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« Are G8 effective? | Main | Gold set to rally in September? »
Tuesday
Jul112006

Newmont Mining

Is Newmont an over weight elephant too heavy to fly? Rhonda Brammer of Barron’s thinks it is a great time to buy Newmont.

In an article on the front page of The Business, dated 9/10 July, entitled ‘Newmont Mining: the goose soon to lay the golden egg’ Rhonda Brammer puts the case for buying gold and also for buying Newmont. If you are contemplating buying Newmont then we suggest that you read her article. The article is very well researched and very well written. It contains facts and figures along with a couple of interesting graphs. There are quotes from the Chief Executive, Wayne Murdy, as well as the company chairman Pierre Lassonde. There are also quotes from BMO Nesbitt Burns, RBC Capital Markets and Citigroup who expect Newmont's shares to sell at $75. All good sound research so far. As we on this site expect gold to go along way we would automatically fall in line with the gold bull argument.


However, then we come to the comparable analysis, a comparison is made between the progress of Newmont and the S&P500. We struggle with this as a basis to recommend Newmont as the S&P500 covers a wide range industry sectors not related to gold.

Why is there not a comparison between Newmont and similar companies in the mining sector? If we compare Newmont with for example Kinross Gold, market Capitalisation of approximately $3.7 billion then a different picture begins to emerge. If we go a step further and compare Newmont with Bema Corporation, market capitalisation of $2.2 billon, then Newmont’s growth in percentage terms does not look too good at all.

We can see from the two graphs below that both these two mining companies have dramatically outperformed Newmont. There are other mining stocks that would also produce a similar result.

NEMvsKGC1

NEMvsBGO1


When one invests in this sector of the market it is usually in hope of higher than normal stock market returns. Newmont has been analysed to pieces and its value is well known. It is difficult for us to see where the growth for Newmont will come from and its past performance does not offer us any encouragement.

We can only conclude that we will not be buyers of this stock at the moment and cannot foresee a reason to change this stance in the near future.

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Reader Comments (4)

Interesting article.

However during this gold bull market, all gold mining stocks should rise, regardless of size or company share price.

July 12, 2006 | Unregistered CommenterGeorge

If the new renaissance into which the world has entered can be sustained (i.e. no world war) then abundant clean power and clean water suppies are surely our priorities.
Research into anti-matter and the production of clean water (4/5ths of the planert is covered in the stuff) is required, isn't it?
How does buying gold help?

July 16, 2006 | Unregistered CommenterFrankie

In response to the comment by George:

You are quite correct that all gold mining stocks should rise. However even though Newmont could double, we would expect some of the small cap mining companies to go up ten fold in the same period of time.

July 17, 2006 | Unregistered CommenterBob

In response to comments by Frankie:
You currently pay for water with paper money which is being devalued by the minute. In order to be able to afford water in the future you need to protect your wealth now!
Investing in gold and gold mining stocks now, we believe, is the best way to secure your financial future.

July 17, 2006 | Unregistered CommenterBob

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