Newmont Corporation: Material Outperformance Begets Material Upgrade
Edison | Aug 02, 2021 10:38
Newmont’s financial results for Q221 materially exceeded our expectations for the third quarter in succession, driven by a 3.8% (or US$111m) positive variance in revenues (of which 2.4% could be attributed to the gold price) and a 2.8% (US$61m) further positive variance in the form of lower costs. Of the 12 mines over which Newmont exerts management control, four outperformed (financially) relative to our prior expectations, two performed in line and six underperformed, although not, on occasion, without commendable management efforts to mitigate negative outcomes in the face of unscheduled challenges (eg the need to put Tanami into care and maintenance for two weeks, at short notice, after a case of COVID-19 was detected there). In the wake of its results, coupled with increases to our estimates for Q3 and Q420, we have upgraded our forecasts for adjusted net EPS for Newmont (NYSE:NEM) for FY21 by 18.4%.
Newmont’s results follow its board’s sanctioning of the development of the Ahafo North project in Ghana earlier in July. The project will add 275–325koz pa to production at an all-in sustaining cost of US$600–700/oz for the first five years of production (CY24–28) at a capital cost of US$750–850m. Construction is scheduled to be completed in H223 and commercial production in early FY24.
h2 Cost pressures/h2In addition to its financial results, Newmont also reported some signs of modest cost pressure within the industry. While these are expected to have little or no effect on Newmont’s performance for the remainder of FY21, we have now built a 5% increase in (nominal) costs into our financial models for all of its mines from FY22.
h2 Valuation: 19.3% premium to share price/h2
Get The App
Despite increasing our basic adjusted EPS forecast for FY21 by 18.4%, our FY21 valuation of Newmont remains broadly unchanged at US$72.05/share (vs US$72.92/share previously), as the increase has coincided with a general de-rating of the gold mining sector in FY21, coupled with a decrease in inflation expectations in the wider US economy that has therefore resulted in increased implied (real) hurdle rates (see Exhibits 5 and 7). This valuation puts Newmont on a premium rating relative to its peers, but may be justified by the company’s size, track record and the fact that almost all of its operations are in top-tier jurisdictions. However, it remains cheap relative to historical valuation measures, which continue to imply a share price close to US$100/share.
Click on the PDF below to read the full report:
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.