Newmont Mining (NYSE: NEM) had a solid third quarter despite weak commodity markets. But that's not the whole story. In fact, for Newmont anyway, it's just a small part of some very positive underlying trends. Here are five things the company's management highlighted during its most recent conference call.
The (underlying) business is good
Newmont posted adjusted earnings of $0.23 a share in the third quarter, down from $0.50 last year -- but higher than the $0.17 a share Wall Street was expecting. And that's really good news, particularly when you compare it to other miners who are bleeding red ink, such as Freeport-McMoRan (FCX 0.46%), which lost $0.15 a share in the quarter -- and that excludes $3.43 in write-offs. (For reference, one-time items increased Newmont's earnings to $0.38 a share.)
All that's gold. Source: Newmont Mining.
According to Newmont CEO Gary Goldberg, "[W]e improved our underlying business by lowering injury rates 15%, decreasing all-in sustaining cost 16%, and increasing gold production 16% quarter-on-quarter." Essentially, those solid numbers were the result of a well-run business and were achieved despite relatively low gold prices.
Strengthening our finances
Moreover, the gold miner was able to generate a lot of cash. Goldberg explains that this allowed Newmont to meet "our commitment to pay dividends, and [repay] $50 million of debt." So far this year the company has paid down $330 million of debt and remains on track with its goal to pay down $750 million by the end of the year.
So, solid results are leading to a more financially secure company. But what's that really mean? CFO Laurie Brlas provides the segue here: "[A] strong balance sheet provides a competitive advantage [amid] a volatile gold price environment."
And this is the reason behind the earlier comparison to Freeport-McMoRan, which has a heavy $20 billion debt load that's been roughly the same since it used leverage to fund an ill-timed foray into the oil and gas business a couple of years ago. That debt has forced the copper miner to issue shares at low prices to help shore up its balance sheet as investors increasingly question its finances. Newmont is in much better shape than that.
Internal projects are still moving forward
For example, CEO Goldberg points out that Newmont is "on track with our four development projects in the Americas. We also announced the decision to proceed with our Tanami expansion project in Australia."
A Newmont exploration project. Source: Newmont Mining.
In other words, Newmont is still investing for the future by moving forward with its best internal projects. Better yet, according to the CEO, the company's approximately $475 million in free cash flow in the quarter, "allowed us to continue to self-fund our best projects." So, unlike debt-heavy Freeport, Newmont has the cash it needs.
If we see a bargain ...
But there's more going on than just internal investment. Goldberg also pointed out, "[W]e strengthened our portfolio by acquiring Cripple Creek and Victor." Looking past the details of each transaction, a strong balance sheet has also allowed the company to pick up solid assets for sale at a time when the gold market is stuck in a painful malaise. Opportunistic buying is a wonderful thing, but only when you are financially strong enough to do it.
That said, according to the CEO, Newmont is also "selling assets that represent lower value or higher risk to Newmont." While selling into a weak market isn't great, the bigger picture is that Newmont's portfolio is shifting toward a higher quality mix. That's the right move for the long term and will lead Newmont to exit this downturn in stronger shape than it entered it.
Cheerleading is easy ...
CEOs have to be cheerleaders and Goldberg lived up to that in his closing remarks: "[W]e are continuing to make good progress toward our goal to become the world's most profitable and reliable gold producer." The thing is, this quarter was the proof in the pudding that the company is on track to deliver on this promise.
Costs were down, production was up, Newmont generated solid free cash flow, dividends were paid, debt was reduced, expansion projects continued, and the portfolio was augmented via acquisition and improved via dispositions. It is a tough gold market, to be sure. But Newmont is using the downturn to become a better company. Cheerleader or not, Goldberg has a right to be positive about past results and, if this quarter is any guide, a bright future ahead. That future, by the way, included management providing positive guidance for full-year 2015 operations.
