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.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$3.12|
|MG Value based on 0% Growth||$1.83|
|Market Implied Growth Rate||83.27%|
|% 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
|Net Current Asset Value (NCAV)||-$15.86|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||531,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.94|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.22|
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|
Other ModernGraham posts about related companies
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.