Credit Suisse: Newmont Mining Worth $30/Share, Is A Buy Again

In a report published Tuesday, Credit Suisse analyst Anita Soni reinstated coverage of Newmont Mining Corp NEM with a Buy rating and a price target of $30.

On June 9, Newmont announced the acquisition of Cripple Creek & Victor (CC&V) for US$820M in cash, funded largely via a 1.35x NAV equity issue. “Positively, CC&V offers a long life, low geopolitical and technical risk and the acquisition will likely be accretive with optimizations and resource conversion, which could add US$254M to our NAV,” analyst Anita Soni said.

Soni expects Newmont to be able to increase CC&V’s NAV within the next 18 months via resource conversion and optimizations, in view of the company’s “consistent operational track record.”

In the report Credit Suisse noted Newmont’s planned optimizations:

• To reduce mining costs by 10 percent via reduced waste stripping and eliminating marginal ounces
• To improve mill recoveries by 2 percent via enhanced flotation

“CS assumes additional optimizations could include a G&A reduction (+$43M); 5% process cost savings (+$20M) and 10% resource conversion (+$123M),” Soni added.

Cripple Creek & Victor could generate about $100mn in free cash flows over 2016-2017, at $1,250/oz. The outlook post 2017 depends on Newmont’s optimization efforts. Soni estimates an average 2016-2020 FCF of “$71M per year in our base case and $108M in an optimized scenario.”

The EPS estimates for 2015 and 2016 have been reduced from $1.52 to $1.42 and from $1.21 to $1.18, respectively. The EPS estimate for 2017 has been raised from $1.23 to $1.25.