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This Gold Play Hasn't Stopped Shining

04/01/2013 9:45 am EST


John Buckingham

Editor, The Prudent Speculator

The price of gold may be flat, but this company's production, earnings, and dividends are still climbing, writes John Buckingham of The Prudent Speculator.

Newmont Mining (NEM), the giant gold miner, has been a victim of the sell-off in the price of the precious yellow metal. But we continue to believe that the shares of the company are worth far more than their current market valuation.

Our reason for optimism about Newmont Mining’s long-term prospects was bolstered when the company announced better-than-expected full-year 2012 results, and also raised its quarterly dividend. Newmont reported 2012 revenue of $9.9 billion and net income from continuing operations of $3.80 per share.

Other highlights included: Gold operating margin of $985 per ounce; operating cash flow of $2.4 billion; attributable gold and copper production of 5 million ounces and 143 million pounds, respectively; and average realized gold and copper price of $1,662 per ounce and $3.43 per pound, respectively.

Also, in addition to paying $695 million, or $1.40 per share, in dividends, the company announced a first-quarter increase in the payout to 42.5 cents per share, which pushes the yield to approximately 4%.

Newmont’s CEO Gary Goldberg commented, “We were pleased to return the highest dividends in the gold industry on a per-share basis in 2012. We will maintain this competitive advantage by focusing on reducing our total cost of production and progressing only the most promising opportunities in our portfolio.”

With the company also reporting an increase in gold reserves to 99.2 million ounces, and the mines providing 9.5 billion pounds of copper reserves, we like how Newmont Mining is positioned for the long term.

Keep in mind that for 2013, attributable gold production is expected to be approximately 4.8 million to 5.1 million ounces, with attributable copper production of 150 to 170 million pounds.

In addition to the very generous dividend yield, Newmont Mining now trades for a single-digit forward earnings multiple, and we like the fact that gold offers an inflation hedge.

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