- By Alberto Abaterusso

Newmont Mining Corp. (NEM) closed the second quarter of 2016 generating an adjusted net income 44 cents, 29.4% higher than its first quarter 2016 of 34 cents and 69.2% higher than second quarter 2015 at 26 cents. Newmont's second-quarter EPS exceeded analysts' expectations with a 46.7% surprise.

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• NEM 15-Year Financial Data

• The intrinsic value of NEM

• Peter Lynch Chart of NEM

Higher production and lower costs produced a difference of 14 cents between expected and actual EPS.

Three-month and six-month attributable gold production increased 7% and 5% respectively.

Source: Newmont Q2 2016 earnings release

The three months increase came from CC&V and higher production at Tanami, Kalgoorlie and Ahafo mines. Production decreased at Yanacocha and Waihi was sold.

Three months and six months attributable copper production decreased 10% and 4%, respectively.

The three months decrease in copper production was due to a slightly lower grade and throughput at Batu Hijau. Recently Newmont Mining agreed to sell its stake in the Batu Hijau copper and gold mine in Indonesia to PT Amman Mineral Internasional for $1.3 billion.

In the second quarter the gold producer reported an improvement in costs applicable to sales and in all in sustaining costs both on quarter- and half-year basis when compared to the same period of 2015:

Source: Newmont Q2 2016 earnings release

The miner forecasts gold production of 4.8 million to 5.3M ounces at $870-$930 per ounce, and copper production of 40-60kt at $1.80-$2.00 per pound in 2016:

Source: Newmont Q2 2016 earnings release

In spite of a 130% increase in the share price year to date, Newmont still looks attractive with EV/EBITDA 8.81 when compared with its peers:

In the second quarter, compared to the same quarter of 2015, the miner reported an increase in the EBITDA and CFO respectively with 16% (from $692M to $804M) and 77% (from $441 to $780M). With the gold price going higher, I expect that Newmont will further improve both EBITDA and the cash flow from continuing operations thanks to its high quality asset base that is able to deliver high volumes at lower costs.

When the balance sheet is under scrutiny, Newmont is a financially healthy miner with Cash & Cash Equivalents totaled US$2.9B as of Q2 2016 and characterized by a current ratio of 3.89.

Newmont is neither one of the most indebted gold mining companies in the industry nor a company that shows to have difficulties in paying interest expenses on outstanding debt with an interest coverage (ttm) of 4.30. Long-term debt to equity (mrq) and total debt to equity (mrq) ratios are respectively 47.05 and 48.77 vs 37.39 and 54.67 of the industry

The sale of Batu Hijau mine in Indonesia will provide the miner with more cash to

• fund its highest margin project at Merian, Suriname, where the first production of gold is expected late 2016. The miner expects to produce between 400,000 and 500,000 ounces of gold in the first 5 years.

• invest in exploration companies that are working on gold proven reserves in North America

• reduce costs and country risk profile.

Its operating efficiency and successful strategy in the debt reduction (13% reduction in net debt from prior year quarter) is reflected in the improvement of Newmont's net debt to EBITDA ratio, when compared to the ratio of Q2 2015 and to the competitor average ratio:

Source: Newmont Q2 2016 results report

Source: Newmont Q1 2016 results report

Free cash flow was $486 million Q2 2016 when the monthly average gold price was US$1,258.485 per troy ounce, compared to $119 million in Q2 2015 when the average monthly gold price was US$1,192.303 per troy ounce.

This means that Newmont was able to add US$367M to its FCF with a 5.6% positive trend in the gold price. And now that analysts at Credit Suisse forecast a further increase in the price of the precious metal through 2016 (averaging $1,475/oz in Q4/16 and $1,500/oz in Q1/17 with a price average of $1,450/oz in 2017), Newmont should be able to add extra FCF following a disciplined capital expenditure and therefore may increase the dividend going forward. Meanwhile the miner reaffirmed its $0.025 per share quarterly dividend for the second quarter of 2016.

For 2016 capital is expected to be between $1.1 and $1.3 billion including between $650 and $700 million of sustaining capital.

Newmont expects to increase both gold and copper production respectively from an avg of 4.85M ounces in 2016 to an avg of 5.15M ounces in 2017 and from an avg of 50 tonnes in 2016 to an avg of 53 tonnes in 2017.

The miner forecasts an improvement in AISC for the rest of 2016 ($870 - $930/oz. of gold) and to be steady in 2017 ($850 - $950/oz. of gold).

Instead copper AISC is expected to average between $2.20 and $2.40 per pound in 2016 and to increase between $2.30 and $2.60 in 2017.

Following its strategy on improving performance and portfolio, Newmont closed Q2 2016 showing impressive results. The miner is well-positioned to further benefit from a positive outlook of the gold price.

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This article first appeared on GuruFocus.

• Warning! GuruFocus has detected 6 Warning Signs with NEM. Click here to check it out.

• NEM 15-Year Financial Data

• The intrinsic value of NEM

• Peter Lynch Chart of NEM