Randgold Resources Ltd. (ADR) (GOLD), Yamana Gold Inc. (USA) (AUY): Gold Miners Are Hitting Deep Value Territory, Here Are Five Cheap Miners for Your Watch List

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Newmont has been aggressive at controlling its costs. As can be seen from the chart below the last time that revenue declined was in 2008. During that period Newmont aggressively cut costs from 7.78 billion in Q1 2008 to 5.67 billion in Q2. The stock bottomed well before the rest of the market in this period and rebounded sharply by the end of 2008. Based on this historical precident, I expect that unless the price of gold declines significantly from here Newmont should maintain its earnings around 1.81 billion, which is about what the First Call earnings consensus expects. Given the negative momentum of gold mining stocks it is expected that the price will decline further yet; however, if you are constructive on the fundamentals of the gold mining industry this should present a buying opportunity for Newmont somewhere in the low $30/share range.

Figure 2: Newmont – Lower Costs and Rising Net Income Seem to Bode Well for the Stock

As can be seen over the past ten years gold mining stocks in general have not made spectacular long term investments. However, one can be reasonably certain that the yellow metal will retain its value. Buying and holding gold mining stocks may not earn you a golden return, but buying at a low enough price will probably be as good as gold. Newmont is becoming very cheap and the overall business model seems to be in little jeopardy. Getting paid a 4.4% dividend while you for the price to rebound doesn’t seem like a bad deal either.

Brendan O’Boyle has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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