Lower Gold Prices And Shipments Weigh On Newmont’s Q4 Results
Newmont Mining (NYSE:NEM) announced its fourth quarter results on February 19 and conducted a conference call with analysts on February 20. As expected, lower gold and copper prices and lower gold shipments weighed on the company’s results. The company’s adjusted net income, which excludes the impact of non-recurring items such as impairments, fell from $143 million in Q4 2013, to $86 million in Q4 2014. [1] The company’s fourth quarter revenues stood at $2.02 billion, around 8% lower as compared to the corresponding period of 2013. [1] Given the subdued commodity pricing environment, Newmont’s cost rationalization efforts played a major role in boosting the company’s quarterly results.
See our complete analysis for Newmont Mining
Gold Prices and Shipments
Newmont’s average realized gold price for Q4 2014 stood at $1,194 per ounce, down from $1,267 per ounce in the corresponding period last year. [1] Revenues from gold sales accounted for 90% of Newmont’s total revenues in 2014. [2] Thus, the fall in gold prices played a major role in the deterioration of the company’s results.
Gold prices have fallen over the course of the last year, reacting to cues pertaining to the tapering of the Federal Reserve’s Quantitative Easing (QE) program. Gold as an investment is often viewed as a hedge against inflation and economic weakness. The tapering of QE implied strengthening U.S. economic growth, which reduced the investment demand for gold and led to a fall in prices of the metal. Going forward, the Fed’s outlook on the U.S. economy is important as far as gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates sometime in 2015. [3] However, the exact timing of an interest rate hike is contingent upon the pace of economic and jobs growth in the U.S. [4] An interest rate hike is likely to limit the upside to gold prices, as investors shift towards higher yielding assets.
In addition to gold prices, lower gold shipments negatively impacted Newmont’s Q4 results. The company divested the Midas and La Herradura mines from its North American mining operations and the Jundee mine from its Australian mining operations. This was primarily responsible for the drop in gold shipments from 1.54 million ounces in Q4 2013 to 1.43 million ounces in Q4 2014. [1]
Copper Prices and Shipments
Newmont’s copper shipments rose to 123 million pounds in Q4 2014, as compared to 77 million pounds in Q4 2013. [1] This was primarily due to the sale of stockpiled ore from the company’s Batu Hijau copper mining operations in Indonesia, where operations were suspended for four months this year as the company negotiated with the Indonesian government over regulatory changes which impacted the company’s operations in the country. Normal operations resumed at Batu Hijau at the end of September. However, the impact of an increase in shipments was partially offset by a fall in realized prices.
The company’s average realized price for copper fell to $2.55 per pound in Q4 2014, as compared to $2.96 per pound in Q4 2013. The fall in realized prices was mainly due to weakness in demand for the metal, particularly from China — the world’s largest consumer of copper, where slowing economic growth has dampened demand for the metal. Chinese GDP growth is expected to slow to 6.8% in 2015, from 7.4% in 2014, which has negatively impacted demand for the metal from China. [5]
Costs
The company’s efforts at cost reduction and productivity improvement showed results with the All-in Sustaining Cost (AISC) metric for gold production falling to $927 per ounce in Q4 2014, from $1,043 per ounce in the corresponding period of 2013. [1] The AISC metric captures all of the expenditures incurred to discover, develop, and sustain production. AISC includes costs applicable to sales, remediation costs, general and administrative costs, advanced projects, and exploration expenses, treatment and refining costs, sustaining capital expenditure, and other miscellaneous expenses. This metric helps investors better gauge the company’s performance. The company reported savings of $524 million on its all-in sustaining costs, with more than half of the savings attributable to lower costs applicable to sales. [6]
Other Developments and Outlook
Going forward, the company management stressed that disciplined capital allocation will remain the strategy for Newmont. The company realized $800 million from non-core asset sales in 2014 and $1.4 billion over the last two years. [7] Given the prevailing environment of subdued gold prices, the company intends to focus on its core, low-cost gold mines, and a project pipeline that is focused on developing low-cost mines in the near term. The Merian mine in Suriname is currently the company’s only greenfield project. When it commences production, the Merian mine is expected to produce at an AISC of $650-750 per ounce in its first five years of production, which compares favorably with Newmont’s company-wide AISC of $1,002 per ounce in 2014. [6] Focusing on such low-cost gold mines will position the company to operate more competitively in a variety of gold pricing environments, particularly the prevailing environment of low gold prices.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
Notes:
- Newmont’s Q4 2014 Earnings Release, SEC [↩] [↩] [↩] [↩] [↩] [↩]
- Newmont’s 2014 10-K, SEC [↩]
- Powell says Fed could hike rates mid-2015; cites low inflation, Reuters [↩]
- Investor Expectations for Fed Rate Increase at June 2015 Meeting Slip, Wall Street Journal [↩]
- World Economic Outlook, IMF [↩]
- Newmont’s Q4 2014 Earnings Presentation, Newmont Mining Website [↩] [↩]
- Newmont’s Q4 2014 Earnings Call Transcript, Seeking Alpha [↩]