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Title : Newmont (NEM), Barrick (GOLD) and even some Pan American Silver (PAAS) (from IKN538)
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Newmont (NEM), Barrick (GOLD) and even some Pan American Silver (PAAS) (from IKN538)

This humble corner of cyberspace notes with interest this Bloomie report on Newmont Goldcorpse (NEM) entitled "Newmont’s Incoming CEO Says No ‘Fire Sale’ Coming for Assets", a piece that starts like this:

"Newmont Goldcorp Corp. is ready to sit tight on asset sales, even if that means not reaching a previously announced goal of as much as $1.5 billion in divestments.

That’s according to Tom Palmer, the company’s incoming chief executive officer. The world’s largest gold producer will be focusing on optimizing its current assets and is happy overall with its portfolio, other than a previously announced sale of Red Lake in Canada, he said."

And continues so go have a look. But the reason your humble scribe's interested was piqued was mainly due to a piece included in this week's edition of The IKN Weekly, IKN538 out last Sunday 15th. Here's that note, which includes the theme of the Bloomie piece but goes a step further.

Newmont (NEM), Barrick (GOLD) and even some Pan American Silver: When this merger was announced back in Q1, one of the assumptions that went along with the fusion was that new Newmont Goldcorpse would have to dispose of several assets in order to balance the books. However, it’s taken until now in September for NEM to say anything about the likely main gig as on Friday it stated this in its “this is what we’re up to at Denver Gold Show” NR (11):

“Process underway for the potential sale of Red Lake in Canada”

“Process underway”. “Potential”. That’s the sort of corporate-speak that also says to me “don’t hold your breath and got me reflecting on the lack of corp M&A that’s come from the big mergers so far. As well as NEM and Goldcorp, we have Barrick (GOLD) which has largely held onto its full suite of assets on the Randgold merger. Then add in Pan American Silver (PAAS), not one of our Producer Basket stocks but also a company that was supposed to have disposed of assets (starting with its Lake Shore arm and following with La Arena in Peru) after its purchase of Tahoe Resources. There’s something going on here, after all part of the rationale for Bristow cleaning up Barrick was how he promised to dump any project that couldn’t deliver enough IRR at $1,000/oz and U$1,200/oz gold. Why is GOLD still propping up NovaGold at Donlin? Why is NEM only just “starting the potential process” for Red Lake? And nothing from PAAS so far.

Up until recently I’ve been inclined to believe the majors and/or tier 2 precious metals companies would beat the street in the current Q3, as on a straight line basis I don’t think many analyst models have adjusted fully for what U$1,500/oz gold does to their multiples. In fact I was forwarded a large BMO report which did just that, but it’s kind of late on the scene and many other houses are still lagging (in my view). However, that got tempered last week while reflecting on the fact that the big boys have dragged their feet on these supposed necessary asset disposals. I wrote on Twitter (12) that, “...the rising gold price has stopped the disposal sales from Barrick and Newmont. Pan American too. They are clinging on for better future asset prices by sacrificing near-term bottom lines.” In other words, yes I’d expect the top half of the Tier 1 and Tier 2 profit and loss sheets for 3q19 to look good, but having a load of fixed and underperforming assets on your books also means that “other financial” is likely to be harder hit than normal, which means in simple terms that these PM miners may do well in operations, but I suspect trouble in getting those operating profits down to the bottom line. The other place to watch is liquidity, as for example PAAS has a big “assets for sale” line item that’s currently propping up its current assets (and therefore working cap). It’s one thing to have that, but it’s not going to help the true liquidity position of the company and if the sales take much longer, PAAS in particular may have issues.

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