Gold mining stocks day three: Newmont Mining (NEM)

Price: $67.62

Shares: 494.82 million (504 million fully diluted)

Market capitalization: $33.44 billion

Bonds outstanding: $4.2 billion

The circle near 2019 is $900 million dollars for scale purposes.

DIVIDEND RECORD – Steady dividend payer since at least 1987.  Last dividend cut was in 1997.  Newmont appears to be a decent dividend grower since 2010.

Image011

Dividend: $0.35/quarter

Dividend Yield: 2.08% ($1.40 annual DIV/$67.62 share price)

Dividend Payout Ratio:   ($1.40/$4.72 recent EPS)

EARNING POWER – Six year average adjusted earnings is $1.35 per share @ 504 million shares

(Earnings adjusted for changes in capitalization)

                        EPS       Net Inc.             Shares               Adj EPS

2006                 $1.75    $791 M              452 M                $1.57

2007                 ($4.17) ($1,886 M)        452 M                ($3.74)

2008                 $1.83    $831 M              455 M                $1.65

2009                 $2.66    $1,297 M           487 M                $2.57

2010                 $4.55    $2,277 M           500 M                $4.52

————————————————————————–

2011 Q1            $1.03    $514 M              501 M                $1.02

2011 Q2            $0.77    $387 M              501 M                $0.77

2011 Q3            $0.98    $493 M              504 M                $0.98

2011 Q4            $1.38 E $682 M  E          504 M                $1.35 E

————————————————————————–

2011 E              $4.16 E $2,076 E           504 M                $4.12 E

Estimates come from Reuters.com consensus for the next quarter

Six year average adjusted earnings per share is $1.35

Consider contrarian buying at $10.80 (8 times average adj EPS)

Consider value buying at $16.20 (12 times average adj EPS)

Consider speculative selling at $27.00 (20 time average adj EPS)

Newmont Mining is trading at 50 times average adjusted earnings.  This stock’s price is highly speculative.

BALANCE SHEET – I don’t like the recent dip in Newmont’s shareholder equity.  And the stock price is way too high compared to book value.

Image014

Book value per share: $27.50

Price to book value ratio: 2.45 (close to 1.0 or under is good)

Current ratio: 1.42 latest qtr (above 2.0 is good)

Quick ratio: 0.63 latest qtr (above 1.0 is good)

Debt to equity ratio: 0.26 (this is good)

CONCLUSION – Newmont Mining is a low dividend grower that is speculatively priced for its earning power.  The company’s balance sheet is okay, but its hard to tell if it is deteriorating without in depth analysis.  There is no need for this deeper analysis since the stock price is so speculative compared to earning power and price to book value per share.

Image017

Newmont bottomed in the $23.82 dollar range in October 2008 several months before the US stock market bottom in March of 2009.  That represented the best investment entry into Newmont since late 2008.  The gold price will go down at least half of the percentage of the stock market’s decline.  This happened in 2008-2009.  US stocks dropped about 50% and gold dropped about 25%.  However, Newmont dropped even more than the broader market or gold.  It dropped almost 60% from $59.87 in January 2006 down to $23.82 by October 2008.  Don’t think that it happen again.  Wait for another bottom near value territory at $16.20 per share.  Newmont would be yielding about 8.6% if it keeps its new dividend rate at such a low price.  The good news is that gold will continue to go up in price as the world’s sovereign debt crisis worsens, but you have to buy extremely low to preserve your capital when purchasing mining stocks.

DISCLOSURE – I don’t own Newmont Mining (NEM).

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Published in: on December 7, 2011 at 6:12 pm  Leave a Comment  

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