Can NEM Maintain Earnings Momentum Amid Production Challenges?

Newmont's attributable gold production fell 13% year over year to 1.29 million ounces in Q2, and the company expects 2026 output of roughly 5.26 million ounces, down from 5.89 million ounces in 2025. AISC is projected to rise 24% to $1,680/oz from $1,358/oz, pressured by lower volumes, mine sequencing, royalties and taxes, capital deferrals, and inventory changes. Lower output at Penasquito, Cadia, Nevada Gold Mines, and Pueblo Viejo could weigh on profitability despite partial support from Ahafo North; consensus EPS estimates for 2026-27 have also declined over the past 60 days.

Analysis

NEM’s issue is not simply fewer ounces; it is negative operating leverage at a point when its premium liquidity and scale have supported a near-peer multiple. The implied cost inflation materially reduces incremental gold-price capture: assuming gold holds above $3,000/oz, NEM remains cash-generative, but its margin expansion will lag lower-cost producers and its earnings sensitivity becomes more dependent on bullion rather than execution. Further estimate cuts are likely over the next 1-3 months as sell-side models absorb lower Nevada Gold Mines and Pueblo Viejo contributions, where recoveries and throughput—not merely mine sequencing—will determine whether the downgrade cycle extends into 2027.

ABX has a relative production momentum advantage into the second half, making it the cleaner tactical beneficiary of investors reallocating from operationally challenged mega-cap gold exposure. AEM’s Canadian Malartic disruption limits its ability to fully absorb flows, but its lower geopolitical risk profile and generally more predictable asset base should preserve its defensive premium versus NEM. Second-order beneficiaries include royalty names FNV and WPM: their revenue is linked to mine output but they avoid direct exposure to NEM’s sustaining-capital deferrals, inflation and site-level execution risk.

Consensus may overstate the importance of volume declines if gold remains structurally strong: at elevated bullion prices, even reduced output can support buybacks and dividends. The key contrarian catalyst is a gold-price rally large enough to offset unit-cost inflation and shift attention back to portfolio simplification; however, that is a sector-beta thesis, not evidence of NEM-specific improvement. A reversal of the relative-short view requires NEM to demonstrate stable quarterly output, contained AISC, and no additional deferral of sustaining capital.

Key Decisions for Investors

• Initiate a 3-6 month pair: long ABX / short NEM, dollar-neutral. ABX has a clearer second-half volume ramp while NEM faces sequentially flat output and cost deleverage; target 10-15% relative outperformance. Exit if NEM raises production guidance, cuts AISC guidance, or ABX reports a material Loulo-Gounkoto ramp delay.
• For gold-beta exposure, prefer AEM over NEM on a 6-12 month horizon, sized modestly until Canadian Malartic remediation timing is clearer. AEM’s pit-wall impact is identifiable and bounded; NEM’s risk is portfolio-wide execution and cost pressure. Reassess if Barnat’s production loss exceeds the disclosed range or remediation pushes into 2027.
• Avoid adding outright NEM before the next production/cost update. Set an alert for a 5%+ reduction in 2027 consensus EPS or an AISC guide increase above $1,680/oz; either would support extending the short leg. Conversely, a sustained gold move above $3,200/oz without further estimate cuts would reduce downside asymmetry.
• For investors requiring precious-metals exposure with lower operating-cost risk, rotate a portion of NEM exposure into FNV or WPM over 6-18 months. This expresses continued gold strength while reducing direct exposure to labor, royalties/taxes, sustaining-capital inflation and mine-plan execution.