Newmont Stock: A “Once-in-a-Generation” Buy

Newmont Corporation (New York Stock Exchange: No) has been weak in recent years, with gold (GLD) and the broad gold mining index (GDX) underperforming significantly since NEM shares peaked in April 2022.

But the future looks very bright. Now Bright and most recently CEO Tom Palmer. sent a signal Here’s a very bullish sentiment on NEM stock:

This is a once-in-a-generation purchase for anyone thinking of investing a few dollars in a gold asset…Newmont stock is sitting at a very good purchase price…and if we deliver on our promises, you will Enjoy the upswing with us.

In this article, I’ll share six reasons why NEM’s CEO agrees that he currently considers the stock a very attractive buy.

#One. Our balance sheet is strong and getting stronger.

NEM’s balance sheet remains strong, currently sitting at $6.1 billion. In terms of total liquidity, these are companies that generate free cash flow and very high credit ratings (BBB+ from S&P, A- from Fitch). Moreover, its balance sheet is set to improve further over the next two years as it is selling six assets to generate $2 billion in proceeds, about half of which will be used to reduce net debt and improve liquidity to $7 billion. It totals $1 billion, including $3 billion in cash on hand. This will allow the company to build a very strong financial foundation and give it the flexibility it needs to purchase shares aggressively and make other investments opportunistically.

#2. Large-scale synergies expected in the near future

NEM also expects to generate significant synergies in the near future, with the acquisition of Newcrest expected to result in total annual synergies of $1 billion to $500 million and productivity improvements expected to result in $500 million in annual synergies. . Considering that the company is expected to generate $6.5 billion to $8.5 billion in EBITDA going forward, these synergies would be a very meaningful improvement to the company’s bottom line.

#three. They have one of the most impressive gold mining portfolios in the world.

With plans to sell six Tier 2 assets in the near future, NEM’s pro forma portfolio will consist of 10 Tier 1 gold mines along with six high-quality copper mines.

Moreover, these mines will be concentrated almost entirely in low-risk mining jurisdictions with only 6% gold reserves and no copper reserves in Africa. Equally important, nearly two-thirds of gold and copper reserves are located in North America, Australia or Papua New Guinea. Combined with its size and balance sheet strength, NEM has one of the lowest risk profiles in the mining industry.

#4. Planned improvements in operations and free cash flow

In addition to an improved risk profile, the future of NEM appears to have great potential for increased operational efficiency and productivity. This is because Gold Equivalent Ounce production from Tier 1 portfolios is expected to increase meaningfully over the next few years.

Moreover, due to expected synergies, asset quality improvements, and other investments to improve efficiency, NEM’s overall sustaining costs are expected to meaningfully decline, while development capital expenditures are expected to remain fairly stable, likely leading to margin expansion for the company. . Gold price neutrality criteria:

#5. Very bullish outlook for gold and copper

That said, we expect gold and copper prices to surge over the next few years. As detailed in a recent article, gold is likely to continue its recent strength for the following reasons:

1. The Federal Reserve ended its rate hike cycle and began cutting rates.
2. Strong central bank gold purchases continue
3. Soaring geopolitical risks and tensions
4. potential weakening of the economy
5. Reversion to the mean in valuation relative to the stock market
6. The continued decline of the US dollar

Meanwhile, copper performs well for the following reasons:

1. Demand surges due to green energy transition
2. The value of the dollar is expected to continue to decline.
3. Production is suffering from mining disruptions and is unlikely to be able to meet demand in the near future.

#6. NEM stock is very undervalued and we plan to aggressively repurchase shares.

Finally, as the CEO recently highlighted, NEM stock currently appears to be very undervalued. With the recent announcement of a $1 billion share buyback, management appears ready to put its money where its mouth is.

Moreover, despite the stock historically trading at a 30% premium to NAV, it is currently trading inline with NAV, implying ~30% near-term upside for the stock. However, if gold and copper prices continue to rise, there is room for more upside.

NEM Stock Risk

That said, no stock is risk-free, and NEM certainly has a history that could cause many investors to fall into “show-and-run” mode. In addition to the sharp underperformance of the stock, NEM management has recently cut its dividend, likely destroyed its intrinsic value per share through the Newcrest acquisition, and had surprisingly little free cash flow relative to its total production capacity last year.

Additionally, it faces some execution risk as it has to digest a large acquisition and is trying to sell six Tier 2 assets and get a decent valuation. Gold analyst John Ing pointed out:

Sometimes with these acquisitions you end up buying other people’s problems…I wonder if this will work in the long run…Once you get to a certain size there will be about 21 mines in about 10 jurisdictions. There’s too much to manage.

Investor Implications

NEM actually looks like a generational buying opportunity right now. The company must demonstrate to the market that it can handle a new and improved portfolio, obtain attractive prices for the non-core assets it sells, and harvest its assets effectively. Anticipated synergies – a strong balance sheet, world-class asset portfolio, improving operating and production profile, and optimistic outlook for gold and copper prices, combined with a deeply discounted share price, are likely to result in significant total returns in excess of several years. will come As a result, this is currently one of my largest positions and I rate it a Strong Buy.