Newmont Corporation (NYSE: NEM) Resumes Drive Towards All-Time Highs

A 7% jump in Monday’s session was enough to make Newmont Corporation (NYSE: NEM) one of the top performers in the S&P 500 and put its share within 3% of their all-time closing high.

The $55 billion gold mining giant has done well off the yellow metal’s run this summer with shares up a full 110% from Q1’s lows. Record low-interest rates and falling government bond yields have pushed investors into gold and sent demand soaring, both for the asset itself and related stocks. The VanEck Vectors Gold Miners ETF (NYSEARCA: GDX), which includes Newmont as its top holding by weight, is up 160% since March and at all-time highs. For context and clarity on just how big the current move has been, GDX traded sideways from last summer through this past February.

New Bull

Newmont’s jump on Monday was mirrored across the industry and the catalyst appears to be a regulatory filing on Friday from Berkshire Hathaway (NYSE: BRK.A). They disclosed a new and surprising stake in Barrick Gold Corporation (NYSE: GOLD) which is one of Newmont’s biggest peers and the second biggest component of the GDX ETF. While the purchase was made during last quarter, the gold bulls will still be happy to have a new addition. Being able to suddenly say you have the likes of Warren Buffett on your side is a sizable statement and is the kind of talk that could make asset managers reconsider not taking positions.

It’s an interesting move by Buffett, who in the past cautioned against investing in an asset that doesn’t yield profits, dividends or even a crop. But as costs of production have steadied for gold miners in the past year and gold’s price per ounce has crossed the $2,000 mark for the first time, the outlook for mining companies has become far more attractive and steady. This fundamental shift is likely that made Buffett sit up and take notice in recent months.

Yesterday’s jump in Newmont shares will bolster the bull’s case as there were some signs of some profit taking starting to appear last week both in the futures market and related mining stocks. While a 14% drop in four trading sessions certainly goes against the grain compared to the recent run, some cooling off is to be expected and is in many ways healthy for the long run.

Playing The Long Game

Many gold mining executives are trying to take advantage of the rally for the longer term, using the higher share prices to pay down debt and to increase dividends. If Newmonth’s management can act strategically on matters like this, there’s every reason to think that the current share price is the new normal. As CEO Tom Palmer said with last month’s Q2 earnings report, “the ongoing favorable gold price environment amplifies our free cash flow generation yet our discipline around capital allocation will not change as we continue to invest in profitable projects and provide shareholders industry-leading returns while maintaining a strong balance sheet.”

That same report showed an engine that was ticking over nicely and capable of making hay while the sun shines. Cash flow from operations was up 120% year on year and adjusted EBITDA was up 45% year on year even as attributable gold production fell 21% over the same time period - due in large part to the sale of the Red Lake and Kalgoorlie mines.

There are still risks that remain on the horizon, including somewhat paradoxically the introduction of an effective COVID vaccine. As we’ve seen throughout the summer with the likes of Moderna’s (NASDAQ: MRNA) trial results or this month’s update from Russia, Wall Street is chomping at the bit for fresh positive news to keep the risk-on mode justified. Were this to happen, gold’s place as a must-have ‘safe’ asset would be diminished and mining stocks would feel the pinch just as much, if not more.