Newmont Continues to Shine in H1 2025
Although it is a name seldom discussed by major financial media, Newmont’s year-to-date performance in terms of persistent increases to its market capitalization has been quite phenomenal amidst a precarious degree of volatility in the broader stock market. I have been following the company’s performance closely after it experienced the sharpest decline in its valuation in decades after missing earnings estimates for Q3 2024, which prompted my purchase of the individual security in October—since then, I have continuously maintained a net long position and have overweighted my portfolio in Newmont. Investors were spooked by rising costs, though some were non-recurring, including escalations in labor costs which represent a large proportion of Newmont’s all-in sustaining cost. And despite management’s warning of cost increases continuing into Q4 2024, which was public information at the time of Newmont’s aggressive sell-off, investors responded poorly to the company’s fourth-quarter performance that saw higher costs—hardly unanticipated albeit treated as an adverse surprise—yet also delivered record free cash flow and production that considerably outpaced forward guidance.
Many have nevertheless decided to ignore the massive increases in Newmont’s profitability and gross margin expansion over the past year as gold prices have soared. After Newmont’s profit continued to increase and massively beat consensus estimates, which mysteriously underwent upward revisions very shortly before the Q1 2025 earnings call, Bloomberg published a piece titled "World’s Top Gold Miner Newmont Sees Highest Costs in Decade”. The framing of this curiously misleading narrative—the intentions behind which I cannot understand through a traditional fiduciary lens, even after extensive consideration—appeared to ultimately predominate. Assuming the coverage of Newmont has been made entirely in good faith, it is nonetheless ridiculous to obsess over increasing nominal costs of a commodities producer that is seeing its nominal revenues increase at an even greater pace. Inflationary pressures have persisted for years as the US dollar has been immensely devalued in terms of real purchasing power and, more recently, devalued relative to other major currencies, which are themselves losing value in real terms. To be sure, Newmont is an American company that, naturally, accounts for both its costs and revenues in US dollars.
Is it somehow a surprise, then, when Newmont’s costs are higher than anticipated alongside its revenues? Sure, its cost increases have exceeded the general rate of inflation—but the version of inflation almost ubiquitously presented by supposedly neutral empiricists across financial media is all but a weighted average of the many distinct price increases, and there is natural variance in price changes especially considering the company’s global operations. Gold has outperformed so-called productive asset classes over extended periods, and returns to capital have diverged from returns to labor as—from some perspective—increasingly autonomous technologies have made capital more productive to labor’s relative detriment. Newmont’s costs are neither outrageous nor disconcerting in this context. Why should one interpret higher costs as a sustainably alarming signal while disregarding gold’s tendency to outperform during inflationary periods? The financial media should instead focus on the company’s long-term profitability attributable to its shareholders over time, which is far more relevant to asset prices.
Though having a considerably larger proportion of the world’s gold reserves on its balance sheet, Newmont sees rather unfavorable valuation multiples relative to its major peers in the mining sector seemingly owing to its costs exceeding industry norms. But that isn’t a sensible state of affairs: comparatively lower starting margins imply greater upside potential to EPS growth against the backdrop of increasing gold prices. Moreover, there is inherent endogeneity vis-à-vis Newmont’s heightened labor costs and its lower nationalization risk profile. The company’s global operations are in comparatively safer mining jurisdictions with more well-established private property rights. Just look at Barrick Mining Corporation's ongoing dispute with a Mali junta. Needless to say, lower costs come at a cost—and asset prices aren’t simply an amalgam of expected future cash flows, they’re discounted in part to reflect risk.
Should the trend of higher gold prices continue, Newmont appears to be uniquely situated and extremely undervalued, nearing a single-digit forward P/E multiple at current prices. I am inclined to believe the trend will continue. Given untenable levels of national debt—especially when considering unfunded obligations—and growing political pressure on the Fed to monetize the deficits amidst no meaningful efforts to bridge the gap between the Treasury’s inflows and outflows, gold is poised to appreciate as a historic hedge against monetary debasement. Bridgewater’s Ray Dalio likes to remind that gold is the third-largest global reserve currency; central banks have, to an increasing extent, been stockpiling gold. Suffice it to say that every Black Swan event, to borrow a term from Nassim Nicholas Taleb, was once an underappreciated arbitrage opportunity.
Disclaimer: The foregoing content is informational in nature and intended for educational purposes only. It does not constitute, nor shall it be construed to constitute, investment advice. Currently, I am not a licensed financial advisor. Always do your own research and/or consult with a licensed advisor before making any investment decisions.