Virtually every precious metals miner reported outstanding earnings for the 4th quarter (http://markostake.blogspot.com/2010/03/major-gold-producers-deliver-stellar.html).
As earnings season resumes, Newmont Mining Corp. (NEM) has given confirmation that exploding earnings are NO fluke. In fact, the precious metals mining sector, on a fundamental basis, is looking downright cheap!
Tuesday morning, NEM said net income attributable to shareholders nearly tripled in the first quarter to $546 million, against $189 million in the year ago period. On a per share basis, the company earned $1.11 in the period against 40 cents a year ago.
The company's adjusted profit was 83 cents per share. A survey of analysts at FactSet Research was estimating earnings of 79 cents a share in the quarter. The company said its average realized gold price rose 22%. The company is maintaing its previously announced 2010 outlook for equity gold production of 5.3 million to 5.5 million ounces and costs applicable to sales of between $450 and $480 an ounce.
The highlights of Newmont's first quarter report included gold production of 1.3 million ounces and copper production of 90 million pounds. Revenues increased to $2.2 billion, up 46% from the similar quarter last year.
According to the company's press release, "With a 22% increase in our average realized gold price, our net gold operating margin expanded by 32% to $626 per ounce, further demonstrating our ability to provide significant gold price leverage through expanding cash operating margins," said Richard O'Brien, President and Chief Executive Officer. "We also recently secured the mining lease for our Akyem project in Ghana and continue our dialogue with local communities and Ghanaian authorities. In addition, we are advancing our development plans at Conga in Peru following a successful public meeting with local stakeholders. The strength of our balance sheet coupled with the progress being made on our advanced development assets, Newmont is well positioned to invest in our project pipeline while maintaining our financial strength and flexibility."
A missing element in prior rallies in the precious metals sector has been earnings growth, despite the large increase in Gold prices. In large part this was the result of skyrocketing oil prices - a major cost element. With energy prices hovering in the $80 per barrel range, while GOLD tests its all time highs, costs of production are easier to keep under control while revenues are shooting up with higher realized commodity prices.
Another important factor has been the unwinding of hedge books - something that nearly every major producer has either completed or is in the process of completing. Poorly implemented hedges had reduced the major Gold Producer's benefit from rising metal prices and created significant derivative losses. Now that the hedges are no longer putting a drag on revenues realized, the sector is poised to continue rapid earnings growth.
The technicals for the sector also look fantastic. The dollar has been sputtering after a blistering rally early in the year. In addition, the Federal Reserve's desperate attempts to keep the economy liquid are showing up in increasing inflation (http://markostake.blogspot.com/2010/04/producer-prices-producing-signs-of.html).
All systems are go. The time for the hyperbolic growth phase is here. Recently, we have written up some suggestions for some excellent junior mining companies that ought to be considered for those wishing to build a portfolio of promising positions. Our reports on Aurizon Mines (AZK), Explor Resources (EXSFF), Vista Gold (VGZ), Tara Minerals (TARM), Samex Mining (SMXMF), Seabridge Gold (SA), Hecla Mining (HL) and ECU Silver Mining (ECUXF) can be accessed by clicking the links below:
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