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What gold producer sells at less than 2 times book value?

Which global miner has the lowest beta among its peer group?

Which resources company trades lower than 12 times its earnings?

The answer: Newmont Mining (NYSE:NEM).

Yes, Newmont Mining -- a gold and copper exploration and production company with mining operations spanning five continents around the world.

According to Newmont's website, these were but a few highlights from the company's performance in 2010:

  • Record revenues of $9.5 billion, up 24% from 2009;
  • Attributable gold sales of 5.4 million ounces and equity copper sales of 327 million pounds -- add to that the fact that Newmont is bringing online the Conga Project in Peru and Tanami Shaft Project in Australia by adding "400,000 attributable ounces of gold and up to 100 million pounds of copper production per year" by 2015;
  • Aggregate land position of approximately 27,458 square miles (71,118 square kilometers);
  • Record net cash from continuing operations of $3.2 billion, up 109% from 2009;
  • Gold operating margin increased 30% from 2009 on an average realized gold price increase of 25%; and
  • Cash and cash equivalents of more than $4 billion and $25.7 billion in total assets.

Pick any one of those highlights and one can assume that the company being discussed is a growth company (with a momentum stock).

The stock, however, has been trading in a fairly narrow 52-week range of $50.05 and $65.50 with a P-E multiple that is more reflective of a value stock. Is there a reason why it should not break out above its upper limit of the trading range?

According to Vickers Stock Research: "NEM pays an annual dividend of $1.20 which, at its current stock price, produces a yield of 2.16%. This is the largest of any company in the Gold & Silver industry, where the average yield is 1.56% ..."

At an operating margin of over 42% and a net profit margin of approximately 32%, the company is one of the most profitable minerals and metals producers -- large or small -- in the world.

According to a company press release: "The third quarter 2011 dividend of $.30 per share (a 50% increase over $.20 per share for Q2, 2011) was declared in consideration of Newmont's second quarter 2011 average realized gold sales price of $1,501 an ounce ."

In contrast, the company's 2010 Gold Operating Margin is $737/oz.

At the time of writing this piece in late July, 2011, gold has crossed the $1600 per ounce mark and is trading comfortably above that level. In a "risk-off" environment, when gold keeps breaching its all-time highs on a regular basis, Newmont Mining (one of the largest gold producers) deserves to enjoy a little more buoyancy than what it has experienced in the recent past. Even in a "risk-on" environment when copper demand begins to soar again thanks to expansionary tailwinds in the global economy starting mid-to-late 2012, Newmont -- being one of the largest copper producers in the world -- is positioned to perform exceedingly well as a "long copper" play.

Over the last 5 years, the company's Earnings per Share (EPS) has grown a staggering 49.41%.

At a P-E ratio that is higher only to Freeport-McMoRan (NYSE:FCX) within its peer group, Newmont is a "value" stock in a growth sector. Kinross Gold (NYSE:KGC), for example, trades at a healthy 16.37 its earnings and Goldcorp (NYSE:GG) trades at almost twice as much as the Newmont at a P-E multiple of 22.13. By the time one gets to AngloGold Ashanti (NYSE:AU), one is looking at an unbelievable P-E multiple of 105.85.

Whether you look at return-on-equity or return-on-assets, Newmont ranks among the top 3 of its peer group.

Here's a tale of relative value analysis that is as stark as it gets for companies that are delivering virtually identical numbers: The company that Newmont resembles most in terms of gross revenues, net profits, net profit margins, and a whole host of other metrics is Barrick Gold (NYSE:ABX).

Exhibit 1: Profitability

Company

Net profit margin

Gross margin

EBITD margin

Operating margin

Newmont Mining

32.92

63.48

53.57

43.67

Barrick Gold

29.45

61.54

42.56

42.1

Here's a rhetorical question: Which company is more profitable?

Exhibit 2: Debt

Company

Long-term debt to assets

Total debt to assets

Long-term debt to equity

Total debt to equity

Newmont Mining

16.30

17.31

31.34

33.28

Barrick Gold

20.04

20.08

35.03

35.10

Which of these two companies is less indebted?

Exhibit 3: Returns

Company

Return on avg assets

Return on avg equity

Return on investment

Newmont Mining

13.1

19.17

16.27

Barrick Gold

10.65

18.48

11.92

Again, which company provides a higher return?

Exhibit 4: Pricing

Company

P/E ratio

Price-to-

book ratio

Price-to-

sales ratio

Newmont Mining

11.56

2.13

3.33

Barrick Gold

12.4

2.52

4.42

Here's the clincher: With all these metrics where Newmont beats Barrick Gold consistently, guess which company is more valuable?

It is Barrick Gold at $47.54 billion.

And, what's Newmont Mining's market cap?

$27.45 billion.

So, which company would you pick based on the above valuations?

It begs the question: Is Newmont undervalued ... by as much as 50% or more?

Need one say more?

Sources: Reuters, Google Finance, Newmont Mining, Vickers Stock Research.

Disclosure: I am long NEM.

Source: Newmont Mining: A Value Stock in a Growth Sector