Newmont Mining’s Q2 2017 Earnings Review: Strong Production Growth Drives Earnings Improvement

July 26th, 2017 by Trefis Team
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Newmont Mining

Newmont Mining beat market expectations to report strong earnings growth in Q2 2017, driven by higher gold production and the improved cost performance of its gold mines.

Newmont reported considerable earnings growth despite gold prices in Q2 2017 remaining at comparable levels to those seen in the corresponding period of last year, primarily due to a significant increase in output. Higher production levels were made possible by the ramp up of production from the Long Canyon and Merian mines and the mining of higher grade ores at the Akyem and CC&V mines. [1] The elevated production levels helped lower unit operating costs for Newmont, with the company reporting a 3% decline in its all-in sustaining cost metric. [2] Besides higher production levels, Newmont’s ongoing technology-driven productivity enhancement initiatives also contributed to the improved cost performance reported by the company. The company’s productivity improvement initiatives drove significant improvements in mill throughput at the Akyem and Boddington mines. [2]

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As a result of the better than expected operational performance in the second quarter, Newmont has revised its AISC guidance for the year, with the company now expecting to report a 5% decline in this metric of cost performance for the full year with respect to its previous guidance (considering the mid-points of company guidance). [3] The improved cost performance will certainly stand the company in good stead as the upside for gold prices remains limited in the near term. Steadily improving economic conditions and higher inflation in the U.S. have prompted the Federal Reserve to continue to tighten interest rates, with another 25 basis point rate hike expected over the remainder of 2017 before further tightening over the course of 2018 and 2019. [4] The following chart illustrates the tepid expected growth trajectory of gold prices. Given the limited upside in the near term, Newmont’s superior cost performance will help drive earnings growth for the company in the coming quarters.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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 Q2 2017 10-Q, SEC [↩]
  2. Newmont Mining’s Q2 2017 Earnings Call Transcript, Seeking Alpha [↩] [↩]
  3. Newmont Mining’s Q2 2017 Earnings Release, SEC [↩]
  4. The Fed’s New Dot Plot, Bloomberg [↩]