Newmont Signals Dividend Lift as Rally Helps Win War on Debt

Updated on
  • Gold recovery, disposals mean debt-cut ahead of schedule: CEO
  • Company may increase dividend payout structure in 4th quarter

Newmont Mining Corp. will consider increasing dividends as gold’s rally to a two-year high and asset sales put the world’s second-biggest bullion producer ahead of schedule on its debt-reduction target.

“Even if prices were to sustain themselves where they’re at today, versus where they were at the beginning of the year, we’d see an additional billion in free cash flow,” Gary Goldberg said Wednesday by phone. “We’ll be able to move forward with our debt repayment plans a little bit sooner.”

Newmont had planned to cut as much as $1.5 billion in debt over three years. Gold’s 27 percent recovery this year and an agreement last week to sell key Indonesian assets mean it might reach its goal sooner. How much sooner depends on how far gold rises and how much of the disposal windfall is used to fund projects and dividend payments, Goldberg said from Greenwood Village, Colorado, where the company is based.

While its dividends are linked to the price of gold, Newmont will also consider increasing the percentage of free cash flow it allocates to the quarterly payment. “We’ll be reviewing that in the fourth quarter with our board as we go through our plans for 2017,” he said.

Newmont’s dividend is 2.5 cents a share based on an allocation of 20 percent to 25 percent of free cash flow.

Disposal Windfall

The company will get $920 million in cash from the sale of its stake in the Batu Hijau copper mine in Indonesia, much of which will be used to pay down debt. Despite a long list of conditions, Newmont expects the deal to close in the next two to three months, Goldberg said. “We think people are motivated on all sides of the transaction to complete it successfully.”

The mining landscape in Indonesia has changed dramatically since the government’s decision to focus on building smelters rather than exporting raw materials. Even as Newmont extricates itself from that country, it’s hoping to forge new ties with a new government in Peru, another country that has proved challenging.

Goldberg said he will seek talks with the incoming government this year to discuss options for developing the massive Minas Conga gold project, which was halted four years ago amid protests. While there are no plans to develop the project in the “forseeable future,” it’s working to gain local support, he said.

Share Surge

Newmont’s share price has more than doubled this year as bullion rose amid tumult in financial markets. While Britain’s vote to leave the European Union and other political risks -- including the U.S. election in November -- have created uncertainty, it’s not clear how long that will last, Goldberg said. In the medium and longer term, though, he sees “very strong” fundamentals.

Even so, Goldberg said the company has no intention of aggressively chasing acquisitions, although it would consider buying assets that meet its value and risk criteria.

“The rigor we’ve built into the business over the last three years is something that we need to continue to sustain and focus on,” he said. “We really aren’t in any dire need to run off and make an acquisition to fill any holes in our portfolio.”

Super Pit

Asked about the company’s oft-telegraphed desire to buy Barrick Gold Corp.’s stake in the Kalgoorlie Super Pit in Australia, Goldberg said he’s still interested. “If we’re able to come to a similar view on value with them to make the transaction happen then we’ll move forward with it.” He declined to say if talks are taking place.

Higher gold prices create an acquisition “conundrum” for gold miners, Jeremy Sussman, an analyst with Clarksons Platou Securities, said in an interview Tuesday. “It’s probably too soon to just flip a switch for a lot of these companies that have been in pare-down mode,” he said. “I think it would be more likely than not that Newmont sticks with its current strategy.”

Newmont managed to expand through the down cycle, buying the Cripple Creek & Victor mine in Colorado for $820 million last year, and moving forward with plans to expand Tanami in Australia. All told, Newmont expects to add 1 million ounces to its production, at all-in-sustaining costs of $700 an ounce or less, over the next two years, Goldberg said.

Production guidance for 2018 to 2021 only includes projects already approved by the board, he said. If the company proceeds with two expansions at its Ahafo site in Ghana, the projected range of 4.5 million to 5 million ounces would increase by 400,000 to 500,000 ounces a year, he said.

The company also sees room to lower costs in 2017 “incrementally,” helped by a weaker Australian dollar and lower oil prices.

“It’s early, so I’m not giving guidance on 2017,” Goldberg said. “But I do see the potential for another $50 to $100 an ounce that we can work from the business plans here over the next year or two.”

Newmont shares fell 2.8 percent to $40.27 at 10:39 a.m. in New York.