DSC_5202

Material outperformance begets material upgrade

Newmont Corporation 2 August 2021 Update
Download PDF

Newmont Corporation

Material outperformance begets material upgrade

Q221 results review

Metals & mining

2 August 2021

Price

US$60.39

Market cap

US$48,258m

Net debt (US$m) end-June 2021

1,574

Shares in issue

799.1m

Free float

99.8%

Code

NEM

Primary exchange

NYSE

Secondary exchange

TSX

Share price performance

%

1m

3m

12m

Abs

(0.9)

0.7

(4.3)

Rel (local)

(3.1)

(4.2)

(29.3)

52-week high/low

US$74.4

US$54.4

Business description

Founded in 1916, Newmont Corporation is the world’s leading gold company with a world-class portfolio of assets in North and South America, Australia and Africa. It is the only gold producer in the S&P 500 Index, and is widely recognised for its ESG practices and as a leader in value creation. safety and mine execution.

Next events

Yanacocha Sulphides decision

H221

Q321 results

October/November 2021

Q421/FY21 results

February 2022

Analyst

Charles Gibson

+44 (0)20 3077 5724

Newmont Corporation is a research client of Edison Investment Research Limited

Newmont’s financial results for Q221 materially exceeded our expectations for the third quarter in succession, driven by a 3.8% (or US$111m) positive variance in revenues (of which 2.4% could be attributed to the gold price) and a 2.8% (US$61m) further positive variance in the form of lower costs. Of the 12 mines over which Newmont exerts management control, four outperformed (financially) relative to our prior expectations, two performed in line and six underperformed, although not, on occasion, without commendable management efforts to mitigate negative outcomes in the face of unscheduled challenges (eg the need to put Tanami into care and maintenance for two weeks, at short notice, after a case of COVID-19 was detected there). In the wake of its results, coupled with increases to our estimates for Q3 and Q420, we have upgraded our forecasts for adjusted net EPS for Newmont for FY21 by 18.4%.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/19

9,740

3,693

1.32

1.44

45.8

2.4

12/20

11,497

3,143

2.66

1.45

22.7

2.4

12/21e

12,446

3,701

3.21

2.20

18.8

3.6

12/22e

12,407

3,799

3.07

2.20

19.7

3.6

Note: : *EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. **Includes special dividend of US$0.88/share.

Results follow Ahafo North approval

Newmont’s results follow its board’s sanctioning of the development of the Ahafo North project in Ghana earlier in July. The project will add 275–325koz pa to production at an all-in sustaining cost of US$600–700/oz for the first five years of production (CY24–28) at a capital cost of US$750–850m. Construction is scheduled to be completed in H223 and commercial production in early FY24.

Cost pressures

In addition to its financial results, Newmont also reported some signs of modest cost pressure within the industry. While these are expected to have little or no effect on Newmont’s performance for the remainder of FY21, we have now built a 5% increase in (nominal) costs into our financial models for all of its mines from FY22.

Valuation: 19.3% premium to share price

Despite increasing our basic adjusted EPS forecast for FY21 by 18.4%, our FY21 valuation of Newmont remains broadly unchanged at US$72.05/share (vs US$72.92/share previously), as the increase has coincided with a general de-rating of the gold mining sector in FY21, coupled with a decrease in inflation expectations in the wider US economy that has therefore resulted in increased implied (real) hurdle rates (see Exhibits 5 and 7). This valuation puts Newmont on a premium rating relative to its peers, but may be justified by the company’s size, track record and the fact that almost all of its operations are in top-tier jurisdictions. However, it remains cheap relative to historical valuation measures, which continue to imply a share price close to US$100/share.

Q221 results summary

Newmont’s financial results for Q221 exceeded our expectations for the third quarter in succession, in this case by a material degree. All other things being equal, an improvement relative to Q1 was expected. In this case, however, revenues grew by more than costs, resulting in an increase in margins at the pre-tax level that persisted below the line, despite a normalisation of the effective tax rate (see Exhibit 2 for analysis).

A summary of the operational highlights of the quarter relative to our prior expectations is provided in Exhibit 1. In general, operations in South America and Australia recovered relative to Q1, despite ongoing disruptions as a result of the COVID-19 pandemic, while recovery in North America was delayed. Africa continued to perform at elevated levels, while output at Nevada Gold Mines was adversely affected by a mechanical mill failure at Carlin’s Goldstrike roaster (more information on this failure will be forthcoming at Barrick’s Q221 results, scheduled for release on 9 August).

Exhibit 1: Newmont Q121 operational results, actual versus forecast

Region

Production

Costs applicable to sales

Q121a

Q221e
(koz)

Q221a
(koz)

Variance
(%)

Q121a

Q121e
(US$/oz)

Q221a
(US$/oz)

Variance
(%)

North America

413

428

397

-7.2

736

746

769

+3.1

South America

174

178

189

+6.2

791

1,156

721

-37.6

Australia

269

294

299

+1.7

750

736

764

+3.8

Africa

205

201

202

+0.5

758

722

763

+5.7

Nevada

303

344

284

-17.4

745

652

753

+15.5

Sub-total

1,364

1,445

1,371

-5.1

752

738

755

+2.3

Pueblo Viejo (40%)

91

80

78

-2.5

Total (attributable) gold

1,455

1,525

1,449

-5.0

Source: Newmont Corporation, Edison Investment Research

At the level of the individual mines, one (Penasquito) performed definitively better than our expectations, three (Yanacocha, Merian and Boddington) performed slightly better than our expectations and two (Musselwhite and Cerro Negro) performed in line with our expectations, with the balance performing either slightly worse or worse than our expectations. At least two other features of Newmont’s results were noteworthy:

A material contribution to costs from by-product silver sales at Yanacocha (estimated US$37m in Q221 vs US$1m in Q220).

A material quarter-on-quarter benefit to revenues derived from metals produced in concentrate at Penasquito and Boddington in particular, as a result of the effect of rising metals’ prices on provisionally priced contracts towards the end of Q121.

In financial terms, adjusted net income exceeded our prior forecast by US$220m, or a material 48.9%. The main features behind this outperformance were a 3.8% (or US$111m) positive variance in revenues (of which 2.4% could be attributed to the gold price – US$1,823/oz realised vs US$1,814/oz average price during the period and US$1,781/oz previously forecast) and a 2.8% (US$61m) further positive variance in the form of lower costs. The other material variance was a positive swing in ‘other net income’ from a loss of US$82m in Q121 to a profit of US$50m in Q221. The aggregate positive variance of these three items of US$264m was moderated by a US$101m negative variance in taxation to result in adjusted net income of US$670m versus our prior forecast of US$450m.

A full analysis of Newmont’s Q121 financial performance relative to both our prior forecasts and Q121 results is provided in the exhibit below.

Exhibit 2: Newmont quarterly income statement, Q120–Q221 versus Edison forecast

US$m (unless otherwise indicated)

Q120

Q220

Q320

Q420

Q121

Q221e

Q221a

*Change
(%)

**Variation
(%)

**Variation
(units)

Sales

2,581

2,365

3,170

3,381

2,872

2,954

3,065

6.7

3.8

111

Costs and expenses

– Costs applicable to sales

1,332

1,058

1,269

1,355

1,247

1,290

1,281

2.7

-0.7

-9

– Depreciation and amortisation

565

528

592

615

553

598

561

1.4

-6.2

-37

– Reclamation and remediation

38

40

38

250

46

42

57

23.9

35.7

15

– Exploration

44

26

48

69

35

65

52

48.6

-20.0

-13

– Advanced projects, research and development

27

26

39

30

31

37

37

19.4

0.0

0

– General and administrative

65

72

68

64

65

65

64

-1.5

-1.5

-1

– Impairment of long-lived assets

0

5

24

20

0

0

0

N/A

N/A

0

– Care and maintenance

20

125

26

7

0

0

2

N/A

N/A

2

– Other expense, net

33

54

68

51

39

69

50

28.2

-27.5

-19

Total

2,124

1,934

2,172

2,461

2,016

2,165

2,104

4.4

-2.8

-61

Other income/(expenses)

– Gain on formation of Nevada Gold Mines

0

0

0

0

0

N/A

N/A

0

– Gain on asset and investment sales, net

593

(1)

1

84

43

0

-100.0

N/A

0

– Other income, net

(189)

198

(44)

3

(82)

(42)

50

-161.0

-219.0

92

– Interest expense, net of capitalised interest

(82)

(78)

(75)

(73)

(74)

(79)

(68)

-8.1

-13.9

11

322

119

(118)

14

(113)

(121)

(18)

-84.1

-85.1

103

Income/(loss) before income and mining tax

779

550

880

934

743

668

943

26.9

41.2

275

Income and mining tax benefit/(expense)

23

(164)

(305)

(258)

(235)

(240)

(341)

45.1

42.1

-101

Effective tax rate (%)

(3.0)

29.8

34.7

27.6

31.6

36.0

36.2

14.6

0.6

0.2

Profit after tax

802

386

575

676

508

427

602

18.5

41.0

175

Equity income/(loss) of affiliates

37

29

53

70

50

40

49

-2.0

22.5

9

Net income/(loss) from continuing operations

839

415

628

746

558

467

651

16.7

39.4

184

Net income/(loss) from discontinued operations

(15)

(68)

228

18

21

10

-52.4

N/A

10

Net income/(loss)

824

347

856

764

579

467

661

14.2

41.5

194

Minority interest

2

3

17

(60)

20

17

11

-45.0

-35.3

-6

Minority interest (%)

0.2

0.9

2.0

(7.9)

3.5

3.6

1.7

-51.4

-52.8

-1.9

Net income/(loss) attributable to stockholders

822

344

839

824

559

450

650

16.3

44.4

200

Adjustments to net income

(496)

(83)

(142)

32

35

0

20

-42.9

N/A

20

Adjusted net income

326

261

697

856

594

450

670

12.8

48.9

220

Net income/(loss) per common share (US$)

Basic

– Continuing operations

1.037

0.513

0.761

1.005

0.672

0.563

0.799

18.9

41.9

0.236

– Discontinued operations

(0.019)

(0.085)

0.284

0.022

0.026

0.000

0.012

-52.0

N/A

0.012

– Total

1.019

0.428

1.045

1.027

0.698

0.563

0.811

16.3

44.1

0.248

Diluted

 

– Continuing operations

1.035

0.512

0.758

1.002

0.671

0.559

0.797

18.8

42.6

0.238

– Discontinued operations

(0.019)

(0.084)

0.283

0.022

0.026

0.000

0.012

-52.1

N/A

0.012

– Total

1.016

0.427

1.041

1.025

0.697

0.559

0.809

16.1

44.8

0.250

Basic adjusted net income per share (US$)

0.404

0.325

0.868

1.067

0.742

0.563

0.836

12.7

48.6

0.273

Diluted adjusted net income per share (US$)

0.403

0.324

0.865

1.065

0.741

0.559

0.834

12.6

49.3

0.275

DPS (US$/share)

0.250

0.250

0.400

0.550

0.550

0.550

0.550

0.0

0.0

0.000

Source: Newmont Corporation, Edison Investment Research. Note: *Q221 vs Q121; **Q221 vs Q221e.

As noted at the time of Newmont’s Q420/FY20 results, both (higher) production and (lower) costs are expected to be weighted towards H221 (approximately in the ratio 47:53) and this effect will be most pronounced in the first and last quarters of the year. In part, this profile will reflect rising grade profiles, in particular at Boddington and Ahafo (the H1:H2 production ratio at Boddington will be enhanced by productivity improvements from the autonomous haulage system ramp-up, while that at Ahafo will also be volume driven by productivity improvements throughout the year from the change in mining method at Subika underground to sub-level shrinkage). However, Merian, Musselwhite, Porcupine and CC&V are all expected to exhibit rising production profiles as well, as the year progresses. At the same time, costs will be weighted in the other direction; that is, H221 costs are expected to be lower than H121 costs. In part, this reflects lower production in H121. However, it also reflects higher sustaining capital costs in H121 relating to the installation of the autonomous haulage system at Boddington.

In the light of Q121 results, the prevailing gold price (US$1,793/oz vs US$1,776/oz previously) and slight adjustments to our ongoing treatment of ‘other’ income and expenses, our updated financial forecasts for Newmont for the remainder of FY21, by quarter, are now as follows:

Exhibit 3: Newmont quarterly income statement, Q320–Q421e versus our prior forecast

US$m (unless otherwise indicated)

Q320

Q420

FY20

Q121

Q221

Q321e
(prior)

Q321e
(current)

Q421e
(prior)

Q421e
(current)

FY21e
(current)

FY21e
(prior)

Sales

3,170

3,381

11,497

2,872

3,065

3,163

3,252

3,171

3,257

12,446

12,160

Costs and expenses

– Costs applicable to sales

1,269

1,355

5,014

1,247

1,281

1,310

1,323

1,305

1,317

5,168

5,152

– Depreciation and amortisation

592

615

2,300

553

561

630

633

639

642

2,388

2,420

– Reclamation and remediation

38

250

366

46

57

42

56

42

56

214

173

– Exploration

48

69

187

35

52

65

65

65

65

217

230

– Advanced projects, research and development

39

30

122

31

37

37

37

37

37

141

141

– General and administrative

68

64

269

65

64

65

65

65

65

259

260

– Impairment of long-lived assets

24

20

49

0

0

0

0

0

0

0

0

– Care and maintenance

26

7

178

0

2

0

0

0

0

2

0

– Other expense, net

68

51

206

39

50

69

0

69

0

89

246

Total

2,172

2,461

8,691

2,016

2,104

2,218

2,178

2,222

2,181

8,479

8,622

Other income/(expenses)

– Gain on formation of Nevada Gold Mines

0

0

0

0

0

0

– Gain on asset and investment sales, net

1

84

677

43

0

43

43

– Other income, net

(44)

3

(32)

(82)

50

(42)

0

(42)

0

-32

(208)

– Interest expense, net of capitalised interest

(75)

(73)

(308)

(74)

(68)

(70)

-77

(52)

-59

-278

(275)

(118)

14

337

(113)

(18)

(112)

-77

(94)

-59

-267

(440)

Income/(loss) before income and mining tax

880

934

3,143

743

943

832

997

855

1,017

3,701

3,098

Income and mining tax benefit/(expense)

(305)

(258)

(704)

(235)

(341)

(300)

-359

(308)

-366

-1,301

(1,083)

Effective tax rate (%)

34.7

27.6

23.4

31.6

36.2

36.0

36.0

36.0

36.0

35.2

35.0

Profit after tax

575

676

2,439

508

602

533

638

547

651

2,399

2,015

Equity income/(loss) of affiliates

53

70

189

50

49

40

36

40

35

170

170

Net income/(loss) from continuing operations

628

746

2,628

558

651

573

674

587

686

2,569

2,185

Net income/(loss) from discontinued operations

228

18

163

21

10

31

21

Net income/(loss)

856

764

2,791

579

661

573

674

587

686

2,600

2,206

Minority interest

17

(60)

(38)

20

11

17

29

17

29

89

71

Do (%)

2.0

(7.9)

(1.4)

3.5

1.7

3.0

4.3

2.9

4.2

3.4

3.2

Net income/(loss) attributable to stockholders

839

824

2,829

559

650

556

645

570

658

2,512

2,135

Adjustments to net income

(142)

32

(689)

35

20

0

0

0

0

55

35

Adjusted net income

697

856

2,140

594

670

556

645

570

658

2,567

2,170

Net income/(loss) per common share (US$)

Basic

– Continuing operations

0.761

1.005

3.317

0.672

0.799

0.695

0.808

0.713

0.823

3.101

2.641

– Discontinued operations

0.284

0.022

0.203

0.026

0.012

0.000

0.000

0.000

0.000

0.039

0.026

– Total

1.045

1.027

3.520

0.698

0.811

0.695

0.808

0.713

0.823

3.140

2.668

Diluted

– Continuing operations

0.758

1.002

3.309

0.671

0.797

0.690

0.802

0.708

0.817

3.080

2.623

– Discontinued operations

0.283

0.022

0.202

0.026

0.012

0.000

0.000

0.000

0.000

0.038

0.026

– Total

1.041

1.025

3.511

0.697

0.809

0.690

0.802

0.708

0.817

3.118

2.649

Basic adjusted net income per share (US$)

0.868

1.067

2.663

0.742

0.836

0.695

0.808

0.713

0.823

3.209

2.711

Diluted adjusted net income per share (US$)

0.865

1.065

2.656

0.741

0.834

0.690

0.802

0.708

0.817

3.186

2.692

DPS (US$/share)

0.400

0.550

1.450

0.550

0.550

0.550

0.550

0.550

0.550

2.200

2.200

Source: Newmont Corporation, Edison Investment Research

Note that, all other things being equal, the more the gold price rises, the more Newmont’s effective tax rate falls as lower tax operations contribute proportionately more to pre-tax profits. After our revisions for the remainder of the year, our basic adjusted EPS forecast of US$3.209/share (vs US$2.711/share previously) for FY21 compares to the market consensus, as follows:

Exhibit 4: FY21 Basic adjusted EPS forecast, Edison versus consensus (US$/share)

Q121

Q221e

Q321e

Q421e

Sum Q1–Q421e

FY21e

Edison forecast

0.74

0.84

0.81

0.82

3.21

3.21

Consensus forecast

0.74

0.84

0.89

0.97

3.44

3.47

High

0.74

0.84

1.38

1.38

4.34

5.04

Low

0.74

0.84

0.71

0.71

3.00

2.69

Source: Edison Investment Research, Refinitiv (26 July 2021)

Dividend

Newmont’s dividend for Q121 was maintained at US$0.55/share. At the time of its Q320 results in October 2020, Newmont unveiled a new dividend framework whereby it formally rebased its dividend to a ‘base’ pay-out of US$1.00/share (or US$0.25/share per quarter) at a gold price of US$1,200/oz, but also stated explicitly that it would return 40–60% of incremental attributable free cash flow that it generated above a gold price of US$1,200/oz to shareholders. Under the new framework, Newmont will augment the ‘base’ pay-out in increments of US$0.60–0.90/share per year (or US$0.15–0.225/share per quarter), evaluated in gold price increments of US$300/oz for gold prices above US$1,200/oz, with the goal of targeting 40–60% of incremental free cash flow above a gold price of US$1,200/oz returned to shareholders. Thus, a (sustainable) gold price at US$1,800/oz should (on this basis) result in a quarterly dividend of US$0.55/share, whereas a gold price below that level could result in one of US$0.40/share. In this context, however, it is worth noting that Newmont affords itself a degree of latitude in the level of the ultimate pay-out in that, should it decide to pay out nearer 60% of incremental attributable free cash flow to shareholders that it generates above a US$1,200/oz gold price, rather than 40%, then there is scope for the quarterly dividend to remain at the higher level, notwithstanding the gold price dipping below the US$1,800/oz level. In consequence, we have left our dividend forecasts for Q321–Q421 and FY21 unchanged on the basis that we believe the gold price temporarily dipping below US$1,800/oz is unlikely to result in any readjustment in the quarterly distribution.

Long-term assumption changes

In addition to its financial results, Newmont also reported some signs of modest cost pressure within the industry at large. These pressures derive from a number of sources (eg labour) and, in some cases they are also mitigated (eg by automation), albeit not entirely extinguished. While these pressures are expected to have little or no effect on Newmont’s performance for the rest of this financial year, they are nevertheless expected to result in underlying cost inflation of c 3–5% in aggregate (nominal) terms by the end of FY22 relative to prior expectations and we have now built this additional assumption into our financial models for the remainder of the lives of Newmont’s mines’ operations.

Valuation

Our approach to the valuation of Newmont has remained unchanged since our initiation note (see The sustainable leader, published on 9 February 2021; see that note for a fuller explanation of the methodologies involved). The following is an update of our valuation in light of the Q221 results and our updated forecasts for FY21 and our longer-term assumption (cost) changes.

Absolute valuation

Newmont is a multi-asset company that has shown a willingness and desire to trade assets in the past to maintain production, reduce costs and maximise shareholder returns. As a result, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY21, in the case of Newmont, we have opted to discount forecast dividends back over six years (previously five) from the start of FY21, then apply an ex-growth terminal multiple to forecast cash flows in that year (ie FY26) at the appropriate discount rate. In the normal course of events, we would exclude exploration expenditure from such a calculation on the basis that it is an investment. In the case of Newmont, however, we have included it in our estimate of future cash flows on the grounds that it may be a critical component of ongoing business performance in its ability to continually expand and extend the lives of the company’s assets via exploration.

Despite the changes to our short-term forecasts for FY21, our estimate of Newmont’s pre-financing cash flow in FY26 has declined by 3.8% to US$5.27 per share (vs US$5.48/share previously and US$1.22/share in FY18) to reflect our increased cost assumptions. On this basis, our terminal valuation of the company at end-FY26 would be US$81.10/share (vs US$86.95/share previously). This valuation is based on an assumption of zero growth in (real) cash flows beyond FY26, which is inherently conservative; in this case, however, whereas the discount rate that we used previously was 6.3% (in real terms), this has now increased to 6.5% as expectations of inflation in the wider economy (as measured by US 30yr breakeven bond yields) have fallen to 2.3% in recent months (vs 2.5% previously). Note that, had the analysis been performed by applying the prior real discount rate of 6.3%, our valuation would have declined to only US$83.68/share).

In conjunction with forecast intervening dividends, this terminal value then discounts to a net present value of US$73.15/share (vs US$78.08/share previously) at the start of FY21.

Exhibit 5: Newmont forecast valuation and cash flow per share, FY21–26e (US$/share)

Source: Edison Investment Research

This (absolute) analysis inherently excludes any value to Newmont from its other development assets, such as Coffee, Galore Creek, Conga, Norte Abierto and Nueva Union, which together represent combined reserves and resources of 53.93Moz attributable to Newmont. It is also conservative in its assumption of zero growth in cash flows after FY26.

Relative Newmont valuation

Newmont’s valuation on a series of commonly used measures, relative to its peer group of the 10 largest publicly quoted senior gold producers, is as follows.

Exhibit 6: Newmont valuation relative to peers

P/E

P/cash flow (x)

EV/EBITDA (x)

Yield (%)

Company

Ticker

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Newmont (Edison)

NEM

18.8

19.7

20.6

10.0

9.4

9.4

7.7

7.7

8.5

3.6

3.6

3.6

Newmont (consensus)

NEM

17.3

16.7

19.4

9.4

8.9

9.8

7.4

7.2

8.0

3.4

3.5

3.2

Barrick

ABX

8.6

8.2

9.6

7.0

7.1

7.0

6.5

6.3

6.4

3.2

1.7

2.0

AngloGold

ANGJ

7.8

6.9

7.2

5.0

4.9

4.5

4.1

3.8

3.9

1.9

2.0

2.2

Polyus

PLZL MM

10.2

9.5

9.3

8.3

7.7

7.5

7.6

8.0

6.8

4.1

4.7

4.8

Gold Fields

GFI

8.7

8.6

7.2

5.1

5.0

4.3

4.2

4.2

3.9

3.4

3.3

3.9

Kinross

K

11.7

6.9

6.8

5.6

3.6

3.6

4.8

3.3

3.2

2.0

2.0

1.9

Agnico-Eagle

AEM

21.3

18.6

19.4

9.1

8.3

8.5

8.2

7.1

7.5

2.4

2.4

2.3

Newcrest

NCM AU

13.5

13.3

13.8

8.0

7.8

8.0

6.7

6.5

6.8

1.8

1.8

2.0

Harmony

HARJ

5.1

6.3

6.2

4.6

4.7

4.7

3.0

3.1

3.1

2.6

2.6

3.2

Endeavour (consensus)

EDV

9.4

7.8

9.3

4.8

4.3

4.6

4.4

4.1

4.6

2.1

2.3

2.1

Average (excl NEM)

10.7

9.6

9.9

6.4

5.9

5.9

5.5

5.2

5.1

2.6

2.5

2.7

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced on 27 July 2021.

In comparing this table with the equivalent table in our initiation note on Newmont (see Exhibit 23 on page 25 of The sustainable leader, published on 9 February 2021), it can be seen there has been a de-rating of all but two companies over all years since that date and a de-rating of the majority of companies across all three years, with the most pronounced effect being in year 1. Nevertheless, it can also be seen that while Newmont continues to command a premium rating relative to its peer group on most valuation measures, it remains materially cheap with respect to its dividend yield. Based on consensus forecasts, we estimate that Newmont’s share price would have to rise by an average of 45.5% for its dividend yield to match those of its peer group. Based on our forecasts, we estimate its share price would have to rise 53.9%.

As before, one further observation concerning the comparability of the above measures is merited. Given its policy of proportionately consolidating its interest in Nevada Gold Mines and that it owns 100% interests in the majority of its remaining mining operations (with the exceptions of Yanacocha and Merian), estimates of cash flow in particular are also close to estimates of cash flow attributable to shareholders (Newmont estimates that 97% of free cash flow was attributable to the company in Q221). This is not always the case for its peers, where fully consolidated earnings and cash flow from assets not owned 100% may not so easily approximate cash flow attributable to shareholders, making direct comparison using these measures either difficult or, potentially, misleading.

Blended average valuation

A summary of our updated valuation of Newmont over 29 measures of value across three different methodologies over the next five years shown in Exhibit 7.

Exhibit 7: Newmont valuation summary (US$/share in years shown)

Basis of valuation

FY21e

FY22e

FY23e

FY24e

FY25e

Absolute

6.5% real cost of equity and ex-growth terminal multiple

73.15

75.70

78.42

81.32

85.01

Historical

Share price implied by Edison EPS forecast (US$/share)

78.15

74.87

71.46

57.36

Historical

Share price implied by Edison DPS forecast (US$/share)

123.32

123.32

123.32

89.69

Historical

Share price implied by consensus EPS forecast (US$/share)

84.57

88.96

78.72

88.22

Historical

Share price implied by consensus DPS forecast (US$/share)

115.47

115.47

107.63

139.02

Peer group

Share price implied from Edison EBITDA forecast (US$/share)

46.49

46.10

Peer group

Share price implied from consensus EBITDA forecast (US$/share)

47.93

48.05

Peer group

Share price implied from Edison cash flow per share (US$/share)

38.41

37.95

Peer group

Share price implied from consensus cash flow per share (US$/share)

40.99

40.48

Average (US$/share)

72.05

72.32

91.91

91.12

85.01

Source: Edison Investment Research (underlying consensus data: Refinitiv, 27 July 2021).

Exhibit 8: Financial summary

Accounts: US GAAP, year-end: December, US$m

 

 

2018

2019

2020

2021e

2022e

2023e

2024e

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

Total revenues

 

 

7,253

9,740

11,497

12,446

12,407

11,850

12,411

Cost of sales

 

 

(4,093)

(5,195)

(5,014)

(5,168)

(5,138)

(5,150)

(5,763)

Gross profit

 

 

3,160

4,545

6,483

7,278

7,269

6,700

6,648

SG&A (expenses)

 

 

(244)

(313)

(269)

(259)

(260)

(260)

(260)

R&D costs

 

 

(350)

(415)

(309)

(358)

(406)

(406)

0

Other income/(expense)

 

 

(406)

(253)

(831)

(337)

(169)

(169)

(84)

Exceptionals and adjustments

 

(424)

2,220

214

(106)

0

0

0

Depreciation and amortisation

 

 

(1,215)

(1,960)

(2,300)

(2,388)

(2,559)

(2,661)

(3,427)

Reported EBIT

 

 

945

3,994

3,451

3,978

3,875

3,204

2,877

Finance income/(expense)

 

 

(207)

(301)

(308)

(278)

(76)

215

9

Reported PBT

 

 

738

3,693

3,143

3,701

3,799

3,419

2,886

Income tax expense (includes exceptionals)

 

 

(419)

(737)

(515)

(1,131)

(1,221)

(1,009)

(917)

Reported net income

 

 

380

2,884

2,791

2,600

2,577

2,410

1,969

Basic average number of shares, m

 

 

533

735

804

800

799

799

799

Basic EPS (US$/share)

 

 

0.64

3.82

3.52

3.14

3.07

2.93

2.35

Adjusted EBITDA

 

 

2,584

3,734

5,537

6,473

6,434

5,865

6,304

Adjusted EBIT

 

 

1,369

1,774

3,237

4,084

3,875

3,204

2,877

Adjusted PBT

 

 

1,162

1,473

2,929

3,807

3,799

3,419

2,886

Adjusted EPS (US$)

 

 

1.35

1.32

2.66

3.21

3.07

2.93

2.35

Adjusted diluted EPS (US$)

 

 

1.34

1.32

2.66

3.18

3.05

2.91

2.34

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

12,258

25,276

24,281

23,960

23,801

23,440

21,513

Goodwill

 

 

58

2,674

2,771

2,771

2,771

2,771

2,771

Other non-current assets

 

 

3,122

5,752

5,812

5,855

5,855

5,855

5,855

Total non-current assets

 

 

15,438

33,702

32,864

32,586

32,427

32,066

30,139

Cash and equivalents

 

 

3,397

2,243

5,540

5,843

6,298

6,971

9,567

Inventories

 

 

630

1,014

963

1,163

1,160

1,108

1,160

Trade and other receivables

 

 

254

373

449

375

374

357

374

Other current assets

 

 

996

2,642

1,553

1,584

1,584

1,584

1,584

Total current assets

 

 

5,277

6,272

8,505

8,965

9,415

10,019

12,685

Non-current loans and borrowings

 

 

3,608

6,734

6,045

5,495

5,003

4,589

4,589

Other non-current liabilities

 

 

3,808

8,438

8,076

8,137

8,114

8,091

7,984

Total non-current liabilities

 

 

7,416

15,172

14,121

13,632

13,117

12,680

12,573

Trade and other payables

 

 

303

539

493

466

463

464

519

Current loans and borrowings

 

 

653

100

657

657

657

657

657

Other current liabilities

 

 

831

1,746

2,219

2,219

2,219

2,219

2,219

Total current liabilities

 

 

1,787

2,385

3,369

3,342

3,339

3,340

3,395

Equity attributable to company

 

 

10,502

21,420

23,008

23,611

24,307

24,892

25,494

Non-controlling interest

 

 

1,010

997

871

966

1,079

1,173

1,362

CASH FOW STATEMENT

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

380

2,884

2,791

2,600

2,577

2,410

1,969

Taxation expenses

 

 

386

832

704

1,301

1,354

1,162

1,068

Net finance expenses

 

 

207

301

308

278

76

(215)

(9)

Depreciation and amortisation

 

 

1,215

1,960

2,300

2,388

2,559

2,661

3,427

Share based payments

 

 

76

97

72

0

0

0

0

Other adjustments

 

 

749

(2,131)

(654)

140

169

169

84

Movements in working capital

 

 

(743)

(309)

295

(306)

(190)

(122)

(206)

Interest paid / received

 

 

(207)

(301)

(308)

(278)

(76)

215

9

Income taxes paid

 

 

(236)

(498)

(926)

(1,301)

(1,354)

(1,162)

(1,068)

Cash from operations (VSO)

 

 

1,827

2,866

4,882

4,823

5,115

5,118

5,275

Capex

 

 

(1,032)

(1,463)

(1,302)

(1,740)

(2,400)

(2,300)

(1,500)

Acquisitions & disposals net

 

 

(98)

224

1,463

(328)

0

0

0

Other investing activities

 

 

(47)

41

65

0

0

0

0

Cash used in investing activities (VSIA)

 

 

(1,177)

(1,226)

91

(2,068)

(2,400)

(2,300)

(1,500)

Net proceeds from issue of shares

 

 

(98)

(479)

(521)

(149)

0

0

0

Movements in debt

 

 

0

(1,186)

(175)

(550)

(492)

(414)

0

Dividends paid

 

 

(301)

(889)

(834)

(1,822)

(1,846)

(1,808)

(1,339)

Other financing activities

 

 

(56)

(223)

(150)

69

77

77

160

Cash from financing activities (VSF)

 

 

(455)

(2,777)

(1,680)

(2,452)

(2,260)

(2,145)

(1,178)

Currency translation differences and other

 

 

(4)

(3)

6

0

0

0

0

Increase/(decrease) in cash and equivalents

 

 

191

(1,140)

3,299

303

455

673

2,596

Cash & equivalents at period end (incl restricted cash)

 

 

3,489

2,349

5,648

5,951

6,406

7,079

9,675

Net (debt)/cash

 

 

(864)

(4,591)

(1,162)

(309)

638

1,725

4,321

Movement in net (debt)/cash over period

 

 

(864)

(3,727)

3,429

853

947

1,087

2,596

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Newmont Corporation and prepared and issued by Edison, in consideration of a fee payable by Newmont Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Newmont Corporation and prepared and issued by Edison, in consideration of a fee payable by Newmont Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues