Newmont Mining Corporation (NEM) is among the world’s largest gold mining operations, with mining operations in the United States, Australia, Indonesia (where Newmont also operates a copper mining facility), New Zealand, Ghana and Peru.
Newmont recently completed a public offering of 30 million shares at a price of $37 per share. The company also completed the offering of $450 million in convertible debentures. The debentures carry an interest rate of 3% and a conversion rate which equates to a stock price of $46.25.
NEM shares currently trade at about $42.50 per share, within striking distance of the price at which conversion of the debentures becomes attractive to the investor and close to the high for the year. NEM has traded in the range of 21.17 per share, reached in early November, and $55.15 per share, reached at the beginning of 2008.
The combination of the economic stimulus package, the Troubled Asset Relief Program (TARP), the Federal Reserve’s continued zero interest rate target policy, the issuance of 3 and 7 year notes by the Treasury for the first time in decades and the commitment by the government to purchase asset backed securities will without doubt lead to renewed inflation fears.
These fears are likely to result in further increases in the value of gold with some analysts forecasting gold prices to increase to $1,500 per ounce.
As the price of gold increases, so also will the earnings of Newmont Mining, which has proven reserves of 86.5 million equity ounces of gold at its various locations. The company also has more than 28 million acres of land in high gold producing areas around the globe.
Newmont currently trades at a relatively high multiple to earnings. The ratio of price to sales is also high, at 3.99, as is the multiple of price to cash flow of 5.27.
Newmont is financially strong, with current assets of over $2.6 billion and a current ratio of 1.69. Long term debt on the balance sheet totals $3.36 billion, which is about 41 percent of company equity. These ratios compare very favorably with the industry.
Dividends are currently being paid at the rate of $0.40 per share for a yield of less than 1% at the present stock price. While the dividend rate is not particularly attractive, the company’s record of consistent payment of the dividend is impressive.
The stock price is not cheap at the current level, but investors seeking an investment likely to perform well during hyper-inflation may wish to consider including a mining company like Newmont in their portfolio.