Newmont Mining Sees Costs Rise

Newmont Mining Corp. (NEM) is one of the world?s largest unhedged gold producers. Gold prices are skyrocketing due to higher demand, U.S. trade/budget/currency issues, and global instability. Declining grades are pushing up mining costs, prompting the company to reduce expenditure. As a result, we rate the shares a Hold, with a target of $47.50 due to high valuation and declining grade quality, despite the improving fundamentals.

Newmont Mining plans to focus on completing the construction of Boddington in Australia. Development of the Boddington project was approximately 77% complete at the end of second quarter 2008, with mill start-up expected in late 2008 or early 2009. The company completed the construction of Yanacocha gold mill in Peru during the second quarter of 2008. The gold mill started in March 2008 and commercial production began in the second quarter of 2008. Equity gold production from the mill is currently expected to average 200,000-250,000 oz per annum.

The cost-cutting initiatives of the company are primarily focused on energy and total about $100 million. The 200 Mw Nevada electricity plant, which started commercial production in the second quarter of 2008, should save at least $70 $80 million annually. The lower cost of self-generated electricity, when compared with projected future market prices in the region, is expected to reduce Nevada?s costs applicable to sales by approximately $25 per ounce.

However, Newmont?s direct mining costs are increasing due to increases in royalties, equipment maintenance, waste removal, pit dewatering, labor and fuel costs. The company?s non-mining costs are also increasing due to legal expenses for environmental degradation lawsuits, mainly in Nevada, Peru and Indonesia and government claims.

Ball Corp. Looks to Get Rolling

Ball Corp. (BLL) reported 2Q08 EPS of $1.10, up 6.8% year-over-year, due to earnings growth in Metal Food & Household Products Packaging, Americas, segment and the Aerospace and Technologies segment, lower interest and tax expense and share repurchases.

Going forward, Ball?s earnings should benefit from strong packaging fundamentals amid growing beverage can demand as well as its cost-containment efforts through closing non-core operations. Nevertheless, the Metal Food and Household Products Packaging, Americas, unit is suffering from continued lower food can volumes. Also, in the company?s PET business, soft prices (due to market overcapacity) and low volumes are limiting margin expansion. We reiterate a Hold recommendation on shares of BLL.

The management stated that to meet continued strong demand, the company is on schedule in installing a new 24-ounce can production line in its Monticello, Indiana facility in the third quarter of 2008. Demand remains strong in China and Ball is considering additional can and end manufacturing capacity in the country. Additionally, the company has announced a new one-line metal beverage can plant in its Brazil joint venture (50% owned) and is adding a further 16-ounce can capacity in another Brazil can plant.

We value Ball Corporation using a P/E multiple. At its current valuation, BLL shares are trading at 12.4x our 2008 EPS estimate of $3.71, at a discount to the industry median multiple and its peer group. In our view, the company?s valuation adequately reflects the company?s near to medium-term growth prospects. Our target price of $47.50 is based on around 12.8x our 2008 EPS estimate of $3.71.

Wendy's Finally Eaten Up

Nelson Peltz, Chairman of Triarc (TRY), the franchisor of Arby?s restaurant chain, was able to strike a buyout deal with Wendy?s (WEN). Under the merger agreement, expected to close in the second half of the year, WEN shareholders will receive 4.25 shares of Triarc for each share of Wendy?s they own. This equates to $25.29 per share at Triarc A shares? current price ($5.95).

Wendy?s incoming management team, led by Arby?s CEO, have outlined what we think is a viable, albeit multi-year turnaround plan that includes improving margins, reinvigorating the brand, revitalizing comps, and expanding internationally. However, Wendy?s turnaround efforts come at a difficult time for the industry, which faces rising input costs and consumer spending pressures.