Mining Stocks

Newmont Mining Corporation Annual Valuation – 2015 $NEM

200px-Newmont_logo.svgBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – February 2015.  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 specific look at how Newmont Mining Company (NEM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Newmont Mining Corporation (Newmont) is a production-stage mining company. The Company is focused on gold production. Newmont is also engaged in the exploration for and acquisition of gold and copper properties. Its operations and/or assets are in the United States, Australia, Peru, Indonesia, Ghana, Mexico, Suriname and New Zealand. The Company’s operating segments are North America, South America, Australia/New Zealand, Indonesia and Africa. The North America segment consists of Nevada in the United States and La Herradura in Mexico. The South America segment consists of Yanacocha and Conga in Peru. Its Australia/New Zealand segment consists of Boddington in Australia and other smaller operations in Australia and New Zealand. Its Indonesia segment consists of Batu Hijau in Indonesia. Its Africa segment consists of Ahafo and Akyem in Ghana.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $22.23
MG Value $0.00
MG Opinion Overvalued
Value Based on 3% Growth $1.59
Value Based on 0% Growth $0.93
Market Implied Growth Rate 97.41%
Net Current Asset Value (NCAV) -$18.44
PEmg 203.32
Current Ratio 2.47
PB Ratio 1.08

Balance Sheet - December 2014

Current Assets $5,439,000,000
Current Liabilities $2,198,000,000
Total Debt $6,480,000,000
Total Assets $24,916,000,000
Intangible Assets $214,000,000
Total Liabilities $14,642,000,000
Outstanding Shares 499,000,000

Earnings Per Share

2014 $1.02
2013 -$5.09
2012 $3.63
2011 $0.73
2010 $4.55
2009 $2.66
2008 $1.83
2007 -$4.17
2006 $1.75
2005 $0.72
2004 $1.10

Earnings Per Share – ModernGraham

2014 $0.11
2013 $0.20
2012 $2.79
2011 $1.95
2010 $2.15
2009 $0.82

Dividend History

Conclusion:

Newmont Mining Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years along with the high PEmg ratio.  The Enterprising Investor is concerned with the level of debt relative to the net current assets along with the lack of earnings stability or growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.15 in 2010 to only $0.11 for 2014.  This lack of growth does not support the market’s implied estimate of 97.41% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

Be sure to check out previous ModernGraham valuations of Newmont Mining Corporation (NEM) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Newmont Mining Corporation (NEM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Newmont Mining Corporation (NEM) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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