Is Newmont Stock Attractive Post The Q2 Sell-Off?

Newmont Corporation (NYSE: NEM), the world’s largest gold miner, published a weaker-than-expected set of Q2 2023 results, with both revenues and profits missing expectations. Revenue declined by 12% year-over-year to $2.7 billion,  due to lower gold volumes. Gold production fell by 17% year-over-year due to the union strike at the Penasquito mine, and lower production due to ongoing upgrades at the Pueblo Viejo mine which Newmont has an interest in. However, Gold price realization saw a marginal rise, growing to $1,965 per ounce compared to $1,906 per ounce in Q1. Earnings also fell short of estimates, coming in at $0.33 per share due to elevated costs and weaker revenue.  All-in-sustaining costs for the gold business rose to $1,472 per ounce, up by more than 20% versus last year due to lower contributions from some lower-cost mines.

That said, things should look up in the second half. Despite the tough Q2 results, Newmont says that it is on track to achieve its full-year 2023 guidance of between 5.7 and 6.3 million ounces of attributable gold production. The company is also seeing inflationary pressures relating to energy and commodities ease and this could help profitability going forward. Gold prices have been staying around their all-time highs in recent months, amid concerns about the regional U.S. banks and a mixed economic outlook. The Federal Reserve has also slowed down on the pace of its interest rate hikes. This could help to support Newmont’s price realizations to an extent.

So is Newmont stock a buy at current levels of around $42 per share? We think it is. The near-term trend for gold prices appears bullish and Newmont’s production outlook also looks positive. The company’s gold mineral reserves stand at about 96 million ounces as of the end of 2022, a large portion of which is located in low-risk regions such as North America. There are other positives for the stock as well. In May, Newmont agreed to buy Newcrest, a gold and copper player based in Australia for $17.5 billion. Newcrest is known to be a low-cost producer, and this could also help Newmont with its margins. The deal will also boost Newmont’s production of copper, a metal vital for the fast-growing green energy economy. We have a $51 price estimate for Newmont stock, which is almost 20% ahead of the current market price. See our analysis of Newmont’s valuation for more details on what’s driving our price estimate for the stock.

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[1] Month-to-date and year-to-date as of 7/21/2023
[2] Cumulative total returns since the end of 2016

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