VALUATION HIGHLIGHTS
- Gold constitutes 82% of the Trefis price estimate for Newmont Corporation's stock.
WHAT HAS CHANGED?
- Latest earnings - Q3 2024
Newmont posted a healthy set of Q3 2024 results, as gold production rose considerably following the acquisition of Newcrest. Adjusted earnings came in at $0.76 per share, while revenue rose 85% year-over-year to $4.6 billion. Newmont produced 1.7 million gold equivalent ounces over the quarter.
- Acquisition of Newcrest
Newmont acquired Australian gold miner Newcrest in November 2023. The deal marks the largest-ever takeover in the precious metals mining sector and allows Newmont to expand its mining operations in Australia, Canada, and Papua New Guinea. The deal could help Newmont grow production, reduce input and operating costs via better scale, and boost efficiency. The company is looking to generate $500 million in annual pre-tax synergies within the first 24 months of the deal closing. For 2024, Newmont expects to produce 6.93 million ounces of gold, up from 5.5 million ounces in 2023.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Newmont's value that present opportunities for upside or downside to the Trefis price estimate for the company's stock:
North American Mines
- Newmont's Gold Shipments: Newmont's gold shipments declined from 5.9 million ounces in 2021 to 5.4 million ounces in 2023, in part due to a union strike at the Penasquito mine, and lower production due to ongoing upgrades at the Pueblo Viejo mine. However, we expect sales to rise to over 7.7 million ounces, led by the company's acquisition of Newcrest and higher production from existing mines. If shipments increase by a higher percentage and reach a total output of 9 million ounces by the end of our forecast period instead of the 7.7 million ounces expected currently, it would represent a 15% upside to the Trefis price estimate.
- Newmont's Gold EBITDA Margin: Newmont's margins for gold decline from 47% in 2021 to 36% in 2023 due to higher costs and lower production. However, we expect the metric to grow to about 47% in the long run, driven by higher volumes and synergies from the Newcrest deal. If margin growth is lower than anticipated and divisional margins stabilize around 51%, it would result in an upside of 10% to the Trefis price estimate.
BUSINESS SUMMARY
Newmont 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 135.9 million ounces at the end of 2023. The company also has 30 billion pounds of copper reserves and nearly 600 million ounces of silver reserves.
SOURCES OF VALUE
Gold mining drives value
Gold mining is the most important division for Newmont Corp in terms of revenues and profits. In 2023, the company's consolidated gold production stood at 5.4 million ounces. Gold generally accounts for roughly 90% of the company's consolidated sales revenue. The company's Gold Mines are its most valuable segment, per our estimates.
KEY TRENDS
Rising demand for gold from emerging economies
Demand for gold is expected to be quite robust from major emerging economies. Rapidly growing middle-class populations and rising incomes in these countries, particularly China and India - the world's largest gold consumers - are expected to result in a sustained jewelry and investment demand for gold.
Higher demand for copper
The long-term demand outlook for copper looks favorable, given the adoption of renewable energy and electric vehicles, both of which are very copper-intensive. For perspective, EVs use over 2x the copper used by traditional internal combustion engine vehicles. Renewable generation such as solar and wind requires over 5x more copper for each installed MW compared to traditional nuclear and fossil fuel-based power generation. Moreover, U.S. plans for a $1.2 trillion revamp of infrastructure should raise the demand outlook and create a favorable market environment for copper.
