Newmont Corporation’s operations at its Peñasquito mine in Mexico have been suspended due to a local labor dispute, which caught the attention of analysts at UBS.
The firm maintained its Neutral rating and price target of $53 for the company. Newmont, which owns 10% of the Peñasquito mine, saw its shares rise 1.2% Monday afternoon to $41.97.
The analysts expect the strike to generate a 1.1% weekly negative impact on quarterly EBITDA.
“The union is seeking to double its uncapped profit sharing benefit from 10% to 20%, effectively continuing an ongoing dispute in the area,” the analysts wrote in a note published Friday.
They continued, “Historically, Peñasquito has shut down twice since 2019. Typically the shut downs have lasted roughly one month. ... If we assume suspension of Penasquito operations for one month, our Q2 estimate would be negatively impacted by 3.6%.”
The $53 price target reflects 6..5 times the firm’s 2024 estimated attributable EBITDA.
However, that doesn’t reflect the company’s recent merger with Newcrest, announced last month. The deal solidifies the company’s position as the world’s largest gold producer with pro forma attributable gold production of more than 8 million ounces, almost double that of the second largest producer Barrick Gold.
“One of our hesitations with the Newcrest merger deal is free cash flow dilution in the near term due to elevated capex at both companies,” the analysts wrote. “We think NEM will have flexibility to rephase certain capital projects which would result in a flatter production profile over time while also extending mine life. Effectively delaying capex would also improve free cash flow over the next several years.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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