Raymond James Financial Inc. (RJF, Financial) began coverage of Newmont Mining Corp. (NEM, Financial) with an outperform rating.
The investment services company set a target price of $43 per share for Newmont. This is the fifth positive rating the gold producer has received over the last eight trading months.
Another recent upgrade was from Standpoint Research, from hold to buy, on Dec. 12, 2016, which followed three other upgrades from Bank of America Merrill Lynch on Nov. 22, JPMorgan on Nov. 3 and Barclays on Oct. 17.
During this period Newmont Mining Corporation, also received two downgrades from RBC Capital Markets this year March the 16th and from Citigroup last year May the 12th.
Source: Yahoo Finance
According to Brian MacArthur, an analyst at Raymond James, when investors buy Newmont shares, they expose their portfolio to the precious metal via a strong cash- generating asset base characterized by high-quality mines. He added the company can rely on a solid balance sheet. The only gold mining stock to be included in the S&P 500, Newmont meets many of Raymond James’ criteria for best buying opportunities in the gold industry.
The current widespread belief among mine operators is production will gradually shift to mineral-rich regions like Africa or Australia as gold deposits become depleted in their current areas of operation. This means investors should consider jurisdictional risk when looking for value among gold miners.
Operating in countries characterized by a less favorable mining environment inevitably enhances the operator’s risk profile, exacerbating the impact on the market value of the stock when the underlying commodity is not trading high enough.
In the gold industry, Newmont Mining is one of the best companies because it can still derive most of its revenues from operations based in either friendly mining jurisdictions or in countries where conditions do not typically disrupt mining activities.
The company's Tanami mine in Australia has1.4 million ounces in gold reserves, the Merian mine in Suriname holds 0.6 million ounces, the Carlin underground mine in North America has 0.4 million ounces and its 50% stake in the Kalgoorlie mine in Australia has 0.4 million ounces. Â These assets have enhanced the average concentration of gold in the company’s total mineral resources (1.20 grams of gold per ton of mineral versus an industry average gold grade of 1.08) and prolonged the time in which the ore reserves will be extracted, securing operations for many years.
At the end of February, Newmont Mining said it had 68.5 million ounces in gold reserves as of Dec. 31, 2016.
Newmont also owns the Phoenix, Twin Creeks, Long Canyon and Cripple Creek & Victor mines, which are located in North America. Internationally, it owns Yanacocha in Peru, Boddington in Australia and Ahafo and Akyem in Africa.
North American operations contribute 38% to the company’s total annual production. South America contributes 18% to 18.5%, of which approximately 62% is attributable to the miner, Australian operations give 27% and African operations offer 16% to 17%.
For full-year 2017, Newmont Mining expects to produce between 4.89 million and 5.37 million ounces of gold at cash applicable to sales (CAS) of approximately $725 per ounce of gold and an all-in sustaining cost (AISC) per ounce of approximately $970. It expects to produce between 40 million and 60 million pounds of copper at CAS per pound of $1.55 and AISC per pound of $1.95.
For 2017, Newmont guides capital expenditures to range between a minimum of $900 million and a maximum of $1.05 billion.
Newmont had nearly $3 billion in cash on hand as of the most recent quarter, which the company can use to further expand its portfolio of assets and create shareholder value.Ă‚
The stock is trading around $32.78 per share with a forward price-earnings (P/E) ratio of 27.79, a price-sales (P/S) ratio of 2.53 and a price-book (P/B) ratio of 1.63. The EV/EBITDA ratio is 12.35. The gold stock – like its peers Barrick Gold Corp. (ABX, Financial) and Goldcorp Inc. (GG, Financial) - is downtrending and has lost 3.64% year to date on the New York Stock Exchange.
Despite this negative trend, analysts are quite optimistic about Newmont's performance as they see a 19.5% upside from the current market value and set an average target price of $39.24 per share.
Raymond James is very optimistic about Newmont Mining as its target price represents a 30% to 31% upside from the current market valuation.
The recommendation rating is 2.5, sitting between a buy and hold.
Disclosure: I have no positions in any stock mentioned in this article.
