Is Newmont-Goldcorp Set To Dominate The Gold Industry By 2025?

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Gold has been one of the best performing commodities in over a year, with the global gold price rising from close to $1,300 per ounce in the beginning of 2019 to about $1,630 per ounce in February 2020. The rise in price in 2019 was led by rising trade tension between US-China, which increased fear of a global economic slowdown, making gold a safe haven. Additionally, central banks over the world also increased their investment in the yellow metal. Most of the top gold companies saw a healthy growth in their stock price during this period. The industry also saw consolidation, with 2 major deals – (1) Newmont Mining and Goldcorp merger; (2) Barrick Gold and Randgold Resources merger – being closed in the beginning of 2019, which helped the size of the top gold players grow by about 18% in 2019. Newmont Goldcorp and Barrick Gold have dominated the industry over recent years. However, as per Trefis analysis, Newmont Goldcorp is set to beat Barrick Gold and dominate the gold industry (top 4 gold mining companies for this analysis) by 2025, with a market share of 45%.

View our interactive dashboard How Much Market Share Is Newmont Goldcorp Set To Achieve By 2025? for further details as to how Newmont is projected to increase its share.

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Takeaway

  • The gold market is dominated by four major players with Barrick Gold leading the pack with revenues of nearly $9.2 billion in 2019.
  • While Newmont Goldcorp, Freeport-McMoRan, and Kinross Gold are behind with revenues $9 billion, $3.5 billion, and $1.4 billion, respectively, Newmont Goldcorp’s superior asset quality and processing infrastructure, is expected to help the company capture additional market share from its rivals.
  • Additionally, the deal between Newmont and Goldcorp is expected to be a clear winner compared to the one between Barrick Gold and Randgold Resources, as Newmont is set to benefit from Goldcorp’s higher-grade ores, whereas Barrick’s portfolio is concentrated by lower grade African mines.

Current Market Size

  • The top players in the gold space generated around $23.1 billion in revenues over 2019, posting a y-o-y growth of about 17.8%.
  • Market size has increased from $18.1 billion in 2015 to $23.1 billion in 2019, marking a growth of 28% during this period, with most of the growth coming in 2019 due to higher output and pricing.
  • Barrick Gold leads the gold mining market with about $9.2 billion in gold revenues over 2019, followed by Newmont Goldcorp, Kinross Gold, and Freeport-McMoRan, which posted revenues of $9 billion, $3.5 billion, and $1.4 billion respectively.
  • However, the market size is expected to increase by another 10% to $25.5 billion by 2025, led by higher production and consolidation in the industry. However, this growth will be lower than the growth observed from 2015-2019, mainly due to limited upside to gold price from its already elevated level currently.
  • Despite a market growth rate of 10%, Newmont Goldcorp’s market share is likely to see a growth of >15%, from 39% in 2019 to 45% by 2025, primarily due to higher volume and premium pricing, aided by inorganic growth strategies and superior asset quality.

Below we explore the volume, price, and revenue forecast for major gold companies, and how Newmont Goldcorp is increasing its market share

Volume Trends

  • Newmont Goldcorp leads the gold mining market with respect to volume sales, with about 6.5 million ounces of gold sold in 2019, followed by Barrick Gold, Kinross Gold, and Freeport-McMoRan, which posted volume sales of 5.5 million, 2.5 million, and 1.0 million, respectively. Newmont and Barrick saw sharp volume growth in 2019 due to mergers with Goldcorp and Randgold Resources, respectively.
  • However, the entire effect of merger with Goldcorp was not incorporated as the deal concluded in April 2019. Thus, with 2020 being the first full year post the deal, Newmont’s gold output is expected to rise further, while Barrick’s is expected to remain flat.
  • All companies except Newmont and Freeport-McMoRan are likely to see their volume decrease from 2019 to 2025 in the absence of any major deal during this period.
  • Newmont Goldcorp’s total asset portfolio along with exploration and processing infrastructure is much superior compared to Barrick Gold, and one of the best in the industry.
  • Freeport’s volume growth is to be mainly driven by a low base in 2019 due to mine transition work at Grasberg.
  • Thus, Newmont is set to outperform its rivals and increase its volume sales from 6.5 million ounces in 2019 to 7.7 million ounces in 2025.

Price Trends

  • Price realization is expected to see a slight uptick for Newmont due to its superior grades and with global gold prices expected to remain elevated. Newmont’s price realization is expected to rise from $1,400/ounce in 2019 to $1,490/ounce by 2025.
  • Barrick could see lower price realization as lower-grade ores from its African mines begin to form a major portion of its portfolio.
  • Freeport-McMoRan’s and Kinross’ price realization is expected to remain range bound around $1,380-$1,400.
  • Thus, Newmont’s output is likely to see higher growth in prices compared to its rivals.

Rise in Revenue and Market Share

  • Newmont is expected to see a growth of 27% as its revenue is likely to grow from $9 billion in 2019 to $11.5 billion in 2025. Barrick and Kinross could see a slight reduction in revenue base. Though FCX’s revenue base is expected to expand, it is mostly due to a low base in 2019.
  • Newmont Goldcorp’s market share in the gold market is expected to rise from 39.1% in 2019 to reach 45% by 2025.
  • This compares with Barrick’s Market share decline from 39.7% in 2019 to 30.4% in 2025; Kinross’ market share decline from 15.1% in 2019 to 12.1% in 2025; and Freeport-McMoRan’s market share growth from 6% in 2019 to 12.5% in 2025.

Thus, Newmont-Goldcorp, with a higher market share in the medium term, is likely to be the dominant player in the gold sector, primarily benefiting from inorganic growth strategies, superior processing infrastructure, higher-grade ores, geographic diversification, and elevated global gold price levels.

 

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