Newmont Mining (NYSE: NEM) nearly tripled its profits as the gold-mining company cited increased demand in India and China for gold, as well as increased demand in Asia for its copper. Gold supplies have been tightening globally to go along with this increasing appetite for gold.
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A Golden Quarter
Newmont's revenues went from $1.54 billion in the first quarter of 2009 to $2.24 billion in the first quarter of this year. Net income was $546 million, up from $189 million last year. Earnings per share was $1.11 compared with 40 cents last year. Excluding one-time gains, EPS was 83 cents.
Newmont produced 1.3 million ounces of gold, compared to 1.27 million ounces in the year ago quarter. It sold gold at an average of $1,106 an ounce, up from $906 an ounce last year. Costs to produce each ounce increased from $443 to $480. Newmont also produced 90 million pounds of copper, compared to 43 million a year ago. It mostly sells its copper to Japan.
Gold to Rise?
Gold ETF SPDR Gold (NYSE: GLD), the popular physically-backed ETF that allows a trader or investor to own gold without physically taking possession of it, recently added six tons of gold to its inventory to bring it to a record 1,146.22 tons. The ETF trades at $114 a share. The precious metal itself has traded as high as $1,175 per ounce, perhaps on the questions about the Greek debt along with the background of rising interest rate fears.
Goldcorp (NYSE: GG), another major mining stock like Newmont, features ongoing strong earnings and is currently one of the lowest cost producers at $422 per ounce. Kinross Gold Corp. (NYSE: KGC) recently purchased Underworld Resources. The strategy of growing by acquisition is a favorite in the gold mining industry.
While many of the gold stocks have been seeing a healthy uptrend in their share prices, not all have participated. Newmont is trading close to its 52-week high, where Eldorado Gold (NYSE: EGO) and Gammon Gold (NYSE: GRS) have been lagging. Eldorado is more likely undervalued, while Gammon has had problems with its underlying mining business, so the stock hasn't been performing well.With global fundamentals for gold improving, though, investors might want to be on the lookout for turnaround plays.
Investing in Newmont
Newmont and some of the other gold stocks are heating up, so this always makes buying the stocks at bargain prices much tougher. Newmont's terrific earnings are only a part of its story. Its solid fundamentals include low debt, and as we mentioned, its low cost of production. But as good a company as Newmont is, fundamental investors still shouldn't buy at a high price.
There are also many arguments against gold as an investment, and gold mining stocks are a further leveraged way of investing in the metal, so investors need do things in conjunction only with their tolerance for risk. Gold historically can be volatile, but its enduring history has proved it highly lucrative. Newmont on a price dip or some of the other major miners offer tremendous long-term potential. (To learn more, see 8 Reasons To Own Gold.)
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