Exposure To Country Risk: The Newmont Edition

 |  About: Newmont Mining Corporation (Holding Company) (NEM)
by: Itinerant

In a series of recent articles, we investigated the country risk of various mining jurisdictions in which US-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. The most recent results from this work can be found in this article. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socioeconomic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 production results and reserve statements. As 2012 data becomes available, we are providing updates, and in the present article, we would like to do so for Newmont Mining (NYSE:NEM).

Newmont has a market capitalisation of $16.3B and is among the top-five gold mining companies worldwide by market capitalisation. The forward P/E is currently listed as 8.23. Analysts on Yahoo.com give a median price target of $45.00 with the share price standing at $32.66 at the time of writing. In 2012 Newmont produced 4.89M gold-equivalent ounces in seven different countries. For this article only precious metals were considered. For the computation of gold equivalent ounces, we used a silver-to-gold ratio of 50. The table below gives the 2012 numbers for production, reserves and resources at each of Newmont's mines and projects.

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Consolidating the production and reserve data showing summations for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. Country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).

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The country risk rating for Newmont Mining based on production computes to 27.97, a fraction up from last year's value. This rating indicates moderate risk levels.

The rating increases to 30.38 when considering reserves, mainly due to disproportional contributions from Ghana and Suriname. When taking into account resources, the risk level remains very similar with ratings of 29.83 for measured and indicated resources and 32.94 for inferred resources.

Risk levels are very similar to last year's values as shown in the diagram below and remain at a moderate level. Difficulties experienced at the Conga mine serve as a reminder that country risk exists and can have a significant impact.

Note: last year's statistics did not differentiate between different resource classes.

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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.