Tags: Newmont | Mining | costs | NEM

Newmont Mining Fighting Uphill Battle on Costs

By    |   Wednesday, 05 Sep 2012 02:46 PM

Newmont Mining (NEM) is fighting an uphill battle against rising costs on a deflated gold price, analysts say, suggesting that a strong rebound in the share price will depend on a strong rise in gold itself.

Newmont Mining is primarily a gold producer with significant operations or assets in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Mexico. At the end of 2011, Newmont had attributable proven and probable gold reserves of 98.8 million ounces and an aggregate land position of approximately 31,500 square miles (81,500 square kilometers).

Newmont also is engaged in the production of copper, principally through its Batu Hijau operation in Indonesia and Boddington operation in Australia. On April 6, 2011, Newmont acquired all of the outstanding common shares of Fronteer Gold. Newmont acquired, among other assets, the exploration-stage Long Canyon project, which is located approximately 100 miles from the company’s existing infrastructure in Nevada.

Newmont Mining has a market cap of $24.3 billion in a sector, metals and mining, where the average company size is $13.19 billion. Its trailing 12-month P/E ratio is 78.52 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.8, compared to 3.69 for the sector.

Its projected earnings per share growth for the coming year is 22.81 percent, compared to a sector average of 44.29 percent.

Headwinds


Analysts are mixed on NEM, with an outperform call from Standard & Poor’s Equity and underperform from Zacks Investment Research.

“Escalating costs and lower grades hindered Newmont’s performance in the (previous) quarter. The company cut its yearly production targets and may face headwinds due to increasing direct mining costs, declining grades and increased royalties,” Zacks analysts wrote on Aug. 6.

“Production may be affected further due to geopolitical risks. However, being an unhedged gold producer, Newmont may gain from a jump in gold prices if it can keep costs under control. But this proved to be difficult so far and has resulted in declining profits.”

Newmont Mining next reports on Oct. 25.

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Wednesday, 05 Sep 2012 02:46 PM
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