Newmont CEO: Supply Fundamentals, Investment To Underpin Gold

By Kitco News

Monday July 18, 2016 13:21

(Kitco News) - The chief executive of Newmont Mining Corp. (NYSE: NEM) looks for gold to remain underpinned by both supply and demand fundamentals for some time to come, which in turn provides a big revenue boost for companies in the mining sector.

“Every $100 change in the price of gold means an additional $350 million in free cash flow into the business,” said Gary Goldberg, president and chief executive officer. “If the roughly $300-an-ounce price increase we’ve seen for the year to date sustained itself for a full year, then we’ve delivered another $1.1 billion in free cash flow, which allows us to pay down debt and invest in our best projects and pay dividends to shareholders.”

At its recent highs, gold was up a little more than $300 per ounce since the start of the year. The run-up took many by surprise, since gold was under pressure as 2015 wound down after a Federal Reserve rate hike in December and expectations rose for more in 2016.

Since the start of the year, uncertainty about the global economy returned and financial markets drastically scaled back U.S. rate-hike expectations, boosting gold. The metal got another big lift on June 23 when U.K. voters narrowly cast ballots in favor of leaving the European Union.

Going forward, global supply will be one of the supportive influences, Goldberg said.  Newmont itself continued to invest in future production even when gold was in a bear market the last few years, before the turnaround in 2016, Goldberg related (see related story right here). Not all were as aggressive, however.

“Really, the rest of the industry hasn’t been investing,” Goldberg said.

As a result, Newmont looks for global gold-mine supply to decline over the next six years or so. Lower supply tends to tighten and support any commodity market, whether it be gold, crude oil, cocoa or corn.

“So the fundamentals from a supply standpoint are good for gold,” Goldberg said. Meanwhile, “we continue to see good demand out of India and China.”

Central banks continue to accumulate the precious metal, while gold inflows into exchange-traded funds have been rising again this year. The ETFs trade like a stock but track the price of a commodity, with metal put into storage to back the shares. Goldberg described them as a “magnifier” of price moves.

Meanwhile, Goldberg pointed out, the yield on some 25% to 30% of the world’s government debt is near zero or negative, further encouraging investment in gold.

“I see a big medium- to long-term marketplace for gold…” he said.