Newmont Delivers Strong Results Amid Merger Developments


Newmont Mining (NYSE: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”NEM” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) shot into the spotlight after it emerged that it is the subject of a takeover bid from Barrick Gold (ABX.TO), but at the same time, the company delivered solid results that further added to the excitement. The senior gold miner beat Wall Street’s top and bottom line expectations quite easily, though the guidance wasn’t very inspiring.

Newmont’s Q4 Results End Year on Positive Note

Newmont’s revenue rose 5.7% year over year to $2.05 billion, while adjusted earnings were nearly flat at $0.40 per share. The company’s attributable gold production came in at 1.44 million ounces, up 8% from the prior-year period. What’s more, Newmont’s all-in sustaining cost per ounce of gold fell 9% year over year to $845 an ounce.

However, the gains from higher gold production and lower costs were extinguished by flat copper production and lower pricing for the industrial metal. Newmont’s fourth-quarter copper production was in line with the prior-year period at 11,000 tonnes, but the average realized price fell 18% annually to $2.62 per pound.

Additionally, the cost of sales applicable to copper increased 10% year over year, impacting the company’s profitability in the process. So, weak pricing was the biggest headwind for Newmont Mining last quarter. But a strong performance in the final quarter of the year has ensured that the stock’s recent upturn on the market continues.

Getting Gold Production Growth On Track

Newmont Mining’s production guidance for 2019 and subsequent years indicates that the company is going to struggle with lower output. Newmont expects to produce 5.2 million ounces of gold this year, a slight increase from the 5.1 million ounces it produced last year. However, it expects production to drop to 4.9 million ounces in 2020, while also clarifying that long-term output will range between 4.4 million and 4.9 million ounces through 2023.

The long-term production guidance excludes any development projects that are pending approval. Still, it is evident that on a standalone basis, Newmont Mining is facing a declining production profile. As a result, the company has decided to buy Goldcorp in a deal that’s worth $10 billion.

Once the acquisition is complete in the second quarter of 2019, Newmont expects that the combined company will be able to consistently clock annual gold production of 6 million ounces to 7 million ounces for the next decade. This would make the new Newmont the world’s largest producer of gold and address a major concern that could have derailed its recent momentum.

Barrick’s $18 Billion Bid for Newmont

Barrick Gold has made a formal bid for Newmont Mining of $18 billion (all-stock). According to Barrick CEO, Mark Bristow, “Considered globally, the merger represents a radical and long-overdue restructuring of the gold industry, and a transformative shift from short-term survival tactics to the long-term creation of sustainable value.”

In contrast, Newmont Mining fired back with a statement stating “Newmont has previously determined that Barrick’s risk and return profile is inferior on many fronts, including factoring Barrick’s comparatively ineffective operating model, poor track record on delivering shareholder returns and unfavorable jurisdictional risk.”

Additionally, it appears as though Newmont is moving forward with the Goldcorp purchase, completely ignoring Barrick’s offer. Only time will tell if this potential record-setting merger this shapes out.

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