What’s Happening With Newmont Stock?

NEM: Newmont Mining logo
Newmont Mining

The shares of Newmont Corporation (NYSE: NEM) have gained about 4% over the last month, outperforming the S&P 500 which remains down by about 4% over the same period. The recent gains come as the prices for gold – which accounts for almost 90% of Newmont’s revenue and remains the primary lever of the stock price – see some gains. Prices for the yellow metal have risen by around 10% since early November, currently trading at roughly $1,800 per ounce, following softer-than-anticipated U.S. inflation numbers over November and signs that the Federal Reserve will moderate the pace of its interest rate hikes. The yield on the 10-year treasury bond, which is also considered an alternative safe haven asset, has declined from around 4.2% in early November to about 3.75% currently. Energy prices have also cooled a bit in recent months, with WTI crude oil down to about $80 per barrel from roughly $100 in mid-2022.  This could help lower the company’s gold production costs, helping margins in the medium term.

However, there’s good reason to consider Newmont stock at current levels of about $47 per share. Newmont’s stock is down by about 44% from highs seen this April and currently trades at under 17x consensus 2023 earnings. We think this is a fair valuation considering that Newmont is the world’s largest gold miner, with high-quality assets. The company’s gold mineral reserves stand at about 93 million ounces, a large portion of which is located in low-risk regions such as North America. The company has also fairly consistently raised its gold production, with plans to boost production from around 6.2 million ounces in 2022 to as much as 6.8 million ounces by around 2026.

Gold prices could also see some upside. The U.S. is widely expected to slip into a recession, while China, too, faces headwinds as Covid-19 cases soar. Russia’s war in Ukraine, which is about to enter its second year, also remains a concern, particularly for European economies. These factors could make gold a bit more appealing as an investment avenue, helping price realizations for Newmont. For perspective, Newmont previously estimated that every $100 increase in the gold price per ounce results in a $400 million increase in its free cash flows. Newmont’s dividend is also thick, with the annual payment standing at over $2 per share, translating into a dividend yield of about 4.5% at the current market price. The company should be able to sustain its dividend, given that its cash holding stood at a relatively strong $3.7 billion at the end of Q3. This could make the stock attractive to investors even in a rising rate environment.

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We estimate Newmont’s valuation at about $65 per share, which is about 30% ahead of the current market price. See our analysis of Newmont revenue for more details on the company’s business model and key revenue streams.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Dec 2022
MTD [1]
YTD [1]
Total [2]
 NEM Return 1% -23% 40%
 S&P 500 Return -6% -19% 72%
 Trefis Multi-Strategy Portfolio -6% -22% 212%

[1] Month-to-date and year-to-date as of 12/24/2022
[2] Cumulative total returns since the end of 2016

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