The world’s largest gold producer Newmont Mining Corp. (NEM, Financial) is a buy.
The U.S. miner is trading cheaply as you can see in the chart powered by GuruFocus. The share price is trading underneath the 200- and 100-day simple moving average lines and now also below the 50-SMA line. For the 52 weeks through Oct. 26, the share price has fallen 17% to 94 cents over the 52-week low of $29.06. The share price of $30 as of Friday is 40.1% from the 52-week high of $42.04 and is determining a forward dividend yield of 1.89%. When compared with the current yield on the S&P 500 index of 1.97%, the forward yield granted by the U.S. gold stock is below only a few basis points. This is a further indication of a compelling valuation. Very few companies in the mining industry can grant such forward yield as of Oct. 26.
Newmont Mining Corp. can sustain the distribution thanks to a solid balance sheet that as of Sept. 30 is characterized by $3.1 billion in cash on hand and a net debt-to-adjusted Ebitda ratio of 0.4.
Newmont Mining Corp. has a market capitalization of approximately $15.77 billion. The price-book ratio is 1.51 versus an industry median of 1.74 and the EV-to-Ebitda is 8.31 compared to an industry median of 9.3.
Therefore, investors should consider purchasing Newmont Mining Corp.
How is Wall Street painting the near future for the share price of the U.S. miner? The stock has a mean recommendation of 2.4 out of 5. That is an average of 18 recommendations that as of October are composed as follows: For two analysts Newmont Mining Corp. is a strong buy and for nine analysts it is a buy. The remaining seven analysts are suggesting holding.
The average target price of $40.50 per share – a mean of 18 $33 to $50 ranging estimates - representing a 35% upside from the market value at close Friday that analysts think Newmont Mining Corp. will reach within the next 52 weeks.
Expectations on the target price are corroborated by the following short-term catalysts.
The first one is represented by the Subika mineral project in Ghana for the development of promising mineral resources that are hosted in the underground at the Ahafo mines complex. The achievement of commercial production is expected for the last quarter of 2018 and the related announcement should be enough to move shares higher. The project is expected to start contributing significantly from 2019 by adding 150,000 to 200,000 ounces of gold every year to the average annual production of Newmont Mining till 2023. The entire life of operations is nearly 11 years and the Internal Rate of Return, or IRR, of the project is 20%. The rate could have been higher but it is not bad.
The second catalyst is the Tanami Power project in Australia. The construction of a 450-kilometre natural gas pipeline between the Tanami site and the Amadeus Gas Pipeline and the operation of two power stations, will mitigate the risk of fuel supply at Tanami and will reduce by 20% power costs and carbon emissions. The mining company is targeting approximately $34 net cash savings per ounce starting 2019.
Others such as the project to expand the capacity of the mill facility at Ahafo and the Quecher Main project to increase the output of the Yanacocha mine in Peru with oxide production are expected to begin contributing not before than 2020.
Also, Subika, Tanami and other projects will determine the long-term production guidance that Newmont Mining Corporation will update on Dec. 5, 2018. This date needs to be remembered, because another impetus to the share price may follow the announcement of the guidance on long-term production.
In addition, another reason to increase Newmont Mining Corp rests in the production and costs guidance of the company for full fiscal 2018. Following the third-quarter results for fiscal 2018, Newmont Mining Corp has improved the outlook for total gold cost though narrowed the attributable production to 4.9 million to 5.2 million ounces of gold. The US miner has beaten consensus on non-GAAP net earnings by 14 cents per share but missed that on revenue by $40 million having backed 33 cents per share on a revenue of $1.73 billion.
At 1.29 million ounces, the third quarter gold production was on par with the guidance. The production of attributable copper was 12,000 tons.
While the cost applicable to sales stays unchanged at $700 to $750 per ounce, the range for the all-in sustaining cost is tightened at $950 to $990 per ounce of gold sold.
Newmont Mining Corp is not only gold but also copper. Nearly 4% of third-quarter revenue came in thanks to the production and sale of the red metal. For the entire 2018, the company is forecasting to produce between 40,000 and 60,000 tonnes of attributable copper at a cost of sales of $1.65 to $1.85 per pound and at an all-in sustaining cost of $2.00 to $2.20 per pound. Concerning copper, guidance on costs and attributable production is in line with the previous one.
The company will use funds of approximately $1.2 - $1.3 billion for capital expenditures in 2018, of which 52% is sustaining capital.
Disclosure: I have no positions in any security mentioned in this article.
