Good Value For Investors Getting Into Gold

The stars are aligning for the gold miners, with near record gold prices and strong demand. Even though shares have popped in recent months, Newmont Mining (NEM – Analyst Report) is still cheap. It is trading with a price-to-book ratio of just 1.9.

Newmont Mining is one of the world’s largest mining companies. Founded in 1921, the Denver-based company primarily mines gold but also has a solid copper mining business.

Production Rose in 2010
On January 20, Newmont announced its preliminary 2010 production results.

Gold production rose to 5.4 million ounces from 5.3 million ounces in 2009. Copper production, however, jumped 45% to 327 million pounds from 292 million a year ago. Every region in the company’s portfolio contributed to the 2010 performance.

Given what metal prices have done recently, it’s not surprising that the average realized prices rose sharply for both metals compared to 2009.

Gold’s average realized price rose 25% to $1,222 per ounce. Copper’s climbed 32% to $3.43 per pound.

Estimated consolidated costs for gold sales were $485 per ounce and for copper were 80 cents per pound. The operating margin on gold also rose 30% to $737 per ounce from $566 per ounce in 2009 since the company is unhedged on gold prices.

Special Offer: Curtis Hesler’s readers have been in gold all the way from $300 to $1,400, riding triple-digit gains in ETFs, mining stocks and physical gold.  Is Hesler still bullish? Click here for his just-released 2011 outlook in Professional Timing Service.

Double Digit Growth Expected in 2010 and 2011
Analysts have been mixed on Newmont for the year in the last week. One has revised higher and one lower in that time. As a result, the Zacks Consensus Estimate fell 2 cents to $3.83 per share.

However, this is earnings growth of 37.4% compared to 2009.

The big earnings growth is expected to continue into 2011 where analysts are much more bullish. Nine have raised estimates in just the last month, with two of those in the last seven days.

The 2011 Zacks Consensus Estimate jumped to $5.11 from $5.03 per share in that time. That is earnings growth of another 33.4%. Newmont is scheduled to report fourth quarter results on February 24. It has a pretty good track record of beating the estimate over the last five years.

Who Would Think That a Gold Miner Could Be a Value Stock?

With all the talk about gold being in a bubble and the recent run-up in Newmont’s share price, you wouldn’t think that it could actually be a value stock.

Newmont is trading with a forward P/E of 10.9 which is cheap compared to the S&P 500 which is trading at 14x. It’s also cheaper than some of its peers, including Barrick Gold (ABX – Analyst Report) at 11.8x and Aurizon Mines (AZK – Snapshot Report) at 13.5x, although these two miners aren’t exactly expensive either.

Newmont has both growth and value. With those double digit earnings grow projections, it has a PEG ratio of 0.5. Only Barrick has a lower PEG at 0.4. Adding to the value story, NEM has a solid return on equity (ROE) of 14%. Shareholders are also rewarded with a dividend yielding 1.1%.

Newmont is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the value stock strategist for Zacks.com. She is also the editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.