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Newmont Mining Corporation: Analysis and Recommendations

Comprehensive analysis of Newmont Mining Corporation, a leading gold producer, including financial assessment, industry outlook, company overview, and strategic recommendations for investors.

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Newmont Mining Corporation: Analysis and Recommendations

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  1. Newmont Mining Corporation Real Client Managed Portfolio April 4, 2013 Dan Ballantine Heziyou Xu Lingtao Zhou

  2. Agenda • Introduction • Macroeconomic Outlook • Industry Overview • Company Overview • Financial Analysis • Valuation • Recommendation

  3. Newmont Mining Corporation • One of the world’s largest gold producers • Only gold company included in the S&P 500 Index and Fortune 500 • Founded in 1921, publicly traded since 1925 • Headquartered in Greenwood Village, Colorado • 40,000 employees and contractors worldwide Source: Newmont website

  4. Macroeconomic Outlook • Precious metals industry is heavily dependent on metal spot prices • Precious metals are often used as a hedge against inflation and crisis • Very relevant to concerns about currency strength around the globe • Strong performance of gold and copper over the past five years primary driver of the drilling market is energy consumption

  5. Gold Spot Prices Source: KitCo

  6. Copper Spot Prices Source: KitCo

  7. Macroeconomic Outlook • Bullish leanings on gold and copper due to increasing demand and future implications of current monetary policies • Low interest rate environment may lead to considerable inflation in the future • Weaker US Dollar leads to increased demand for gold and precious metals • Future inflation could increase gold prices

  8. Industry Forces Analysis

  9. Industry Forces Analysis • Bargaining Power of Suppliers: HIGH • Complex mining process • Large number of suppliers • Governmental and environmental regulations • Bargaining Power of Buyers: HIGH • Commodity products • Little control over product pricing • Threat of New Entrants: LOW • Capital intensive • Limited mine resources • Mining requires considerable specific knowledge

  10. Industry Forces Analysis • Threat of Substitutes: LOW • Precious metals are not imitable • Only substitute is paper currency • Rivalry among Competitors: HIGH • Number of firms in the industry • Significant exit barriers • Complex operations

  11. Company Overview • Gold producer with significant operations in United States, Australia, Peru, Indonesia, Ghana, NewZealand and Mexico • Considerable reserves • Gold: 99.2 million ounces • Copper: 9.51 billion pounds • 24 mines in five continents • North America: 9 mines, 37.7 million gold ounces • South America: 3 mines, 12.6 million gold ounces • Asia/Pacific: 8 mines, 29.9 million gold ounces • Africa: 4 mines, 19.0 million gold ounces

  12. Production Distribution Source: Newmont 10-K

  13. Company Overview • First gold-linked dividend in the industry • Leading safety, environmental compatibility and sustainability in the industry Source: Newmont website

  14. Product • Refined gold and copper • Major end product: doré bars Source: The Telegram

  15. Business Risk Analysis

  16. SWOT Analysis

  17. Strategy • More selective regarding capital investments • Invest capital efficiently to maintain current mine projects • Increase profitability through cost reduction and more efficient operations • Improve relations with local stakeholders of its mines

  18. Management Outlook • Stable gold and copper production in 2013 • Rising production costs in 2013 • Increase operating cash flows in 2014 and 2015 due to significant cost reductions • Reduced exploration, research & development, and capital expenditures by 15-20% in 2013 • Expect gold and copper prices to increase

  19. Recent News • April 3, 2013: NEM hits a new 52-week low • March 1, 2013: new CEO, Gary Goldberg, formerly the COO • October 2012: Labor and government issues at Batu Hijau mine in Indonesia • April 2012: Protests over water pollution at Conga mine in Peru • February 2012: $1.6 billion write-down of Hope Bay project Source: Newmont Website

  20. Recent Financial Information Source: Newmont 10-K

  21. Current Stock Information Source: Capital IQ, Yahoo Finance

  22. Dividend Policy Source: Newmont website

  23. Financial Analysis

  24. Financial Analysis

  25. Comparable Companies Source: Capital IQ

  26. Stock Performance Source: Yahoo Finance

  27. Comparable Company Analysis Source: Capital IQ

  28. Comparable Company Analysis Source: Capital IQ

  29. Discount Rate

  30. Discount Rate

  31. DCF Analysis

  32. Decision Drivers • Strengths: • Good fit in portfolio based on GICS map • Positive long-term macroeconomic outlook • Dividend yield • Comparable company valuation • Concerns: • Lack of strong management team • Previous misallocation of capital • Developing project issues • Variation in historical returns • Rising production costs • Sensitivity to gold prices

  33. Recommendation • Valuation Summary: • Current Stock Price: $38.47/share • Comparable Companies Valuation: $51.98/share • DCF Valuation: $34.37/share • Recommendation: Watch List

  34. Questions?

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