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Can Newmont Mining Continue Its Outperformance Going Forward?

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Nov. 20 2020, Updated 9:15 p.m. ET

Newmont’s outperformance

As we talked about in the first part of this series, Newmont Mining (NEM) has significantly outperformed its peers (GDX) in the gold mining space this year. This outperformance is mainly due to the strengthening of Newmont’s balance sheet as a result of non-core asset sales and unit cost reductions.

As of 3Q15, Newmont also generated positive free cash flows for the previous six quarters—a noteworthy achievement given the relatively weak commodity price environment as of November 5, 2015.

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Taking steps in the right direction

As we discussed in the previous parts of this series, Newmont appears to be taking the right steps. It expects production to grow at a moderate pace, thanks to its organic growth opportunities and to the Cripple Creek & Victor mine acquisition and the Tanami Expansion project.

Newmont’s gold AISCs (all-in sustaining costs) were 16% lower year-over-year. The company’s ongoing portfolio rationalization efforts should also lead to even leaner assets. The projects in its pipeline that provide near-term production growth potential also have lower costs, which should strengthen Newmont’s overall portfolio while helping it lower costs even further. This, as we pointed out earlier, is very important in this gold price environment as miners with higher costs have high leverages to their revenues, and vice versa.

Near-term catalysts

A further commitment to debt reduction could be positive news for Newmont’s investors. Any other project moving from feasibility stage to execution stage with attractive potential returns, such as the Tanami Expansion, could also push the company’s stock price further up.

Furthermore, not every gold miner in the industry has the strong project pipeline that Newmont has. While Barrick Gold Corporation’s (ABX) production profile was more or less flat after 3Q15, Kinross Gold Corporation’s (KGC) might actually decline. On the other hand, Agnico Eagle Mines (AEM) and Goldcorp (GG) both have growth projects with strong potential.

Related ETFs

Investors who don’t want to pick up individual companies can invest in gold miners through ETFs like the VanEck Vectors Gold Miners ETF (GDX), which invests in senior and intermediate gold miners. Newmont makes 6.4% of GDX’s holdings. The SPDR Gold Shares (GLD), on the other hand, provides exposure to spot gold prices. Kinross makes up 4% of the Sprott Gold Miners ETF (SGDM).

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