Indonesia Divesting NEM Stake

The Indonesian government announced that it will sell part of a 7% stake it will buy in the Indonesian unit of  Newmont Mining Corp. (NEM - Analyst Report) to local governments.

According to Reuters,  the move is aimed at diffusing opposition from some lawmakers against the central government’s plan to buy the stake in PT Newmont Nusa Tengarra (PTNNT) which operates the Batu Hijau gold and copper mine in Sumbawa island.

In February 2011, PT Newmont Nusa Tenggara expressed an interest to list itself on the IDX (Indonesia Stock Exchange). The company has three reasons to conduct an IPO, firstly, to give an opportunity to the public in Sumbawa in particular to buy its shares and thereby, participate in its growth, secondly, to facilitate the government`s economic policy and lastly, to make it easier to raise funds.

Newmont Mining delivers greater cash flow leverage compared to any gold company in the world. It also increased its dividend by 50%, displaying its capability to repay shareholders.

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 challenges at the Boddington mine, it remains positive and expects production to ramp up in the coming year. 

The company released its results for the first quarter of 2011. The company’s adjusted net income rose to $513 million or $1.04 per share in the first quarter from last year’s $408 million or $0.83 per share. The results eclipsed the Zacks Consensus Estimate of $0.96 per share.

Total revenue was $2.5 billion, up 10% year over year.  However, that was below the Zacks Consensus Estimate of $2.6 billion.

Newmont reported attributable gold and copper production of 1.3 million ounces and 57 million pounds, respectively, in the quarter at costs applicable to sales of $557 per ounce, and $1.11 per pound on a co-product basis.  

However, Newmont faces stiff competition from AngloGold Ashanti Ltd. (AU - Snapshot Report), Barrick Gold Corporation (ABX - Analyst Report) and Gold Fields Ltd. (GFI - Snapshot Report).

We maintain our Outperform recommendation on Newmont. Currently, it holds a Zacks #3 Rank (Hold).

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