The Gold Stock Strategist's  Instablog

Newmont Kicks Off Major Gold Producer Earnings Season This Week

Newmont Mining (NEM), the world’s second largest producer of gold, kicks off the quarterly earnings announcements for gold mining companies before the market opens on Thursday, July 23.  Based on our analysis, the Gold Stock Strategist is expecting Newmont to report better than expected results.

Gold mining stocks are leveraged plays on the price of gold. Gold accounts for 83 percent and copper is 14 percent of Newmont’s revenue. Spot gold prices averaged $908 per ounce in the first quarter and $922 in the second quarter of 2009. Newmont’s realized gold price was $906 per ounce in the first quarter on sales of 1.27 million ounces of gold.  The Company expects rising gold production for the rest of the year as they bring the Boddington project on line.

Spot copper prices averaged $1.43 per pound in the first quarter and $2.00 in the second quarter of 2009. Newmont’s realized price for copper was $1.50 per pound in the first quarter.

Newmont’s outlook for 2009 annual gold sales is 5.2 to 5.5 million ounces of gold for calendar year 2009 with costs applicable to sales (CAS) of $400 to $440 per ounce.  The realized CAS in the first quarter of 2009 was $435 per ounce. 

Boddington is the Future

Several of Newmont’s largest mines are considered mature and will likely experience declines in the number of ounces produced over time. The good news is that on June 25, Newmont Mining announced they have successfully completed the acquisition of the remaining 33 percent interest in the Boddington mine. Boddington is expected to add 1 million additional ounces of annual gold production equal to a 15 percent increase over 2009 Newmont gold production projections.

The Boddington mine is also expected to produce gold at a very low cost of about $300 per ounce for the first five years of operation. Boddington is a large, open pit mine in Western Australia, located 130 kilometers southeast of Perth. At the end of May 2009, Newmont reported that the Boddington project was 96% complete, with start-up expected in mid-2009 and a 12-month ramp-up schedule into full production.

Revenue and Earnings Per Share Expectations

Sharply higher prices for copper and slightly higher gold prices in the second quarter should provide a marginal lift to Newmont Mining’s revenue and earnings in the second quarter of 2009. The current analyst consensus estimates calls for revenues of $1.6 billion and $0.46 earnings per share (EPS) for the second quarter. The Gold Stock Strategist is forecasting revenues of $1.7 billion and EPS of $0.49. This would represent an improvement of 2 cents or a 4 percent increase in earnings per share from $0.47 per share for the quarter ending in June of 2008. This would also be an improvement of 5 cents or 11 percent higher than the last quarter’s earnings per share of $0.44 cents.  

Share Performance and Valuation

Since the beginning of the year, Newmont Mining’s shares are up 3.8 percent from $40.70 at year end of 2008 to $42.25 as of yesterday.   The stock has been as high as $49.74 a share this year.

Newmont’s shares are now trading at a forward price to earnings of about 16 times consensus 2010 earnings estimates. This is lower than the relative value of other large gold mining companies. The Company’s gold production is currently unhedged and its share price is correlated with the price of gold.  Newmont's shares could be a real bargain at this level if the price of gold stays above $1,000 an ounce and Newmont can maintain or reduce operating costs from current levels. Newmont pays a quarterly dividend of 10 cents per share.

Gold Producer Earnings Summary

Next week, seven other first and second tier gold mining companies will announce earnings including Agnico-Eagle  (AEM), AngloGold Ashanti (AU), Barrick Gold Corp. (ABX), Buenaventura (BVN), Eldorado Gold (EGO), Kinross Gold (KGC), and Randgold (GOLD).  The table below highlights gold mining company earnings report dates, first quarter EPS, and a consensus average of EPS estimates by analysts for the second quarter 2009.  

Disclosure: No positions