On Wednesday, UBS revised its stance on Newmont Mining Corp. (NYSE: NYSE:NEM), downgrading the stock from Buy to Neutral and adjusting the price target to $54 from the previous $67. The revision follows the third-quarter results, which prompted a reassessment of the mining company's medium-term production and free cash flow (FCF) forecasts.
The downgrade reflects UBS's reduced confidence in Newmont Mining's ability to meet its guidance and regain market trust. The analyst cited significant downgrades to medium-term production and FCF projections, which in turn affect the company's potential to deliver superior and sustainable cash returns compared to its peers.
Despite this, there is an anticipation that Newmont will announce further asset sales to support near-term cash returns, coupled with a positive outlook on gold.
The key factors that previously supported the Buy rating for Newmont Mining included the expectation that the company would restore confidence in its operational performance, accelerate cash returns through divestments, and achieve modest production increases with lower costs and limited capital expenditures. These factors were expected to result in superior FCF and sustainable returns against competitors in the medium term.
However, the third-quarter results presented a significant negative surprise, with management indicating no improvement in core production, which is projected to be 9% below guidance, and costs expected to be 16% above guidance by 2025. This lack of clarity on the medium-term outlook undermines the initial reasons for UBS's Buy rating.
The firm highlighted that the disappointing third-quarter outcomes and the subsequent implications for the medium term were instrumental in the decision to downgrade the stock and lower the price target.
In other recent news, Newmont Corporation disclosed its Q3 2024 financial results, showing a steady gold production and a focus on cost management.
The company produced almost 1.7 million ounces of gold and generated $1.6 billion in cash flow from operations. Furthermore, Newmont initiated a $2 billion share repurchase program and returned $786 million to its shareholders.
In addition, the company is on track to meet its Q4 2024 gold production target of approximately 1.8 million ounces, with an anticipated decrease in all-in sustaining costs to about $14.75 per ounce.
Despite facing challenges such as increased labor costs and safety concerns, Newmont announced divestments of non-core assets, aiming for at least $2 billion in proceeds. The company's long-term production target is approximately 6 million ounces of gold annually. However, for 2025, the company anticipates a slightly lower production target of around 5.6 million ounces.
The company's CEO, Thomas Palmer, and CFO, Karyn Ovelmen, highlighted their medium-term cost reduction strategies in a recent earnings call. They also stressed the importance of maintaining tailings facilities and the expected increase in sustaining capital spending in the coming years. These are the latest developments for Newmont as it continues to navigate the complexities of the global gold market.
InvestingPro Insights
Despite UBS's downgrade, InvestingPro data and tips offer a nuanced perspective on Newmont Mining Corp. (NYSE: NEM). The company's revenue growth is notable, with a 53.66% increase in the last twelve months as of Q3 2024, and an impressive 84.72% quarterly growth in Q3 2024. This robust top-line performance aligns with the InvestingPro Tip that analysts anticipate sales growth in the current year.
While UBS expressed concerns about Newmont's ability to meet guidance, an InvestingPro Tip suggests that net income is expected to grow this year, and analysts predict the company will be profitable. This optimism is further supported by the fact that 5 analysts have revised their earnings upwards for the upcoming period.
It's worth noting that Newmont has maintained dividend payments for 54 consecutive years, demonstrating a commitment to shareholder returns despite operational challenges. The current dividend yield stands at 2.09%, which could be attractive to income-focused investors.
For readers seeking more comprehensive analysis, InvestingPro offers 9 additional tips for Newmont Mining Corp., providing a broader context for investment decisions.
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