We have maintained our Neutral recommendation on Newmont Mining Corporation (NEM) following our assessment of its mixed fourth-quarter 2012 results. Adjusted earnings trumped the Zacks Consensus Estimate while sales miss the same.
The gold mining giant turned to a profit on a reported basis in the fourth quarter, reported on Feb 21. The year-ago quarter’s bottom line was hit by a sizable impairment charge. Attributable gold production fell in the reported quarter due to lower production across North and South America.
Newmont is an un-hedged gold producer and, as such, it is well positioned to gain from rising gold prices. Demand for the yellow metal remains healthy. The prevailing macroeconomic uncertainty is expected to support gold demand as investors look to avoid risky investments, which bodes well for gold miners like Newmont.
The company’s unique gold price-linked dividend policy represents another bright aspect. Newmont has increased its quarterly dividend by 21% to 42.5 cents per share for the first quarter of 2013. Its current dividend yield (of around 4%) is the highest among its peers, backed by its strong liquidity position.
Moreover, Newmont continues to invest in growth projects in a calculated manner. Its remains optimistic about its Long Canyon project in Nevada and expect production between 200,000 and 300,000 ounces a year from the site in the first five years. The company has also made a significant progress with respect to the Akyem project in Ghana with production expected to commence in late 2013.
However, Newmont may continue to face headwinds due to increasing mining and non-mining costs. In the fourth quarter, cost applicable to sales went up 20% from last year to $720 per ounce of gold. In addition, copper costs shot up 65% year over year.
Moreover, lower ore grades are affecting production in the company’s Asia Pacific operation. Its production remains challenged at the Batu Hijau mine in Indonesia.
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