Newmont Corporation (NYSE: NEM) published a weaker than expected set of Q2 2022 results as rising costs weighed on the gold miner’s bottom line. Revenue for the quarter remained roughly flat versus last year at about $3.06 billion, as higher gold related revenue was offset by weakness in other commodities such as copper, zinc, and silver. However, profits took a hit, with adjusted net income declining to $0.46 per share from $0.83 per share in the prior year and well below consensus estimates. The decline comes as rising costs of labor, consumables, and energy drove up the company’s all-in sustaining costs – a measure of total production costs – to $1,150 per ounce from $1,050 per ounce.
The outlook for the rest of the year looks somewhat challenging as well for a couple of reasons. Newmont expects the cost pressure to persist until 2023, considering a tight labor market and high oil prices. Moreover, Newmont also lowered its annual production guidance for 2022 to 6 million ounces from 6.2 million ounces earlier, amid operational challenges. The company’s gold price realizations could also face some pressure, with prices of bullion remaining volatile due to the Federal Reserve’s aggressive interest rate hikes which are making non-productive assets such as gold a bit less attractive to investors.
Newmont stock declined by almost 13% following the earnings report and remains down by about 28% year-to-date. However, we think that the stock looks like good value at current levels of about $45 per share. There are a couple of factors that could make the stock worth a look. Indicators point to a recession in the United States in the near term. Consumer confidence in the U.S. is also falling, as high inflation puts pressure on household budgets. Geopolitical uncertainties have been growing following Russia’s ongoing invasion of Ukraine. Trefis believes that these factors could eventually help gold prices trend higher until global macroeconomic and geopolitical stability is attained. This could help Newmont as it derives a bulk of its revenue from gold (about 89% in Q2 2022) with the company previously estimating that every $100 increase in the gold price per ounce results in a $400 million rise in free cash flows. Newmont also has ample liquidity to ride out any downturn, with its cash holding standing at about $4.3 billion at the end of Q2. We estimate Newmont’s valuation at $65 per share, which is about 44% ahead of the current market price. See our analysis of Newmont revenue for more details on the company’s business model and key revenue streams.
With inflation rising and the Fed raising interest rates, Newmont stock has fallen 10% this year. Can it drop more? See how low can Newmont stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||5%||-17%||77%|
|Trefis Multi-Strategy Portfolio||9%||-16%||232%|
 Month-to-date and year-to-date as of 7/26/2022
 Cumulative total returns since the end of 2016