Thursday, April 21, 2016

Newmont Mining - Decent Results And...Management Is Selling Shares

Yesterday Newmont Mining, one of the biggest world's gold producers, released its 1Q 2016 results. The table below summarizes these results:

               source: Simple Digressions and the company's reports

Generally, the results reported in 1Q 2016 were much better than those reported in the last quarter of 2015 but worse than those reported in 1Q 2015. 

Interestingly, although the price of gold in 1Q 2016 was comparable to that in 1Q 2015, Newmont was not able to improve its results (additionally, in 1Q 2016 the company produced and sold 4% more gold than last year but this improvement had no impact on results).  

Well, I am not a fan of drawing the quarter-to-quarter comparisons because using this kind of analysis you cannot spot the trends in a company's development.

Therefore, instead of going deeper into these rather meaningless digressions, let me present a few really relevant issues.


The chart below shows the company's costs, starting from 2010:

source: Simple Digressions and the company's reports

Between 2010 and 2013 Newmont's management was waisting its time. Instead of controlling the company's costs, the management let them go up significantly, from $683 to $1,271 per ounce of gold equivalent (an increase of 86% in just three years).

Fortunately, since 2013 the trend in costs reversed and in 1Q 2016 the company spent only $910 to produce one ounce of gold equivalent (production cost is defined as direct costs + depreciation and depletion + reclamation and remediation + exploration and research expenses + corporate administration + other costs). 

In my opinion, it is a big plus for the company. Taking into account that now the gold is trading at around $1,250 per ounce, Newmont should make around $340 per each ounce of gold sold. 

Next thing. Newmont produces gold and copper. Let me look at these segments.

Gold segment

The chart below shows revenues and direct costs, attributable to the gold segment:

    source: Simple Digressions and the company's reports

As the chart shows, the gold segment has been generating positive margins (revenue - direct costs) over the years. Most recently this margin even improved. 

Copper segment

Since 2013 the copper segment has been a laggard (direct costs higher than the copper price):

    source: Simple Digressions and the company's reports

But since 2015 the company has rebuilt its copper business and now the margin, made on copper, is more or less the same as that made on gold. 

The main copper operation is the Batu Hijau mine, located in Indonesia. It is an excellent mine, delivering around 500 million pounds of copper, of which 240 million is attributable to Newmont (Newmont holds a 48.5% stake in Batu Hijau). However, if the company sell its stake in this mine (there are rumours about it) Newmont's copper business will be practically over. 

Despite these decent results, the company's shares are trading at a multiple of enterprise value / EBITDA of just 7.5. It is not elevated valuation so Newmont is relatively cheap against its peers at the moment, despite a huge increase in its stock prices during the ongoing bull run in the entire sector.

However, the company's management is selling its shares. Between February 24 and March 18, 2016 the management sold 135,172 Newmont shares. Quite funny - the biggest seller was the company's CEO (he sold 52,491 shares).

Encouraging, indeed...


  1. Selling shares is hard to judge. CEO could have had a lot of cheap options. The key is what per cent of his holdings have been sold.

  2. Yes, it is about options. As for holdings - it was marginal selling but keep in mind that Newmont is a heavy puncher.