Newmont Mining Corp (NYSE:NEM) is trading 70% down from its peak in November 2011. However, the company may be profitable even if the gold prices fall further. The company has sold off its assets and has cut costs.
The price of Gold has fallen more than 30% in the last few years and is currently trading at $1,208 per ounce. Other problems like political instability and poor timing have also plagued the Gold mining industry.
However, Newmont has placed itself such that an even further decline in Gold prices should not hamper its earning power according to Marian Kessler, a portfolio manager at Becker Capital Management. Newmont has brought its break-even production price to about $1,002 an ounce, a reduction of almost $200.
Newmont has mines in U.S., Australia, Peru, Ghana and Indonesia. The company had earnings of $545 million last on a sale of $7.3 billion. According to analysts, the company should be earning $594 million this year on $8.1 billion in sales.
CEO, Gary Goldberg, has sold assets since taking the office. He sold $1.4 billion of non-core assets to increase profitability. The spending was shifted to higher margin mines and bringing some contracted services in-house. The moves made by Mr. Goldberg have resulted in a 15% drop in the cost of gold production. Mr. Goldberg has stated the need to control operating costs.
Newmont also cut $524 million in costs in 2014 allowing it to pay debts early. The company is les indebted than other companies in the industry including Barrick Gold Corporation (USA) (NYSE:ABX). The company is expected to pay back another $750 million in debt. Newmont reached positive cash flow in 2014 and can do so for many more years to come.
Newmont Mining Corp (NYSE:NEM) can increase gold production. Other factors like lower energy costs will also help it in reducing costs. Analysts have predicted gold to be priced between $1,000 and $1,400.