Newmont Corporation

Newmont Corporation (TSX: NGT) is one of the leading gold mines with the largest gold reserves in the industry. The company also produces copper, silver, zinc and lead.

Key Highlights:

• An income play: The company reported constant dividend distributions since June 2019, supported by stable cash flows. Moreover, in H1FY21, the company distributed a total dividend of USD 881 million, considerably higher from USD 313 million in pcp. Notably, the stock carries a dividend yield of ~4.03%, which looks impressive considering the current interest rate scenario.

• Robust margins: The company reported higher margins than its peers, which indicates higher operational efficiencies. During Q2FY21, EBITDA margin and operating margin stood at 51.3% and 31.4%, respectively, which was higher than the industry median of 40.1% and 25.8%, respectively. Additionally, the net margin also stood at 19.6%, higher than the industry median of 15.7%.

• Near term mine exploration looks promising: The company operates across North America, Australia and Africa. Within the Peñasquito mine in North America, the company has a large resource base and prospective land package with an extended mine life till 2040. Within the Tanami Expansion across Australia, the company expects exploration opportunities at depth expected life beyond 2040, while NGT is actively developing brownfield deposits within the Oberon mine in Tanami.

Q2FY21 Financial Highlights:

• NGT declared its quarterly result, wherein the group reported sales of USD 3,065 million, up from USD 2,365 million in pcp. The increase was driven by higher prices of gold, copper and silver.
• The company witnessed a higher cost applicable to sales, increase in depreciation and amortization, and higher exploration costs, while lower general and administrative cost and lower care & maintenance cost supported the profitability.
• Adjusted EBITDA stood at USD 1,591 million, which surged from USD 984 million in pcp. The company reported lower all-in sustaining costs (AISC) of gold, which stood at 1,035/ ounce v/s 1,097/ounce in pcp.
• Net income from continuing operations stood at USD 651 million, jumped from USD 415 million in the previous corresponding period.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The performance of the company is directly correlated with the gold and other metal prices. Thus, volatility in the commodity price would dampen the company’s income and would take a toll on the overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company’s cash and cash equivalent stood at USD 4,583 million in Q2FY21, higher than the USD 3,808 million in Q2FY20. Moreover, consolidated free cash flow stood at USD 578 million in Q2FY21, reflecting a 49% growth on y-o-y basis. The company expects total gold production of within 6.5 Mozs in FY21, while other metal production is expected ~1.3 Mozs. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Wheaton Precious Metals Corp, Kirkland Lake Gold Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 69.18 on September 28, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 28, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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