Newmont Goldcorp Hit by Weak Gold Prices

Newmont Goldcorp [stock_market_widget type="inline" template="generic" color="default" assets="NEM" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] reported its first quarter as a public company and the results were not pretty. The combined company’s net profit from continuing operations for the first quarter of 2019 was down significantly year over year on account of the costs associated with the integration of Newmont Mining and Goldcorp, as well as lower realized prices of gold.

But there were positive takeaways from the quarterly report as well. Let’s take a closer look.

The Key Takeaways from the Quarter

Newmont Goldcorp delivered a net income of $113 million for the quarter, down $57 million from the prior-year period. On an adjusted basis, Newmont Goldcorp delivered a net income of $176 million as compared to the year-ago period’s adjusted net income of $185 million.

However, the adjusted EBITDA increased 7% year over year to $687 million. This can be attributed to a slight increase in production to 1.23 million ounces during the quarter, up 2% from the prior year, thanks to a complete quarter of mining at Subika and an increase in the grade at Yanacocha and Merian.

At the same time, the cost applicable to sales of gold dropped 5% to $935 million during the quarter. This led to a 4% drop in the all-in sustaining costs of gold to $907 an ounce for the first quarter of 2019.

Thanks to the lower costs and slightly higher production of gold, Newmont Goldcorp was able to offset the drop in the average realized price of gold, which fell $26 per ounce year over year during the quarter.

However, lower copper production played spoilsport during the quarter as it fell 17% year over year on account of lower grades and throughput that affected Newmont Goldcorp’s mining operations at Boddington.

In all, it was a mixed first quarter for the world’s largest gold mining company. But there were solid indications that the two companies are on track to realize strong synergies in the future.

Don’t Miss These Positives

Newmont Goldcorp’s consolidated operating cash flow from continuing operations was up 116% year over year to $574 million, and investors can expect further improvement is in the company’s cash flow.

The biggest impact of the Newmont Goldcorp merger can be seen on the combined company’s cash flow during the quarter.

Newmont Goldcorp’s consolidated operating cash flow from continuing operations was up 116% year over year to $574 million on account of favourable working capital changes. Looking ahead, Newmont Goldcorp investors can expect further upside when it comes to the company’s cash flow profile.

That’s because the company is focusing on capital efficient projects that will drive higher margins in the future. For instance, the Ahafo Mill expansion project in Africa is expected to boost Newmont Goldcorp’s production by a range of 75,000-100,000 ounces a year for the first five years beginning next year.

More importantly, the project has an internal rate of return of over 20%. So Newmont Goldcorp investors can expect an improvement in the company’s financial performance going forward as these projects come online.

Analysts also expect the same as Newmont Goldcorp’s earnings are expected to rise next year after a dip in 2019, which is why investors shouldn’t be daunted by short-term challenges.

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.


Please enter your comment!
Please enter your name here