Newmont Corporation — Sustainable in several senses

Newmont Corporation (TSX: NEM)

Last close As at 22/05/2024

49.02

0.18 (0.37%)

Market capitalisation

USD37,024m

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Research: Metals & Mining

Newmont Corporation — Sustainable in several senses

Newmont will update guidance for 2023 when it releases Q4 results on 23 February 2023. We anticipate a strong close to 2022 (production up 6% quarter on quarter and costs down 13% in Q4) and believe a dividend recalibration is possible, albeit reflecting industry inflation rather than a reassessment of capital allocation policy in general. In this context, we see Newmont as a sustainable choice among gold producers, not only in an ESG sense, but also in its ability to maintain 6Moz pa of low-cost production.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

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Metals & Mining

Newmont Corporation

Sustainable in several senses

2023 preview

Metals and mining

2 February 2023

Price

US$53.63

Market cap

US$42,570m

Net debt (US$m) at end-September 2022

1,938

Shares in issue

793.0m

Free float

99.8%

Code

NEM

Primary exchange

NYSE

Secondary exchange

TSX

Share price performance

%

1m

3m

12m

Abs

(22.8)

1.8

(7.5)

Rel (local)

(15.4)

13.7

(3.7)

52-week high/low

US$86.4

US$37.5

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

Updated guidance

February 2023

Q422/FY22 results

February 2023

Analysts

Lord Ashbourne

+44 (0)20 3077 5724

Tom Batho

+44 (0)20 3077 5734

Newmont Corporation is a research client of Edison Investment Research Limited

Newmont will update guidance for 2023 when it releases Q4 results on 23 February 2023. We anticipate a strong close to 2022 (production up 6% quarteronquarter and costs down 13% in Q4) and believe a dividend recalibration is possible, albeit reflecting industry inflation rather than a reassessment of capital allocation policy in general. In this context, we see Newmont as a sustainable choice among gold producers, not only in an ESG sense, but also in its ability to maintain 6Moz pa of low-cost production.

Year

end

Revenue (US$m)

PBT
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/20

11,497

3,143

2.66

1.45

20.1

2.7

12/21

12,222

1,108

2.97

2.20

18.1

4.1

12/22e

11,633

1,943

1.94

2.05

27.7

3.8

12/23e

11,633

2,188

1.76

1.60

30.5

2.9

Note: *EPS is normalised, excluding amortisation of acquired intangibles and exceptional items.

Looking forward to the year ahead

We expect Newmont’s guidance to reflect its continued push towards sustainable, decarbonised gold production via the continued development of electrified autonomous vehicles and battery-powered underground mining operations. In terms of output, an emphasis on sustaining attributable production levels around 6Moz pa (7.5–8Moz pa on a gold equivalent ounce (GEO) basis) for the next decade is likely. Our production forecast is for a slight increase in 2023 (6.2Moz) compared to 2022 levels (5.9Moz). In the medium term, we see Newmont able to grow attributable gold production towards 6.7Moz in 2027. Cost and capex guidance estimates are more uncertain. Previously, Newmont had been guiding to structural declines in costs through to 2024 (GEO AISC of $880–980/oz in 2024). We foresee 2023 costs to be mostly flat relative to 2022 levels and any confirmation of this would be positive in our view. Early indications are that capex commitments over the next five years appear broadly unchanged, notwithstanding changes to the timing of the implementation of the Yanacocha Sulphides project. As such, we do not see any major change in capital allocation policy. However, we perceive the possibility that Newmont may recalibrate its base dividend to a gold price of US$1,400/oz (cf US$1,200/oz) to reflect (a) reserve calculations and (b) industry inflation (albeit this may be balanced by a higher gold price in the longer term).

Valuation: Discounting a conservative gold price

We conservatively project unit costs in FY23 in line with those experienced in FY22. As such our ‘terminal’ pre-financing cash flow in FY27 has increased from US$3.54/share previously, to US$3.62/share. Using a real discount rate of 6.51% (cf 6.71% previously), our valuation of the company is US$54.74/share, based on a long-term (real) gold price of US$1,524/oz (cf a current price of US$1,936/oz) and assuming zero growth in real cash flows beyond FY27, but US$79.99/share if 2.0% growth per year in real cash flows is assumed (ie the minimum that might be expected from the average historical annual increase in the real price of gold of 2.0% pa).

A focus on 2023

We include in this note our full and updated 2023 quarter-by-quarter forecasts. This is in advance of the release of detailed five-year guidance by Newmont, which will be provided alongside Q4 results on 23 February 2023. We also include updated estimates for Q4 and FY22 ahead of the full year results. We note that our 2023 numbers are somewhat preliminary in nature (guidance was originally expected in early December but was rescheduled to February) and subject to revision if guidance varies materially from our expectations.

We expect performance in 2023 to be comparable to 2022 in terms of production and costs. However, we have smoothed our estimate of development capex over that timeframe, notwithstanding Newmont’s move to rephase its capex structure at Yanacocha, including a US$350m investment for a new water treatment plant in FY23 and FY24, which we expect to be charged to reclamation and remediation in the income statement. As a consequence, we have increased our estimates for reclamation and remediation spend in those years, which can now be seen in Exhibit 2, which presents our quarterly forecasts for FY23 for the first time.

In general terms, we expect Newmont’s guidance presentation to cover its continued push towards sustainable, decarbonised gold mining operations via the continued development of electrified autonomous vehicles and battery powered underground mining operations. In terms of gold production, an emphasis on maintaining 6Moz pa attributable production levels (closer to 7.5–8Moz pa on a GEO basis) for the next decade is likely in our view. Our production forecast is for a slight increase in 2023 (6.2Moz) from 2022 levels (5.9Moz on our estimates). In the longer term, we see Newmont able to grow attributable gold production towards 7.0Moz in both FY24 and FY25 before tapering to 6.7Moz in FY27.

Exhibit 1: Gold and GEO production estimates

Source: Edison Investment Research

Exhibit 2: Newmont FY23 estimates by quarter

US$m (unless otherwise indicated)

Q123e

Q223e

Q323e

Q423e

FY23e

Sales

2,848

2,869

2,918

2,998

11,633

Costs and expenses

– Costs applicable to sales

1,502

1,506

1,515

1,527

6,051

– Depreciation and amortisation

571

579

597

617

2,364

– Reclamation and remediation

90

90

90

90

358

– Exploration

69

69

69

69

276

– Advanced projects, research and development

43

43

43

43

170

– General and administrative

73

73

73

73

292

– Impairment of long-lived assets

0

0

0

0

0

– Care and maintenance

0

0

0

0

0

– Loss on assets held for sale

– Other expense, net

18

18

18

18

70

Total

2,365

2,377

2,404

2,435

9,580

Other income/(expenses)

– Gain on asset and investment sales, net

– Other income, net

56

56

56

56

224

– Interest expense, net of capitalised interest

(25)

(23)

(22)

(19)

(89)

Other income total

31

33

34

37

135

Income/(loss) before income and mining tax

515

525

548

599

2,188

Income and mining tax benefit/(expense)

(212)

(216)

(224)

(240)

(892)

Effective tax rate (%)

41.2

41.0

40.8

40.1

40.8

Profit after tax

303

310

324

359

1,296

Equity income/(loss) of affiliates

32

31

30

30

123

Net income/(loss) from continuing operations

335

341

355

389

1,419

Net income/(loss) from discontinued operations

Net income/(loss)

335

341

355

389

1,419

Minority interest

5

5

5

5

20

Ditto (%)

1.6

1.6

1.5

1.4

1.5

Net income/(loss) attributable to stockholders

329

335

350

383

1,398

Adjustments to net income

0

0

0

0

0

Adjusted net income

329

335

350

383

1,398

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

Basic

– Continuing operations

0.415

0.423

0.440

0.483

1.761

– Discontinued operations

0.000

0.000

0.000

0.000

0.000

– Total

0.415

0.423

0.440

0.483

1.761

Diluted

– Continuing operations

0.412

0.420

0.437

0.479

1.748

– Discontinued operations

0.000

0.000

0.000

0.000

0.000

– Total

0.412

0.420

0.437

0.479

1.748

Basic adjusted net income per share (US$)

0.415

0.423

0.440

0.483

1.761

Diluted adjusted net income per share (US$)

0.412

0.420

0.437

0.479

1.748

DPS (US$/share)

0.400

0.400

0.400

0.400

1.600

Source: Edison Investment Research

Dividend policy and outlook

Currently, we do not see any major change in capital allocation policy. However, we do see the potential for Newmont to recalibrate its base dividend payment from a base gold price of US$1,200/oz to US$1,400/oz (which would match reserve calculations) as a reflection of industry inflation (albeit, this may ultimately wash out through higher gold prices and be reflected in the variable component of the dividend payment in due course).

Newmont’s dividend for Q322 was maintained at US$0.55/share, following its dividend framework set out in Q320, whereby it formally rebased its dividend to a ‘base’ payout 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 above this level to shareholders (evaluated in gold price increments of US$300/oz). Since Q320, this has resulted in Newmont augmenting its ‘base’ payout of US$0.25/share per quarter by two increments of US$0.15/share per quarter to reflect a gold price of US$1,800/oz (ie 1,200+(2×300)). Hence, it paid out a dividend of US$0.55/share (ie 0.25+(2×0.15)) in Q322, despite the gold price averaging US$1,730/oz in the same timeframe.

Moving forward, the dividend framework is set to remain unchanged. However, Newmont has always reserved the right to reconsider its dividend level on an annual basis (rather than the framework) and recent company comments suggest that Newmont may be considering recalibrating its base gold price level from US$1,200/oz to US$1,400/oz (in line with the price at which its reserves are calculated).

This being the case, we believe that it is possible that shareholders may, in the near future, see their ‘base’ payout augmented by only one gold price increment of US$300/oz to reflect a gold price of US$1,700/oz (ie 1,400+(1×300)), and therefore receive a dividend of US$0.40/share per quarter (ie 0.25+(1×0.15)) where previously they had received a dividend of US$0.55/share per quarter (ie 0.25+(2×0.15)). It should be highlighted, however, that this is assuming no structural rise in the gold price. A sustainable gold price above US$2,000/oz, for example, may be expected to result in dividends being returned to the US$0.55/share per quarter level.

At this point, ahead of any potential fresh guidance in February, we have reduced our dividend forecasts for Q422 and FY23 to reflect our thinking above (note that we had always assumed that Newmont’s dividend would reduce in FY24 on account of our longer-term gold price assumptions, so this revision merely brings the reduction forward by 15 months). We note that the gold price rallied strongly into the end of 2022 and may exceed our estimates. Dividends remain, as always, at the discretion of management and difficult to predict, but we do see Newmont maintaining a balanced capital allocation policy with continued support of growth beyond 6Moz production levels and decarbonising/automating operations, both of which are long-term value creative uses of capital as well.

FY22 by quarter and Barrick Q4 preliminary data

Newmont will release Q422 and full year results along with guidance on 23 February 2023. We have updated our numbers ahead of this release (as well as incorporating previously released Q3 actuals into our estimates).

As was the pattern in FY21, Newmont expects both (higher) production and (lower) costs to have been weighted towards the second half of the year in FY22, approximately in the ratio 48:52, largely driven by higher grades. Hence, we expect production to increase by 6% in Q4 with costs acting inversely, decreasing by 13%.

On 17 January 2023, Barrick released preliminary Q4 results confirming production and sales for Pueblo Viejo and Nevada Gold Mines (NGM); we have updated our forecasts accordingly (Exhibit 3). Barrick outlined Pueblo Viejo was slightly below expected production; however, it finished the year well above guidance.

After incorporating Newmont’s Q322 results and Barrick’s Q4 preliminary data, our revised production and cost estimates for the full year results are presented below (by geographical region):

Exhibit 3: Newmont Q122–Q422e operational estimates

Region

Production (koz)

Costs applicable to sales (US$/oz)

Q122

Q222

Q322

Q422e

FY22e

FY22e

(prior)

Q122

Q222

Q322

Q422e

FY22e

FY22e

(prior)

North America

309

316

404

383

1,412

1,335

995

1,124

980

923

1,002

1,054

South America

198

210

185

197

790

850

921

982

1,145

986

1,003

900

Australia

282

366

296

330

1,274

1,370

764

710

754

697

729

722

Africa

198

243

254

278

973

970

871

838

917

679

821

868

Nevada

288

290

266

323*

1,168*

1,181

899

1,035

1,104

958*

1,002*

961

Sub-total

1,275

1,425

1,405

1,511

5,617

5,706

890

932

968

847

911

901

Pueblo Viejo (40%)

69

70

81

65*

285*

302

Total (attributable) gold

1,344

1,495

1,486

1,576

5,902

6,008

Source: Newmont Corporation, Edison Investment Research. Note: Totals may not add up owing to rounding. *Preliminary Q4 figures released by Barrick.

Using the average gold price for Q422 of US$1,731/oz (cf US$1,676/oz previously) and an effective tax rate for Q4 of 32% (in line with guidance for the full year), this operational performance translates into financial estimates for Newmont for FY22 as follows:

Exhibit 4: Newmont quarterly income statement, Q121–Q422e

US$m (unless otherwise indicated)

Q121

Q221

Q321

Q421

Q122

Q222

Q322

Q422e

(prior)

Q422e

FY22e

FY22e

(prior)

Sales

2,872

3,065

2,895

3,390

3,023

3,058

2,634

2,922

2,918

11,633

11,793

Costs and expenses

– Costs applicable to sales

1,247

1,281

1,367

1,540

1,435

1,708

1,545

1,556

1,506

6,194

6,311

– Depreciation and amortisation

553

561

570

639

547

559

508

636

594

2,208

2,323

– Reclamation and remediation

46

57

117

1,626

61

49

53

47

46

209

203

– Exploration

35

52

60

62

38

62

69

70

69

238

240

– Advanced projects, research and development

31

37

40

46

44

45

80

43

43

212

208

– General and administrative

65

64

61

69

64

73

73

65

73

283

267

– Impairment of long-lived assets

0

0

0

0

0

0

0

0

0

0

0

– Care and maintenance

0

2

6

0

0

0

0

0

0

0

0

– Loss on assets held for sale

0

0

571

0

0

0

0

0

0

0

0

– Other expense, net

39

50

37

34

35

22

11

6

6

74

70

Total

2,016

2,104

2,829

4,016

2,224

2,518

2,339

2,422

2,337

9,418

9,622

Other income/(expenses)

– Gain on formation of Nevada Gold Mines

0

0

0

0

0

0

0

0

0

0

0

– Gain on asset and investment sales, net

43

0

3

166

0

0

0

0

0

0

0

– Other income, net

(82)

50

(74)

19

(109)

(75)

56

0

56

(72)

(184)

– Interest expense, net of capitalised interest

(74)

(68)

(66)

(66)

(62)

(57)

(55)

(42)

(26)

(200)

(200)

Other income total

(113)

(18)

(137)

119

(171)

(132)

1

(42)

30

(272)

(384)

Income/(loss) before income and mining tax

743

943

(71)

(507)

628

408

296

458

611

1,943

1,788

Income and mining tax benefit/(expense)

(235)

(341)

(222)

(300)

(214)

(33)

(96)

(147)

(195)

(538)

(488)

Effective tax rate (%)

31.6

36.2

(312.7)

(59.2)

34.1

8.1

32.4

32.0

32.0

27.7

27.3

Profit after tax

508

602

(293)

(807)

414

375

200

312

415

1,404

1,300

Equity income/(loss) of affiliates

50

49

39

28

39

17

25

29

10

91

117

Net income/(loss) from continuing operations

558

651

(254)

(779)

453

392

225

340

425

1,495

1,417

Net income/(loss) from discontinued operations

21

10

11

15

16

8

(5)

19

24

Net income/(loss)

579

661

(243)

(764)

469

400

220

340

425

1,514

1,441

Minority interest

20

11

(246)

(718)

21

13

7

15

9

50

60

Ditto (%)

3.5

1.7

(101.2)

94.0

4.5

3.3

3.2

4.3

2.0

3.3

4.2

Net income/(loss) attributable to stockholders

559

650

3

(46)

448

387

213

325

416

1,464

1,381

Adjustments to net income

35

20

480

670

98

(25)

(1)

0

0

72

73

Adjusted net income

594

670

483

624

546

362

212

325

416

1,536

1,454

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

Basic

– Continuing operations

0.672

0.799

(0.010)

(0.077)

0.545

0.477

0.275

0.410

0.525

1.821

1.710

– Discontinued operations

0.026

0.012

0.010

0.019

0.020

0.010

-0.006

0.000

0.000

0.024

0.030

– Total

0.698

0.811

0.000

(0.058)

0.565

0.487

0.268

0.410

0.525

1.845

1.740

Diluted

– Continuing operations

0.671

0.797

(0.010)

(0.077)

0.544

0.477

0.274

0.409

0.524

1.819

1.708

– Discontinued operations

0.026

0.012

0.010

0.019

0.020

0.010

-0.006

0.000

0.000

0.024

0.030

– Total

0.697

0.809

0.000

(0.058)

0.564

0.487

0.268

0.409

0.524

1.843

1.738

Basic adjusted net income per share (US$)

0.742

0.836

0.605

0.785

0.689

0.456

0.267

0.410

0.525

1.936

1.832

Diluted adjusted net income per share (US$)

0.741

0.834

0.604

0.783

0.688

0.455

0.267

0.409

0.524

1.933

1.819

DPS (US$/share)

0.550

0.550

0.550

0.550

0.550

0.550

0.550

0.550

0.400

2.050

2.200

Source: Newmont Corporation, Edison Investment Research

Our basic adjusted EPS forecast of US$1.936/share (cf US$1.832/share previously) for FY22 compares to the market consensus, by quarter, as follows:

Exhibit 5: FY22 basic adjusted EPS forecast, Edison versus consensus (US$/share)

Q122

Q222

Q322

Q422e

Sum Q1–Q422e

FY22e

FY23e

Edison forecast

0.689

0.456

0.267

0.525

1.936

1.936

1.761

Consensus forecast

0.689

0.456

0.267

0.470

1.882

1.850

1.890

High

0.689

0.456

0.267

0.590

2.002

2.010

2.800

Low

0.689

0.456

0.267

0.380

1.792

1.610

(0.210)

Source: Edison Investment Research, Refinitiv (24 January 2023)

Basic adjusted EPS for the first three quarters of FY22 amounted to US$1.412/share. Within this context, we observe the relatively wide range of forecasts for both Q4 and, in particular, FY23 and note that detailed cost and production guidance from management will be provided on 23 February, alongside FY22 results. However, readers should note that Newmont, in its Q3 results, raised the possibility of impairing a number of its assets in Q4. These include Cripple Creek & Victor (US$470m carrying value), Porcupine (US$340m) and Cerro Negro (US$460m). Should these impairments be made, it would inevitably affect the appearance of Q4 and FY22 results, although it would not affect Newmont’s underlying performance, as forecast by Edison in Exhibits 4, 5 and 9.

Incorporating Q322 results into our FY22 estimates

Attributable gold production at Newmont decreased by 0.5% in Q322 in comparison to Q222, to 1,487koz, with costs applicable to sales increasing 3.9% to US$968oz. However, We estimate a strong Q4 to close out the year with gold production of 1,576koz at a cost of US$847/oz (Exhibit 3). Newmont is on track to achieve FY22 results of c 5,902koz of attributable gold production with costs applicable to sales of c US$911/oz (as shown in Exhibit 3).

In general, Q3 production was slightly below our prior expectations and costs slightly above as lingering COVID-19 related constraints were replaced with increasing inflationary pressures, affecting labour costs and commodity input costs, including higher fuel and energy costs. This was most notable in South America and Australia, whereas a strong dollar kept costs down in North America. A minimal impact was apparent in Africa, which operated close to our expectations in all respects. Production at Peñasquito (North America) exceeded estimates materially, aided by an increased grade quarter-on-quarter, producing 182koz gold (cf our 126koz prior forecast), which helped offset quarter-on-quarter decreased output at the Australian operation. All other assets performed largely in line with our estimates.

A summary of the operational highlights of the quarter relative to our prior expectations is provided in Exhibit 6.

Exhibit 6: Newmont Q322 operational results, actual compared to prior forecasts

Region

Production (koz)

Costs applicable to sales (US$/oz)

Q321

Q421

Q122

Q222

Q322e

Q322

Change (%)*

Variance
(%)**

Q321

Q421

Q122

Q222

Q322e

Q322

Change (%)*

Variance
(%)**

North America

384

404

309

316

354

404

+27.8

+14.1

800

883

995

1,124

1,064

980

(12.8)

(7.9)

South America

188

182

198

210

217

185

(11.9)

(14.7)

958

860

921

982

908

1,145

+16.6

+26.1

Australia

274

339

282

366

361

296

(19.1)

(18.0)

788

724

764

710

711

754

+6.2

+6.0

Africa

210

245

198

243

255

254

+4.5

(0.4)

886

786

871

838

912

918

+9.5

+0.7

Nevada

308

377

288

290

266

267

(7.9)

+0.4

768

753

899

1,035

1,091

1,104

+6.7

+1.2

Sub-total

1,364

1,547

1,275

1,425

1,453

1,406

(1.3)

(3.2)

830

802

890

932

931

968

+3.9

+4.0

Pueblo Viejo (40%)

85

71

69

70

81

81

+15.7

N/A

Total (attributable) gold

1,449

1,618

1,344

1,495

1,534

1,487

(0.5)

(3.1)

Source: Newmont Corporation, Edison Investment Research. Note: Totals may not add up owing to rounding. *Q222 vs Q322 change. **Q322 vs Q322e variation.

Valuation

Our approach to the valuation of Newmont was outlined in our initiation note (see The sustainable leader, published on 9 February 2021).

Absolute valuation and sensitivities

In our methodology, we have opted to discount forecast dividends back over five years from the start of FY23, then apply an ex-growth terminal multiple to forecast cash flows in that year (ie FY27) based on the appropriate discount rate. We would normally 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.

Edison has taken a conservative approach to our medium-term estimates for Newmont, while keeping long-term estimates relatively unchanged. In the wake of our adjustments, our ‘terminal’ pre-financing cash flow in FY27 has increased from US$3.54/share previously, to US$3.62/share. On this basis, applying a (real) discount rate of 6.62% (calculated from a nominal expected equity return of 9% and decreased long-term inflation expectations of 2.2305%, cf 2.1456% previously, as defined by the US 30-year break-even inflation rate – source: Bloomberg, 02 February) our terminal valuation of the company at end-FY27 is US$54.74/share (cf US$52.73/share previously) or US$50.14/share in FY23. However, this valuation is based on the inherently conservative assumption of zero growth in (real) cash flows beyond FY27. The terminal valuation increases to US$79.99/share in the event that growth in real cash flows after FY27 amounts to 2.0% per annum (ie the minimum that might be expected from the average historical annual increase in the real price of gold of 2.0% pa) and the valuation at the start of FY23 to US$68.47/share. This is also almost equal to the result (US$70.76/share) if the gold price remains at current levels in real terms, effectively indefinitely (with the added refinement that mining at NGM does not then revert to the reserve grade in that year on account of the relatively high sustained level of the gold price).

Note that 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 53.94Moz attributable to Newmont.

Relative Newmont valuation

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

Exhibit 7: Newmont valuation relative to peers

Company

Share price (US$)

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)

53.63

NEM

24.4

26.8

19.8

10.4

9.5

7.6

8.4

8.4

6.2

4.3

3.0

3.0

Newmont (consensus)

53.63

NEM

28.8

27.4

23.5

11.1

10.7

10.4

9.9

9.2

8.4

4.0

3.3

3.1

Barrick

19.36

ABX

24.8

24.1

20.0

9.3

8.4

7.9

8.4

8.0

7.3

3.0

2.7

3.0

AngloGold

21.72

ANGJ

15.4

12.0

10.9

5.9

6.5

5.9

6.0

5.0

4.7

1.9

1.5

2.2

Gold Fields

12.18

GFI

12.2

11.5

8.9

7.3

6.7

5.7

5.1

5.2

4.2

2.8

2.7

2.3

Kinross

4.82

K

22.4

17.2

15.3

6.1

5.0

5.1

6.6

5.5

5.5

2.5

2.5

2.5

Newcrest

16.25

NCM AU

20.1

19.2

17.5

9.0

8.6

8.3

7.6

7.5

7.0

1.4

1.5

1.8

Harmony

3.73

HARJ

9.9

7.3

7.2

4.9

3.5

3.4

4.4

3.8

3.8

1.2

0.2

2.3

Endeavour (consensus)

23.94

EDV

18.3

16.4

15.2

5.7

5.8

5.5

5.0

5.4

5.0

3.2

3.5

3.4

Average (excl NEM)

17.6

15.4

13.6

6.9

6.3

6.0

6.2

5.7

5.4

2.3

2.1

2.5

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced on 25 January 2023.

From the table above, it can be seen that while Newmont continues to command a premium rating relative to its peer group on most valuation measures, it remains cheap with respect to its dividend yield in at least 19 out of 21 instances (ie 91%) over the next three years. Based on consensus forecasts, we estimate that Newmont’s share price would have to rise by an average of 46.0% for its dividend yield to match those of its peer group. Based on our forecasts, we estimate its share price would have to rise 49.5%.

As before, one further observation concerning the comparability of the above measures is merited. Given its policy of proportionately consolidating its interest in NGM and that it owns 100% interests in the majority of its remaining mining operations (with the notable exception of Merian), estimates of cash flow in particular are also close to estimates of cash flow attributable to shareholders (Newmont estimates that 99.8% of free cash flow was attributable to the company in FY21). 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.

Historical valuation

Based on Newmont’s average historical P/E ratio of 23.9x current year earnings over the past nine years, from FY13 to FY21, and its average historical yield of 1.7% over the same timeframe (excluding special dividends), a summary of our updated valuation of the company over 16 measures of value over the next four years is as follows:

Exhibit 8: Newmont valuation summary (US$/share in years shown)

Basis of valuation

FY22e

FY23e

FY24e

FY25e

Historical

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

46.21

42.03

56.80

51.07

Historical

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

118.36

92.38

92.38

92.38

 

 

 

 

Historical

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

44.16

46.55

54.19

53.47

Historical

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

124.71

100.46

92.38

95.26

Average (US$/share)

83.36

70.35

73.94

73.04

Source: Edison Investment Research (underlying consensus data: Refinitiv, 26 January 2023)

Exhibit 9: Financial summary

Accounts: US GAAP; year-end 31 December; US$m

2018

2019

2020

2021

2022e

2023e

2024e

2025e

Income statement

Total revenues

7,253

9,740

11,497

12,222

11,633

11,633

12,490

12,122

Cost of sales

(4,093)

(5,195)

(5,014)

(5,435)

(6,194)

(6,051)

(5,692)

(5,702)

Gross profit

3,160

4,545

6,483

6,787

5,438

5,582

6,798

6,421

SG&A (expenses)

(244)

(313)

(269)

(259)

(283)

(292)

(292)

(292)

R&D costs

(350)

(415)

(309)

(363)

(450)

(446)

0

0

Other income/(expense)

(406)

(253)

(831)

(2,101)

(355)

(204)

(254)

(79)

Exceptionals and adjustments

(424)

2,220

214

(2,258)

(287)

0

0

0

Depreciation and amortisation

(1,215)

(1,960)

(2,300)

(2,323)

(2,208)

(2,364)

(3,072)

(3,288)

Reported EBIT

945

3,994

3,451

1,382

2,143

2,276

3,180

2,762

Finance income/(expense)

(207)

(301)

(308)

(274)

(200)

(89)

(146)

(22)

Other income/(expense)

0

0

0

0

0

0

0

0

Exceptionals and adjustments

0

0

0

0

0

0

0

0

Reported PBT

738

3,693

3,143

1,108

1,943

2,188

3,035

2,740

Income tax expense (includes exceptionals)

(419)

(737)

(515)

(932)

(448)

(769)

(1,079)

(985)

Reported net income

380

2,884

2,791

233

1,514

1,419

1,956

1,756

Basic average number of shares, m

533

735

804

799

794

794

794

794

Basic EPS (US$)

0.64

3.82

3.52

1.46

1.85

1.76

2.38

2.14

Adjusted EBITDA

2,584

3,734

5,537

5,963

4,620

4,640

6,252

6,050

Adjusted EBIT

1,369

1,774

3,237

3,640

2,412

2,276

3,180

2,762

Adjusted PBT

1,162

1,473

2,929

3,366

2,212

2,188

3,035

2,740

Adjusted EPS (US$)

1.35

1.32

2.66

2.97

1.94

1.76

2.38

2.14

Adjusted diluted EPS (US$)

1.34

1.32

2.66

2.96

1.93

1.75

2.36

2.12

Dividend per share (US$)

0.56

0.56

1.45

2.20

2.05

1.60

1.60

1.60

Balance sheet

Property, plant and equipment

12,258

25,276

24,281

24,124

23,958

24,044

23,372

21,884

Goodwill

58

2,674

2,771

2,771

2,771

2,771

2,771

2,771

Intangible assets

0

0

0

0

0

0

0

0

Other non-current assets

3,122

5,752

5,812

5,973

5,973

5,973

5,973

5,973

Total non-current assets

15,438

33,702

32,864

32,868

32,702

32,788

32,116

30,628

Cash and equivalents

3,397

2,243

5,540

4,992

4,154

3,940

5,181

7,049

Inventories

630

1,014

963

930

1,087

1,087

1,167

1,133

Trade and other receivables

254

373

449

337

351

351

376

365

Other current assets

996

2,642

1,553

1,437

1,456

1,456

1,456

1,456

Total current assets

5,277

6,272

8,505

7,696

7,048

6,834

8,181

10,004

Non-current loans and borrowings

3,608

6,734

6,045

6,109

5,617

5,203

5,203

5,203

Other non-current liabilities

3,808

8,438

8,076

9,940

9,956

10,123

10,185

10,072

Total non-current liabilities

7,416

15,172

14,121

16,049

15,573

15,326

15,388

15,275

Trade and other payables

303

539

493

518

558

545

513

514

Current loans and borrowings

653

100

657

193

193

193

193

193

Other current liabilities

831

1,746

2,219

1,943

1,943

1,943

1,943

1,943

Total current liabilities

1,787

2,385

3,369

2,654

2,694

2,681

2,649

2,650

Equity attributable to company

10,502

21,420

23,008

22,022

21,859

21,987

22,606

23,034

Non-controlling interest

1,010

997

871

(161)

(378)

(371)

(346)

(327)

Cashflow statement

Profit for the year

380

2,884

2,791

233

1,514

1,419

1,956

1,756

Taxation expenses

386

832

704

1,098

538

892

1,177

1,032

Profit before tax

0

0

0

0

0

0

0

0

Net finance expenses

207

301

308

274

200

89

146

22

EBIT

0

0

0

0

0

0

0

0

Depreciation and amortisation

1,215

1,960

2,300

2,323

2,208

2,364

3,072

3,288

Share based payments

76

97

72

72

0

0

0

0

Other adjustments

749

(2,131)

(654)

2,277

190

358

254

79

Movements in working capital

(743)

(309)

295

(541)

(323)

(205)

(330)

(145)

Interest paid / received

(207)

(301)

(308)

(274)

(200)

(89)

(146)

(22)

Income taxes paid

(236)

(498)

(926)

(1,207)

(538)

(892)

(1,177)

(1,032)

Cash from operations (CFO)

1,827

2,866

4,882

4,279

3,589

3,936

4,951

4,977

Capex

(1,032)

(1,463)

(1,302)

(1,653)

(2,042)

(2,450)

(2,400)

(1,800)

Acquisitions & disposals net

(98)

224

1,463

(50)

(368)

0

0

0

Other investing activities

(47)

41

65

(15)

0

0

0

0

Cash used in investing activities (CFIA)

(1,177)

(1,226)

91

(1,868)

(2,410)

(2,450)

(2,400)

(1,800)

Net proceeds from issue of shares

(98)

(479)

(521)

(525)

0

0

0

0

Movements in debt

0

(1,186)

(175)

(390)

(492)

(414)

0

0

Dividends paid

(301)

(889)

(834)

(1,757)

(1,682)

(1,290)

(1,315)

(1,313)

Other financing activities

(56)

(223)

(150)

(286)

157

4

4

4

Cash from financing activities (CFF)

(455)

(2,777)

(1,680)

(2,958)

(2,017)

(1,699)

(1,311)

(1,309)

Currency translation differences and other

(4)

(3)

6

(8)

0

0

0

0

Increase/(decrease) in cash and equivalents

191

(1,140)

3,299

(555)

(838)

(214)

1,241

1,868

Currency translation differences and other

0

0

0

0

0

0

0

0

Cash and equivalents at end of period

3,489

2,349

5,648

5,093

4,255

4,041

5,282

7,150

Net (debt) cash

(864)

(4,591)

(1,162)

(1,310)

(1,656)

(1,456)

(215)

1,653

Movement in net (debt) cash over period

(864)

(3,727)

3,429

(148)

(346)

200

1,241

1,868

Source: Company sources, Edison Investment Research

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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.

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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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