How Sensitive Is Newmont’s Valuation To Its Copper Margins?

by Trefis Team
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NEM
Newmont Mining
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Newmont Mining (NYSE: NEM) is primarily a gold mining company but also enjoys a benefit from its copper mines. The company historically used to draw ~10% of its revenue from its copper mines. However, copper’s contribution to Newmont’s earnings has decreased  over time mainly with the sale of its Batu Hijau mines in Indonesia in 2016. Nevertheless, an increasingly favorable demand environment for copper with the increasing preference for Electric Vehicles (EVs) among consumers, it is likely that Newmont’s revenue contribution from its copper reserves could increase over the next few years. To understand the implication of such a scenario, we have built an interactive model that quantifies the implication of an increased share in the company’s copper EBITDA margin and the resultant impact of this on the company’s EPS and market price.

Per our analysis, a 1% change in the company’s copper EBITDA margin implies a mere .09% upside to the current market price of Newmont. This insignificant relation might reflect the fact that the company’s copper operations contribute only  ~2% to the company’s total EBITDA. Thus, only in a situation where Newmont’s copper EBITDA margin increases by a material amount (to 60%-70% EBITDA margin range as realized historically), then the company’s copper operations would have a significant impact on Newmont’s valuation. This would not be possible unless further copper mines are explored and developed by the company.

Our model assumes a forward P/E  that is expected to remain constant throughout 2018. In case you have alternate assumptions to our assumed revenue, EBITDA margin, or P/E estimates, you can modify these factors using our interactive platform to arrive at your own impact on the company’s valuation.

Have more questions about Newmont Mining? See the links below.

 

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