Why Newmont remains the "global go-to name for gold leverage"

Newmont (ASX: NEM) rattled the gold sector last week after its September quarter report raised concerning cost and production forecasts. The downbeat outlook took a substantial toll on both Newmont – shares down 19% between last Thursday and Friday – as well as the broader gold sector.

Q1 2025 Highlights

• Net income per share up 102% to US$0.81 but below US$0.86 consensus (5.8% miss)

• Average realised gold price of US$2,518/oz

• All-in sustaining costs of US$1,611/oz (1Q24: US$1,376) compared to market expectations of US$1,445/oz (10.3% miss)

• Lihir, Cerro Negro and Akyem were the main drivers of higher costs

• December quarter guidance implies significantly lower cost expectations and an increase in buyback program to US$3 billion in total

In the conference call, management said long-term gold production will average 6 million ounces compared to prior forecasts of 6.6 million ounces from 2026-28.

"Jawboning down the outlook"

"While Q3 was softer than consensus, the real pain came when management talked on 2025 and beyond which, simply put, flagged ~9% lower production than the February 2024 five-year outlook. While certainly negative, we view the sell-off as a little overdone ,with Newmont still the global go-to name for gold leverage," Macquarie analysts said in a note last Friday.

The production challenges reflected:

• Newmont inherited some baggage from Newcrest's Lihir. 2025 production is forecast to be ~250,000 ounces lower than what was previously expected, to allow for plant reliability works and infrastructure adjustments.

• Brucejack will have 2025 production of ~100,000 ounces lower than what was expected in the February 2024 five-year outlook

• Overall, 2025 production is expected to be ~5.6 million ounces or 10% below the five-year outlook provided in February 2024

The cost outlook was also rather underwhelming:

• Newcrest's Cadia will have elevated levels of sustaining capital "over the next few years" as Newmont commits to increasing tails capacity fit for multi-decades

• Sustaining capital forecast to average approximately US$1.8 billion over "the next few years". However, this is below Macquarie's expectations of US$2.0 billion pa

• AISC forecast to be "broadly consistent" year-on-year in 2025 compared to the five-year outlook which flagged AISC falling ~4% from 2024 to 2025

The production and cost challenges drove material downgrades to Newmont's earnings outlook. Macquarie analysts cut 2025-28 EPS assumptions by 15-18% and lowered its target price for the stock by 11% to $80.

Back below gold

Newmont's year-to-date performance has been mixed compared to gold. For most of the year, Newmont underperformed the underlying commodity. It wasn't until late July that the stock started to run ahead.

Despite this recent outperformance, the disappointing quarterly has almost halved Newmont's year-to-date returns, causing it to now dramatically underperform the commodity it produces.

While there are certainly many high-quality gold mining and exploration companies, an argument could be made that it may be simpler for some investors to gain exposure to the gold market by owning the commodity itself, rather than trying to identify the best-performing mining stocks.

Newmont (blue) vs. Gold price (orange) year-to-date | Source: TradingView

The Global Go-To

Despite the weaker-than-expected outlook, Macquarie reiterated Newmont as the global "go-to name for gold leverage". Here are a few reasons why.

Newmont is the sole gold producer in the S&P 500. This reflects the company's sheer size and sets it apart from other gold mining companies.

Sustainable dividends, tripling the buyback. Newmont Q3 dividend of 25 cents per share was in-line with analyst expectations and the company is expected to maintain its $1.00 per annum dividend policy. The board has also authorised an additional US$2 billion buyback program, on top of the current $1 billion program.

More assets to sell. Newmont is expecting at least another $2 billion from its divestiture process. The company recently sold its Akyem Project for US$1 billion in cash, which was 87% above Macquarie's NPV for the asset. The current gold price environment could see some upside surprises.