Newmont Goldcorp – A play on gold and not for the dividend


Newmont is the world’s leading gold company and a producer of copper, silver, zinc, and lead. The company has mining operations in North America (37% of gold reserves), South America (30%), Australia (21%), and Africa (12%).

Newmont has eight other operating mines and equity ownership in Pueblo Viejo. Newmont’s base metal reserves increased significantly with the addition of the Goldcorp assets. Newmont’s operations are organized in five geographic regions; North America (Cripple Creek & Victor, Musselwhite, Porcupine and Eleonore, and Penasquito), South America (Yanacocha, Merian, Cerro Negro, and Pueblo Viejo), Australia (Boddington and Tanami), Africa (Ahafo and Akyem), and Nevada (NGM).

Newmont has attributable proven and probable gold reserves of 94.2 million ounces and an aggregate land position of ~22,700 square miles. The company earns about 90% of its revenue from gold and balance 10% from copper, silver, lead, and zinc. Most of the sales come from the sale of refined gold. Newmont has a 38.5% interest in Nevada Gold Mines. The UK and Korea are the largest geographic markets accounting for 74% and 11% of total sales in 2020.

Newmont trades on the TSX as NGT and on the NYSE as NEM since as a dual listed company. Choose the currency for your dividends.

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Investment Data

 

Revenue Growth & Market Exposure

Newmont Goldcorp was founded in 1921 and has since then amassed an industry-leading portfolio of gold assets. It has the largest gold reserve base of 94 Moz and 65 Moz in GEO reserves. Newmont added almost 50 million ounces of gold reserves through the acquisition of Goldcorp and the formation of the Nevada Gold Mines joint venture in 2019.

The company reported an increase of more than 50% in reported gold reserves in 2019 after the successful completion of two historic transactions and through ongoing exploration success. 

Nine world-class assets in top-tier jurisdictions, with 88% in the Americas and Australia, form a deep moat around Newmont’s business. The company expects stable production of more than 6 million ounces per annum for decades to come. Newmont continues to add on to its metal reserves by successful additional projects and agreements.

As a part of its Silver streaming agreement, Newmont Goldcorp is obligated to sell 25% of silver production from the Penasquito mine to Wheaton Precious Metals at the lesser of the market price or a fixed contract price, subject to an annual inflation adjustment of up to 1.65%. In 2020, sales to JPMorgan Chase and Standard Chartered accounted for 24% each of total gold sales.

Newmont delivered 5.9 Moz with an AISC of $1,045/ oz in 2020. It has provided an outlook of 6.2-7 Moz per year through 2021-2025 and 1.2-1.6 Moz GEOs annually. The company is well-positioned to gain from Tanami’s expansion and growing position which is expected to increase annual gold production by ~150-200 Koz/ year for the first five years and reduce operating cost by ~10%, and Ahafo North and Yanacocha Sulfides ramping up in 2024. The Tanami project has estimated completion in H1 2024. The company’s revenues have grown at more than 10% CAGR in the last five years.

Dividends

Newmont Gold Corp. sports an average annual dividend yield of 3.35% with a high payout ratio. A high payout ratio indicates that dividend is covered by earnings. Its EPS has grown by 33% CAGR in the last five years. The company’s dividend framework provides the stability and predictability of a base annual dividend of $1.00 per share calibrated at a $1,200 gold price. Newmont is targeting 40%-60% of incremental FCF above $1,200/ oz to be returned to shareholders. 

Newmont returned $2.7 billion to shareholders in 2019 and 2020. Its quarterly dividend clocked an impressive 300% YoY increase supported by increasing free cash flow. The company generated $3.5 billion in free cash flow in 2020, recording a 150%+ increase YoY.

The attributable FCF is expected to grow with increasing gold prices. Newmont delivered three separate dividend increases and completed the $1 billion share repurchase program in 2020 and also announced a new $1 billion share repurchase program. 

The company’s gold reserves have an operating life of more than 10 years underpinned by a strong base of mines and an average reserve grade of 1.05 grams per tonne. The gold reserves are further complemented by significant exposure to copper, silver, zinc, and lead with 63 million gold equivalent ounces.

Newmont has stable production of ~8M GEOs annually through 2030+ and a strong project pipeline to support sustainable production in the 2040s. The company continues to invest in organic opportunities and expects investments of $400 million annually on exploration and advanced projects.

Newmont (NGT) historical yield
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Competition

The company is the largest gold mining company that is trading publicly. Newmont Gold Corp. competes with the likes of Wheaton Precious Metals, Franco Nevada, Agnico Eagle Mines, and Royal Gold. Franco Nevada is the leading gold-focused royalty and streaming company.

Wheaton Precious Metals is the world’s largest pure streaming company, while Royal Gold is another precious metals stream and royalty company focusing on gold. Agnico Eagle is a leading gold miner having extensive experience of more than 60 years. 

Bottom Line

The company expects increasing gold production, ongoing investment, and promising growth prospects in the future. Quality gold reserves with large operating lives, a strong pipeline, growing free cash flow, investor-friendly policies, and a large geographic footprint are Newmont’s strong competitive advantages.

Gold is regarded as the safest form of investment and investors look at gold to seek a safe haven. Though the company is facing a lag at some of its mines due to fear of infection, it stands to benefit in the long run.

Newmont (NGT) historical pe
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