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Newmont Mining Reports 2016 Results

- By Alberto Abaterusso

Newmont Mining Corp. (NEM) released its fiscal fourth-quarter and full-year 2016 operating and financial results on Feb. 21.

For the quarter, the gold producer generated adjusted EPS of 25 cents, a 525% increase from the same quarter of 2015, and missed analysts' expectations by eight cents, generating a negative surprise of 24.20%.

Concerning revenue, Newmont reported sales of $1.789 billion on a consolidated basis, a 23.2% increase from fourth-quarter 2015 due to higher gold and copper prices and a higher volume of gold sold.

Source of data: Newmont's Fourth-Quarter and Full-Year 2016 Report

The cash flow from operations increased by almost 108% to $590 million.

The revenue attributable to the company increased almost 25% from $1.299 billion in fourth-quarter 2015 to $1.623 billion in fourth-quarter 2016.

During the quarter, Newmont sold 1,331 thousand ounces of gold, a 14.74% increase on a year-over-year basis, for $1,193 per ounce and 14 thousand tonnes of copper, a 12.50% decrease on a year-over-year basis, for $2.49 per pound.

During the quarter, the company produced approximately 1.3 million ounces of gold, a 17% increase on a year-over-year basis. The increase was due to the contributions of Long Canyon, whose first commercial production was reached and declared by the miner last November, and Merian in Suriname and Cripple Creek & Victor in Colorado, the other two gold projects the miner brought into production over the last year. During the quarter, Newmont produced less at Yanacocha because of lower gold grades. This decrease, however, did not completely offset the aforementioned production.

The costs applicable to the sale of one ounce of gold and all-in sustaining costs per ounce were $681, a 5% increase on a year-over-year basis, and $918, an 11% decrease from fourth-quarter 2015. The latter were lower because the miner sustained fewer expenses for maintenance purposes and the advancement of gold projects. Therefore, the free cash flow was $289 million, a 309.4% increase from $-138 million in fourth-quarter 2015.

The costs applicable to the sale of one pound of copper and AISC per pound of copper were $1.88, an 11% increase on a year-over-year basis, and $2.31, an 11% decrease from the comparable quarter in 2015. The higher costs sustained by Newmont were due to lower volumes of copper sold.

Due to higher gold prices in 2016 and an increase in the volume of gold sold, the company generated consolidated revenue of $6.7 billion, a 10.31% increase on a year-over-year basis, and revenue of approximately $6.16 billion, a 13.75% increase from 2015.

During the year, Newmont saw the costs applicable to one ounce of gold sold, $682, increase 3% and the costs applicable to one pound of copper sold, $1.95, increase 8%. These costs were not enough to completely counterbalance the positive impact from higher gold prices and higher sales volumes however. Therefore, Newmont delivered an adjusted diluted EPS of $1.16, an 84.1% increase on year-over-year basis.

Lower ounces of gold produced at Yanacocha in Peru and operating issues experienced at Carlin did not impact the company's total gold production of 4.9 million ounces. This was a 7% increase on a year-over-year basis due to the contributions of its newly operating mines and enhanced operating efficiency at the Kalgoorlie mine in Australia.

The cash flow from ongoing operations was $1.9 million., an increase of 21% from approximately $1.6 billion in 2015.

The free cash flow was $784 million, a 183% increase from $277 million in 2015.

In 2016, part of the cash flow was used to repay $1.3 billion of debt, strengthening the balance sheet further. As of Dec. 31, 2016, Newmont Mining had $4.05 billion in total debt and $2.8 billion in cash and securities.

A stronger financial position enabled Newmont to increase its quarterly dividend from 2.5 cents to five cents per share. This increase brings the annual dividend to 20 cents. The dividend yield is 0.55%.

Newmont expects to produce between 4.9 and 5.4 million ounces of gold in 2017. The output is expected to be 4.5 million to 5.4 million ounces of gold for the next five years. Capital expenditures are expected to be $800 million to $900 million.

As of Dec. 31, 2016, Newmont has approximately 68.5 million ounces of gold in proven and probable reserves.

Newmont closed at $37.44 per share yesterday, up 43 cents or 1.16% from the previous trading day, with a volume of 5,838,615 shares traded on the New York Stock Exchange.

The largest gold producer in the U.S. has a market capitalization of $19.87 billion and an enterprise value of $22.58 billion. The gold stock is uptrending and has gained 6.75% year to date.

The stock is trading at 1.79 times the book value and at 7.07 times the Ebitda.

The recommendation rating is 2.4, which ranges between 1.0 (Strong Buy) and 5.0 (Sell). The average target price per share is $39.88.

Disclosure: I have no position in Newmont Mining Corp.

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This article first appeared on GuruFocus.