0000236593067978521 + 0,462017x Rmkt -0,3228522xRcomex is the mathematical expression that roughly summarizes the normal return of NEM.
Now that I have the parameters of the 2-factor model, I can calculate the expected return, E(r), the abnormal return, AR, the abnormal cumulative return, CAR, and the abnormal return t-test, AR t-test. To calculate the expected return, E(r), we will substitute Rmkt and Rcomex with the daily returns on S&P 500 and on Comex in the 2-factor model over the event window, 41 days, from January 21, 2015 to March 19, 2015.
To calculate the abnormal return (AR), we need to subtract from the daily return on Newmont (which is the actual return) the expected return (E(r)) over the event window.
Then, I calculate the cumulative abnormal return. The t-test is calculated instead as the abnormal return divided by the standard error. The standard error is 0,024258874.
The table represents the abnormal returns of NEM as well as the cumulative abnormal returns for earnings announcement of February 19, 2015, categorized as "Good News".
For this "Good News", the abnormal return of the event day doesn't have any statistical significance.
But on March 6, 2015, 11 days after the event day, abnormal return is -0.0716 (-7.16%), and an AR t-test of -2.95 (less than -1.96).
This negative abnormal return for NEM was due to a tumble in gold prices:
"Gold prices saw their sharpest drop in more than a year Friday, after data showing strong U.S. job growth last month bolstered the case for the Federal Reserve to raise interest rates around the middle of 2015"
(Source: The Wall Street Journal).
Second event study:
Event day: "Newmont Announces First Quarter Operating and Financial Results" (Newmont Mining Corporation April 23, 2015 4:01 PM).
"DENVER - (BUSINESS WIRE) -
Newmont Mining Corporation ("Newmont" or "the Company") announced first quarter earnings, including $628 million in operating cash flow, and production in line with guidance.
- Net income: Achieved net income attributable to shareholders from continuing operations of $175 million, or $0.35 per share, compared to $117 million or $0.23 per share the prior year quarter; adjusted net income^{1} was $229 million, or $0.46 per basic share, compared to $121 million or $0.24 per share the prior year quarter".
(Source).
Event window (from March 24, 2015 to May 22, 2015): 20 days prior to the event day plus the event day plus 20 days post the event day.
This was "Good News", since EPS actual was more than 2.5% more than expected. It was +100.00% surprise (95.12% more than EPS est. + 2.5%).
I use the 250-trading day period prior to the event window as the estimation window for this announcement ("Good News"). Here are the beta coefficients of the 2-factor model run over 250 trading days.
Coefficients | Standard Error | t Stat | P-value | |
Intercept | -0,00011232 | 0,001501178 | -0,07482 | 0,940417 |
S&P 500 | 0,409163859 | 0,201655797 | 2,029021 | 0,043529 |
COMEX | -0,327375317 | 0,166537976 | -1,96577 | 0,050445 |
Rnem* = -0,00011232 + 0,409163859 x Rmkt -0,327375317xRcomex is the mathematical expression that roughly summarizes the normal return of NEM.
The table represents the abnormal returns of NEM as well as the cumulative abnormal returns for earnings announcement of April 23, 2015, categorized as "Good News".
For this "Good News", the abnormal return of the event day doesn't have any statistical significance.
But on April 24, 2015, a day after the event, the abnormal return is 0.0662 (6.62%), with an AR t-test of 2.797 (more than+1.96). The "Good News" had an impact on the value of the stock a day after the earnings announcement.
"GREENWOOD VILLAGE, Colo. (AP) Newmont Mining Corp. on Thursday reported first-quarter profit of $183 million. On a per-share basis, the Greenwood Village, Colorado-based company said it had profit of 37 cents. Earnings, adjusted for one-time gains and costs, came to 46 cents per share. The results surpassed Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of 22 cents per share. The gold and copper miner posted revenue of $1.97 billion in the period, which met Street forecasts. Newmont shares have increased 24 percent since the beginning of the year, while the Standard & Poor's 500 index has risen nearly 3 percent. In the final minutes of trading on Thursday, shares hit $23.45, a drop of 9.5 percent in the last 12 months."
(Source)
The graphic below shows the green spike of abnormal return the day after the earnings announcement:
Third event study:
Event day: "Newmont Announces Third Quarter Operating and Financial Results" (Newmont Mining Corporation October 28, 2015 4:01 PM).
"Newmont Mining Corporation (Newmont or the Company) announced third quarter results, including $813 million in operating cash flow, and $758 million in adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA)^{1}.
- Net income: Achieved GAAP net income attributable to shareholders from continuing operations of $202 million, or $0.38 per share, compared to $210 million or $0.42 per share in the prior year quarter; adjusted net income^{2} was $126 million, or $0.23 per share, compared to $249 million or $0.50 per share in the prior year quarter
[...] ''.
(Source)
Event window (from September 30, 2015 to November 25, 2015): 20 days prior to the event day plus the event day plus 20 days post the event day.
This was "Good News", since EPS actual was more than 2.5% more than expected. It was +35.30% surprise.
I use the 250-trading day period prior to the event window as the estimation window for this announcement ("Good News"). Here are the beta coefficients of the 2-factor model run over 250 trading days.
Coefficients | Standard Error | t Stat | P-value | |
Intercept | -0,001139013 | 0,001776366 | -0,6412 | 0,521984 |
S&P 500 | 0,558404872 | 0,185657972 | 3,007707 | 0,002904 |
COMEX | -0,292922155 | 0,184268918 | -1,58964 | 0,113194 |
Rnem* = -0,001139013 + 0,558404872 x Rmkt -0,292922155xRcomex is the mathematical expression that roughly summarizes the normal return of NEM.
The table represents the abnormal returns of NEM, as well as the cumulative abnormal returns for earnings announcement of October 28, 2015, categorized as "Good News".
For this "Good News", the abnormal return of the event day doesn't have any statistical significance. Thus, the earnings announcement didn't have any impact on the value of the stock.
But on November 5, 2015, six days after the event, the abnormal return is -0.0776 (-7.76%), with an AR t-test of -2.765 (less than -1.96).
"As of November 5, 2015, Newmont Mining Corporation's stock price showed declines of 9% YTD (year-to-date) on an absolute basis. However, on a relative basis, the company outperformed its peers in the gold sector. The Market Vectors Gold Miners ETF (NYSEARCA:GDX), meanwhile, fell by 26% during the same period while the SPDR Gold Shares (NYSEARCA:GLD), which tracks the spot price of gold, fell by 7.3%.
By comparison, Barrick Gold Corporation, Goldcorp (NYSE:GG), Kinross Gold Corporation (NYSE:KGC), and AngloGold Ashanti (NYSE:AU) fell by 33%, 35%, 35%, and 13%, respectively, during the same period."
(Source)
Over the last year, NEM fell by 22.42%, GDX fell by 35.65% and GLD fell 13.48%.
Barrick Gold Corporation, Goldcorp, Kinross Gold Corporation, and AngloGold Ashanti fell by 22.19%, 52.85%, 50.29%, and 25.96%, respectively, during the same period.
As of January 28, 2016, 19:50 (time in Rome).
Gold price (in the London Bullion Market) fell by 12.51% during the same period:
Over the last month, NEM raised 5.08%, the Market Vectors Gold Miners ETF rose 2.97% and the SPDR Gold Trust ETF rose 5.29%.
Barrick Gold Corporation rose 30.67%, Goldcorp fell by 5.84%, Kinross Gold Corporation fell by 8.74%, and AngloGold Ashanti rose 25.00%, during the same period.
Gold price (in the London Bullion Market) rose 4.85% during the same period, from $1,067.250 (December 29, 2015) per troy ounce to $1,119.000 per troy ounce (January 28, 2016).
Newmont Mining Corp. closed at $19.44 per share on January 27, 2016.
Analyst estimates:
For the last quarter of 2015, average analysts' estimate of EPS is $0.15. The high estimate for EPS is $0.24 and the low estimate for EPS is $0.06.
The average estimate of revenue is $1.84B, ranging from $1.75B to $1.94B.
Conclusion
Three event studies are presented.
On March 6, 2015, the negative abnormal return for NEM was due to a tumble in gold prices. Over the period January 23, 2014 to January 20, 2015, the beta_{goldpr.} was negative.
On April 24, 2015, a day after the event, the abnormal return is 0.0662 (6.62%), with an AR t-test of 2.797 (more than+1.96). The "Good News" had an impact on the value of the stock a day after the earnings announcement.
The earnings announcement for Q3 2015 didn't have any impact on the value of the stock.
But on November 5, 2015, six days after the event, the abnormal return was -7.76%, outperforming, however, on a relative basis, GDX, GLD and its peers.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.