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Newmont: A "Five Star" Idea in Gold

06/23/2020 5:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Gold is still the place to be in 2020; indeed, while gold is not normally viewed as an island of stability, it has been this year, observes Mark Skousen, editor of Five Star Trader

I’ve found a gold mining company that fits our "Five Star" investing criteria: Newmont Mining Corp. (NEM), which happens to be the world’s largest gold mine operation. 

The Colorado-based mining company engages in the production and exploration of gold, copper, silver, zinc, and lead. The company has a dozen high-quality assets in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana. 

As of December 31, 2019, it had proven and probable gold reserves of 100.2 million ounces. Its African operations are doing well, producing 1.1 million ounces of the precious metal last year at a cost of less than $800 per ounce. 

Newmont is in great shape during this time of turmoil. Profit margins exceed 33% and return on equity (ROE) is 21%. Revenues shot up 43% to $10.5 billion, and with low costs of production, the higher gold price has caused earnings to skyrocket 844% to $3.6 billion. 

The company has a solid balance sheet, with $3.9 billion in cash, which is plenty to manage its $6.8 billion in long-term debt. 

The stock has risen sharply this year, but is still selling for only 12 times earnings, and has a price-to-earnings (PEG) ratio of 0.99. A PEG ratio under 1 is considered excellent. 

Mining companies are notoriously stingy when it comes to paying dividends, but Newmont almost doubled its dividend to $0.14 per share in 2018 and paid a special $0.88 per share dividend in 2019. Last month, the company announced it would raise its dividend to $0.25 per share, or $1 a year. 

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