Portfolio Manager Marian Kessler of Becker Capital Management says the firm recently bought Newmont Mining Corp (NEM). It is the fund’s first venture into the gold mining space, she says, as Newmont has numerous things working in the company’s favor.
“A third of Newmont’s costs are energy-related. They’re a heavy energy consumer; thus, if one-third of your corporate costs falls 50% in a nine-month period, that’s an enormously margin-enhancing and cash-flow positive event,” Kessler says.
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Kessler says that secondly, wage inflation in Newmont’s mining geographies has declined. Globally, wage inflation was running approximately 7% to 8% from 2010 to 2013, and is now down to around 2% to 3%, Kessler says.
“Since wages are also about a third of total expenses, their decline is also positive for overall company profitability,” Kessler says.
She adds that Newmont also reached an agreement with the Indonesian government to return copper concentrate shipments to normal levels after disagreements that stopped them in 2014.
“These three virtually simultaneous events should greatly enhance EBITDA in 2015 from depressed 2014 levels. EBITDA should be significantly higher in 2015, even if the price of gold remains unchanged from current $1,200-per-ounce levels,” Kessler says.
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