Gold prices have been trending higher in the recent past and this has made me bullish on gold mining stocks as well. With some weak economic data coming out of the United States, it is likely that the dollar will continue to weaken in the near-term and this will be positive for investors who are invested in physical gold, gold ETF or gold mining stocks.
In the recent past, I discussed Barrick Gold (ABX, Financial) and the reasons to be bullish on that company. In this article, I will discuss Newmont Mining (NEM, Financial), which is another good gold mining company for exposure at current levels.
I must mention here that Newmont Mining already has seen a good start to 2015. For YTD15, the stock has moved higher by 18% and I expect the rally to continue as gold trends higher over the next few months. Therefore, investors can consider fresh exposure to the stock.
Coming to company specific positive points, the company’s excellent liquidity is the first reason to be bullish on Newmont Mining. A strong liquidity position and financial flexibility will allow the company to invest heavily as gold prices trend higher. As of December 2014, Newmont Mining had $2.4 billion in cash and equivalents, $3 billion in revolving credit facility and $0.5 billion in marketable securities.
With a total liquidity of nearly $6 billion, Newmont Mining has a strong balance sheet position for growth. In addition to the strong liquidity position, Newmont Mining has only $166 million in debt maturity in 2015 and $223 million in debt maturity in 2016. Therefore, the company has no near-term debt refinancing pressure and the company also has enough cash to pay-off the next two year debt maturities without the need of refinancing.
Another positive for Newmont Mining is the company’s effort to lower the all-in-sustaining-cost. The company expects the AISC for 2015 to be in the range of $960 to $1,020/oz. However, the company is targeting an AISC of below $1,000 over the next 2-3 years. Even with the current AISC, the company EBITDA remains decent. Once gold prices trend higher, the EBITDA margin and dividend payout will also increase.
In my view, Newmont Mining is also trading at very attractive valuations and this is another reason to be bullish on the stock even after an 18% rally in YTD15. The company currently trades at a trailing twelve month EV/EBITDA of 5.99 and I believe that valuations will adjust on the upside if gold continues to trend higher in the coming months.
A key factor that can take gold higher is the decision to delay an interest rate hike in the United States. I am of the view that an interest rate hike will be delayed towards the end of 2015 or to early 2016. If this view pans out, gold will surge higher and Newmont Mining can move higher by another 15% to 20% over the next 3-6 months.
I want to also point out that Newmont Mining has generated $1.4 billion in cash through non-core asset sale in the last two years. Further asset sale is likely with the company’s focus on core assets to deliver strong growth at a low AISC.
Considering these factors, Newmont Mining looks attractive with a near-term and a long-term investment horizon. I am of the view that the long-term bull market for gold is not over and gold will be at significantly higher levels five years down the line than it is at today. Considering this view, I am bullish on Newmont Mining even from a 3-5 year investment horizon.
