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Could Newmont’s Improving Costs Raise Analysts’ Estimates?

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Factors impacting Newmont’s estimates

Newmont Mining (NEM) is shedding its non-core assets to emerge as a much leaner and more cost-efficient organization. It’s also steadily working toward reducing its debt, which has been one of the major investor concerns about the company.  

NEM’s recent announcement regarding the Batu Hijau stake sale in Indonesia acted as a positive catalyst. It reduced its political risk considerably, and its proportion of gold reserves increased. Newmont’s project pipeline also remains strong. Its high-margin internal projects should be incrementally positive for its stock.

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Analysts’ revenue estimates

Analysts’ revenue estimates for Newmont are $7.9 billion for 2016, implying a rise of 3% year-over-year. This is mainly because the company expects slightly higher production in 2016 compared to 2015. Gold prices in 2016 have been stronger so far compared to 2015, so analysts’ estimates could have an upside.

Earnings estimates

Newmont has improved its cost guidance twice so far in 2016. It has also lowered its long-term AISC (all-in sustaining costs) assumption by $20 per ounce through the addition of low-cost ounces from Northwest Exodus. Its improving costs are likely the reason that analysts are expecting an EBITDA margin of 40.2% for 2016 compared to 31% for 2015. These margin expectations are higher still for 2017 at 42.8%.

Newmont Mining isn’t unique in its cost-reduction efforts. Peers (GDX) (RING) Barrick Gold (ABX), Goldcorp (GG), Agnico Eagle Mines (AEM), and Yamana Gold (AUY) have also brought down their costs considerably over the past year.

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