Gold Rush: Newmont Corp. is Starting to Sparkle

Key Points

• As the world’s largest gold miner, Newmont may be a name to watch heading into 2023.
• Gold price trends largely dictate the company’s financial results and stock price.
• With the U.S. dollar in a strong uptrend, central banks bought almost 400 tonnes of gold last quarter.
• Investing in the world’s largest gold producer in Newmont is a good way to get indirect exposure to gold. 

In April 2022, Newmont Corporation (NYSE: NEM) finally eclipsed an all-time high of $79.10 that stood for 35 years. Three trading days into November 2022, it was back below $40.

In recent days, however, the Colorado-based gold miner has started to once again dig itself out of a hole. An overdone post-earnings selloff, broad market bounce, and industry consolidation have Newmont looking shiny again. 

On November 10th, a pair of small-cap metal companies announced a merger. Toronto gold mining company Triple Flag entered a deal to acquire Vancouver-based Maverix Metals for $3.92 per share. 

As a minority stakeholder in Maverix Metals, the agreement has positive implications for Newmont. Although its approval of the deal may not be necessary, it does stand to benefit financially. The offer price represents a 10% premium to Maverix Metals’ November 9th closing price. The Maverix investment is a small piece of Newmont’s asset base, but the news helped Newmont shares gap up to the mid-$40’s. 

The recent M&A headline has spurred speculation that further industry consolidation could be ahead. It has also recast the spotlight on a gold mining space that could garner more attention in the coming months. Why?

When economic uncertainty and stock market volatility rise, gold producers often become a popular safe haven play. So, as the world’s largest gold miner, Newmont may be a name to watch heading into 2023. 

How Were Newmont Corp.’s Q3 Earnings?

Considering the price of gold declined 8% in the third quarter, Newmont’s 9% drop in Q3 revenue makes sense. What disappointed the market, though, was a 55% plunge in EPS that fell well short of consensus. On top of lower realized selling prices, the company’s all-in-sustaining costs (AISC) increased 13% year-over-year to $1,271 per ounce. 

Gold prices have come down from their March 2022 peak and that’s why we’ve seen Newmont’s recent quarterly results moderate. Higher Treasury yields and expectations of further Fed interest rate hikes have made government bonds relatively attractive to investors. 

Last week’s cooler-than-expected inflation data, however, sparked a 5% rally in gold and Newmont came along for the ride. As we saw in the Q3 report, gold price trends largely dictate the company’s financial results and stock price.

What are the Growth Drivers for Newmont Corp.?

For Newmont to move on acquisition news is a bit of a rarity. In general, the stock tends to move alongside gold prices and gold production. 

In Q3, the global supply of gold was up a mere 1% year-over-year. Although this marked the sixth straight quarter of higher mine production, the world’s supply of gold is rather limited. This means the price of gold mainly revolves around demand. 

There are several factors that drive global gold demand. Central banks accumulate gold to hedge against currency weakness and safeguard their financial systems. With the U.S. dollar in a strong uptrend, central banks bought almost 400 tonnes of gold last quarter. 

Demand from investors is another influence. This includes investments in physical gold bars and coins as well as gold-backed exchange-traded funds (ETFs). 

Jewelry also plays a major role. Despite the weakening economic environment, global jewelry consumption rose 10% in Q3. Gold’s use in electronics, on the other hand, fell during the quarter.

At the end of Q3, gold demand was up 18% year-to-date and back at pre-pandemic levels. The reset button has effectively been hit for Newmont and other gold miners. 

Going forward, China and India will be important growth drivers. Both nations are big gold jewelry consumers. The easing of Covid restrictions in China will tell us much about where gold heads in 2023.

Is Newmont Corp. a Good Way to Invest in Gold?

Newmont is the lone gold producer in the S&P 500. This in and of itself makes it a relatively low-risk way to gain exposure to gold. In addition, the investment comes with a side of the copper and other metals which account for roughly 10% of revenue. And with copper expected to play a major role in electric vehicle growth this decade, Newmont’s gold and copper exposure make it an interesting safe-haven plus EV growth play. 

Make no mistake, though, gold market trends will primarily dictate where Newmont stock goes over the next few years. 

Gold jewelry, bars and coins are popular ways to invest in gold. They can also be difficult to locate and wrought with improprieties. 

Accessibility and reliability make the equity route a preferred method for many gold investors. Investing in the world’s largest gold producer in Newmont is a good way to get indirect exposure to gold.  

Where Newmont has an advantage over physical gold and gold ETFs is its income component. The stock comes with a 4.7% forward dividend yield that is not only one of the highest in the materials sector but within the top decile of S&P 500 yields. 

Bottom line: Newmont’s proximity to a 52-week low, safe haven value in a volatile market and generous dividend could provide some valuable returns.