Could Higher Volume Offset Lower Price Realization For Newmont In Q1 2019?

by Trefis Team
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NEM
Newmont Goldcorp Corporation
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Newmont Mining (NYSE: NEM) is set to announce its Q1 2019 financial results on April 25, 2019, followed by a conference call with analysts. We expect the company to report total revenue of $1.85 billion in Q1 2019, marking an increase of about 1.9% on a year-on-year basis. Higher revenue is likely to be a reflection of an increase in gold and copper shipments, partially offset by lower price realization for both the commodities in comparison to Q1 2018. However, on a sequential basis, revenue is expected to decline by 9.6% due to lower gold and copper production compared to Q4 2018. Markets expect NEM to report earnings of $0.29 per share in Q1, lower than $0.35 per share in the year-ago quarter, mainly due to higher cost per pound of copper driven by higher stripping at Boddington.

We have summarized our key expectations from the announcement in our interactive dashboard – How is Newmont Mining expected to fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Materials data.

Key Factors Affecting Earnings

Gold Revenue

  • We expect gold revenue to increase by 1.9% to $1.77 billion in Q1 2019, primarily driven by higher volume of gold, partially offset by lower price realization.
  • Gold shipments are expected to increase by 6% on a y-o-y basis, on the back of higher production due to higher grade production from the recently completed Subika Underground project in Africa,  higher grade production from Northwest Exodus and Twin Underground, higher grades and throughput and productivity gains at Tanami, partially offset by depletion of Silverstar ore at Carlin, and lower gold production at Phoenix as mining shifts to higher copper grade ore from the Bonanza pit.
  • After decreasing from its highs in Q1 2018 due to US-China trade tensions and increasing interest rates in the US, gold prices have once again increased since Dec. 2018, with higher retail and institutional investment in the face of rising global economic uncertainty. However, the price level is still lower than the highs achieved in Q1 2018. The price realization per ounce is expected to be $1,275 in Q1 2019, higher than the previous quarter but lower on a y-o-y basis.

Copper Revenue

  • We expect copper revenue to increase by 2.2% to $80 million in Q1 2019, primarily driven by higher volume of copper, partially offset by lower price realization.
  • Copper shipments are expected to increase by 7.4% on a y-o-y basis, on the back of higher production as Phoenix reaches higher copper in Bonanza ore which is offset by lower production at Boddington.
  • From its highs in Q2 2018, copper price per pound has been decreasing in the second half of 2018 due to US-China trade tensions. However, prices have rebounded since the beginning of 2019 with trade talks between US-China progressing and a possibility of a truce in sight. However, the price level is still lower than the levels achieved in Q1 2018. The price realization per pound is expected to be $2.75 in Q1 2019, higher than the previous quarter but lower on a y-o-y basis.

Cost Scenario

  • Cost applicable to sales (CAS) and all-in sustaining cost (AISC) per ounce of gold is expected to decline to $710 in Q1 2019 from $748 in Q1 2018. Lower cost is likely to be a reflection of higher production at Ahafo, lower mining costs at Yanacocha, and lower operational costs at Tanami with the completion of the Tanami Power Project. The Company continues to implement Full Potential cost and efficiency improvements and advance technology initiatives to offset inflation and input cost pressures.
  • CAS and AISC per pound of copper in Q1 2019 is expected to increase to $2.00/pound from $1.74/pound in the year-ago period, driven by higher stripping at Boddington.

Full Year Picture

  • For the full year we expect revenue to increase by 4.5% to $7.6 billion in 2019, driven by an increase in shipments and higher price realization for both copper and gold.
  • Net income margin is expected to increase from 4.7% in 2018 to 5% in 2019, primarily due to lower cost per unit due to higher production volume and better grades, coupled with expected synergies from Nevada JV with Barrick Gold.

Trefis has a price estimate of $39 per share for Newmont’s stock. We believe that the merger with Goldcorp, which is expected to complete in Q2 2019, and the recently announced joint venture with Barrick Gold for the Nevada region, would be the two primary drivers for growth in Newmont’s top line and profitability going forward, which would in turn support Newmont’s stock price growth.

 

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