What happened
Newmont Goldcorp (NEM 0.55%) was among the worst-performing gold stocks in April, losing 13.2% value according to data provided by S&P Global Market Intelligence. April 2019 will also go down in the history books of Newmont, as it finally acquired Goldcorp to form the world's largest gold company. While that seemed to have triggered a fall in the stock price initially, two other developments kept the stock under pressure through the month.
So what
Newmont's announcement that it would acquire Goldcorp earlier this year in an all-stock deal worth $10 billion faced opposition from some of its largest shareholders, who believed the company was overpaying for Goldcorp. Later in March, Newmont paid out a special dividend of $0.88 to appease the shareholders and won its way, finally closing the acquisition on April 18. Newmont shares, however, tumbled soon after for no apparent reason, though investors may have been miffed by the debt the miner acquired along with Goldcorp.
However, on April 25, Newmont revealed that it paid off $1.25 billion of Goldcorp's outstanding debt and ended its first quarter with a fairly strong balance sheet, including cash and equivalents balance of $3.6 billion. Newmont's Q1 profit, however, more than halved on a marginal dip in sales, thanks to "integration and transaction costs" related to the Goldcorp acquisition and a Nevada joint venture with Barrick Gold (GOLD 0.15%). Weak gold prices further fueled pessimism in the stock.
Image source: Getty Images.
In another development, Newmont announced the temporary shutdown of Goldcorp's flagship mine in Mexico, Penasquito, on April 29 following a blockade that began in late March. While management claimed the blockade didn't hit production in Q1, investors want to see Penasquito up and running soon, because the mine is expected to generate maximum synergies for Newmont from its Goldcorp acquisition.
Investors also seemed disappointed at Newmont's outlook, which calls for gold production of 5.2 million ounces in 2019, 4.9 million ounces in 2020, and anything between 4.4 million and 4.9 million ounces per year through 2023.
But here's the thing: Newmont's outlook does not include the impact of Goldcorp acquisition and its joint venture with Barrick.
Now what
The market seems to be paying no heed to the fact that Newmont's actual production numbers should be much higher once it integrates Goldcorp -- Goldcorp produced nearly 2.3 million ounces of gold in fiscal 2018, after all, and the combined company has the largest gold reserves and asset base in the world.
In fact, some weeks prior to the acquisition, Newmont gave out a targeted sustainable annual production of 6 million to 7 million ounces of gold for the combined company. At the same time, Newmont's joint venture with Barrick in the lucrative Nevada region is no small potatoes. In short, Newmont has a lot to look forward to, which is why the drop in its share price in April appears overdone.
