Newmont Is the Best Geopolitical Hedge the Market Isn't Buying

Central bank gold purchases hit 1,037 tonnes in 2024, the third consecutive year above 1,000 tonnes. China, India, Poland, and Turkey have been the largest buyers. This buying is structural, driven by de-dollarisation motives that no single ceasefire can reverse.

Newmont — the world's largest gold miner — is the highest-quality pure-play exposure to this trend. The company operates mines across Nevada, Australia, Ghana, Peru, and Canada, producing roughly 6.8 million ounces annually at an all-in sustaining cost (AISC) of approximately $1,350 per ounce.

With gold at $2,350, that's nearly $1,000 per ounce in margin. The gold price could fall 25% from current levels and Newmont would still be comfortably profitable. That's a margin of safety the Risk Desk can get behind.

Across multiple cycles, the current environment has a distinct flavour: the macro tailwinds are the broadest we've seen, while the supply side remains constrained by years of underinvestment.

Newmont's $16.8 billion acquisition of Newcrest in 2023 was transformative. It added Cadia (one of the world's lowest-cost gold-copper mines), Lihir (a major gold operation in Papua New Guinea), and development-stage copper-gold assets across multiple jurisdictions.

The integration has progressed faster than expected. Management has identified $500 million in annual synergies, of which $350 million has already been achieved. The non-core asset divestiture programme generated $4.3 billion in proceeds, used to reduce acquisition-related debt.

The resulting portfolio is the most diversified in the gold mining sector. No single mine represents more than 15% of production, reducing operational concentration risk. And the embedded copper exposure from Cadia and Telfer provides a natural hedge against gold price weakness — copper and gold tend to move on different macro catalysts.

At 25x trailing earnings with the analyst consensus target at $58.70, the street sees 15% upside. With 3 buys and no sells in the coverage universe, the bulls are in control.

Here's a point that gets lost in the gold debate. When gold prices are elevated and stable (as opposed to spiking), gold miners generate outsized returns relative to the metal itself because of operating leverage.

If gold rises 10% from $2,350 to $2,585, Newmont's margin per ounce expands from $1,000 to $1,235 — a 23.5% increase in profitability. The miner's earnings are leveraged 2-2.5x to the gold price move.

This leverage works in reverse too, which is why the Risk Desk is selective about entry points. But at $1,350 AISC with gold at $2,350, the downside buffer is substantial. Newmont remains profitable even at $1,500 gold — a price last seen in early 2020.

The 2.2% dividend yield, while modest compared to some mining peers, is well covered and growing. Management raised the dividend 30% last year and has signalled further increases as debt reduction targets are met.