Why Newmont Mining Is Well Positioned To Ride Out A Downturn In Gold Prices

NEMYTD+12.4%SPYYTD+13.5%XLBYTD+10.4%
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The Federal Reserve is expected to hike interest rates at the Federal Open Market Committee (FOMC) meeting later this month, which has adversely impacted gold prices. [1] In addition, the outcome of last month’s presidential elections has also acted as a dampener on gold prices, with President-elect Trump’s policies expected to boost economic growth in the U.S. The prices of gold, which is considered a safe-haven asset from an investment point of view, are negatively impacted by rising economic growth and interest rates. Given the unfavorable pricing environment, we expect gold prices to decline next year from 2016 levels. Newmont Mining is fairly well placed to weather a decline in gold prices this time around, after taking measures to lower operating costs and indebtedness during the last downturn in prices. The company sold off a number of high-cost assets, instituted measures to improve the efficiency of its operations, and took steps to lower its debt burden in response to the decline in gold prices over the course of 2013-2015. This is reflected in the improvements in the company-wide all-in sustaining costs (AISC) metric and Net Debt to EBITDA ratio, as illustrated below.

NEM Better Prepared For Lower Gold Prices

Given the improvements in its operating and financial metrics, Newmont Mining is far better placed to operate in a period of subdued gold prices, as compared to the situation two years ago.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Newmont Mining

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Notes:
  1. Fed expected to tee up December interest-rate hike, Market Watch [↩]