shares Newmont Corporation (NYSE: NEM) It’s down nearly 32% year-to-date, underperforming the broader S&P 500. Two factors are responsible for the decline in Newmont’s stock. Gold, which accounts for more than 85% of Newmont’s returns, appears to be unfavorable as an investment method. Prices of the yellow metal are down about 7% year-to-date, and about 16% from the high levels seen recently in March due to higher interest rates and a stronger US dollar. Prices of other commodities such as copper, zinc and silver are also trending lower this year, which affected the company’s streak. Furthermore, Newmont’s earnings are also affected by higher labor, consumables and energy costs. During the second quarter, the last reported quarter, overall sustainability costs — a measure of total production costs — rose to $1,150 an ounce from $1,050 an ounce. Newmont expects cost pressures to continue into 2023, given a tight labor market and rising oil prices.
However, there is good reason to consider Newmont stock at current levels of $42 per share. Newmont’s stock is down nearly 50% from its highs last April and is currently trading at less than 14 times its expected 2022 earnings. We think this is an attractive valuation given that Newmont is the largest gold mine in the world, with high quality assets. The company’s gold mineral reserves are about 93 million ounces, a large part of which is located in low-risk regions such as North America. The company has also been increasing its gold production fairly steadily, with plans to increase production from about 6 million ounces in 2022 to as much as 6.8 million ounces by 2025.
Gold prices could rise in the medium term, given the challenging global economic outlook and rising geopolitical uncertainty. The US GDP contracted for the past two consecutive quarters as consumer confidence remained weak. Russia is also looking to escalate its war on Ukraine after its military suffered multiple setbacks earlier this month. These factors could make gold more attractive, helping drive prices to Newmont. The company previously estimated that each $100 increase in the price of an ounce of gold results in a $400 million increase in free cash flow.
Newmont’s dividend is also dense, with an annual payment of more than $2 per share, which translates to a dividend yield of about 5% at the current market price. The company should be able to maintain its dividend, given that its cash holdings came in at a relatively solid $4.3 billion at the end of the second quarter. This can make stocks attractive to investors in a high rate environment.
We appreciate Newmont rating At about $65 per share, which is about 50% more than the current market price. See our analysis of Newmont revenue For more details about the company’s business model and main revenue sources.
With inflation rising and the Federal Reserve raising interest rates, Newmont’s stock is down 32% this year. Can you fall more? See how far Newmont stock can fall by comparing its decline in previous market crashes. Below is a summary of the performance of all stocks in previous market crashes.
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