Newmont’s financial results for Q221 exceeded our expectations for the third quarter in succession, in this case by a material degree. All other things being equal, an improvement relative to Q1 was expected. In this case, however, revenues grew by more than costs, resulting in an increase in margins at the pre-tax level that persisted below the line, despite a normalisation of the effective tax rate (see Exhibit 2 for analysis).
A summary of the operational highlights of the quarter relative to our prior expectations is provided in Exhibit 1. In general, operations in South America and Australia recovered relative to Q1, despite ongoing disruptions as a result of the COVID-19 pandemic, while recovery in North America was delayed. Africa continued to perform at elevated levels, while output at Nevada Gold Mines was adversely affected by a mechanical mill failure at Carlin’s Goldstrike roaster (more information on this failure will be forthcoming at Barrick’s Q221 results, scheduled for release on 9 August).
Exhibit 1: Newmont Q121 operational results, actual versus forecast
Region |
Production |
Costs applicable to sales |
Q121a |
Q221e (koz) |
Q221a (koz) |
Variance (%) |
Q121a |
Q121e (US$/oz) |
Q221a (US$/oz) |
Variance (%) |
North America |
413 |
428 |
397 |
-7.2 |
736 |
746 |
769 |
+3.1 |
South America |
174 |
178 |
189 |
+6.2 |
791 |
1,156 |
721 |
-37.6 |
Australia |
269 |
294 |
299 |
+1.7 |
750 |
736 |
764 |
+3.8 |
Africa |
205 |
201 |
202 |
+0.5 |
758 |
722 |
763 |
+5.7 |
Nevada |
303 |
344 |
284 |
-17.4 |
745 |
652 |
753 |
+15.5 |
Sub-total |
1,364 |
1,445 |
1,371 |
-5.1 |
752 |
738 |
755 |
+2.3 |
Pueblo Viejo (40%) |
91 |
80 |
78 |
-2.5 |
|
|
|
|
Total (attributable) gold |
1,455 |
1,525 |
1,449 |
-5.0 |
|
|
|
|
Source: Newmont Corporation, Edison Investment Research
At the level of the individual mines, one (Penasquito) performed definitively better than our expectations, three (Yanacocha, Merian and Boddington) performed slightly better than our expectations and two (Musselwhite and Cerro Negro) performed in line with our expectations, with the balance performing either slightly worse or worse than our expectations. At least two other features of Newmont’s results were noteworthy:
■
A material contribution to costs from by-product silver sales at Yanacocha (estimated US$37m in Q221 vs US$1m in Q220).
■
A material quarter-on-quarter benefit to revenues derived from metals produced in concentrate at Penasquito and Boddington in particular, as a result of the effect of rising metals’ prices on provisionally priced contracts towards the end of Q121.
In financial terms, adjusted net income exceeded our prior forecast by US$220m, or a material 48.9%. The main features behind this outperformance were a 3.8% (or US$111m) positive variance in revenues (of which 2.4% could be attributed to the gold price – US$1,823/oz realised vs US$1,814/oz average price during the period and US$1,781/oz previously forecast) and a 2.8% (US$61m) further positive variance in the form of lower costs. The other material variance was a positive swing in ‘other net income’ from a loss of US$82m in Q121 to a profit of US$50m in Q221. The aggregate positive variance of these three items of US$264m was moderated by a US$101m negative variance in taxation to result in adjusted net income of US$670m versus our prior forecast of US$450m.
A full analysis of Newmont’s Q121 financial performance relative to both our prior forecasts and Q121 results is provided in the exhibit below.
Exhibit 2: Newmont quarterly income statement, Q120–Q221 versus Edison forecast
US$m (unless otherwise indicated) |
Q120 |
Q220 |
Q320 |
Q420 |
Q121 |
Q221e |
Q221a |
*Change (%) |
**Variation (%) |
**Variation (units) |
Sales |
2,581 |
2,365 |
3,170 |
3,381 |
2,872 |
2,954 |
3,065 |
6.7 |
3.8 |
111 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
– Costs applicable to sales |
1,332 |
1,058 |
1,269 |
1,355 |
1,247 |
1,290 |
1,281 |
2.7 |
-0.7 |
-9 |
– Depreciation and amortisation |
565 |
528 |
592 |
615 |
553 |
598 |
561 |
1.4 |
-6.2 |
-37 |
– Reclamation and remediation |
38 |
40 |
38 |
250 |
46 |
42 |
57 |
23.9 |
35.7 |
15 |
– Exploration |
44 |
26 |
48 |
69 |
35 |
65 |
52 |
48.6 |
-20.0 |
-13 |
– Advanced projects, research and development |
27 |
26 |
39 |
30 |
31 |
37 |
37 |
19.4 |
0.0 |
0 |
– General and administrative |
65 |
72 |
68 |
64 |
65 |
65 |
64 |
-1.5 |
-1.5 |
-1 |
– Impairment of long-lived assets |
0 |
5 |
24 |
20 |
0 |
0 |
0 |
N/A |
N/A |
0 |
– Care and maintenance |
20 |
125 |
26 |
7 |
0 |
0 |
2 |
N/A |
N/A |
2 |
– Other expense, net |
33 |
54 |
68 |
51 |
39 |
69 |
50 |
28.2 |
-27.5 |
-19 |
Total |
2,124 |
1,934 |
2,172 |
2,461 |
2,016 |
2,165 |
2,104 |
4.4 |
-2.8 |
-61 |
Other income/(expenses) |
|
|
|
|
|
|
|
|
|
|
– Gain on formation of Nevada Gold Mines |
0 |
0 |
0 |
0 |
0 |
|
|
N/A |
N/A |
0 |
– Gain on asset and investment sales, net |
593 |
(1) |
1 |
84 |
43 |
|
0 |
-100.0 |
N/A |
0 |
– Other income, net |
(189) |
198 |
(44) |
3 |
(82) |
(42) |
50 |
-161.0 |
-219.0 |
92 |
– Interest expense, net of capitalised interest |
(82) |
(78) |
(75) |
(73) |
(74) |
(79) |
(68) |
-8.1 |
-13.9 |
11 |
|
322 |
119 |
(118) |
14 |
(113) |
(121) |
(18) |
-84.1 |
-85.1 |
103 |
Income/(loss) before income and mining tax |
779 |
550 |
880 |
934 |
743 |
668 |
943 |
26.9 |
41.2 |
275 |
Income and mining tax benefit/(expense) |
23 |
(164) |
(305) |
(258) |
(235) |
(240) |
(341) |
45.1 |
42.1 |
-101 |
Effective tax rate (%) |
(3.0) |
29.8 |
34.7 |
27.6 |
31.6 |
36.0 |
36.2 |
14.6 |
0.6 |
0.2 |
Profit after tax |
802 |
386 |
575 |
676 |
508 |
427 |
602 |
18.5 |
41.0 |
175 |
Equity income/(loss) of affiliates |
37 |
29 |
53 |
70 |
50 |
40 |
49 |
-2.0 |
22.5 |
9 |
Net income/(loss) from continuing operations |
839 |
415 |
628 |
746 |
558 |
467 |
651 |
16.7 |
39.4 |
184 |
Net income/(loss) from discontinued operations |
(15) |
(68) |
228 |
18 |
21 |
|
10 |
-52.4 |
N/A |
10 |
Net income/(loss) |
824 |
347 |
856 |
764 |
579 |
467 |
661 |
14.2 |
41.5 |
194 |
Minority interest |
2 |
3 |
17 |
(60) |
20 |
17 |
11 |
-45.0 |
-35.3 |
-6 |
Minority interest (%) |
0.2 |
0.9 |
2.0 |
(7.9) |
3.5 |
3.6 |
1.7 |
-51.4 |
-52.8 |
-1.9 |
Net income/(loss) attributable to stockholders |
822 |
344 |
839 |
824 |
559 |
450 |
650 |
16.3 |
44.4 |
200 |
Adjustments to net income |
(496) |
(83) |
(142) |
32 |
35 |
0 |
20 |
-42.9 |
N/A |
20 |
Adjusted net income |
326 |
261 |
697 |
856 |
594 |
450 |
670 |
12.8 |
48.9 |
220 |
Net income/(loss) per common share (US$) |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
1.037 |
0.513 |
0.761 |
1.005 |
0.672 |
0.563 |
0.799 |
18.9 |
41.9 |
0.236 |
– Discontinued operations |
(0.019) |
(0.085) |
0.284 |
0.022 |
0.026 |
0.000 |
0.012 |
-52.0 |
N/A |
0.012 |
– Total |
1.019 |
0.428 |
1.045 |
1.027 |
0.698 |
0.563 |
0.811 |
16.3 |
44.1 |
0.248 |
Diluted |
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
1.035 |
0.512 |
0.758 |
1.002 |
0.671 |
0.559 |
0.797 |
18.8 |
42.6 |
0.238 |
– Discontinued operations |
(0.019) |
(0.084) |
0.283 |
0.022 |
0.026 |
0.000 |
0.012 |
-52.1 |
N/A |
0.012 |
– Total |
1.016 |
0.427 |
1.041 |
1.025 |
0.697 |
0.559 |
0.809 |
16.1 |
44.8 |
0.250 |
Basic adjusted net income per share (US$) |
0.404 |
0.325 |
0.868 |
1.067 |
0.742 |
0.563 |
0.836 |
12.7 |
48.6 |
0.273 |
Diluted adjusted net income per share (US$) |
0.403 |
0.324 |
0.865 |
1.065 |
0.741 |
0.559 |
0.834 |
12.6 |
49.3 |
0.275 |
DPS (US$/share) |
0.250 |
0.250 |
0.400 |
0.550 |
0.550 |
0.550 |
0.550 |
0.0 |
0.0 |
0.000 |
Source: Newmont Corporation, Edison Investment Research. Note: *Q221 vs Q121; **Q221 vs Q221e.
As noted at the time of Newmont’s Q420/FY20 results, both (higher) production and (lower) costs are expected to be weighted towards H221 (approximately in the ratio 47:53) and this effect will be most pronounced in the first and last quarters of the year. In part, this profile will reflect rising grade profiles, in particular at Boddington and Ahafo (the H1:H2 production ratio at Boddington will be enhanced by productivity improvements from the autonomous haulage system ramp-up, while that at Ahafo will also be volume driven by productivity improvements throughout the year from the change in mining method at Subika underground to sub-level shrinkage). However, Merian, Musselwhite, Porcupine and CC&V are all expected to exhibit rising production profiles as well, as the year progresses. At the same time, costs will be weighted in the other direction; that is, H221 costs are expected to be lower than H121 costs. In part, this reflects lower production in H121. However, it also reflects higher sustaining capital costs in H121 relating to the installation of the autonomous haulage system at Boddington.
In the light of Q121 results, the prevailing gold price (US$1,793/oz vs US$1,776/oz previously) and slight adjustments to our ongoing treatment of ‘other’ income and expenses, our updated financial forecasts for Newmont for the remainder of FY21, by quarter, are now as follows:
Exhibit 3: Newmont quarterly income statement, Q320–Q421e versus our prior forecast
US$m (unless otherwise indicated) |
Q320 |
Q420 |
FY20 |
Q121 |
Q221 |
Q321e (prior) |
Q321e (current) |
Q421e (prior) |
Q421e (current) |
FY21e (current) |
FY21e (prior) |
Sales |
3,170 |
3,381 |
11,497 |
2,872 |
3,065 |
3,163 |
3,252 |
3,171 |
3,257 |
12,446 |
12,160 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
– Costs applicable to sales |
1,269 |
1,355 |
5,014 |
1,247 |
1,281 |
1,310 |
1,323 |
1,305 |
1,317 |
5,168 |
5,152 |
– Depreciation and amortisation |
592 |
615 |
2,300 |
553 |
561 |
630 |
633 |
639 |
642 |
2,388 |
2,420 |
– Reclamation and remediation |
38 |
250 |
366 |
46 |
57 |
42 |
56 |
42 |
56 |
214 |
173 |
– Exploration |
48 |
69 |
187 |
35 |
52 |
65 |
65 |
65 |
65 |
217 |
230 |
– Advanced projects, research and development |
39 |
30 |
122 |
31 |
37 |
37 |
37 |
37 |
37 |
141 |
141 |
– General and administrative |
68 |
64 |
269 |
65 |
64 |
65 |
65 |
65 |
65 |
259 |
260 |
– Impairment of long-lived assets |
24 |
20 |
49 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
– Care and maintenance |
26 |
7 |
178 |
0 |
2 |
0 |
0 |
0 |
0 |
2 |
0 |
– Other expense, net |
68 |
51 |
206 |
39 |
50 |
69 |
0 |
69 |
0 |
89 |
246 |
Total |
2,172 |
2,461 |
8,691 |
2,016 |
2,104 |
2,218 |
2,178 |
2,222 |
2,181 |
8,479 |
8,622 |
Other income/(expenses) |
|
|
|
|
|
|
|
|
|
|
|
– Gain on formation of Nevada Gold Mines |
0 |
0 |
0 |
0 |
|
|
|
|
|
0 |
0 |
– Gain on asset and investment sales, net |
1 |
84 |
677 |
43 |
0 |
|
|
|
|
43 |
43 |
– Other income, net |
(44) |
3 |
(32) |
(82) |
50 |
(42) |
0 |
(42) |
0 |
-32 |
(208) |
– Interest expense, net of capitalised interest |
(75) |
(73) |
(308) |
(74) |
(68) |
(70) |
-77 |
(52) |
-59 |
-278 |
(275) |
|
(118) |
14 |
337 |
(113) |
(18) |
(112) |
-77 |
(94) |
-59 |
-267 |
(440) |
Income/(loss) before income and mining tax |
880 |
934 |
3,143 |
743 |
943 |
832 |
997 |
855 |
1,017 |
3,701 |
3,098 |
Income and mining tax benefit/(expense) |
(305) |
(258) |
(704) |
(235) |
(341) |
(300) |
-359 |
(308) |
-366 |
-1,301 |
(1,083) |
Effective tax rate (%) |
34.7 |
27.6 |
23.4 |
31.6 |
36.2 |
36.0 |
36.0 |
36.0 |
36.0 |
35.2 |
35.0 |
Profit after tax |
575 |
676 |
2,439 |
508 |
602 |
533 |
638 |
547 |
651 |
2,399 |
2,015 |
Equity income/(loss) of affiliates |
53 |
70 |
189 |
50 |
49 |
40 |
36 |
40 |
35 |
170 |
170 |
Net income/(loss) from continuing operations |
628 |
746 |
2,628 |
558 |
651 |
573 |
674 |
587 |
686 |
2,569 |
2,185 |
Net income/(loss) from discontinued operations |
228 |
18 |
163 |
21 |
10 |
|
|
|
|
31 |
21 |
Net income/(loss) |
856 |
764 |
2,791 |
579 |
661 |
573 |
674 |
587 |
686 |
2,600 |
2,206 |
Minority interest |
17 |
(60) |
(38) |
20 |
11 |
17 |
29 |
17 |
29 |
89 |
71 |
Do (%) |
2.0 |
(7.9) |
(1.4) |
3.5 |
1.7 |
3.0 |
4.3 |
2.9 |
4.2 |
3.4 |
3.2 |
Net income/(loss) attributable to stockholders |
839 |
824 |
2,829 |
559 |
650 |
556 |
645 |
570 |
658 |
2,512 |
2,135 |
Adjustments to net income |
(142) |
32 |
(689) |
35 |
20 |
0 |
0 |
0 |
0 |
55 |
35 |
Adjusted net income |
697 |
856 |
2,140 |
594 |
670 |
556 |
645 |
570 |
658 |
2,567 |
2,170 |
Net income/(loss) per common share (US$) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
0.761 |
1.005 |
3.317 |
0.672 |
0.799 |
0.695 |
0.808 |
0.713 |
0.823 |
3.101 |
2.641 |
– Discontinued operations |
0.284 |
0.022 |
0.203 |
0.026 |
0.012 |
0.000 |
0.000 |
0.000 |
0.000 |
0.039 |
0.026 |
– Total |
1.045 |
1.027 |
3.520 |
0.698 |
0.811 |
0.695 |
0.808 |
0.713 |
0.823 |
3.140 |
2.668 |
Diluted |
|
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
0.758 |
1.002 |
3.309 |
0.671 |
0.797 |
0.690 |
0.802 |
0.708 |
0.817 |
3.080 |
2.623 |
– Discontinued operations |
0.283 |
0.022 |
0.202 |
0.026 |
0.012 |
0.000 |
0.000 |
0.000 |
0.000 |
0.038 |
0.026 |
– Total |
1.041 |
1.025 |
3.511 |
0.697 |
0.809 |
0.690 |
0.802 |
0.708 |
0.817 |
3.118 |
2.649 |
Basic adjusted net income per share (US$) |
0.868 |
1.067 |
2.663 |
0.742 |
0.836 |
0.695 |
0.808 |
0.713 |
0.823 |
3.209 |
2.711 |
Diluted adjusted net income per share (US$) |
0.865 |
1.065 |
2.656 |
0.741 |
0.834 |
0.690 |
0.802 |
0.708 |
0.817 |
3.186 |
2.692 |
DPS (US$/share) |
0.400 |
0.550 |
1.450 |
0.550 |
0.550 |
0.550 |
0.550 |
0.550 |
0.550 |
2.200 |
2.200 |
Source: Newmont Corporation, Edison Investment Research
Note that, all other things being equal, the more the gold price rises, the more Newmont’s effective tax rate falls as lower tax operations contribute proportionately more to pre-tax profits. After our revisions for the remainder of the year, our basic adjusted EPS forecast of US$3.209/share (vs US$2.711/share previously) for FY21 compares to the market consensus, as follows:
Exhibit 4: FY21 Basic adjusted EPS forecast, Edison versus consensus (US$/share)
|
Q121 |
Q221e |
Q321e |
Q421e |
Sum Q1–Q421e |
FY21e |
Edison forecast |
0.74 |
0.84 |
0.81 |
0.82 |
3.21 |
3.21 |
Consensus forecast |
0.74 |
0.84 |
0.89 |
0.97 |
3.44 |
3.47 |
High |
0.74 |
0.84 |
1.38 |
1.38 |
4.34 |
5.04 |
Low |
0.74 |
0.84 |
0.71 |
0.71 |
3.00 |
2.69 |
Source: Edison Investment Research, Refinitiv (26 July 2021)
Newmont’s dividend for Q121 was maintained at US$0.55/share. At the time of its Q320 results in October 2020, Newmont unveiled a new dividend framework whereby it formally rebased its dividend to a ‘base’ pay-out of US$1.00/share (or US$0.25/share per quarter) at a gold price of US$1,200/oz, but also stated explicitly that it would return 40–60% of incremental attributable free cash flow that it generated above a gold price of US$1,200/oz to shareholders. Under the new framework, Newmont will augment the ‘base’ pay-out in increments of US$0.60–0.90/share per year (or US$0.15–0.225/share per quarter), evaluated in gold price increments of US$300/oz for gold prices above US$1,200/oz, with the goal of targeting 40–60% of incremental free cash flow above a gold price of US$1,200/oz returned to shareholders. Thus, a (sustainable) gold price at US$1,800/oz should (on this basis) result in a quarterly dividend of US$0.55/share, whereas a gold price below that level could result in one of US$0.40/share. In this context, however, it is worth noting that Newmont affords itself a degree of latitude in the level of the ultimate pay-out in that, should it decide to pay out nearer 60% of incremental attributable free cash flow to shareholders that it generates above a US$1,200/oz gold price, rather than 40%, then there is scope for the quarterly dividend to remain at the higher level, notwithstanding the gold price dipping below the US$1,800/oz level. In consequence, we have left our dividend forecasts for Q321–Q421 and FY21 unchanged on the basis that we believe the gold price temporarily dipping below US$1,800/oz is unlikely to result in any readjustment in the quarterly distribution.