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Investment Overview for Newmont Mining (NYSE:NEM)
Below are key drivers of Newmont's value that present opportunities for upside or downside to the Trefis price estimate for the company's stock:
- Newmont's Asia Pacific Gold Shipments: Newmont's Asia Pacific Gold Shipments have steadily increased as the decline in production from its Indonesia operation was offset by the start of production at its Boddington mines in Australia. We currently forecast shipments to increase by about 2% annually throughout our forecast. However, should production exceed expectations at Boddington, shipments could increase by 4-5% annually which would present a 7% upside to the Trefis price estimate.
North American Mines
- Newmont's North American Gold EBITDA Margin: Newmont's margins from its North American operations increased from 16% in 2007 to 47% in 2012 as the sharp rise in gold prices offset significantly higher cost of sales. We expect margins to be largely flat throughout the Trefis forecast period. However if gold demand remains strong and the company is able to cap its production costs these could go up. This would represent an upside of nearly 5% to the Trefis price estimate. However, should energy and labor costs continue to increase without a corresponding increase in gold prices margins could fall to 35% by the end of our forecast period, resulting in a downside of 4% to the Trefis price estimate.
Newmont Mining Corporation is a gold and copper producer with operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand and Mexico. The company has nearly 100 million ounces in proven and probable gold reserves.
The company also produces copper, primarily through its Batu Hijau development in Indonesia and Boddington project in Australia.
Gold mining drives value
Gold mining is the most important division for Newmont Mining in terms of revenues and profits. In 2012, the company had consolidated gold production of 5.6 million ounces (5 million ounces of which were attributable to the company). Gold generally accounts for over 80% of the company's consolidated sales. Asia Pacific is the company's most valuable gold mining operation, according to our estimates.
Gold as an investment
The economic turmoil of 2008 and 2009 shifted the focus of investors to safer investment vehicles like gold, which is perceived to be a good investment during times of economic upheaval or geopolitical instability. Gold prices reached all-time highs in 2011 as the debt crisis roiled the markets. Additional demand has come from ETFs and mutual funds that are focused on gold.
India and China have become two of the largest consumers of gold, and China surpassed India as the top consumer of gold during the fourth quarter of 2011. The situation reversed in 2012 though. As wealth in those nations continues to grow we expect consumer demand to remain strong.
Industrial copper demand in emerging markets
A number of manufacturing units were being set up in developing countries like India, Thailand, China and South Korea primarily due to lower labor costs in these countries. However, industrial activity in China and India has slowed, and demand is expected to be weak going forward.
Copper supply had been struggling to meet demand of late, as copper mine output had lagged due to various factors such as strikes and weak recoveries. This supply shortfall is now showing signs of turning into a glut as worldwide production is being ramped up. Over the next few years we anticipate a decline in copper prices.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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