Newmont Goldcorp Is in Desperate Need of a Turnaround

Newmont Goldcorp has failed to deliver big gains on the stock market this year even as other gold equities have shot up impressively thanks to the gold price rally. The problem with Newmont Goldcorp is that the combined company has been facing operational issues that have weighed on its stock market performance.

Let’s take a closer look at what ails Newmont Goldcorp and if the company can make a comeback.

The Problem at Newmont Goldcorp

Newmont Goldcorp is being affected by higher transaction costs of the merger and the non-operating mines that the company is sitting on.

The merger of Newmont and Goldcorp that was completed earlier this year has given rise to hurdles. The fact that the integration of the two companies is not going as per plan is clearly evident from the massive top and bottom line miss they recorded in the latest quarter.

The non-GAAP earnings per share of Newmont Goldcorp came in at $0.12 for the second quarter, but Wall Street was originally expecting $0.23 in earnings per share. The top-line miss was slightly narrower as the company’s revenue increased 36% annually to $2.26 billion but missed the estimate by $30 million.

It looks like Newmont Goldcorp is being affected by higher transaction costs of the merger and the non-operating mines that the company is sitting on. As reported by Reuters:

“Costs incurred while Newmont’s Penasquito mine in Mexico and Musselwhite in Canada were idle contributed to the decline. Penasquito suspended operations for seven weeks due to a blockade by a trucking contractor and some community members, while a conveyor fire hit operations at Musselwhite.”

However, Newmont Goldcorp management believes that the company will be able to navigate these tough times and emerge stronger.

Management Is Not Losing Hope

Newmont Goldcorp management is not losing sight of the combined company’s key goals. In the latest earnings conference call, CEO Gary Goldberg said:

We’re on track to achieve a run rate of $365 million in annual improvements from the Goldcorp acquisition by early 2021, and we launched our Full Potential continuous improvement program at Penasquito and Cerro Negro. This program has delivered more than $2 billion in improvements since 2013.

So Newmont Goldcorp believes that the weakness will only be short-term in nature and not hurt the long-term prospects. However, the market is not thinking on similar lines and investors have dumped the stock after its latest results.

This is not surprising as the company doesn’t seem to be in the best shape to take advantage of the recent rally in gold prices. However, investors need to remain patient as there are signs that Newmont Goldcorp could turn out to be a solid long-term bet.

For instance, the company’s attributable gold production increased 58% year over year during the quarter and the cost applicable to sales of gold per ounce increased just 1%. This indicates that Newmont Goldcorp can eventually deliver a stronger performance in the long run thanks to an improvement in the company’s cost and production profile.

As such, it would make sense for investors to take advantage of the pullback in stock price of Newmont Goldcorp because it can make a comeback in the future.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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