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Newmont Mining’s Valuation Multiple: More Upside Potential?

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Newmont Mining’s higher valuation

Among senior gold miners (GDX), Newmont Mining (NEM) has the second-highest forward enterprise value-to-EBITDA multiple of 8.1x. The multiple implies a premium of 28.0% to the peer average (GDX).

Compared to Newmont Mining’s trailing five-year average, the multiple implies a premium of 1.4%. Senior miners Kinross Gold (KGC), Barrick Gold (GOLD), and Goldcorp (GG) are trading at forward multiples of 5.3x, 8.4x, and 7.3x, respectively.

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Relative premium

Newmont Mining’s multiple implies a premium of 14% to its peers. When the growth in the gold mining space becomes scarce, Newmont Mining’s strong project pipeline offers growth with low execution risk. Most of the company’s assets are in geographically attractive mining jurisdictions.

Gold mining companies have been impacted by growing national and geopolitical risks. Miners with risky geopolitical exposure have been trading at a discount. For example, Kinross Gold fell after the US imposed fresh sanctions on Russia in April.

More upside potential?

Investors are probably wondering whether Newmont Mining’s valuation could rise more. The company’s unit costs are higher than its peers’ unit costs. Newmont Mining expects its costs to improve in 2019 and beyond as its low-cost supply comes online. The Newmont-Goldcorp merger had significant synergies, which could help the combined company command a premium. However, most of the outcome will depend on the post-merger project execution. Newmont Mining will likely need to assure the markets that it can turn around Goldcorp’s weaker assets or sell them for a reasonable price.

The outlook for gold prices (GLD) could be a significant catalyst for Newmont Mining.

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