Newmont’s Q1 Remains Lackluster; Full Year Outlook Turns Bright Following Goldcorp And Nevada Deals

by Trefis Team
Newmont Corporation
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Newmont Goldcorp Corporation (NYSE: NEM) released its Q1 2019 financial results recently, followed by a conference call with analysts. The company reported revenue of $1.80 billion in Q1 2019, marking a decline of 0.8% from $1.82 billion recorded in Q1 2018. Lower revenue was mainly driven by an 18.5% decrease in copper revenue and flat gold sales on a y-o-y basis. Lower copper shipment on the back of a fall in production, and decline in gold price realization, had an adverse impact on the company’s top line in Q1 2019. NEM reported adjusted earnings of $0.33 per share in Q1 2019, marginally lower than $0.35 per share in Q1 2018. Lower earnings were mainly a reflection of integration and transaction costs related to the Newmont Goldcorp transaction and Nevada joint venture, coupled with higher cost per pound of copper sold.

We have summarized the key announcements in our interactive dashboard – How did Newmont Goldcorp fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Materials data.

Key Takeaways

Gold Revenue

  • Gold revenue for Q1 2019 remained flat on a y-o-y basis at $1.74 billion, driven by higher shipment, offset by lower price realization.
  • Gold shipment increased by 2% to 1.34 million ounces in Q1 2019 from 1.31 million ounces in Q1 2018, mainly driven by higher gold production due to higher ore grades mined and milled at Yanacocha and Merian in South America, Tanami in Australia, and Ahafo in Africa, partially offset by lower ore tons mined at Carlin and lower mill throughput at Phoenix in North America, lower ore grade milled at Kalgoorlie in Australia, and at Akyem in Africa.
  • Price realized per ounce of gold sold decreased to $1,300/ounce in Q1 2019 from $1,326/ounce in Q1 2018. However, on a sequential basis, it was much higher than $1,233/ounce in Q4 2018. After decreasing from its highs in Q1 2018 due to US-China trade tensions and increasing interest rates in the US, gold prices have increased since Dec. 2018, with higher retail and institutional investment in the face of rising global economic uncertainty. However, the price level was still lower than the highs achieved in Q1 2018.

Copper Revenue

  • Copper revenue decreased by 18.5% to $64 million in Q1 2019 from $78 million in Q1 2018, primarily driven by lower shipments.
  • Copper shipment decreased by 18.5% to 22 million pounds in Q1 2019 from 27 million pounds in the year-ago period, driven by 19% reduction in copper production due to lower ore grade mined and lower throughput at Boddington, partially offset by higher leach tons and grade placed at Phoenix.
  • Price realized per pound of copper sold witnessed a marginal increase to $2.89/pound in Q1 2019 from $2.88/pound in the previous year period. However, on a sequential basis, the price realization was much higher than $2.62/pound in Q4 2018.
  • 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, which led to improvement in price realization.

Cost Scenario

  • Cost applicable to sales (CAS) per ounce of gold declined to $701/ounce in Q1 2019 from $748 in Q1 2018. Lower cost was 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, coupled with higher ounces sold, lower stockpile and leach pad inventory adjustments, and a favorable Australian dollar foreign currency exchange rate.
  • The Company’s initiatives to implement Full Potential cost and efficiency improvements and advance technology initiatives to offset inflation and input cost pressures is also showing positive results.
  • CAS per pound of copper in Q1 2019 increased to $1.94/pound from $1.74/pound in the year-ago period, driven by higher stripping at Boddington, lower pounds sold, partially offset by higher leach and mill grades processed at Phoenix.

Full Year Outlook

  • For the full year we expect revenue to increase by 32.8% to $9.6 billion in 2019, driven by increase in shipments and higher price realization for both copper and gold.
  • Acquisition of Goldcorp in April 2019 is expected to lead to a significant increase in gold shipment for the remaining three quarters.
  • 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 joint venture with Barrick Gold and benefits from higher grades from Goldcorp, partially offset by acquisition and transaction related cost and higher interest expense on the back of additional debt raised.

Trefis has a price estimate of $40 per share for Newmont’s stock. We believe that the recently completed acquisition of Goldcorp and the 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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