Newmont's Q1 Performance Boosts Morgan Stanley's Target Price 5%

Morgan Stanley has maintained its "overweight" rating for Newmont Corporation (NEM.US) following a robust first-quarter performance and an optimistic outlook for the gold industry. The firm has also raised its target price for the company from 87.50 Australian dollars to 91.50 Australian dollars.

Newmont's strong performance in the first quarter was driven by exceptional output from its Cadia and Penasquito mines. The company's total gold equivalent production for the quarter reached 1.905 million ounces, surpassing Morgan Stanley's expectations by 6%. This growth was attributed to a 3% increase in attributable gold production and a 17% increase in by-product gold equivalent production. These improvements also positively impacted Newmont's financial metrics, with revenue exceeding expectations by 13% and adjusted EBITDA surpassing forecasts by 20%.

In terms of cost management, Newmont's all-in sustaining cost (AISC) for gold was 5% lower than Morgan Stanley's estimates. This was primarily due to lower royalty costs and the allocation of more costs to gold production at joint ventures. Additionally, Newmont completed the sale of its Musselwhite, Eleonore, and Cripple Creek & Victor mines in February, and its Porcupine and Akyem mines in April. These transactions indicate that the company will focus on its core investment portfolio moving forward.

Looking ahead to the rest of the year, Newmont has maintained its production guidance for 2025. The company expects its second-quarter production to account for approximately 24% of its annual output, consistent with the previous quarter. The second half of the year is anticipated to see increased production due to the operations of Nevada Gold Mines and Pueblo Viejo, as well as the commercial production at Ahafo North. However, the AISC is expected to rise due to maintenance capital expenditures, such as those at Red Chris and Brucejack mines. The second quarter will also see peak development capital expenditures, accounting for 34% of the total.

The impact of trade wars and tariffs is primarily concentrated on certain consumables, which make up about 30% of the cost base. Labor costs, which account for 50%, are less affected, and the decline in energy prices, which account for 15%, provides some cost advantages.

Based on the strong first-quarter performance, Morgan Stanley has adjusted some of its forecasts. The firm has increased its earnings estimate for the 2025 fiscal year by 3% and its comprehensive valuation by 4%, resulting in a new target price of 91.50 Australian dollars per share. Currently, the company's net debt stands at 3.2 billion dollars, which is 16% lower than expected. Lower capital expenditures will support the company's stock buyback program, which currently has an authorization of approximately 1 billion dollars. Given the strong free cash flow, which is expected to be 6.3% and 8% for the 2025 and 2026 fiscal years, respectively, the pace of buybacks is anticipated to continue.