Newmont Mining update Oct. 29th, 2020
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 Mining got with the merger with Goldcorp the worlds first gold miner with a production of about 6 1/2 mio. oz (2019 6.3 mio. oz) plus 50.000to copper. The issue NEM had to find out is that Goldcorp reduced capex and exploration to a minimum. It will require NEM 3 yrs. to bring the Goldcorp mines back to its standard (12).
Barrick and NEM formed a JV with their mines in Nevada in July 2019. It is owned 38.5% (Newmont)/61.5% (Barrick), with Barrick as an operator for the eight assets located in Nevada (11). It is expected to produce 1.375 million ounces of gold attributable to Newmont in 2020.
Newmont increased its gold reserves from 65 mio. oz in 2018 to 100 mio. oz end of 2019. The reason is the aquisition of gold corp and formation of the Nevada joint venture with Barrick that added 42 mio. oz (16). If the production of 6.5 mio. oz is considered exploration is not very successful.
Chances & Risks:
NEM reduced its production guidance due to the corona panic and the rampage of the politicians from 6.4 to 6 mio. oz attributable to NEM. It reduced the capex guidance. It reduced as well the sustaining capex guidance from 950 -> 775 mio.$ and the development budget from 575 -> 450 mio. $ (17).
The profit of NEM and hence the shareprice is linked to the gold price. The NEM share is a bet on the gold price.
The valuation of NEM is not low. The PE is if NEM makes 2.3$/share profit at 27 quite high. The declared quarterly dividend of $0.4 per share provides a 2.6% yield at a share price of 61$/yr. The gold production of NEM is expected to stay stable the following years. That means the share price took advantage of the high gold price and already includes the expectation of a further rising gold price.
The production is often lower than expected. It seems that the NEM management is not the most efficient one.
Gold is not eatable. The main value of gold is the believe that others believe that gold is very precious. This is not rational but works well since several thousand years. In India and the Middle East marriages are very gold intensive (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 easier 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 (is perceived as a risk) 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 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.
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 and replacing it by other currencies and gold. A 1 - 2% shift would mean a big push to 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.
Share buy back program of 1 bn$ announced.
Number of shares: 807,79 mio. shares of common stock outstanding on May 5th, 2020
Q3/2019 Q4/19 2019 Q1/20 Q2/20 Q3/20 Est. 2020
2.71 2.97 9.74 2.6 2.35 3170
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)
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 2017 (1)
United States 245
South Africa 145
World total (rounded) 3,150
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.
(13) 2020 Jan. 4th https://www.nsenergybusiness.com/news/newmont-kcgm-northern-star/
(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