Newmont Goldcorp Is About to Pan Out

Despite a massive rally in gold prices, shares of the world's largest miner of the yellow metal have been underperforming. Investors should go prospecting.

Gold is up 27% over the past 12 months compared with a gain of only around 3% for the S&P 500, and the outlook remains favorable. The Federal Reserve has been lowering rates and markets expect the central bank to keep going despite reasonably strong consumer-price inflation in the U.S. The Fed's counterparts around the world also are in easing mode. Additionally, threats of geopolitical chaos are elevated, with no resolution in sight for Hong Kong's unrest and a possible "no deal" Brexit on the horizon.

Nevertheless, shares of Newmont Goldcorp (NEM), the world's biggest gold miner by annual production, are up just 10% so far this year compared with a 31% surge for its closest rival Barrick Gold(ABX.T).

Gold prices above $1,500 an ounce should provide a huge profitability lift to Denver-based Newmont. Its all-in sustaining cost of production, which includes cash expenses and the capital expenditures needed to sustain gold output, was just $1,016 an ounce in the second quarter. The company sees this falling to $975 an ounce for the full year.

Investor discontent ( dividend-11553523422) can be traced back to Newmont Mining(NEM)'s $10 billion acquisition of Vancouver-based Goldcorp earlier this year, giving the company its present name and status as the world's largest gold miner. Many shareholders would have preferred Newmont to accept a takeover offer from Barrick, which would have created a true golden colossus but which Newmont rejected.

Newmont and Barrick did form a Nevada joint venture ( to-joint-venture-11552307988) to drive down costs at some of their key mining sites. Moreover, Newmont can still prove the doubters wrong by turning around operations at a couple of underperforming Canadian mines it received in the Goldcorp deal. Morningstar analyst Kristoffer Inton says the company's strong operational track record argues in its favor.

"If Newmont is able to do what they did with other mines in recent years with Goldcorp, there's an opportunity there," Mr. Inton says. Any further leg up in gold prices would just be gilding the lily.

Newmont currently trades at 22.6 times forward earnings, according to FactSet. That is below its five-year average multiple of 24.5, and looks downright cheap compared with Barrick's 35.5 times. For investors, this looks like a golden opportunity.

Write to Aaron Back at (

-Aaron Back; 415-439-6400;

  (END) Dow Jones Newswires
  08-19-19 1623ET
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