Newmont Mining Corporation (NEM) intends to raise its annual gold production to 7 million ounces over the next six years. This target represents a hike of around 35% from the company’s previously announced 2011 attributable gold production outlook of 5.1 to 5.3 million ounces.
The company also plans to increase its copper production to 400 million pounds over the same time span, representing a 90% jump from the expected 2011 outlook.
The Denver-based company also intends to have the average sales price for gold form the basis for its dividend payments, as the value of the precious metal continues to climb. The annual payout will grow by 20 cents per share for each $100 per ounce gain in the average realized gold price.
Going by the current gold price of approximately $1,450 per ounce; that is between $1,400 and $1,499 per ounce, Newmont’s annual dividend would be $1.00 per share.
Newmont expects to pay its first such dividend on June 29, 2011 based on the company’s average realized gold price for the preceding quarter. It paid a quarterly dividend of 15 cents per share on March 30.
It is anticipated that Newmont’s strong project portfolio will provide a competitive return to the company. The internal rate of return on these projects is expected to be around 20%. Furthermore, the company is also backed by a strong cash flow and balance sheet, which can be utilized to fund these projects and thus generate profitable returns.
The company’s cash and marketable security balance stood at approximately $5 billion as of December 31, 2010. This balance, however, excludes the $2.3 billion that it had spent for acquiring the Vancouver-based Fronteer Gold Inc.
The company has a huge reserve potential of approximately 93.5 million ounces of gold and 37.5 million ounces in non-reserve mineralization, and also possesses the potential to add the equivalent of the company’s current reserves over the next decade.
Newmont Mining delivers greater cash flow leverage than any gold company in the world. The company also has some promising projects in its pipeline, such as the Congo project in Peru, Akyem project in Ghana, Hope Bay in Canada and the Gold Quarry West Wall layback project in Nevada. Although the company faces some challenges at the Boddington mine, it remains positive, expecting that production will ramp up in the coming year.
Newmont Mining is one of the world’s largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand, Indonesia and Ghana. The company faces stiff competition from Barrick Gold Corporation (ABX) and AngloGold Ashanti Ltd. (AU).
We currently have a Zacks #3 Rank (short-term ‘Hold’ recommendation) on the stock.
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NEWMONT MINING (NEM): Free Stock Analysis Report
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