NEWMONT MINING CORP. $55 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 496.2 million; Market cap: $27.3 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.5%; TSINetwork Rating: Average; www.newmont.com) is the world’s second-largest gold miner by production, behind Barrick Gold Corp. (New York symbol ABX). The company has major mines in the U.S., Australia and Peru. It gets about 90% of its revenue from gold. The remaining 10% comes from copper, zinc and other metals.

Newmont sells its gold at the market rate instead of through hedging contracts that lock in prices. This policy has helped it take full advantage of rising gold: its average realized gold price jumped 124.1%, from $697 an ounce in 2007 to $1,562 in 2011.

Lack of hedges unleashed earnings

As a result, revenue rose 87.4%, from $5.5 billion in 2007 to $10.4 billion in 2011. Newmont unwound its remaining gold hedges in 2007, which is why it earned just $0.25 a share (or $113.0 million) that year. However, its earnings soared 1,861.1%, to $4.40 a share (or $2.2 billion), in 2011. Cash flow per share jumped 269.1%, from $1.78 in 2007 to $6.57 in 2011.

Newmont aims to raise its annual gold production to 7 million ounces by 2017. That’s roughly 37% higher than its expected 2012 production of 5.0 million to 5.2 million ounces.

To reach this goal, the company will open several new mines over the next few years. These include its Akyem project in Ghana, which will produce 350,000 to 450,000 ounces of gold per year when it begins operating in late 2013. The Merian mine in Suriname could add a further 350,000 to 450,000 ounces to Newmont’s annual production in 2015.

The company also aims to open two more mines in 2017: the Long Canyon gold mine in Nevada (200,000 to 300,000 ounces a year); and its 51.35%-owned Minas Conga gold/copper mine in Peru (300,000 to 350,000 ounces a year).

Protests slow Conga development

Local farmers have held protests out of concern that Conga will contaminate water supplies. In response, Newmont will build four reservoirs that will provide more water for irrigation. These reservoirs will take wo years to build, and will cost $95 million. Newmont has already invested around $800 million in Conga.

The company’s balance sheet remains strong. Its $6.1 billion of long-term debt (as of June 30, 2012) is a moderate 22% of its market cap. It also held cash of $1.9 billion, or $3.82 a share.

Gold prices have moved up to around $1,756 an ounce from $1,550 in May 2012. However, maintenance shutdowns will cut Newmont’s 2012 earnings to $4.01 a share. The stock trades at a reasonable 13.7 times that estimate. It also trades at 9.2 times the company’s likely cash flow of $6.00 a share.

Dividends automatically rise with gold

The company links future dividend hikes to its average selling price for gold in the preceding quarter. The current annual rate of $1.40 a share yields 2.6%. If gold prices rise to $2,500 an ounce, Newmont’s dividend would jump to $4.70, for an 8.5% yield.

Newmont Mining is a buy.