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Newmont Goldcorp Q2 Report Hits Gold Mining ETFs: Buy the Dip

Sanghamitra Saha

Newmont Goldcorp Corporation NEM reported net income from continuing operations of $1 million or break-even earnings per share in second-quarter 2019, down from $274 million or earnings of 51 cents in the year-ago quarter. Barring one-time items, adjusted earnings were 12 cents per share, which trailed the Zacks Consensus Estimate of 23 cents.

Newmont Goldcorp delivered revenues of $2,257 million, up around 35.8% year over year. The figure, however, missed the Zacks Consensus Estimate of $2,262.3 million. Shares lost 2.7% in the key trading session, reacting to the earnings release.

Inside the Release

Newmont Goldcorp's attributable gold production rose around 37% year over year to 1.59 million ounces in the second quarter. The company’s costs applicable to sales (CAS) for gold was $759 per ounce, up from $751 per ounce a year ago. All-in sustaining costs (AISC) for gold rose around 4% year over year to $1,016 per ounce.

Outlook

Newmont Goldcorp now expects gold production for 2019 of 6.5 million ounces, reflecting Newmont-operated assets for the full year and Goldcorp assets starting Apr 18, 2019. For 2019, the company now expects all-in sustaining costs for gold of $975 per ounce. Also, costs applicable to sales expectation for gold are $735 per ounce.

Why to Buy the Dip in Gold Mining ETFs?

Following the results, Barrick Gold Corporation GOLD lost about 1.8% on Jul 25. GOLD has a Zacks Rank #2 (Buy) and an Earnings ESP of +1.56%.  According to our methodology, a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat.

Investors should also note that these gold mining stocks come from a top-ranked Zacks industry (top 6%). These companies have considerable exposure to large-cap funds like VanEck Vectors Gold Miners ETF GDX and iShares MSCI Global Gold Miners ETF RING. Both funds lost 2.6% and 2.2% on Jul 25.

Gold prices may remain strong in the days amid hopes of a Fed rate cut soon. A subdued dollar caused by easy money policy should strength gold prices. Since mining stocks act as leveraged plays of the underlying metal, gold mining ETFs should surge amid such a scenario (read: Grab These ETFs & Stocks on Gold Rush).

Central banks’ gold buying is also conducive. Some of these contributed to a 7% rise in global gold demand in the first quarter from a year earlier, according to the World Gold Council, published on Financial Times.  Russia’s gold reserves surpassed the $100 billion-mark in July as gold prices jumped and the country’s central bank continued to stock up on the yellow metal. The World Gold Council (WGC) noted that global central banks bought a total of 651.5 ton of gold last year — the largest amount since 1971. So, an overall increase in demand could propel gold mining ETFs in the coming days (read: Top ETF Events of Wall-Street's Decade-Best June).

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iShares MSCI Global Gold Miners ETF (RING): ETF Research Reports
 
VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports
 
Newmont Mining Corporation (NEM) : Free Stock Analysis Report
 
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
 
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