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Newmont's (NEM) Shares Up 46% YTD: What's Driving the Rally?

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Shares of Newmont Corporation (NEM - Free Report) is significantly outperforming the industry. The stock has rallied 46% year-to-date compared with the industry’s 0.1% rise.

Newmont has a market cap of around $50.9 billion. Average volume of shares traded in the past three months was around 9,608K. The company has an expected earnings per share growth rate of 79.6% for 2020.

Let’s look into the factors that are contributing to the stock’s rally.

Newmont’s focus on key growth projects, disciplined capital allocation strategy and higher gold prices are some major factors driving the stock.

The company is expected to benefit from the progress of its key growth projects, including Tanami Expansion in Australia as well as Subika Underground and Ahafo mill expansion in Africa.

Newmont’s Africa operations witnessed 1.1 million ounces of attributable gold production in 2019 at an all-in sustaining cost of less than $800 per ounce. This was mainly driven by the successful completion of Ahafo’s expansion projects. The mine is expected to add annual gold production of 75,000-100,000 ounces per year from 2020 to 2024.

Notably, the company’s first-quarter attributable production in the North America and South America soared 364% and 27% year over year, respectively.

Newmont’s disciplined capital allocation strategy is likely to strengthen its investment-grade balance sheet along with enabling investment in high-return projects and returning excess cash to shareholders.

In the first quarter, Newmont successfully completed the sale of its Ontario, Canada-based Red Lake complex to Evolution Mining Limited for cash proceeds of $375 million. The transaction provided Newmont with exposure to future exploration opportunities. Considering the divestment of its interests in Continental and KCGM, Newmont generated total cash proceeds of more than $1.4 billion.

Also, gold has been the bright spot this year as fears over the coronavirus pandemic have made it the most attractive safe-haven asset. Gold prices have gained around 13% in the second quarter — the highest quarterly percentage increase in over four years.

Notably, gold crossed the $1,800 mark on Jun 30 and hit a high of $1,804 an ounce. Global uncertainty along with the coronavirus pandemic, renewed U.S.-China tensions and the civil unrest in the United States are contributing to the rally.

Meanwhile, Newmont’s average realized price of gold climbed 22% year over year in the first quarter and boosted margins. Higher gold prices are expected to continue driving earnings in the near term amid market volatility and economic uncertainties.

Zacks Rank & Key Picks

Newmont currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Sandstorm Gold Ltd (SAND - Free Report) , Harmony Gold Mining Company Limited (HMY - Free Report) and AngloGold Ashanti Limited (AU - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Sandstorm Gold has an expected earnings growth rate of 55.6% for 2020. The company’s shares have surged 75.3% in the past year.

Harmony Gold has an expected earnings growth rate of 264.3% for fiscal 2020. Its shares have returned 135.1% in the past year.

AngloGold has an expected earnings growth rate of 109.9% for 2020. The company’s shares have surged 70.5% in the past year.

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