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Q321 results in line with prior expectations

Newmont Corporation 10 November 2021 Update
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Newmont Corporation

Q321 results in line with prior expectations

Q321 results analysis

Metals & mining

10 November 2021

Price

US$56.75

Market cap

US$45,343m

Net debt (US$m) at end-September 2021

1,502

Shares in issue

799.0m

Free float

99.8%

Code

NEM

Primary exchange

NYSE

Secondary exchange

TSX

Share price performance

%

1m

3m

12m

Abs

4.5

(3.6)

(14.0)

Rel (local)

(2.1)

(8.8)

(34.9)

52-week high/low

US$74.4

US$53.6

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

Q421/FY21 results

February 2022

Yanacocha Sulphides decision

H222

Analysts

Lord Ashbourne (formerly Charles Gibson)

+44 (0)20 3077 5724

Newmont Corporation is a research client of Edison Investment Research Limited

Newmont’s Q321 results were closely in line with our prior forecasts (see Exhibits 1 and 2), albeit with relative outperformance from its Australian operations largely offsetting underperformance from its North American ones, where output continued to be adversely affected by lingering coronavirus disruptions. In conjunction with its Q3 results, Newmont updated its guidance for FY21 to gold production of 6.0Moz (cf 6.2–6.8Moz previously) at a cost applicable to sales of US$790/oz (cf US$750/oz previously). However, this was always likely after its announcement of 5 October outlining some of the challenges faced in commissioning the autonomous haulage system at Boddington, including severe weather and heavy rainfall. Nevertheless, performance in Q421 is still expected to show a material improvement over the first three quarters of the year, as the rains abate in Western Australia and Africa, and North America returns to a more normal operating environment. As a result, adjustments to our forecasts for Q421 and FY21 in the wake of Q3 results have been negligible (see Exhibit 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

43.0

2.5

12/20

11,497

3,143

2.66

1.45

21.3

2.6

12/21e

11,999

2,461

2.87

2.20

19.8

3.9

12/22e

12,317

3,476

2.79

2.20

20.3

3.6

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

Longer-term cost pressures already anticipated

Echoing comments made elsewhere in the industry, Newmont confirmed that it was experiencing inflationary pressure on costs, in particular in the areas of materials, energy and labour. Once again, this was largely prefigured at the time of the company’s Q221 results on 22 July. Newmont will update the market regarding its long-term production and cost guidance in December. In the meantime, however, Edison’s longer-term financial forecasts are based on cost assumptions for the period FY22–25 that are now at a premium of anything between 1.2% and 22.7% relative to Newmont’s last formal long-term guidance dating to 8 December 2020 (see Exhibit 6).

Valuation: 23.4% premium to the share price

In the light of these changes, we have reduced our valuation of Newmont by a modest 2.2% to US$70.05/share (cf US$71.61/share previously), albeit this reduction, to some extent, reflects a (perhaps surprising) recent decline in inflation expectations (as measured by US 30-year breakeven inflation rate; source: Bloomberg, 10 November 2021) in conjunction with a general de-rating of the senior gold mining sector generally since 26 October. This valuation puts Newmont on a premium rating relative to its peers. However, this may be justified by the company’s size, track record and the fact that almost all of its operations are in top-tier jurisdictions. It remains cheap relative to historical valuation measures, which (on average) continue to imply a share price in excess of US$90/share.

Q321 results

In general, Newmont’s financial results for Q321 were very close to our prior expectations (see our note Teething trouble at Boddington irrelevant, published on 26 October 2021). A summary of the operational highlights of the quarter relative to our prior expectations is provided in Exhibit 1. From a geographical perspective, the only continent to noticeably outperform our prior expectations was Australia (albeit, our prior expectations had been downgraded in October in response to Newmont’s 5 October update, principally relating to the challenges surrounding the commissioning of autonomous haulage at Boddington). However, this was more than offset by a shortfall in production at Newmont’s North American operations, which continued to be beset by absenteeism at its Canadian mines in particular, relating to lingering concerns surrounding the coronavirus pandemic.

Exhibit 1: Newmont Q321 operational results, actual cf prior forecasts

Region

Production (koz)

Costs applicable to sales (US$/oz)

Q121a

Q221a

Q321e
(prior)

Q321a

Variance
(%)

Q121a

Q221a

Q321e
(prior)

Q321a

Variance
(%)

North America

413

397

445

384

-13.7

736

769

748

800

+7.0

South America

174

189

179

188

+5.0

791

721

852

958

+12.4

Australia

269

299

237

274

+15.6

750

764

918

788

-14.2

Africa

205

202

217

210

-3.2

758

763

678

886

+30.7

Nevada

303

284

310

308

-0.6

745

753

709

768

+8.3

Sub-total

1,364

1,371

1,388

1,364

-1.7

752

755

775

830

+7.1

Pueblo Viejo (40%)

91

78

85

85

0.0

Total (attributable) gold

1,455

1,449

1,473

1,449

-1.6

Source: Newmont Corporation, Edison Investment Research. Note: Totals may not add up owing to rounding.

At the level of the individual mines, five (Penasquito, Merian, Cerro Negro, Boddington and Tanami) performed better than our expectations, while the remaining eight performed worse, in general, affected by some combination of lower tonnes processed, lower grades, lower recoveries and/or higher unit costs.

In financial terms, one of the major features of the results was a loss of US$571m on assets held for sale relating to the pending sale of the Conga mill, which was classified as ‘held for sale’ during the quarter. This item affected profits, the tax charge and the minority interest to a material degree. Exhibit 2, below, presents Newmont’s Q321 results both as they were reported and also with Edison’s best estimate of the same results with all exceptional items stripped out. Either way, adjusted net income of US$483m was almost exactly in line with our prior forecast of US$480m. However, two further features of the results are notable: (1) a higher underlying effective tax rate (41.6%) during the quarter than the 34–38% guidance range provided by Newmont for the full year; and (2) a loss attributable to minority interests. In and of itself, the first of these features is not surprising, given that, in general, Newmont’s effective tax rate falls in periods of high profitability as lower tax operations contribute proportionately more to pre-tax profits (and vice versa). While not explicit, the second of these features almost certainly reflected the financial performance of Yanacocha (51.35% owned by Newmont), where costs rose materially during the quarter as it continued to manage the effects of COVID-19.

A full analysis of Newmont’s Q321 financial performance relative to both our prior forecasts and Q221 results is provided in the exhibit below.

Exhibit 2: Newmont quarterly income statement, Q320–Q321 cf prior Edison forecast

US$m (unless otherwise indicated)

Q320

Q420

Q121

Q221

Q321e

*Q321a

Q321a

(reported)

**Change
(%)

***Variation
(%)

***Variation
(units)

Sales

3,170

3,381

2,872

3,065

2,935

2,895

2,895

-5.5

-1.4

-40

Costs and expenses

– Costs applicable to sales

1,269

1,355

1,247

1,281

1,308

1,367

1,367

6.7

4.5

59

– Depreciation and amortisation

592

615

553

561

596

570

570

1.6

-4.4

-26

– Reclamation and remediation

38

250

46

57

56

38

117

-33.3

-32.1

-18

– Exploration

48

69

35

52

65

60

60

15.4

-7.7

-5

– Advanced projects, research and development

39

30

31

37

37

40

40

8.1

8.1

3

– General and administrative

68

64

65

64

65

61

61

-4.7

-6.2

-4

– Impairment of long-lived assets

24

20

0

0

0

0

0

N/A

N/A

0

– Care and maintenance

26

7

0

2

0

0

6

-100.0

N/A

0

– Loss on assets held for sale

Excl.

571

N/A

N/A

0

– Other expense, net

68

51

39

50

0

36

37

-28.0

N/A

36

Total

2,172

2,461

2,016

2,104

2,126

2,172

2,829

3.2

2.2

46

Other income/(expenses)

– Gain on formation of Nevada Gold Mines

0

0

0

– Gain on asset and investment sales, net

1

84

43

0

0

3

– Other income, net

(44)

3

(82)

50

0

23

(74)

-54.0

N/A

23

– Interest expense, net of capitalised interest

(75)

(73)

(74)

(68)

(77)

(66)

(66)

-2.9

-14.3

11

(118)

14

(113)

(18)

(77)

(43)

(137)

138.9

-44.2

34

Income/(loss) before income and mining tax

880

934

743

943

732

680

(71)

-27.9

-7.1

-52

Income and mining tax benefit/(expense)

(305)

(258)

(235)

(341)

(264)

(283)

(222)

-17.0

7.2

-19

Effective tax rate (%)

34.7

27.6

31.6

36.2

36.0

41.6

(312.7)

14.9

15.6

5.6

Profit after tax

575

676

508

602

469

397

(293)

-34.1

-15.4

-72

Equity income/(loss) of affiliates

53

70

50

49

40

39

39

-20.4

-2.5

-1

Net income/(loss) from continuing operations

628

746

558

651

509

436

(254)

-33.0

-14.3

-73

Net income/(loss) from discontinued operations

228

18

21

10

11

11

10.0

N/A

11

Net income/(loss)

856

764

579

661

509

447

(243)

-32.4

-12.2

-62

Minority interest

17

(60)

20

11

29

(47)

(246)

-527.3

-262.1

-76

Minority interest (%)

2.0

(7.9)

3.5

1.7

5.6

(10.5)

(101.2)

-717.6

-287.5

-16.1

Net income/(loss) attributable to stockholders

839

824

559

650

480

494

3

-24.0

2.9

14

Adjustments to net income

(142)

32

35

20

0

11

480

-45.0

N/A

11

Adjusted net income

697

856

594

670

480

483

483

-27.9

0.6

3

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

Basic

– Continuing operations

0.761

1.005

0.672

0.799

0.601

0.605

(0.010)

-24.3

0.7

0.004

– Discontinued operations

0.284

0.022

0.026

0.012

0.000

0.014

0.010

16.7

N/A

0.014

– Total

1.045

1.027

0.698

0.811

0.601

0.618

0.000

-23.8

2.8

0.017

Diluted

 

 

– Continuing operations

0.758

1.002

0.671

0.797

0.597

0.604

(0.010)

-24.2

1.2

0.007

– Discontinued operations

0.283

0.022

0.026

0.012

0.000

0.014

0.010

16.7

N/A

0.014

– Total

1.041

1.025

0.697

0.809

0.597

0.618

0.000

-23.6

3.5

0.021

Basic adjusted net income per share (US$)

0.868

1.067

0.742

0.836

0.601

0.605

0.605

-27.6

0.7

0.004

Diluted adjusted net income per share (US$)

0.865

1.065

0.741

0.834

0.597

0.604

0.604

-27.6

1.2

0.007

DPS (US$/share)

0.400

0.550

0.550

0.550

0.550

0.550

0.550

0.0

0.0

0.00

Source: Newmont Corporation, Edison Investment Research. Note: *Q321a underlying excluding exceptional items (estimated); **Q321 vs Q221; ***Q321 vs Q321e.

In FY21, both (higher) production and (lower) costs were hitherto expected by Newmont to be weighted towards H221 (approximately in the ratio 47:53), with this effect being most pronounced in the first and last quarters of the year, reflecting rising grade profiles, in particular at Boddington and Ahafo. However, the challenges associated with the commissioning and ramp up of the autonomous haulage system at Boddington in Q321 in conjunction with the ongoing disruptions from the coronavirus pandemic in North America in particular have now caused Newmont to update its FY21 guidance to 6.0Moz of gold produced (cf 6.2–6.8Moz previously) at a cost applicable to sales of US$790/oz (cf US$750/oz previously) and an all-in sustaining cost of US$1,050/oz (cf US$970/oz previously). In mitigation, Newmont reduced its guidance for capex for the full year, from US$1,800m to US$1,650m (on an attributable basis), with the saving being achieved via the deferral of US$150m in development capex relating to the Tanami expansion (TE 2) effectively into FY24. Co-product gold equivalent production guidance (principally derived from Penasquito and Boddington) was left unchanged at 1.3Moz AuE.

Notwithstanding the reduction in overall production guidance for the full year, production in Q421 is still expected to increase as a result of higher grades at Boddington and Ahafo (which will also be volume driven by productivity improvements from the change in underground mining method at Subika to sub-level shrinkage), with additional contributions from Merian, Musselwhite, Porcupine and CC&V. At the same time, management is confident that Boddington will reap the benefits of the implementation of its autonomous haulage system (AHS) in Q4. Despite Western Australia experiencing record rainfall in October (among other things, delaying access to the high-grade areas of the pit), management reports that AHS has achieved an effective utilisation (EU) rate of 68% – albeit on an inter-shift basis – which is the same as the target rate for the driver operated fleet, with further increases budgeted for the remainder of the quarter. In the light of Newmont’s Q321 results as well as its updated guidance for FY21, we have revised our operational forecasts for the company’s geographical regions for Q421 as follows:

Exhibit 3: Newmont Q421e operational estimates (cf prior)

Region

Production (koz)

Costs applicable to sales (US$/oz)

Q121

Q221

Q321

Q421e

(prior)

Q421e (current)

FY21

Q121

Q221

Q321

Q421e (prior)

Q421e

(current)

FY21e

North America

413

397

384

450

450

1,644

736

769

800

728

751

763

South America

174

189

188

179

182

732

791

721

958

852

825

823

Australia

269

299

274

317

318

1,162

750

764

788

717

731

758

Africa

205

202

210

217

220

837

758

763

886

678

678

770

Nevada

303

284

308

322

349

1,243

745

753

768

693

734

804

Sub-total

1,364

1,371

1,364

1,485

1,519

5,617

752

755

830

731

745

781

Pueblo Viejo (40%)

91

78

85

79

79

333

Total (attributable) gold

1,455

1,449

1,449

1,564

1,598

5,950

Source: Newmont Corporation, Edison Investment Research. Note: Totals may not add up owing to rounding.

At an unchanged gold price of US$1,793/oz assumed in Q4, our very fractionally revised, updated financial forecasts for Newmont for Q421 and FY21, by quarter, are therefore now as follows:

Exhibit 4: Newmont quarterly income statement, Q320–Q421e

US$m (unless otherwise indicated)

Q320

Q420

FY20

Q121

Q221

Q321

Q421e
(prior)

Q421e
(current)

FY21e
(current)

FY21e
(prior)

Sales

3,170

3,381

11,497

2,872

3,065

2,895

3,102

3,167

11,999

11,975

Costs and expenses

– Costs applicable to sales

1,269

1,355

5,014

1,247

1,281

1,367

1,321

1,375

5,270

5,156

– Depreciation and amortisation

592

615

2,300

553

561

570

628

642

2,326

2,338

– Reclamation and remediation

38

250

366

46

57

117

56

55

275

214

– Exploration

48

69

187

35

52

60

65

75

222

217

– Advanced projects, research and development

39

30

122

31

37

40

37

43

151

141

– General and administrative

68

64

269

65

64

61

65

65

255

259

– Impairment of long-lived assets

24

20

49

0

0

0

0

0

0

0

– Care and maintenance

26

7

178

0

2

6

0

0

8

2

– Loss on assets held for sale

571

571

– Other expense, net

68

51

206

39

50

37

0

0

126

89

Total

2,172

2,461

8,691

2,016

2,104

2,829

2,170

2,254

9,203

8,417

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

3

46

43

– Other income, net

(44)

3

(32)

(82)

50

(74)

0

0

(106)

(32)

– Interest expense, net of capitalised interest

(75)

(73)

(308)

(74)

(68)

(66)

(69)

(67)

(275)

(288)

(118)

14

337

(113)

(18)

(137)

(69)

(67)

(335)

(277)

Income/(loss) before income and mining tax

880

934

3,143

743

943

(71)

863

846

2,461

3,281

Income and mining tax benefit/(expense)

(305)

(258)

(704)

(235)

(341)

(222)

(311)

(304)

(1,102)

(1,150)

Effective tax rate (%)

34.7

27.6

23.4

31.6

36.2

(312.7)

36.0

36.0

44.8

35.1

Profit after tax

575

676

2,439

508

602

(293)

552

541

1,358

2,131

Equity income/(loss) of affiliates

53

70

189

50

49

39

35

33

171

174

Net income/(loss) from continuing operations

628

746

2,628

558

651

(254)

588

574

1,529

2,305

Net income/(loss) from discontinued operations

228

18

163

21

10

11

42

31

Net income/(loss)

856

764

2,791

579

661

(243)

588

574

1,571

2,336

Minority interest

17

(60)

(38)

20

11

(246)

29

25

(190)

88

Do (%)

2.0

(7.9)

(1.4)

3.5

1.7

(101.2)

4.9

4.3

(12.1)

3.8

Net income/(loss) attributable to stockholders

839

824

2,829

559

650

3

559

549

1,761

2,248

Adjustments to net income

(142)

32

(689)

35

20

480

0

0

535

55

Adjusted net income

697

856

2,140

594

670

483

559

549

2,296

2,303

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

Basic

– Continuing operations

0.761

1.005

3.317

0.672

0.799

(0.010)

0.700

0.688

2.150

2.772

– Discontinued operations

0.284

0.022

0.203

0.026

0.012

0.010

0.000

0.000

0.053

0.039

– Total

1.045

1.027

3.520

0.698

0.811

0.000

0.700

0.688

2.202

2.811

Diluted

– Continuing operations

0.758

1.002

3.309

0.671

0.797

(0.010)

0.695

0.687

2.147

2.752

– Discontinued operations

0.283

0.022

0.202

0.026

0.012

0.010

0.000

0.000

0.052

0.038

– Total

1.041

1.025

3.511

0.697

0.809

0.000

0.695

0.687

2.199

2.791

Basic adjusted net income per share (US$)

0.868

1.067

2.663

0.742

0.836

0.605

0.700

0.688

2.871

2.879

Diluted adjusted net income per share (US$)

0.865

1.065

2.656

0.741

0.834

0.604

0.695

0.687

2.867

2.859

DPS (US$/share)

0.400

0.550

1.450

0.550

0.550

0.550

0.550

0.550

2.200

2.200

Source: Newmont Corporation, Edison Investment Research

Note that, on an underlying basis, Newmont’s effective tax rate for the year will amount to 36.2%, compared with the 44.8% shown in the exhibit above (including exceptional losses) and Newmont’s guidance of 34–38%. After our revisions for the remainder of the year, our basic adjusted EPS forecast of US$2.867/share (vs US$2.879/share previously) for FY21 compares to the market consensus, as follows:

Exhibit 5: FY21 Basic adjusted EPS forecast, Edison versus consensus (US$/share)

Q121

Q221

Q321

Q421e

Sum Q1–Q421e

FY21e

Edison forecast

0.74

0.84

0.60

0.69

2.87

2.87

Consensus forecast

0.74

0.84

0.60

0.86

3.04

3.01

High

0.74

0.84

0.60

1.22

3.40

3.39

Low

0.74

0.84

0.60

0.66

2.84

2.57

Source: Edison Investment Research, Refinitiv (10 November 2021)

Dividend

Newmont’s dividend for Q321 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. 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 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 longer-term cost pressure, in particular in relation to materials, energy and labour. In some cases these are likely to be mitigated in the future (eg as Australia expands its vaccination programme), albeit not entirely extinguished. Newmont will provide detailed longer-term cost and production guidance to the market in December. In the meantime, however, Edison has revised its longer-term production and cost assumptions (relative to Newmont’s last formal guidance as of 8 December 2020) as follows:

Exhibit 6: Edison longer-term assumptions cf Newmont guidance*

FY22

FY23

FY24

FY25

Edison current

Production (Moz)

6.211

6.210

6.926

6.810

Cost applicable to sales (US$/oz)

759

753

735

736

Newmont guidance*

Production (Moz)

6.2–6.7

6.2–6.7

6.5–7.0

6.5–7.0

Cost applicable to sales (US$/oz)

650–750

625–725

600–700

600–700

Source: Newmont, Edison Investment Research. Note: *From 8 December 2020.

Valuation

Our approach to the valuation of Newmont has remained unchanged since our initiation note (see The sustainable leader, published on 9 February 2021) and readers are directed to this note for a fuller explanation of the methodologies involved. The following is an update of our valuation in light of Q321 financial results, updated forecasts for FY21 and our longer-term (cost) assumption 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 from the start of FY21, then apply an ex-growth terminal multiple to forecast cash flows in that year (ie FY26) based on 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 a discretionary investment. In the case of Newmont, however, we have included it in our estimate of future cash flows on the grounds that it will 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.

Notwithstanding the changes to our short-term forecasts for FY21, our estimate of Newmont’s pre-financing cash flow in FY26 has increased slightly since our last note to US$5.30 per share (cf US$5.14/share previously and US$1.22/share in FY18). On this basis, applying a (real) discount rate of 6.4% (calculated from a nominal expected equity return of 9% and slightly reduced long-term inflation expectations of 2.4158% cf 2.4192% previously, as defined by the US 30-year breakeven inflation rate – source: Bloomberg, 10 November), our terminal valuation of the company at end-FY26 is US$82.38/share (cf US$80.01/share previously). However, note that this valuation is based on the inherently conservative assumption of zero growth in (real) cash flows beyond FY26.

In conjunction with forecast intervening dividends, this terminal value then discounts to a net present value of US$73.78/share (cf US$71.57/share previously) at the start of FY21.

Exhibit 7: 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 8: Newmont valuation relative to peers

Company

Ticker

P/E (x)

P/cash flow (x)

EV/EBITDA (x)

Yield (%)

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

19.8

20.3

21.8

9.9

9.4

9.4

8.7

7.6

8.2

3.9

3.9

3.9

Newmont (consensus)

NEM

18.8

16.7

17.1

9.7

8.9

9.2

7.8

7.0

7.1

3.8

3.8

3.7

Barrick

ABX

16.9

16.0

15.7

7.7

7.1

6.8

6.6

6.2

6.1

3.6

1.7

2.1

AngloGold

ANGJ

10.0

7.7

7.6

6.8

6.5

5.4

5.0

4.2

4.0

1.5

1.6

2.2

Polyus

PLZL MM

11.1

9.8

9.6

9.0

8.3

8.1

8.4

8.5

7.3

3.0

4.5

4.7

Gold Fields

GFI

9.5

9.1

7.7

6.6

6.2

5.7

4.4

4.4

4.0

3.0

3.1

3.6

Kinross

K

15.5

8.0

7.3

6.5

3.9

3.7

5.6

3.5

3.3

1.9

1.9

1.9

Agnico-Eagle

AEM

20.8

18.1

18.4

8.5

8.1

8.1

7.9

6.7

6.6

2.6

2.6

2.6

Newcrest

NCM AU

17.5

17.0

21.0

9.6

8.9

10.3

7.4

7.0

8.1

1.4

1.5

1.2

Harmony

HARJ

8.0

7.6

14.2

4.9

4.3

16.9

3.6

3.4

4.9

2.0

3.8

0.6

Endeavour (consensus)

EDV

11.7

10.7

11.4

5.9

5.4

5.5

5.1

5.0

5.4

2.0

2.2

1.9

Average (excl NEM)

13.4

11.6

12.5

7.3

6.5

7.8

6.0

5.4

5.5

2.3

2.5

2.3

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced on 10 November 2021.

In comparing this table with the equivalent table in our last note on Newmont (Teething trouble at Boddington irrelevant, published on 26 October 2021), it can be seen there has been a de-rating of the majority of companies since that the date of that report and a de-rating of all ten companies, on average, over the majority of years. 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 93.6% for its dividend yield to match those of its peer group. Based on our forecasts, we estimate its share price would have to rise 96.3%.

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 Q321). This is in contrast to a number of its peers, where earnings and cash flow from assets not 100%-owned tend to be fully consolidated and therefore 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 (absolute, historical and peer group) over the next five years is shown in Exhibit 9.

Exhibit 9: Newmont valuation summary (US$/share in years shown)

Basis of valuation

FY21e

FY22e

FY23e

FY24e

FY25e

Absolute

6.6% real cost of equity and ex-growth terminal multiple

73.78

76.32

79.03

81.91

85.58

Historical

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

69.97

68.07

63.45

55.96

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)

73.36

82.62

80.91

88.22

Historical

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

121.08

122.20

117.15

120.52

Peer group

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

39.73

42.22

Peer group

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

44.88

46.25

Peer group

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

41.75

39.27

Peer group

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

42.57

41.30

Average (US$/share)

70.05

71.29

92.77

87.26

85.58

Source: Edison Investment Research (underlying consensus data: Refinitiv, 10 November 2021).

Exhibit 10: Financial summary

Accounts: US GAAP, Yr end: December, USD: Millions

 

 

2018A

2019A

2020A

2021E

2022E

2023E

2024E

2025E

Income statement

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

7,253

9,740

11,497

11,999

12,317

11,719

12,298

11,947

Cost of sales

 

 

(4,093)

(5,195)

(5,014)

(5,270)

(5,304)

(5,222)

(5,791)

(5,791)

Gross profit

 

 

3,160

4,545

6,483

6,730

7,012

6,497

6,508

6,156

SG&A (expenses)

 

 

(244)

(313)

(269)

(255)

(260)

(260)

(260)

(260)

R&D costs

 

 

(350)

(415)

(309)

(373)

(406)

(406)

0

0

Other income/(expense)

 

 

(406)

(253)

(831)

(515)

(174)

(174)

(83)

(82)

Exceptionals and adjustments

 

(424)

2,220

214

(857)

0

0

0

0

Depreciation and amortisation

 

 

(1,215)

(1,960)

(2,300)

(2,326)

(2,545)

(2,618)

(3,383)

(3,572)

Reported EBIT

 

 

945

3,994

3,451

2,736

3,628

3,040

2,781

2,242

Finance income/(expense)

 

 

(207)

(301)

(308)

(275)

(152)

67

5

18

Reported PBT

 

 

738

3,693

3,143

2,461

3,476

3,106

2,787

2,260

Income tax expense (includes exceptionals)

 

 

(419)

(737)

(515)

(932)

(1,143)

(973)

(876)

(785)

Reported net income

 

 

380

2,884

2,791

1,571

2,332

2,133

1,910

1,475

Basic average number of shares, m

 

 

533

735

804

800

799

799

799

799

Basic EPS (US$/share)

 

 

0.64

3.82

3.52

2.20

2.79

2.60

2.30

1.73

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

2,584

3,734

5,537

5,348

6,173

5,658

6,164

5,814

Adjusted EBIT

 

 

1,369

1,774

3,237

3,022

3,628

3,040

2,781

2,242

Adjusted PBT

 

 

1,162

1,473

2,929

2,747

3,476

3,106

2,787

2,260

Adjusted EPS (US$/share)

 

 

1.35

1.32

2.66

2.87

2.79

2.60

2.30

1.73

Adjusted diluted EPS (US$/share)

 

 

1.34

1.32

2.66

2.87

2.77

2.59

2.28

1.72

 

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

12,258

25,276

24,281

23,925

23,780

23,462

21,579

19,207

Goodwill

 

 

58

2,674

2,771

2,771

2,771

2,771

2,771

2,771

Other non-current assets

 

 

3,122

5,752

5,812

5,183

5,183

5,183

5,183

5,183

Total non-current assets

 

 

15,438

33,702

32,864

31,879

31,734

31,416

29,533

27,161

Cash and equivalents

 

 

3,397

2,243

5,540

5,679

5,849

6,209

8,702

11,613

Inventories

 

 

630

1,014

963

1,121

1,151

1,095

1,149

1,117

Trade and other receivables

 

 

254

373

449

362

371

353

371

360

Other current assets

 

 

996

2,642

1,553

1,613

1,613

1,613

1,613

1,613

Total current assets

 

 

5,277

6,272

8,505

8,775

8,984

9,270

11,835

14,702

Non-current loans and borrowings

 

 

3,608

6,734

6,045

5,423

4,931

4,517

4,517

4,517

Other non-current liabilities

 

 

3,808

8,438

8,076

8,150

8,131

8,112

8,004

7,895

Total non-current liabilities

 

 

7,416

15,172

14,121

13,573

13,062

12,629

12,521

12,412

Trade and other payables

 

 

303

539

493

475

478

471

522

522

Current loans and borrowings

 

 

653

100

657

657

657

657

657

657

Other current liabilities

 

 

831

1,746

2,219

2,188

2,188

2,188

2,188

2,188

Total current liabilities

 

 

1,787

2,385

3,369

3,320

3,323

3,316

3,367

3,367

Equity attributable to company

 

 

10,502

21,420

23,008

22,817

23,290

23,613

24,169

24,275

Non-controlling interest

 

 

1,010

997

871

944

1,043

1,128

1,312

1,809

 

 

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

380

2,884

2,791

1,571

2,332

2,133

1,910

1,475

Taxation expenses

 

 

386

832

704

1,102

1,277

1,126

1,033

887

Net finance expenses

 

 

207

301

308

275

152

(67)

(5)

(18)

Depreciation and amortisation

 

 

1,215

1,960

2,300

2,326

2,545

2,618

3,383

3,572

Share based payments

 

 

76

97

72

55

0

0

0

0

Other adjustments

 

 

749

(2,131)

(654)

871

174

174

83

82

Movements in working capital

 

 

(743)

(309)

295

(223)

(229)

(126)

(212)

(148)

Interest paid / received

 

 

(207)

(301)

(308)

(275)

(152)

67

5

18

Income taxes paid

 

 

(236)

(498)

(926)

(1,112)

(1,277)

(1,126)

(1,033)

(887)

Cash from operations (CFO)

 

 

1,827

2,866

4,882

4,590

4,822

4,799

5,164

4,981

Capex

 

 

(1,032)

(1,463)

(1,302)

(1,641)

(2,400)

(2,300)

(1,500)

(1,200)

Acquisitions & disposals net

 

 

(98)

224

1,463

(221)

0

0

0

0

Other investing activities

 

 

(47)

41

65

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(1,177)

(1,226)

91

(1,976)

(2,400)

(2,300)

(1,500)

(1,200)

Net proceeds from issue of shares

 

 

(98)

(479)

(521)

(248)

0

0

0

0

Movements in debt

 

 

0

(1,186)

(175)

(550)

(492)

(414)

0

0

Dividends paid

 

 

(301)

(889)

(834)

(1,570)

(1,837)

(1,803)

(1,331)

(1,361)

Other financing activities

 

 

(56)

(223)

(150)

(107)

77

77

160

490

Cash from financing activities (CFF)

 

 

(455)

(2,777)

(1,680)

(2,475)

(2,252)

(2,139)

(1,171)

(871)

Currency translation differences and other

 

 

(4)

(3)

6

0

0

0

0

0

Increase/(decrease) in cash and equivalents

 

 

191

(1,140)

3,299

139

170

360

2,493

2,910

Cash and equivalents at end of period

 

 

3,489

2,349

5,648

5,787

5,957

6,317

8,810

11,721

Net (debt) cash

 

 

(864)

(4,591)

(1,162)

(401)

261

1,035

3,528

6,439

Movement in net (debt) cash over period

 

 

(864)

(3,727)

3,429

761

662

774

2,493

2,910

Source: Company sources, Edison Investment Research

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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.

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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.

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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

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