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Newmont Is Delivering on De-Levering: A Further Upside?

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Balance sheet under control

Along with Barrick Gold (ABX), Newmont Mining (NEM) is one of the most highly-leveraged senior gold miners. While Barrick also had debt reduction as its number-one priority, Newmont has been more successful in getting its balance sheet under control. Since 2013, Newmont’s net debt was reduced by 35% to reach $3.4 billion at the end of 2015.

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Improving financial leverage

Unlike many of its peers, Newmont has been able to fund its projects from its operating cash flow at the gold price level of $1,100 per ounce. Its current net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio improved to 1.3x from 1.9x at the end of 4Q14. As the above graph shows, Newmont’s net debt to forward EBITDA also compares quite favorably with its peers at 1.5x compared to an average of 1.8x. By comparison, Newmont’s peer Goldcorp (GG) still has lower financial leverage compared to senior gold peers (GDX). Also, Kinross Gold’s (KGC) balance sheet is in good shape.

Newmont is aiming to be close to 1x going forward, at a $1,200 per ounce gold price level. The company said that over time, these levels allow it to maintain investment-grade rating across cycles.

Maturity profile

Newmont has a comfortable maturity profile, with no major debt maturities due until 2019. Its liquidity profile also remains comfortable. As of December 31, 2015, Newmont had a total liquidity of $6.2 billion, including $2.8 billion in cash and cash equivalents, $0.4 billion in marketable securities, and $3 billion in revolver capacity.

Investing in gold-backed ETFs such as the SPDR Gold Trust (GLD) is another way to gain exposure to spot prices of gold without investing directly in the stock of mining companies. The Sprott Gold Miners ETF (SGDM) also invests in US-listed gold miners.

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