standards of financial discipline
In a perfect world, debt reduction would be a top priority. Unfortunately, growth at all costs seems to be part of the zeitgeist of the 2020s. This is especially true on Wall Street. But Newmont (NYSE:NEM), the world’s largest gold miner, is setting a good example by bucking this trend and taking a financially disciplined approach.
Naturally, investing in NEM stock requires a bullish stance on gold and copper. However, if you expect the supply-demand balance for these minerals to be favorable, it makes sense to invest in a blue-chip producer like Newmont.
Surprisingly, Newmont’s stock price fell from $85 in April 2022 to the low $30s recently. However, if you truly believe in the buy-low-sell-high mentality, there is an opportunity to profit here as Newmont works to cut costs and maintain a decent dividend in 2024.
smaller giant
Sometimes smaller is better. This is especially true when a company like Newmont is trying to demonstrate financial discipline. It’s a difficult tightrope walk for Newmont to reduce spending while also returning significant value to shareholders. However, the company appears to be fully committed to this approach.
Newmont’s austerity roadmap includes “reducing (n)deferred debt from $1 billion to about $8 billion.” This is a rather wide range, so investors should monitor Newmont’s progress in the coming quarters to see if the final debt reduction results are actually closer to $1 billion or $8 billion.
The company’s debt was $8.874 billion at the end of 2023, and its debt was $5.571 billion at the end of 2022. Clearly, it is essential for Newmont to reverse this trend as quickly as possible.
The core of the company’s debt reduction plan is ‘sale proceeds from the sale of non-core assets.’ Specifically, Newmont plans to sell six non-core mineral assets and two non-core projects.
The company is also planning to reduce its workforce following its acquisition of Newcrest Mining last year.
“A big part of our commitment is to deliver $100 million in free cash flow by combining Newmont and Newcrest. (T)he reduction of headcount to achieve these synergies.” Newmont CEO Tom Palmer told Reuters.
In addition, Newmont said it had “(i) identified an additional $500 million in cost and productivity improvements compared to its initial synergy commitment” and “(d) committed to disciplined development capital expenditures of approximately $1.3 billion per year.” .”
We can only hope that Newmont sticks to that plan, regardless of the inevitable fluctuations in the cost of mining gold and copper.
Newmont remains a resource giant, with gold reserves of 135.9 million ounces and copper reserves of 30.1 billion pounds at the end of last year. The company also had small quantities of silver, zinc, lead, and molybdenum.
Has Newmont’s large mineral base led to a profitable profile? That was the case in the fourth quarter of 2023, when the company reported adjusted earnings of 50 cents per share.
This is an improvement over Newmont’s earnings of 36 cents per share in the previous quarter and 44 cents per share in the year-ago period. Additionally, Newmont’s fourth-quarter 2023 earnings beat analysts’ consensus estimate of 44 cents per share.
Looking at key results, Newmont generated revenue of $3.957 billion in the fourth quarter, a 23.7% increase over revenue of $3.2 billion in the same quarter last year. Moreover, this result easily exceeded Wall Street’s required quarterly revenue of $3.1714 billion.
All of this occurred at a time when the price of gold could not exceed $2,100 for any significant period of time. If you’re bullish on gold, you can expect Newmont’s already impressive earnings growth to accelerate even further.
Finally, while Newmont is committed to reining in spending, it continues to return capital to its loyal shareholders. Specifically, the company declared a fixed annual dividend of $1 per share, along with a “$1 billion share repurchase program to be implemented over the next 24 months.”
Newmont’s dividend is not large on a percentage basis, but bullion pays no dividend at all. So if you’re in the market for a diversified mineral miner that could become a model for fiscal discipline in 2024, consider putting a few shares of NEM stock in your portfolio.
