Newmont: Gold’s "Old Faithful"
03/28/2016 7:00 am EST
After its big bounce at the beginning of the year, gold continues to hold its gains and remain above its golden cross, notes Jack Adamo, editor of Insiders Plus.
I was hoping for a bit of a pullback in gold prices before adding to our positions, but we may not get it and I doubt we'll suffer anything except a short-term deficit by getting in now.
We will start by buying shares of an old faithful -- Newmont Mining (NEM), which has been around since before World War I and the Great Depression.
The company has been doing very well lately. Once again it has shown its ability to adapt and grow.
Despite a horrific year for the industry, Newmont managed a full-year 2015 pre-tax profit that was up 91% year-over-year.
It accomplished this by disciplined cost controls, maximization of its asset base, and well-planned restructuring. That profit, by the way, is not adjusted, it's GAAP.
However, GAAP also bit into the bottom line. The firm's taxes rose 384% year-over-year, leaving net EPS from continuing operations down 65% at $0.38 per share. Including discontinued operations, EPS was $0.43.
That bottom line was also affected by a 6% rise in the share count. By way of some solace, note that assets that have been written down as impaired may later contribute to earnings. That will probably be a few years off, but I think it will happen.
The balance sheet improved due to the extra shares, reducing total debt by about 4% of capital to 43.2% of total capitalization. The interest coverage ratio also improved significantly.
Operating metrics were also good. Gold produced and sold were up 9.1% and 8.3% year-over-year, while costs dropped 10.3%. Unfortunately, realized prices fell 9.3% leaving the operating margin down 8.3%.
With the gold price firming significantly in the last few months, there's a good chance that headwind will turn into a tailwind in 2016.
By Jack Adamo, Editor of Insiders Plus.
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