Is Newmont Set To Become The World’s Largest Gold Producer?

by Trefis Team
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Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE: NEM) released their 4th quarter and full year 2017 results this month. Barrick has historically been the world’s largest gold producer (on the basis of production volume) however, there is a great probability for Newmont to surpass this position in the upcoming year. The latest results depict that Barrick had surpassed Newmont’s production volume in 2017 by a mere volume of ~50,000 ounces of gold. Barrick’s production volume is expected to decline further in the upcoming year, which would pave the way for Newmont to become the largest gold miner in the world.

Barrick’s production volumes have been declining as a result of its falling reserves. The company reported that its reserves for unmined gold dropped by 25% in 2017 to 64.5 million ounces. This was a resultant impact of the company selling off its mine stakes and changing its plan for a South American asset. Additionally, stringent exploration and development budgets in order to strengthen its cash flow and balance sheet position have hindered the process of establishment of newer mines for the company. With improving gold prices, the company plans to mitigate the impact of falling reserves by increasing its capital spend on project development by more than 60% in 2018.

On the other hand, Newmont’s production volume has been continuously rising, benefiting from lower cost output from the company’s newer mines coupled with productivity gains. The company’s successful investment in exploration has resulted in the company to achieve an addition to reserves to offset depletion for the first time in 5 years, adding 6.4 million ounces of gold to its reserve base. The company’s gold resources were up by 1%. in 2017. The company’s gold output is expected to be rangebound between 4.9-5.4 million ounces for the next 2 years, surpassing Barrick’s estimates by roughly 7%-8% (assuming the mid-point of company guidance). Newmont is expected to spend approximately US$230 million on exploration in 2018 which would continue to remain beneficial for the company.
However, from a revenue standpoint, Barrick is expected to remain ahead of Newmont as it benefits from a larger copper base. Additionally, Barrick has remained the industry’s lowest cost producer and despite an increasing cost guidance over the next two years, Barrick is expected to continue to remain the lowest cost gold producer.
Barrick in its latest release has flagged four projects that could cumulatively add more than 1 million ounces to annual output starting 2021, which could enable the company to gain back its dominant position over the next 4-5 years. We have outlined the key indicators differentiating both the companies’ dominant position using our interactive platform.

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