Newmont Corporation — Translating size into profitability

Newmont Corporation (TSX: NEM)

Last close As at 04/11/2024

49.02

0.18 (0.37%)

Market capitalisation

USD37,024m

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Research: Metals & Mining

Newmont Corporation — Translating size into profitability

Newmont has reinstated production and cost guidance for FY20 57 days after it withdrew it. All told, COVID-19 appears likely to cost the company c 6% of its attributable production (or 0.4Moz) at cash and all-in sustaining (AISC) costs US$25/oz and US$40/oz higher than previously estimated at US$775/oz and US$1,015/oz, respectively. However, it will also defer or defray US$300m in capex. Of 12 mines and two joint ventures, 13 are now expected to be fully operational within a matter of weeks.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Newmont Corporation

Translating size into profitability

Metals & mining

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22 May 2020

Price

US$63.48

Market cap

US$51bn

C$1.4094/US$

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Share details

Code

NEM

Listing

NYSE

Shares in issue

802.6m

Business description

Newmont has interests in 14 mines in North America, South America, Australia and West Africa, including eight world-class assets (three within the Nevada Gold Mines jv plus Pueblo Viejo, Penasquito, Ahafo, Boddington and Tanami) and two emerging world-class assets (Merian and Yanacocha).

Bull

88% of gold reserves located in Americas and Australia.

US$0.25/share quarterly dividend.

14 projects in development from scoping study to execution.

Bear

Size obscures major development projects.

Q119 net debt of US$3.0bn, balance sheet gearing of 13.9% and leverage of 12.2%.

FY20 production trending towards lower end of previous (suspended) guidance range.

Analyst

Charles Gibson

+44 (0)20 3077 5724

Newmont Corporation is a client of Edison Investment Research Limited

Newmont has reinstated production and cost guidance for FY20 57 days after it withdrew it. All told, COVID-19 appears likely to cost the company c 6% of its attributable production (or 0.4Moz) at cash and all-in sustaining (AISC) costs US$25/oz and US$40/oz higher than previously estimated at US$775/oz and US$1,015/oz, respectively. However, it will also defer or defray US$300m in capex. Of 12 mines and two joint ventures, 13 are now expected to be fully operational within a matter of weeks.

Return to major new projects

Newmont has 95.73Moz gold reserves plus 103.57Moz resources plus a further 63m gold equivalent ounces (GEOs) in the form of co-products. Its stated strategy is to lead the gold sector in creating value for shareholders by 1) delivering superior operational execution, 2) sustaining a global portfolio of long-life assets and 3) leading the sector in profitability and responsibility. Over the course of the coming decade, its plan is to produce a sustainable >6Moz gold pa plus an additional 1.2–1.4Moz of co-product GEOs at an all-in sustaining cost declining to US$800–900/oz by FY23. Over the same timeframe, (approved) development capital is anticipated to fall from US$500–600m in FY21 to <US$100m in FY24.

The next wave of growth

Newmont has declined to rush the development of a number of mega-projects in its portfolio in recent years, preferring instead to advance a series of medium-sized projects on a faster timeline. However, the development of the Yanacocha sulphides project in Peru marks a decisive departure from that strategy. This shift will a) provide the first big test of Newmont’s management in developing a large-scale project for a number of years and b) allow it to re-build capability in the area. In this respect, Yanacocha represents an excellent first initiative, in that it is a brownfields development within the existing footprint of mining operations, thereby facilitating permitting, infrastructure and the company’s social licence to operate. Once successfully completed, future projects of a similar scale include NuevaUnion (9.9Moz resources+reserves), Norte Abierto (26.8Moz) and Galore Creek (5.3Moz).

Valuation

Despite being the world’s largest gold producer, Newmont is good value relative to five large cap peers on 50% of four measures (P/E, P/CF, EV/EBITDA and yield) over three years and the highest yielding for every year. Pro rata to Q1 results, consensus FY20 revenue and EPS estimates appear demanding, but are achievable given NEM’s gearing to the gold price. DPS estimates are conservative.

Consensus estimates

Year
end

Revenue
(US$m)

PBT
(US$m)

EPS
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/18

7,253

738

*1.34

0.56

47.4

0.9

12/19

9,740

3,693

*1.32

**0.56

48.1

0.9

12/20e

11,088

2,673

2.10

0.92

30.2

1.4

12/21e

12,269

3,937

2.87

1.00

22.1

1.6

Source: Company sources, Refinitiv. Note: EPS is normalised, excluding exceptional items; *Adjusted EPS (company adjusted basis); **Excluding US$0.88/share special dividend.

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This report has been commissioned by Newmont Corporation and prepared and issued by Edison for consideration of a fee payable by Newmont Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Newmont Corporation and prepared and issued by Edison for consideration of a fee payable by Newmont Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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