Newmont Mining (NEM, Financial) topped expectations recently, delivering strong results in the first quarter of fiscal 2015. The company’s solid performance across all its key metrics clearly indicates a strong operational and financial position of the company. In fact the management is now looking for another great fiscal year in terms of financial performance. The main contributors to Newmont’s success story are higher grades, favourable oil prices and exchange rates.
The company expects these key elements to continue benefiting it throughout 2015 as well. In addition, there are several other initiatives and strategies that Newmont is counting on. It will be exciting to see how Newmont maintains its position in the market where its peers are also looking to respond to slight improvement in the metal prices.
New initiatives to power growth
There are number of initiatives on which the company is now focusing. Under this, expansion is one such strategy which is in its top priority. It already enjoys advanced projects in Nevada, Surinam and New Zealand. On top of this, Newmont has announced it will build a new mine at Long Canyon. As exploration is a critical part of Newmont’s strategy, Long Canyon will be an important addition to its core assets. The company is presently running four drill rigs which are expected to boost up the production which will contribute well to its financial growth.
Also, Newmont has plans to spend about half of its Long Canyon capital between $250 million and $300 million in other growth projects in 2015 and 2016. In addition, there are other exploration projects that hold the potential to add production in the medium horizon including the Subika underground in Ghana which would give Newmont access to ore grades that are significantly higher than the surface.
As we all know, the industry is suffering due to the lower metal prices. It is difficult for the companies to maintain profitability. In these situations, Newmont is seeing positive growth signs from Ghana where it is evaluating an expansion of its existing Ahafo mill. This seems to be wise step by the company as it will offset the impact of lower grade ore. Moving on, with this expansion, Newmont expecting to add 100,000 to 125,000 ounces of production at competitive cost by 2017.
More projects to consider
Let us have a look at some of the other projects under Newmont’s camp which seems promising for its long term growth. It is pleased to have completed about 75% of its Merian mine which on completion is expected to ramp up Newmont’s production by producing between 400,000 and 500,000 ounces of gold at all-in sustaining cost of between $650 and $750 per ounce by 2016 which will enhance its financial position in the coming years.
While in Australia, Newmont has plans to invest in the Tanami expansion project which also looks in great shape and is expected to add another incremental gold production of 100,000 to 125,000 ounces per year at lower costs by 2017. However, despite solid growth signs, Newmont is expecting decline in its performance in some of the regions for example it is expecting the production to decline in Africa primarily due to lower grade ore at Ahafo. While, decline in South American market is also expected to affect the company in 2015 and 2016.
Conclusion
Now moving to its fundamentals, the stock is reasonable with a trailing P/E of 26.20 while the forward P/E of 22.45 shows solid earnings growth in the near term. Even in the midst of weak metal pricing environment, a profit margin of 6.97% can be a solid attraction to the investors leading to improvement in the market share in future. Considering all these facts and valuation level the investors can definitely count on Newmont Mining and can pick it for near term gains.
