Title: Why Newmont's Shares Dipped by 33%?
Newmont Corporation, the globe's largest gold miner (NYSE: NEM), has witnessed a subpar performance since the end of September, with a 33% dip compared to the S&P 500's 1.8% surge. Newmont shares align with those of its peers, such as Freeport-McMoRan (NYSE: FCX) down 24%, Barrick Gold (NYSE: GOLD) down 27%, and VALE (NYSE: VALE) down 28%, during the same period.
Recent problems have plagued Newmont Corporation. Disappointing financial outcomes and escalating operational costs have taken a toll. Mining operations face increasing labor and energy expenses, causing strain. Investors anticipated strong earnings based on the gold price boom, but Newmont's earnings, despite being sizable, fell short of expectations. This shortfall meant a steep market response. Furthermore, costs associated with Newmont's $17.5 billion acquisition of Newcrest Mining have added pressure, as integration and adjustment efforts contribute to increased expenses.
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Yet, the reasons behind Newmont Corporation's inconsistent performance need examination. Why has it consistently underperformed over the last four years compared to the S&P 500? As a whole, the HQ Portfolio's stocks have delivered more substantial returns with lower risk compared to the benchmark index, resulting in less volatile market performance. Given the unpredictable macroeconomic environment with rate cuts and multiple wars, the question arises: Could NEM face a similar situation as it did in 2021, 2022, 2023, and 2024, underperforming the S&P 500 over the next 12 months, or will it find recovery?
Recent Changes Influencing Newmont's Stock
Some of the recent decline can be justified owing to a 13% increase in all-in-sustaining costs for the gold industry, reaching $1,611 per ounce, primarily due to higher direct operating expenses at some mines. Revenue, however, has demonstrated impressive growth of 84% year-over-year, amounting to $4.6 billion. This increase stems from surging bullion prices and higher gold volumes originating from the Newcrest acquisition.
Despite this upward trend, the company's price-to-sales (PS) multiple has taken a hit, dropping from 3.6x in 2021 to its current 2.5x status. Despite its current 2.5x PS, its value compares favorably to past years—3.6x in 2021 and 3.3x as recently as 2023.
Anticipating Newmont’s Stock Future
Newmont reported impressive Q3 2024 results, with a notable 30% increase in gold production, reaching 1.7 million attributable ounces. This growth primarily resulted from the Newcrest acquisition and improved performance at several operations. However, the production of gold-equivalent ounces (GEOs) from other metals decreased by 10% quarter-over-quarter due to operational difficulties at the Peñasquito mine, including lower ore grades and ongoing remediation work. The company recorded an 84% revenue growth for the quarter, aided by higher gold prices. Despite this, escalating costs, such as contractor inflation and sustaining capital expenditures, dampened profit margins. Newmont projects achieving approximately 6.75 million ounces of attributable gold production for the full-year 2024, which reflects the recent stock price drop as a short-term challenge. Understanding Newmont’s strategies to tackle cost issues is crucial to assessing future prospects. As of now, Trefis estimates Newmont's valuation to be around $53 per share, about 35% above the current market price.
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[1] Gold industry sector trend, Q3 2024.[2] Market dynamics and Newmont's stock volatility, 2021-2024.[3] Newmont's revised 2025 guidance.[4] Research analyst opinions and ratings on Newmont's stocks.
Despite Newmont Corporation's recent 33% dip in performance compared to the S&P 500, its nem revenue for Q3 2024 showed impressive growth of 84%, reaching $4.6 billion. Newmont's struggle with high operational costs and underperformance compared to the benchmark index has led some investors to consider diversifying their portfolios with newmont's peers like freeport-mcmoran, barrick gold, and vale, which have also seen fluctuations during the same period.
