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Alberto Abaterusso
Alberto Abaterusso
Articles (1342) 

Morgan Stanley Upgrades Newmont Mining

The company has a steady production profile and its financials are very good. The U.S. miner also beats its Canadian peers in operating profitability

June 13, 2018 | About:

Morgan Stanley has upgraded shares of U.S. miner Newmont Mining Corp. (NYSE:NEM)

The analyst's new rating is Overweight from a previous rating of Equal-Weight, according to a research note dispatched on Tuesday, June 12.

The U.S. bank has revised its price target upwards to $40 per share from a previous estimate of $37. This means that the average target price will be dragged down to about $44.30 per share from a current $44.47 per share. The current average is a mean value of 17 estimates that range between a low-price target of $37 per share and a high of $52 per share.

The recommendation rating on Newmont Mining is currently 2.5 out of 5. As of June 12, a total of 18 analysts have been surveyed on the U.S. producer of gold. A total of 11 analysts recommend buying the stock while seven analysts suggest holding Newmont Mining.

The reason behind the upgrade of Morgan Stanley upgrade is easy to pick up. Newmont Mining is posting strong operating results with costs and gold output on par with what the company anticipates based on full-year guidance.

Helped by a rising commodity, a strong execution at operations has been translated into solid financial results. Adjusted earnings before interest taxes depreciation and amortization (Ebitda) of $644 million, as reported by the U.S. miner for the first quarter of fiscal 2018, is a strong indicator if we consider that the year before Newmont Mining reported an adjusted Ebitda of $574 million. The growth at a rate of 12.2% has been consistent over a year's time.

The company's economics in the first quarter were stronger based on a trailing 12-month Ebitda margin of 35% versus an industry median of 25%. As a result, operations at Newmont Mining are more profitable than the industry.

A 180% year over year growth in cash quarterly dividend to 14 cents per share that Newmont Mining will pay to its shareholders on June 21 is another good indicator that its strategy has been implemented successfully.

Analysts have also appreciated the low leverage of the business. When compared to its most direct peer in terms of debt-to-equity ratio, Newmont Mining is better positioned with a 39% rate. Barrick Gold Corp (ABX) has a debt-to-equity ratio of 68%.

Goldcorp Inc. (GG), which is another direct peer of Newmont Mining, has a better debt-to-equity ratio of 19%. But in terms of debt-to-Ebitda ratio, Newmont Mining has a higher credibility amid credit rating agencies than Goldcorp. The U.S. miner has a debt-to-EBITDA ratio of 1.54 while Goldcorp has a ratio of 2.19, meaning that Goldcorp needs more time to pay off its debt. At 5.94, Newmont has also a higher interest coverage ratio than Barrick Gold Corp. at 4.97 and Goldcorp at 3.23.

GuruFocus assigned Newmont Mining a financial strength rating of 6 out of 10 and a rating of 5 in 10 for Barrick Gold and Goldcorp.

Newmont's next stream of producing assets, known as Ahafo North, Yanacocha Sulfides and Long Canyon Phase 2, will add to the company’s total proven and probable gold reserves of 68.5 million attributable ounces. The assets will also add to the life of the mine once the they are online.

A highly-skilled and competent management has not allowed production to harm gold reserves. Instead, it has remained stable over time This sizable war chest of mineral reserves guarantees Newmont Mining with 4.9 million to 5.4 million ounces of gold production for 2018 and 2019, and with an expected solid annual output of 4.6 million to 5.1 million ounces of gold for the next five years.

This steady production profile has allowed Newmont Mining to share a top position with Barrick Gold Corp. (ABX) as the largest producers of gold in the world. Newmont Mining’s reserves can hardly be replicated by any other company in the gold mining industry in terms of average mine life, as well.

Newmont Mining is currently trading at $38.79 per share and has climbed 15% over the last 12 months. The share price is above the 200-SMA line but below the 50 and 100-SMA lines.

The 52-week range is $31.42 to $42.04 per share.

Newmont Mining is reporting 533.49 million shares outstanding, of which 81.1% is held by institutions and 0.65% by insiders.

Van Eck Associates Corp., State Street Corp. and Carmignac Gestion are top shareholders  with 5.64%, 4.95% and 2.41% of total shares outstanding. Holdings are as of March 31.

(Disclosure: I have no positions in any stock mentioned in this article.)

About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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