Losing its lustre: Newmont share price tanks 10% in 3 days

It's turning into an ASX baptism by fire for Newmont shares.

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Earlier this week, we covered the ASX debut of gold mining stock Newmont Corporation (ASX: NEM) and how its first week on both the S&P/ASX 200 Index (ASX: XJO) and the Australian stock market went.

Newmont is the ASX-listed CHESS Depositary Interest of the US gold mining giant Newmont Corporation (NYSE: NEM). It has now joined the ASX boards thanks to its recent acquisition of Newcrest Mining Ltd, the share that used to be the ASX's largest gold miner.

As part of the acquisition, Newcrest shareholders at the time received 0.4 Newmont shares for every Newcrest share owned. As such, Newmont is technically now the largest gold miner on the ASX, with a market capitalisation of US$40 billion ($62.59 billion).

When we covered Newmont shares' first week on Monday, Newmont had performed decently, albeit with a bit of volatility along the way.

But fast forward to today, and the picture is a lot bleaker for the Newmont share price. This ASX gold stock has now lost close to 10% of its value in just three trading days.

Yep, on Monday, Newmont closed at $59.50 a share. But after losing 1.45% on Tuesday, another 4.66% on Wednesday and 3.93% so far this Thursday, Newmont is down to just $53.70 a share. That's a loss worth a painful 9.73% since Monday's close.

So what's going so wrong for this ASX newcomer this week?

Why has the Newmont share price tanked nearly 10% in three days?

Well, it looks like there is only one culprit here – a falling gold price.

The price of gold has fallen dramatically this week. On Monday, the precious metal was going for around US$1,995 an ounce. But, as my Fool colleague James covered just this morning, gold has been falling in value every day this week. That same ounce of gold is asking just US$1,955 today, down more than 2% across those three days.

Like any gold miner, the intrinsic value of Newmont is highly correlated with the price of gold. Since a gold miner's costs are relatively fixed, even a small fall in the price of gold can have an outsized impact on the company's profitability.

For example, let's arbitrarily say it costs Newmont an average of US$1,000 to extract an ounce of gold, and gold falls from US$2,000 an ounce to US$1,500. Even though the gold price has dropped by 25% in this scenario, Newmont's profit margin on each ounce has tanked by 50%.

That's why even a small fall in the value of gold can send investors fleeing ASX gold shares. Of course, this works in reverse, too, with any rises in the gold price delivering exponential increases in gold miners' profitability. But unfortunately for Newmont investors, the opposite is occurring this week.

So doubt Newmont's freshly minted ASX investors will be hoping for an end-of-week turnaround tomorrow. But let's see what happens.

Motley Fool contributor Sebastian Bowen has positions in Newmont. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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