Deep Value Israel Partnership
Newmont Mining (NEM)
Going for the gold
Guy Shaham
DVIP Capital, LP
4 Steimatsky St. Tel Aviv
Tel: +972-3-6037484
[email protected]
This presentation is not an offering for any investment. It represents only the
opinions of Guy Shaham of DVIP, LP. Any views expressed are provided for
information purposes only and should not be construed in any way as an offer, an
endorsement, or inducement to invest. This presentations does not constitute an
offer for or advice about any investment product. Past performance is not indicative
of future performance. Nothing contained herein constitutes a representation, nor a
solicitation for the purchase or sale of commodities or securities and therefore no
information, nor opinions expressed, shall be construed as a solicitation to buy or sell
any commodities or securities mentioned herein. Investors are advised to obtain the
advice of a qualified financial, legal and investment advisor before entering any
financial transaction.
The Fundamentals
• The value of Newmont Mining is based on the
difference between the cost of Production and
the market price for gold
• The demand for gold is twice the mine supply
• Historically mining stocks have returned 1.5-3 the
rise in the price of gold itself
• This means that if the gold price doubles then the
mining shares will return 3X-6X
Supply and Demand in 2013
• Demand – at least 4350 of net imports to the
East (=countries outside US/Europe, mainly
• Mine supply of 2188 tons available to meet
net imports = 2866 global output – 431 tons
from China – 247 tons from Russia that are
not exported
• Other supply – 930 tons – from the ETFs –
only 1800 tons left in ETFs
Supply and Demand in 2013
Supply and Demand in 2013, in tons
Mine Supply
ETF Supply
Other Supply
Chinese Gold Demand
Source: Koos Jansen - In Gold We Trust -
Demand in 2013
• Greater China (China +Hong Kong) is taking
the entire mine supply. The rest of the East
net imports another 2000 tons.
• Greater China went from buying 25% of the
global mine supply in 2010 to buying 100% in
• In the East buying gold is part of the culture –
they see gold as a better form of money and
savings than national currencies
Supply in 2013
• The available supply from inventories in the West
(US/Europe) is very tight and rapidly dwindling
• Germany asked the US Federal Reserve for 300
tons back of the 1500 tons stored with the Fed in
NY, were told will take 8 years and even then got
only 5 tons of recast bars back.
• ABN Amro and Rabobank in Holland defaulted on
gold savings accounts and halted withdrawal in
physical, allowing only cash (Euro) withdrawals
Supply in 2013
• Every known supply that we have data on in
the West has been decreasing rapidly
• The GLD ETF decreased from 1330 tons at the
beginning of 2013 to 790 at the end
• COMEX Registered stocks decreased from 100
tons to 15 tons during the year
• The United Kingdom net exported 1425 tons
• Some mines have shut down due to their costs
being higher than the market price
What is the Fair Price of gold?
The formula above was used to determine the price of gold in the 1944
Bretton Woods that set up the Post World War II Monetary System
According to the above formula the price of gold should
be above $12,000
Source: James Turk,
Gold Money Index
1960 - 2013 (yearly)
Log Scale
Fair Price
Actual Price
Source: James Turk,
Why is the Fair Price rising?
• True Money Supply (=Bank Checking and Savings
Accounts) has risen in the USA from $2.5 to $10.5
Trillion in last 13 years
• The growth in money supply is greater than 10%
a year and is accelerating
• The amount of above-ground gold is growing at
1.8% annualy
• To keep the same ratio between money supply
and gold, the price of gold has to rise 8% a year
US True Money Supply Until 2013
Source: Alisdair MacLeod,
Bottom Line on the Price of Gold
• In the space of 3-5 years, the price of gold
must rise rapidly due to:
– The vacuuming of inventories in the West by the
East, leading to rivers of gold flowing from New
York and London to China and the East. At some
point the inventories will be depleted.
– The increasing money supply of national
currencies ($, EUR, etc.) is 10% a year which raises
the Fair Price of gold.
Who is investing in gold and
George Soros
Ray Dalio
Seth Klarman
Kyle Bass
Bill Gross
Tom Kaplan
David Einhorn
John Paulson
JP Morgan – went from being short 25% of COMEX to long
25% of COMEX
• Goldman Sachs – buying lots of GLD
• Central Banks of many Creditor Nations – China, Russia,
Korea, …
Why Newmont Mining?
Newmont has annual output of 5 Million oz.
All-in costs of $1300/oz.
At $2300/oz., gross profit is $1000
Net Profit after 30% taxes - $700/oz. - $3.5B
With P/E of 10 we get Market Cap of $35B
Current Market Cap of $12B
Profit of 200% in 3 years
Why Newmont Mining?
Geographical diversification mainly in safe
political jurisdictions
• 35% USA
• 19% Peru
• 31% Australia
• 13% Ghana
• 88 Million ounces of reserves
Why Newmont Mining?
• Debt/Equity Ratio 0.66
• Price/Net Tangible Book Value Ratio 1.2
• Share price was $72 in 2011 when price of gold
was $1920, now $25 with price of gold at
$1300. Returning to that price will lead to
200% profit.
• 4% dividend yield
5 Year Revenue + Income
8.32 Bil
9.87 Bil
10.36 Bil
9.54 Bil
7.71 Bil
-2.46 Bil
1.81 Bil
0.36 Bil
2.28 Bil
1.30 Bil
Cash Flow from
Operations ($B)
Bottom Line
• The price of gold must rise due to East insatiable
thirst for gold and dwindling supplies in West.
When Inventories are depleted, a much higher
price will balance supply and demand
• Newmont is a large company with good leverage
to price of gold
• The downside is limited – the mines are
producing, safe jurisdictions, can weather a
downward spike in gold price.
Thank you
Guy Shaham
DVIP Capital, LP
4 Steimatsky St. Tel Aviv
Tel: +972-3-6037484
[email protected]

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