Here’s How the U.S. Tax Reform is Impacting Newmont Mining

Newmont Mining (NYSE:NEM), as per its latest SEC filing, has communicated a re-valuation of its balance sheet position due to a change in the U.S. corporate tax rate from the current percentage of 35% to the new rate of 21%. The re-valuation would involve a write- down of the company’s net deferred tax asset and is expected to have a material impact on the company’s current year’s net income value. Despite a rise in the company’s expense, the tax reform is expected to remain beneficial for the company in the long  term.

The company in its Q3 report disclosed a net deferred tax asset of $682 million, a substantial portion of which was attributable to tax loss and tax credit carry forwards. The new tax law would permanently lower the maximum income tax rate from the current percentage of 35% to 21%. The lowered tax rate would require the future benefits of the existing deferred tax asset to be reassessed at the new rate. The write down of the deferred tax asset would in turn, increase the tax expense for Newmont for the current year. Despite the new tax rate being applicable post 31st December, 2017, the Tax Cuts and Jobs Act (TCJA) contains certain provisions that would impact the computation of deferred tax assets and liabilities for companies as on 31st December, 2017.

Newmont’s 9-month ended 2017 net earnings were reported at $429 million, a significant improvement over its 2016 figures, largely attributable to its high production volumes. As per our previous estimates (before considering the impact of the change in tax rate), we expected Newmont to report a net income of $654 million for 2017. However, with the expected impact of between $200 and $400 million due to the increase in the company’s tax expense in Q4, we expect Newmont’s net earnings to be lowered by a subsequent amount and result in a net earnings estimate of between $254 and $454 million.

Nevertheless, the overhaul in U.S. taxes is expected to benefit the country’s economy as a whole, and should have a positive impact on Newmont’s U.S. operations in the future. We wait to see what would be the resultant impact of these developments on  Newmont’s earnings over the years to come.