Gold miners feel inflation's sting as costs climb despite record prices

Gold prices have soared to record highs, but Newmont Corp., the world’s largest gold miner, revealed mixed results that indicate gold companies may be struggling to fully leverage the strong demand.  

According to the Financial Post, Newmont’s shares dropped 15 percent, marking their steepest decline in over 25 years.  

The Denver-based firm reported third-quarter earnings, revenue, and profit margins that fell below analysts' expectations, impacted by rising labour, diesel, and other operating costs. 

Top industry rivals Barrick Gold Corp. and Agnico Eagle Mines Ltd. also saw share declines following Newmont’s announcement. 

With gold among the highest-performing commodities this year, climbing over 30 percent on optimism for lower interest rates and geopolitical tensions, analysts had anticipated a strong performance from the mining industry.  

However, Newmont’s results underscored the persistent inflationary pressures facing large gold producers, particularly elevated labour costs.  

“There’s a potential read-through here, assuming Newmont’s takeaways are accurate, that this is a risk factor for the industry,” commented Josh Wolfson, a mining analyst with Royal Bank of Canada. 

Newmont posted an earnings figure of 80 cents US per share, missing the 89 cents US expected by Bloomberg-surveyed analysts. Revenue was reported at US$4.61bn, also below projections, while its gross profit margin dropped below 50 percent.  

The company’s mining operations in Australia, Canada, Peru, and Papua New Guinea saw elevated costs this quarter, with capital expenditures rising 10 percent due to ongoing expansion projects in Australia and Argentina.  

Notably, the US$15bn acquisition of Newcrest Mining Ltd. last year brought major assets, contributing to increased costs. 

Newmont also noted that some of these cost challenges are specific to the company. Its Lihir mine in Papua New Guinea—a complex, remote operation—required costly maintenance, while its Cerro Negro mine in Argentina resumed production after two worker fatalities in April.  

Despite these company-specific issues, Newmont’s higher labour costs could signal challenges for the wider industry.  

“It’s the labour costs where we’re seeing that escalation,” Newmont CEO Tom Palmer shared in a conference call, explaining that maintenance shutdowns, supplementary workforce needs, and camp operations contributed to the unexpected cost increases. 

Mining shares have historically offered higher returns than gold itself, due in part to a broader array of investment options and shareholder dividends.  

However, this trend has waned over the past 15 years, as major expansion projects led to rising debts and dissatisfied shareholders.  

Newmont’s results offer insight into what may await Canada’s Barrick Gold Corp., which co-owns a large mining complex with Newmont in Nevada, where gold output fell compared to the prior quarter. 

Despite the setbacks, the bullion boom has kept gold miners on solid footing. Newmont posted its highest quarterly profit in five years, earning US$922m, and analysts project that Newmont is on track to achieve a record US$3.2bn profit this year.  

Even after the recent share plunge, Newmont’s stock is up 19 percent year-to-date. Other prominent producers, including Barrick, Agnico, AngloGold Ashanti Plc, and Gold Fields Ltd., are similarly expected to benefit from significant returns by year’s end. 

“The street expectations were too high,” said Carey MacRury, a mining analyst at Canaccord Genuity, who advises buying shares despite the market’s reaction. “It was negative, no doubt, but I don’t think it’s as negative as what the market’s telling us today.”