VALUATION HIGHLIGHTS

1. North American Gold Mines constitute 36% of the Trefis price estimate for Newmont Corporation's stock.
2. Asia Pacific Mines constitute 30% of the Trefis price estimate for Newmont Corporation's stock.
3. African Gold Mines constitute 14% of the Trefis price estimate for Newmont Corporation's stock.

WHAT HAS CHANGED?

1. Latest earnings - Q2 2023

Newmont posted a weaker-than-expected set of Q2 2023 results with both revenues and profits missing expectations. While revenue declined by 12% year-over-year to $2.7 billion, coming in well below the consensus estimates, earnings stood at $0.33 per share. While gold production fell by 17% year-over-year due to the union strike at the Penasquito mine, and lower production due to ongoing upgrades at the Pueblo Viejo mine which Newmont has an interest in. However, Gold prices realization saw a marginal rise, growing to $1,965 per ounce compared to $1,906 per ounce in Q1.

2. Volatility in commodity prices

The shares of Newmont Corporation have declined considerably since mid-April as gold prices declined from $2,000/ounce in March to $1,700 as of early October 2022. While other commodities, including copper and iron, have also reported a decline over concerns of lower demand due to China’s lower factory output, a strong U.S. dollar has been a deterrent to precious metals. The Russia-Ukraine war is causing key changes in the geopolitical strategies of many countries – leading to new trade relations and energy security pacts.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Newmont's value that present opportunities for upside or downside to the Trefis price estimate for the company's stock:

North American Mines

• Newmont's North American Gold Shipments: Newmont's North American gold shipments rose sharply through 2016 and 2017 before declining in 2018. This was followed by rise in gold shipments in 2019, 2020, and 2021. Nevertheless, shipments could exceed the base case expectations if production conditions become more favorable. If shipments increase by a higher percentage in 2022 and reaches a total output of 4 million ounces by the end of our forecast period instead of 3.6 million ounces expected currently, it would represent a 5% upside to the Trefis price estimate.


• Newmont's North American Gold EBITDA Margin: Newmont's margins from its North American operations increased from 16% in 2007 to 49% in 2012, as the sharp rise in gold prices offset a significantly higher cost of sales. Margins for the division fell to 26% by 2015 due to a fall in prices, before recovering to 36% in 2016 and 2017 as prices recovered. Margins declined in 2018 and remained almost flat in 2019 due to lower volume and higher oil prices, while margin shot up in 2020 and 2021 due to higher revenue. We expect margins for the division to stabilize around 51%, driven by the sharp increase in production volumes with higher grades from Twin Creeks, Cripple Creek & Victor and Long Canyon and the company's cost reduction efforts. However, if margin growth is lower than anticipated and divisional margins stabilize around 40%, it would represent a downside of 10% to the Trefis price estimate.

BUSINESS SUMMARY

Newmont Corporation is a gold and copper producer with gold mining operations in the United States, Australia, Peru, Ghana, Canada, New Zealand, and Mexico. The company's proven and probable gold reserves stood at 92.8 million ounces at the end of 2021.

Newmont's copper mining operations are located in the United States and Australia. The company's proven and probable copper reserves stood at 15.22 million pounds at the end of 2020.

SOURCES OF VALUE

Gold mining drives value

Gold mining is the most important division for Newmont Corp in terms of revenues and profits. In 2020, the company's consolidated gold production stood at 5.824 million ounces. Gold generally accounts for over 95% of the company's consolidated sales revenue. North American Gold Mines is the company's most valuable segment, according to our estimates.

KEY TRENDS

Rising demand for gold from emerging economies

Demand for gold is expected to be quite robust from major emerging economies. Rapidly growing middle-class populations and rising incomes in these countries, particularly China and India -- the world's largest gold consumers -- are expected to result in a sustained jewelry and investment demand for gold.

Recovery in global demand and prices for copper

The global demand outlook for copper and the prices of the metal have risen significantly in the past one year. The Chinese government had instituted a fiscal stimulus targeting the infrastructure and manufacturing sectors to boost its economy in 2016 which has helped foster this growth and boosted the demand outlook for copper from China. Additionally, China's fight for the blue sky has increased its demand for refined copper, substituting the demand for scrap, further supporting prices. A considerably enthusiastic outlook for increased usage of Electric Vehicles (EVs) and U.S.' plans for a $1.2 trillion revamp of U.S. infrastructure has also raised the demand outlook for copper globally and thus led created a favorable market environment for copper.