In a perfect world, debt reduction would be a high priority. Unfortunately, growth at any cost seems to be part of the zeitgeist in the 2020s, especially on Wall Street. However, Newmont (NYSE:NEM), the world’s biggest gold miner, is bucking the trend and setting a good example by taking a financially disciplined approach.
Naturally, investing in NEM stock requires a bullish stance on gold and, to a lesser degree, copper. If you anticipate a favorable demand-versus-supply balance for these minerals though, then it makes sense to invest in a blue-chip producer like Newmont.
Alarmingly, Newmont stock has declined from $85 in April 2022 to the low $30s recently. However, if you truly believe in the buy-low-sell-high mentality, then there’s an opportunity here to mine for profits as Newmont strives to cut costs and maintain a decent dividend in 2024.
A smaller giant
Sometimes smaller is better, especially when a company like Newmont seeks to demonstrate financial discipline. It’s a challenging tightrope walk for Newmont to simultaneously reduce its expenditures while also returning substantial value to its shareholders. Yet, the company appears to be fully committed to this approach.
Newmont’s belt-tightening road map includes “[n]ear-term debt reduction of $1 billion to approximately $8 billion.” That’s a rather wide range, so investors should monitor Newmont’s progress in the coming quarters to see whether the final debt-reduction result is actually closer to $1 billion or $8 billion.
The company had $8.874 billion of debt at the end of 2023, versus $5.571 billion of debt at the end of 2022. Clearly, it’s imperative that Newmont reverse this trend as soon as possible.
A central part of the company’s debt-reduction plan is “divestment proceeds from sale of non-core assets.” Specifically, Newmont intends to sell six non-core mineral assets and two non-core projects.
In addition, the company plans to reduce its workforce in the wake of its acquisition of Newcrest Mining last year.
“A big part of our commitment is to deliver $100 million of free cash flow by bringing Newmont and Newcrest together… [T]here is a reduction in headcount in order to achieve those synergies,” Newmont CEO Tom Palmer clarified to Reuters.
Along with all of that, Newmont has supposedly “[i]dentified an additional $500 million of cost and productivity improvements over and above initial synergy commitments,” and is committed to a “[d]isciplined development capital spend of approximately $1.3 billion per annum.”
One can only hope that Newmont will stick to that plan irrespective of the inevitable fluctuations in the cost of getting gold and copper out of the ground.
Newmont remains a resource behemoth, having counted 135.9 million ounces of gold reserves and 30.1 billion pounds of copper reserves at the end of last year. The company also had smaller quantities of silver, zinc, lead and molybdenum.
Has Newmont’s massive mineral base resulted in a profitable profile though? It did in the fourth quarter of 2023 as the company reported adjusted earnings of 50 cents per share.
This demonstrates improvement over Newmont’s earnings of 36 cents per share in the prior quarter and 44 cents per share in the year-earlier quarter. Furthermore, Newmont’s Q4 2023 result beat the analysts’ consensus estimate of 44 cents per share.
Turning to the top-line results, Newmont generated revenue of $3.957 billion in the fourth quarter, up 23.7% compared to the $3.2 billion in revenue from the year-earlier quarter. Moreover, this result easily exceeded Wall Street’s call for $3.1714 billion in quarterly revenue.
Mind you, all of this took place during a time when the gold price couldn’t break above $2,100 for any substantial length of time. If you’re bullish on gold, then you might anticipate a ramp-up in Newmont’s already impressive revenue growth.
Finally, even while Newmont is dedicated to reining in its expenditures, it continues to return capital to its loyal shareholders. In particular, the company declared a fixed annualized dividend payout of $1 per share along with a “$1 billion share repurchase program to be executed over the next 24 months.”
Newmont’s dividend isn’t gigantic on a percentage basis, but gold bullion pays no dividend at all. Thus, if you’re in the market for a diversified-minerals miner that may prove to be a model of fiscal discipline in 2024, consider putting a few shares of NEM stock in your portfolio.
