TORONTO (Reuters) - Newmont Goldcorp (NEM.N) needs to do as much as three years of work at the mines it added through its acquisition of Goldcorp to bring them to acceptable levels of performance, its chief executive told Reuters on Thursday.
The company reported a substantial decline in second-quarter profit, driven largely by the transaction’s integration costs. Shares dropped 3.4% to $37.98 at 1:44 p.m. in New York.
“Goldcorp had really cut back to zero its spend on exploration a few years ago, when the gold price turned down,” Chief Executive Officer Gary Goldberg, who will be replaced by President Tom Palmer on Oct. 1, said in an interview.
“Right around the mine areas, they hadn’t done the detailed exploration work that sets you up for longer term.”
Goldcorp had also taken a “just-in-time” approach to mine development, meaning any hiccups led to production problems, Goldberg said.
The Denver-based company said it expects attributable gold production of 6.5 million ounces for 2019, at an all-in sustaining cost (AISC) of $975 an ounce, excluding production at its joint venture, Nevada Gold Mines.
This takes into account the work needed at and around the Goldcorp mines, Goldberg said.
Newmont will provide an update on its guidance for subsequent years in December, he said.
Net income attributable to shareholders from continuing operations sank to just $1 million, or zero cents a share, in the three months ended June 30, from $274 million, or 51 cents a share, a year earlier. Analysts had expected $188.58 million, or 23 cents a share, according to Refinitiv data.
Costs incurred while Newmont’s Penasquito mine in Mexico and Musselwhite in Canada were idle, due to a blockade and a conveyor fire respectively, contributed to the decline.
“Results appear disappointing at first look — even allowing for noise from Goldcorp consolidation and Penasquito (blockade),” said analysts at Citi, who have a ‘buy’ rating on the stock, in a note.
“We expect 2019 to be a transition year for Newmont... The key is to exit 2019 with plans in place and demonstrate execution on synergies and operating improvements in 2020-21.”
Second-quarter gold production surged 37% from a year earlier to 1.59 million ounces, with AISC of $1,016 an ounce, while the average realized gold price rose by $25 to $1,317 per ounce.
Newmont posted revenue of $2.26 billion, compared with $1.66 billion a year ago and analyst estimates for $2.38 billion.
This month, Barrick said the Nevada joint venture is expected to produce 1.8 million to 1.9 million ounces of gold in the second half of 2019.
Reporting By Nichola Saminather; Editing by Bernadette Baum