Newmont Mining Vs. Barrick Gold: A Value Comparison

 |  Includes: ABX, NEM
by: The Enthusiast

The last few months have been rough for precious metals. SLV has fallen 5.45% in the last month and GLD has broken even in the last month. The "Death Cross", 50 day moving average crossing 200 day moving average, creates a possible bearish future for precious metals. The next few weeks will dictate whether or not precious metals will rise. Silver needs to gain about $2 pretty quickly with gold needing $50.

Some say this opportunity is a great buying opportunity. This article will examine the values in Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM). These companies are two of North America's largest mining companies. NEM is a "Made in America" company ranking #19 in the world. ABX is a Canadian company that is ranked #8 in the world. These are good companies to consider when looking for a large precious metals mining company.

Newmont Mining

NEM is a primary gold producer that was founded in 1921 in Denver, Colorado. It operates in seven countries with a land position of 31,500 square miles. Richard O'Brien was the CEO but retired on March 1, 2013. O'Brien turned NEM around after reaching a 10 year low in January of 2008, he found himself in the middle of the planning and restructure of the Nevada Operations after a fatality was experienced. O'Brien was succeeded by Gary Goldman who was the previous Chief Operating Officer. This change does have a positive forecast for NEM. Goldman turned U.S. Borax into a national leader in safety and environmental leadership. Mineweb contacted a former colleague of Goldberg who said:

Former colleagues contacted by Mineweb Monday praised mining engineer Goldberg as "top-notch" and as one of the most outstanding mining operations executives around.

(source: Mineweb)

Goldberg has three decades of mining experience with Rio Tinto which owned U.S. Borax at the time.

In 2012, Newmont had a revenue of 9.9 billion dollars. This is slightly lower than 10.35 billion dollars in 2011. 2010 was lower than both at 9.5 billion dollars. This is due to serious falls in production in the last three years. Copper production has fallen by more than 50% since 2010. 2010 saw 327 million pounds produced, last year we saw 143 million pounds of copper produced. Gold production has fallen but only slightly. 2010 saw 5.4 million ounces, 2012 saw 5 million ounces. The average cash costs per ounce in 2012 were 677 dollars an ounce.

NEM did however raise reserves of gold to 99.2 million ounces. 2.9 million of the ounces were found in the Merian Gold Project. The project is located in Suriname and is a limited liability company called Suriname Gold Company LLC., also known as Surgold. NEM owned Surgold since 2004 and has invested extensively in the project. The project proposes open pit mines, ore processing center and related infrastructure. The results of exploration will be studied this year. The other 2.6 million ounces were found at the Long Canyon Project in Nevada.

There is growth expected for copper production in 2013, set at 150-170 million pounds. Gold is expected to see little growth in 2013 with an average outlook of 4.95 million ounces which is actually lower than 2012 total production.

The Company expects capital expenditures to decrease from 2012 to 2013 by approximately 20%, as declining capital commitments for Conga, Akyem, and Tanami are partially offset by increasing development capital for the Ahafo Mill Expansion in Ghana as well as the Phoenix Copper Leach and Turf/Leeville Vent Shaft development in Nevada.

(source: Newmont Mining)

Newmont has just issued a 0.425 cent per share dividend, higher than the previous 0.35 and the 2010 dividend of 0.10. Insider transactions include the disposition of 2593 shares by Goldberg, the CEO, on December 5, 2012.

Barrick Gold

ABX was founded by a well known Canadian philanthropist named Peter Munk. ABX was first listed on the TSE in 1983. The company operates 27 mines, exploration and development projects around the world. For the year of 2012, ABX reported a net loss of 670 million dollars. Despite this, the company experienced high gains in 2011, even with fluctuating gold prices:

Full year adjusted net earnings increased 33% from $3.52 billion in the prior year to $4.67 billion ($4.67 per share), demonstrating the Company's strong gold price leverage, and translating to a higher return on equity of 22% from 20% in 2010.

(source: Barrick Gold)

2011 also saw impressive gold production and cash costs. 7.68 million ounces of gold was produced in 2011, at an average cash cost of 460 dollars per ounce. Even more impressive is the Pueblo Viejo production site. In Q3 of 2012 the site produced about 80,000 ounces of gold. The forecast for this site is to produce 650,000 ounces of gold in the first five years at an ultra low cost of 325 dollars an ounce on average. Another promising project is the Pascu-Lama silver/gold project in South America. Annual gold and silver production in the first full five years of a 25 year mine life is expected to average 800,000-850,000 ounces and 35 million ounces, respectively (Barrick).

Gold guidance is 7-7.4 million ounces for 2013. Slightly lower than the 2012 production level which was 7.42 million ounces. Cash costs rose to $584 dollars per ounce in 2012. Cash costs per ounce are expected to rise again to about $635 dollars an ounce for gold in 2013. The proven and probable reserves are an industry leading 140 million ounces.

ABX fundamentals:

Revenue/Share 14.53
Earnings/Share -0.66
Book Value/Share 21.82
Dividend Rate 0.80
Dividend Yield %3.00
Click to enlarge

NEM fundamentals:

Revenue/Share 19.74
Earnings/Share 3.62
Book Value/Share 27.71
Dividend Rate 1.70
Dividend Yield %4.30
Click to enlarge


Both NEM and ABX have their strengths and weaknesses. NEM has a higher dividend and copper growth expectations. ABX has a proven operation with a higher gold growth expectation. NEM has seen recent positive earnings whereas ABX has seen losses. NEM seems to be the better bet long term over ABX.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I hope this article opens up new ideas for possible investors interested in Newmont or Barrick.