Newmont Corporation’s NEM shares have lost 26.7% in the past three months, underperforming the Zacks Mining – Gold industry’s 12.6% decline. The bearishness partly reflects its weaker-than-expected earnings performance in the third quarter and concerns over higher production costs. While NEM gained from an uptick in average realized gold prices and sales volumes, higher unit costs weighed on its third-quarter performance.

Technical indicators show that NEM has been trading below the 50-day simple moving average (SMA) since Oct. 24, 2024. The stock is also trading below the 200-day SMA since Nov. 11, 2024.  Following a death crossover on Dec. 20, 2024, the 50-day SMA is reading lower than the 200-day SMA, indicating a bearish trend.

NEM Stock Trades Below 50-Day SMA

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Given the significant pullback in NEM’s shares, investors might be tempted to snap up the stock. But is this the right time to buy NEM? Let’s find out.

Higher Costs Weigh on NEM Stock

Newmont is being challenged by higher production costs, which will likely weigh on its margins over the near term. Its gold costs applicable to sales (CAS) rose roughly 13% year over year in 2023. Newmont also saw a 19% surge in all-in-sustaining costs (AISC) — the most important cost metric of miners. CAS climbed around 18% year over year in the third quarter of 2024. NEM’s AISC also rose around 13% year over year in the quarter. 

The impacts of increased direct operating costs are leading to cost inflation. Higher materials, labor and contract services costs, despite somewhat easing lately, remain concerns. The company, in particular, is stung by higher labor costs, which constitute about half of its direct costs. NEM is seeing higher general and administrative (G&A) expenses due to increased contracted labor costs. Its G&A expenses shot up roughly 61% year over year in the third quarter and are expected to remain high in the fourth quarter.

Key Projects & Newcrest Buyout to Aid NEM’s Growth

Newmont continues to invest in growth projects in a calculated manner. The company is pursuing several projects, including Tanami Expansion 2 in Australia, the Ahafo North expansion in Ghana and Cadia Panel Caves in Australia. These projects should expand production capacity and extend mine life, driving revenues and profits.

The acquisition of Newcrest Mining Limited has also created an industry-leading portfolio with a multi-decade gold and copper production profile in the most favorable mining jurisdictions globally. The combination of Newmont and Newcrest is expected to deliver significant value for shareholders and generate meaningful synergies. NEM has achieved $500 million in annual run-rate synergies following the Newcrest buyout. 

Newmont also remains committed to divesting non-core businesses as it shifts its strategic focus to Tier 1 assets. NEM’s attributable gold production jumped around 29% year over year in the third quarter on strong performance from its managed Tier 1 portfolio. The company, in third-quarter 2024, agreed to divest its Akyem operation in Ghana, its Telfer operation and its 70% stake in the Havieron gold-copper project in Australia for up to $1.5 billion in total gross proceeds. NEM, in November 2024, also agreed to sell its Musselwhite operation in Ontario, Canada, to Orla Mining Ltd for up to $850 million. It also announced the divestment of its Eleonore operation in Northern Quebec, Canada, to Dhilmar Ltd for $795 million in cash. NEM, last month, agreed to sell its Cripple Creek & Victor operation in Colorado to SSR Mining Inc. for up to $275 million. Upon closure of the announced transactions, Newmont will have received up to $3.9 billion in gross proceeds from non-core asset divestitures and investment sales.

Sound Financial Health Supports NEM’s Capital Allocation

Newmont has a strong liquidity position and generates substantial cash flows, which allows it to fund its growth projects, meet short-term debt obligations and drive shareholder value. At the end of the third quarter of 2024, Newmont had liquidity of $7.1 billion, including cash and cash equivalents of around $3 billion. Its operating cash flow soared around 64% year over year to around $1.6 billion. NEM also generated $760 million in free cash flow and returned $786 million to its shareholders through dividends and share buybacks in the quarter. 

Newmont stands to benefit from the strength in gold prices, which should drive its profitability and cash flow generation. Gold prices rallied roughly 27% last year, driven by strong demand from central banks, monetary easing in the United States, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East and Russia. While a stronger U.S. dollar and prospects of fewer interest rate cuts in 2025 are weighing on the yellow metal lately, prices are likely to gain support from expectations of increased purchases by central banks and geopolitical tensions. 

NEM offers a dividend yield of 2.6% at the current stock price. Its payout ratio is 39% (a ratio below 60% is a good indicator that the dividend will be sustainable). Backed by strong cash flows and sound financial health, the company's dividend is perceived to be safe and reliable.

NEM’s Earnings Estimates Moving Lower

Newmont’s earnings estimates for 2024 have been going down over the past 60 days. The Zacks Consensus Estimate for 2025 has also been revised lower over the same time frame. 
 
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

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Valuation Looks Attractive for NEM Stock

NEM is currently trading at a forward 12-month earnings multiple of 11.16X, lower than its five-year median. This represents a roughly 8% discount when stacked up with the industry average of 12.18X.

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Newmont Stock Underperforms Industry and S&P 500 

Newmont's price performance has been lackluster despite a surge in bullion prices. Newmont's shares have gained 1.2% over the past year, underperforming the industry’s 17.2% increase and the S&P 500’s rise of 25.5%. Among its gold mining peers, Barrick Gold Corporation GOLD has lost 9%, while Agnico Eagle Mines Limited AEM and Kinross Gold Corporation KGC have gained 61.6% and 85.4%, respectively, over the same period.

NEM’s One-year Price Performance    

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How Should Investors Play the NEM Stock?

While NEM’s robust portfolio of growth projects, strong performance of its Tier 1 assets and solid financial health bode well, it remains hamstrung by higher production costs, which has led to its underperformance. Declining earnings estimates, partly due to the concerns over elevated costs, also cast a pall over the company's prospects. Considering these, it is not advisable to buy the dip in this Zacks Rank #5 (Strong Sell) stock. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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