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Can Newmont Survive Gold's Crash?

By Dan Caplinger - Apr 25, 2013 at 12:10PM

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The mining giant announces earnings next Monday.

Next Monday, Newmont Mining (NEM -2.39%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Gold-mining companies had enough troubles keeping up with the price of gold bullion when the yellow metal was performing well. But with the recent swoon in gold prices, is Newmont doomed to further losses? Let's take an early look at what's been happening with Newmont Mining over the past quarter, and what we're likely to see in its quarterly report.

Stats on Newmont Mining

 

 

Analyst EPS Estimate

$0.84

Change From Year-Ago EPS

(27%)

Revenue Estimate

$2.39 billion

Change From Year-Ago Revenue

(11%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How will Newmont Mining's earnings fare this quarter?
Analysts were already pessimistic about Newmont's earnings, even before gold's recent swoon, but their earnings-call cuts have gotten even more severe recently. Earnings-per-share estimates for the just-ended quarter are now $0.15 lower than they were three months ago, and analysts have cut more than $0.75 off their full-year 2013 earnings-per-share calls. The stock has followed those negative assessments downward, plunging more than 20% since mid-January.

We've already gotten a sense of what Newmont will announce next Monday, as it released preliminary operational figures earlier this week. The company saw first-quarter gold production fall nearly 11% from a year ago, to 1,165,000 ounces, although copper production rose close to 9%, to 38 million pounds.

But recent gold-price declines could have a huge impact on Newmont going forward. The company said it realized $1,631 per gold ounce during the quarter, so with the current price more than $200 per ounce below that, earnings could take a big hit in the second quarter if gold doesn't recover quickly. With investors fleeing from bullion ETFs SPDR Gold and iShares Silver Trust, it's clear that at least one source of investor appetite for precious metals and related stocks has taken a big hit.

Moreover, Newmont investors will suffer directly from gold-price declines due to dividend decreases. Just yesterday, Newmont cut its dividend by 18%, from $0.425 to $0.35, because of the drop in gold prices during the first quarter before the most recent decline. Even if gold stays at its current levels, Newmont's dividend could see another cut.

In Newmont's quarterly report, watch for the latest news from the company's Conga project in Peru. After long delays from controversies with protestors over potential environmental impacts of the mine, Newmont needs to come up with a viable strategy to develop Conga in order to avoid a catastrophic lost opportunity there.

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Stocks Mentioned

Newmont Mining Corporation Stock Quote
Newmont Mining Corporation
NEM
$59.71 (-2.39%) $-1.46

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