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Gold Stocks Will Play Catch-Up: Newmont CEO

Wednesday, 19 Sep 2012 | 5:57 PM ET

With central banks around the world pumping more money into the global economy, gold futures are fast closing in on $2,000 per ounce. Gold stocks have not kept pace, but Newmont Mining CEO Richard O’Brien told CNBC’s "Closing Bell" he expects the sector to catch up and start outperforming.

Gold coins and bar
Gazimal | Iconica | Getty Images
Gold coins and bar

“I still feel good about a $2,000 gold price,” O’Brien said in an interview on Wednesday. With the Federal Reserve embarking on a third round of bond-buying, or quantitative easing, “employment has trumped managing the currency and the U.S. dollar will come down and gold will come up,” he said.

(Read More:Fed’s ‘QE-Infinity’ Will Push Gold Up to $2,400: Pro.)

O’Brien also noted that physical demand for gold in emerging markets like China and India remains strong and investment demand for the yellow metal is also running high. (Read More:Gold Will Top $2,000 in Next Year: Barrick CEO.)

Newmont's CEO: $2,000 Gold in Near Future
Richard O'Brien, CEO of Newmont Mining, explains why gold miners are trailing behind gold metal prices as well as how high he believes the precious metal could go.

So far this year, the stocks of Barrick Gold, Newmont Mining and Goldcorp have lagged the underlying commodity as concerns about escalating costs weigh on the shares. Both stocks have fallen more than 5 percent this year.

A number of companies have seen “costs escalate — both capital and operating costs — and projects are more difficult to build,” O'Brien said.

Gold stocks have fallen so far, they recently hit record low net asset value levels, price-to-cash flows and price-to-earnings, O’Brien said.

(Read More: The World's Biggest Gold Reserves.)

But he expects that as these companies start reporting earnings and hiking their dividends, “gold stocks will outperform the physical gold,” adding — “we’ve seen this before.”

Higher gold prices also mean a chunkier Newmont dividend. The company’s dividend is tied to the price of the commodity. Today, the stock yields 2.5 percent based on a $1,600 gold price. If gold hits $2,000, the dividend yield will double to 5 percent, he noted.

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