Company Overview: Newmont Corporation (NYSE: NEM) is involved in producing gold, copper, silver, zinc, and lead. It is based in Colorado and is engaged in producing gold with numerous active mines in Nevada, Ghana Peru, & Australia. NEM’s portfolio of assets, prospects, and talent lies in the states namely North America, South America, Australia, and Africa.

NEM Details

Geographical Expansion & Enhancing Shareholders’ Value: Newmont Corporation (NYSE: NEM) is based in Colorado and is engaged in producing gold with numerous active mines in Nevada, Ghana Peru, & Australia. The company has three operating segments, namely North America, Australia, and South America, Africa. The North America segment contributed 25% of 2020 gold production and symbolized by operations in Nevada. In 2020, the South America segment and the Australia segment contributed ~12% and ~20% of the total gold production, respectively. The Africa segment represented ~14% of the total 2020 gold production. Africa segment consists primarily of Ahafo and Akyem mines in Ghana. As of December 31, 2020, the company had gold mineral reserves of greater than 94 million ounces. Its attributable gold production for 2020 stood at 5.9 million ounces. Notably, net sales in FY20 came in at ~$11.5 billion, up 18% from the prior corresponding period.

Recently, the company informed the market that it has authenticated a share repurchase program for up to $1bn of common equity. The company remains on track to maintain its financial strength and flexibility, thus offering good returns to shareholders. The company’s share repurchase program further highlights its efficient operating model and a sustainable portfolio to deliver industry-leading returns to shareholders. Notably, since January 2019, NEM has returned greater than $2.7 billion to shareholders through dividends and share buybacks. 

Notably, the company’s averaged realize price of gold increased by 25% year over year in the 4QFY20 to $1,852 per ounce. The trend is expected to continue and augment the company’s top-line growth, going forward. Higher gold prices are likely to boost the earnings of the company amid market volatility and economic worries. The company has witnessed an increase in its free cash flow with a higher gold price, showing an upward movement on the back of a strong market position.

Increased gold prices as well as NEM’s focus on key growth projects and efficient capital allocation strategy are few promising factors for further growth. Gold witnessed a solid run in 2020 and is considered to be an attractive safe-haven asset during the pandemic. Further, demand for gold spurred due to the ultra-low interest rate environment and geopolitical tensions. Moreover, the company is expected to benefit from strong performance across its Boddington and Tanami mines in Australia. The company is likely to see a better performance at the Ahafo mine in Africa, owing to elevated tons from Subika underground. 

A Look at 4QFY20 Results: During the quarter, the company recorded net income from continuing operations of $806 million or $1.00 per share as compared to $537 million or 66 cents reported in the prior corresponding period. Adjusted earnings, excluding one-time items, stood at $1.06 per share, up from 50 cents per share reported in 4QFY19. Revenues for the quarter increased by 13.9% year over year and came in at $3,381 million. The company’s attributable gold production declined 11% on pcp and came in at 1.63 million ounces, whereas the average realized prices of gold stood at $1,852 per ounce, up 25% on pcp. The company’s costs applicable to sales (CAS) for gold increased by 7% on pcp and came in at $739 per ounce. All-in sustaining costs (AISC) for gold went up by 10% year over year on the back of higher gold CAS per ounce.

Key Financial Highlights (Source: Company Reports)

Geographical Highlights: North America’s attributable gold production during the quarter stood at 435,000 ounces, depicting an increase of 15% from the prior corresponding period. Attributable gold production in South America went down 28% on pcp and stood at 200,000 ounces. Australia’s attributable gold came in at 304,000 ounces, declining 23% from the prior corresponding period. Lastly, Africa’s production recorded 243,000 ounces of gold in the quarter, down 16% on pcp.

Largest Gold Reserves in Top-Tier Jurisdictions in FY20 (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 37.48% of the total shareholdings, while the Top 4 constitutes the maximum holding. The Vanguard Group, Inc., and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 9.13% and 5.94%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Liquidity & Balance Sheet Details: The company exited the quarter with a cash balance of $5,540 million, depicting a rise of 147% on pcp and total debt amounted to $5,480 million. Net cash from operating activities was $1,686 million during the quarter, with the consolidated free cash flow of $1,288 million. For FY20, Gross, EBITDA and net margins stood at 56.4%, 48% and 21.1%, higher than the industry median of 38.8%, 30.8% and 3.7%, respectively. In FY20, debt to equity multiple stood at 0.29x, lower than the FY19 figure of 0.32x.

Risk Analysis: On the flip side, the company is exposed to short-term disruptions hindering from challenging macro-economic environment due to COVID-19 led outbreak. Further, NEM’s revenue, profitability and future growth rate are significantly reliant on prevailing metal prices, primarily for gold, copper, silver, lead, and zinc. Hence, any substantial decline in commodity prices might adversely impact the company’s financial position. Also, the company is exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers, which adds to the woes. 

Outlook: For FY21, the company predicts attributable gold production to be approximately 6.5 million ounces. It also foresees gold CAS to be ~$750 per ounce and AISC to be ~$970 per ounce in FY21. The company remains on track to witness higher gold production in the years ahead. In achieving this goal, NEM is taking necessary measures to increase investments in its operating assets and other growth prospects. The company expects to achieve the implementation stage in FY21, pertaining to its two projects, namely Ahafo North and Yanacocha Sulfides.

Attributable Production & AISC (Source: Company Reports)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last six months, the stock went down by ~13.1%. The stock made a 52-week low and high of $33.00 and $72.22, respectively. On the technical analysis front, the stock has a support level of ~$54.85 and a resistance level of ~$63.62. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer median P/E (NTM Trading multiple), considering the robust results for 4QFY20, resilient business, modest industry outlook and growth prospects. We have taken peers like Royal Gold Inc (NASDAQ: RGLD), Brigham Minerals Inc (NYSE: MNRL), to name a few. Considering the company’s track record of enhancing shareholders’ value, decent 4QFY20 performance, geographical diversification, encouraging outlook and valuation, we give a “Buy” recommendation on the stock at the closing price of $57.08, up by 0.42% on 24 February 2021.  

NEM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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