Gold miner Newmont Mining Corporation (NEM) is scheduled to report third-quarter 2013 results after the closing gong on Oct 31. It delivered a 124.39% negative surprise in the last reported quarter. The company slipped to a loss in the quarter, hurt by a sizable impairment charge. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Newmont is expected to continue to face headwinds due to higher mining and non-mining costs. Gold costs jumped 30% from the last year in second-quarter 2013, impacted by write-downs due to lower gold prices. In addition, copper costs surged more than three-and-a-half-fold year over year in the quarter.
Higher operating costs may weigh on Newmont’s bottom line in the third quarter. The company is currently exploring means (including employee layoffs) to cut costs to remain competitive amid a challenging business environment.
Moreover, lower ore grades are affecting production across a number of operations. Newmont’s production remains challenged at the Batu Hijau mine in Indonesia as certain geo-technical issues are still impacting weight stripping capability. Gold production from the mine tumbled 25% year over year in the second quarter. The company may face similar challenges in its Indonesian operation in the third quarter.
Newmont recently cut its copper production outlook for 2013 based on lower-than-expected mill throughput at the Boddington mine in in Australia and lower-than-expected ore grade at the Batu Hijau mine. Nevertheless, the company backed its gold production outlook for the full year and expects to benefit from higher mill throughput in Nevada.
Our proven model does not conclusively show that Newmont is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The ESP for Newmont is -3.13% - the difference between the Most Accurate estimate of 31 cents and the Zacks Consensus Estimate of 32 cents. This indicates a likely negative earnings surprise.
Zacks Rank #3 (Hold): Newmont’s Zacks Rank #3 (Hold) combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some other mining companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Pretium Resources Inc. (PVG) has earnings ESP of +25.00% and carries a Zacks Rank #1 (Strong Buy).
Silver Standard Resources Inc. (SSRI) has earnings ESP of +15.39% and carries a Zacks Rank #3 (Hold).
Barrick Gold Corp. (ABX) has earnings ESP of +4.08% and holds a Zacks Rank #3 (Hold).