Newmont Mining’s Q1 2017 Earnings Review: Focus On Controlling Costs Amid Tepid Earnings Growth

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Newmont Mining released its Q1 2017 earnings result on April 24 and conducted a conference call with analysts the next day. [1] The company reported tepid earnings growth in Q1, with higher costs partially offsetting the impact of higher commodity prices.

NEM Q1 2017 Earnings Review

Newmont’s realized gold prices stood marginally higher in Q1 2017 as a result of the safe-haven investment demand for the commodity. Whereas the growth in gold prices was subdued, copper prices registered a much sharper growth in the first quarter due to an improved demand outlook. A fiscal stimulus in China and accelerating economic growth in the U.S. translated into an improved demand outlook for copper, boosting prices of the metal. [2] However, since copper mining accounts for less than 20% of Newmont’s revenue, its impact on driving earnings growth was limited. Moreover, higher gold mining costs restricted earnings growth. The processing of lower grade ores and the disruption of operations at the Tanami mine in Australia due to extreme weather conditions drove costs higher. [1]

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Going forward, Newmont’s management reaffirmed its commitment to managing costs and debt, following on from its efforts over the past few years. [1] Through a combination of operational improvements and the sale of non-core assets, Newmont managed to lower its all-in sustaining costs by around 8% over the past three years. [3] While gold prices are at elevated levels at present, this is largely because of safe-haven investment demand for the metal. If uncertainty caused by global geopolitical and macroeconomic cues dissipate, improving economic conditions in the U.S. could trigger a decline in gold prices. Should that happen, the company’s efforts to manage its costs and debt have put it in a good position to operate in such an environment.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Newmont Mining

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Notes:
  1. Newmont Mining’s Q1 2017 Earnings Call Transcript, Seeking Alpha [] [] []
  2. Stealth China Stimulus Means Fiscal Gap Over 10%, Economists Say, Bloomberg []
  3. Newmont Mining’s Q1 2017 Earnings Presentation, Newmont Mining Website []