Mega-Merger Hurdles Hit Profit at World's Largest Gold Miner
Comment of the Day

July 26 2019

Commentary by Eoin Treacy

Mega-Merger Hurdles Hit Profit at World's Largest Gold Miner

This article by Danielle Bochove for Bloomberg may be of interest to subscribers. Here is a section:

Newmont now expects consolidated production of 165,000 ounces of gold from Penasquito in 2019. Last year, the mine produced 272,000 ounces of gold for Goldcorp. Newmont is forecasting zero production at Musselwhite this year and doesn’t expect the mine to be fully operational until mid-2020. In 2018, it produced 205,000 ounces of gold.

The company said its full-year gold production will be 6.5 million ounces, which compares with a June forecast for 7 million ounces in 2019 and 7.4 million in 2020. The company is “very confident” it can achieve that guidance, Palmer said, noting that guidance for next year will be provided in December.

The lack of clarity about next year could worry investors, Anita Soni, an analyst with CIBC World Markets, said in a research note. “No further 2020 outlook was provided, which will likely be an overhang on the stock given the uncertainty surrounding the production profile for the recently acquired Goldcorp assets,” she said.

Eoin Treacy's view

From a risk-adjusted perspective buying a producing mine, with well-understood resources is more favourable than committing to building a mine and contributing to proofing up reserves. That is what we are seeing from the gold mining sector at present. Major miners would rather merge than engage in speculative activity. It is that kind of conservative approach to managing mining operations that contributes to value creation. It’s when appetite for borrowing, investment and speculation increase that investors need to be particularly wary.

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