Newmont Mining (NEM, Financial) has been among my favourite stocks in the gold mining sector along with Barrick Gold (ABX). Even as gold prices remain depressed, I am positive on both the stocks with a 3-5 year investment horizon. My positive outlook for gold mining stocks is backed by bullish outlook for gold in the long-term, even as the precious metal continues to struggle in the near-term. This article discusses Newmont Mining’s 1Q15 results and the key positives from the result that makes me hold on to my bullish view.
For 1Q15, Newmont Mining reported revenue of $2 billion as compared to $1.8 billion in 1Q14. The company’s strong revenue growth was backed by higher copper production and sales. While copper was the revenue upside trigger in 1Q15, I will focus my discussion on gold as I expect the precious metal to be the key revenue and cash flow driver in the long-term.
Coming to the key positives other than the revenue growth, Newmont Mining reported an operating cash flow of $628 million for 1Q15 and the free cash flow for 1Q15 was also robust at $344 million. In my view, this is a critical point as Newmont Mining has been able to generate strong cash flows even in difficult times. With a cash position of $2.6 billion as of 1Q15, Newmont Mining is well positioned to invest significantly when gold prices recover. Further, it is also important to note that Newmont Mining pre-paid $200 million in loan in 1Q15 and I believe that the company’s conservative financial strategy will translate into a strong growth trajectory when bullish sentiments are back.
Another big positive that has contributed to higher operating cash flows in 1Q15 is a significant decline in all-in-sustaining-cost for 1Q15 as compared to 1Q14. The AISC was $849 an ounce in 1Q15 as compared to $1,034 an ounce in 1Q14. Once gold prices recover, I expect strong free cash flows on low AISC. This will also translate into a higher dividend payout as the dividend payout is directly linked to gold prices for gold mining stocks.
In terms of the outlook for FY15, Newmont Mining has stated that it is on track to meet the gold and copper production target along with the target for AISC. Therefore, there is unlikely to be any negative surprise in the coming quarters and I expect investors to accumulate this quality stock at these levels.
In addition to the outlook for production, Newmont Mining (at $1,200 an ounce gold), also expects to repay $750 million in debt in FY15. The company has already pre-paid $200 million in debt as mentioned above. Therefore, debt is likely to decline further by $500 million in FY15.
Overall, Newmont Mining is making the right moves in terms of financial prudence and the company has also done exceedingly well to lower its AISC cost. This makes the stock worth accumulating for long-term.
