Newmont Corporation

NEM Details

Targeting Growth Through Acquisitions: Newmont Corporation (NYSE: NEM) is a mining company involved in the exploration and production of gold, copper, and silver. As of 11^th March 2021, the company’s market capitalization stood at ~$46.78 billion.

On 10^th March 2021, NEM announced all-cash binding agreements to acquire all outstanding shares of GT Gold Corp for $456 million on a fully diluted basis. The company will be acquiring the shares of the target company at $3.25, representing a 38% premium to the 20-day volume-weighted average price as of 9^th March 2021. NEM will now own the desirable Tatogga gold and copper project in the Tahltan Territory located in the Golden Triangle district of British Columbia, Canada. The acquisition augments the Company’s existing interest in the Golden Triangle through its 50% ownership of the Galore Creek project. NEM’s acquisition of Goldcorp in 2019 created the largest gold producer globally by market value, output, and reserves.

Shareholder Value Creation: The Company announced a $1 billion share repurchase program on 14^th January 2021. This will build on a similar ($1 billion) buyback in 2020, which retired 22 million shares at $45/share. NEM recently also declared a dividend framework, which includes a base dividend and additional returns at higher gold prices. The company has returned more than $2.7 billion to its shareholders through dividends and share buybacks since January 2019.

Robust FY20 Results: NEM’s top line grew 18% YoY to $11,497 million in FY20 from $9,740 million in FY19. Adjusted EBITDA increased sharply to $5,537million in FY20 from $3,734million in the year-ago period. The company’s cash and cash equivalents stood at $5,540 million as of FY20 as compared to $2,243 million as of FY19.

Key Risks: The company’s operations in certain jurisdictions are exposed to political, social, and economic risks. These include Yanacocha and Conga projects in Peru (latter suspended since 2011), Merian operation in Suriname, Ahafo and Akyem in Ghana, and Penasquito Mine in Mexico. Such risks pose a threat to the company’s operations operation and earnings.

Outlook: The North America mines are guided for 1,760 Koz of gold production as compared to 1,457 Koz produced in FY20. The Company expects all-in sustaining costs (AISC) of gold to be lower at $915/oz in FY21 as compared to $1,049 /oz in the previous year. The Australian mines are expected to produce 1,330 Koz of gold in FY21 as compared to 1,165 Koz output in FY20. Gold AISC at Australian mines is projected to be lower at $860/oz in FY21 as compared to $964 /oz in the year-ago period.

Valuation: EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: NEM has corrected 3% in the past three months and is currently inclined towards the mid-point of its 52 weeks’ range of $33.00-$72.22. On the technical analysis front, the stock of NEM has a support level of ~$52.34 and a resistance level of ~$60.36. We have valued the stock using the EV to EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). Considering the current trading levels and a robust outlook for the business, we give a “BUY” rating on the stock at the current market price of $58.45, up by 0.46% as of 11^th March 2021.

NEM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Barrick Gold Corporation

GOLD Details

Sale of Non-Core Assets: Barrick Gold Corporation (NYSE: GOLD) is a mining company engaged in the production and sale of gold & copper commodities. The company is involved in exploration and mine development activities for these commodities. As of 11^th March 2021, the company’s market capitalization stood at ~$36.11 billion.

On 16^th February 2021, the company announced an agreement to sell 100% interest in Lagunas Norte mine in Peru to a Singapore-based company Boroo Pte Ltd for $81 million. Also, Boroo will assume GOLD’s closure liability of $226 million backed by an existing $173 million bonding obligation. This transaction is in alignment with GOLD’s plan of realizing more than $1.5 billion from sales of non-core assets, which started in late 2019.

Growth in Resource Estimates: Total attributable resources grew for the company in 2020 (excluding Massawa disposal impact). The resources stood at 3,300 million tonnes at 1.52g/t for 160 million ounces, with a further 980 million tonnes at 1.4g/t for 43 million ounces under the inferred category. The rise in resources was on account of intensified focus on geology after the merger with Randgold, resulting in improved knowledge of its orebodies.  The net reserves were reduced by approximately 2% (excluding the disposition of Massawa).

FY20 Results: GOLD’s total revenue grew 29.61% YoY to $12,595 million in FY20 from $9,717 million. The company posted a net income of $2,324 million in FY20 as compared to $3,969 million in FY19. Adjusted net earnings stood at $2,042 million during FY20 and $902 million in FY19. GOLD reduced its net debt from $2,222 million to -$33 million as of FY20, thus achieving net debt-free status.

Mine Concentration Risk: The Nevada Gold Mine accounts for 44.77% of total attributable gold production for the company. Any adverse event relating to this mine can impact the company significantly.

Outlook: GOLD has guided total gold production to be in the range of 4.4-4.7 million oz in FY21. Cost of sales to be in the range of $1,020/oz -$1,070/oz in FY21. Copper production is expected to be in the range of 410 M lbs - 460 M lbs in FY21. The company forecast the copper cost of sales to be in the range of $1.90/lb -$2.10/lb in FY21.

Operating Guidance for 2021 (Source: Company Presentation) 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: GOLD has corrected 15.17% in the past three months and is currently inclined towards the mid-point of 52 weeks’ range of $12.65-31.22. On the technical analysis front, the stock has a support level of ~$18.03 and a resistance level of ~$22.11. We have valued the stock using the EV to EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of double-digit (in percentage terms). Considering the correction in the past three months, current trading levels, and solid fundamentals, we recommend a “BUY” rating on the stock at the closing price of $20.31, up by 0.94% as of 11^th March 2021.

GOLD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Kinross Gold Corporation

KGC Details

Development Projects on Track: Kinross Gold Corporation Common Stock (NYSE: KGC) is a senior gold mining company with a diverse portfolio of gold mines spread across Canada, the United States, Brazil, Chile, Ghana, Mauritania, and Russia. The company also mines and sell quantities of silver. As of 11^th March 2021, the company’s market capitalization stood at ~$8.56 billion. The company’s key development projects are on track as per the update provided on 10th February 2021. Udinsk drilling and study project’s pre-feasibility project had commenced and is expected to be completed by Q4FY21. Fort Knox Gilmore had produced frost ounce of gold from new heap leach pad in January 2021 and the construction was done under budget and on schedule. Peak project had commenced drilling program and studies for permitting after acquiring 70% of synergistic, Fort Knox “Bolt-on” project in September 2020. La Coipa Restart pre-stripping started as scheduled in early January 2021. The update provides confidence about the company’s ability to achieve a higher output in upcoming years.

Increase in Mineral Reserves: The company’s proven gold mineral reserves increased by 5.7 million oz in FY20 to 30 million oz, registering 23% growth YoY. This growth was registered on account of the net addition of 6.4 million oz at Lobo Marte, 446 Koz at Chirano, and 103 Koz at La Coipa (partly offset by a decrease in reserves at other locations).

FY20 Results: The company reported an increase of 20% in the topline to $4,213.4 million in FY20 as compared to $3,497.3 million in FY19. Gold production totaled 2.4 million oz, in line with the guidance. The cost of sales of gold was $723 /oz in FY20 as compared to $706 /oz in FY19.

FY20 Results and Guidance. (Source: Company Press Release)

Outlook: The company has guided for 2.4 million oz of gold from its operations in FY21, largely unchanged as compared to FY20. FY21 production forecast was impacted by the anticipated deferred production of approximately 100 Koz at Tasiast from 2021 to 2022 due to lower mining rates as a result of the impact of COVID-19 in 2020 and the strike in Q2 2020. For FY22 and FY23, annual gold equivalent production guidance is for 2.7 million oz and 2.9 million oz, respectively.

Key Risks: The company is exposed to significant political, regulatory, and security risks in some of the geographies it operates in. These jurisdictions include Mauritania and the Russian Federation.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: KGC stock corrected by 9.02% in the past three months and currently trades around the average of its 52 weeks’ range of $2.72-$10.31. On the technical analysis front, the stock of KGC has a support level of ~$6.03 and a resistance level of ~$7.18. We have valued the stock using the EV to EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of double-digit (in percentage terms). Considering the company’s decent operational and financial performance in 2020, FY21 outlook, project expansions, and valuation, we give a “BUY” rating on the stock at the closing price of $6.81, up by 2.41% as of 11^th March 2021. 

KGC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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