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 ~3.94%, which looks impressive considering the current interest rate scenario.

• Industry beating margins: Despite the second wave of the Covid-19 Pandemic, the Company maintained its pace and witnessed spirited performance across its gross margin, EBITDA margin, operating margin and net margin along with ROE. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q2 2021, which is a key positive. The chart below gives a glimpse of this.

• Generated robust cash flow from operations: Operating activities generated cash flow from operations of USD 993 million in Q2 2021, up 49% from the prior year quarter, primarily due to higher average realized metal prices. Its free cash flow also increased to USD 578 million, up from USD 388 million in the prior year quarter, primarily due to higher operating cash flow, which is a significant plus.
• 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.
  

Financial Overview of Q2FY21 (In Mn of USD)

Source: Company

• 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.

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 Sales

Stock recommendation

Capitalizing on the strength of the assets and integrated operating model, Newmont delivered a solid second quarter performance with USD 1.6 billion in adjusted EBITDA and USD 578 million in free cash flow. 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 EV to Sales based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 70.74 on October 21, 2021. We have considered Kirkland Lake Gold Ltd, Barrick Gold Corp, Wheaton Precious Metals Corp, etc. as the peer group.

*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 October 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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