In a Dec. 6, 2018, research note, analyst Andrew Kaip reported that Newmont Mining Corp. (NEM:NYSE) gave updates on its 2019 and longer-term outlook, with next year's numbers being generally "in line" with some variations. Production and capital requirements came in higher and all-in sustaining cost (AISC) lower than BMO's forecasts.
Kaip reviewed and compared the specific figures.
For 2019 production, Newman guided to 5.2 million ounces (5.2 Moz), higher than BMO's projected 5.1 Moz. For 2020 production, the miner forecasts 4.9 Moz and longer term, annually through 2023, 4.4–4.9 Moz.
Kaip pointed out that "Newmont's guidance does not include a number of development projects yet to be approved, which we include, such as Tanami phase two and the next phase of Long Canyon." Taking those into account, BMO estimates the company can maintain about 5 Moz of production through 2023.
As for capital requirements, the mining company guides to $1.07 billion for 2019. This compares to BMO's projection of $965 million. "Relative to our estimates, Newmont's capital is lower, but we include a number of growth projects that are currently in its pipeline," noted Kaip.
Management expects capex to drop to $730 million in 2020 and subsequently remain around $500–600 million through 2023. Newmont's projected long-term sustaining capital requirement of $450–550 million is lower than BMO's estimate, which is "closer to current spending levels," Kaip indicated.
Regarding costs, Newmont's 2019 AISC projection is $935 per ounce ($935/oz) whereas BMO's calculation is higher, at $965 million. In 2020, AISC is expected increase to $975/oz then remain around $875–975/oz longer term. For that farther out time frame, Kaip pointed out, BMO's AISC estimates are in the upper end of Newmont's expected range.
In terms of Newmont's other costs in 2019 and how guidance for next year compares to BMO's estimates, general and administrative expense is expected to be flat versus the prior year, and BMO agrees. Adjusted tax is projected to be $210 million, lower than BMO's expected $370 million. Depreciation and amortization is forecasted to be $1.37 billion, less than BMO's estimate by about $70 million.
Kaip mentioned new projects coming online and their individual AISCs. Ahafo is slated for commercial production in H2/19. Together with Subika, it should produce 550–650 thousand ounces in years 2020 through 2024 at an AISC of $800–900/oz. Commercial production also is anticipated to begin in H2/19 at Quecher. Production there is projected to be about 200 thousand ounces between 2020 and 2025 at an AISC of $900–1,000/oz and requiring $250–300 million in capital.
BMO has an Outperform rating and a $42 per share target price on Newmont, which is trading currently at around $33.53 per share.
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Disclosures from BMO Capital Markets, Newmont Mining, December 6, 2018
IMPORTANT DISCLOSURES
Analyst's Certification
I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Newmont Mining.
Disclosure 6C: Newmont Mining is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 9B: BMO Capital Markets makes a market in Newmont Mining in United States.
Disclosure 16: A research analyst has extensively viewed the material operations of Newmont Mining.
Disclosure 17: Newmont Mining has paid or reimbursed some or all of the research analyst's travel expenses.
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