The Gold Report - Tue, Oct 31, 2017

Gold Major Positioned as 'Preferred Large Gold Producer Under Coverage'

BMO Capital Markets reported this producer's progress during Q3/17.


Newmont Mining Corp. (NEM:NYSE) had a "solid" Q3/17, during which "free cash flow shines," analyst Andrew Kaip of BMO Capital Markets wrote in an Oct. 26 research note.

The company's headline Q3/17 earnings per share was $0.39, which was "above consensus of $0.33" and "essentially in line with our estimates of $0.39," Kaip noted. Similarly, Q3/17 production met expectations, at 1.339 Moz.

All-in sustaining costs (AISCs) were $943/ounce, coming in below BMO's projected $994/ounce, said Kaip. Likewise, outlay for capital expenditures was $194M, which was also less than BMO's estimate of $250M.

Consequently, Kaip indicated, Newmont's operating and free cash flows during the quarter exceeded expectations. Actual operating cash flow was $685M and compared to an expected $585M. Free cash flow was $491M and surpassed the anticipated $335M.

At the end of Q3/17, Newmont's "net debt was $1.1B, including $3B in cash offset by $4B in debt," wrote Kaip.

The analyst relayed, too, that Newmont reiterated its production guidance for 2017, which is 5-5.4 Moz, along with AISCs of $900-950/ounce. It also kept its capital guidance for the year at $890-900.

BMO's research note included an operational update as well. Newmont announced it plans to proceed with construction at the Quecher Main deposit in Peru, "which is expected to extend Yanacocha mine life to 2027," said Kaip. Newmont estimates the project will initially require $250-300M in capital and will eventually generate "an internal rate of return of +10% at $1,200/ounce gold."

According to Kaip, Newmont achieved the following production milestones in Q3/17:

1. Tunami expansion: Commercial production was reached, and the company is considering another expansion there.

2. Twin Underground: First production was achieved, with commercial production anticipated in 2018.

This mining firm will share its longer-term corporate outlook during its Investor Day in December 2017.

BMO concluded that Newmont "has established a solid track record of execution and has delivered superior free cash flow returns, supporting an improved balance sheet. Announcement of the next series of expansions will add to an already peer-leading reserve life. These attributes, combined with above-average leverage relative to peers, position NEM as the preferred large gold producer under coverage."

BMO has an Outperform rating and a $45 per share target price on Newmont, whose stock is now trading at around $36.12 per share.

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