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Morningstar | Newmont's Acquisition of Goldcorp and Nevada Joint Venture With Barrick Boost Its Outlook

A pipeline of development projects should partially offset the decline at some older mines while improving Newmont's cost profile.Nevada is an important piece of Newmont's portfolio, with nearly 20 mines operating in close proximity. This allows the mines to share facilities that employ a variety of processing methods to maximize recovery. In addition, brownfield investments can leverage nearby operations, lowering potential capital costs. Its decision to enter these assets into a joint venture with Barrick should extract even more value out of the Nevada assets. Newmont's other mines are in Mexico, Ghana, Australia, and Suriname.Newmont faces declining production and rising costs at a few of its mines, including Yanacocha. However, recent additions Merian and Long Canyon, development projects at a few of its mines, and the acquisition of Goldcorp should provide some better growth.In January 2019, Newmont announced the acquisition of fellow senior gold producer Goldcorp for a relatively mild premium. The cheap price gives Newmont significant leeway to create value out of the deal, as Goldcorp has struggled with the operations at its mines. The deal stands in stark contrast to the merger history of the sector, in which large premiums consistently destroyed shareholder value.Our long-term nominal gold price forecast is $1,300 per ounce in 2020 dollars. In recent years, investment demand weakened as the Federal Reserve raised rates amid the strength of the U.S. economy. This downward pressure on gold prices should soften in the near term, as the U.S. central bank appears to be opting for a more dovish approach due to rising economic uncertainty.On the back of stabilizing investment demand and improving jewelry demand in China, we expect gold prices to reach a nominal price of $1,300 per ounce by 2020.