Gold has been showing its mettle. The price has vaulted from $541 an ounce a year ago to $650 on Mar. 14. The "bugs" say gold is still the best metal to own for the next 12 to 24 months. But which producers will shine brightest? Newmont Mining (NEM), the world's No. 2 producer, "is the one," says Vincent Carrino, chief of Brookhaven Capital Management, which has loaded up on its stock. "It gets the full impact of rising gold spot prices because it hasn't hedged its output," he notes. No. 1 Barrick Gold (ABX), however, did so—and hasn't benefited as much. Some pros think Barrick may go after Newmont for its proven and probable reserves of 95 million ounces. It has operations worldwide—in Australia, Canada, Mexico, and the U.S. Barrick overtook Newmont as No. 1 when it acquired Placer Dome in March, 2006, boosting its gold reserves to 138 million ounces. With Newmont, Barrick would hike them further. Both companies also produce copper. Newmont's stock is down from 60 last May to 41.44 on Mar. 14. In a deal, Newmont would be priced in the mid-50s, say the pros. With demand still high, analysts predict gold prices will keep climbing. At Newmont, cost pressures remain a problem, and costs are expected to spike 25% in 2007, says Michael Fowler of Desjardins Securities, who rates it a buy, with a 12-month target of 67. He sees profits of $2.70 a share in 2007 vs. 2006's $1.76. Barrick "is always on the lookout" for companies that would provide synergies, spokesman Vince Borg said, but wouldn't comment on Newmont. And Newmont didn't return calls.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial