Newmont Corp, already the largest gold producer by a significant margin in 2022, has bolstered its position further by acquiring Australian competitor Newcrest in a $15 billion deal. This move aims to solidify Newmont’s leading position and diversify its portfolio with what the company describes as a “robust copper optionality.”
With production approximately twice that of its closest competitor, Barrick Gold Corp. (NYSE: GOLD), Newmont’s dominance in the gold market is undeniable. However, despite its substantial growth, shareholders have not seen significant returns lately, as the stock price hovers near a five-year low. From its peak in the midst of the pandemic to its current state, the stock has plummeted over 63%.
Analysts speculate that the recent acquisition and integration of Newcrest may be contributing to Newmont’s disappointing financial performance. Morningstar highlights that the vast scale of Newmont’s operations across five continents inherently increases complexity in cost management, suggesting that “bigger is not always better in gold mining.”
Echoing similar sentiments, veteran gold watcher John Ing expressed concerns to Bloomberg, stating that acquisitions like Newcrest could bring unforeseen challenges.
Newmont CEO Bullish on Stock Amidst Challenges: A Golden Opportunity for Investors
Despite these challenges, Newmont CEO Tom Palmer remains bullish on the company’s prospects. In a recent interview with Bloomberg, Palmer declared Newmont’s stock as “a once-in-a-generation buy for anyone considering investing in gold equity.”
While insider transactions have been absent over the past five years, Newmont has initiated a $1 billion share repurchase program as part of its capital allocation strategy, alongside a $1 per share annualized base dividend.
Investment bank Jefferies stands behind the stock, initiating a buy rating with a target price of $38 per share, significantly higher than the current trading price of approximately $31 per share. Jefferies attributes the recent decline in Newmont’s share price to what they hope are isolated challenges, such as a mining strike, project delays, and mechanical issues.
For investors seeking exposure to gold without the risks associated with owning mining stocks, gold exchange-traded funds (ETFs) like the SPDR Gold Trust (NYSE: GLD) provide an alternative.
While Newmont faces operational hurdles, investors anticipate that the company will overcome these challenges to capitalize on the potential upside predicted by Jefferies.
