Newmont flags lingering cost pressure as it misses Q2 profit target

Newmont Corporation has warned that inflationary pressures will likely persist into 2023 after the world’s biggest gold producer reported worse-than-expected earnings in the second quarter of the year.

The gold mining giant’s adjusted net income per share was US$0.46 in the quarter, down from $0.83 in the prior year and below the $0.60 analysts had been projecting, with higher operating costs due to inflation impacting Newmont’s profit margin.

The company reported a 16% rise in all-in sustaining costs (AISC) to $1,199 per ounce of gold in the quarter ending June 30, driven principally by higher prices for labour, energy and supplies.

In particular, Newmont noted a potential 20-30% spike in prices for raw materials such as cyanide and explosives used at its mining operations in the second half of the year and a tight labour market to persist into 2023.

This would drive an additional 7% of cost escalation this year, on top of the 5% outlined in December, Newmont’s chief executive Tom Palmer said on a call. Meanwhile, the gold price has continued to lose its shine, falling by nearly 7% in Q2 on a strong dollar and aggressive rate hikes.

Last month at the PDAC Convention in Toronto, Palmer reassured the industry that the gold price would remain around the $1,800 per ounce mark with a higher floor forming in the long term. Today, the gold price is trading at $1,725 per ounce.

Newmont shares fell by as much as 12% yesterday after the company also lowered its annual production guidance to 6 million ounces (Moz) from 6.2 Moz, citing operational challenges and a competitive labour market in Canada and Australia.

Gold production in the second quarter did rise by about 3.4% to 1.5 Moz from a year earlier and its gold sales price increased to $1,836 per ounce in Q2, compared with $1,823 per ounce in the previous year.