Zacks_Analysts' Blog : PT Newmont Nusa Sells Stake - Analyst Blog

PT Newmont Nusa Tenggara, a subsidiary of Newmont Mining Corporation (NEM) will sell its 7% stake to the Indonesian government.

Newmont holds 45% stake in the company while the Sumitomo Corporation from Japan has an additional 35% and Indonesian company P.T. Pukuafu Indah holds the remaining 20%.

As per the agreement signed under the Indonesian government of Suhar, Newmont and Sumitomo were required to divest 51% of their stake in the joint venture between the Indonesian parties by 2010.  The Indonesian government declined to purchase 10% of the company between 2006 and 2007 due to lack of funds. However, Newmont declined to sell to local governments as they were backed by unnamed private parties and the company wished to have more control over potential buyers. In 2008, Newmont sold its 2% stake in P.T. Newmont to the local governments in Sumbawa.

In February 2011, PT Newmont Nusa Tenggara expressed its interest to be listed at the IDX (Indonesia Stock Exchange). The company has three reasons to conduct an IPO, firstly, to give an opportunity to the public in Sumbawa in particular for buying its shares, secondly, to facilitate the government`s economic policy and lastly, to make it easier to raise funds.

Among the state-owned companies that have recently gone public are PT Krakatau Steel, bank BTN and airline company PT Garuda Indonesia.

Newmont Mining delivers greater cash flow leverage compared to any gold company in the world. It also increased its dividend by 50%, displaying its capability to repay shareholders. The company also has some promising projects in its pipeline, such as the Congo project in Peru, Akyem project in Ghana, Hope Bay in Canada and the Gold Quarry West Wall layback project in Nevada. Although the company faces challenges at the Boddingtan mine, it remains positive and expects production to ramp up in the coming year. 

However, Newmont faces stiff competition from AngloGold Ashanti Ltd. (AU), Barrick Gold Corporation (ABX) and Gold Fields Ltd. (GFI).

We maintain our Outperform recommendation on Newmont. Currently, it holds a Zacks #4 Rank (Sell) on the stock.