The world's largest gold miner, Newmont Corporation (NEM, Financial), is in the midst of a troublesome time, with a recent earnings disappointment and a corporate reshuffle unfolding. Moreover, the stock's 36% year-over-year drawdown has left many of the shareholders uncertain of what lies ahead.
Based on a top-down analysis, Newmont will likely still face face challenges in 2023. However, many of the stock's key metrics point toward the potential for upside as well. Overall, I am bullish on Newmon't stock; here are some of the reasons why.
Corporate reshuffle
A noticeable change in Newmont's C-suite is occurring, with outgoing Anglo American Platinum (ANGPY, Financial) CEO Natascha Viljoen set to assume Newmont's Chief Financial Officer position, replacing Nancy Buese. Viljoen will join Newmont as soon as her 12-month notice period at Anglo American Platinum ends.
According to Newmont CEO Tom Palmer, "Natascha will further strengthen our leadership capabilities as we continue to build a resilient and profitable future for the company – safely delivering on our commitments and continuing to differentiate Newmont as the recognized leader for sustainable and responsible gold mining."
With big shoes to fill, Viljoen brings a wealth of experience after an extensive career with Anglo American and Anglo American Platinum. Apart from her corporate experience as a blue chip mining company executive, Viljoen has dealt with various systemic challenges in the past few years as the Anglo American CEO, providing her with the necessary tools to succeed in the highly competitive gold mining industry.
Earnings review and outlook
Newmont released its fourth-quarter financial results last week and unfortunately succumbed to sustained input costs, which led to an earnings per share miss of $0.01.
Although Newmont's bottom line settled below estimates, the company beat its quarterly revenue target by $100 million. Fundamental to the company's revenue beat was its full-year production target achievement, which saw Newmont produce 6 million attributable gold ounces and an additional 1.3 million co-product ounces.
In value terms, Newmont generated $1 billion in cash from continuing operations during its fourth quarter, leading to a free cash flow value of $1.1 billion during 2022's fiscal period.
Looking ahead, Newmont anticipates a positive 2023. The company's fourth-quarter report detailed an enhanced outlook to between 6.1 and 6.7 million ounces from a previous range of 5.7 and 6.3 million. Moreover, Newmont revealed an improved all-in-sustaining cost guidance of $1,150 to $1,250 per ounce.
Operational outlook
Newmont anticipates higher production in 2023. Much of Newmont's increased implied production is attributed to the continuous development of the Nevada Gold Mines project, which is dually owned by Barrick Gold (GOLD, Financial).
The Nevada Gold Mines venture is considered Newmont's most strategic asset because it produces some of the industry's highest grades. In addition, the joint venture arrangement with Barrick Gold allows both companies to exercise pricing power within the industry, especially as large gold producers in sub-saharan Africa are struggling with high cost bases.
Furthermore, due to ongoing mine sequencing, Newmont produced lower grades during its previous quarter. A combination of evolved sequencing at the firm's Penasquito mine and smoother weather might add substance to Newmont's outlook. In addition, the company has stated that it believes its Yanacocha mine will experience a better 2023, primarily due to recently improved waste recovery capabilities.
Gold prices juxtaposed
Broadly speaking, Newmont's stock will need help from gold prices to succeed, as the two are inextricably linked.
The issue for analysts and investors alike is that gold's key influencing variables are conflicted. For example, technical analysis suggests that gold is trading at a premium, while the yield curve implies that a recession is on the way, which could result in favorable gold prices.
Source: Kitco
The United States' inverted yield curve spells trouble. However, investors are inclined to retreat to gold to protect themselves during a recession. Moreover, market participants tend to stock up on gold to avoid market tail risk.
Based on my analysis, I believe gold prices will likely remain in equilibrium as there is a divide among investors. I anticipate the divide to sustain until a catalyst presents itself. Furthermore, I believe pivoting input costs and improved weather conditions will be the critical contributors to Newmon't performance in 2023 instead of gold's price level.
Valuation and dividends
Newmont's current valuation multiples show that the stock is fairly valued in my view. The stock is trading at 1.82 times its book value, which is not considered overvalued for a mining stock. However, it implies that the market has already priced the asset's equity book value.
The stock presents lucrative carry return prospects with its forward dividend yield of 3.58%. Additionally, Newmont has a normalized share buyback ratio of 0.6, which, if sustained, will be accretive to its current shareholders as it increases investors' per-share value.
Final word
Newmont's year-over-year drawdown was both systemically and cyclically induced. However, upgraded guidance coupled with the recent progress at its flagship mines suggests the company's financial results are set to improve.
Furthermore, Newmont could benefit from supportive gold prices and an inflection point in input costs, thereby buoying shareholder enthusiasm.
Although the stock isn't undervalued per se, Newmont presents investors with a lucrative dividend and is on a share buyback spree. Altogether, I believe the stock provides a lucrative opportunity in a challenging market environment.
