Newmont Corporation (TSX: NGT) is primarily into the production and exploration of gold. The company is also engaged in the production of copper, silver, lead, and zinc. The firm is operating mainly into five regions, North America, South America, Australia, Africa, and Nevada.

Key highlights

• Increased gold production & improved average realized gold price: During FY21, the company reported an increase gold production of 5,884 Koz (thousand ounces) as compared to 5,824 Koz in the FY20. The average realized price of gold registered at USD 1,788 per ounce in FY21 as compared to USD 1,775 per ounce in the pcp. The increased gold production, accompanied by higher average realized gold prices were the primary drivers for increase in revenue.

• Improved Adjusted EBITDA & Adjusted Net Income: For FY21, the company reported an adjusted EBITDA of USD 5.96 billion as compared to USD 5.53 billion in the pcp. Additionally, for the same period, adjusted Net Income increased to USD 2.37 billion vs USD 2.14 billion in the previous comparable period.

• Healthy Production outlook: The company recently announced that it has exceeded its FY22 production forecast and showcased healthy projections for the next five years, which is a significant positive. Its gold production for FY22, estimated around 6.2 million ounces while other metal production expected 1.3 million ounces, hence the total GEO production for FY22 expected to be 7.5 million ounces. Additionally, company is optimistic about its future production goals.

Source: Company presentation

• Dividend distribution: On February 22, 2022, the group announced a dividend of USD 0.55 per share during the fourth quarter of FY21, payable on March 24, 2022.
  

Risks associated with investment

The group is exposed to the volatility of the metal’s prices especially gold. Any sustained downward movement in the gold prices, rising interest rates, lower gold demand, all can impact the company’s revenues significantly. 

Financial overview of FY21 (Expressed in millions of USD)

 Source: Company Filing 

• The company reported an increase in its revenues to USD 12.22 billion for FY21 as compared to USD 11.49 billion in FY20. During FY21, the total attributable gold sold was 5,897 million ounces at an average realized price of USD 1,788 per ounce as compared to 5,831 million ounces of gold sold at USD 1,775 per ounce in the pcp.

• The total cost and expenses for FY21 increased at USD 10.96 billion vs USD 8.69 billion in the FY20 on account of higher production.

• Due to increase in costs and expenses, the Income before income and mining tax for the reported period decreased to  USD 1.10 billion vs USD 3.14 billion in the FY20.

• For FY21, the company reported a net income to its common shareholder of USD 1.16 billion vs USD 2.82 billion in pcp.
  

Valuation Methodology (Illustrative): EV to EBITDA based Multiple

Analysis by Kalkine Group 

Stock recommendation 

The group reported decent revenues on account of increased annual gold production, increased gold sales and higher average realized price. The company is quite optimistic about increasing its gold production to 6.2 million during FY22 and the next five-year gold production outlook expected to be in the range of 6.2 to 6.8 million ounces of gold.

On the valuation front, the stock is measured on the EV to EBITDA based multiple and we have considered Barrick Gold Corp, Franco-Nevada Corp, Agnico Eagle Mines Ltd. Etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 92.17 on March 16, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 16, 2022). Source: REFINITIV, Analysis by Kalkine Group

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