A little more than six months after buying Goldcorp Inc., Newmont Goldcorp Corp. is struggling to make the acquisition work.
On Tuesday, Denver-based Newmont missed analysts’ estimates for the third quarter and cut its production forecast for the year, as the world’s biggest gold company contends with operational problems at mines formerly owned by Vancouver-based Goldcorp.
During the quarter ended Sept. 30, Newmont dealt with the aftermath of a serious fire at its Musselwhite mine in Northern Ontario, and a blockade at its Penasquito mine in Mexico. Grades at Éléonore, a mine in Quebec, also disappointed in the quarter.
Goldcorp’s Penasquito gold-silver mine has been the site of multiple blockades this year. Most recently, trucking contractors blocked the site from mid-September to late October after a dispute with the company. The action during the third quarter led to a production shortfall at the mine of 11,000 ounces of gold and 1.7 million ounces of silver.
Newmont reported adjusted share earnings of 36 US cents for the third quarter, 3 US cents lower than analysts expected. Cash flow per share was US$1.03 compared with US$1.19 that analysts expected. The miner also cut its production forecast for the year to 6.3 million ounces of gold versus 6.5 million ounces previously.
John Tumazos, independent analyst with Very Independent Research, said in an interview that despite early bumps with the acquisition, there are signs it could pay off over the longer term.
“The setbacks at Musselwhite and Penasquito are not permanent. They’re just embarrassing,” he said. “The cost savings appear to be permanent.”
In a statement on Tuesday, Newmont ratcheted up the cost savings it expects to wring from buying Goldcorp to US$240-million a year from a previous target of US$145-million. The company expects to save US$100-million alone in general and administrative expenses, such as staff and head-office costs.
Newmont bought Goldcorp earlier in the year in an all-stock deal worth US$10-billion. At the time the agreement was announced in January, Goldcorp was trading near a historic low after years of mismanagement and a slew of technical problems at mines.
Even before the acquisition closed, new problems started to creep up at some of the Goldcorp mines. In April, a fire broke out at its Musselwhite mine. Nobody was hurt in the incident, but the mine’s conveyor system was destroyed. Newmont said on Tuesday that it will take until October of next year before the mine is operational.
Shares in Newmont fell 3.5 per cent Tuesday on the New York Stock Exchange to close at US$37.55 apiece.
Greg Barnes, analyst with TD Securities Inc., was somewhat mystified by the negative stock reaction. “[The earnings] looked ok to me and Q4 is looking very good," he wrote in an e-mail. "I think investors are still nervous about the guidance update coming in early December.”
One mine that may not feature in Newmont’s 2020 guidance is Red Lake, yet another legacy Goldcorp asset.
Newmont’s chief executive, Tom Palmer, said in a conference call with analysts on Tuesday that a process to sell the mine is going well, and he indicated that a deal could be announced soon.
At one point, Red Lake mine, smack in the middle of the town of Red Lake, Ont., was the bedrock of Goldcorp’s portfolio. The mine, which originally started production in 1948, was known for its extremely high grades. But in recent years as its reserves have been depleted, its expenses have climbed and it is now among the highest-cost properties in Newmont’s portfolio.
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