Newmont Mining Corporation (NEM, Financial) added a new presentation to its website, Jefferies 2016 Industrials Conference, that I will summarize.Â
The presentation focuses on three cornerstones:
Improve the Underlying Business – Leading Safety, Cost and Risk Management Performance
The miner is a recognized leader in safety and sustainability with its injury rates. The total recordable injuries per 200,000 hours worked is down 54% since 2012. At Phoenix (Nevada), one of the four operations that compose the North America segment, Newmont’s maintenance crew reached three years working without injury.
Strengthening the Portfolio – Improving Portfolio Value via Organic Growth and Transactions
Newmont continues on its trajectory of cost improvement, gold all-in sustaining cost is down 28% since 2012, from $1,177 per ounce in 2012 to $852 per ounce in 2016.
As of today, the company generated approximately $2.8 billion in cash through the sale of assets at fair value since 2013.
The last asset that Newmont sold was Batu Hijau mine in Indonesia, which will provide the miner with more cash to fund its highest margin projects at:
- Merian, Suriname, where the first production of gold is expected in late 2016. The miner expects to produce between 400,000 and 500,000 ounces of gold in the first five years at $650 – $700 per ounce.
- Long Canyon (Nevada), where exploration drilling activities are already underway. The production of gold (the date of the first production is estimated for the first half of 2017) will be made using a phased approach. The miner expects to produce between 100 – 150 thoushand  ounces of gold at $500 – $600 per ounce.
- Cripple Creek & Victor (Colorado), where the first production of gold commenced in March. The mine produces between 350 – 400 thousand ounces of gold at $600 – $650 per ounce.
With the divestment of the copper and gold mineral deposit in Indonesia for a total consideration of $1.3 billion ($920 million gross cash proceeds plus, $403 million contingent payments), the transaction is anticipated to close in the third quarter of 2016, Newmont prefers to monetize future cash flow. Once the sale of Batu Hijau is completed, 92% of reserve base of the company will be gold.
Through the divestment of noncore assets and the reinvestment of the proceeds into higher margin projects, the company is building a longer-life, lower cost asset portfolio:
Source: Newmont Mining Corporation's website
Create Shareholder Value – Superior Balance Sheet, Cash Flow and Net Debt to EBITDA
Newmont's operating efficiency and successful strategy in debt reduction (13% reduction in net debt from prior year quarter and 49% reduction since 2013) are reflected in the improvement of the following:
- TTM average net debt to EBITDA ratio (1.0x) compared to the competitor TTM average ratio (1.9x).
- TTM average ROCE compared to the competitor TTM average ROCE (8.7% vs 6.0%).
- TTM average FCF per share compared to the competitor TTM average FCF ($1.89 vs. 91 cents).
Free cash flow was $486 million in the second quarter of 2016, when the monthly average gold price was $1,258.48 per troy ounce, compared to $119 million in the second quarter of 2015, when the average monthly gold price was $1,192.30 per troy ounce.
This means that Newmont was able to add $367 million to its FCF with a 5.6% positive trend in the gold price. And now that analysts forecast a further increase in the price of gold through 2016 and 2017, Newmont should be able to add extra FCF following a disciplined capital expenditure and therefore, may increase the dividend going forward.
Meanwhile, the miner reaffirmed its 0.025 cents per share quarterly dividend for the second quarter of 2016.
Disclosure: I have no positions in Newmont Mining Corporation.
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