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||Q2 2015|
Net Income from operations
Adjusted Net income
Consolidated cash flow from operations
Free cash flow ("FCF")
Cash and cash on hand
$ million (less cash)
Debt and long-term liabilities
Gold Production in M Oz
Including CC&V mine (8/15)
|Copper Production in K Tonne||38||38||39||48||41|
CAS Cost applicable to sale Gold$/oz
Including CC&V mine (8/15)
|CAS Cost applicable to sale Copper$/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)
Details per mines.
|NEM details Au production in K oz||2Q'16||1Q'16||4Q'15||3Q'15||2Q'15||1Q'15|
|Total North America||477||456||427||434||377||405|
|Total South America||81||92||126||141||111||127|
|Batu Hijau (48.5%)||92||93||84||105||87||52|
|Total Asia Pacific||522||479||493||572||535||438|
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:
- Production 4.825 M Oz-5.295 M Oz
- AISC $870-$930/Oz
- 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.
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.
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.
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.