Newmont Corp., NEM 1.35% the biggest gold producer in the world, has seen bitter rival Barrick Gold Corp. GOLD 1.52% catching up after both gold giants recently made big acquisitions. Now Newmont is betting high dividends and its new mines will drive future stock growth.
Newmont, America’s largest miner, is trying to improve operations at some of the gold mines that it acquired as part of its $10 billion deal for Goldcorp Inc. The Denver-based company says the problems have been fixed and is betting that sharing more of its profits with shareholders will attract generalists back to a sector they have avoided for years.
Barrick Gold, meanwhile, has seen more immediate returns from its $6 billion purchase of South Africa’s Randgold Resources Ltd., and shares of the Canadian miner have outperformed Newmont over the past year. However, some investors—including its largest one—have raised concerns about the company talking about bulking up its copper holdings.
“The Barrick-Randgold deal has gone well, but Newmont has more upside currently if it can execute its plan of optimizing each of Goldcorp’s mines,” said Chris Mancini, an analyst with Gabelli Gold Fund, which owns both stocks.
The divergent performances and strategies are another step in the decades-old and sometimes bitter rivalry that also has included several unsuccessful attempts to merge. The two companies do operate mines together in Nevada, a massive joint venture that investors consider a success.
Barrick’s shares have risen 79% since it detailed plans to buy Randgold in September 2018. Newmont’s stock price is up 27% since announcing its Goldcorp deal in January 2019. Both stocks were boosted by a 22% rise in the price of gold since the start of last year.
Barrick, under new Chief Executive Mark Bristow, has paid down debt, sold assets, increased cash flows and worked to fix a long-running problem in Tanzania. Investors have said Mr. Bristow, who became Barrick CEO after heading Randgold, was a big gain from the deal.
More recently, though, some investors have been unnerved by Mr. Bristow’s talk of buying more copper assets and combining with Freeport-McMoRan Inc., a predominantly copper focused U.S. miner. Freeport CEO Richard Adkerson said he isn’t in a position to pursue big strategic deals, a potential problem for Mr. Bristow, who told Bloomberg News he wouldn’t go hostile.
Mr. Bristow and Barrick Gold declined to comment.
The idea of stocking up on copper, whether through Freeport or other acquisitions, is upsetting some investors whose remit is just gold. Joe Foster, who runs the VanEck International Investors Gold Fund, wants companies in his portfolio to produce at least 80% of their revenues from gold, and stocking up on copper or combining with Freeport could take the company below that. Van Eck Associates Corp. is Barrick’s largest investor, according to FactSet.
“I would have to consider my position” as a Barrick investor, Mr. Foster said.
Toe to Toe
Newmont and Barrick Gold have been rivals for decades. Here is how they matched up in the third quarter of last year.
Market cap*
Newmont
Barrick Gold
$36.3 billion
$33.3 billion
Change from
year PRIOR
3Q 2019
$2.71 billion
+56%
Revenue
$2.68
+45
1.6 million ounces
+28%
Gold
production
1.3
+14
Costs per
ounce of
gold (AISC)
+10%
$987
+25
$984
$365 million
+137%
Free cash
flow
+57
$502
Investors typically buy gold miners as a play on gold. Gold miners have higher valuations than their peers in copper. Currently, North American-listed gold companies trade at 7.4 times earnings before interest, taxes, depreciation, and amortization, according to Royal Bank of Canada. North American-listed base-metals companies trade on 6.6 times Ebitda.
Newmont, in its deal for Goldcorp, inherited some mines that have been disappointing. Goldcorp’s Peñasquito and Musselwhite mines, for instance, were idled because of a blockade and fire, respectively.
Newmont CEO Tom Palmer said problems at Peñasquito and Musselwhite are resolved and Goldcorp’s overall portfolio is far from a disappointment.
“They’re very good deposits, [with] very good infrastructure, but they were underperforming under Goldcorp’s stewardship, and we can deliver good value from them,” Mr. Palmer said in an interview. Some analysts, though, remain skeptical.
Newmont’s deal will achieve greater cost savings than the company first projected, Mr. Palmer said. The company now forecasts $500 million in savings a year in 2021, up from the $365 million first envisaged.
Newmont has begun increasing its payouts. This month, it announced what it says is the largest dividend in gold mining, with an increase of 79% to 25 cents a share. In December, the company started a $1 billion share buyback program.
“This opens us up to a generalist investor,” Mr. Palmer said.
Newmont shares have had more momentum in recent months, more than doubling the return seen in Barrick’s stock price since October. Analysts also say that because Barrick’s deal happened months earlier, its benefits have had more time to accrete.
A test will come when both companies report their annual results next month. Newmont is projected to report a 34% jump in annual sales to $9.72 billion, according to analysts surveyed by FactSet, while Barrick’s sales are seen rising 35% to $9.75 billion.
—Jacquie McNish contributed to this article.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
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https://www.wsj.com/articles/americas-gold-giant-bets-on-dividends-improved-mines-to-hold-off-rival-11580126170
2020-01-27 11:56:00Z
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