If an investor wants to buy a large gold miner, Newmont mining Corporation (US:NEM) is probably not a bad choice. Indeed, NEM stocks posted exceptional returns later, as Newmont mining shares have more than doubled since the beginning of 2016.
Solid first-quarter report on Thursday morning should help the bull case. Newmont mining earnings were above the consensus analysts ‘ forecast, and annual forecast looks solid. Gold reached an 18-month high in January and increased market volatility and geopolitical tensions may help the yellow metal going forward.
But after reaching the past two years, I highly doubt that there is much left up in Newmont mining shares. More importantly, I doubt whether in the long term, there’s no reason to invest in it, or any other gold mining company, at all.
Earnings it look respectable
First quarter Newmont consider solid across the Board. Sales of 1.82 billion according to estimates by the analyst to miss by 1%. But not generally accepted accounting principles earnings per share of $0.35 was two cents better than street forecasts.
Looking closer, the news looks just as good. Adjusted EBITDA grew 12% yoy, despite a decline in production. On a quarterly basis for the production of 1.2 million ounces in accordance with the company’s expectations and needs ramp a year out.
Mako (all-in sustaining cost) of $973 per ounce leaves room for profit, given the selling prices in the amount of 1,329, up 9% yoy. And Mako a figure closer to the lower boundary of the annual range of $965-$1,025, good start of the year.
The quarter seems to show a gold miner on the track. The gold price tailwind. Newmont control costs. The production will benefit from new projects online in the second half of the year. In fact, the company newmont is likely to pass Barrick gold Corporation (USA) (Ticker NYSE:ABX) as the world’s largest gold producer.
All said it was a good quarter. But it’s not a lot to do to change the two main problems facing the NEM stock.
Stock assessment of NEM
The first problem is that Newmont mining shares are not exactly cheap. Multiples of earnings are not always the best way miners value, but almost 24x forward earnings, this stock does not play value.
At 8.3 x EV/EBITDA does not help in this case; the multiple of cash flow in adolescence. But in the medium term, there is not much reason to expect rapid growth of outcome indicators for Newmont mining.
Because the company directs production in 2019 — followed by a dip over the next three years. The cost should come again next year, and then stabiliziruemost. Lower capital costs will help free cash flow, but also to limit the growth of the company in its mines over the next ten years. According to presentations to investors of company after 1 quarter, it expects about a TV production, at least B4.
And after such savings to be felt fully next year, there is not much fat left to cut. Interest costs have come down nicely, thanks to the debt reduction. But for the most part, free cash flow Newmont mining is going to flatten out relatively soon. To 16x that free cash flow, which is not very attractive profile.
If You ever bought promotions nem?
Even those models that assume that everything goes according to plan. And the history of the mountain areas, especially in the gold shows that it rarely happens.
After all, the point of having a miner to lever up the price of the underlying commodity. If the price of gold rises, miners ‘ cash flow is expected to increase much faster. And — at least in theory — its stock price should do the same.
That does not however,. ABX, Goldcorp Inc. (USA) (Ticker NYSE:gg), Kinross gold Corporation (USA) (Ticker NYSE:KGC), and AngloGold Ashanti limited (ADR) (NYSE Ticker:AU) all declined at least 60% over the last decade. Gold rose over this period.
The nem stock performs better than its peers. But it’s still more than 8% over the past ten years, his total income is only 5%, including dividends.
This time is sure different? Possible. Newmont corrected your balance and should generate free cash flow over the next few years. There is a case for gold will continue to rise due to the increasing inflation expectations and rising geopolitical tensions. The high price of gold should help Newmont mining earnings — newmont mining Fund.
But the problem remains. It is easier and safer to just buy gold. Options and futures offer the same leverage of miners proposed in the theory – without the issues that so often overwhelm the models in practice. If the investor wants a loan increase in the price of gold, there are easier ways to do it than to buy gold. Even after a solid Q1, the problem has not changed over Newmont mining shares.
At the time of this writing, Vince Martin has no positions in any securities.