Q121 results compared to expectations
Notwithstanding continuing low-level disruptions occasioned by the coronavirus pandemic, Newmont’s Q121 financial results were materially better than Edison’s expectations, albeit in the lower half of a consensus that appeared to be underappreciating the effect of seasonality in FY21.
A summary of the operational highlights of the quarter relative to Edison’s expectations is provided in Exhibit 1. In general, while production was slightly lower than Edison’s expectations, this was balanced by costs that were also lower than expected:
Exhibit 1: Newmont Q121 operational results, actual vs forecast
Region |
Production |
Costs applicable to sales |
Forecast (koz) |
Actual (koz) |
Actual/forecast (%) |
Forecast (US$/oz) |
Actual (US$/oz) |
Actual/forecast (%) |
North America |
430 |
413 |
-4.0 |
734 |
736 |
+0.3 |
South America |
183 |
174 |
-4.9 |
851 |
791 |
-7.1 |
Australia |
278 |
269 |
-3.2 |
724 |
750 |
+3.6 |
Africa |
188 |
205 |
+9.0 |
764 |
758 |
-0.8 |
Nevada |
347 |
303 |
-12.7 |
765 |
745 |
-2.6 |
Sub-total |
1,427 |
1,364 |
-4.4 |
763 |
752 |
-1.4 |
Pueblo Viejo (40%) |
81 |
91 |
+12.3 |
|
|
|
Total (attributable) gold |
1,508 |
1,455 |
-3.5 |
|
|
|
Source: Newmont Corporation, Edison Investment Research
Operations in South America, in particular, continued to be affected by ongoing disruptions caused by the coronavirus, as did Musselwhite in North America. Ground conditions at Porcupine and rainfall at Tanami also added to the operational headwinds faced by the group during the quarter. However, this was, at least in part, counterbalanced by relative outperformance at Newmont’s African operations, which was attributed to continuing progress under the company’s ‘full potential’ initiative. At the level of the individual mines, Penasquito, Merian, Yanacocha and Ahafo generally outperformed our expectations, with Tanami and Akyem performing approximately in line and the remainder slightly underperforming (albeit with mitigating circumstances in the cases of Cerro Negro and Boddington in the form of lower than expected costs).
As anticipated at the time of our last note on the company (Q121 results preview, published on 19 April 2021), Q121 financial results (when the gold price averaged US$1,796/oz) fell between those of Q220 (when the gold price averaged US$1,713/oz) and Q320 (when it averaged US$1,911/oz) – albeit they more closely approximated the latter than the former. In calculating its basic adjusted net income per share, readers should note that, in this case, Newmont did not adjust for COVID-19 related costs (which was typically its practice in FY20). Had it done so, Newmont estimates that it would have added 2c to earnings, taking basic adjusted net EPS from US$0.74/share to US$0.76/share and to within a cent of the prior consensus of US$0.77/share (within a range of US$0.55–1.05/share, source: Refinitiv, 28 April 2021). Otherwise, pre-tax profits were within 1.8% of Edison’s prior forecast for the quarter, with the major variances being the effective tax rate (which at 31.6% was materially lower than our forecast and also Newmont’s guidance for the full year of 34–38%) and adjustments relating mostly to a change in the fair value of investments. A full analysis of Newmont’s Q121 financial performance relative to both Edison’s prior forecasts and Q420 results is provided in the exhibit below:
Exhibit 2: Newmont quarterly income statement, Q120–Q421 cf Edison forecast
US$m (unless otherwise indicated) |
Q120 |
Q220 |
Q320 |
Q420 |
FY20 |
Q121e |
Q121 |
*Change (%) |
**Variation (%) |
**Variation (units) |
Sales |
2,581 |
2,365 |
3,170 |
3,381 |
11,497 |
2,958 |
2,872 |
-15.1 |
-2.9 |
-86 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
– Costs applicable to sales |
1,332 |
1,058 |
1,269 |
1,355 |
5,014 |
1,314 |
1,247 |
-8.0 |
-5.1 |
-67 |
– Depreciation and amortisation |
565 |
528 |
592 |
615 |
2,300 |
594 |
553 |
-10.1 |
-6.9 |
-41 |
– Reclamation and remediation |
38 |
40 |
38 |
250 |
366 |
54 |
46 |
-81.6 |
-14.8 |
-8 |
– Exploration |
44 |
26 |
48 |
69 |
187 |
63 |
35 |
-49.3 |
-44.4 |
-28 |
– Advanced projects, research and development |
27 |
26 |
39 |
30 |
122 |
35 |
31 |
3.3 |
-11.4 |
-4 |
– General and administrative |
65 |
72 |
68 |
64 |
269 |
65 |
65 |
1.6 |
0.0 |
0 |
– Impairment of long-lived assets |
0 |
5 |
24 |
20 |
49 |
0 |
0 |
-100.0 |
N/A |
0 |
– Care and maintenance |
20 |
125 |
26 |
7 |
178 |
0 |
0 |
-100.0 |
N/A |
0 |
– Other expense, net |
33 |
54 |
68 |
51 |
206 |
69 |
39 |
-23.5 |
-43.5 |
-30 |
Total |
2,124 |
1,934 |
2,172 |
2,461 |
8,691 |
2,193 |
2,016 |
-18.1 |
-8.1 |
-177 |
Other income/(expenses) |
|
|
|
|
|
|
|
|
|
|
– Gain on formation of Nevada Gold Mines |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
N/A |
N/A |
0 |
– Gain on asset and investment sales, net |
593 |
(1) |
1 |
84 |
677 |
0 |
43 |
-48.8 |
N/A |
43 |
– Other income, net |
(189) |
198 |
(44) |
3 |
(32) |
42 |
(82) |
-2,833.3 |
-295.2 |
-124 |
– Interest expense, net of capitalised interest |
(82) |
(78) |
(75) |
(73) |
(308) |
(78) |
(74) |
1.4 |
-5.1 |
4 |
|
322 |
119 |
(118) |
14 |
337 |
(36) |
(113) |
-907.1 |
213.9 |
-77 |
Income/(loss) before income and mining tax |
779 |
550 |
880 |
934 |
3,143 |
730 |
743 |
-20.4 |
1.8 |
13 |
Income and mining tax benefit/(expense) |
23 |
(164) |
(305) |
(258) |
(704) |
(298) |
(235) |
-8.9 |
-21.1 |
63 |
Effective tax rate (%) |
(3.0) |
29.8 |
34.7 |
27.6 |
23.4 |
40.9 |
31.6 |
14.5 |
-22.7 |
-9.3 |
Profit after tax |
802 |
386 |
575 |
676 |
2,439 |
431 |
508 |
-24.9 |
17.9 |
77 |
Equity income/(loss) of affiliates |
37 |
29 |
53 |
70 |
189 |
33 |
50 |
-28.6 |
51.5 |
17 |
Net income/(loss) from continuing operations |
839 |
415 |
628 |
746 |
2,628 |
465 |
558 |
-25.2 |
20.0 |
93 |
Net income/(loss) from discontinued operations |
(15) |
(68) |
228 |
18 |
163 |
0 |
21 |
16.7 |
N/A |
21 |
Net income/(loss) |
824 |
347 |
856 |
764 |
2,791 |
465 |
579 |
-24.2 |
24.5 |
114 |
Minority interest |
2 |
3 |
17 |
(60) |
(38) |
18 |
20 |
-133.3 |
11.1 |
2 |
Minority interest (%) |
0.2 |
0.9 |
2.0 |
(7.9) |
(1.4) |
3.9 |
3.5 |
-144.3 |
-10.3 |
-0.4 |
Net income/(loss) attributable to stockholders |
822 |
344 |
839 |
824 |
2,829 |
447 |
559 |
-32.2 |
25.1 |
112 |
Adjustments to net income |
(496) |
(83) |
(142) |
32 |
(689) |
0 |
35 |
9.4 |
N/A |
35 |
Adjusted net income |
326 |
261 |
697 |
856 |
2,140 |
447 |
594 |
-30.6 |
32.9 |
147 |
Net income/(loss) per common share (US$) |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
1.037 |
0.513 |
0.761 |
1.005 |
3.317 |
0.557 |
0.672 |
-33.7 |
20.3 |
0.113 |
– Discontinued operations |
(0.019) |
(0.085) |
0.284 |
0.022 |
0.203 |
0.000 |
0.026 |
50.0 |
N/A |
0.030 |
– Total |
1.019 |
0.428 |
1.045 |
1.027 |
3.520 |
0.557 |
0.698 |
-32.0 |
25.7 |
0.143 |
Diluted |
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
1.035 |
0.512 |
0.758 |
1.002 |
3.309 |
0.554 |
0.671 |
-33.0 |
20.9 |
0.116 |
– Discontinued operations |
(0.019) |
(0.084) |
0.283 |
0.022 |
0.202 |
0.000 |
0.026 |
50.0 |
N/A |
0.030 |
– Total |
1.016 |
0.427 |
1.041 |
1.025 |
3.511 |
0.554 |
0.697 |
-31.4 |
26.4 |
0.146 |
Basic adjusted net income per share (US$) |
0.404 |
0.325 |
0.868 |
1.067 |
2.663 |
0.557 |
0.742 |
-30.8 |
32.9 |
0.183 |
Diluted adjusted net income per share (US$) |
0.403 |
0.324 |
0.865 |
1.065 |
2.656 |
0.554 |
0.741 |
-30.2 |
33.6 |
0.186 |
DPS (US$/share) |
0.250 |
0.250 |
0.400 |
0.550 |
1.450 |
0.550 |
0.550 |
0.0 |
0.0 |
0.000 |
Source: Newmont Corporation, Edison Investment Research. Note: *Q121 cf Q420; **Q121 cf Q121e.
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 at Boddington and Ahafo, in particular (NB 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 to say, H221 costs are expected to be lower than H121 costs. In part, this reflects lower expected production in H121. However, it also reflects higher sustaining capital costs in H121, in particular, relating to the autonomous haulage system being implemented at Boddington.
In the light of Q121 results, the currently prevailing gold price (US$1,793/oz cf US$1,776/oz previously) and slight adjustments to our ongoing treatment of tax (overall, resulting in a reduction in the effective tax rate), our updated financial forecasts for Newmont for the remainder of FY21, by quarter, are now as follows:
Exhibit 3: Newmont quarterly income statement, Q120–Q421e cf Edison prior forecast
US$m (unless otherwise indicated) |
Q120 |
Q220 |
Q320 |
Q420 |
FY20 |
Q121 |
Q221e |
Q321e |
Q421e |
FY21e (current) |
FY21e (prior) |
Sales |
2,581 |
2,365 |
3,170 |
3,381 |
11,497 |
2,872 |
2,954 |
3,163 |
3,171 |
12,160 |
12,256 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
– Costs applicable to sales |
1,332 |
1,058 |
1,269 |
1,355 |
5,014 |
1,247 |
1,290 |
1,310 |
1,305 |
5,152 |
5,357 |
– Depreciation and amortisation |
565 |
528 |
592 |
615 |
2,300 |
553 |
598 |
630 |
639 |
2,420 |
2,424 |
– Reclamation and remediation |
38 |
40 |
38 |
250 |
366 |
46 |
42 |
42 |
42 |
173 |
215 |
– Exploration |
44 |
26 |
48 |
69 |
187 |
35 |
65 |
65 |
65 |
230 |
250 |
– Advanced projects, research and development |
27 |
26 |
39 |
30 |
122 |
31 |
37 |
37 |
37 |
141 |
140 |
– General and administrative |
65 |
72 |
68 |
64 |
269 |
65 |
65 |
65 |
65 |
260 |
260 |
– Impairment of long-lived assets |
0 |
5 |
24 |
20 |
49 |
0 |
0 |
0 |
0 |
0 |
0 |
– Care and maintenance |
20 |
125 |
26 |
7 |
178 |
0 |
0 |
0 |
0 |
0 |
0 |
– Other expense, net |
33 |
54 |
68 |
51 |
206 |
39 |
69 |
69 |
69 |
246 |
276 |
Total |
2,124 |
1,934 |
2,172 |
2,461 |
8,691 |
2,016 |
2,165 |
2,218 |
2,222 |
8,622 |
8,923 |
Other income/(expenses) |
|
|
|
|
|
|
|
|
|
|
|
– Gain on formation of Nevada Gold Mines |
0 |
0 |
0 |
0 |
0 |
0 |
|
|
|
0 |
|
– Gain on asset and investment sales, net |
593 |
(1) |
1 |
84 |
677 |
43 |
|
|
|
43 |
|
– Other income, net |
(189) |
198 |
(44) |
3 |
(32) |
(82) |
(42) |
(42) |
(42) |
(208) |
168 |
– Interest expense, net of capitalised interest |
(82) |
(78) |
(75) |
(73) |
(308) |
(74) |
(79) |
(70) |
(52) |
(275) |
(275) |
|
322 |
119 |
(118) |
14 |
337 |
(113) |
(121) |
(112) |
(94) |
(440) |
(107) |
Income/(loss) before income and mining tax |
779 |
550 |
880 |
934 |
3,143 |
743 |
668 |
832 |
855 |
3,098 |
3,226 |
Income and mining tax benefit/(expense) |
23 |
(164) |
(305) |
(258) |
(704) |
(235) |
(240) |
(300) |
(308) |
(1,083) |
(1,294) |
Effective tax rate (%) |
(3.0) |
29.8 |
34.7 |
27.6 |
23.4 |
31.6 |
36.0 |
36.0 |
36.0 |
35.0 |
40.1 |
Profit after tax |
802 |
386 |
575 |
676 |
2,439 |
508 |
427 |
533 |
547 |
2,015 |
1,931 |
Equity income/(loss) of affiliates |
37 |
29 |
53 |
70 |
189 |
50 |
40 |
40 |
40 |
170 |
130 |
Net income/(loss) from continuing operations |
839 |
415 |
628 |
746 |
2,628 |
558 |
467 |
573 |
587 |
2,185 |
2,061 |
Net income/(loss) from discontinued operations |
(15) |
(68) |
228 |
18 |
163 |
21 |
|
|
|
21 |
0 |
Net income/(loss) |
824 |
347 |
856 |
764 |
2,791 |
579 |
467 |
573 |
587 |
2,206 |
2,061 |
Minority interest |
2 |
3 |
17 |
(60) |
(38) |
20 |
17 |
17 |
17 |
71 |
65 |
Do (%) |
0.2 |
0.9 |
2.0 |
(7.9) |
(1.4) |
3.5 |
3.6 |
3.0 |
2.9 |
3.2 |
3.2 |
Net income/(loss) attributable to stockholders |
822 |
344 |
839 |
824 |
2,829 |
559 |
450 |
556 |
570 |
2,135 |
1,996 |
Adjustments to net income |
(496) |
(83) |
(142) |
32 |
(689) |
35 |
0 |
0 |
0 |
35 |
0 |
Adjusted net income |
326 |
261 |
697 |
856 |
2,140 |
594 |
450 |
556 |
570 |
2,170 |
1,996 |
Net income/(loss) per common share (US$) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
1.037 |
0.513 |
0.761 |
1.005 |
3.317 |
0.672 |
0.563 |
0.695 |
0.713 |
2.641 |
2.493 |
– Discontinued operations |
(0.019) |
(0.085) |
0.284 |
0.022 |
0.203 |
0.026 |
0.000 |
0.000 |
0.000 |
0.026 |
0.000 |
– Total |
1.019 |
0.428 |
1.045 |
1.027 |
3.520 |
0.698 |
0.563 |
0.695 |
0.713 |
2.668 |
2.493 |
Diluted |
|
|
|
|
|
|
|
|
|
|
|
– Continuing operations |
1.035 |
0.512 |
0.758 |
1.002 |
3.309 |
0.671 |
0.559 |
0.690 |
0.708 |
2.623 |
2.475 |
– Discontinued operations |
(0.019) |
(0.084) |
0.283 |
0.022 |
0.202 |
0.026 |
0.000 |
0.000 |
0.000 |
0.026 |
0.000 |
– Total |
1.016 |
0.427 |
1.041 |
1.025 |
3.511 |
0.697 |
0.559 |
0.690 |
0.708 |
2.649 |
2.475 |
Basic adjusted net income per share (US$) |
0.404 |
0.325 |
0.868 |
1.067 |
2.663 |
0.742 |
0.563 |
0.695 |
0.713 |
2.711 |
2.493 |
Diluted adjusted net income per share (US$) |
0.403 |
0.324 |
0.865 |
1.065 |
2.656 |
0.741 |
0.559 |
0.690 |
0.708 |
2.692 |
2.475 |
DPS (US$/share) |
0.250 |
0.250 |
0.400 |
0.550 |
1.450 |
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$2.711/share for FY21 compares to the market consensus, as follows:
Exhibit 4: FY21 Basic adjusted EPS forecast, Edison cf consensus (US$/share)
|
Q121 |
Q221e |
Q321e |
Q421e |
Sum Q1–Q421e |
FY21e |
Edison forecast |
0.742 |
0.563 |
0.695 |
0.713 |
2.713 |
2.711 |
Consensus forecast |
0.74 |
0.79 |
0.93 |
0.99 |
3.45 |
3.53 |
High |
0.74 |
1.08 |
1.32 |
1.56 |
4.70 |
4.96 |
Low |
0.74 |
0.66 |
0.74 |
0.70 |
2.84 |
2.84 |
Source: Edison Investment Research, Refinitiv (13 May 2021)
Newmont’s dividend for Q121 was maintained at US$0.55/share. Readers are reminded that, 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 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 both Q221–Q421 and FY21 unchanged on the basis that we believe that the gold price temporarily dipping below US$1,800/oz is unlikely to result in any readjustment in the quarterly distribution.