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.

Event Update: The company would disclose its fourth quarter FY20 results on February 18, 2020.

Key Highlights:

• Long-term guidance intact: The group expects a robust production in the coming years, supported by ramping up of Ahafo North and Yanacocha Sulfides mines in FY24. For FY25, the group expects its production to rise in the range of 6.5 million ounces to 7.0 million ounces from 6.5 million ounces in FY21, which looks impressive. Moreover, the company expects a slide in the ASIC costs in the coming days (from USD 970/ ounces in FY21 to USD 800/ounce to USD 900/ounces in FY25), augers well for improved margins.

                Source: Company Presentation

• Balanced Portfolio: The group has a strong asset-base, which are located across the major mining geographies like Australia, North America, South America, Africa etc. Within Australia, Boddington mine delivers strong mill performance, while Tanami Expansion 2 provides ample opportunity for growth in the foreseeable future. Within the South America region, the company expects to improve production and costs from its Cerro Negro mine. The Ahafo North mine in Africa enhances the company’s footprints in Ghana and provides significant upside potential.

                Source: Company Presentation

• Strong Q3 Results: For the third quarter of FY20, the company delivered a strong performance, wherein free cash flow soared to USD 1,301 million, from USD 365 million in Q3FY19. Adjusted EBITDA stood higher at USD 1,663 million, against USD 1,079 million in the previous corresponding period (pcp). The above performance depicts strong operating performance, while we expect the momentum to continue in the foreseeable future supported by elevated gold prices and cost-efficiency.

Source: Company Presentation

Q3FY20 Financial Highlights:

• NGT announced its quarterly results, wherein the company posted sales of USD 3,170 million, higher than USD 2,713 million in the previous corresponding period (pcp).
• The quarter was marked by a lower cost and expenses (USD 2,172 million, as compared to USD 2,255 million in pcp), supported by a lower cost of applicable sales (USD 1,269 million versus USD 1,392 million in pcp) and lower exploration costs (USD 48 million versus USD 88 million in pcp), partially offset by higher depreciation and amortization costs (USD 592 million versus USD 548 million in pcp).
• Net income from continuing operations stood at USD 628 million, as compared to USD 2,252 million in the previous corresponding period. The decline was primarily due to a gain on formation of Nevada Gold Mines amounting USD 2,366 million in Q3FY19.
• Cash and cash equivalents stood at USD 4,828 million, while total assets were reported at USD 40,551 million.            

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group’s revenue is correlated to the gold price. Volatility in gold price would affect the company’s income and would affect the overall performance of the company.

Valuation Methodology (Illustrative): Price to CF based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

As on Q3FY20, the company reported the available liquidity of USD 7.8 billion, which seems to be sufficient to withstand the current pandemic and support its working capital and capex requirements. Moreover, the company is expecting Consolidated Sustaining Capital Expenditures for FY21 at around USD 1,000 million, while consolidated Gold All-in Sustaining Costs for the same period is expected at ~USD 970/oz. We have valued the stock using 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 Barrick Gold Corp, Agnico Eagle Mines Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 78.74 on January 13, 2021.

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

Yamana Gold Inc.

Yamana Gold Inc. (TSX: YRI) is a Canadian-based precious metals explorer and produces gold and silver and has land positions across Canada, Brazil, Chile, and Argentina.

Key Updates:

• Commencement of New Projects: Recently, the company announced the completion of the integration of the Agua Rica project with the Minera Alumbrera plant and infrastructure. The above integration would support the company’s overall processing and would improve the company’s operational efficiency. The company intend to produce copper and by-products concentrate from the above project.
• Improved Guidance: The Management has provided improved guidance for Q4FY20 and expects a higher gold and silver production, which is a key positive and augurs well for improved financial performance. Gold and silver production guidance has increased from previous guidance by 1% and 6%, respectively.                                                

Source: Company Presentation

• Solid Fundamentals: The company has decent fundamentals and maintained a robust margin profile over the quarters. Further, the group’s margin was better than the industry average in the latest quarter.

Q3FY20 Financial Highlights:

• YRI announced its quarterly results, wherein the company reported revenue of USD 439.4 million, higher than USD 357.8 million in the previous corresponding period (pcp). The increase was driven by higher realized prices for gold coupled with increases in sales volumes from Jacobina, El Peñón and Minera Florida mines, partially offset by lower sales volumes from the Canadian Malartic and Cerro Moro mines.
• Mine operating earnings stood significantly higher at USD 157.3 million, as compared to USD 81.8 million in Q3FY19. The increase was driven by higher revenue, combined with a lower Depletion, depreciation and amortization costs (USD 106.9 million versus USD 112.6 million in pcp), partially offset by a slightly higher cost of sales (USD 166.6 million versus USD 163.4 million in pcp).
• Operating earnings slumped to USD 128.6 million, from USD 283.3 million in Q3FY19. The decline was primarily due to other operating expense of USD 6.8 million, versus other operating income of USD 241.9 million in pcp.
• Net earnings were recorded at USD 55.6 million, considerably lower than USD 201.3 million in pcp.
• The company reported a cash and cash equivalent of USD 474.2 million, while total assets stood at USD 7,300 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s top-line is dependent on international commodity prices, and price volatility would dampen the company’s overall performance. 

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation:

The long-term prospect of the company remains extremely positive, while the company expects a gold and silver production of 885k oz and 10.0 million oz, respectively in FY22, looks impressive. Furthermore, the company expects its ASIC costs to reduce from USD 1,074/GEO in H1FY20 to USD 1,000/GEO in FY22. This would support the company’s margin. The company reported a solid operational performance and reported cash flows from operations of USD 436.5 million in 9MFY20, significantly higher than USD 317.5 million, a year ago. We have valued the stock using the Price to CF relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Agnico Eagle Mines Ltd, B2Gold Corp etc. Considering the aforesaid facts, trading levels, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 6.73 on January 13, 2021.

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

Disclaimer

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