Newmont Mining - What You Need To Know About Q2 2016

| About: Newmont Mining (NEM)

Summary

Newmont Mining released another excellent quarter, and I was pleased with the results that exceeding my expectation. The company indicated a 2Q'16 revenue of $2.038 billion.

Newmont management plans to reassess the dividend pay-out in October at the next BoD meeting, "given NEM strong cash performance" said Ms Brla, CFO. Dividend could double.

I recommend NEM as a long-term investment.

Picture: Newmont mine

Newmont Mining Corp. (NYSE:NEM)

This article follows my preceding article on Newmont Mining published on April 23, 2016 about the company's 1Q'16 results.

2Q'16 earnings 10-Q here.

There were 530,594,563 shares of common stock outstanding on July 13, 2016

A quick look at the financials:

Q2 2016 Q1 2016 Q4 2015

Q3 2015

Q2 2015
Basics

Total Revenues

$ billion

2.038 2.032 1.816 2.033 1.908

Net Income from operations

$ million

50 78 254 202 63

EPS

$/share

0.09 0.15 (0.48) 0.38 0.13

Adjusted Net income

$ million

231 182 20 126 131

Adj. EPS

$/share

0.44 0.34 0.04 0.23 0.26

Consolidated cash flow from operations

$ million

780 524 275 813 441

Free cash flow ("FCF")

$ million

486 227 (185) 478 119

Cash and cash on hand

$ million

2,902 2,461 2,782 2,964 3,308

Dividend

$/share

0.025 0.025 0.025 0.025 0.025

Adjusted EBITDA

$ million

804 803 435 758 692

Net Debt

$ million (less cash)

2,669 3,393 3,305 3,121 2,832

Debt and long-term liabilities

$ billion

5,571 5,854 6,087 6,085 6,470

Share Outstanding

in Million

530.59 529.16 - - -
Mining highlights

Gold Production in M Oz

Including CC&V mine (8/15)

1.285 1.229 1.247 1.34 1.203
Copper Production in K Tonne 38 38 39 48 41

CAS Cost applicable to sale Gold$/oz

Including CC&V mine (8/15)

637 638 680 608 638
CAS Cost applicable to sale Copper$/lb 1.21 1.05 1.18 1.15 1.61
Gold price Oz 1,260 1,194 1,084 1,104 1,179
Copper price $/Lb 1.94 2.02 1.86 1.95 2.41

AISC $ gold/oz

Including CC&V mine (8/15)

876 828 999 835 909

Capital expenditures

$ million

294 297 460 335 322
Click to enlarge

Details per mines.

NEM details Au production in K oz 2Q'16 1Q'16 4Q'15 3Q'15 2Q'15 1Q'15
Carlin 204 206 226 231 200 229
Phoenix 45 56 45 53 52 55
Twin Peaks 114 136 106 119 125 121
CC&V 114 58 50 31 0 0
Total North America 477 456 427 434 377 405
Yanacocha (51.35%) 81 92 108 125 111 127
La zanja 0 0 18 16 0 0
Merian 0 0 0 0 0 0
Total South America 81 92 126 141 111 127
Boddington 192 189 204 205 201 184
Tanami 142 104 95 126 116 99
Waihi 0 0 12 33 33 41
Kalgoorlie 96 93 82 89 83 62
Batu Hijau (48.5%) 92 93 84 105 87 52
Duketon 0 0 16 14 15 14
Total Asia Pacific 522 479 493 572 535 438
Ahafo 90 88 80 77 74 101
Akyem 115 114 121 116 121 115
Total Africa 205 202 201 193 195 216
Grand Total 1285 1229 1247 1340 1218 1186
Click to enlarge

Commentary:

Newmont Mining released another excellent quarter, and I was pleased with the results that exceeding my expectation. The company indicated a 2Q'16 revenue of $2.038 billion basically in-line with the preceding quarter, and free cash flow ("FCF") was $486 million more than doubling 1Q'16 at $221 million.

AISC was maintained below the $900 mark at $876/ Oz which is also a positive. NEM cut its guidance for its AISC (GOLD) to between $870 - $930/ Oz in 2016, from $880 - $940/ Oz.

The guidance for 2016 (revised 2Q'16) is:

  1. Production 4.825 M Oz-5.295 M Oz
  2. AISC $870-$930/Oz
  3. CapEx $1.135 billion-$1.355 billion.

On February 29, 2016, NEM announced a $500 million debt tender, which targeted its 5.125% Senior Notes due 2019, 6.250% Senior Notes due 2039, 3.500% Senior Notes due 2022 and 5.875% Notes due 2035. The offered expired March 28, 2016. The company repaid $274 million of notes due in 2019 and $226 million due in 2039.

On July 8, 2016, I commented on the recent sale of NEM 48.5% interests in PT Newmont Nusa Tenggara, which operates the Batu Hijau copper and gold mine in Indonesia.

On June 30, 2016, Newmont Mining announced the following:

The total consideration is $1.3 billion for Newmont's 48.5 percent economic interest in PTNNT. This amount is comprised of cash proceeds of $920 million expected to be paid at closing and contingent payments of $403 million tied to metal price upside and development of Elang. Nusa Tenggara Mining Corporation, majority owned by Sumitomo Corporation, has also agreed to sell its ownership stake to PT AMI.

The good news is that the company is expecting to increase the dividend assuming a price of gold above the $1,300/ Oz mark. Chief Financial Officer Ms Laurie Brlas said in the 2Q'16 conference call, the following:

It's certainly worth noting that if today's gold price is maintained, our gold price-linked dividend would double in the third quarter... We do plan to reassess the dividend pay-out later this year, as we go through our 2017 business planning process, and would expect to be able to adjust it given our strong cash performance.

NEM recommends an annual dividend of 10 cents per share when the average London Bullion Market Association gold price is up to $1,300 per ounce. That doubles to 20 cents a share when gold ranges between $1,300 and $1,399 an ounce and for each $100 an ounce increase above $1,399 the annual payout increases at a rate of 20 cents per share.

Also,

Newmont Chief Executive Gary Goldberg said the board of directors will weigh the use of cash for debt reduction, project investment and shareholder returns. Increasing the dividend is preferable to share buybacks, he added.

Newmont is evaluating a debt reduction. However, the problem is that most of Newmont debt is trading at a premium, and I do not expect NEM to act in this market condition.

In fact, another potential should be to invest a significant part of the proceeds from the Batu Hijau sale to finance the company strong project pipeline.

The financing of the "execution" segment of the project pipeline would represent about $1 billion, and may provide an immediate contribution to NEM's gold production. I noticed that the production guidance for 2016 has been kept at 4.825 M Oz - 5.295 M Oz.

Click to enlarge

Conclusion:

Newmont Mining is one of the most substantial and reliable gold miners of its peers. I have been a long-term NEM shareholder for many years. However, I believe the stock looks "rich" to me and it is perhaps time to take some profit off the table.

Click to enlarge

The chart above indicates that NEM was in an "overbought" territory recently when RSI was >70. I took some profit off the table (~25%) at $41.25. I always consider RSI >70 as a partial sell signal and RSI <30 as a strong buy signal.

I firmly believe the gold miners have reached a high valuation, now, and in order for the trend to continue strongly, we will need gold above $1,400/ Oz, which is possible, but not likely in my opinion.

NEM is most likely to retrace and re-test the mid 30's before resuming any positive trend. At which point, I will add again.

On the other hand, if the dividend increases in 4Q'16 due to a strong gold price we may eventually expect NEM above $45 at the end of 2016.

Important note: Do not forget to be one of my followers on NEM and other gold miners. Thank you

Disclosure: I am/we are long NEM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.