October gold rally and key earnings insights

Gold equities had a strong month in Australian dollar terms. The NYSE Arca Gold Miners Index rose by 7.37% over the month.

By the end of October, markets anticipated a slower pace of the US Federal Reserve (Fed) rate cuts compared to September’s outlook. Gold showed strong resilience, reaching record highs despite a stronger US dollar (up 3.17%) and rising Treasury yields (with the 10-year yield up by 50 basis points). Gold likely benefited from weakness in US equities, as the NASDAQ and S&P 500 declined (in local currency terms) by 0.49% and 0.92%, respectively.

On 31 October, the UK’s Autumn Budget 2024 was released, impacting both UK and global markets amid concerns that the budget could spur inflation and prompt the Bank of England to delay rate cuts. In response, gold dropped over US$40 per ounce, ending the month at US$2,743.97, an increase of US$109.39 per ounce or 4.15% overall for October.

Newmont’s earnings miss and revised 2025 guidance impacts gold sector

A key factor influencing the sector’s performance in October was the sharp sell-off of Newmont’s (12.07% of GDX) shares on 24 October. The previous day, Newmont reported Q3 2024 adjusted earnings per share (EPS) of US$0.81, missing the consensus estimate of US$0.86. While this slight earnings miss was largely due to higher costs, it was somewhat offset by positive news of strong share repurchases, debt reduction and a quarterly dividend of US$0.25 per share.

Newmont expanded its share buyback program to US$3 billion (up from US$1 billion), with US$750 million repurchased so far this year. Additionally, the company reduced its net debt by US$483 million year-to-date, targeting a reduction to US$5 billion by year-end, down from US$6 billion. As of Q3, Newmont's balance sheet remained robust, with US$3 billion in consolidated cash, approximately US$7.1 billion in total liquidity and a net debt-to-adjusted EBITDA ratio of 0.9x. The company also made progress on non-core asset sales, achieving US$1.475 billion in sales year-to-date, putting it on track to surpass its US$2 billion target.

During the 24 October conference call, Newmont issued preliminary 2025 guidance that fell short of expectations. The company projected 2025 production at around 5.6 million ounces, down from the previously anticipated 6.0 million ounces. It also indicated that costs would remain steady with 2024 levels, contrary to market expectations for year-over-year reductions. These revisions, along with weaker Q3 results and a higher cost outlook for 2024, drove Newmont’s shares down nearly 15% that day. As a sector leader, Newmont’s performance influenced the broader market, with most gold mining equities declining on 24 October, despite a 0.76% increase in gold.

Investor concerns in gold mining revealed by Newmont’s sell-off

Newmont’s sell-off highlighted the key risks that concern investors in gold mining equities, explaining the market’s intense, perhaps exaggerated, reaction:

1. Meeting expectations – Consistently meeting targets is critical for the sector. While projecting production, operating and capital costs is complex, it’s essential for companies to deliver as promised to build investor confidence. Underperformance or frequent revisions may not always impact the value of long-lived assets like gold mines, but markets closely track each company’s ability to execute on their plans as an indicator of effective risk management. Companies that adopt cautious, precise guidance are more likely to meet or exceed expectations and may benefit from higher valuations as a result.
2. Margin expansion and free cash flow generation – Following recent inflation-driven cost increases, investors are focused on the industry’s cost management. A concern raised by Newmont’s report is whether its higher cost outlook signals a broader trend for the sector. With inflationary pressures easing and companies working to control costs, industry costs are expected to stabilise, and margins should expand as gold prices rise. Investors seek assurance that companies are achieving record margins and free cash flow amid record gold prices.
3. Delivering on growth strategies – Investors are carefully watching companies’ approaches to growth, from mine expansions and new projects to acquisitions. While sector consolidation, such as Newmont’s acquisition of Newcrest, can deliver long-term benefits, integration also brings risks and complexities. Effective capital allocation and solid execution on growth initiatives are key to maintaining investor confidence, though acquisitions may temporarily pressure stock performance.

Agnico Eagle’s strong Q3 results boost sector confidence

Newmont kicked off the earnings season, followed by another industry leader, Agnico Eagle (9.95% of GDX), on 31 October (with results released after market close on 30 October and a conference call on 31 October). Agnico’s strong Q3 2024 results provided exactly the boost the sector needed, delivering solid financial and operational performance, reaffirming yearly guidance, and presenting a positive outlook on costs, inflation, and project progress across all key areas.

1. Meeting expectations – Agnico Eagle exceeded earnings expectations with an adjusted EPS of US$1.14, above the consensus estimate of US$1.01. Both production and costs for the quarter met projections, and the company maintained its 2024 guidance, aiming for 3.35 million ounces of production and all-in sustaining costs of US$1,225 per ounce at the midpoint.
2. Margin expansion and free cash flow generation – Agnico Eagle reported record operating cash flow and free cash flow for the quarter. The company reduced net debt by US$375 million, bringing the year-to-date total to US$1 billion, and improved its net debt-to-EBITDA ratio from 0.29x to 0.15x. Agnico declared a quarterly dividend of US$0.40 per share and repurchased US$30 million in shares, emphasising its commitment to returning capital to shareholders, with US$700 million returned year-to-date. On cost and inflation, Agnico noted that productivity improvements are stabilising costs across its mines. Labour, which accounts for 45% of its cost structure, is projected to have a 3% inflation rate in 2025, down from 4.5% in 2023. Overall costs are expected to increase by about 5% year-over-year, supported by falling diesel and power costs and stable contract renewals. The company also reported no significant inflation in capital costs.
3. Delivering on growth strategies – Agnico reported steady progress on its Detour Complex, Odyssey and San Nicolas projects, with key infrastructure developments and ongoing permitting activities. Positive exploration results were released for Detour Underground, Hope Bay and East Gouldie. Agnico continues its strategy of small equity investments in geologically favourable, politically stable regions, including its recent investment in ATEX Resources (Chile), viewing it as a disciplined, early-stage approach to establish a strategic presence in a promising copper mining area.

Agnico Eagle’s strong results overshadowed by market drop

Unfortunately for Agnico Eagle, its stellar report coincided with Halloween and a spooky day for gold, which traded down more than US$40 per ounce, so Agnico shares didn’t gain on the day. Perhaps the market has come to expect Agnico to meet or beat expectations as it has done historically, earning a premium valuation in the sector. One thing is clear, delivering against plans, realising margin expansion as the gold price increases, and executing on a disciplined and sustainable growth strategy are the key ingredients for outperformance in the gold mining sector.