Commodities & Metals

On Top of $1 Billion Stock Buyback, Newmont Outlines Lower Combined Production Costs and Stronger Returns

Jon C. Ogg

Published: December 2, 2019 10:25 am

Last Updated: January 30, 2020 12:40 pm

Newmont Goldcorp Corp. (NYSE: NEM) became one of the two largest gold miners in the world due to its merger, and now the company is committing to another sizable cash outlay. This time it’s in the form of shareholder returns. The gold-mining giant announced on Monday that it will repurchase up to $1 billion worth of its common stock. The company has updated its forward guidance and made multiple announcements that management hopes will entice new investors to consider investing in the company. It also has announced 2020 guidance and has updated its post-merger views for a longer period.

The company announced that it has entered into a contractual arrangement to support Zijin Mining Group’s bid to acquire Continental Gold, whereby Newmont will sell its 19.9% equity stake and its convertible bond for $260 million. Along with the announced sale of Red Lake for $375 million, the gold-mining giant expects to realize $635 million in total cash proceeds when the transactions close in the first quarter of 2020. Newmont will use those proceeds to return capital to shareholders, while it continues to invest in profitable projects and also strengthens its balance sheet.

With its market cap of $31.5 billion ahead of any would-be share purchases, this represents about 3.2% of the current shares. According to the press release, all repurchased shares will be retired and will result in immediate accretion to shareholders by reducing total shares outstanding and improving per share financial performance. While most companies issue buyback plans that are open-ended, Newmont announced that the repurchases would be completed in the next 12 months, at its own discretion and using open market share repurchases. Newmont further said that the company remains committed to returning cash to shareholders, while also investing in profitable growth and maintaining an investment-grade credit profile.

Newmont’s press release also indicated that the company has completed its Goldcorp integration process and that it is now positioned to realize over $500 million in total cash flow improvements per year by 2021. Those savings will come from operational overlaps and exploration synergies, as well as supply chain efficiencies and from cost and productivity improvements.

With gold currently trading close to $1,460 per ounce, Newmont’s 2020 outlook comes with attributable gold production guidance of 6.7 million ounces and with all-in sustainable costs of $975 per ounce. The company’s attributable gold production range is now forecast to come in between 6.5 million and 7.0 million ounces per year through 2024 with improving costs. It expects to produce approximately 1.1 million gold equivalent ounces from other metals in 2020 and increasing longer-term through 2024, with a longer range of 1.0 million to 1.2 million ounces in 2021, 1.1 million to 1.3 million ounces in 2022 and between 1.3 million and 1.5 million ounces in 2023 and 2024.

The company’s gold costs applicable to sales guidance is $750 per ounce for 2020 and is expected to improve by going to down to a range of $650 to $750 per ounce for 2021 and 2022 and then to a range of $600 to $700 per ounce for years 2023 and 2024. The company’s all-in sustaining costs guidance is $975 per ounce for 2020, falling to a range of $850 and $950 per ounce for 2021 and 2022, and then to a range of $800 to $900 per ounce for 2023 and 2024.

Newmont assumes a 35% incremental tax rate, and each $100 per ounce increase in gold price would deliver an expected $400 million improvement in attributable free cash flows. The company’s commodity and currency outlook assumes the following:

• $1,200 per ounce gold price
• $16 per ounce silver price
• $2.75 per pound copper price
• $1.20 per pound zinc price
• $0.95 per pound lead price
• $0.75 USD/AUD exchange rate
• $0.77 USD/CAD exchange rate
• $60 per barrel WTI oil price

Newmont Goldcorp shares traded up 1.55% at $39.02 on Monday morning. Its 52-week range is $29.77 to $41.23, and its consensus analyst target price from Refinitiv was $47.56. The stock was last seen up over 13% year to date and up about 20% from this time a year ago.