Newmont Mining CorporationNEM has signed an agreement to invest around $109 million for acquiring 19.9% ownership interest in of Continental Gold Inc. The agreement will support the near-term development process of the high grade gold project of Buritica in Colombia. The investment also includes three other exploration assets in this gold district.
The Buritica project consists of two major vein systems and Continental affirmed that it has probable reserves of 3.7 million ounces of gold. The project has obtained necessary permission and commercial production is expected to commence in 2020. The construction of the processing plant and the underground mine are expected to initiate in the second half of 2017.
Per the terms of the deal, Newmont will purchase around 37.4 million common shares of Continental for C$4 per share, via non-brokered private placement. The deal's closing is subject to approval by the Toronto Stock Exchange, expected on May 18. Newmont will also have the right to participate in future equity issuance to maintain ownership. Moreover, Newmont will also have the right to nominate a member to Continental's management.
According to President and CEO, Gary Goldberg, the investment in Continental is in line with the goal of creating long-term value for the shareholders. The company is pleased with the quality of deposits, quality of management team, social support for the project and future prospects of growth. Both companies will establish joint sustainability and technical committees through strategic exploration alliance.
Newmont has outperformed the Zacks categorized Mining-Gold industry in the past one year. The company's shares have lost 1.8% over this period compared with a decline of 12.3% for the industry.
Newmont remains focused on investing in projects, explorations and transactions which can improve the company's resources, reserves and margin. The company recently built two mines - Long Canyon in Nevada and Merian in Suriname. Both the projects are 20% below budget and are on or ahead of schedule.
Newmont added roughly 123 million ounces in its reserves over the last 15 years. Some of the profitable projects in its arsenal include expansions at Carlin in North America, Ahafo in Ghana and Tanami in Australia. Lately, it has also invested in an option to explore highly prospective gold district of Yukon Territory in Canada.
Strong operational performance is also enhancing company's positive cash flows. Newmont generated net cash of $379 million in the first quarter of 2017 owing to improved gold pricing and increased sales.
However, Newmont is exposed to a volatile gold price environment. The prospects of a more hawkish stance from the U.S. Federal Reserve this year is likely to remain a major headwind for gold in the near term. President Donald Trump's proposed tax cuts, deregulation and fiscal stimulus are likely to spur economic activity and trigger a rise in inflation, which could prompt the central bank to increase rates further in 2017.
Newmont Mining Corporation Price and Consensus
Newmont currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked companies in the basic materials space include Kronos Worldwide Inc KRO , Methanex Corporation MEOH and ArcelorMittal MT . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks Rank #1 stocks here .
Kronos has an expected long-term earnings growth of 5%.
Methanex has an expected long-term earnings growth of 15%.
ArcelorMittal has an expected long-term earnings growth of 11.5%.
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