Mining Stocks

Newmont Mining Corp Valuation – June 2016 $NEM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Newmont Mining Corp (NEM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Newmont Mining Corporation is a global mining company, which is focused on the production of and exploration for gold and copper. The Company is primarily a gold producer with operations and/or assets in the United States, Australia, Peru, Indonesia, Ghana and Suriname. Its segments are North America, South America, Asia Pacific and Africa. It has gold reserves of over 73.7 million ounces and an aggregate land position of over 20,000 square miles. It is also engaged in the production of copper, through Batu Hijau in Indonesia, Boddington in Australia and Phoenix in the United States. The North America segment consists of Carlin, Phoenix and Twin Creeks in the state of Nevada, and Cripple Creek &Victor in the state of Colorado, in the United States. The South America segment consists of Yanacocha in Peru. The Asia Pacific segment consists of Boddington, Tanami and Kalgoorlie in Australia and Batu Hijau in Indonesia. The Africa segment consists primarily of Ahafo and Akyem in Ghana.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NEM – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,012,733,366 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.28 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 563.89% Pass
6. Moderate PEmg Ratio PEmg < 20 175.03 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.76 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.28 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.62 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

NEM value chart June 2016

EPSmg $0.22
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $3.12
MG Value based on 0% Growth $1.83
Market Implied Growth Rate 83.27%
Current Price $37.69
% of Intrinsic Value N/A

Newmont Mining Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.79 in 2012 to an estimated $0.22 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 83.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Newmont Mining Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

NEM charts June 2016

Net Current Asset Value (NCAV) -$15.86
Graham Number $21.30
PEmg 175.03
Current Ratio 3.28
PB Ratio 1.76
Current Dividend $0.10
Dividend Yield 0.27%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $4,780,000,000
Total Current Liabilities $1,458,000,000
Long-Term Debt $5,369,000,000
Total Assets $24,553,000,000
Intangible Assets $0
Total Liabilities $13,204,000,000
Shares Outstanding (Diluted Average) 531,000,000

Earnings Per Share History

Next Fiscal Year Estimate $0.94
Dec2015 $0.43
Dec2014 $1.02
Dec2013 -$4.94
Dec2012 $3.63
Dec2011 $0.73
Dec2010 $4.55
Dec2009 $2.66
Dec2008 $1.87
Dec2007 -$4.17
Dec2006 $1.75
Dec2005 $0.72
Dec2004 $0.99
Dec2003 $1.15
Dec2002 $0.41
Dec2001 -$0.16
Dec2000 -$0.11
Dec1999 $0.15
Dec1998 -$2.47
Dec1997 $0.44
Dec1996 $0.63

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.22
Dec2015 -$0.04
Dec2014 $0.15
Dec2013 $0.25
Dec2012 $2.79
Dec2011 $1.96
Dec2010 $2.16
Dec2009 $0.83
Dec2008 $0.02
Dec2007 -$0.57
Dec2006 $1.15
Dec2005 $0.78
Dec2004 $0.69
Dec2003 $0.46
Dec2002 -$0.07
Dec2001 -$0.35
Dec2000 -$0.39

Recommended Reading:

Other ModernGraham posts about the company

Newmont Mining Corporation Annual Valuation – 2015 $NEM
16 Companies in the Spotlight This Week – 4/26/14
Newmont Mining Corp (NEM) Annual Valuation – 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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