Lower production and realized gold prices led to a 9% revenue drop for this company during the most-recent quarter. Higher costs also cut earnings 55%.
However, this company has high quality reserves and offers a fundamentally-strong bet against inflation and a weaker U.S. dollar. A planned merger with an Australian gold mining major also offers potentially substantial upside.
The stock trades at 22.8 times the company’s 2023 earnings forecast.
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NEWMONT CORP. (New York symbol NEM; www.newmont.com) is the world’s largest gold producer. It also produces copper, silver, lead and zinc.
The stock gives you exposure to the world’s largest gold miner following Newmont’s April 2019 acquisition of Vancouver-based Goldcorp Inc. It paid $10 billion in cash and shares.
Newmont’s mines are in North America, South America, Australia and Africa.
The miner also continues to benefit from its 2019 joint venture deal with Barrick Gold Corp. (New York symbol GOLD) that operates their gold mines in Nevada. Barrick owns 61.5% of the joint venture and operates it. Newmont holds the remaining 38.5%. Eliminating duplicate processing and other operations should let the partners cut $500 million annually from their pre-tax costs by 2025.
Newmont’s share price has rebounded lately. That’s mainly because interest-rate increases have started to slow on easing inflation. That should push up investor demand for gold as the appeal of interest-bearing investments and the U.S. dollar weakens.
In early February, the company also announced its bid to acquire another senior gold producer, Newcrest. The deal, which must be approved by shareholder, would see Newcrest investors receive 0.380 Newmont shares for each Newcrest share they hold. They would then own 30% of the merged firm, with Newmont shareholders holding 70%.
Mining Stocks: Revenues and earnings are down but asset quality remains high
In the three months ended September 30, 2022, Newmont produced 1.49 million ounces of gold, down 0.7% from a year earlier. As well, its average realized gold price fell 7.9% to $1,691 an ounce.
As a result, the company’s revenue in the quarter declined 9.0%, to $2.63 billion from $2.90 billion. Higher costs for labour, fuel and energy also increased Newmont’s gold production costs by 6.0% to $1,271 an ounce. That’s partly why earnings before one-time items fell 55.0%, to $0.27 a share from $0.60.
Newmont expects production will improve in the fourth quarter, which is why it still expects its full-year gold production will total 6.0 million ounces. It also forecasts production costs of $1,150 per ounce for 2022, up 8.3% from $1,062 in 2021.
The company will probably earn $2.10 a share in 2023, and the stock trades at 22.8 times that forecast. That’s a reasonable p/e in light of Newmont’s high-quality reserves.
The mining giant also links its dividend to the price of gold, so rising gold prices should let it raise the current annual rate of $2.20 a share. It currently yields a high 4.6%.
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