Newmont Corporation

Newmont Corporation (TSX: NGT) is the world’s leading gold company and a producer of copper, silver, zinc and lead. The Company’s world-class portfolio of assets, prospects and talent is anchored in favourable mining jurisdictions in North America, South America, Australia and Africa.

Key highlights 

• Production Guidance: The management pours their complete confidence in maintaining a growth profile in gold production for the next five years. After producing 5.9 million attributable ounces of gold and over 1 million attributable gold equivalent ounces of co-products in FY2020, which surpassed its full-year guidance, we believe that the group would achieve these numbers also. 

Source: Company 

• An income play: Recently, the company increased its dividend distribution by 38% over the prior quarter to USD 0.55 per share. We believe this reflects the resilience and healthy cash flow generation capabilities of the company. At the last traded price, the stock was offering a dividend yield of ~3.6% which is decent considering the current interest rate dynamics. 

• Superior free cash flow generation: The on-going steady performance of the company’s operations and higher realization price of gold helped the group in achieving record financial performance. The group recorded free cash flow of USD 3.59 billion in 2020, against USD 1.41 billion in the previous corresponding period.

Source: Company 

• Emphasizing on improving margins: The company aims to achieve higher production numbers with more improved margins. The group emphasizes improving margins by bringing down the AISC cost between USD 800 – USD 900/oz. We believe by doing this; the company would boost its profitability in the foreseeable future.

Source: Company 

Financial overview of FY 2020

Source: Company 

• In FY 2020, the company posted revenue of USD 11.50 billion compared to USD 9.74 billion in the previous corresponding period. The 18.1% increase in revenue was primarily attributable to higher realized prices for gold and silver in the current period.
• The company posted operating earnings of USD 3.14 billion compared to USD 3.69 million in pcp. The operating earnings declined marginally since the group reported other income of USD 2.39 billion in 2019.
• On the back of lower cost of sales and higher revenue, the company reported healthy net income of USD 2.82 billion, against USD 2.80 billion in the previous corresponding period. 

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any volatility in the gold prices would impact the group’s performance. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

FY2020 was a solid year for the company as it came out with robust performance, strong cash position and healthy free cash flows. The group Produced 5.9 million attributable ounces of gold and over 1 million attributable gold equivalent ounces of co-products and achieved its full-year guidance, which is admirable. Furthermore, the management pours their complete confidence in maintaining a growth profile in gold production for the next five years. They are also emphasizing improving margins by bringing down the AISC cost between USD800 – USD900/oz, which would further improve the profitability. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 78.09 as on March 17, 2021. We have considered Barrick Gold Corp, Kirkland Lake Gold Ltd, Agnico Eagle Mines Ltd. as the peer group for the comparison.

1-Year Price Chart (as on March 17, 2021). Source: Refinitiv (Thomson Reuters)

Yamana Gold Inc

Yamana Gold Inc (TSX: YRI) is a Canada based precious metals producer with gold and silver production, development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile, and Argentina.

Key highlights

• Healthy production guidance: For FY2021-23, the management highlighted strong production growth showing sequential growth in gold production. For 2021, the group expect production of 862k oz, registering an increase of 10.5%. The company seeks growth opportunities in the near and medium-term as it remains focused on optimizing the existing portfolio of five operating mines.

Source: Company

• Robust cash flows: In Q4 2020, the company reported cash flows from operating activities at USD 181.5 million and net free cash flow of USD 118.9 million, exceeding the averages of the preceding three quarters by 25% and 6%, respectively. Cumulatively, for FY2020, it posted higher operating cash flows of USD 617.8 million, against USD 521.8 million. The same trend was with Free cash flows.

Source: Company

• Consistently raising dividend distribution: The Company has an excellent track record of dividend distribution and has increased its distribution over the years, reflecting resilience and healthy cash flow generation. Recently, it declared a first-quarter dividend of USD 0.02625 per share (annual USD0.105 per share) payable on April 14, 2021.

Source: Company

• Strong Liquidity Position: The on-going steady performance of the company’s operations and constant upgrading in the strength of the balance sheet resulted in total available liquidity of USD 1.4 billion, including a cash balance of USD 651.2 million. Furthermore, it reduced its net debt by USD 323.4 million to USD 565.7 million, which is a key positive.

Source: Company

• Better than industry margin profile:The Company's resilient business helped them leaping the industry median margins on many fronts. In FY 2020, the group reported gross margin, operating margin, and a net margin of 60.7%, 37.5% and 13%, respectively, which was higher than the industry median of 44.3%, 10.5% and 3.9%. 

Financial overview of Q4 2020

Source: Company 

• In Q4 2020, the company posted revenue of USD 461.8 million compared to USD 383.8 million in the previous corresponding period. The 20% increase in revenue was primarily attributable to higher realized prices for gold and silver in the current period.
• Gross margin stood at USD 295 million, against USD 214.4 million in pcp. The rise in gross margin was mainly due to higher revenue and consistent cost of sales.
• The company posted higher operating earnings of USD 333.4 million compared to USD 66.9 million in pcp. The higher operating earnings got support from net impairment reversal of mining properties of USD 191 million.
• On the back of the above reasons, the company posted healthy net earnings of USD 103 million, against USD 14.6 million in the previous corresponding period.

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow 

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

During FY2020 the company came out with robust performance, strong cash position, healthy free cash flows and reduced net debt. Furthermore, for FY2021-23, the management highlighted strong production growth showing sequential growth in gold production. For 2021, they expect production of 862k oz, registering an increase of 10.5%. We expect the gold prices to remain elevated and believe that despite a bit of pullback, gold, as an asset class, would continue to remain in the limelight. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 5.78 on March 17, 2021. We have considered Agnico Eagle Mines Ltd, Kinross Gold Corp, B2Gold Corp. as the peer group for the comparison.

1-Year Price Chart (as on March 17, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.