Newmont Mining (NEM.US) relies on high gold prices to "cover up" in Q1, warning alarms have been sounded on production costs "double-kill"

Newmont Mining Company (NEM.US) announced that its first-quarter profit exceeded Wall Street expectations, with record gold prices helping to offset the impact of production declines. According to data compiled by LSEG, the company's adjusted earnings per share for the quarter ending March 31 were $2.90, while analysts' average expectation was $2.18 per share. Q1 revenue reached $7.31 billion, a significant increase of 45.9% year-over-year, well above the market's expectation of around $6.36 billion. The company's free cash flow also reached a historical record of $3.1 billion, soaring 161% year-over-year. Adjusted EBITDA was $5.2 billion. CEO Natascha Viljoen stated that this was one of the strongest quarters in Newmont Mining's history. "With the support of our strengthened capital allocation framework, following the full execution of the previous buyback plan, we have doubled the size of the stock buyback plan, adding an additional $6 billion in authorization," Viljoen said. Gold price bonuses mask production decline issues However, behind this almost purely gold-plated performance, gold prices played an absolutely dominant role. Driven by safe-haven demand and interest rate cut expectations, gold prices hit record highs in the first quarter, before falling slightly due to inflation fears caused by the rise in oil prices due to the US-Iran conflict, but still remaining well above levels from a year ago. The average price of gold in the first quarter was $4900 per ounce, a staggering 66.4% increase year-over-year, compared to just $2944 per ounce in the same period last year. In contrast, gold production for the quarter was only 1.3 million ounces, a decrease of 15.6% from 1.54 million ounces in the same period last year. Simply put, the passive income increase from the rise in gold prices completely covered the revenue gap caused by the sharp drop in production, creating the illusion of a significantly overadjusted profit. Due to increased sustaining capital expenditure, decreased silver production, and rising sales costs in the Boddington, Tanami, Ahafo, and Penasquito mines, it is expected that unit costs will increase significantly compared to the first quarter. The company stated that the impact of rising oil prices and the newly introduced sliding royalty rates in the Ghana mine area could also affect costs throughout the quarter. The production decline reflects lower output in the Boddington mine due to wildfires, reduced ore grades in the Tanami mine due to planned ore sequence adjustments and heavy rainfall, and lower output in the Ahafo and Cerro Negro mines due to lower ore grades and planned maintenance. The world's largest gold producer warned that production would further decrease this quarter. The company stated that approximately 23% of its total production will be delivered in the second quarter of 2026, slightly lower than the first-quarter level. Management maintains the annual gold production target of 5.3 million ounces and expects production to improve starting in the third quarter. The company previously positioned 2026 as a "low year of production," adjusting the mining sequence in key areas such as Ahafo and Carlin to optimize the long-term layout to support production recovery in 2027. However, whether the second quarter will rebound as expected depends heavily on the ramp-up of production after the Boddington water supply is restored and the actual progress of production resumption at Carlin after the earthquake. The uncertainty cannot be underestimated.