Two mining giants count on big projects to spur growth

These two leading mining stocks reported lower earnings for 2012. But they’re both working on important projects that they expect to boost their earnings in 2013 and beyond. Here’s our report from the latest edition of Wall Street Stock Forecaster. NEWMONT MINING (New York symbol NEM; www.newmont.com) gets 90% of its revenue from gold mines in the U.S., Australia and Peru. Copper, zinc and other metals supply the remaining 10%. In 2012, Newmont sold its gold for an average of $1,662 an ounce, up 6.4% from $1,562 in 2011. But production fell 4.9%, to 5.6 million ounces from 5.9 million. That’s because it had to cut production at its 31.5%-owned Batu Hijau gold/copper project in Indonesia as the mine prepares to open a new phase in 2014. As a result of the lower production, Newmont’s revenue fell 4.7% to $9.9 billion from $10.4 billion. Its 2012 earnings fell by 14.7%, to $1.85 billion, or $3.73 a share. In 2011, it earned $2.2 billion, or $4.39 a share. The company links future dividend hikes to its average selling price for gold in the preceding quarter. The current annual rate of $1.70 a share yields 4.3%. The stock trades at just 9.1 times the company’s projected 2013 earnings of $4.38 a share. [ofie_ad] ALCOA INC. (New York symbol AA; www.alcoa.com) continues to cut its bulk aluminum output in response to low prices. It’s also expanding its more profitable businesses, such as making parts for cars and airplanes. Alcoa’s earnings fell 67.7% in 2012, to $262 million, or $0.24 a share. These figures exclude unusual items, such as gains on asset sales and costs to close plants. In 2011, the company earned $812 million, or $0.72 a share. Revenue fell 5.0%, to $23.7 billion from $25.0 billion. Aluminum shipments rose 3.2%, but average prices fell 11.7%. Alcoa owns 25.1% of a joint venture that is building a new smelter in Saudi Arabia; a state-owned mining company owns the remaining 74.9%. This new plant, which should begin operating later this year, will have the lowest operating costs of all of Alcoa’s facilities. Alcoa’s ongoing cost cuts could push up its 2013 earnings to $0.61 a share. The stock trades at 14.0 times that forecast. The $0.12 dividend yields 1.4%. In the latest edition of Wall Street Stock Forecaster, we look at Newmont’s production outlook in light of rising operating costs and higher royalty payments. We also examine the outlook for aluminum prices for Alcoa in an uncertain global economy. We conclude with our clear buy-hold-sell advice on the stock. (Note: If you are a current subscriber to Wall Street Stock Forecaster, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Do you think it’s best to hold mining stocks in your portfolio when the outlook for the global economy is good? Or are you willing to hold large mining stocks through economic downturns? Are you more willing to hold these stocks if they pay a dividend? Let us know what you think.