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Newmont Mining Corporation

Newmont Mining Corporation. Real Client Managed Portfolio April 4, 2013 Dan Ballantine Heziyou Xu Lingtao Zhou. Agenda. Introduction Macroeconomic Outlook Industry Overview Company Overview Financial Analysis Valuation Recommendation. Newmont Mining Corporation.

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Newmont Mining Corporation

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  1. Newmont Mining Corporation Real Client Managed Portfolio April 4, 2013 Dan Ballantine Heziyou Xu Lingtao Zhou

  2. Agenda • Introduction • Macroeconomic Outlook • Industry Overview • Company Overview • Financial Analysis • Valuation • Recommendation

  3. Newmont Mining Corporation • One of the world’s largest gold producers • Only gold company included in the S&P 500 Index and Fortune 500 • Founded in 1921, publicly traded since 1925 • Headquartered in Greenwood Village, Colorado • 40,000 employees and contractors worldwide Source: Newmont website

  4. Macroeconomic Outlook • Precious metals industry is heavily dependent on metal spot prices • Precious metals are often used as a hedge against inflation and crisis • Very relevant to concerns about currency strength around the globe • Strong performance of gold and copper over the past five years primary driver of the drilling market is energy consumption

  5. Gold Spot Prices Source: KitCo

  6. Copper Spot Prices Source: KitCo

  7. Macroeconomic Outlook • Bullish leanings on gold and copper due to increasing demand and future implications of current monetary policies • Low interest rate environment may lead to considerable inflation in the future • Weaker US Dollar leads to increased demand for gold and precious metals • Future inflation could increase gold prices

  8. Industry Forces Analysis

  9. Industry Forces Analysis • Bargaining Power of Suppliers: HIGH • Complex mining process • Large number of suppliers • Governmental and environmental regulations • Bargaining Power of Buyers: HIGH • Commodity products • Little control over product pricing • Threat of New Entrants: LOW • Capital intensive • Limited mine resources • Mining requires considerable specific knowledge

  10. Industry Forces Analysis • Threat of Substitutes: LOW • Precious metals are not imitable • Only substitute is paper currency • Rivalry among Competitors: HIGH • Number of firms in the industry • Significant exit barriers • Complex operations

  11. Company Overview • Gold producer with significant operations in United States, Australia, Peru, Indonesia, Ghana, NewZealand and Mexico • Considerable reserves • Gold: 99.2 million ounces • Copper: 9.51 billion pounds • 24 mines in five continents • North America: 9 mines, 37.7 million gold ounces • South America: 3 mines, 12.6 million gold ounces • Asia/Pacific: 8 mines, 29.9 million gold ounces • Africa: 4 mines, 19.0 million gold ounces

  12. Production Distribution Source: Newmont 10-K

  13. Company Overview • First gold-linked dividend in the industry • Leading safety, environmental compatibility and sustainability in the industry Source: Newmont website

  14. Product • Refined gold and copper • Major end product: doré bars Source: The Telegram

  15. Business Risk Analysis

  16. SWOT Analysis

  17. Strategy • More selective regarding capital investments • Invest capital efficiently to maintain current mine projects • Increase profitability through cost reduction and more efficient operations • Improve relations with local stakeholders of its mines

  18. Management Outlook • Stable gold and copper production in 2013 • Rising production costs in 2013 • Increase operating cash flows in 2014 and 2015 due to significant cost reductions • Reduced exploration, research & development, and capital expenditures by 15-20% in 2013 • Expect gold and copper prices to increase

  19. Recent News • April 3, 2013: NEM hits a new 52-week low • March 1, 2013: new CEO, Gary Goldberg, formerly the COO • October 2012: Labor and government issues at Batu Hijau mine in Indonesia • April 2012: Protests over water pollution at Conga mine in Peru • February 2012: $1.6 billion write-down of Hope Bay project Source: Newmont Website

  20. Recent Financial Information Source: Newmont 10-K

  21. Current Stock Information Source: Capital IQ, Yahoo Finance

  22. Dividend Policy Source: Newmont website

  23. Financial Analysis

  24. Financial Analysis

  25. Comparable Companies Source: Capital IQ

  26. Stock Performance Source: Yahoo Finance

  27. Comparable Company Analysis Source: Capital IQ

  28. Comparable Company Analysis Source: Capital IQ

  29. Discount Rate

  30. Discount Rate

  31. DCF Analysis

  32. Decision Drivers • Strengths: • Good fit in portfolio based on GICS map • Positive long-term macroeconomic outlook • Dividend yield • Comparable company valuation • Concerns: • Lack of strong management team • Previous misallocation of capital • Developing project issues • Variation in historical returns • Rising production costs • Sensitivity to gold prices

  33. Recommendation • Valuation Summary: • Current Stock Price: $38.47/share • Comparable Companies Valuation: $51.98/share • DCF Valuation: $34.37/share • Recommendation: Watch List

  34. Questions?

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