Newmont: Gold’s "Old Faithful"

03/28/2016 7:00 am EST

Focus: STOCKS

Jack Adamo

Editor, Jack Adamo's Insiders Plus

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.

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By Jack Adamo, Editor of Insiders Plus. 

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