Gold Mining Stocks in Focus: Newmont and Barrick Gold

Gold has surged to a new all-time high, trading at $2,583.64 per ounce, marking a 33.5% increase over the past year. This report evaluates whether Newmont Corporation (NYSE:NEM) and Barrick Gold Corporation (NYSE:GOLD), two of the largest gold mining stocks, are good investment options for gaining exposure to gold assets. The analysis is based on recent financial performance, market trends, and expert opinions. The report aims to provide a comprehensive and objective assessment to help investors make informed decisions.

Introduction

Newmont Corporation: The Largest Gold Mining Stock in the U.S.

Financial Performance and Market Position

Newmont Corporation is the world’s largest gold miner, with a projected production of approximately 6.9 million ounces of gold in 2024. The company has shown remarkable revenue growth of about 64.07% as of June 30, 2024. Key financial metrics indicate a net margin of 19.38%, return on equity (ROE) of 2.93%, and return on assets (ROA) of 1.54%. However, its debt-to-equity ratio of 0.31 suggests a higher reliance on borrowed funds compared to industry averages.

Analyst Ratings and Price Targets

As of September 2024, Newmont has received a mix of bullish and somewhat bullish analyst recommendations. The average 12-month price target for Newmont has risen to $57.71, reflecting a 15.81% increase from the previous average of $49.83. Key analyst actions include:

• Daniel Major (UBS) raised the rating to Buy with a price target of $65.00 (up from $50.00).
• David Coleman (Argus Research) announced a Buy with a target of $58.00.
• Tanya Jakusconek (Scotiabank) upgraded to Sector Outperform with a target of $59.00 (up from $48.00).

Stock Performance and Valuation

As of September 17, 2024, Newmont’s stock closed at $53.11, a slight decrease of 0.04% from the previous trading session. Over the past month, NEM’s stock has increased by 3.79%, surpassing the Basic Materials sector’s gain of 1.37% and the S&P 500’s gain of 1.54%. The stock trades at a Forward P/E ratio of 18.85, which is higher than the industry average of 16.86, and a PEG ratio of 0.47 compared to the Mining – Gold industry average of 0.8.

Future Prospects

Analysts expect Newmont to post earnings per share (EPS) of $2.82 for the current year, representing a 75.16% increase. Revenue is expected to be $17.39 billion, up 47.26% from the prior year. The company’s strategic focus on selling non-core assets for $2 billion, including a recent sale in Australia for $475 million, indicates a streamlined approach to operations and capital allocation.

Barrick Gold Corporation: A Global Leader in Gold and Copper Production

Financial Performance and Market Position

Barrick Gold Corporation operates six Tier One gold mines and is developing additional projects, including a substantial copper business. The company projects a 30% growth in gold-equivalent ounce production from existing assets by 2030. Key growth projects include:

• Goldrush in Nevada: Targeting 400,000 ounces per year by 2028.
• Fourmile in Nevada: Expected grades are double those of Goldrush.
• Leeville project in Nevada: Potential to double or triple Carlin’s reserves, extending its life beyond 2045.
• Reko Diq copper-gold project in Pakistan: Projected to produce 400,000 tonnes of copper and 500,000 ounces of gold annually.
• Lumwana Super Pit in Zambia: Aiming to double production over a 30+ year lifespan.

Analyst Ratings and Price Targets

In September 2024, UBS Group increased the price target for Barrick Gold from $50.00 to $65.00, indicating a potential upside of 22.39% from its then-current price. Other analysts have also provided positive ratings, with BNP Paribas upgrading Barrick to a “strong-buy,” and BMO Capital Markets raising its price target to $57.00. Currently, Barrick has an average rating of “Moderate Buy” among analysts and an average price target of $52.62.

Stock Performance and Valuation

As of September 17, 2024, Barrick’s stock traded at $53.11, with a trading volume of over 6 million shares. The company has a market capitalization of $61.24 billion, a PE ratio of -19.89, and a beta of 0.49. Barrick’s 52-week performance shows a low of $29.42 and a high of $54.25. Despite higher gold prices benefiting the overall mining sector, Barrick has faced operational challenges, including a 6% decline in gold sales and an 11% rise in all-in sustaining costs.

Future Prospects

Barrick has made significant strides by reducing net debt by $3.5 billion since 2019, investing $11.2 billion in long-term mine plans, and returning over $5 billion to shareholders. The company’s strategic focus on organic growth from existing assets rather than expensive acquisitions, combined with strong operational cash flows, presents a compelling investment outlook. However, potential execution risks and market volatility remain concerns.

Comparative Analysis: Newmont vs. Barrick Gold

Financial Health and Operational Efficiency

Both Newmont and Barrick Gold have demonstrated strong financial performance and operational efficiency. Newmont’s revenue growth of 64.07% and Barrick’s significant debt reduction and investment in long-term mine plans highlight their robust financial health. However, Newmont’s higher debt-to-equity ratio and Barrick’s operational challenges, such as increased all-in sustaining costs, present areas of concern.

Market Performance and Analyst Sentiment

Newmont’s stock has shown a consistent upward trend, with a 3.79% increase over the past month, outperforming both the Basic Materials sector and the S&P 500. Barrick’s stock, on the other hand, has gained only about 14% year-to-date, underperforming the S&P 500’s 18% increase. Analyst sentiment for both companies is generally positive, with multiple upgrades and increased price targets.

Future Growth and Strategic Initiatives

Newmont’s focus on selling non-core assets and Barrick’s strategic projects, such as the Goldrush and Reko Diq copper-gold project, indicate strong future growth potential. Both companies are well-positioned to capitalize on the rising gold prices, but Barrick’s diversified portfolio, including substantial copper production, offers additional growth avenues.

Conclusion

Investment Viability

Based on the analysis, both Newmont Corporation and Barrick Gold Corporation present viable investment options for gaining exposure to gold assets. Newmont’s strong revenue growth, positive analyst sentiment, and strategic asset sales make it an attractive option. Barrick’s diversified portfolio, significant debt reduction, and strategic growth projects offer compelling long-term growth potential.

Risks and Considerations

Investors should consider potential risks, such as Newmont’s higher debt-to-equity ratio and Barrick’s operational challenges. Market volatility and execution risks also remain concerns. However, the overall positive outlook for gold prices and the companies’ strategic initiatives mitigate these risks to a certain extent.

Final Recommendation

Given the current market dynamics and the companies’ financial health and future prospects, both Newmont and Barrick Gold are recommended as good investment options for gaining exposure to gold assets. Investors should consider their risk tolerance and investment horizon when making decisions and may benefit from diversifying their portfolios with these stocks.