Why Newmont Mining Is a Good Buy

Newmont Mining (NEM) is making progress despite weak pricing in the gold and copper markets. For instance, in the second quarter, Newmont’s revenue had increased 5.5% year-over-year. Additionally, the company declared net income of $131 million, or $0.26 per share as against $101 million, or $0.20 per share, during the same period last year.

The company reported satisfactory year-over-year improvements in its financials due to improved copper production and sales at Batu Hijau, which supported in offsetting the impact of asset sales and lower metal prices for the quarter.

Strongly positioned for the future

Newmont’s balance sheet is robust, and this has encouraged the company to maintain significant dividends at lower gold prices than those forecasted earlier.
Newmont has extended its credit facility from peak net debt to book capital of 17.9% earlier to 62.5% as of June 30, 2015. The gold mining major has already prepaid approximately $380 million of its total debt since November 2014 and it is believed to have further debt-repayment potential during 2015. Further, Newmont has strategically extended the revolving credit facility till 2020.

Moreover, the ongoing cost-optimization initiatives of Newmont have enabled it to deliver nearly $2.5 billion of cash and cash equivalents and in line with its continued commitment to generate shareholder value.

The impressive cost profile of Newmont, with significantly controlled net debt to EBITDA margins, will lead to better times ahead. In addition, Newmont is steadily and successfully lowering its gold all-in sustaining costs ($/ounce) over the years and in line with its focus on delivering continued profitability.

Making the right moves

Newmont has strategically decided to acquire the complete stake of Cripple Creek & Victor (CC&V) from AngloGold Ashanti at a purchase price of $820 million in cash, primarily financed through available cash on hand and net common equity proceeds from issuing 29 million shares of its common stock. This transaction is forecasted to conclude during the third quarter of 2015 and extend the life of its key mines to at least 2026.

The agreement would also deliver industry-leading safety performance with AISC under $1,000 per ounce and continued gold production. The planned acquisition has strengthened Newmont’s portfolio with Turf Vent Shaft anticipated to start production by 2015 end, Merian is estimated to contribute in production by 2016 and long canyon phase 1 is forecasted to begin production by 2017.

The cost-optimization initiatives of Newmont includes $1.5 billion of cash proceeds from sales of non-strategic assets, generating significant positive free cash flows and developing the company’s investment grade balance sheet.

The strategic new acquisition of Cripple Creek & Victor is estimated to strengthen Newmont’s balance sheet as well as its production profile being further supported by its continued cost control efforts, delivering industry-leading margins.

Moreover, Newmont has enhanced its year-over-year gold production to 1.24 million ounces in the second quarter of 2015 as against 1.22 million ounces during the second quarter of 2014, primarily driven by improved production at Tanami and Batu Hijau which greatly balanced the impact of non-strategic La Herradura and Jundee divestments.

The year-over-year improvement in gold production coupled with controlled mining and production costs is believed to support the company in its efforts to traverse successfully through the continuing depressed commodity pricing environment and deliver profitability.


Hence, Newmont is making all the right moves in order to improve its financial performance. Thus, I think that it will be a good idea to invest in Newmont for the long run as it can deliver upside.
Published on Oct 10, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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