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Tuesday September 27, 2011
Newmont: Cash in on gold
by Richard Moroney, editor Dow Theory Forecasts Newmont Mining (NEM) was founded 90 years ago and now stands as the world’s second-largest producer of gold. Gold, commanding an average realized price of $1,440 per ounce in the first half of 2011, accounted for 85% of Newmont’s revenue. Newmont’s sensitivity to gold prices is reflected in analyst estimates for 2012 per-share profits, which range from $3.67 to $8.44. Since Newmont began linking its dividend to gold prices earlier this year, a pair of hikes has already doubled the quarterly payout. In September, Newmont hinted that it would raise its dividend 33% to $0.40 per share in the December quarter. It’s worth remembering that should the trajectory of gold prices falter, so will the dividend. But the impending dividend increase would bump the yield to 2.5%; none of its peers yields more than 0.9%. Management expects annual gold production to reach 7 million ounces by 2017, about 35% above its 2011 target, while copper production is seen doubling to 400 million pounds. At 15 times trailing earnings, the shares trade 41% below their five-year average P/E ratio. The stock also trades at discounts of at least 24% to its five-year averages for price/ operating cash flow and enterprise ratio. The stock is likely to fluctuate with gold prices, but we like Newmont’s modest valuation and ability to cash in on high gold prices. Newmont is a Long-Term Buy. Learn more about this financial newsletter at Richard Moroney's Dow Theory Forecasts. 
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