On October 27, 2016, Newmont Mining (NEM) announced an offer to purchase for cash notes due 2022 worth $500 million. The management mentioned during the earnings call that this is being done to put “free cash flow to good use by retiring more debt.” This tender offer will expire on November 25, 2016.
Ahead of debt reduction target
During 3Q16, Newmont Mining repaid the principal balance on a term loan of $275 million. It did not pay any premium as a result of an early payment. This brings the total repayment of debt year-to-date in 2016 to $1.1 billion. The recent debt tender of $500 million brings the total debt repayment to $1.6 billion, which is well ahead of its target to reduce the debt by $1.3 billion by 2018.
Strong balance sheet
Newmont Mining has lowered its net debt by more than 50% since 2013. Its net debt-to- EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is close to 1.1x, which is almost in line with Newmont’s long-term target of 1x at a gold price of $1,200 per ounce.
Newmont’s net debt-to-EBITDA also compares quite favorably with those of its peers (GDX) (GDXJ). Based on this parameter, its financial leverage is lower than that of Barrick Gold (ABX), Yamana Gold (AUY), and Goldcorp (GG).
Newmont’s capital allocation process ensures that it invests cash in the highest return projects, resulting in very competitive returns on capital employed. This has ensured that its balance sheet will remain flexible enough to execute its strategy.
Continue to the next part for a discussion of whether Newmont Mining can continue to grow its free cash flows.