The world's largest gold mining company by market cap has been hit with a bit of bad news recently. Newmont Goldcorp (NYSE:NEM) announced last week week that its Penasquito gold mine in Mexico will have to shut down production due to protests from local groups that have obstructed access to the mine.
While this isn't entirely surprising since the facility has had a history of shutdowns due to protests, it's not the kind of news Newmont Goldcorp has been hoping for following its megamerger earlier this year.
Approximately 40 workers from the CAVA trucking company, who have been working alongside members of the local Cedros community, have started protests against the gold mining giant. This protest isn't the first time that the Penasquito facility has shut down because of protesters obstructing access.
Local landowners, residents, and truck drivers have all come together to demand compensation from Newmont Goldcorp for supposed environmental damages done by the mine as well as provide clean water for local communities. This recent action is hot on the heels of an earlier 80-day protest that occurred back in June and is part of a series of protests that have been taking place for over 3 years.
The gold miner issued a statement that they were willing to pay $2.9 million to local communities, as well as rehire workers and withdraw criminal complaints against the protestors. However, those leading the obstruction seemingly weren't impressed by the offer, which came just hours before the group decided to protest by cutting off access to the facility. Newmont Goldcorp then made a second offer where it pledged $25 million as an investment into local communities, which was again declined by the protest's leaders.
In an official statement on the matter, Newmont Goldcorp said:
The Company remains willing to continue good-faith discussions and will be available to resume the dialogue once the other parties recognize their interests are best served by returning to the government-sponsored discussions and not through illegal and unproductive blockades that hurt local communities. In order to ensure the safety of people, assets, and the long-term viability of Penasquito, the Company has temporarily suspended operations for as long as the illegal blockade persists.
How big of a deal is this?
The Penasquito gold mine produced 272,000 ounces of gold in 2018, a figure that would represent 4.2% of the company's total projected 2019 gold output of 6.5 million ounces. While the shutdown of the facility definitely will have an impact, it's not expected that Newmont Goldcorp's stock will be hurt significantly even if the shutdown lasts two to three months.
When you couple this with the fact that the project has faced shutdowns of this type before in the past, investors aren't getting their hopes up that things will reach a definite conclusion anytime soon. They also won't be unduly disappointed if things don't progress between the protestors.
Shares of the gold mining giant have had a disappointing performance in comparison to other miners. Newmont Goldcorp's stock has risen by 23.8% since the beginning of 2019. In contrast to another large-cap gold miner Barrick Gold, which has risen by 34.7% over the same period, Newmont Goldcorp has been somewhat of an underperformer.
This sluggishness came through in its Q2 earnings report, which was seen by investors as a mediocre performance. Adjusted net income came in at only $0.12 per share, failing to cover even the $0.14 per-share quarterly dividend and effectively putting the company at a loss for the period.
However, Newmont Goldcorp's gold production is backloaded for the year, having produced only 2.8 million ounces of gold in the first half of 2019. This means that the remaining 3.7 million ounces of gold output needed to meet the 6.5 million ounces projected by management will be met in the second half of 2019. As such, financial figures are expected to see a significant improvement due to higher production figures. Rising gold prices are also going to further help Newmont Goldcorp's revenue, as prices for the precious metal have risen by 26.1% since the start of the year and are expected to keep rising.
Not a company killer
While I wouldn't make Newmont Goldcorp my top pick in the gold sector, the company does seem to have a bright future ahead of it. Even if the Penasquito mine remains out of commission for the rest of 2019, I don't think that would do much to change the otherwise bullish future outlook for the company.