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NEWMONT MINING SHARES MAY NEED ONE MORE PULLBACK BEFORE SERIOUS UPSIDE ENSUES

by
May 4, 2015 10:22 am
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Newmont Mining (NYSE: NEM) shareholders have had to display the patience of Job over the last several years after the stock peaked at $72.42 in November of 2011 and subsequently declined to $17.16 in December of 2014. At least the last few months have brought some relief to the long-suffering Newmont bulls. What will the next months have in store for the mining firm? Much of its fate would seem to be strongly correlated to the price movements of the commodities that they are mining and selling. So, what can the chart of gold tell us about Newmont’s future? Let’s take a look at the NEM story from multiple angles…

What the bulls see in Newmont…

• 6.97% net profit margins that spin off over $900 million in positive levered free cash flow annually
• An acceptable balance sheet:
o A debt-to-equity ratio of only 50.78%
o A current ratio of 2.48
• Some cheap valuation metrics:
o An enterprise value of $15.87 billion that trumps the market capitalization of $13.21 billion
o A price-to-sales ratio of 1.81
o A price-to-book ratio of 1.29

What the bears see in Newmont…

• Cash of only $2.48 billion versus debt of $6.65 billion
• A P/E ratio of over 24 versus negative revenue and EPS growth estimates for next year
• Fairly low management effectiveness ratios:
o A return-on-assets of 3.57%
o A return-on-equity of 2.84%

The technical take on NEM shares…

Technicians note that Newmont Mining shares appear to be trying to form an inverse “head and shoulders” bottoming formation on the monthly chart. Perhaps one more downside test of the “right shoulder” down at $20.75 to $21.50 may occur. If that test plays out, the technicians feel there will be a flurry of institutional money trying the long side of the NEM equation. Should that support range hold up, technical measuring techniques would have NEM shares then rally up to around $35. Any close below $20, however, and much lower prices would be in store for the stock – according to the technicians.

Overall…

With the fate of Newmont’s common stock clearly directionally tied to the price movements of gold and silver, the fundamentals of the company just need to be “not going out of business”. That is clearly the case with Newmont Mining. So, the stock should trade off of its own technicals as well as that of the precious metals commodities in which it traffics. Gold, at least, seems to be trying to find a bottom in the last couple of sessions. A hold of $1174.10 is an absolute necessity for the bulls in both gold futures as well as in Newmont Mining in the short-term. If gold successfully holds that level on a daily closing basis, both the commodity and the stock of Newmont Mining should benefit in the short-term barring any company-specific news items.


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