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Newmont Mining Corporation Message Board

  • Alex1444 Alex1444 May 31, 2011 4:50 PM Flag

    NEM = Best gold major to own now

    Not much commentary on NEM itself here; I guess that's a bullish signal in itself (low level of interest as a contrary indicator). I feel that NEM is the best gold mining major to own from the current price levels, that gold mining stocks will be outperforming gold bullion for the next few years, and that gold majors will be the gold mining stocks to own over the next 1-3 years. Here's why:

    Why gold mining stocks have underperformed gold bullion in recent years (and why that might be changing now):

    http://business.financialpost.com/2011/05/27/the-bullion-gold-stock-disconnect/

    How NEM and other gold mining majors have performed vs. GLD (gold bullion ETF) over the past 5 years (note that GDX is an ETF comprised of gold majors including NEM):

    http://finance.yahoo.com/q/bc?t=5y&s=NEM&l=on&z=l&q=l&c=gdx%2Cgg%2Cabx%2Cgld

    Note in the above chart that the gold majors have greatly lagged GLD, and NEM has greatly lagged the other gold majors, over the past 5 years. Time for some catching up? That would depend on the valuations. I feel those are in NEM's favor. Below shows NEM compared with other gold majors on a fundamental basis. I used the KGC "competitors" chart (which includes NEM) rather than the one Yahoo uses for NEM, because the NEM one includes a couple of African-heavy gold miners. African mines are generally at a discount to American (North and South) mines, due to perceived political risk. While NEM does some African mining, it is in Ghana which is quite stable, and doesn't represent a huge percentage of their output anyway. So I think the chart below is a fairer, "apples to apples" (mostly) comparison:

    http://finance.yahoo.com/q/co?s=KGC+Competitors

    Note that on essentially all measurements, price/earnings, price/sales, debt, etc. NEM is much more attractively valued than the others. The one thing where NEM underperforms on that chart is PEG, but I believe that uses an erroneous figure. The chart assumes that NEM's gold ounce output will decline over the next 5 years, but that clearly does not include the growth that NEM expects to get from this year's mine/development acquisitions from Fronteer. So that "5 year growth" projection on Yahoo is clearly wrong.

    (concluded in part II, below)

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    • re:RBY, well of course - RBY is a speculative gold stock, NEM is much more of a "sure thing" play on the price of gold. Gold could go up and RBY could go down, if they don't prove up enough gold via drilling or fail to develop it properly. That's not going to happen with NEM (IMO), which should reflect gold's direction on a leveraged basis, from here. NEM is the safer gold play; RBY is speculative and definitely not for everyone.

      But your comparison to those claiming to be "the next Google" is not valid (whether or not located next door to Google HQ) because only one software-oriented high tech stock can truly succeed per sector, while there's room in the commodity sectors for many to succeed. In other words, to have a truly successful software-oriented high tech stock, you have to have market share dominance (often but not always the "best" software dominates), while commodity producers do not have to be the dominate player in their sector to be successful. And there are quite a few cases of commodity producers being "next door" to other commodity producers - look at the various oil/gas shale plays with multiple companies in the same area.

      And sure, RBY is "promotional" - I've never seen a successful mining developer that wasn't promotional, that's just part of the business. It doesn't mean that they don't have anything. Goldcorp's major growth was built by the highly "promotional" Rob McEwen, who's in recent years been using his promotional skills in building UXG. Of course McEwen has skills beyond just promotion, but it is part of the success of his projects. Gold developers are like politicians, some are good, some are not, but all are promotional if they hope to get elected.

      As to Novagold, I wouldn't give up on that one yet; it may ultimately succeed, maybe not. At the current price of $11/share I think the risk/reward/time frame is not so attractive, but if NG reaches $6-8/share again, I think it could be worth some speculative investment dollars.

    • re: RBY

      The only thing I am impressed there is their ability to promote the stock. The highlighted reference to GG's big deposit is about as convincing as telling me the building next to the Google HQ is going to be the next great technology company.

    • thanks for the reply, I'll look into RBY and let you know what I think. I'm leery of pre production companies having been on the Novagold rollercoaster. They purported gold reserves are nearly as large as their mountain of promises they've made over the years.

      don't want to do that again

    • yes NEM is a great buy for a short and long term investment. Its new dividend policy allows for even more capital gain with dividend reinvestment. 12x todays earnings, 3x todays sales, whats not to like.

    • Well thanks for the NEM on-topic discussion. It's a shame that Yahoo allows this message board to be dominated by off-topic posters, who think this is their personal board for their political rants. At least we tried. Good luck.

    • (part II, conclusion from above)

      NEM has been well managed. Unfortunately, that has not gotten the attention of the wall street traders, but eventually it should. For example, one of the "negatives" about gold miners this year is that their costs are going up, especially fuel. That's true, but NEM has hedged 55% of their expected fuel costs for 2011 (at lower prices than current levels). Also, while the rise in the Australian dollar has gone up vs. the US dollar, raising mining costs for NEM's Australian mining, NEM has hedged against the Australian dollar (to some degree) too; both the fuel and Australian dollar hedging is noted here:

      http://seekingalpha.com/article/265959-newmont-mining-shifting-gears-into-a-growth-phase?source=yahoo

      Now if there's going to be a shift from gold bullion to gold mining stocks (for the reasons described above), and if gold prices remain strong and non-gold-bug Wall street investors want to get more heavily into the gold miners, which ones will they go for - the large miners or smaller ones? Seems to me that the big fund and portfolio players will go for the gold majors, due to their size, liquidity, mine diversification, and relative stability. So the majors should outperform in that environment, and NEM looks like the best of the majors fundamentally.

      Furthermore, NEM is more of a gold "pure play" than some of the other miners, which are diversified into other metals such as copper, lead, zinc, etc. Look at something like AEM, which is practically a base metal company plus some gold, IMO. Legendary gold developer Rob McEwen was greatly upset when GG diversified into more base metals a few years ago. And now even ABX is less of a gold "pure play" with its recent acquisition. Yes NEM has some copper, but it's quite small in value compared with the gold. When you want a gold major near "pure play", in mostly politically stable areas, with great valuations (relative to other gold miners), NEM is the "go to" stock, IMO.

      Finally, below is linked an article which speaks mainly favorably about NEM, but with one glaring "negative" - that it hasn't managed to turn it's growth in sales and earnings/share into share price increases, as well as other gold majors. Well duh, that's why it's a relative bargain now. But I don't really see that as a "negative", just as a positive from which NEM may do some "catching up" with the sector:

      http://www.fool.com/investing/general/2011/05/31/good-as-gold-george-soros-sells-the-metal-buys-the.aspx

      Comments on the thesis that NEM is the "best buy" of majors here, that gold miners should outperform gold bullion from here, and that gold majors should outperform "juniors" over the next 1-3 years?

 
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