How Much Could Goldcorp And Nevada Deals Help Newmont In Q2 2019?
Newmont Goldcorp Corporation (NYSE: NEM) is set to release its Q2 2019 earnings report on July 25, 2019, followed by a conference call with analysts.
Key Expectations
- Newmont Goldcorp revenues have witnessed a lot of volatility over recent quarters due to fluctuation in global gold and copper prices along with changes in production output.
- However, NEM is expected to see its revenue increase by about 45% on a y-o-y basis in Q2 2019.
- Higher revenue would primarily reflect the impact of higher gold shipments as the Newmont-Goldcorp merger took effect in April 2019.
- Along with higher volume, increase in gold price realization is also expected to boost revenue.
- However, subdued copper prices due to re-escalation of trade tensions could be a drag on revenue growth during the quarter.
- Earnings are expected to come in at $0.27 per share in Q2 2019, marginally higher than $0.26/share in the year-ago period, mainly due to synergies from the Nevada joint venture with Barrick Gold, higher gold volume produced, partially offset by higher cost of sales per pound of copper.
You can view our interactive dashboard – Newmont Goldcorp Earnings: Performance and 2019 Forecast – and alter the assumptions to arrive at your own estimate for the company’s revenue, earnings, and stock price. In addition, here is more Materials data.
A Quick Look At Newmont’s Revenue Sources
Gold: $6.95 billion revenue in FY 2018 (96% of total revenue). Under the segment NEM sells refined gold to end consumers. NEM’s consolidated gold production in 2018 was 5.5 million ounces, from its mines in North and South America, Australia, and Africa.
Copper: $0.30 billion revenue in FY 2018 (4% of total revenue). Copper sales are in the form of concentrate that is sold to smelters for further treatment and refining, and cathode. NEM’s copper production from its mines in North America and Australia was 109 million pounds in 2018.
A] Revenue Trend
Gold
- 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.
- However, gold revenue is expected to see a sharp rise in Q2 2019, due to additional volume sales attributable to Newmont post the Goldcorp merger deal.
- With increased retail and institutional investment in gold since Dec. 2018, in the face of rising global economic uncertainty, gold prices have been on an upswing since the beginning of 2019.
- With rising investment in the yellow metal by major central banks, gold price realization is expected to further improve in Q2 2019, which would, in turn, drive revenue growth for the quarter.
Copper
- Copper revenue decreased by 18.5% to $64 million in Q1 2019 from $78 million in Q1 2018, primarily driven by lower shipments.
- We expect shipments to remain lower in Q2 2019 as well, driven by a 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.
- With US-China trade talks progressing and a possible truce in sight, prices increased since the beginning of 2019. However, re-escalation of tensions with slapping of additional tariffs has led to a drop in global copper prices since April 2019.
- Thus, lower shipments and price realization is likely to keep copper revenues subdued in Q2 2019.
B] Total Expenses and Profitability
- Total expenses in absolute terms are expected to increase in Q2 2019 due to higher gold production volumes, and merger and JV related expenses.
- Cost applicable to sales (CAS) per ounce of gold declined on a y-o-y basis in Q1 2018, due to higher production, lower mining costs, and lower operational costs.. The metric is expected to decline further due to cost synergies at Nevada following the joint venture with Barrick Gold and a significant rise in gold production.
- CAS per pound of copper has been increasing over the last three quarters. We expect this trend to continue in Q2 2019, led by higher stripping at Boddington and lower copper pounds sold due to a decrease in production.
- In spite of higher total expenses, net income margin is likely to increase marginally in Q2 2019, driven by much higher growth in revenues and lower cost per unit for gold, partially offset by higher cost of production in the copper division.
Full Year Outlook
- For the full year, we expect revenue to increase by close to 35% to $9.8 billion in 2019, compared to $7.3 billion in 2018, driven by higher shipments and price realization in the gold segment, partially offset by a lower rate of increase in copper revenue.
- As the company gets a full year benefit of the Goldcorp merger, revenue is expected to further increase by over 12% to about $11 billion in 2020.
- Net income margin is expected to improve from 4.7% in 2018 to 5% in 2019 and further to 6% in 2020, primarily driven by lower cost per unit due to higher production volume and better grades, coupled with expected synergies from the Nevada joint venture and benefits from high grade output from Goldcorp, partially offset by acquisition and transaction related expenses.
According to Newmont Goldcorp Valuation done by Trefis, we have a price estimate of $40 per share for Newmont’s stock.
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