Newmont (NEM) is a strong company that leads its industry in value. As a gold company we look to it for a long term investment and look to see what will influence it in 2012. Timing will be the main issue in 2012 while we look for an entry point.
Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties. The company's assets or operations are located in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand, and Mexico. As of December 31, 2009, it had proven and probable gold reserves of approximately 93.5 million equity ounces and an
aggregateland position of approximately 27,500 square miles. The company was founded in 1916 and is headquartered in Greenwood Village, Colorado.
NEM is the second largest gold producer (by oz) in the world. Gold, being considered an effective hedge against inflation, means that when the dollar depreciates, demand for gold increases. The demand for gold also increases when we have economic uncertainty and political unrest. When the demand for gold increases, the value of NEM may also increase. Considering that 83% of NEM's revenue comes from gold, it is a good bet to look at it as an investment related to where gold is going.
NEM over the last year has not grown as much as the Industry as a whole. Its sales have been down, and it appears to be financing its growth through debt. These are not good things I would look for when I am considering a long term investment in a company.
On the other hand, the stock is valued very good at 59.45 while it has been projected by analysts to climb to 79.50 for a median price. There is a lot of room for growth. Management has a high investment intelligence, it does better than the industry average in its return on equities, assets and capital. These are all healthy signs, but the bottom line for NEM's revenue stream is the price of gold and to a lesser degree copper.
Even successful explorations take time and major start-up costs to bring into production, during which time changes in revenues or company circumstances can inhibit viability. Global mine production has dropped 6.4% in six years, with virtually no new discoveries being made. This drop in mine discovery is going to make it difficult for NEM to maintain the high rate of production it has in the past. Analysts like Bank of America have pointed out recently that gold production for Newmont is modestly lower year-over-year and have made mention of its declining net asset value.
It will be the price of gold that will have the most influence over Newmont's stock value in 2012. Gold has been on a steady decline since it peaked in August of 2011 and still is using a "peak and valley" pattern while it moves down. We like Newmont as a long term investment, but timing on the stock is everything. Put them on your watch list and wait until they form a solid bottom, then look for an entry point for a long term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
