Gold Price Rally And Goldcorp Acquisition Could Add $3.7 Billion To Newmont’s Revenue Base By 2020

by Trefis Team
Newmont Corporation
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Newmont Goldcorp (NYSE: NEM) is one of the biggest beneficiaries of the rally in gold prices this year, the effect of which is likely to be magnified due to Newmont’s acquisition of Goldcorp in early 2019. Both these factors are expected to help NEM add close to $3.7 billion to its revenue base over the next two years (by the end of 2020), in contrast to $0.6 billion added over the previous two years (2016-2018).

You can view the Trefis interactive dashboard – Newmont Goldcorp Revenues: How Does NEM Make Money? – to better understand the company business model and revenue segment, and alter the key assumptions to arrive at your own estimates for NEM’s gold and copper shipments, price realization, and revenue. In addition, here is more Materials data.

A] Newmont’s Business Model

a) What Does It Offer?

  • Newmont Goldcorp Corporation is a gold and copper producer with gold mining operations in the United States, Australia, Peru, Ghana, Canada, New Zealand, and Mexico. The company’s proven and probable gold reserves stood at 65.4 million ounces at the end of 2018.
  • Newmont’s copper mining operations are located in the United States and Australia. The company’s proven and probable copper reserves stood at 2.88 billion pounds at the end of 2018.

b) Who Pays?

  • Copper: Copper is bought by third-parties for use in construction and the manufacture of electrical appliances and industrial machinery.
  • Gold: Gold is mainly sold to jewelry players and certain sensitive electronics industries.

c) Competition?

NEM’s business model faces stiff challenges and competition from offerings by its global competitors such as –

  • For Copper: Rio Tinto, BHP Billiton, Codelco, Southern Copper, Freeport-McMoRan
  • For Gold: Barrick Gold, Anglo Ashanti, and Freeport-McMoRan

B] Gold Revenue Performance

  • Gold revenue is expected to see a sharp rise in 2019 and 2020, due to additional volume sales attributable to Newmont post the Goldcorp merger deal.
  • Gold shipments are expected to rise from 5.5 million ounces in 2018 to 8 million ounces by FY 2020.
  • 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 and expectations of interest rates heading south, gold price realization is projected to further improve, which would, in turn, drive revenue growth in the near term.

C] Copper Revenue Performance

  • After increasing in 2017, segment revenue decreased in 2018 on the back of lower production and price decline.
  • Copper revenue is expected to increase at a lower rate, with the segment adding only about $35 million over the next 2 years.
  • Shipments are expected to rise marginally, led by higher leach tons and grade placed at Phoenix.
  • With US-China trade talks failing in April 2019, copper prices have seen a decline due to concerns of global economic slowdown.
  • However, strong demand outlook from electric vehicle manufacturers is expected to lead to increase in prices in 2020.

D] Total Revenue

  • For the full year, we expect total 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.
  • Thus, the positive gold price environment and increased shipments is likely to lead to a cumulative addition of $3.7 billion to NEM’s revenue base by 2020.

As per Newmont Goldcorp’s Valuation by Trefis, we have a price estimate of $44 per share for NEM’s stock.


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