By market cap, Newmont Corporation (NEM) is the largest gold miner; the stock held its own in 2020 despite Covid-related challenges during the year, notes Scott Chan, resource sector expert and editor of The Complete Investor.
It produced 5.9 million ounces of attributable gold and met its revised guidance (revised in May 2020 in light of Covid) at an all-in-sustaining cost (AISC) of $1,045 per ounce. This AISC marks an increase of about $100 over the 2019 level, but Covid played a large part in the higher cost.
The company expects the AISC to fall to $970 per ounce this year, and production to grow to $6.5 million ounces. By 2025, Newmont projects gold production will potentially reach 7 million ounces and AISC to be under $900.
In addition, in 2020, byproducts—copper, silver, zinc, and lead—totaled 1 million GEO at an AISC of $858 per ounce. Thus, in total, attributable production was nearly 7 million GEO ounces.
With more than 94 million ounces in attributable gold reserves, most of which are located in geopolitically-safe countries, Newmont should remain one of the top gold producers every year for the next decade.
As gold prices have risen in recent years, profits as well as cash flow has increased dramatically. Newmont earned more than $3.50 per share in 2020 and generated $3.6 billion in free cash flow, ending the year with $5.5 billion in cash on hand.
Investors who had gold during the lean times in the past decade can attest how vital it was for miners to have a quality balance sheet. We think Newmont’s strong financial position will help ensure that it thrives during good times for gold and perseveres during any rough patches.
An affirmation of its financial strength, in February Newmont hiked its quarterly dividend to $0.55 per share, nearly a four-fold increase from a year ago.
The company’s current dividend policy is to start with a base annual dividend of $1 per share with gold assumed to be at $1,200. With gold above $1,200, it plans to distribute 40% to 60% of the incremental cash flow generated as dividend.
In other words, even if gold falls to $1,200, Newmont still expects to be able to pay $1 per year. And the higher above $1,200 gold goes, the greater Newmont’s cash flow will be, and the dividend will proportionately rise higher.
The stock now yields well above 3% at the current price. NEM is not strictly for growth investing anymore, investors whose primary goal is income should have it on their radar as well.
Newmont also initiated a new $1 billion share repurchase program, right after it completed the previous program, under which it retired 22 million shares at an average price of $45.
With a solid balance sheet and robust cash flow, NEM remains a strong recommendation; we continue to regard the stock among the cream of the crop among gold producers.