Newmont Mining Corp. (NYSE: NEM) is set to release its third-quarter earnings on Oct. 26. Are you finding yourself interested but equally worried about drowning in a flood of facts and figures? It's not uncommon during earnings season. Let's prepare by keying in on three things we can expect management to address in its report.
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Out of Indonesia
Attempting to "lower debt, fund our highest-margin projects, and create value for shareholders," Gary Goldberg, Newmont's president and CEO, announced that the company had entered into an agreement to sell its interests in PT Newmont Nusa Tenggara, which operates the Batu Hijau copper and gold mine in Indonesia. Look for management to provide an update on the deal's closing, which was expected to occur during the third quarter following regulatory approval.
Consisting of $920 million in cash due at closing and $403 million in contingent payments, the transaction is another example of Newmont's commitment to selling off its non-core assets to pay down its debt and better position it for future growth. Since 2013, Newmont has lowered its debt load about 37% from $1.9 billion in proceeds from the sale of non-core assets.
Piping up about the pipeline
In working to strengthen its portfolio, Newmont isn't solely relying on the sale of less profitable, non-core assets. The company's growth strategy also entails the execution of projects it has in development.
Gold is poured at the Ahafo mine in Ghana. Image source: Newmont Mining corporate website.
Of the numerous projects in its pipeline, Newmont has several investors should look for management to mention during the earnings release.
Though it's not definite -- it could also be in the fourth quarter -- management may announce its decisions regarding two potential projects in Ghana: the Ahafo Mill Expansion and Subika Underground. Both located at the Ahafo Mill, the projects would not only increase gold production but also reduce costs because of synergies.
One of Newmont's five self-funded growth projects, the Cripple Creek and Victor mine expansion is expected to be completed in the second half of 2016. Management should both provide an update on the project's progress and a report of stronger production at the mine in general.
Located at the Carlin mine in Nevada, Northwest Exodus is an expansion that was expected to yield its first gold production in the third quarter. Management estimates that it will contribute an additional 700,000 ounces of gold, and it will extend the mine life by seven years. Leveraging the mine's existing infrastructure, Northwest Exodus is expected to lower Carlin's AISC by about $25 per ounce during the first five years of production.
Successful execution of this project may continue to bear fruit for years to come. On the second-quarter conference call, management, addressing Northwest Exodus, stated that "extending the underground mine and infrastructure also creates a platform to support future growth in this highly perspective district."
Keeping costs in check
Because Newmont's success is closely tied to the market price of gold, it's crucial that the company excels at keeping its operational expenses down. In order to monitor this, investors should focus on the company's all-in sustaining costs (AISC) for the quarter.
Apparently, Newmont is well on track to achieve its AISC target -- between $870 and $930 per gold ounce -- for 2016; through the first half of the year, the company's AISCs are $852 per gold ounce. In the second-quarter conference call, management attributed the improvement to "higher volumes, sustainable cost and efficiency improvements, and favorable oil prices and exchange rates."
Management has consistently affirmed its AISC guidance for 2016, which means it foresees AISC to average above $1,000 for the second half of the year . Consequently, it's likely that the company will report AISC around this amount for the third quarter.
The takeaway
The Batu Hijau transaction, execution of projects in the pipeline, and AISC are three key topics to watch for -- providing insight into whether Newmont can build upon its recent success -- but they're certainly not the only important ones.
I'll also be watching to see if the company can continue growing its free cash flow. Reporting $486 million last quarter, Newmont grew its free cash flow 308% year over year; however, I think it's unlikely that it books the same type of staggering growth this quarter.
