How Is Newmont Positioning in the Face of Volatile Gold Prices?



Gold price headwinds

Newmont Mining’s (NEM) management said that while gold’s fundamental story is intact, there could be reasonable headwinds for gold going forward 24 months. This is on the back of potential rate hikes as well as the strong outlook for the US dollar (UUP). Newmont’s management provided a detailed scenario analysis of how the company is positioning itself in the event of a volatile metal price environment.

Article continues below advertisement

Positioning for gold price volatility

The company’s management mentioned that at the current gold prices, they would continue to advance profitable projects, pursue exploration projects, pay dividends, and repay debt. They’ll also review the seventh phase of Batu Hijau and the Ahafo mill expansion.

If prices fall below $1,000 per ounce of gold, they’ll complete the ongoing projects but defer some of the stripping and sustaining capital. This will reduce exploration spending and mothball the company’s lowest-margin operations. The company would also discontinue early debt repayments and reevaluate its dividend payments. In a scenario where gold prices remain sustainably above $1,100 per ounce, the company could accelerate its debt repayment and follow up on their most promising exploration projects.

Gold price assumption

It’s also worth mentioning that Newmont could reduce its gold price assumption for the calculation of year-end reserves by $100 per ounce to $1,200 per ounce. The company also plans to maintain its annual dividend of $0.10 at gold prices below $1,300 per ounce.

Many of Newmont’s peers have also taken steps in the past to weather this volatile gold price environment. Goldcorp (GG) and Barrick Gold (ABX) reduced their dividends by 60% in their 2Q15 results. Other miners such as AngloGold Ashanti (AU) and Harmony Gold Mining (HMY) have also opted for portfolio restructuring.


More From Market Realist