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 9.67% and 10.35% 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$580 million in 2019, indicating value creation. However, the company transitioned to an economic loss of US$354 million in 2020. This loss intensified significantly in subsequent years, reaching US$2,578 million in 2021, US$2,907 million in 2022, and culminating in a substantial loss of US$6,037 million in 2023. The increasing magnitude of the economic loss suggests a growing disparity between returns generated and the cost of capital employed.

Relationship between NOPAT and Economic Profit

The decline in NOPAT directly correlates with the deterioration in economic profit. As NOPAT decreased, particularly the shift to negative values in 2022 and 2023, the economic profit became increasingly negative. This indicates that the company’s operating performance is insufficient to cover its cost of capital.

Impact of Invested Capital

While invested capital decreased in 2021 and 2022, the substantial increase in 2023, coupled with the significant NOPAT loss, exacerbated the economic loss. The higher capital base, when generating insufficient returns, amplifies the negative economic profit.

In summary, the period under review demonstrates a consistent erosion of economic value. The company’s ability to generate returns exceeding its cost of capital has diminished considerably, culminating in a substantial economic loss in the most recent year. The interplay between declining profitability and changes in invested capital has significantly impacted the overall economic profit performance.

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 2.00%, indicating that the company generated a return on invested capital exceeding its cost of capital. However, this position reversed in 2020, with the ratio falling to -1.20%.

The decline accelerated in subsequent years, reaching -9.35% in 2021 and -12.62% in 2022. By 2023, the economic spread ratio had reached -16.59%, representing a substantial decrease in value creation relative to invested capital.

The economic profit mirrors the trend in the economic spread ratio, transitioning from a positive value of US$580 million in 2019 to a negative US$6,037 million in 2023. This suggests a growing disparity between the returns generated and the cost of capital employed.

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 further to US$23,044 million in 2022. A notable increase occurred in 2023, with invested capital rising to US$36,379 million.

The increase in invested capital in 2023 did not translate into improved economic profit or economic spread, indicating that the returns generated from the additional capital were insufficient to cover its cost.

The combined trends suggest a weakening ability to generate returns exceeding the cost of capital. While invested capital experienced fluctuations, the consistently negative and worsening economic spread ratio and economic profit indicate a concerning trend in 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 5.96%. This indicates that for every dollar of sales, the company generated approximately 5.96 cents of economic profit. However, the margin decreased to -3.08% in 2020, signaling the beginning of a period where economic losses exceeded economic gains.

The decline accelerated in subsequent years, with the margin reaching -21.10% in 2021 and further deteriorating to -24.40% in 2022. This indicates a growing disparity between the cost of capital and the returns generated from sales.

By 2023, the economic profit margin had reached -51.11%, representing a significant contraction in profitability from an economic value perspective. This substantial negative margin suggests that the company’s sales are generating considerable economic losses.

The economic profit itself mirrors this trend. While positive at US$580 million in 2019, it became negative in 2020 at -US$354 million, and continued to decrease in absolute value, reaching -US$6,037 million in 2023. This reinforces the conclusion that the company’s financial performance, when considered in relation to its cost of capital, has significantly worsened over the period.

Sales demonstrated an initial increase from US$9,740 million in 2019 to US$12,222 million in 2021. However, sales then experienced a slight decrease in 2022 and 2023, settling at US$11,812 million. Despite the initial sales growth, the increasing negative economic profit margin indicates that revenue increases were insufficient to offset rising costs or a higher cost of capital, or both.