Newmont Mining update July 24th, 2023
NEM
ISIN: US6516391066
This is not a recommendation or proposal to do anything. The data written in this article are best guesses and not guarranteed. It is my private personal opinion. I`m not independing as I own a position of NEM shares.
Newmont will acquire 100 per cent of Newcrest. Newcrest shareholders will receive 0.400 Newmont shares for each Newcrest share representing a value of $29.27 per Newcrest share, or an equity value of $26.2 billion. Newcrest shareholders will hold a 30.1 per cent stake in the new combined entity (24).
Newmont Mining became with the merger with Goldcorp the worlds biggest gold miner with a production of about 8 M oz. of gold and others calculated as equivalent. It is about 6 mio. oz gold plus copper and other by-products. With Newcrest mergered the production will increase further.
NEM is a co - owner 38.5% of a JV together with Barrick (operator, 61.5% share) that operates 8 assets in Nevada. The JV is expected to produce 1.4 M oz of gold attributable to Newmont annually.
Chances & Risks:
The profit of NEM and hence the share price is linked to the gold price. The NEM share is a bet on the gold price.
The 2022, Q1/23 and Q2/23 numbers are quite disappointing. The production is at best stagnating and below the previous guidance. It is to guess it is a fat cat management that deflects itself by ESG. The main challenge are rising production costs, capex due to inflation, while the increase of the gold price does not compensate it.
The profit margin for NEM is shrinking as the increasing costs (inflation) are not completly compensated by higher gold prices!
There are no reserves in the NEM production forecasts. The production is in most quarters lower than forecasted and expected. NEM is strongly comitted to ESG (green communist ideology) targets. I do not know if the low production performance is caused by ESG or ESG is emphasized to cover the low management performance. Only insiders know.
The valuation of NEM is not low. The PE is perhaps making < 2$/share profit (share price 44$). The quarterly dividend is reduced to $0.4 per share provides a 4% yield at the mentioned share price of 44$/yr. and if the dividend is not reduced. The gold production of NEM is expected to stay stable (its own assesment) the following 10 years. That means a decrease is more likely than an increase. That means the share price is based on the expectation of a steady or rising gold price but not a rising production.
Gold is not eatable. Crypto`s does not have any use. The main value of gold and crypto is the believe that others believe that gold is valuable. This is not rational but works well with gold since several thousand years. In India and the Middle East marriages are very gold intensive (India no 1 gold market). It seems that crypto currencies take over a similar function as gold. But these currencies are young and show a high fluctuation which makes them less attractive. Gold and crypto currencies have the advantage that the ownership can be kept private. This is an important motivation in countries were poeple doesn`t know what happens tomorrow or for ex. men in a divorce (Europe, NA). The increasing wealth in india and the excessive creation of new money by important central banks might induce a rising gold demand and hence gold price.
The main chance and risk for NEM is a fluctuation in the gold price. A gold price increase seems more likely than a decrease. The high inflation, international crises, on the long run the gold intensive weddings in India and Middle East increase due to demographics, the uncertainties of politics does not decrease. On the supply side the exploration yield of the miners is decreasing.
The largest risk is that a large part of the Russian financial reserves, 2300 tons are hold in gold. The actual war might motivate the Central Bank to increase gold sales to stabilize the ruble.
China is getting more and more in a rivalty with the US independent of the leading politicians. It might happen that the Chinese central bank will decrease its share of USD in its reserves and replace it by other currencies and gold. A 1 - 2% shift would mean a big push in favor of the gold price.
The political risk for the NEM production is low as 66% of the gold production is situated in North America/Australia countries with high policitcal stability. In many other gold mining countries there is always a political risk from random tax increases up to disappropriations. In some countries the business practices are not in line with US/European compliance rules.
A share buy back program of 1 bn$ is ongoing. It is executed acc. to opportunities.
Some Data:
Higher Capex due to the development costs of new mines (Tanami Expansion 2, Yanacocha Sulfides, Ahafo North, Pamour and Cerro Negro District Expansion 1).
2022 Reserves 96.1 Moz
- 2021 Reserves 92.8 Moz
- Additions 8.6 Moz
- Acquisitions 3.1 Moz
- Net Revisions -1.2 Moz
- Depletion -7.2 Moz
2021 Reserves
- Newmont’s declares gold mineral reserves of 92.8 million ounces at the end of 2021 or 120 ounces per 1,000 shares with an average grade of 1.06 grams per tonne.
- In February 2022, Newmont acquired Buenaventura's 43.65% interest in Minera Yanacocha ▪ It will add 5.4 oz million gold and gold equivalent to the reserves and 18.7 M oz to the resources. It was bought for less than $15/oz.
- Measured & Indicated gold Mineral Resources of 68.3 million ounces and Inferred of 33.2 million ounces
- Byproduct copper with 15.1 billion pounds in reserves, 17.8 billion pounds in Measured & Indicated resources and 8.6 billion pounds in Inferred resources. Lead reserves 2,580 million pounds, zinc reserves 6,250 million pounds .
2020 Reserves
Newmont’s Measured and Indicated gold Mineral Resource grade decreased to 0.65 grams per tonne compared to 0.70 grams per tonne in the prior year largely from higher grade being converted to reserves. Inferred gold Mineral Resource grade of 0.65 grams per tonne increased compared with 0.63 grams per tonne from 2019
The average ore grade of proven and probable reserves is 1.03g/to gold.
- Industry’s largest gold Mineral Reserves of 94.2 million ounces
- Measured & Indicated gold Mineral Resources of 69.6 million ounces; Inferred of 31.6 million ounces
- Significant exposure to copper with 6.9 million tonnes in reserves, 8.0 million tonnes in Measured & Indicated resources and 3.9 million tonnes in Inferred resources
- Additional exposure to silver, zinc, and lead mainly at Peñasquito
2019 Reserves
In 2019, Newmont reported 100.2 million ounces of gold Mineral Reserves and 95.7 million ounces after adjusting for divestments. Newmont’s gold reserve grade was 1.05 grams per to.
Measured and Indicated gold Mineral Resources are 74.1 million ounces and Inferred gold Mineral Resources are 29.4 million ounces.
Copper reserves increased to 6.8 million tonnes, primarily due to the NuevaUnión and Norte Abierto projects.
Silver reserves made up 652 million ounces Peñasquito, but also NuevaUnión, Norte Abierto, Cerro Negro and Pueblo Viejos. It adds 3.4 million tonnes of zinc reserves and 1.5 million tonnes of lead reserves at Peñasquito, and 0.1 million tonnes of molybdenum at NuevaUnión.
Development Projets in Execution
- Tanami Expansion 2 Australia
– Gold Goldrush Declines (NGM JV) USA
– Gold Turquoise Ridge Shaft (NGM JV) USA
Project Pipeline
1-3 years Yanacocha Sulfides Peru – Gold (~65%) Copper (~35%) Ahafo North Ghana – Gold Pueblo Viejo Expansion JV Dominican Republic – Gold
> 3years: Galore Creek JV Canada – Gold (~25%) Copper (~75%) Norte Abierto JV Chile – Gold (~65%) Copper (~35%) Nueva Unión JV Chile – Gold (~20%) Copper (~80%) Apensu Underground (Ahafo) Ghana – Gold Akyem Underground Ghana – Gold Oberon (Tanami) Australia – Gold Long Canyon Phase 2 (NGM JV) USA – Gold Coffee Canada – Gold Tanami Expansion 2 Australia – Gold Goldrush Declines (NGM JV) USA – Gold Turquoise Ridge Shaft (NGM JV) USA – Gold CC&V Underground USA – Gold Cerro Negro District Expansions Argentina – Gold Sabajo Extension (Merian) Suriname – Gold Subika Underground Growth (Ahafo), Tatogga* Canada – Gold (~45%) Copper (~55%)
News
2022/04/26 NEM increased its planned investments for its Yanacocha Sulfides gold project in Peru from $2.25 billion to $2.5 billion (most probably inflation). Once finished, it would add 525,000 ounces of gold equivalent a year to the company’s overall output. The first phase will center on the Yanacocha Verde and Chaquicocha deposits, which will extend current operations beyond 2040. The following two phases could potentially add “several more decades” to the mine’s productive life.
Since last year, Peru has been hit by protests that have paralyzed several operations in the country over the last few months. (22) I do not know who is behind the protests, Green, Left Western NGO?
2022/04/13 Newmont bought the remaining 5% interest in Yanacocha from Sumitomo for $48 million. In February 2022 it acquired Buenaventura's 43.65% interest in Minera Yanacocha. Now NEM owns this mine completly (21).
2021/10/06 has cut full-year production guidance for its Boddington gold mine in Western Australia by 140,000 ounces below the originally set target of 830,000 ounces. (20).
2021/07/17 The Newmont board approved to develop the Ahafo North Project in Ghana. This project is expected to require 750 - 850 M$ capex. It is expected to produce about 300 K oz of gold/yr. at costs of 600 -700$/oz for 13 years. Thats about 5% of the NEM gold production. Ghana is some political risk. It seems that the good profit situation let NEM increase capex and expand its business.
2021/11/03 Newmont Corporation has agreed to acquire Canadian miner GT Gold Corp for $US311 million ($402 million) in a deal that will bolster its copper-gold output. (18)
A key driver of the agreement is GT Gold’s Tatogga project in British Columbia, Canada,
2020/01/04 Newmont Goldcorp has completed the sale of its 50% stake in Kalgoorlie Consolidated Gold Mines (KCGM) to Australian gold producer Northern Star Resources for $800m. (13)
Some numbers about gold
Total gold production by humans: about 205.000 tons (2021)
Total global gold holdings: 125 - 155.000 tons (2020)
Global gold production 2021: 3560tons (23) Huge difference to the USGS estimate!
Technical use of Gold (2021): 330 tons (23)
Total gold holdings Germany: 9000 tons private plus 3362 tons central bank (2020)
Total gold holdings Switzerland: 920 tons private (seems low!) plus 1040 tons SNB (2020)
Gold Demand by Countries 2017
China 984 tons
India 849 tons
US 193 tons
Germany 124 tons
Thailand 90 tons
Saudi Arabia 85 tons
The Global Gold Production in tons 2021 (USGS)
Mine production Reserves
China 370 2,000
Australia 330 11,000
Russia 300 6,800
United States 180 3,000
Argentina 60 1,600
Brazil 80 2,400
Burkina Faso 60 NA
Canada 170 2,200
Colombia 50 NA
Ghana 130 1,000
Indonesia 90 2,600
Kazakhstan 60 1,000
Mexico 100 1,400
Papua New Guinea 50 1,100
Peru 90 2,000
South Africa 100 5,000
Sudan 90 NA
Tanzania 50 NA
Uzbekistan 100 1,800
Other countries 570 9,200
World total (rounded) 3,000
This is not a recommendation or proposal to do anything. It is my private personal opinion. I`m not independing as I own a position of Newmont Mining shares.
Some References
(24) 2023 May 15 https://www.australianmining.com.au/newmont-takeover-of-newcrest-to-go-ahead/
(23) 2022 Dec. 7 https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2021/16764
(22) 2022 April 27 https://www.mining.com/newmont-boosts-investment-in-yanacocha-gold-mine/
(21) 2022 April 13 https://www.kitco.com/news/2022-04-12/Newmont-to-acquire-remaining-stake-in-Yanacocha-gold-mine.html
(20) 2021 oct 6 https://www.mining.com/newmont-axes-gold-output-targets-at-boddington/
(19) 2021 July 17 https://www.kitco.com/news/2021-07-15/Newmont-gets-funding-approval-for-the-best-unmined-gold-deposit-in-West-Africa.html
(18) 2021 March 11 https://www.australianmining.com.au/news/newmont-to-scoop-up-gold-miner-for-402m/
(17) 2020 May 20 https://www.miningweekly.com/article/newmont-issues-new-2020-production-and-capex-guidance-2020-05-19
(16) 2020 Feb. 22 https://s2.q4cdn.com/575378270/files/doc_financials/2019/q4/6fde66e4-67c8-48fd-a1c9-a8d8f3e9a805.pdf
(15) 2020 Feb. 17 https://www.australianmining.com.au/news/newmont-achieves-highest-gold-reserves/
(14) 2020 Jan. 10th https://www.zacks.com/stock/news/707987/newmont-nem-unveils-plan-to-hike-annual-dividend-by-79
(13) 2020 Jan. 4th https://www.nsenergybusiness.com/news/newmont-kcgm-northern-star/
(12) 2019 July 26th https://www.reuters.com/article/us-newmont-goldcorp-results/newmont-ceo-says-goldcorp-mines-need-about-three-years-of-development-exploration-work-idUSKCN1UK1II
(11) 2019 July 3rd https://seekingalpha.com/article/4273204-barrick-gold-nevada-joint-venture-newmont-will-produce-1_85m-oz-h2-2019
(10) 2019 April 27 https://www.newmont.com/newsroom/newsroom-details/2019/Newmont-Goldcorp-Announces-Newmonts-First-Quarter-2019-Results/default.aspx
(9) 2019 Mar. 27 https://www.finanznachrichten.de/nachrichten-2019-03/46303427-newmont-gibt-bedingte-sonderdividende-bekannt-004.htm
(8) 2019 Mar. 13 https://seekingalpha.com/article/4248338-barrick-newmont-reached-interesting-deal
(7) 2019 Mar. 12 https://www.australianmining.com.au/news/barrick-drops-bid-for-newmont-as-companies-enter-jv/
(6) 2019 Mar. 05 https://www.australianmining.com.au/news/newmont-rejects-25bn-barrick-takeover-bid/
(5) 2019 Mar. 04 https://www.australianmining.com.au/news/barrick-launches-25bn-bid-for-newmont/
(4) 2019 Jan https://seekingalpha.com/article/4234186-newmont-strikes-back
(3) 2019 Jan. https://seekingalpha.com/news/3422587-newmont-mining-goldcorp-combine-10b-stock-deal?ifp=0
(2) 2018 dec. https://steelguru.com/mining/newmont-mining-announces-updated-2019-and-longer-term-outlook/528616
(1) 2018 nov. https://minerals.usgs.gov/minerals/pubs/mcs/2018/mcs2018.pdf
https://s1.q4cdn.com/259923520/files/doc_presentations/2018/September-Investor-presentation_FINAL_posting.pdf