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Newmont share price tests year lows: Have investors got earnings jitters?

By Indrabati Lahiri

15:29, 20 October 2022

Bank reserve gold bars arranged in rows
Newmont Corporation is currently testing year-to-date lows as investors worry about whether the third quarter earnings will miss estimates – Photo: Getty Images

Newmont Corporation (NEM), the world’s biggest gold miner is currently testing year-to-date lows at approximately $40.3 at the time of writing. This comes ahead of the company’s earnings announcement on November 1st and could indicate some investor jitters ahead of earnings, since the company has missed earnings estimates in the last two releases.

 Newmont (NEM) has been significantly affected by falling gold prices in the past few weeks, as well as spates of insider selling and a few crucial executive and management changes.

This has led to investors wondering whether the stock may soon fall below the psychologically crucial $40 mark in the coming few weeks.

Newmont Corporation (NEM) is currently testing year-to-date lows

What is causing Newmont (NEM)’s share price to fall so much?

Newmont Corporation (NEM) has fallen about 51% since its April 2022 highs, due to falling gold prices, which have fallen almost 9% since mid-August, as well as consistently rising US Treasury yields. This has led to the company missing earnings estimates in the first and second quarter as well. As such, investors are quite worried that they may see this trend continue in the third quarter earnings too.

Although shares hit a peak of about $86.2 on April 18th, ahead of the first quarter, they quickly dropped to about $70.5 by the time earnings were released on April 22. We see a similar pattern with the second quarter earnings, with shares dropping from $53.0 to $43.9 on July 25, the day of the Q2 2022 earnings release. Hence it is not surprising to see something similar happen ahead of Q3 2022 earnings as well.

The stock has also missed earnings per share (EPS) by about 30% in the second quarter, coming in at about $0.46, instead of $0.66, as previously estimated. This was with a net income of about $387 million in the second quarter, as well as a profit margin of about 12.2%.

Average gold prices per ounce in the second quarter also fell to about $1,836 from $1,892 in the first quarter, which also took a hit on profit margins.

Shares have also been impacted by the CEO of Newmont (NEM), Thomas Ronald Palmer recently selling about 11,000 company shares for about $469,810, sparking considerable panic amidst investors.

Investors have also been spooked by the various executive and management changes, such as the appointment of Aaron Puna as the Chief Technology Officer (CTO), as well as Nancy Buese to step down from her role as Finance Chief in November.

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This has been compounded by the company delaying its investment decision in the Yanacocha sulfides project, worth approximately $2 billion to 2024. Not only that, but Newmont Corporation (NEM) has also decided to sell its stake in the Argentinian MARA project, of about 18.8% to Glencore (GLEN) for about $174.9 million.

However, there is still a silver lining, as Newmont Corporation (NEM) has consistently paid a dividend of about $0.55 every quarter since Q1 2021, with the dividend yield in September 2022 being about 5.3%, which is impressive for a stock.

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Analyst views on Newmont Corporation (NEM)

According to Piero Cingari, analyst at Capital.com, “Newmont (NEM) has already lost more than 50% of its value since its peak in March, and is down 34% year to date.The Fed’s rate increases and subsequent declines in the price of gold affected NEM’s performance, but the company also experienced earnings that fell short of expectations in the second quarter of the year, with EPS 30% below consensus.

Fundamentally, rising US Treasury yields continue to put downward pressure on gold prices; the 10-year Treasury yield has now surpassed 4.15%, reaching its highest level since June 2008. The Fed’s ongoing effort to combat inflation by raising interest rates does not benefit a metal like gold that does not offer fixed yields. Therefore, the headwinds for Newmont continue.

Technically, there is a fourth attempt to break the $40 per share psychological barrier to the downside. If the downward pressure gained further traction, NEM would be forced to find support at a price of $36-37, which corresponds to the levels of late March 2020. A drop to $30 (March 2020 lows), or more than 20% below current levels, would necessitate even more difficult market conditions for gold miners.”

Newmont Corporation chart showing the stock testing year-to-date lows Newmont Corporation is currently testing year-to-date lows – Credit: TradingView

What is the outlook for Newmont Corporation (NEM)?

In the short term, Newmont Corporation (NEM), like other major gold miners, is likely to be affected by weakened gold prices as well as by rising US Treasury yields. Not only that, but the increasingly aggressive monetary policy stance adopted by major central banks such as the US Federal Reserve and Bank of England is likely to make borrowing much more expensive due to rising interest rates.

As such, any new mine developments, as well as existing mine expansions are likely to be put on hold, thus obstructing the possibility of increasing production. However, labour costs as well as the rising cost of input materials is still likely to take a hit on profit margins.

In the medium to longer term, however, investors are likely to move out of the current risk averse phase and show more interest in dividend stocks, in order to protect themselves from inflation. This is likely to be where Newmont Corporation (NEM) shines, as the company already has a history of paying quite high dividends, which is likely to continue for the near future as well.

Markets in this article

GLEN
Glencore
4.3410 USD
-0.023 -0.530%
Gold
Gold
2396.47 USD
-14.02 -0.580%
NEM
Newmont Goldcorp
47.80 USD
0.67 +1.420%

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