Newmont has overcome Covid, wet weather in Western Australia, recalcitrant new technology (also in WA), and a slide in production to post record 2021 earnings as output narrowly topped a previous high even after the company was forced to cut its projected output in October by nearly 8%.
The world’s biggest gold miner earned an adjusted net profit of $US2.371 billion for 2021, an all-time high, topping the previous record of $US2.140 billion set in 2020 when world prices peaked in August of that year at a record $US2,074.88 an ounce.
The company was forced to cut its annual production target of 6.5 million ounces last October by 500,000 ounces after problems at the Boddington mine in WA with wet weather and difficulties installing a new haulage system piled on top of the impact of Covid in other mines, including its Tanami mine in the Northern Territory.
In its 4th quarter and full year report on Thursday, Newmont said it produced 5.971 million ounces of gold last year – almost meeting the lowered target of 6 million ounces and steady with the 5.9 million ounces the year before.
Production of other metals – mostly copper, silver, lead and zinc totalled 1.252 million ounces of gold equivalent, up more than 20% from 2020’s 1.021 million ounces gold equivalent and (thanks to those record copper prices and high lead and zinc returns) helps explain the solid full year result. These metals are by products from its gold mines.
And looking to the future, Newmont has hauled back a touch on ambitious gold production targets for the next few years.
The company has set a production target this year of 6.2 million ounces which remains at the bottom of the ambitious 6.2 million to 6.7 million range announced at the start of 2021.
That’s despite planning a 220,000 ounce rise in production from the two Australian mines this year to around 1.4 million ounces after 2021’s 1% rise to 1.181 million ounces.
Projected production targets for 2023-2025 have also been trimmed by between 200,000 and 400,000 ounces a year in what looks like a scaling back of the company’s ambitions laid out a year ago.
But the Covid-impacted start to 2022 has already cast doubt on the forecast for this year of 6.2 million ounces – Newmont said in its release that the pandemic had already cost it as much as 150,000 ounces with a month to go in the quarter.
For the 4th quarter Newmont reported a 27% drop in adjusted profit on Thursday, it was hurt by a fall in gold prices and the lingering impact of Covid.
Newmont reported adjusted earnings dropped to $US624-million in the three months to December 31, from $US856-million a year earlier.
After write downs and losses and impairments, the company reported a 4th quarter loss of $US46 million.
The gold and copper miner posted revenue of $US3.39 billion in the period, virtually steady on the $US3.38 billion for the final quarter of 2020.
Gold prices were lower across much of 2021 after peaking well above $US2,000 an ounce in August 2020 at the height of the pandemic’s first Alpha wave.
Rising vaccinations and the reopening of the global economy hit bullion’s safe-haven appeal, while an increasingly hawkish US Federal Reserve also pressured prices.
Omicron had little impact but the Russian invasion of Ukraine provided a late December twitch which developed further into a sharp rise by late February.
Newmont said its average realised price for gold increased $US13 per ounce to $US1,788 per ounce for the full year abut fell $US54 per ounce to $US1,798 per ounce fin the 4th quarter from the same quarter of 2020.
But copper prices hit an all-time high in May 2021 above $US4.70 a pound and have remained well above $US4.20 a pound since, adding to the company’s bottom line (as it did for the likes of OZ Minerals in Australia while helping Newcrest offset a weak gold production effort)
Newmont said attributable gold production for the fourth quarter fell marginally to 1.62-million ounces from 1.63-million ounces in the previous year quarter.
All-in sustaining cost, an industry metric that reflects total expenses associated with production, rose to $1,056 per ounce of gold from $1 043 per ounce.
Two days before the release of its result, Newmont declared a fourth-quarter dividend of 55 US cents per share for a total in 2020 of $US2.20 per share and maintaining its position as the highest dividend payer in the industry.
Newmont says it evaluates the dividend returns in concert with gold price fluctuations of $US300 an ounce. Should gold trade at $US2,100 an ounce, annualised payouts could reach $US2.80 to $US3.70 per share.
The company will pay $US1.8 billion to shareholders in dividends for 2021 and has already bought back more than half a billion dollars’ worth of shares under its $US1 billion repurchase deal announced late last year. That buyback has been extended until the end of 2022.
And an interesting disclosure deep in the report reveals a sharp, confirms that Newmont expects gold prices to remain high for this year at least. The company has lifted by 50% the average gold price this year Newmont will use in all its pricing and cost assumptions.
(Gold rose and then fell Thursday, ending under $US1,900 an ounce.)
“Due to sustained higher gold prices over the last two years, Newmont’s 2022 outlook assumes an $US1,800 per ounce revenue gold price … to reflect higher costs from inflation, royalties and production taxes.
“In 2022, an additional 5% of cost escalation is incorporated into our direct operating costs related to labour, energy, and material and supplies. 2022 and longer-term outlook assumes a $30 per ounce impact from production taxes and royalties attributable to higher gold prices,” Newmont pointed out.
This is a quite bullish change of heart for Newmont which has gone from a conservative pricing stance to one on the edge of the current market.
