Newmont (NYSE:NEM) continues its winning ways. On the news of its latest earnings report, the shares jumped by 4% to $48, putting the market cap at $39.4 billion. NEM stock is at a 52-week high and has logged a gain of 40% during the past 12 months.
Yes, for the most part, the gold sector has seen a resurgence lately. Look at some of the other operators like Barrick Gold (NYSE:GOLD) and Kinross Gold (NYSE:KGC), which have had strong gains.
OK then, so let’s get a backgrounder on the quarter for Newmont. Adjusted earnings came to 50 cents a share, while the Street was looking for 48 cents a share.
As for revenues, the company reported $2.97 billion, while the analysts’ consensus was for $2.93 billion. The company also maintained its guidance for production and costs for the next five years.
A key driver has been Newmont’s $9.5 billion acquisition of rival Goldcorp. Not only does the deal provide for substantial cost savings – they are estimated to be $500 million by 2021 – but also a nice boost in production.
Goldcorp should produce anywhere from six to seven million ounces of gold annually for the next decade.
Another important development is the company’s joint venture with Barrick Gold called “Nevada Gold Mines” (NGM). During the fourth quarter, the EBITDA was $267 million and $501 million for the year. Newmont currently has a 38.5% ownership stake in NGM.
And in terms of other major projects, here are some of the highlights:
- Tanami Expansion 2 (Australia): The expectation is that there will be 3.5Mt per year in production.
- Musselwhite Materials Handling (North America): The project appears to be tracking nicely and should be fully operational by mid-2020.
- Boddington (Australia): NEM has rolled out an autonomous haulage system with 36 trucks from Caterpillar (NYSE:CAT).
- Ahafo Mill (Africa): Production has reached a record for 2019, with about 1.1Moz of less than $800/oz completion of the expansion.
The Rise of Gold
The price of gold is at the highest level in about seven years. No doubt, this has been the biggest factor for the success of NEM stock.
Here are some of the reasons for the bull move in gold:
- Geopolitics: The recent tensions of the US and Iran have been jarring. Even though things have calmed down, there could easily be more conflict. This would especially be the case if Iran make more progress with its nuclear ambitions.
- US Election: This is often a cause of volatility and uncertainty. Although, this time around, the situation may be even more intense. After all, Senator Bernie Sanders has long supported highly progressive policies.
- Low Bond Yields: On a relative basis, this has made gold more attractive.
- Coronavirus in China: This remains a wild card. Keep in mind that companies like Apple (NASDAQ:AAPL) and PG&E (NYSE:PG) have warned that the virus is having an adverse impact on operations.
So what next for gold prices? Well, of course, this is tough to predict. But for the most part, as gold represents a traditional safe haven, it seems reasonable that there will be more bullishness as investors try to deal with the various uncertainties.
Bottom Line on NEM Stock
Among the gold producers, NEM is certainly well-positioned to benefit from the increase in gold prices. The company is the largest producer and has tremendous scale. Note that ten projects have an average Internal Rate of Returns of more than 30%.
The company has also been focused on shareholder value. Last year, it returned about $1.4 billion in dividends and buybacks.
And with the acquisition of Goldcorp, there should be continued increases in EBITDA. In other words, for investors looking for a play on gold right now, NEM stock does look like a good choice.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
