Why Newmont Shrugged Off Weak Earnings

Newmont Mining Corp. (NYSE: NEM) reported first-quarter results after markets closed Wednesday that included a drop of 28% in adjusted net income on approximately flat sales. But shares traded as much as 7% higher on Thursday morning, partly because analysts had set the profit bar so low and partly because Newmont’s production was higher than planned and costs were lower.

Even though gold prices have been moving higher, up about 16% in the first quarter of 2016 for the yellow metal’s best performance in more than two dozen years, most of the increase came in January and February. London gold traded at around $1,235 on the first of March and almost the same price on the 31st. So far in April, the price has risen sharply again, to around $1,255. Gold started the year around $1,081 per ounce.

If adding more than $150 an ounce to the price of the product helped, keeping costs low is more directly attributable to a mining company’s operations. This is where Newmont thinks it can drive costs somewhat lower still for the year, and at the same time produce more ounces that are tabbed to sell for higher prices.

Analysts at Credit Suisse called particular attention to lower operating costs and depreciation, depletion and amortization. All-in sustaining costs for gold totaled $828 per ounce in the first quarter, down by $21 an ounce in the same period a year ago. All-in costs for copper were down 40 cents a pound to $1.33. Free cash flow of $227 million was also above Credit Suisse’s estimate of $170 million due to lower capital spending. Credit Suisse analysts rate the stock Outperform and have a price target of $37 on the shares.
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Merrill Lynch rates Newmont stock as Neutral with a price objective of $32 a share, and CIBC raised its price target on the stock from $34 to $36.

Newmont stock traded at around $31.96 at the noon hour on Thursday, up nearly 5% for the day, in a 52-week range of $15.39 to $32.58. The high was posted Thursday morning and is well above the consensus price target of $29.94.