NEM: Paid Down in the Run Up

NEM: Paid Down in the Run Up

For some, a gold miner is a money pit. They pull valuables from the ground, but at what cost?

The last parabolic run in metals prices gave the miners, Newmont Corporation (NEM) among them, a unique moment in time. Pay down debt. It appears that many, if not nearly all, did this. The pattern became apparent with last quarter’s earnings reports, as companies disclosed their moves.

This gives the miners leverage going forward. They are much lighter and more nimble. Any move in their underlying commodity will now turbo charge profits.

Money Pits

That reputation was earned. Last cycle, the order ran the other way: the miners borrowed in the run up and paid down on the way down. Barrick Gold issued $6.5 billion of new debt in 2011 to help buy a copper miner, then sold 163.5 million new shares in late 2013, with gold in a slide, to pay down debt.

The miners were positively in the dumpster after that. No one wanted them, all the way into the end of 2015. Money pits.

Exactly why management teams behaved differently this time, nobody knows for sure. One would have to poll them all individually and then hope to get the truth without the spin. Ultimately, it doesn’t much matter. What we have in front of us now is the key.

Lighter Now

Miners have a word for the rock and soil they strip away to reach the ore: overburden. The overburden has been stripped away from the balance sheets.

Newmont is the cleanest example. Two years ago, it carried about $6 billion in net debt, and third-quarter free cash flow was $760 million. This past quarter, it reported $3.2 billion in net cash, before a planned $1.95 billion payment to Barrick, and $1.9 billion in free cash flow.

Shiny profits appear to be in the offing should metals indeed run back toward the recent highs. A move just back toward those highs would probably lift miners to new highs, since they are lighter now than before. Newmont has already shown a hint of it, setting an all-time high in late August with gold still well below its January record.

Think of trying to run a 10K at an overweight 230 pounds, versus slimming down to 200 with the same muscle mass but less fat, and running the same race. The miners ran the last leg at 230. They line up for the next one much closer to 200.

Recognition

Once metals move higher here, whether there is one more low to be seen or not, the leverage these companies now possess will spark recognition among investors. It could even create a crowded trade.

Catalysts can line up with pivots in sentiment, and when they do, it’s easy to credit the news for the move. Sentiment leads at the turns. News can line up with it, but it does not always.

The Structure

In August, we laid out a primary path for NEM: five waves up, then three down, would tell us a larger rally had begun. As painted by the primary path a few months ago, price has played along. A swing low is likely near or already in place.

Garrett Patten’s longer-term daily chart shows price at the start of Intermediate wave (3) of Primary C of Cycle III. Put plainly, the strongest leg of a multi-year advance that began in early 2024 may be starting now. This leg should be standard Fibonacci Pinball all the way: five waves up, with the subwaves unfolding as five-wave structures too.

Fibonacci Pinball is the method we use to project where each wave should travel, based on the waves before it. The typical target for a wave (3) in this structure would be the 1.618 to 1.764 extension, with the 2.00 extension remaining possible. The initial lesser-degree wave 1-2 structure will help narrow that down. That is one of the main utilities and strengths of Pinball.

A third wave is a beautiful thing to behold. The (1)-(2), 1-2 setup forming here will give us specific parameters as well as waypoints along the journey. Once it takes hold, there may not be many pullbacks. The ride may be brisk.

Zac Mannes’s 30-minute chart shows us the near-term likely path, and it’s important for better confirming what Garrett is showing on the daily. It counts the pullback from the late-August high as three waves and maps the first five-wave advance that should follow.

The Setup

Gold is the commodity in play for NEM, so it matters here. The sector as a whole appears primed to run higher. What is in doubt is whether gold’s low is in, or if there is one more low to be seen first.

Using Zac’s chart, the initial i-ii up would provide a setup for a move up to the $135 area, with a stop at the last low at $107. Near-term support is at the $97 area. The red path is the alternate, should we see a turndown in the near term and a break below $89. On Garrett’s chart, blue marks the primary path and red the alternate. The red path would mean the larger correction that began in January isn’t finished and needs one more leg lower.

For now, since the chart is showing us the initial (1)-(2) in place with support holding, we will look higher. 

Miners are lighter here and ready to run when metals take off. They paid down in the run up.