Value Investors, This Mining Stock Is A Top Choice Right Now

Published on: Feb 21, 2024
Author: Caroline Kong

Value investing is one of the most common ways to find quality stocks in any market environment. After all, no investor can resist stocks that offer attractive discounts to fair value.

With the price of gold hitting an all-time high of $2,135 per ounce in 2023, central bank interest rate cuts, an uncertain macroeconomic outlook, and geopolitical conflicts that could push the price of gold higher again in 2024, making gold stocks like Newmont Mining (TSX:NGT), a blue-chip mining stock, an obvious value investment choice.

Newmont is not only the world’s premier gold producer, but also a leading producer of copper, silver, zinc and lead, with a portfolio of assets located in mining-friendly jurisdictions in Africa, Australia and the Americas.

As the only gold producer in the S&P 500, Newmont has returned 73 per cent to shareholders over the past decade, adjusted for dividends. That’s far behind the 227% return of the S&P 500. And because of that, this gold stock remains attractively valued.

Last November, Newmont completed its acquisition of Newcrest Mining, which will help the company realize $500 million in pre-tax synergies over the next two years. Management expects Newmont’s cash balance to increase by at least $2 billion by 2025, based on an optimised portfolio.

It’s worth pointing out that Newmont has a unique dividend policy that includes an annual dividend of $1 per share if the gold price exceeds $1,400 per ounce. In addition, the company pays variable dividends based on the free cash flow it generates.

Over the past 12 months, Newmont has paid a cumulative cash dividend of $1.60 per share, for a dividend yield of 4.8%. As for valuation, Newmont stock is currently trading at a forward P/E of just 11x, making the stock very cheap right now given that its earnings are expected to grow 35% by 2024.

Newmont Stock Is Undervalued

Newmont stock’s weakness in 2023 is largely due to low investor sentiment, as the company’s earnings remain very strong. Earnings reports show that the company reported net income of $286 million in the third quarter of fiscal 2023, compared to $212 million in the same period a year earlier. In addition, operating cash flow increased to $1 billion from $466 million.

Newmont is continuing to reinvest in capital expenditures, which will drive future cash flow and earnings growth. As of the third quarter, the company had free cash flow of $397 million and ended the third quarter with $3.2 billion in cash and $6.2 billion in liquidity. The company’s net debt to adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio of 0.7 times is very healthy.

As a result of the compelling valuation and strong financial position, Newmont Mining shares were trading at a 100 per cent discount to the consensus analysts’ target price.

If you’re interested in investing in mining stocks, you might want to keep an eye on this company: Silver Storm Mining Ltd. (TSXV:SVRS). Silver Storm Mining Ltd. holds advanced-stage silver projects located in Durango, Mexico. Golden Tag recently completed the acquisition of 100% of the La Parrilla Silver Mine Complex, a prolific operation which is comprised of a 2,000 tpd mill as well as five underground mines and an open pit that collectively produced 34.3 million silver-equivalent ounces between 2005 and 2019. The Company also holds a 100% interest in the San Diego Project, which is among the largest undeveloped silver assets in Mexico.

Disclaimer: Investing involves risk, and individuals should conduct thorough research and seek professional advice before making financial decisions. NAI is being compensated for this content. Materials contained in this content are for information purposes only and is not intended to constitute an offering of securities in any jurisdiction. Nothing on this content should be construed as an offer, solicitation or recommendation to buy or sell products or securities.

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