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Stock Strategist

A Golden Quarter for Newmont

The miner is positioned to improve its production and cost profile over the next few years.

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 Newmont Mining (NEM) reported a great start to 2015, generating adjusted EBITDA of $815 million on 1.2 million attributable gold ounces in the first quarter, compared with $493 million on 1.2 million attributable gold ounces in the prior-year quarter. We think the results reflect Newmont's impressive improvement over the past year. The company has done a good job reducing its cost profile, with first-quarter all-in sustaining costs of $849 per ounce compared with $1,034 per ounce a year ago. The 18% reduction in AISC has helped improve Newmont's cash flow generation, allowing it to rely on internally generated cash to fund developments at Merian and Long Canyon. The company largely maintained its full-year outlook of 4.6 million-4.9 million attributable gold ounces at AISC of $960-$1,020 per ounce. We wouldn't be surprised if Newmont lowers that cost outlook later in the year, as we expect full-year AISC to fall at the lower end of its guidance. We've added the Long Canyon mine to our model, but given its relative size (about 100,000-150,000 gold ounces at full production) compared with the company's total production (4.8 million gold ounces in 2014), our fair value estimate is unchanged at $30 per share. We maintain our no-moat rating.

We're optimistic for the Long Canyon mine development. In a time where other gold miners continue to struggle with geopolitical issues around the world, the potential for Newmont to expand its flagship Nevada portfolio is extremely attractive. Long Canyon is the first mine in a new gold mining district located less than 100 miles from Newmont's other Nevada mines. This proximity should allow mines in this new district to leverage existing infrastructure and equipment to lower capital and operating costs. By itself, Long Canyon isn't large enough to significantly move the needle for the sizable gold miner. But the potential to develop additional nearby mines could serve as a meaningful production growth driver in the future.

Kristoffer Inton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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