Newmont Mining update Jan 13, 2019

 

Newmont Mining is the worlds second biggest gold miner with a production of about 5.2 mio. oz 2018 plus 50.000to copper, thats revenues of about 6.5 bn$/yr.. 

Newmont Mining (NYSE:NEM) is buying all the shares of its smaller rival Goldcorp (NYSE:GG) in an all-stock deal valued at $10B.(3) This is not yet included in the analysis! The reason is to increase gold reserves and production as reseves and production of NEM is declining slightly. A combined Newmont-Goldcorp company has reserves of 121 mio. oz., an annual production of 7.8 mio. oz/yr.  a free cash flow of 1.6 bn$, 3.7 bn$ net debt(4).

The profit of NEM and hence the shareprice is linked to the gold price. The NEM share is a bet on the gold price.  

Gold is not eatable. The main value of gold is the believe that others believe that gold is very precious. This is not rational but works well since several thousand years. In India and the Middle East marriages are very gold intensive (no 1 gold market). A year ago it seemed that crypto currencies take over a similar function as gold. But these currencies are young and show a high fluctuation which makes them less attractive. Gold and crypto currencies have the advantage that the ownership can easier be kept private. This is an important motivation in countries were poeple doesn`t know what happens tomorrow or for ex. men in a divorce (Europe, NA). The increasing wealth in india and the excessive creation of new money by important central banks (is perceived as a risk) might induce a rising gold demand and hence gold price.  

Chances & Risks:

The valuation of NEM is high. The PE is about 28 including impairment costs 56!  The gold production of NEM is expected to decrease slightly in the following years if NEM doesn`t buy gold mines or achieves unexpected exploration successes. That means the share price already includes the expectation of a rising gold price.

The main chance and risk for NEM is a fluctuation in the gold price. A gold price increase seems more likely than a decrease. The gold intensive weddings in India and Middle East increase due to demographics, the uncertainties of politics does not decrease. On the supply side the exploration yield of the miners is decreasing.  

China is getting more and more in a rivalty with the US independent of the leading politicians. It might happen that the Chinese central bank will decrease its share of USD and replacing it by other currencies and gold. A 1 - 2% shift would mean a big push to the gold price.  

The political risk for the NEM production is low as 70% of the gold production is situated in North America/Australia countries with high policitcal stability. In many other gold mining countries there is always a political risk from random tax increases up to disappropriations. In some countries the business practices are not in line with US/European compliance rules.  

 

Some Data:

Share Price 2018/12/23: 33.52$

Number of shares: 533 mio.

Adjusted net income 2018 est.: 650 mio.$* or 1.2$/share*

*Impairment costs of -374 mio $ for exploration and long living assets are not included 

Sustaining costs AISC:  927$/oz (Q3/2018)

Quarterly dividends of actually 14c/share

Net Debt: 1.1 bn$, a leverage ratio of 0.4x net debt to adjusted EBITDA, 3.1 bn$ cash on the other side. 

Annual investment: about 1.2 bn$ 2018, 1070 mio$ 2019 (2), 730 mio$ 2010 (2) decreasing to to 650 mio.$ 2022

Newmont Mining expects its attributable gold production will reach 5.2 million ounces in 2019 and 4.9 million ounces in 2020, while copper production is estimated to 45,000 tonnes in both years(1). Gold Production will slightly decrease during the coming years to about 4.9 mio. oz (2024)

or 

Gold production is expected to be 5.2 million ounces in 2019, primarily driven by a full year of higher grade production from the recently completed Subika Underground project in Africa. Production is expected to be 4.9 million ounces in 2020 and longer-term production is expected to remain stable at between 4.4 and 4.9 million ounces per year through 2023 excluding development projects which have yet to be approved.(2)

 

Annualized 2018  sensitivities 2018   Price Change   Attributable FCF ($M)  FCF/share $

Gold ($/oz)                 $1,200           +$100            +$335                        $0.63

Copper ($/lb)              $2.50             +$0.25           +$20                          $0.03

Oil ($/bbl)                   $55                -$10              +$25                           $0.05

Reseves/share: 0.13 oz.

Operating Reserves: 12 years.  

70% of production from North America & Australia.

 

Gold Demand by Countries 2017

China                                984 tons

India                                 849 tons

US                                    193 tons

Germany                           124 tons

Thailand                             90 tons

Saudi Arabia                      85 tons 

 

The Global Gold Production in tons 2017 (1)

United States                              245 

Australia                                     300 

Canada                                       180

China                                          440

Peru                                           155

Russia                                        255

South Africa                               145

World total (rounded)                3,150 

 

This is not a recommendation or proposal to do anything. It is my private personal opinion. I`m not independing as I own a position of Newmont Mining shares. 

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Some References

(4) 2019 Jan https://seekingalpha.com/article/4234186-newmont-strikes-back

(3) 2019 Jan. https://seekingalpha.com/news/3422587-newmont-mining-goldcorp-combine-10b-stock-deal?ifp=0

(2) 2018 dec. https://steelguru.com/mining/newmont-mining-announces-updated-2019-and-longer-term-outlook/528616

(1) 2018 nov. https://minerals.usgs.gov/minerals/pubs/mcs/2018/mcs2018.pdf

https://s1.q4cdn.com/259923520/files/doc_presentations/2018/September-Investor-presentation_FINAL_posting.pdf