NEWMONT MINING CORP. $37(New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 533.3 million; Market cap: $19.7 billion; Price-to-sales ratio: 2.8; Dividend yield: 0.8%; TSINetwork Rating: Average; www.newmont.com) is one of the world’s largest gold and copper producers. The company expects its mines in North America will supply 41% of its 2017 gold production, followed by Australia (31%), Africa (15%) and South America (13%). At current production rates, its gold reserves should last another 11.8 years.
In the past few years, Newmont has sold some of its lessprofitable mines. Those include last year’s sale of its 48.5% stake in the Batu Hijau gold and copper mine in Indonesia for $1.3 billion.
Focus on better mines starts to pay off
As a result, Newmont’s overall revenue declined 34.5%, from $9.3 billion in 2012 to $6.1 billion in 2015. However, revenue improved 10.3% to $6.7 billion in 2016 due to the opening of new mines.
Earnings fell 83.0%, from $3.71 a share (or a total of $1.85 billion) in 2012 to $0.63 a share (or $327 million) in 2015. Earnings then jumped 84.1%, to $1.16 a share (or $619 million), in 2016.
Newmont’s revenue in the three months ended June 30, 2017, gained 12.3%, to $1.9 billion from $1.7 billion a year earlier. Earnings jumped 60.0%, to $248 million from $155 million; earnings per share rose 58.6%, to $0.46 from $0.29 on more shares outstanding.
In addition to the extra production from its new mines, the company continues to improve its efficiency. It has cut its operating costs per ounce from $1,170 in 2012 to $884 in the latest quarter.
Strong balance sheet cuts Newmont’s risk
Those savings, as well as the proceeds from its asset sales, have let Newmont cut its long-term debt from $6.3 billion at the end of 2012 to $4.0 billion as of June 30, 2017. That’s a moderate 20% of its market cap. The company also held cash of $3.1 billion.
Newmont’s improving balance sheet has given it more flexibility to invest in its operations. For example, it recently completed the expansion its Afaho gold mine in Ghana. That project should add 175,000 ounces to its 2018 output.
In all, Newmont plans to spend a total of $1.9 billion in 2017 and 2018 on new projects and upgrades. But due to falling output at its older mines, its overall gold production will likely fall from 5.2 million ounces in 2017 to 4.95 million ounces annually for 2018 and 2019.
The stock trades at a high 37.0 times the $1.00 a share that Newmont will likely earn in 2017. However, we feel gold prices—and Newmont’s shares—could move higher as central banks further increase interest rates to head off the risk of inflation.
Dividend jumps 50.0%
The company links its dividend to the price of gold. Thanks to the recent rise in gold prices, Newmont has raised its quarterly payment by 50.0%, to $0.075 a share from $0.05. The new annual rate of $0.30 yields 0.8%.
Newmont is a buy, but only for investors who want to own a gold stock.
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