Gold is one of the most interesting economic barometers around because its price is a good measure of the fear in the market. People buy gold because they are afraid everything else is about to collapse.
That means low prices for gold and gold-mining stocks can indicate a popular expectation of a bull market. Higher prices for gold and gold miners can indicate mass fears of a bear market.
Those measures currently tell us that Mr. Market expects the bull market to continue. Gold was trading at $1,302.49 an ounce on 14 June 2018, and shares in America’s largest gold mining company; Newmont Mining Corp (NYSE: NEM) were trading at $39.16 on 14 June 2018.
Gold prices indicate that the bull market will continue in the near future. Many people will wonder if that will make both gold and Newmont value investments.
Is Gold a Value Investment?
Gold is at its highest price in six years, but it is well below historic high. The average gold price of gold was $1,302.80 an ounce in 2017, that was better than $1,141.25 an ounce in 2016, and $1,060.83 an ounce in 2015, Statista calculated.
The gold bugs made money in 2016 and 2017, although their gains were like the bonanza they experienced in 2012. That was the year gold achieved its 21st Century high of $,1675.20 an ounce.
To be fair to the bugs, gold has been trading at more than $1,000 an ounce since 2008. The last time the shiny metal was below $1,000 an ounce was 2008 when it traded at $881.45 an ounce.
Gold has been retaining its value which indicates a high level of doubt and subconscious fear about the market. Memories of 2008 are still lingering in the popular imagination, and may stay for the foreseeable future.
My take is that gold is a value investment as long as it is under $1,000 an ounce. Any price above that is simply too high in today’s market. There are better investments out there today including stocks and cryptocurrencies.
Are Gold Mining Stocks a Value Investment?
This brings us to companies like Newmont Mining which make their money by selling gold. Basically, companies like Newmont profit from fears, when popular anxiety runs high they make a lot more money mining and selling gold.
Newmont is making money right now, it reported revenues of $1.817 billion, a gross profit of $788 million, an operating income of $315 million, and a net income of $192 million for the 1st Quarter of 2018. That produced an operating cash flow of $263 million and a free cash flow of $32 million for the 1st Quarter of 2018, Stockrow reported.
Is Newmont Mining a Value Investment?
That made Newmont a cash-rich company with $3.11 billion in cash and equivalents and $3.17 billion in cash and short-term investments on 31 March 2018. More importantly, Newmont had $20.483 billion in assets and $4.938 billion in current assets on March 31, 2018.
Newmont Mining is a value investment because it had just $1.181 billion in current liabilities and $4.095 billion in debt on March 31, 2018. Newmont has a lot of cash and the ability to easily cover its debts. That makes Newmont a good stock, and a value investment because of its low price.
Newmont is making money right now and it is in a great position to cash in if the price of gold goes up. Newmont stock holders even get a dividend, they are scheduled to receive 14¢ on 21 June 2018.
That dividend nearly triple the 5¢ Newmont paid out on June 8, 2018. It is also nearly double the 7.75¢ paid out on December 28, 2017.
Newmont Mining is a value investment, and its stock is a much better investment than gold. Unlike gold, Newmont stock is reasonably priced and it pays a dividend.
How Technology will Help Newmont Make More Money
Not only is Newmont Mining a great dividend stock, it is in an excellent position to make a lot more money in the few future thanks to ongoing technological advances.
Four technologies that might help Newmont make more money in the near future are electric vehicles, battery storage, solar panels, and robotics. These technologies are here now and they will soon be applied to mining.
Electric vehicles will be a huge game changer for miners like Newmont by greatly lowering costs. The biggest operating expense for modern miners is diesel fuel to run the power shovels, bulldozers, loaders, and dump trucks. Cheaper diesel fuel helps companies like Newmont make more money by lowering operating costs.
Miners will soon be able to operate their machines with electricity which is even cheaper than diesel fuel. Tesla Motors (NASDAQ: TSLA) is already building an electric semi, electric dump trucks and loaders will not be far behind.
A huge advantage to electricity is that it can be produced by green power sources like hydro, wind turbines, and solar panels which require no fuel. Solar panels can be a massive game changer for mining because it would be possible to run a mine with diesel fuel using them.
Green Energy will soon cut Mining Costs
That can reduce transportation costs because the only things they would need to bring in would be the miners, the machines, and the panels. Instead of hauling diesel fuel in, trucks will haul ore out.
Battery storage plays a role here, if companies like Tesla can power a city or an island with their batteries. A solar farm on the island of Kauai can store 12 megawatts (13 million watts) of electricity in Tesla PowerPack 2 batteries. That volume of electricity might power a mine if it were cheap enough.
Green energy has the potential to drive gold prices down by making gold and other metals even cheaper to mine. A lot of environmentalists will hate that but the available data indicates green power will soon reduce mining costs. This makes minerals like gold a terrible long-term investment because mining them will get cheaper if solar panel and battery technology keeps advancing.
Nor is solar power the only tech that can reduce mining costs. Beyond new sources of electricity there are the robots.
Autonomous Mining will help Newmont Make More Money
The same algorithms that run autonomous cars and drones can be applied to mining machines. Companies like the Ocado Group PLC (LON: OCDO) are already operating swarms of robots in fulfillment centers. It will not be long before swarms of robots, or robotic dump trucks are operating in mines.
Remote controlled technology will be another cost cutting measure. Companies like Aitheon and SyncFab are developing solutions that would allow drivers to operate machines like power shovels and front-end loaders by remote control through the blockchain.
The miner of the future might operate the power shovel of the future from his couch in Sydney or her living room in Phoenix. The only people working at the actual mine would be security guards and mechanics to maintain the machines. Such automated mines might allow mineral extraction in new areas like Antarctica or regions north of the Arctic Circle.
This might lead to greater profits for Newmont and its shareholders by reducing the labor costs. It would also lead to social and political unrest in countries like Australia where high-paying mine jobs give the working class an upper-class income. Expect to see such autonomous mining appear first in Australia, Canada, Russia, and United States; where miners are highly-paid professionals.
Mining might get far cheaper in the near future. Technological progress makes companies like Newmont Mining (NYSE: NEM) an excellent value investment for the 21st Century. The same technology makes gold itself a lousy investment for the 21st Century.