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. The Company’s world-class portfolio of assets, prospects and talent is anchored in favorable mining jurisdictions in North America, South America, Australia and Africa. 

Key Highlights

• Positive outlook for FY2022 and Longer-term: The company recently released its 2022 forecast, which includes attributable gold production projection of 6.2 million ounces and an AISC of USD 1,050 per ounce assuming a gold price of USD 1,800. Total gold production, including other metals, is estimated to reach 7.5 million gold equivalent ounces in 2022, with costs dropping as a result of investments in additional, lower-cost production. We believe that higher realization prices associated with boosted production will raise cash flows.
  

• Healthy free cash flows on sequential basis: Despite the challenging environment, the company managed to uplift its free cash flows at USD 735 million in Q3 2021, compared to USD 578 million in Q2 2021, while its adjusted EBITDA stood at USD 1,316 million respectively.

• Divesting Kalgoorlie Power Business to Northern Star: The company is divesting its Kalgoorlie power business to Australia’s Northern Star Resources Limited and would receive USD 95 million in cash. We believe this source of fund will help the company to further strengthen its liquidity.

• Healthy balance sheet and liquidity: The company completed the quarter with consolidated cash of USD 4.6 billion and liquidity of USD 7.6 billion. It also recorded a net debt to adjusted EBITDA ratio of 0.2x which seems to be at a comfortable level. The company also minimized its debt to USD 4,990 million against USD 5,480 million on December 31, 2020.

• Corporate update: The company will report its full year and Q4 2021, operations and financial results before the market opens on Thursday, February 24, 2022.

Financial overview of Q3 2021 (In millions of USD)

Source: Company Filing 

• NGT declared its quarterly result, wherein the group reported sales of USD 2,895 million, compared to USD 3,170 million in pcp. The revenue decreased by 9% primarily due to lower average realized gold prices and lower gold sales volumes.
• The company witnessed a higher cost applicable to sales along loss on assets held for sale, due to which its operating expenses swelled to USD 2,829 million against USD 2,172 million in pcp.
• The group reported loss before income and mining tax of USD 71 million compared to a profit of USD 880 million in pcp, which was fueled by higher other expenses.
• Primarily due to above discussion the company posted a net Loss of USD 243 million in the reported period against a net income of USD 856 million in pcp.
  

Risks associated with investment

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): EV to EBITDA

Stock recommendation

NGT outperformed expectations in the third quarter, generating USD 1,316 million in adjusted EBITDA and USD 735 million in free cash flow, indicating that the company is on track for a successful fourth quarter. In addition, the corporation stated that it expects to produce 7.5 million gold equivalent ounces in 2022. We believe that by focusing on upscaling output while keeping spending under control, the company will be able to generate higher free cash flows in the future.

Additionally, the company hold a robust liquidity which would support its future endeavors along this it also holds a healthy dividend yield of 3.50%, which is a key positive. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 77.67 on January 31, 2022. We have considered Kirkland Lake Gold Ltd, Barrick Gold Corp, Wheaton Precious Metals Corp, etc. as the peer group.

One-Year Price Chart (as on January 31, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note: The reference data in this report has been partially sourced from REFINITIV

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