What’s going on with Newmont Stock?

The actions of Newmont Corporation (NYSE:NEM) have gained around 4% over the past month, outperforming the S&P 500 which remains down around 4% over the same period. The recent gains come as gold prices — which account for nearly 90% of Newmont’s revenue and remain the primary driver of stock prices — are seeing gains. Prices for the yellow metal have risen around 10% since early November, currently trading at around $1,800 an ounce, following weaker-than-expected US inflation figures in November and signs that the Federal Reserve will moderate the pace of its interest rate hikes. The yield on 10-year Treasury bills, which is also considered an alternative safe-haven asset, has fallen from around 4.2% in early November to around 3.75% currently. Energy prices have also fallen slightly in recent months, with WTI crude oil falling to around $80 a barrel from around $100 in mid-2022. This could help reduce the company’s gold production costs, which would improve margins in the medium term.

However, there are good reasons to consider Newmont shares at current levels of around $47 per share. Newmont’s stock is down around 44% from the highs seen in April and is currently trading at less than 17x consensus 2023 earnings. We believe this is a fair assessment given that Newmont is the largest gold producer in the world, with high quality assets. The Company’s gold mineral reserves stand at approximately 93 million ounces, much of which is located in low-risk regions such as North America. The company has also been fairly steadily increasing its gold production, with plans to increase production from around 6.2 million ounces in 2022 to 6.8 million ounces by around 2026.

Gold prices could also experience some upside. The United States is widely expected to slide into a recession, while China also faces headwinds as Covid-19 cases soar. Russia’s war in Ukraine, which is about to enter its second year, also remains a concern, particularly for European economies. These factors could make gold a bit more attractive as an investment route, which would help price realization for Newmont. For perspective, Newmont had previously estimated that every $100 increase in the price of gold per ounce leads to a $400 million increase in its free cash flow. Newmont’s dividend is also significant, with the annual payout amounting to more than $2 per share, which translates to a dividend yield of approximately 4.5% at the current market price. The company should be able to maintain its dividend, given that its cash position stood at a relatively high $3.7 billion at the end of the third quarter. This could make the stock attractive to investors, even in a rising rate environment.

We estimate Newmont’s assessment at about $65 per share, about 30% above the current market price. See our analysis of Newmont Revenue for more details on the company’s business model and major sources of revenue.

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[1] Cumulative monthly and cumulative annual as of 24/12/2022
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.