Why Is Newmont Mining Worth $37?

+33.60%
Upside
38.44
Market
51.36
Trefis
NEM: Newmont Mining logo
NEM
Newmont Mining

Newmont Mining Corporation’s (NYSE: NEM) stock has been gaining strength in the last few days and is expected to close the year on a higher note after earlier hitting a 52-week low, backed by the talks that Barrick is looking to combine Nevada gold operations with Newmont and the expected higher realized prices of gold and copper in the last quarter of 2018.  Barrick Nevada is a tier 1 gold asset, with the lowest cash cost per ounce in the world. Previous to this, Newmont, a member of the Dow Jones Sustainability Indices, reported its third-quarter results, wherein, it posted an EPS of $0.33, beating the consensus market expectations by almost 14 cents.

Revenue was, however, posted on the lower side, which came in with an 8% decline in its total sales in Q3, primarily due to lower average realized gold and copper prices and lower production at various mining sites, representing a decline in demand of safe-haven assets. Looking ahead, the company has lowered its production guidance and improved its gold cost outlook for 2018 in various regions. The North-American AISC (all in sustaining costs) has been narrowed down to $920-$995 per ounce for 2018, and the overall AISC has been narrowed to $950-$990 per ounce for this year, outlining higher margins for the company in Q4’18.

Based on the above developments, We have updated our price estimate to $37 per share for the company, which is approximately 11% above the current market price and updated our base case estimates for the company. View our interactive dashboard – What to Expect From Newmont In 2018 – and modify the key updated assumptions to arrive at a price estimate of your own.

Relevant Articles
  1. Is Newmont Stock Attractive Post The Q2 Sell-Off?
  2. What To Expect From Newmont’s Q1 2023 Earnings
  3. What’s Happening With Newmont Stock?
  4. Why Newmont Stock Looks Attractive
  5. What’s Next For Newmont Stock After A Tough Q2 Report
  6. Will Newmont Stock Bounce Back?

Outlook For 2018

The company reported a 41% increase in its capital expenditures, due to increased investment in Subika Underground (Africa), Quecher Main (South America), and Afaho Mill expansion (Africa). The company’s capital expenditures stood at $274 million for the third quarter and with significant investments in Africa, the company expects the Subika underground to commence commercial production in the last month of 2018. The Afaho mill is expected to start early and have commercial production, both in the second half of 2019. Subika has a mine life of approximately 11 years and the Afaho mill expansion will generate almost double the sales after the expansion. Both projects and the other two projects in South America and in Australia (Tanami Power) have an IRR of around 20 percent, which has further boosted confidence in the company.

Further, the company has reduced its gold-production guidance for 2018, narrowing it down to 4.9-5.2 Moz, as compared to 5.3 Moz in 2017, largely due to lower production at its North-American Carlin’s surface mines. However, the total gold cost outlook for the year appears better for the company, with the overall cost of applicable sales (CAS) unchanged at $750-$800 per ounce and AISC (All-in-sustaining costs) narrowed down to $950-$990 per ounce for the fiscal year, upholding the higher profit margins and EBITDA margins for the company in Q4’18.

Additionally, the copper production guidance, CAS and AISC for copper have been kept unchanged as the last guidance. We expect the company to generate $330 million in revenues from the copper division in 2018 with North-American performance improving in the second half due to ramping up shipments to Barrick Nevada. The company’s South-American and Australian investments can drive a substantial amount of revenue for the company in the longer term

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own.