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Newmont Mining Has Outperformed the Gold Sector So Far This Year

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Newmont’s outperformance

Newmont Mining (NEM) stock has risen 21.7% year-to-date. Meanwhile, the VanEck Vectors Gold Miners ETF (GDX) has fallen by 5.5%, and the SPDR Gold Trust (GLD), which tracks the spot price of gold, has fallen by 1%.

Newmont has also outperformed its peers in the sector. Barrick Gold (ABX), Goldcorp (GG), and Kinross Gold (KGC) have fallen by 1.2%, 13.1%, and 20.7%, respectively. This outperformance is mainly due to the strengthening of Newmont’s balance sheet as a result of non-core asset sales as well as unit cost reduction.

The company’s 1Q15 earnings were also way above analyst expectations. At $0.46, its earnings per share was double the consensus estimate. Newmont has generated free cash flow for the last four quarters in a relatively weak commodity price environment.

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Taking steps in the right direction

The company is taking the right steps. It expects production will grow at a moderate pace thanks to its organic growth opportunities and the Cripple Creek & Victor mine acquisition we discussed previously in this series.

Newmont’s gold AISC (all-in sustaining costs) came in at $849 per ounce in 1Q15. That’s a reduction of 18% year-over-year. Ongoing portfolio rationalization efforts should lead to even leaner assets.

Investors should note here that though 50% of the company’s cost savings were due to productivity enhancements, some of its savings were due to the cost of oil and exchange movements. These costs could return in coming quarters.

Near-term catalysts

Newmont shares have limited near-term growth catalysts now. Its debt load is still quite high though, so any further steps toward reducing this could be positive for the stock.

Investors who don’t want to pick up individual companies can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX), which invests in senior and intermediate gold miners. Newmont forms 6% of its holdings. The SPDR Gold Trust (GLD), on the other hand, provides exposure to spot gold prices.

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