Rising Costs Cause Newcrest Profits to Drop 11%

August 16, 2023 14:37:36

Australian mining giant Newcrest Mining Ltd has posted an almost 11% drop in yearly profits due to increased operating costs and lower copper prices. Newcrest Mining said that it recorded a $778 million underlying profit for the financial year ended June 30, 2023, more than the projected profit of $689.7 million but less than the $872 the gold miner posted last year.

In mid-July, CFRA Research estimated that copper prices fell by 11% to $3.85 per pound in July 2022 to July 2023 and predicted that copper miners would post a fall in their profits. Sprot Asset Management analyst Steve Schofall explained that copper prices reduced “considerably,” mostly due to fears of reduced global growth, especially in China, one of the largest copper consumers on the globe.

Labor costs in the mining industry have also gone up by 30% since 2015, becoming the largest cost in some types of mines and putting more pressure on the bottom line.

Newcrest recently accepted a $19.2 billion acquisition offer from gold mining giant Newmont Corporation (NYSE: NEM) (TSX: NGT) in what will be the largest deal in gold-mining history. The deal provides Newcrest shareholders with 0.4 Newmont shares in exchange for 1 Newcrest share as well as a $1.10 per share special dividend paid by Newcrest. It will also allow Colorado-based Newmont to further expand its large global mining operations to mines in Africa, the Americas, Papua New Guinea and Australia.

With companies in the mining industry, especially gold, facing higher production costs and increasingly difficult-to-mine gold deposits, acquisitions and mergers present an opportunity to reduce risk by improving efficiency and boosting production volumes. News of Newmont’s acquisition of Newcrest came as gold prices surged due to its safe-haven appeal amid global economic and geopolitical uncertainty.

record gold-buying spree by several central banks from 2022 into 2023 also contributed to the spike in gold prices.

Australian miner Newport expects to produce around from 2 to 2.3 million ounces of gold in 2024 compared to 2.1 million this year. Although the miner’s shares went down by 0.4%,  Marcus today financial newsletter senior analyst and portfolio manager Henry Jennings says that shareholders are more interested in the recent deal between Newcrest and Newmont rather than the Australian miner’s results.

As long as Newcrest finalizes its merger deal with Colorado-based miner Newmont, Jennings theorizes, results or guidance from Newcrest won’t “completely freak out” investors.

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