Newmont Downgraded to Strong Sell

Zacks

On Aug 3, Zacks Investment Research downgraded gold mining giant Newmont Mining Corporation (NEM) to Zacks Rank #5 (Strong Sell).

Why Downgraded?

Newmont, a prominent player in the gold mining industry along with Goldcorp Inc. (GG), missed expectations in the second quarter of 2013, reported on Jul 26, and posted loss on lower pricing and charges.  The company reported adjusted (barring one-time items including non-cash asset impairment charges) loss of 10 cents a share, in contrast to last year’s earnings of 59 cents a share. The results also missed the Zacks Consensus Estimate of earnings of 41 cents per share.

On a reported basis, the company posted a staggering net loss (attributable to Newmont stockholders) from continuing operation of $2.1 billion or $4.21 per share in the quarter, as compared to a net income of $279 million or 56 cents per share a year ago.

The sharp loss was a result of a $1.5 billion impairment charge related to the long-term assets at two of Newmont’s Australian mines, Boddington and Tanami mine, and stockpile and leach pad write-downs resulting from decline in gold and copper prices as well as increasing operating costs. The losses were also due to lower production from Yanacocha and Batu Hijau, and lower realized gold and copper prices.

Newmont’s revenues fell nearly 10.6% year over year to $1,993 million in the quarter, missing the Zacks Consensus Estimate of $2,073 million.

The company delivered negative earnings surprises in three of the last four quarters with an average negative surprise of 31.41% for the last four quarters. The company’s long-term estimated EPS growth rate is -7.5%.

Although Newmont has a number of potential growth drivers, it is facing a number of bottlenecks in developing them. Social and political obstacles faced by the company in developing its organic growth prospects in Peru, Indonesia and Ghana are areas of concern. The company is exposed to a weak gold price environment, which may continue to affect its bottom line.

Considering the prevailing conditions, Newmont lowered its third quarter gold-price-linked dividend to 25 cents per share based on the average London P.M. Gold Fix, down 10 cents compared with the prior quarter.

The Zacks Consensus Estimate for 2013 for Newmont has gone down 18.4% to $1.99 per share as most estimates were revised lower over the last 30 days. Similarly, the Zacks Consensus Estimate for 2014 has decreased 32.6% to $2.03 per share.

Other Stocks to Consider

Other companies in  the mining industry with favorable Zacks Rank are Pretium Resources Inc. (PVG), with a Zacks Rank #1 (Strong Buy), and Alderon Iron Ore Corp. (AXX), carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on NEM

Read the Full Research Report on AXX

Read the Full Research Report on PVG

Read the Full Research Report on GG

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