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What’s behind Newmont Goldcorp’s Higher Valuation Multiple?

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Newmont Mining’s higher valuation

Among senior and intermediate gold miners (GDX), Newmont Goldcorp (NEM) has the second-highest forward enterprise value-to-EBITDA multiple of 8.1x. This multiple implies a premium of 2.0% to the peer average.

Compared to Newmont Mining’s trailing five-year average, the multiple implies a discount of 1.5%. Kinross Gold (KGC), Barrick Gold (GOLD), and Agnico Eagle Mines (AEM) are trading at forward multiples of 4.9x, 7.8x, and 11.8x, respectively.

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Asset attractiveness

At a time when growth is difficult to come by in the gold mining space, Newmont Mining has a strong project pipeline with very low execution risk. In addition, most of its assets are in geographically attractive mining jurisdictions.

Many gold miners have been impacted by growing nationalism 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?

As far as the further upside potential for the stock’s valuation is concerned, now a lot depends on the post-merger project execution. NEM will likely need to assure the markets that it can turn around Goldcorp’s weaker assets or sell them for a reasonable price.

The company’s unit costs are higher than its peers’ unit costs. Newmont expects its costs to improve in 2019 and beyond as its low-cost supply comes online. Lower costs going forward could be a significant positive catalyst for the stock. The realization of synergies after the merger with Goldcorp could also help the stock command a premium to its peers.

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

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