Gold prices are up since the start of 2022 due to rising inflation and uncertainty caused by the war in Ukraine. We feel the best way to profit from higher gold prices is to buy high-quality producers like this one.
Most of its mines are in politically stable countries, and its dividend is linked to the price of gold. That makes is a strong gold play.
The stock trades at 20.8 times the company’s 2022 earnings forecast.
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NEWMONT CORP. (New York symbol NEM; www.newmont.com) is the world’s largest gold producer. It also produces copper, silver, lead and zinc. As of March 31, 2022, its proved and probable gold reserves totalled 96 million ounces.
Newmont’s mines are in North America (36% of its gold reserves), South America (33%), Australia (19%), and Africa (12%).
The company took its current form in April 2019, when Newmont Mining acquired Goldcorp Inc. Newmont paid $9.4 billion in shares plus $17 million in cash for Goldcorp.
Prior to the merger, Newmont’s revenue fell 1.3%, from $7.35 billion in 2017 to $7.25 billion in 2018 due to poorer quality gold ores from its mines in the U.S. and Australia. Revenue then rose 34.3% to $9.74 billion in 2019, and improved steadily to $12.22 billion in 2021.
Newmont’s earnings fell 8.2%, from $1.46 a share (or a total of $780.0 million) in 2017 to $1.34 a share (or $718.0 million) in 2018. Thanks to the Goldcorp purchase, earnings jumped 970 million in 2019, but per-share earnings slipped to $1.32 due to the extra shares outstanding. Earnings then jumped to $2.66 a share (or $2.14 billion) in 2020, and rose again to $2.96 a share (or $2.37 billion) in 2021.
The miner also continues to benefit from its 2019 joint venture deal with Barrick Gold Corp. (New York symbol GOLD) that operates their gold mines in Nevada. Barrick owns 61.5% of the joint venture and operates it. Newmont holds the remaining 38.5%. Eliminating duplicate processing and other operations should let the partners cut $500 million annually from their pre-tax costs by 2025.
Mining Stocks: Production should rise as the balance sheet remains strong
In the first quarter of 2022, Newmont’s gold production fell 7.6% to 1.34 million ounces. However, thanks to higher gold prices, revenue rose 5.3%, to $3.02 billion from $2.87 billion a year earlier. Excluding unusual items, earnings fell 8.1%, to $546 million from $594 million; per-share earnings declined 6.8%, to $0.69 from $0.74, on fewer shares outstanding. The earnings slip is partly due to $17 million in extra COVID-19 safety costs.
The company now expects to spend $2.3 billion on its existing mines and new projects for all of 2022.
That should raise this year’s gold production by 4% to 6.2 million ounces. The opening of new mines could lift its annual output to 6.8 million ounces in 2026.
Newmont holds cash of $4.27 billion, while its long-term debt of $5.57 billion is a low 10% of its market cap. That balance-sheet strength, plus its strong cash flow, will support its expansion plans.
The stock has gained 11.2% since the start of 2022, but still trades at a reasonable 20.8 times this year’s projected earnings of $3.32 a share. The $2.20 dividend yields 3.2%.
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What do I think of Newmont Corp. I own a few a few thousands shares and I like it.
Also, own Barrick Gold.