Newmont Inc (NYSE:NEM) shares plunged nearly 11% on Monday morning after reporting weaker-than-expected Q2 results, hurt by lower oil production and gold prices, and lowered its gold production forecast for the whole year.
Newmont profit fell on rising costs
In the second quarter, net income from continuing operations dropped to $379 million, or $0.48/share, from $640 million, or $0.80/share in the prior year quarter, while revenue totaled $3.06 billion, compared to $3.07 billion a year earlier and in line with analysts’ estimates.
Newmont second-quarter gold production increased 3% year-over-year from 1.45 million ounces to 1.5 million ounces, at an all-in sustaining cost of 1,199 $/oz vs. $1,035/oz a year ago.
Newmont said earnings were hurt by higher labor, material and consumables costs, higher fuel and power expenses and a $70 million charge related to the profit-sharing agreement announced in early July with the workforce of its Peñasquito mine in Mexico.
For the full year, Newmont now forecasts attributable gold production of 6 million ounces, down from a previous forecast of 6.2 million ounces and below the analysts’ consensus estimate of 6.3 million ounces. An all-in sustaining cost of $1,150/oz is expected, $1,150/oz, below its previous forecast of $1,050/oz and consensus of $1,111/oz.
The miner cited the negative impacts of labor availability and supply chain disruptions affecting the Ahafo mine in Ghana. Newmont’ results were also impacted by the transition to a leach-only operation at the Cripple Creek & Victor mine in the United States, resulting in a full-year production reduction of approximately 40,000 ounces. In addition, Newmont continues to experience declining productivity due to a competitive labor market in Canada and Australia, resulting in full-year production impacts of approximately 50,000 ounces and 30,000 ounces in these regions, respectively.
Newmont president and CEO Tom Palmer said: “Newmont delivered a solid second quarter performance, producing 1.5 million gold ounces and generating $514 million in free cash flow. 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.
Palmer added that Newmont remains well-positioned to safely manage through the evolving and unprecedented challenges that face their industry and the world at large.
Newmont cut its 2022 production guidance
Newmont provided an updated outlook for 2022 due to impacts on gold production estimates in the year’s first half and the continued impact of inflationary cost pressures.
Newmont’s updated outlook for 2022 includes 6.0 million ounces of attributable gold production and 1.3 million ounces of gold equivalent from silver, copper, silver, lead, and zinc.
The updated CAS outlook for 2022 is expected to be $900 per ounce of gold and $750 per ounce of co-product gold equivalent. AISC’s updated outlook for 2022 is expected to be $1,150 per ounce of gold and $1,050 per ounce of co-product gold equivalent. The revised outlook includes the impact of lower production volumes and higher direct operating costs related to labor, energy, consumables and supplies due to continued inflationary pressures.
Newmont expects development capital to hit $1.1 billion for 2022 to account for spending delays at Yanacocha Sulfides and Ahafo North.
Meanwhile, the company expects general and administrative expenses to be $270 million, including modest increases in labor costs due to inflationary pressures. Newmont also expects interest expense to amount to $200 million. This is a reduction of $25 million following the timely refinancing of Newmont’s 2022 and 2023 notes in December last year.
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