Mining Stocks

Newmont Mining Corp Valuation – March 2018 $NEM

Company Profile (excerpt from Reuters): Newmont Mining Corporation, incorporated on December 06, 2001, is a 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, Ghana and Suriname. The Company’s segments include North America, South America, Asia Pacific and Africa. The Company’s North America segment consists primarily of Carlin, Phoenix, Twin Creeks and Long Canyon in the state of Nevada, and Cripple Creek &Victor (CC&V) in the state of Colorado, in the United States. The Company’s South America segment consists primarily of Yanacocha in Peru and Merian in Suriname. The Company’s Asia Pacific segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia. The Company’s Africa segment consists primarily of Ahafo and Akyem in Ghana.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NEM – March 2018

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 $19,946,629,663 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.63 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 -102.77% Fail
6. Moderate PEmg Ratio PEmg < 20 168.93 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.90 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 3.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.11 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.22
MG Growth Estimate 15.00%
MG Value $8.52
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $3.21
MG Value based on 0% Growth $1.88
Market Implied Growth Rate 80.22%
Current Price $37.39
% of Intrinsic Value 438.78%

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 or growth 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 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 growing its EPSmg (normalized earnings) from $0.11 in 2014 to an estimated $0.22 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 80.22% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Newmont Mining Corp revealed the company was trading above its Graham Number of $22.59. The company pays a dividend of $0.25 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 168.93, which was above the industry average of 42.77. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.09.

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) -$9.09
Graham Number $22.59
PEmg 168.93
Current Ratio 3.63
PB Ratio 1.90
Current Dividend $0.25
Dividend Yield 0.67%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $5,066,000,000
Total Current Liabilities $1,395,000,000
Long-Term Debt $4,061,000,000
Total Assets $20,563,000,000
Intangible Assets $0
Total Liabilities $9,954,000,000
Shares Outstanding (Diluted Average) 538,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.14
Dec2017 -$0.18
Dec2016 -$1.18
Dec2015 $0.43
Dec2014 $1.02
Dec2013 -$5.09
Dec2012 $3.61
Dec2011 $0.73
Dec2010 $4.55
Dec2009 $2.66
Dec2008 $1.83
Dec2007 -$4.17
Dec2006 $1.75
Dec2005 $0.72
Dec2004 $0.99
Dec2003 $1.15
Dec2002 $0.41
Dec2001 -$0.28
Dec2000 -$0.51
Dec1999 -$0.62
Dec1998 -$2.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.22
Dec2017 -$0.49
Dec2016 -$0.51
Dec2015 -$0.07
Dec2014 $0.11
Dec2013 $0.20
Dec2012 $2.78
Dec2011 $1.95
Dec2010 $2.15
Dec2009 $0.82
Dec2008 $0.01
Dec2007 -$0.57
Dec2006 $1.15
Dec2005 $0.77
Dec2004 $0.65
Dec2003 $0.33
Dec2002 -$0.29

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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