In this weekly update I am going to present interesting opportunities in the commodity and precious metals sector. Today I am going to take a look at Newmont Mining Corporation (NYSE: NEM).
Newmont Mining Corporation, founded in 1921 and based in Colorado, USA is a diversified mining giant and a leading gold and copper producer. The company holds active mines primarily in United States, Australia, Ghana, Peru, and Suriname.
With a yearly output of around 157 tonnes Newmont is the world´s second-largest producer of gold and the only gold company in the Standard & Poor's 500 Index. As well Newmont currently represents 9.19% of total assets in the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX).
The dividend for the fourth quarter has been doubled to $0.05 pushing the combined annual dividend yield to 0.59%. Newmont also promised an enhanced gold price-linked dividend policy.
The company claims to create a stronger business and value for all stakeholders through sustainable and responsible mining with a leading technical, environmental, social and safety performance. Newmont was named the mining industry leader by the Dow Jones Sustainability World Index in 2015 and 2016.
As of 2015 Newmont Mining reported gold reserves of 73.7 million ounces and copper reserves of 5.7 billion pounds. At a current gold price of $1,190 Newmont´s all-in sustaining costs of $925 should create an improvement in the 4th quarter cash flow. The recent spike in copper prices should lift earnings as well as Newmont has an annual copper production of 46 million pounds!
Newmont had a very good first half of 2016 which saw the stock nearly tripling from its low in January at $16.01 to $46.04 by mid of August. But since then Newmont has lost more than 35% and is now pretty oversold as the whole precious metals sector has experienced a sharp pullback. Yet Newmont´s year to date performance is still a whooping 87.58%.
At the moment gold is extremely oversold and sentiment has become excessively bearish as everybody expects India to come up with a prohibition of gold sales after prime minister Narendra Modi demonetized an estimated 86% of rupees in circulation. In hindsight we now know that it was not the surprising victory of Mr Trump but the irresponsible and chaotic ban of 500-rupee and 1000-rupees notes in India that created the turmoil in the gold market since 9th of November.
Looking at the chart, Newmont has been showing some strength against the gold price recently and did not confirm gold´s latest low at $1,171 anymore. That could be a hint that the gold mining sector is about to turn around and take the lead again. The stochastic´s positive divergence is promising. The stock needs to regain it´s 50 day moving average as well as its 200 day moving average. Once these two important averages are below the stock-price again bulls should be able to force the break out of the downtrend channel too.
Prudent contrarian investors should use the beaten down price of Newmont Mining Corporation to accumulate the stock at current levels up to $34.30. A realistic first price target sits around $38. In case gold resumes its uptrend Newmont could easily run to its August highs at $46. A stop loss should be placed below $27.00.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NEM AND/OR GDX OVER THE NEXT 72 HOURS over 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.