Newmont Raised to Neutral - Analyst Blog
November 21 2012 - 3:50AM
Zacks
We are upgrading our recommendation
on Newmont Mining Corporation (NEM) to Neutral.
The company is expected to benefit from higher gold prices, leading
to increased returns for its shareholders.
Newmont’s third-quarter 2012 adjusted earnings of 85 cents a share
missed the Zacks Consensus Estimate of 90 cents. Profit
(attributable to Newmont shareholders), as reported, slipped
roughly 26% year over year to $367 million, hurt by the twin impact
of lower sales and higher costs.
Revenues fell 10% year over year to $2,480 million, missing the
Zacks Consensus Estimate of $2,528 million. Lower production at the
Colorado-based company’s Batu Hijau mine in Indonesia dragged down
sales in the quarter.
The company now expects attributable gold production for 2012 to be
at the lower end of its guidance of approximately 5 million to 5.1
million ounces. Costs applicable to sales are expected to be at the
higher end of its forecast of between $650 and $675 per ounce of
gold.
Newmont is one of the world's largest producers of gold with
several active mines in Nevada, Peru, Australia/New Zealand,
Indonesia and Ghana. It competes with the likes of
AngloGold Ashanti Ltd. (AU) and Barrick
Gold Corporation (ABX).
Newmont is an un-hedged gold producer and, as such, it is well
positioned to gain from the rising gold prices. Gold prices
recently rose to a three-week high level. Demand for the yellow
metal is rising as investors are increasingly concerned about the
looming U.S. fiscal cliff, which will result in sharp tax hikes and
spending cuts.
The company’s unique gold price-linked dividend policy represents
another bright aspect. Newmont’s current dividend yield (of roughly
3%) is the highest among its peers, backed by its strong liquidity
position.
Moreover, Newmont continues to invest in growth projects in a
calculated manner. Its remains optimistic about its Long Canyon
project in Nevada and currently expect production between 200,000
and 300,000 ounces a year from the site in the first five years.
The company has also made a significant progress with respect to
the Akyem project in Ghana with production expected to commence in
late 2013.
However, Newmont may continue to face headwinds due to increasing
mining and non-mining costs. In the third quarter, cost applicable
to sales went up 11% from last year to $693 per ounce of gold,
partly due to declining gold grades.
Moreover, lower ore grades are affecting production in the
company’s Asia Pacific operation. Its production remains challenged
at the Tanami mine in Australia and Batu Hijau mine in
Indonesia.
Our recommendation on the stock is in tandem with a short-term
Zacks #3 Rank (Hold).
BARRICK GOLD CP (ABX): Free Stock Analysis Report
ANGLOGOLD LTD (AU): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis Report
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