Newmont Mining Corp (NYSE: NEM) is Secretly Awesome

Briton Ryle

Updated January 10, 2014

With the multi-year low gold price impacting gold producers even more than the bullion itself, many money managers are advising their clients to stay clear of miners.Panning for Gold in New Zealand

Where gold is down some 26 percent over the past 12 months, Barrick Gold Corp. (NYSE: ABX) is down 47 percent, Kinross Gold (NYSE: KGC) is down 53 percent, and Newcrest Mining (OTN: NCMGF) is down 67 percent, just to name a few.

But amidst all the downsizing and mine closures sweeping across the gold producer space, one gold miner – Newmont Mining (NYSE: NEM), the third largest gold miner in the world – is actually scaling up its exploration of new deposits, especially in New Zealand. Although its stock also suffered greatly last year, falling by some 47 percent, Newmont has the advantage of deep pockets to fund its search for more gold.

With a market cap of nearly $12 billion, $1.5 billion in cash and light debt repayment schedule of just $1 billion spread out until 2017, Newmont is not only well-stocked to survive gold’s current slump, but is likely to be one of the first producers out of the gate once the gold market finally recovers.

New Zealand Prospects

As in most other gold producing regions around the world, a number of mining operations in New Zealand have had to shut mines and lay off workers.

Small cap gold producer OceanaGold (NYSE: OGC.NZ) with a market cap of just $500 million, for instance, has announced it will cut 106 jobs at its Macraes goldfield in Otago, reducing the mine’s workforce by some 69 percent from 153 to just 47 workers.

Smaller cuts are also expected at OceanaGold’s Fraser 6 open pit mine, along with the complete closure of its Reefton mine scheduled for this summer.

But Newmont seems to be faring better, with exploratory work on an enormous underground deposit at Correnso mine underway since mid-December.

“The exploration drive runs parallel to the ore body as we know it and we’re putting a series of small drill cuddies off it to allow us to fully investigate the size and shape of the ore body,” Spokesman Kit Wilson at Newmont’s Waihi mines informed the New Zealand Herald.

Although cognizant of the slumping gold price, Wilson indicated the company is prepared to ride it out. “We can’t control the gold price. Like any prudent business we’re keeping a close eye on our input costs but currently it’s business as usual for us,” he remained undaunted.

Newmont’s Trimmer Operations

In its latest Q3 2013 report, Newmont showed progress in its cost-saving measures. Here are just some of the highlights:

• Consolidated spending down $700 million year to date, or 13 percent compared to the first nine months of 2012

• All-in sustaining costs of $993 per ounce, down 16 percent from the prior year quarter

• Attributable gold production of 1.284 million ounces, up 4 percent from the prior year quarter

• Attributable gold sales of 1.261 million ounces, up 4 percent from the prior year quarter

• Newmont has maintained its 2013 attributable gold production outlook of 4.8 to 5.1 million ounces (equating to some $6 billion at $1,200 per ounce)

• 2013 consolidated capital expenditure outlook has been reduced by $200 million to $2.0 to $2.2 billion or to $1.7 to $1.9 billion on an attributable basis

• Consolidated sustaining capital outlook has been reduced by $100 million to $1.2 to $1.3 billion, or to $1.0 to $1.1 billion on an attributable basis

• Fourth quarter gold price-linked dividend of $0.20 per share, or equating to an annual dividend of 3.3 percent

“Our efforts to improve costs and efficiencies are gaining momentum, and we have reduced consolidated spending by $700 million year to date,” Gary Goldberg, President and Chief Executive Officer emphasised in the report. “Strong third quarter production was driven by our Australia / New Zealand operations.”

Analysts Evenly Divided

Despite progress in its costs reduction program, analysts are still evenly divided on Newmont’s stock, with 4 sells, 4 buys, and 13 holds.

Supporting analysts have pointed to Newmont’s “very relaxed debt schedule”, as noted by Motley Fool. “The company has $554 million to pay in 2014, followed by $486 million in 2017. As Newmont Mining had almost $1.5 billion of cash on its balance sheet at the end of the third quarter, it will have no problem dealing with the debt payments.”

Detractors, however, argue that any further plunge in the gold price could take another serious toll on Newmont’s stock, which was already the worst performer on the entire S&P 500 in 2013.

Even so, Newmont’s low all-in costs of $993 per gold ounce gives it a good 25 percent cushion on the gold price.

We must keep in mind as well that the company took a non-recurring write-down charge of $2.2 billion in Q2 of 2013.

Apart from that dismal quarter, net income in Q4 of 2012, and Q1 and Q3 of 2013 averaged $465 million each. The Q2 write-down has cleared much of the bad operations off the company’s books, leaving it much leaner and trimmer to deliver profit going forward.

The company certainly seems confident it will do so, as it continues spending on exploration, keeps all its workers employed, and keeps paying its quarterly dividend, one of the best in the gold space.

Even if gold struggles to mount a comeback, Newmont is at least stable enough to keep digging up the nuggets and running its “business as usual”.

Joseph Cafariello 

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