Newmont Mining Corporation (NEM), based in Greenwood Village, Colorado, is one of the world's largest producers of gold, with active mines in Nevada, Australia, Indonesia, Ghana, New Zealand, and Peru.
The company recently reported its 2Q13 preliminary results including attributable gold production of 1.167 million ounces and copper production of 34 million pounds. While gold sales of 1.213 million ounces outpaced production by 46,000 ounces, copper sales were 3 million pounds more than the production.
Annual mill maintenance in North America during 2Q resulted in lower than expected production of 437Kozs and production at Boddington also decreased QoQ to 171Kozs. However, this was offset by stronger than forecasted production at Yanacocha and Ahafo; production at both these mines increased sequentially.
Copper production of 34 million pounds was 4 million pounds lower than the first quarter, as production at both Boddington and Batu Hijau decreased sequentially.
Overall, 2Q13 production was slightly lower than the expectation, as weaker production from North and South America and Africa was only partially offset by stronger production out of the Asia Pacific region. Furthermore, Newmont reiterated its full-year production guidance of 4.8 to 5.1 million ounces of gold and copper production of 150 to 170 million pounds.
Gold Linked Dividend
The biggest U.S. gold producer, NEM, has a gold price-linked dividend policy and has a forward annual dividend yield of 5.1% and trailing annual dividend yield of 5.3%. The Colorado-based gold miner noted that the average gold price in the quarter based on the London PM Fix was $1,415 per ounce, and as per NEM's gold price linked dividend policy the 3Q13 dividend is expected to be revised down to $0.25 per share from $0.35 per share in the previous quarter. Moreover, at the current price range of $1,200-$1,299 per ounce, the gold price-linked quarterly dividend drops to $0.15 per share.
Newmont Agrees to Sell Canadian Oil Sands Stake
NEM recently also agreed to sell its entire stake of ~31 million shares in Canadian Oil Sands (OTCQX:COSWF) for C$608 million ($578 million). According to Barclays NEM's cost base on the investment was $303 million, and as a result, the company is expected to book a realized gain of ~$275 million in its 3Q13 results (assuming a 0.95:1 CAD:USD exchange rate).
Commenting on the sale NEM said, "Our investment in Canadian Oil Sands has returned a lot of value for Newmont and its shareholders and this stake sale also will help streamline and rationalize our portfolio of assets."
The sale will allow NEM to rationalize its portfolio and sell a non-core asset. The monetization of the asset will also help maintain the safety of NEM's dividend. The company has indicated that beyond debt repayment and for corporate purposes there is no specific planned use of the proceeds.
Valuation & Financials
NEM is trading at a significant discount to its historical average and S&P 500 price-to-earnings (P/E) ratio. It has a current P/E ratio of 8.5 compared to its own 5-year average of 25.1 and S&P 500 P/E ratio of 16.6. It has a forward P/E of 10.9, compared to 14.7 of S&P 500. NEM has a price-to-book ratio of 1.0 compared to the industry average of 0.9. It has price-to-sales ratio of 1.5 compared to a historical average of 2.9, and price-to-cash flow ratio of 6.3 compared to the historical average of 9.3.
The company has a debt-to-equity ratio of 0.22 compared to Barrick Gold's (ABX) debt-to-equity ratio of 0.30. NEM's current ratio of 2.12 is also better than ABX's current ratio of 1.96. NEM has a debt-to-EBITDA ratio of 1.62 compared to the industry average of 2.31.
Newmont is a globally diverse operator, mining in some of the safest regions relative to the peer group. The company has a strong base of production and reserves and future upside to production and reserves from new projects. The gold miner has a stable base of operations in North America and a strong balance sheet, with Q1 balances of $1.4 billion in cash, $1.4B in marketable securities and a $3 billion credit facility. Moreover the company is also trading at cheap valuations. NEM represents a good investment opportunity for long-term and income investors.