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Newmont Mining update July 26th, 2019 

 

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 - 7 mio. oz (guidance 2019 6.5 mio. oz at an all-in sustaining cost (AISC) of $975 oz) plus 50.000to copper, thats revenues of about 9 bn$/yr.. 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 April 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 1.8 million ounces to 1.9 million ounces of gold in the second half of 2019. 

The profit of NEM and hence the shareprice is linked to the gold price. The NEM share is a bet on the gold price.  

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.  

Chances & Risks:

The valuation of NEM is high. The PE is if NEM makes 1$/share profit extremly high. The declared second quarter dividend of $0.14 per share provides a 1.4% yield/yr. The gold production of NEM is expected to stay stable the following years. That means the share price already includes the expectation of a rising 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 70% 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.  

 

Some Data:

Number of shares: 768 mio.

Q2/2019 data: 

Net income from continuing operations attributable to Newmont stockholders was $1 million or $0.00 per diluted share (quite often finance of a company is smoothing out negative results)

Revenue of $2.257 bn

Average realized price for gold: $1,317 

Gold Production:  1.59Moz* and AISC of $1,016/oz

Copper production: est. 10,000 tonnes average price $ 2.48 per pound

Operating cash flow from continuing operations: $301 million, Free cash flow $(79) million 

Balance sheet: $1.8 billion cash 

Total net debt: $ 4.945 bn

Goldcorp transaction and integration costs 114 mio.$

Indicative Outlook: 

Attributable Production

(koz) 7,400 7,500 7,300 7,300 7,300 6,700 

 

 

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 

Australia                                     300 

Canada                                       180

China                                          440

Peru                                           155

Russia                                        255

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. 

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Some References

(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

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