Newmont Goldcorp Could Have More To Gain

 

Gold is on the rise as trade tensions continue to weigh on the global economy. Earlier this week China has announced it will suspend all meat imports coming from Canada. This is after Canada detained the CFO of Chinese company Huawei at the request of the United States. China has said that the official veterinary health certificates attached to the batch of pork exported to China were counterfeit and the number of certificates was up 188. This latest move comes as the Canadian Prime Minister visits Japan for the G20 leaders’ summit. It’s not clear whether or not diplomatic issues can be addressed between the United States and China. But President Donald Trump said he expects a “productive” meeting with China’s leader Xi Jinping, without making any specific predictions.

But many investors have not been convinced, and new interest in precious metals has developed this year. The price of gold increased 10% this year partly due to geopolitical uncertainty. It’s now at a six-year high. What’s more interesting though is that gold is selling at all time highs in 72 different national currencies including the Canadian dollar and Australian dollar - more than half the 130 currencies in circulation recognized by the United Nations.

Many experts believe the price of gold will continue to climb this year. According to MarketWatch, Citigroup analysts believe this “bullish gold fever is justified,” and estimates the metal “could reach between $1,500 to $1,600 an ounce in the next 12 months, and $1,500 by end-2019 in the most optimistic of their new predictions for the metal.” One way for investors to gain exposure to the gold market is through mining companies.

Earlier this year, gold mining giant Newmont Goldcorp (NYSE: NEM) completed a $10 billion merger between Newmont and Goldcorp. Last year, the pre-merger Newmont produced 5.1 million ounces of gold with a cost of $909 per ounce. Meanwhile, Goldcorp produced 2.3 million ounces of gold in 2018 with the costs at around $800 an ounce and is expected to maintain these levels of production and costs this year. In addition to great production volume, “Newmont Goldcorp has a large portfolio of reserves and resources for future development, making it less likely that its production will taper off as its current mines are exhausted. The combined production of these two companies exceeded the 2018 production of Barrick, which was the largest gold producer of 2018 through the average costs were higher”. During a gold bull market like in recent months, the increase in share price of gold miners often exceeds the increase in the price of physical gold itself. NEM’s share price has grown from $31 to $38 in the last month alone, a 22% gain.

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Disclosure: This author currently has 31 shares of Newmont Goldcorp Corp (NGT: TSE) as of writing this post.

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