BUSINESSWEEK ONLINE : NOVEMBER 30, 1998 ISSUE
INSIDE WALL STREET

A New Gleam On Newmont's Gold

Anyone for gold? Recently, gold stocks have reappeared on some investors' screens. ''IncrediblE as it sounds, industry fundamentals--the cash flow and proDuction costs--are improving, despite gold's stagnant price, so we've been loading up on certain stocks,'' says Vince Carino of Brookhaven CapitaL Management in Palo Alto, Calif. His top choice, based on fUndamentals and a possible buyout: Newmont Mining (NEM).

Gold producers have been in a bear market since February, 1996, when the metal peaked at $420 an ounce. This has ''kept most investors cautious,'' says Michael Dudas, an analyst at Bear Stearns. He notes that, from peak to trough, the price of gold itself has dropped 36%, while gold stocks have tumbled 70%. But now, he says, ''gold is back from the depths.''

Newmont, the top producer, with operations on four continents, will be a big winner if the price recovers, because the company hasn't hedged its output in forward contracts, says Carino. And even with the price of gold at less than $300 an ounce, Newmont has upped its output from 3.9 million ounces to 4 million, with its production cost pegged at $187 an ounce--equal to costs in 1997, he notes. Cash flow per share, he figures, has jumped from $1.72 in 1997 to $1.90 in 1998.

Carino expects the price of gold to rebound in three to six months as the gold supply stabilizes--after producing nations such as Russia and Korea complete their ''panic selling.'' Once investors see a turnaround in supply and demand, gold stocks will push higher.

When such a change comes, says Carino, big producers that have hedged their output, such as Barrick Gold, will look to buy unhedged producers such as Newmont. Shares of Newmont hit 35 5/8 a year ago but fell to 13 1/4 in late August. They have since rallied to 22. He expects that if the price of gold recovers to $400, Newmont stock will top its 1996 high of 60 3/4.

BY GENE G. MARCIAL

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