Will Newmont’s Q2 Results Shine On Strong Gold Pricing?

Newmont Corporation (NYSE: NEM), one of the world’s largest gold miners, is expected to publish its Q2 2024 results on July 25, reporting on a quarter that saw strong gold prices. We expect revenue to come in at close to $5.70 billion for the quarter, slightly ahead of consensus estimates, while earnings are likely to come in at $0.98 per share. Both numbers are likely to more than double year-over-year, driven in part by Newmont’s acquisition of Newcrest, and rising precious metals prices. See our analysis of Newmont Earnings Preview for a closer look at some of the trends that could drive the company’s results.

Over Q1 2024, Newmont produced about 1.68 million attributable gold ounces, up about 32% year-over-year, while producing around 489,000 gold equivalent ounces from copper, silver, lead, and zinc. Things could pick up a bit going forward, given that the company has guided for gold production of 6.93 million attributable ounces for the full year.  Price realizations could also pick up a bit. Gold prices have been trending considerably higher, rising from levels of around $2,050 per ounce in early January to levels of over $2,390 per ounce toward the end of June, driven by cooling inflation, expectations of interest rate cuts by the Federal Reserve, and geopolitical uncertainties following the Israel-Gaza war.

Margins are also expected to pick up for Newmont going forward as Newmont continues to integrate the Newcrest acquisition and realizes synergies. The company said in Q1 that the deal had delivered a total of $105 million in synergies to date, noting that it was on track to realize $500 million in annual synergies by the end of 2025. Newmont has also indicated that costs of consumables such as explosives had been on the decline, with labor costs, which account for roughly half of its cost base, remaining roughly flat. Separately, the company has also been looking to divest its non-core assets to bring down its all-in-sustaining costs.

NEM stock has seen a decline of 15% from levels of $60 in early January 2021 to around $50 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. Notably, NEM stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 4% in 2021, -24% in 2022, and -12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that NEM underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Materials sector including LIN, SCCO, and SHW, and even for the mega-cap stars GOOG, TSLA, and MSFT.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NEM face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

While gold prices have risen meaningfully of late, the longer-term sentiment toward  precious metals also remains bullish considering the relatively tight supply and a move by central banks to diversify their reserves by holding more gold in place of the U.S. Dollar. Newmont’s production outlook also looks positive.  The company’s mineral reserves have picked up meaningfully post the Newcrest deal, with a large portion of its resources located in low-risk regions such as North America.  Newcrest was known to be a low-cost producer, and this could help Newmont with its cash flows going forward. Newmont’s production of copper, a metal vital for the fast-growing green energy economy, is also poised to pick up following the Newcrest deal.  Copper production is projected to grow to 152,000 tons for 2024.  We have a $46 price estimate for Newmont stock, which is roughly in line with the current market price. See our analysis of Newmont’s valuation for more details on what’s driving our price estimate for the stock.

[1] Returns as of 7/19/2024
[2] Cumulative total returns since the end of 2016

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