Company Reports

Commodity prices generally fell in the September-ending quarter, except for gold. Concerns about weak China end-user steel demand affected iron ore and other steelmaking commodities, while base metals prices fell on worries over slower economic growth in China and elsewhere.

No-moat gold miner Newmont’s 2024 second quarter was similar to our expectations and our estimates are broadly unchanged. We continue to forecast 2024 attributable gold sales volumes of about 6.9 million ounces. While attributable sales volumes of about 1.6 million ounces for the quarter and 3.3 million ounces for the first half are tracking modestly lower, sales are likely to be higher in the second half. Higher grades at its Tanami, Penasquito, and Ahafo mines, along with increased production at Boddington, and at its 38%-owned Nevada Gold Mines and 40%-owned Pueblo Viejo joint ventures with no-moat Barrick, are the main drivers. Likely lower production at Lihir and Cadia partially offset.

Shares of most of our global mining coverage fell during the quarter, and the average price/fair value estimate has fallen modestly to 1.05 at July 8, 2024 from 1.07 last quarter. While our coverage is close to fairly valued on average, there is a wide dispersion, with no-moat mineral sands miner Iluka the cheapest, trading 30% below fair value at that date. Mineral sands prices are lower, on reduced demand from China’s property sector. Rising interest rates and slowing housing markets in the West are also a near-term headwind. However, longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. Its proposed rare earths refinery in Eneabba is an option, on elevated rare earths prices and potential Western tariffs on Chinese production.

Base metals prices surged earlier in the June quarter of 2024 before partially reversing due to concerns over China’s economy. Iron ore prices are broadly stable despite China's struggling property market and weak infrastructure spending, leading to questions over China's steel demand. After updating our commodity price assumptions, no-moat Iluka is the cheapest miner we cover, trading 31% below its unchanged fair value estimate of AUD 9.50.

Newmont is the world’s largest gold miner, with a portfolio reflecting three major deals in recent years. First, it acquired fellow gold producer Goldcorp for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.

Despite rising 43% from five-year lows in February 2024, we think shares in no-moat Newmont remain materially undervalued, trading at a 17% discount to our unchanged USD 51 per share fair value estimate. We think the market expects weak production performance and inflated unit costs to continue, affecting margins.

After no-moat Newmont lowered guidance when it released 2023 results, we anticipated a better 2024 for the company. So far this is the case, with the first quarter in line with our expectations. Adjusted EBITDA of USD 1.7 billion increased 71% from 2023. Higher prices, along with increased sales volumes driven by the acquisition of Newcrest in November 2023, more than offset higher unit costs. Adjusted net profit after taxes of USD 630 million roughly doubled. However, because of the increased share count due to the Newcrest purchase, per-share amounts are a more accurate portrayal of its performance. Adjusted EPS of USD 0.55 rose 38% compared with the first quarter of 2023 and is broadly in line with our 2024 EPS estimate of USD 2.36. We continue to forecast 2024 attributable gold sales of about 6.9 million ounces. Sales volumes are likely to be weighted to the second half of the year as its Peñasquito, Ahafo, and 40%-owned Pueblo Viejo mines increase production after various travails last year. The USD 0.25—about AUD 0.38—per share dividend payable in June is down from the USD 0.40 (AUD 0.62) paid last year but in line with its updated quarterly dividend policy. We forecast 2024 dividends of USD 1 per share, or about AUD 1.54, for a 2.3% forward yield.

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

Newmont is the world’s largest gold miner, with a portfolio reflecting three major deals in recent years. First, it acquired fellow gold producer Goldcorp for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

Newmont is the world’s largest gold miner, with a portfolio reflecting three major deals in recent years. First, it acquired fellow gold producer Goldcorp for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.

Lower production and dividend guidance, along with increased capital expenditure, were the main takeaways from no-moat Newmont’s 2023 result, which was weaker than we expected. After its recent purchase of Newcrest, we think management has taken the opportunity to reset expectations across the business, including updating mine plans at a number of assets. The company is also targeting the sale of six smaller, higher-cost mines. We think the strategy of owning a portfolio of larger, longer-life, lower-cost mines is reasonable. At around USD 1,440 per ounce in 2023, Newmont’s all-in-sustaining costs remain elevated. Along with rising production from remaining assets across our five-year forecast period, the disposals are likely to help return unit costs to within the second quartile of the industry.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

Newmont is the world’s largest gold miner, with a portfolio reflecting three major deals in recent years. First, it acquired fellow gold producer Goldcorp for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.

Commodity prices diverged in the quarter with strong China steel production driving iron ore and metallurgical coal prices up, while base metals prices dropped on worries of a Western recession. Even so, prices are elevated versus history and cost-curve support.

Newmont is the world’s largest gold miner, with a portfolio reflecting three major deals in recent years. First, it acquired fellow gold producer Goldcorp for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.

We retain our fair value estimate for no-moat Newmont of USD 53 per share after updating our forecasts to incorporate the acquisition of Newcrest and the latter’s financials at end of September 2023. We also extend our coverage to Newmont’s Australian-listed CDIs with an initial fair value estimate of AUD 82 per share. We do not assign an economic moat to the enlarged Newmont and reiterate our Medium Uncertainty Rating for the company.

No-moat Newmont's 2023 third-quarter result was lower than our expectations but still solid. Adjusted EBITDA of USD 930 million increased 10% on the same quarter of 2022. Adjusted net profit after tax was roughly USD 290 million, or USD 0.36 per share, 35% higher than last year, driven by higher gold prices more than offsetting lower sales volumes and higher unit cash costs.

Newmont is the world’s largest gold miner, with a portfolio reflecting two major deals in recent years. First, it acquired fellow gold producer Goldcorp for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.