Shares of Newmont Goldcorp (NYSE:NEM) are down more than 12% Monday after the world’s largest gold miner reported worse-than-expected Q2 earnings. Now, Newmont’s stock price is down over 40% in just 3 months as gold miner’s shares struggle to cope with falling gold prices.
Worse-Than-Expected Q2 Results
The mining company generated $379 million in net income from continuing operations, down from $640 million in the same quarter last year. Sales came in at $3.06 billion, down 0.2% YoY and below the expected $3.1 billion. The company reported an adjusted EPS of 46c, down from 83c in the year-ago period and missing the consensus estimates of 65c per share.
Newmont reported attributable gold production of 1.5 oz, compared to 1.45 million in the year-ago quarter, while analysts were estimating 1.6 million. Gold’s all-in sustaining cost per ounce stood at $1.2 billion, compared to $1.03 billion in the same period last year and analysts’ expectations of $1.15 billion.
The company reported gold costs applicable to sales per ounce of $932 million, compared to $755 million in the year-ago period, while analysts were looking for $905.5 million. Adjusted EBITDA stood at $1.1 billion in the quarter, short of the consensus projection of $1.43 billion. Newmont reported $514 million in free cash flow, also below the expectations of $550.7 million.
Tom Palmer, CEO of the company, said Newmont delivered “a solid second quarter performance.” he added that:
“Through our industry-leading portfolio of assets and projects, our proven integrated operating model, our balanced and disciplined approach to capital allocation, and our values-driven commitment to our purpose of creating value and improving lives through sustainable and responsible mining, Newmont remains well-positioned to safely manage through the evolving and unprecedented challenges that face our industry and the world at large.”
Looking ahead, the Denver-based mining giant expects full-year attributable gold production of 6 million oz, down from the previous guidance of 6.2 million and below the consensus estimates of 6.3 million.
The reduced forecast comes due to adverse effects from operational headwinds at the Ahafo mine, a shift to a leach-only operation at the Cripple Creek & Victor Mine (CC&V), and a tighter labor market, particularly in Canada and Australia.
NEM also expects full-year development capital of about $1.1 billion. Gold all-in sustaining cost per ounce for the full year is estimated to be around $1.15 billion, up from the earlier guidance of $1.05 billion and above the consensus estimates of $1.11 billion.
Newmont said its Q2 numbers were affected by fuel and energy costs of around $50 million and an additional $80 million in higher labor and material expenses. The company also reported $70 million in costs from bonus payments distributed to its workers in the Penasquito mine.
Gold output in the second quarter climbed around 3.4% to 1.5 million ounces relative to the year-ago period, boosted by higher ore grade milled at Boddington and Tanami mines in Australia.
Rival Barrick Gold Outperforming
Newmont rival Barrick Gold Corp (NYSE:GOLD) reported a 5.4% surge in Q2 gold output compared to the previous quarter, boosted by strong performance at its Nevada mines, including Carlin and Turquoise Ridge.
Following a myriad of global supply chain challenges that emerged after Russia’s invasion of Ukraine, Barrick adopted several measures to weather the impact, including doubling its inventory of essential mining supplies like cyanide, explosives, and steel balls.
Barrick reported an average market price for gold of $1,871 per ounce in Q2, down from $1,877 in the quarter before that. Total preliminary gold production hit $1.04 million ounces, up from 990,000 ounces in Q1.
Falling Gold Prices
Gold prices saw a small rebound last week, bouncing off a 1-year low on Thursday. Spot gold prices have managed to return to trade above $1,700 per ounce after hitting $1,680.25 - the lowest point since March last year.
Gold prices were boosted by the euro’s jump against the dollar after the European Central Bank (ECB) introduced stronger-than-expected rate hikes to curb the 4-decade high inflation.
RJO Futures strategist Daniel Pavilonis said geopolitical tensions around the Ukraine war, elevated energy prices, and higher debts are boosting the demand for gold. He said that the safe-haven asset lured more overseas investors as the dollar eased last week.
On the other hand, the bullion has lost over $380 in value since early March. Gold prices recorded their worst three-month period since early 2021, slipping almost 7% in the quarter ended June as a stronger dollar and aggressive rate hikes from global central banks drove investors away from the bullion.
Standard Chartered (OTC:SCBFF) analyst Suki Cooper explained:
“Gold remains caught between elevated inflation, growing concerns over a recession and a flight to quality on the one hand, but sharp rate hikes, a strong USD, and seasonally weak demand on the other.”
The Fed is expected to raise interest rates by an additional 75 basis points this week. Chris Gaffney, president of world markets at TIAA Bank, said:
“The current rally would be short-lived as the Fed is expected to be pretty aggressive, and the dollar might hold its strength.”
A Gold Rally Coming as the Fed Takes a Pause?
In case the Fed hints that aggressive rate hikes are behind us, there could be a strong chance we may see a rally in gold. However, the yellow metal is likely to remain under pressure until investors see enough evidence that the Fed may be prepared to slow down.
Gold faced a particularly challenging macroeconomic environment in May when the Fed introduced its most aggressive rate increase in over 20 years. The U.S. real yields entered the green territory that month for the first time in two years, with the 10-year Treasury Note yield climbing almost 90% this year as inflation and recession concerns forced investors to seek diversification.
The COMEX gold price ended May at $1,848 per ounce, despite its rise on a year-to-date basis. Analysts’ expectations for future gold prices are mixed, including upgrades over 2022-24 and downgrades in 2025 and 2026. On average, surveyed analysts expect gold to slip about 0.3% annually, according to the research firm S&P Global.
On the other hand, silver prices remained robust above $20/oz in May following their drop to an 8-month low on May 13 after the U.S. dollar hit a 20-year high. Similarly, silver prices were also affected by Fed’s hawkish monetary policy, and with additional rate hikes likely to come, consensus price forecasts for silver have decreased an average of 1.1% on an annual basis—the second-largest downgrade after uranium.
Summary
Newmont stock is down to start the new week after the gold miner reported soft results for its second quarter. Moreover, the falling gold prices are also negatively impacting Newmont's stock price, which is down over 40% in the last 3 months.