1: Introduction

Newmont Corporation (NYSE: NEM) announced its earnings for the fourth quarter and full year of 2024 on February 20, 2025. Before I begin my analysis, this article serves as an update to my Gurufocus article from November 14, 2024, in which I analyzed the third quarter of 2024.Newmont Corporation is recognized as the largest gold miner in the world and holds one of the largest gold reserves. As of the end of 2024, the company reported total gold mineral reserves of 134.1 million attributable ounces. Of this total, 125.5 million ounces are classified as Tier 1 reserves, which indicates a highly secure classification.

• Warning! GuruFocus has detected 5 Warning Signs with NEM.

In addition to its gold reserves, Newmont has significant exposure to other by-product metals. The company holds approximately 89.5 million gold equivalent ounces of attributable reserves from copper, silver, lead, zinc, and molybdenum. Newmont's gold reserves are roughly equal to the combined reserves of Barrick Gold (NYSE:GOLD) and Agnico Eagle (NYSE:AEM).After merging with Newcrest, the company produced a record 8,793 K gold equivalent ounces in 2024, up from 6,849 K ounces in 2023. Attributable gold production for 2025 is estimated at 5,900K ounces. The reduction in gold production stems from the company's major divestiture program, projected to reach $4.3 billion by 2025.

2: A poor stock performance overall.

When reviewing the recent earnings release, we cannot overlook the stark contrast between the company's financials and the stock's poor performance since October 2024. I hope this article will help explain why the market punished this stock. Let's first compare NEM versus gold on a one-year basis. We can see that NEM has slightly outperformed gold on a one-year basis, so logically, we should conclude that the stock presents a great valuation. However, this conclusion is not so true from the perspective of a long-term reality. First, if we look at the 10-year chart, we realize that NEM has mostly outperformed gold until recently and is now underperforming it despite growing bigger with higher revenue and free cash flow.In October 2024, Newmont Corporation's stock declined significantly after the company reported disappointing third-quarter results. These results raised concerns among investors due to elevated operating costs despite the company achieving its highest quarterly profits in five years. Worse, NEM reduced its quarterly dividend from $0.40 to $0.25 per share, effective from the third quarter of 2024.

Over the next two months, the stock price declined by more than 36%, falling from $58.46 on October 21 to $37.25 by December 20, 2024. Although NEM made a partial recovery, it is now experiencing another decline, indicating weakness, even as gold remains strong at over $2,800 per ounce. The most annoying part is that I do not see any plausible fundamental explanation to justify this serious weakness.

We may attribute the current stock situation to higher operating costs, but a closer look at free cash flow history suggests that the fundamentals are quite strong. The acquisition of Newcrest has also proven successful; NEM generated a record free cash flow of $1,636 million in 4Q24 while reducing all-in sustaining costs (AISC) from $1,611 in 3Q24 to $1,463 per ounce. One possible explanation for this weakness is the dividend drop, which negatively affected many loyal investors despite free cash flow reaching new highs.

When we compare NEM to some of its peers, it is largely underperforming the group despite being the stronger competitor on paper. AEM, PAAS, and KGC are performing well, while only GOLD is lagging behind NEM due to challenges related to its mining operations in troubled areas like West Africa and Papua New Guinea.

3: Could a merger between Barrick Gold and Newmont Corporation be a solution for both parties?

Despite the booming gold market, Newmont and Barrick Gold are currently underperforming. A merger could help both companies improve their combined stock performance. In the past, Newmont and Barrick Gold have explored merger possibilities several times, but they have not finalized any agreements.

In 2014, Newmont ended merger discussions with Barrick due to executive conflicts, highlighting their two different and incompatible corporate cultures. Later, in 2019, Barrick proposed merging with Newmont again (a hostile takeover), but Newmont declined. Instead of a full merger, the two companies formed a joint venture in Nevada called Nevada Gold Mines. Barrick held a 61.5% interest, and Newmont held 38.5%.

A merger now would make sense from an investor's perspective but will have many obstacles to overcome. A merger of this magnitude would result in substantial global gold production under a single entity, potentially raising antitrust concerns, particularly in the U.S. and Canada. Additionally, a merger between a Canadian mining company (NYSE:GOLD) and a U.S. mining company (NYSE:NEM) may be unfeasible due to recent political issues.

Barrick Gold's yearly production and revenue are lower than Newmont Corporation, as shown in the charts below:1: Barrick Gold separates the production of gold and copper.

2: Newmont Corporation reports its production in Gold Equivalent Ounces (GEO), which includes copper production as well.

However, if investors in both companies are dissatisfied with their current stock performancewhich is likely the casethere may be a push for consolidating the two miners. They could argue that such a merger would create sufficient synergies to achieve a higher overall valuation.

Although I do not believe a merger between NEM and GOLD will happen soon, a savvy investor could see it as a beneficial solution. Time will tell.

4: A critical analysis of the fourth quarter results.

On February 20, 2025, Newmont announced that its net earnings from continuing operations were $1.24 per share for the fourth quarter of 2024. It marks a significant turnaround from the loss of $3.24 per share reported in the same quarter the previous year. Furthermore, adjusted earnings rose to $1.40 per share, an increase from $0.46 per share in the last year's quarter. Newmont's revenues for the fourth quarter reached $5.652 billion, a 42.8% increase compared to the $3.957 billion reported in the same quarter last year. Earnings were better than expectations.

Gold revenue accounted for 85.6% of total revenue in 4Q24, as illustrated in the chart below:

Newmont's attributable gold production in the fourth quarter was 1,899,000 ounces, a 9.2% increase compared to last year. The company also produced 548,000 gold equivalent ounces, bringing the total to 2,447,000 GEOs. Additionally, NEM sold 2,360,000 gold equivalent ounces in 4Q24.

The gold production comes from twenty producing mines, as shown below:

On March 3, 2025, Newmont Corporation announced:

Three non-core operations, including the Musselwhite and Eleonore operations in Canada and the Cripple Creek & Victor (CC&V) operation in Colorado, USA.

Total gross proceeds from announced divestitures are expected to total up to $4.3 billion, which includes $3.8 billion from non-core divestitures and $527 million from the sale of other investments.

Newmont expects to close the sale of its Akyem operation in Ghana and its Porcupine operation in Canada during the first half of 2025. As previously announced, the sale of these assets is expected to generate up to $1.4 billion in gross proceeds, detailed as follows:

- Up to $1.0 billion from the sale of the Akyem operation, including $900 million in cash consideration due upon closing and a further $100 million is expected to be received upon the satisfaction of certain conditions.

- Up to $425 million from the sale of the Porcupine operation, including $200 million in cash consideration and $75 million equity consideration due upon closing. The Company also expects to receive up to $150 million in deferred cash consideration.

The average realized gold price increased approximately 31.9% year over year, reaching $2,643 per ounce. The company's costs for gold were $1,096 per ounce, up 0.9% year over year. The gold price is reaching a new high quarterly, as shown in the chart below:

The all-in sustaining costs (AISC) for gold decreased by approximately 1.5% year-over-year, now at $1,463 per ounce. This represents a significant reduction compared to 3Q24. However, for the first quarter of 2025, the All-In-Sustaining Cost (AISC) for the overall portfolio is projected to be $1,630 per ounce, incorporating production from non-core assets. Additionally, the AISC for the Total Tier 1 portfolio is expected to be $1,620 per ounce for 2025. The company stated that its 2025 CapEx will total approximately $1.8 billion for sustaining capital and $1.3 billion for development capital to support significant near-term development initiatives.

Although the AISC is relatively high, it is mitigated by the current price of gold, which ranges between $2,800 and $3,000 per ounce.

Newmont Corporation concluded the quarter with cash, cash equivalents, and marketable securities totaling $3.64 billion, an increase from $3.025 billion the previous year. The company's long-term debt, including current portions, was $8.476 billion. Newmont reported a net debt of $5.308 billion. Total debt jumped with the Newcrest acquisition.The company's growing free cash flow puts it in a strong position to increase dividends, reduce debt, and initiate a share buyback program. However, unlike the oil industry, management in the gold industry tends to act slowly and is less likely to reward shareholders, which can lead to subpar stock performance. The dividend reduction and the Newcrest acquisition have been significant blows to shareholders, and it will take time to recover from them. Nonetheless, with gold prices soaring and stocks undervalued, now is the best time to accumulate shares of Newmont (NYSE:NEM) and other companies like Barrick Gold (NYSE:GOLD), Kinross Gold (NYSE:KGC), and Pan American Silver (NYSE:PAAS). While these companies each have challenges, they generate substantial free cash flow. Sooner or later, this will likely result in a major breakout in performance.

It is important to note that Newmont currently has an active share buyback program. In October 2024, the company's Board approved a $2 billion expansion of this program, adding to the previously announced $1 billion plan. To date, $750 million has been repurchased under these buyback initiatives.

5: Conclusion

In summary, Newmont Corporation is a dependable gold mining company with substantial mineral reserves, including about 29.8 billion pounds of copper and 134.1 million ounces (Moz) of gold. The estimated total value of these reserves is around $530 billion, based on an assumed price of $3,000 per ounce of gold and $4 per pound of copper. It's important to note that this valuation reflects the gross value and does not account for taxes, extraction costs, processing expenses, or other operational factors that could affect the company's net worth.To understand the true value of these reserves better, we can calculate the profit margin using the all-in sustaining costs (AISC). In 4Q24, the profit margin was 24.8%, and it is projected to increase to 27% in 1Q25.

With this anticipated profit margin, Newmont's reserves are currently estimated to be worth approximately $143 billion. This valuation translates to about $130 per share, based on a diluted share count of 1,135 million from 4Q24.This analysis clearly shows that NEM is undervalued compared to its proven and probable reserves. However, a persistent issue remains, as this large undervaluation has not improved and may have even worsened over time. This situation appears illogical and could be related to rising costs associated with metal extraction. Additionally, geopolitical risks, concerns regarding debt, and market sentiment favoring alternative investments could be contributing factors. If the company can demonstrate strong operational execution, reduce costs, and continue to benefit from high gold prices, the stock may eventually reflect the true value of its reserves.

To attract investors, the company must focus on providing a better return on investment. Currently, NEM has a low dividend yield of approximately 2.16%. By the way, this situation is not specific to NEM but to the entire gold industry (see chart above).

Moreover, except for NEM, which is based in the USA, the other gold stocks mentioned are based in Canada and are subject to an automatic 25% withholding tax. This tax further reduces the dividend yield.

Even if Newmont eventually outperforms its competitors in the gold industrydespite currently lagging behindits dividend yield may still not be attractive enough to retain savvy investors. These investors are crucial for boosting the stock's value, especially considering that the high gold prices experienced after an unprecedented rally may begin to cool down. In contrast, major oil companies offer an average net dividend yield of over 4% and have initiated substantial share buyback programs, even in a weak oil price environment.

This article first appeared on GuruFocus.