RE:RBC Update on Newmont - Slightly PositiveAnd here's the RBC analyst comment details to support their "Slightly Positive" analysis:
Details:
• NEM reported better operating results, and 2024 guidance was reiterated. Gold production totalled 1.68moz (+8% RBCe, +5% cons) at AISC of $1,439/oz (-5% RBCe, -4% cons). Overall, larger positive contributors include Ahafo and Cadia, partially offset by Brucejack and Eleonore. We note that costs by operations varied considerably vs. RBCe and NEM annual guidance (see p. 3). NEM reiterated 2024 annual guidance of 6.93moz at AISC of $1,400/oz and attributable capex of $3.3b, while highlighting improved operating results in 2H.
• EPS was higher on operating results, while larger impairments were disclosed following assets recategorized as held for sale. EPS was $0.55, ahead of expectations (RBCe $0.42, cons $0.38). NEM classified 6 non-core assets as held for sale, resulting in an impairment of $485m, which NEM disclosed is primarily related to its Coffee project. Assets held for sale are now allocated a value of $5.7b on the balance sheet, which we note far exceeds the company's $2b divestiture targets.
• FCF disappointing due to working capital outflows, plus more upcoming outflows highlighted. We calculate FCF of -$83m, below RBCe -$19m and cons of $18m. A key variance was working capital outflows of $666m (vs. RBCe outflows $325m). We note that FCF includes a $291m stamp duty tax, previously guided and included within RBCe. Other key working capital changesinclude $193m related to inventories and stockpiling (disclosed as largely related to Lihir and purchase price accounting), $84m related to accounts receivable, and $59m related to reclamation spending. NEM highlighted cash outflows related to reclamation charges of $600m in 2024 and $700m in 2025.
• Lundin Gold stream sale accelerated ahead of its prior expected payment schedule. NEM raised $330m from its Lundin Gold stream sale to the operator, while maintaining its $1b LUG equity position. LUG previously maintained a buyback of this stream (exercisable 50% in June 2024, and 50% in June 2026), and this announcement effectively accelerates these payments. Including buybacks at prior schedules, RBC valued this stream NPV8% at $440m, with this sale representing a value of 0.8x at spot/deck and resulting in a nominal <1% negative impact to our NEM NAV. NEM disclosed having delivered $105m in synergies, and guided it was on track for $500m/y target.
• Stream sale positions modestly bumps forward potential share repurchase process. The LUG stream sale was not previously identified as an asset within NEM's sale process, but is likely to be counted towards the company's $2b cash flow optimization plan. NEM previously outlined it was targeting to reduce gross debt to <$8b and cash balance to >$3b, after which the company will advance its $1b share repurchase plan. As at 1Q, gross debt was $9.0b and cash was $2.3b.
• Project updates unchanged, while Cerro Negro and Telfer operations are currently offline. Operations at Cerro Negro remain suspended following prior-reported fatalities on April 9. Operations were also disclosed as being suspended at Telfer for tailings remediation. NEM reiterated project timelines and capital cost estimates for Tanami II (2H27 at $1.7-$1.8b), Ahafo North (2H25 at $0.95-$1.05b), and Cadia Block Caves (fulsome update guided for 2H24).
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Great run up today, but as ecolo101 likes to say...trees don't grow to the sky. Nice run from the low $50s in only a few days to today's high (almost 20%). And so as I like to say, no one ever went broke taking a little profit! And I suspect the funds and day traders will be going short later today or tomorrow so fasten your seat belts!
My opinion only, please DYODD.
HB77