ABX:CC - Newmont Corporation: Poor Stock Performance Should Be Addressed

2023-06-08 17:17:26 ET

Summary

• Newmont Corporation reported a net income from continuing operations of $351 million or $0.44 per diluted share in the first quarter of 2023.
• The quarter was weak for gold production, significantly down from Q4 2022 but aligned with expectations. Gold production was 1,273K Au Oz, and total gold equivalent production was 1,561K GEOs.
• I recommend buying Newmont stock between $40.25 and $38.5, with possible lower support at $38.

Introduction

Newmont Corporation ( NEM ) released its first-quarter 2023 earnings on April 27, 2023.

Note: This article updates my May 9, 2023, article. I have followed NEM on Seeking Alpha since Dec. 2014.

Also, I have discussed one important piece of recent news in my article published on May 15, 2023.

On May 14, 2023, Newmont Corporation agreed to acquire 100 percent of the issued shares in Newcrest Mining Limited.

Newcrest shareholders to receive 0.400 Newmont shares (or 0.400 Newmont CDI1) for each Newcrest share and a special dividend of up to $1.10 per share paid by Newcrest, representing a 30.4 percent premium.

The deal is estimated to be between $17 billion and $19.5 billion.

1 - First Quarter of 2023 Highlights and subsequent events

The 1Q23 earnings results beat analysts' expectations despite revenues missing the mark this quarter. Attributable Gold production was significantly down and represents 21% of the gold production guided for 2023. Below is shown the main components from the May Presentation.

NEM reported a net income from continuing operations of $351 million or $0.44 per diluted share in the first quarter of 2023, compared to $448 million or $0.56 per share last year. The adjusted earnings were an income of $0.42 per share.

Newmont reported revenues of $2,679 million , down from $3,023 million in 1Q22, or down 11.4% year over year.

Liquidity was strong in 1Q23, ending with $3,504 million of consolidated cash and approximately $6.5 billion of liquidity; reported net debt to adjusted EBITDA of 0.6x.

Reserves for 2022 were set at 96 Au Moz, and resources at 111 Au Moz, with significant upside from other metals, including copper, silver, lead, and zinc. The reserve will be revised soon after the acquisition of Newcrest.

Newmont's attributable gold production fell 5.3% year-over-year to 1.273M ounces in the quarter, or 1.561 Moz GEOs.

CEO Tom Palmer said in the conference call:

Newmont continues to lead the gold industry in safety, sustainability, profitable production and shareholder returns. Our solid first quarter performance is underpinned by our unmatched portfolio of world-class assets, our proven operating model, a balanced, disciplined approach to capital allocation and most importantly, our values-driven commitment to leading sustainability practices.

2 - Let's Compare Gold Production in 1Q22 with 1Q23 Per Mine

Newmont's attributable gold production in the first quarter decreased year over year to 1.273 Moz compared to 1,344 Moz last year. Below is a chart of comparative production per mine year-over-year.

3 - Stock Performance

Newmont Corp. is part of my long-term selected gold miners with Barrick Gold ( GOLD ), Agnico Eagle ( AEM ), and Kinross Gold ( KGC ). Newmont has continuously underperformed the group and the VanEck Vectors Gold Miners ETF ( GDX ) on a one-year basis.

NEM is down over 38% on a one-year basis, making it the worst performer by a large margin. Poor stock performance is an issue for long-term shareholders, and the company should address the subject more openly and search for the reasons for this underperformance.

4 - Investment Thesis

Despite a dismal performance and lower dividend payout, I still consider Newmont Corporation one of my long-term gold miners. In fact, I am using this bearish time to accumulate more of the company for the long term. It doesn't prevent me from voicing my discontent and criticizing the management for financial decisions that harm its shareholders.

The dividend policy is unambiguous and allows even higher dividends depending on the gold price level. The quarterly dividend is now down to $0.40 per share and is attached to the company's performance.

However, despite gold price trading above $1,950 per share and a more bullish environment for gold, NEM managed to reduce the dividend payout from $0.55 per share in 3Q22 to $0.40 per share in the last two quarters. Hopefully, this trend will reverse in 2Q23.

Thus, trading short-term LIFO about 35% to 40% of your long-term NEM position is necessary to take advantage of the gold price volatility and the temporary intrinsic weakness of the stock.

Newmont: Financials and Production History ending in 1Q23. The Raw Numbers

_{Source: Company 10-k filing .}

Part 1 - Gold Production Details

1 - All-In Sustaining Costs or AISC

2 - Presentation of Newmont Gold Production in Two Charts

The quarter was weak for gold production, significantly down from 4Q22 but aligned with expectations. Gold production was 1,273K Au Oz, and total gold equivalent production was 1,561K Au equivalent Oz or GEOs.

Gold Production in 1Q23 per producing mine, including Goldcorp and the JV Barrick/Newmont (Newmont owns 38.5%).

Part 2 - Balance Sheet and Commentary

1 - Newmont Revenues were $2.68 Billion in 1Q23

The adjusted net income was $0.40 per diluted share, or $320 million. The adjusted EBITA was $990 million in 1Q23.

1.1 Revenue repartition per metal mined in 1Q23. Gold gets the lion's share.

As shown below, NEM is a gold producer, representing 86% of the total revenues.

1.2 The gold price realized was a record of $1,906/Oz in 1Q23. Thanks for that.

2 - Newmont Reported a 1Q23 Free Cash Flow loss of $45 Million

NEM's trailing 12-month Free Cash Flow is substantial, with $787 million and a disappointing loss of $45 million in 1Q23.

The management declared a quarterly dividend of $0.40 per share in 1Q23.

3 - Newmont's LT Debt (Including Current) was $5.572 Billion at the End of March 31, 2023.

Part 3 - Technical Analysis (Short Term) and Commentary

Note: The chart has been adjusted for dividends.

NEM forms a descending channel pattern, with resistance at $42.3 and support at $38.7. RSI is 43 and suggests a possible breakout soon.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.

The short-term trading strategy is to trade LIFO about 45-50% of your position and keep a core long-term amount for a much higher payday.

I suggest selling between $42.3 and $45 with possible higher resistance at $46.3 and waiting for a retracement between $40.25 and $38.5 with possible lower support at $38.

Gold is now turning bullish with a good support of around $1,950 per ounce, which will help NEM.

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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