Newmont Corp. (NYSE:NEM)

The financial performance, as measured by economic profit, demonstrates a significant decline over the five-year period. Net operating profit after taxes (NOPAT) experienced substantial volatility, beginning at US$3,486 million in 2019, decreasing to US$2,630 million in 2020, and then plummeting to US$274 million in 2021. This trend continued with a net loss of US$555 million in 2022 and a further loss of US$2,520 million in 2023.

The cost of capital remained relatively stable, fluctuating between 9.66% and 10.34% throughout the period. Invested capital initially increased from US$28,943 million in 2019 to US$29,461 million in 2020, before decreasing to US$27,566 million in 2021 and US$23,044 million in 2022. A notable increase in invested capital was observed in 2023, reaching US$36,379 million.

Economic Profit Trend

Economic profit began at US$584 million in 2019, indicating value creation. However, it transitioned to a loss of US$350 million in 2020. The losses escalated significantly in subsequent years, reaching US$2,575 million in 2021, US$2,904 million in 2022, and culminating in a substantial loss of US$6,033 million in 2023. This indicates a consistent destruction of economic value over the latter part of the analyzed period.

Relationship between NOPAT and Economic Profit

The decline in NOPAT directly correlates with the decreasing economic profit. While the cost of capital remained relatively consistent, the substantial reduction in profitability overwhelmed any positive impact from capital efficiency. The negative NOPAT in 2022 and 2023 were primary drivers of the significant economic losses observed in those years.

Invested Capital Impact

The increase in invested capital in 2023, despite the continued negative NOPAT, likely exacerbated the economic loss. A larger capital base, when coupled with insufficient profitability, results in a greater absolute value of economic loss. The decrease in invested capital in 2021 and 2022 did not prevent continued economic losses, suggesting that profitability was the dominant factor.

In summary, the period under review demonstrates a clear deterioration in economic performance. The company transitioned from generating economic profit to consistently destroying economic value, primarily driven by declining profitability. The increase in invested capital in the most recent year further amplified these losses.

The financial data reveals significant fluctuations in profitability over the five-year period ending in 2023. Net income attributable to stockholders showed a positive trend through 2019 and 2020, peaking at approximately $2.8 billion in those years. However, a sharp decline is evident starting in 2021, where net income drops to around $1.2 billion, followed by a transition to negative territory in 2022 and 2023, with losses reaching nearly $0.4 billion and $2.5 billion respectively.

Similarly, the net operating profit after taxes (NOPAT) follows a comparable trajectory. It decreased from $3.5 billion in 2019 to $2.6 billion in 2020, then plummeted to just $274 million in 2021. The subsequent years show further deterioration into negative values, with losses of about $555 million in 2022 and $2.5 billion in 2023.

Profitability Trends

The company experienced robust profitability in 2019 and 2020, but profitability sharply declined starting in 2021, transitioning into losses by 2022 and 2023.

Net Income Analysis

Net income sustained positive values for the first three years analyzed, but the significant drop in 2021 indicates operational or market challenges. The losses in the last two years suggest ongoing issues impacting the bottom line.

NOPAT Analysis

NOPAT mirrored net income movements but showed an earlier and steeper decline, reflecting diminishing operational efficiency or increased expenses relative to operating profit.

Overall

The data suggests increasing financial strain from 2021 onward, with deteriorating profitability and operational performance. The downward trend in both net income and NOPAT highlights potential risks or negative developments affecting financial health.

Income and Mining Tax Expense

The income and mining tax expense exhibited notable fluctuations over the five-year period. Initially, it decreased from 832 million US dollars in 2019 to 704 million in 2020. This decline was followed by a significant increase to 1,098 million in 2021, representing the highest value in the period under review. Subsequently, the expense dropped sharply to 455 million in 2022 before experiencing a moderate rise to 526 million in 2023. Overall, the tax expense shows a volatile pattern with a peak occurring in 2021 and lower values in the later years.

Cash Operating Taxes

Cash operating taxes demonstrated an overall upward trend from 2019 through 2021, increasing from 550 million to 1,262 million US dollars. The growth in this category was consistent and pronounced during these years. However, in 2022, there was a significant decline to 765 million, and this downward trend continued into 2023, with the amount further decreasing to 651 million. This pattern indicates strong growth in cash operating taxes during the initial years, followed by a substantial reduction in the final two years.

Comparative Analysis

Both income and mining tax expense and cash operating taxes peaked in 2021 before declining in the subsequent years. The variations in income and mining tax expense were more pronounced, exhibiting greater volatility, whereas cash operating taxes had a steadier increase prior to the decline. The decline in both categories after 2021 may suggest changes in operational efficiencies, tax policies, or variations in taxable income. The divergence in magnitude of fluctuations between the two items could imply differences in their calculation bases or timing recognition.

The financial data reveals several notable trends in the company's capital structure and financing activities over the five-year period ending December 31, 2023.

Total Reported Debt & Leases

The total reported debt and leases showed a generally declining trend from 2019 through 2022, dropping from $6,909 million in 2019 to $6,248 million in 2022. This reduction suggests the company was actively managing and reducing its debt obligations during this period. However, in 2023, there was a significant increase to $9,541 million, reversing the downward trend and indicating a substantial rise in leverage or new financing activities undertaken in that year.

Total Newmont Stockholders’ Equity

Stockholders’ equity increased from $21,420 million in 2019 to a peak of $23,008 million in 2020, reflecting growth in the equity base. The level then moderately declined in the following two years, reaching $19,354 million in 2022. In 2023, equity rebounded sharply to $29,027 million, exceeding all previous years in the data set. This sharp rise might indicate retained earnings accumulation, equity infusions, or favorable changes in asset valuations leading to an expanded equity base.

Invested Capital

Invested capital initially increased slightly from $28,943 million in 2019 to $29,461 million in 2020, then declined steadily to $23,044 million by the end of 2022. This decreasing trend corresponds with the reductions in both equity and debt earlier noted, possibly reflecting asset sales, depreciation, or less capital deployment during this period. In 2023, invested capital surged to $36,379 million, marking a significant expansion of the capital base, likely linked to the increased debt and equity levels recorded the same year.

Overall, the data indicates a phase of consolidation or capital reduction from 2020 to 2022, characterized by declines in debt, equity, and invested capital. This was followed by a strong growth phase in 2023, with marked increases across all major capital metrics. The simultaneous rise in debt and equity suggests an aggressive capital expansion, possibly to fund new investments or strategic initiatives. This shift in 2023 represents a significant change in the company's financial strategy compared to the prior years.

The economic spread ratio demonstrates a consistently worsening trend over the five-year period. Initially positive, the ratio declines significantly into negative territory and continues to deteriorate through 2023.

Economic Spread Ratio

In 2019, the economic spread ratio stood at 2.02%, indicating that the company generated value exceeding its cost of capital. However, this positive spread diminished substantially in 2020, becoming negative at -1.19%.

The decline accelerated in subsequent years, with the ratio reaching -9.34% in 2021 and further decreasing to -12.60% in 2022. By 2023, the economic spread ratio had reached -16.58%, representing a substantial erosion of value creation.

This consistent negative trend suggests an increasing disparity between the returns generated from invested capital and the cost of that capital. The magnitude of the negative spread is growing, indicating a worsening performance relative to the company’s capital costs.

The economic profit mirrors the trend in the economic spread ratio, transitioning from a positive value of US$584 million in 2019 to a negative US$6,033 million in 2023. This reinforces the observation that the company is increasingly failing to generate returns sufficient to cover its cost of capital.

Invested Capital

Invested capital fluctuated over the period. It increased from US$28,943 million in 2019 to US$29,461 million in 2020, then decreased to US$27,566 million in 2021 and US$23,044 million in 2022. A significant increase is observed in 2023, reaching US$36,379 million.

While the increase in invested capital in 2023 might suggest expansion or investment, it occurred concurrently with the most substantial decline in the economic spread ratio and economic profit, indicating that these investments did not generate commensurate returns.

The combined trends suggest that while the company has altered its capital base, its ability to generate returns above its cost of capital has deteriorated significantly. The increasing negative economic spread ratio and economic profit highlight a growing concern regarding value creation.

The economic profit margin exhibits a consistently deteriorating trend over the five-year period. Initially positive, it transitioned to negative values and experienced a substantial decline throughout the observed timeframe. This suggests a weakening ability to generate returns exceeding the cost of capital.

Economic Profit Margin

In 2019, the economic profit margin stood at 5.99%. This indicates that for every dollar of sales, the company generated approximately 6 cents of economic profit. However, the margin decreased to -3.04% in 2020, signifying a shift to economic loss. The decline accelerated in subsequent years, reaching -21.07% in 2021, -24.38% in 2022, and culminating in a significant -51.07% in 2023. This represents a substantial erosion of value creation.

The negative economic profit margins from 2020 onwards, coupled with the increasing magnitude of the negative values, indicate that the company’s operating profits are insufficient to cover its cost of capital. The substantial decrease in 2023 is particularly noteworthy, suggesting a significant underperformance relative to investor expectations and capital costs.

Relationship to Sales

While sales experienced an initial increase from $9,740 million in 2019 to $12,222 million in 2021, they subsequently decreased to $11,812 million in 2023. However, the decline in sales does not fully explain the dramatic deterioration in the economic profit margin. The margin’s decline far outpaced any reduction in sales, indicating that factors beyond revenue generation, such as increased costs or a higher cost of capital, are significantly impacting profitability.

The consistent negative trend in economic profit, as reflected in the economic profit margin, warrants further investigation into the underlying drivers of cost of capital and operational performance. A comprehensive review of capital allocation, operational efficiency, and cost management strategies is recommended.