June 19, 2024

A Large Cap Gold Stock That Could Double In Price

Many small cap gold mining companies have seen significant price gains, while large cap gold stocks have underperformed.  With fundamentals driving the price of gold steadily higher, many large cap gold mining companies are perfectly positioned to see large earnings increases that will propel their stock prices higher.

One large cap gold mining company that could be on the verge of doubling in price over the next few years is Newmont Mining Corporation (NEM).   The stock has underperformed other large cap gold mining companies despite the fact that the company’s fundamentals have dramatically improved over the past few years.  The improved fundamentals, once recognized by the market, are likely to push Newmont’s stock price much higher.

Newmont Mining is one of the world’s largest gold producers with operations in Ghana, Indonesia, Nevada, Australia, New Zealand, Peru, Canada and Mexico.  For the past three years, Newmont Mining has been positioning itself for future growth through financial and operational restructuring and is now poised for additional significant growth in revenue and profits.

Revenues have grown from $6.1 billion in 2008 to $9.5 billion for the year ending December 31, 2010.  During the past three years, gold production increased by only 3.7% from 5.2 million ounces in 2008 to 5.4 million ounces in 2010.  The majority of revenue increases over the past three years were driven by increased gold prices, but Newmont is forecasting an increase in gold production of 35% over the next six years to 7 million ounces annually.  The combination of increased gold production and higher gold prices could result in explosive earnings growth.

Newmont Mining has proven and probable gold reserves of 93.5 million ounces, equivalent to $285 per share.   Newmont is also a major copper producer with proven and probable reserves of 9.4 billion pounds, equivalent to 19.1 pounds per share.   The value of copper reserves is worth approximately $78 per share.   In 2010, Newmont produced 327 million pounds of copper.

Gold reserves are expected to increase based on the Company’s global portfolio and continual exploration efforts.

The Company paid shareholders a cash dividend of $0.50 per share in 2010 and expects to increase this by $0.20 per share for every $100 increase in the price of gold.

Newmont Mining has an extremely strong balance sheet with $5.6 billion in cash at year end 2010.   According to the Company’s annual report, Newmont offers investors the “best per-share gold-price leverage in the industry.  Every $100 increase in gold price translates into approximately $350 in additional after-tax operating cash flows, or approximately $0.70 per share.  We deliver better gold price leverage than any of our competitors.”

Newmont Mining’s stock price of $53.44 at today’s close is actually lower than five years ago when it traded at about $55 in early July 2006.



Newmont Mining trades at a low price earnings ratio of 12 and pays a 1.5% annual dividend.  Based on the Company’s recent results and bright prospects for future revenue and profit growth, it is only a matter of time before investors drive the stock price higher.  Many other major gold producers have price earnings ratios in the low 20’s or higher.  If Newmont Mining sold at a PE ratio in the low 20’s, the stock’s price would be over $100 per share.

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