Newmont Mining Corporation (NEM, Financial) has done exceedingly well this year, with a few turnaround strategies such as cost-saving initiatives fueling its productivity and increasing its profitability. Newmont has grasped various new profitable projects and has set forth an excellent outlook for fiscal 2014.
What will drive results
The company expects that this reduction in cost will assist Newmont in offsetting the effect of inflation and rising input cost and hence will keep the company’s cost per ounce stable, so the company would like to carry on this practice in the current fiscal 2014 as well.
Newmont has further realized approximately $600 million by divesting noncore assets during 2013 through strategic initiatives such as screening assets and opportunities based on their contribution to value, measured by NPV and return on capital employed and mine life. Hence Newmont is determined to practice this turnaround initiative further in fiscal 2014 and prioritize its best organic development opportunities and to remove the assets that are not a good fit. This move will certainly help the company to improve its efficiency and increase its returns on the assets employed and yield handsome amount from divesting noncore assets that are not good fit.
Newmont has fueled its production as it owns now both Akyem and Phoenix copper leach projects that will go live into full commercial productions for the current fiscal and coming years. These projects are expected to produce approximately 400,000 ounces of gold and 9,000 tons of copper during fiscal 2014.
Catalysts ahead
In addition, Newmont is exploring two expansion projects Ahafo Mill and Subika underground mill expansions in Ghana. The company expects that this investment could approximately produce 200,000 ounces of gold annually and will help the company to optimize on the impact of the lower-grade ore mining the company has currently in Ghana. Similarly, the Subika plant is expected to produce nearly 200,000 ounces of gold annually that will substantially improve ore grade in the region and improve its profitability eventually.
With the successful deployment of Akyem during the last reported quarter in the Africa region, the production grew to 25% year-on-year basis and delivered 129,000 ounces during the fourth quarter that exceeded the company’s prior estimate range of 50,000 to 100,000 for the year. Newmont is anticipating a stable range of 700,000 to 800,000 ounces of production in the
Africa region during the fiscal 2014.
With the implementation of its Phoenix project at Nevada in the United States in the last quarter, its production rose to approximately 12% year-over-year primarily driven by the higher tons and grade at Mill6, Jupiter Mill and higher grades at Phoenix and as well as higher leach production at Carlin North Area and Emigrant. The company further anticipates gaining substantially in the region with over 9000 tons of copper coming from its Phoenix facility.
The company is focused to create strategically high value opportunities with these projects at its disposal, and these projects are expected to add higher grade material to its inventory during fiscal 2014. Hence, the company is on the right track and looking forward to acquire more market share in the industry.
Moreover, the investors have good news as the company has a strong asset-based portfolio that comprises 70% of production from Australia, New Zealand and the United States and Newmont is determined with its reinforced product portfolio to deliver stable production for about 5M ounces of gold per year for the next three years. The company derives 90% of its revenue from gold thus offering a value proposition to its investors that reflects through its operational, financial and strategic expertise.
Financials
Newmont currently trades at a forward multiple of 17.44, and the analysts are estimating CAGR of 66.70 for the next year. Looking at the astounding outlook with plenty of projects in hand as its capital expenditure rose to $675 million from $150 million in the last year put forwards solid long-term growth prospects for the company.
Apart from this, Newmont is taking aggressive steps to shore up its financials by targeting $600-700 saving over the years 2014-2016 that will certainly enhance its financial flexibility and Newmont also intends to modify its dividend policy and focused to secure commitments through restructure debt.
Conclusion
It is evident that Newmont's progress is going on nicely. The company's financials are in good shape, and it is taking up smart strategies to improve performance, making it a good buy for the long run.
