Newmont (NEM) Tops Q2 Earnings & Revenue Estimates

Gold mining giant, Newmont Mining Corporation (NYSE:NEM) reported second-quarter 2016 adjusted earnings of 44 cents per share, a 69.2% surge from 26 cents earned in the year-ago quarter. Earnings also surpassed the Zacks Consensus Estimate of 28 cents.

On a reported basis, the company posted net income from continuing operations of $50 million or 9 cents per share, a roughly 20.1% decline from net earnings of $63 million or 13 cents per share recorded a year ago. The primary adjustment to net income was a $174 million tax adjustment related to prior period earnings.

Newmont's revenues of $2,038 million went up 6.8% from $1,908 million in the year-ago quarter as higher gold volumes and pricing more than offset lower copper volumes and pricing. Revenues also topped the Zacks Consensus Estimate of $1,863 million.

In the second quarter of 2016, average net realized gold price was $1,260 per ounce, reflecting a year-over-year increase of 6.9%. The average net realized copper price was $1.94 per pound, representing a year-over-year decline of 19.5%.

Newmont's attributable gold production rose roughly 8% year over year to 1.3 million ounces, with higher production witnessed at Tanami, Kalgoorlie and Ahafo, together with the addition of Cripple Creek & Victor (CC&V), more than offsetting production decline at Yanacocha and the sale of Waihi. Attributable Copper production was 38,000 tons in the quarter, down 9.5% on a year-over-year basis, owing to lower grade ore at Batu Hijau.

Costs applicable to sales (“CAS”) were $637 per ounce for gold, relatively flat year over year. Copper CAS was $1.21 per pound, stable year over year. All-in sustaining costs (“AISC”) of $876 per ounce for gold were down roughly 3.6% year over year while $1.53 per pound for copper were down roughly 5% year over year. AISC improved over the prior-year period due to production and CAS improvements as well as timing-related cuts in sustaining capital.

Regional Performance

North America

Attributable gold production in North America in the second quarter was 477,000 ounces, up 27% year over year. Consolidated copper production was down 17% year over year, at 5,000 tons.

Gold CAS for this region was $700 per ounce, down 8%, and copper CAS was $2.02 per pound, up 10%. In the reported quarter, gold and copper AISC was $884 per ounce and $2.27 per pound, down 9% and 7%, respectively.

South America

Attributable gold production in South America was 81,000 ounces, down 27% year over year. Gold CAS for this region increased 22% year over year to $773 per ounce, while AISC advanced 26% year over year to $1,260 per ounce in the reported quarter.

Asia Pacific

Attributable gold and copper production in the Asia Pacific region was 522,000 ounces, relatively flat year over year, and 33,000 tons, down 8% year over year, respectively. Gold and copper CAS for this region was $577 per ounce, down 7%, and $1.13 per pound, down 3%, respectively. Gold and copper AISC was $706 per ounce and $1.46 per pound, down 8% and 6% from the year-ago quarter, respectively.

Africa

The region produced 205,000 ounces of gold in the reported quarter, up 5% year over year. Gold CAS and AISC were $560 per ounce and $733 per ounce, respectively, up 15% and 3%, year over year.

Financial Position

Newmont had cash equivalents of $2,902 million as of Jun 30, 2016, down around 12.3% from $3,308 million as of Jun 30, 2015. The company's debt decreased roughly 12.5% year over year to $5,375 million. Also, it declared a quarterly dividend of 2.5 cents per share of common stock.

Newmont announced its decision to sell its 48.5% interest in PTNNT, which operates the gold and copper mine, Batu Hijau, in Indonesia for $1.3 billion. The company will receive cash proceeds of $920 million, expected at the time of closing, and contingent payments of $403 million tied to upside of metal prices and Elang deposit development.

Project Update

The CC&V buyout was successfully completed in early Aug 2015. Newmont stated that the CC&V expansion would include a new leach pad, recovery plant and mill. Leach pad construction was completed ahead of schedule, with first production in Mar 2016. The company expects gold production from CC&V to average between 350,000 and 400,000 ounces in 2016 at CAS of between $500 and $550 per ounce, and AISC in the range of $600–$650 per ounce. Total development capital costs estimated for the completion of the mine’s expansion is around $185 million, with $70 million to be spent in 2016.

The Merian project is 90% complete and remains around $100 million below initial budget. It is expected to begin commercial production in the second half of 2016. The company anticipates average gold production from this project in the range of 400,000–500,000 ounces, on a 100% basis, during the first five years. Respective AISC is estimated to be in the range of $650–$750 per ounce. Newmont’s 75% share of development capital is expected between $575 million and $625 million, with expenditure between $170 million and $210 million in 2016.

Long Canyon Phase 1 is roughly 80% complete. It is expected to start commercial production in the first half of 2017. Production is anticipated to be in the range of 100,000–150,000 ounces per year over an eight-year mine life. AISC is expected to be between $500 and $600 per ounce over the eight years of life of the mine. About half of the total capital costs in the range of $250 million and $300 million are expected to be spent in 2016, with minimal spending in 2017.

The Tanami Expansion involves the construction of a second decline in the mine and building additional capacity to support higher production and future expansion. The project is scheduled to start additional production starting 2017. The expansion is expected to maintain gold production in the range of 425,000–475,000 ounces per year at AISC of $700–$750 per ounce (for the first five years of the expansion), and increase mine life by three years. Capital costs for the project are estimated in the band of $100−$120 million, with around 50% of the capital to be spent in 2016.

The Northwest Exodus project is a sustaining capital underground extension in the Carlin North Area. It is expected to increase mine life by seven years with incremental gold production in the range of 50,000−75,000 ounces in the first five years at an average AISC of $25 per ounce. The project is expected to commence gold production in third-quarter 2016.

Ahafo Mill Expansion and Subika Underground represent additional upside, but have been excluded from the outlook. Both projects will be reviewed in the second half of 2016.

Outlook

The outlook provided by the company excludes the Batu Hijau mine for all periods. The divestment is expected to conclude in the third quarter, subject to regulatory approvals and other precedent conditions.

Newmont anticipates attributable gold production to increase from a range of 4.7−5.0 million ounces in 2016 to 4.9−5.4 million ounces in 2017, and remain stable thereafter in a range of 4.5−5 million ounces through 2020. Projects that have not yet been approved, including the Ahafo Mill Expansion and Subika Underground, are expected to provide an increase of 200,000–300,000 ounces of gold beginning 2018.

Newmont anticipates attributable copper production in the range of 40,000–60,000 tons in 2016 and 40,000−65,000 tons in 2017 and 2018. Production at Phoenix Copper Leach and Boddington is expected to remain stable during this period.

Gold AISC is anticipated to improve to $870−$930 per ounce in 2016 and range from $850−$950 per ounce in 2017. Long-term outlook has improved to between $880 and $980 per ounce, including production at Northwest Exodus and based on assumptions of an improvement in oil price.

Newmont also anticipates gold CAS to lie in the range of $630−$680 per ounce in 2016 and stable thereafter, in a band of $650−$750 per ounce in 2017 and 2018.

Moreover, Newmont projects copper AISC to average in the band of $2.20−$2.40 per pound in 2016, and increase to $2.30−$2.60 per pound in 2017 due to timing on sustaining capital spend. It is expected to further increase to the range of $2.75−$2.95 per pound in 2018 due to stripping at Boddington. Copper CAS is anticipated to be between $1.80 and $2.00 per pound in 2016 and 2017, and increase temporarily to the band of $2.30−$2.50 per pound in 2018 due to the stripping at Boddington.

Capital expenditures for 2016 are expected to be in the band of $1.1 billion to $1.3 billion for 2016. Sustaining capital in 2016 is projected to be between $650 million and $700 million, increasing to the range of $800–$900 million in 2017 to cover equipment rebuilds, water treatment and tailings storage facilities. Technical and operational cost and efficiency could further increase this expenditure. Sustaining capital is expected to remain stable at between $700 million and $800 million to cover infrastructure, equipment and ongoing mine development in the longer term.

The company expects about $260–$280 million of interest expense in 2016.

NEWMONT MINING Price, Consensus and EPS Surprise

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Zacks Rank

Newmont currently holds a Zacks Rank #2 (Buy).

Some other well-ranked companies in the gold mining space include Golden Star Resources, Ltd. (NYSE:GSS) , B2Gold Corp. (NYSE:BTG) and AngloGold Ashanti Ltd. (NYSE:AU) , all sporting a Zacks Rank #1 (Strong Buy).