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Could Newmont Goldcorp Turn Around This Year?

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Newmont Goldcorp (NEM) reported its Q2 results today, missing analysts’ top- and bottom-line estimates. Its EPS of $0.12 fell short of analysts’ estimate of $0.23, and its sales of $2.26 billion missed their estimate by $30 million. In the first quarter, NEM beat analysts’ earnings estimate but missed their revenue forecast.

In the second quarter, NEM’s revenue grew 36% YoY (year-over-year) as it consolidated volumes from its Goldcorp transaction on April 18. Its adjusted EPS, however, fell more than expected, by 54% YoY. NEM attributed this decline to integration and transaction costs related to the Goldcorp transaction and its Nevada joint venture.

Newmont’s production and costs

Newmont’s attributable gold production rose 37% YoY to 1.59 million ounces in the second quarter, boosted by new production from the Goldcorp transaction. High grades at NEM’s Merian and Tanami operations also supported Newmont’s volumes.

Its AISC (all-in sustaining costs) rose 4% YoY to $1,016 per ounce due to higher sustainable capital spending. Like other gold miners, Newmont benefited from higher realized gold prices. During the second quarter, average gold prices rose YoY to $1,317 from $1,292 per ounce. The company has guided for 6.5 million ounces of gold production at $975 per ounce this year. It is set to provide guidance for next year in December.

Stock price reaction

On Thursday, NEM stock fell due to the company’s larger-than-expected loss and unclear outlook on the Goldcorp acquisition and integration. Its stock closed 2.7% lower, while the SPDR Gold Shares ETF (GLD) and VanEck Vector Gold Miners ETF (GDX) fell 0.7% and 2.6%, respectively. NEM stock is also underperforming the GDX year-to-date.

Nevada joint venture integration

Newmont is in the process of integrating Goldcorp and its Nevada joint venture. NEM’s Goldcorp acquisition closed on April 18. However, before that, Barrick Gold (GOLD) made an unsolicited bid to for Newmont in February, suggested that a deal with Barrick would pay off more than a deal with Goldcorp.

In March, however, Newmont rejected Barrick’s hostile bid, stating that Barrick’s unsolicited negative premium proposal was not in shareholders’ best interest. Newmont also proposed creating a Nevada joint venture between Barrick and Newmont. Barrick then ended the hostile bid and agreed to create a 61.5%-38.5% joint venture with Newmont.

Goldcorp integration

Newmont CEO Gary Goldberg stated that “the Goldcorp integration process is well underway and on track to deliver an additional $365 million in annual cash flow.” Goldberg told Reuters that the mines added through the Goldcorp acquisition would take as much as three years of work to bring them to acceptable performance levels. The work is required because Goldcorp cut its exploration expense to zero when gold prices turned down.

Analysts’ views on NEM

Analysts are paying close attention to the company’s Goldcorp merger execution. Citi analysts said, “Results appear disappointing at first look — even allowing for noise from Goldcorp consolidation and Penasquito (blockade).” They added, “We expect 2019 to be a transition year for Newmont… The key is to exit 2019 with plans in place and demonstrate execution on synergies and operating improvements in 2020-21.”

Currently, 65% of analysts covering NEM stock recommend “buy.” In comparison, 82% of analysts covering Agnico Eagle Mines recommend “buy.” To learn more, read Which Gold Stocks Do Analysts Love and Hate?

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