Newmont Corporation’s Dominance in Precious Metals

Newmont Corporation (NYSE:NEM) stands tall as the world’s foremost gold producer, generating a staggering 5.3Moz (million ounces) of gold per year, complemented by 35oz of silver, 100Mlbs of copper, and diverse other byproduct metals like zinc and lead. The total GEO (gold equivalent ounce) production easily surpasses 7 million ounces. Newmont’s prodigious production profile stretches far into the future, with ongoing production assured until at least 2032.

Operating predominantly in politically stable locations such as Canada and Australia, Newmont’s stock price recently underwent a steep decline, plunging by over 50% from its 2022 peak of over $80 per share. Given the current entry point near a 5-year low, Newmont becomes an enticing prospect. For every $100/oz surge in gold prices, Newmont adds a phenomenal $400 million per year to its free cash flow. With the long-term upward trajectory of gold prices lending support to sustained levels and Newmont’s leading production profile combined with metal diversification, the corporation has emerged as a stable source of dividend income and offers substantial potential for capital appreciation.

Assessing the Fair Value

Establishing the Estimated Fair Value (EFV) requires a simple calculation based on E25 EPS (Earnings Per Share) multiplied by P/E (Price/EPS).

EFV = E25 EPS X P/E = $3.10 X 18 = $55.80

Analyzing the Portfolio

With a projected production for the full year 2023 of 5.3Moz of gold, coupled with 100Mlbs of copper, 15Moz of silver, 100Mlbs of lead, and 230Mlbs of zinc, Newmont’s average AISC is estimated to hover around $1,426/oz.

North American production ascended by 3.7%, but AISC surged by 15.5%. Inflationary cost escalations predominantly drove this increase, with the aging assets in North America leading to higher sustaining costs to access deeper or more challenging gold deposits.

Central and South American production dwindled by 71.5%, while AISC shot up by 20.2%. The labor strike at the Peñasquito mine dealt a heavy blow to South American operations. Excluding this, marginal production growth occurred due to enhanced recovery at Cerro Negro. Inflationary pressures drove cost increases in this region.

Australia/Pacific witnessed a moderate 2.7% surge in production, with a mere 4.5% rise in AISC. Notable increases in the production of other metals, mainly copper, were recorded at the Boddington mine in Australia. Anticipated improvements in production for 2024 stem from the waste processing plant, allowing for heightened extraction rates from ore.

Africa suffered an 18.1% drop in production, coupled with a 21.5% surge in AISC. This was due to a temporary closure in Akyem, necessitating road reinforcement. Additionally, a large custom-tooled gear at Ahafo South was damaged, compelling the mill to operate at limited capacity. Newmont forecasts a return to full capacity in the first half of 2024.

Strategic Expansion Into Copper

In a bold step for this venerated mining giant, Newmont Corporation is making a significant shift toward copper production, a pivotal response to the global energy transition. Copper, a fundamental metal in electrical component manufacturing, currently grapples with a dearth in supply, despite surging demand. According to McKinsey, copper demand is projected to surge by 46% by 2031, with supply lagging by a colossal 6.5 million metric tons. Furthermore, S&P reports that approximately 60% of global copper originates from regions plagued by unstable geopolitical conditions, enhancing the allure of Newmont’s Australian production profile.

The completion of the $16.8 billion acquisition of Newcrest Mining in November 2023 marks a seminal event for Newmont. This monumental transaction, initially announced in March 2023, promises to amplify Newmont’s prowess, infusing ~2.2Moz of gold production and 280Mlbs of copper production. Moreover, Newcrest boasts a considerable reserve profile, significantly broadening Newmont’s asset base and conferring control of over half of the globe’s tier 1 gold deposits. By the close of 2025, the amalgamated entity is anticipated to accrue savings of at least $300 million by harmonizing Newcrest’s assets with Newmont’s management and supply chain.

Immediate expansion into gold encompasses two pivotal projects at Tanami in Australia and Ahafo in Ghana. Long-term expansion initiatives involve life extensions at Porcupine, Cerro Negro, and sulfide extraction in Peru.

The Tanami expansion is predicted to usher in a substantial increase of 175koz in annual production, effectively extending the mine’s operational life.