Newmont Earnings: Solid Despite Lower Volumes and Higher Unit Costs

No-moat Newmont’s NEM 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 reduced 2023 gold production guidance and we update our forecasts accordingly, modestly lowering our fair value estimate to USD 53 per share, down from USD 54. The shares trade at a 29% discount to fair value, which we think is likely due to concerns over rising real interest rates, which are a headwind to gold prices, as well as concerns over Newmont’s sales in 2023 declining on the last year. We now forecast 2023 attributable gold sales of around 5.3 million ounces, down from about 5.6 million. This is driven by a strike at its Penasquito mine, now resolved, along with weak production at its Nevada Gold Mines and Pueblo Viejo joint ventures with Barrick and equipment failures at its Ahafo mine in Ghana. We also increase our forecast unit cash costs for 2023 to roughly USD 1,000 per ounce, from roughly USD 960.

Despite our lower forecast 2023 gold sales, we continue to forecast sales from Newmont’s existing mines to rise to roughly 6.4 million ounces over our five-year forecast period. This is driven by production recovering at Penasquito and at its joint ventures with Barrick, along with expanded production at Ahafo. We think the likely increase in production will reduce the company’s currently elevated unit cash costs. Along with Newmont’s acquisition of Newcrest, which is due to close in early November 2023, this will likely keep the enlarged group within the second quartile on the gold industry cost curve. This is a decent position although we don’t think Newmont is moatworthy given the significant capital base of the combined companies.