Newmont Mining Corp upgraded as asset deals loom

, Canada

An aerial view of Newmont's copper and gold mining pit in Batu Hijau, eastern Indonesia

Newmont Mining Corp. was upgraded to outperform from sector perform at RBC Capital Markets due to its strong free cash flow outlook and the potential sale of its Batu Hijau project in Indonesia.

Analyst Stephen D. Walker, who raised his price target on the stock to US$40 from US$34, noted that while Newmont trades at a discount to its peers, the company is poised to generate significant free cash flow after completing its 2016 capital programs.

At a gold price of US$1,250 per ounce in 2017, he forecasts Newmont will generate free cash flow of US$1.4 billion – enough to pay back a healthy amount of debt and fund new development projects.

As for the sale of the Batu Hijau open pit copper and gold mine, while there is no guarantee a deal will happen, Walker estimates it could fetch as much as US$900 million.

“We believe a sale would be a positive outcome for Newmont given the ongoing geopolitical risk and future capital commitments,” the analyst told clients, highlighting Newmont’s share of the three-year, US$1 billion Phase 7 waste-stripping program.

He also suggested Newmont could use the cash to buy the 50 per cent stake in the Kalgoorlie “Super Pit” it doesn’t already own from Barrick Gold Corp.

With an estimated value of US$634 million, Walker noted that it could replace the roughly 270,000 ounces per year of lost production stemming from the Batu Hiaju sale.

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