After spending the past year selling off assets and slashing costs, Newmont Mining (NYSE: NEM; TSX: NMC) is moving forward with its Merian gold mine project in Suriname, and plans to spend up to $1 billion to build its first mine in the South American country.
The gold major made the announcement on the same day it released second-quarter financials that revealed its cost-cutting efforts are paying off.
With production starting in late 2016, Newmont expects Merian to produce 300,000 to 400,000 oz. per year over an 11-year mine life, with all-in sustaining costs forecast at US$825 to US$960 per oz.
In the first five years of mining, when higher-grade ore will be mined, annual production will be as high as 400,000 to 500,000 attributable oz. gold, with all-in sustaining costs pegged at US$750 to US$850 per oz.
Capital costs at Merian — in Suriname’s northeast, 60 km south of Moengo — are projected at between US$900 million and US$1 billion.
In a release, Newmont president and CEO Gary Goldberg explained how the development fits in with the company’s overall strategy.
“This decision marks an important milestone in our portfolio optimization process — we have divested nearly US$800 million in non-core assets to help fund the next generation of lower-cost projects in our portfolio,” Goldberg said.
Merian hosts reserves of 108.3 million tonnes grading 1.22 grams gold per tonne for 4.2 million oz., using a US$1,300 per oz. gold price.
Before it can begin construction, the company is awaiting a right of exploitation from the Suriname government, which has the option to earn a 25% stake in Merian through funding its share of capital and operating costs, as well as an initial earn-in contribution.
Merian would consist of three open pits, a processing facility and related infrastructure. It is expected to employ 2,500 people during the construction stage and 1,300 people during production.
Meanwhile, in its second-quarter results, Newmont revised its outlook for 2014 for the better. The miner nudged its expected production numbers for the year upwards by 2% (to 4.7 million to 5 million attributable oz. gold from 4.6 million to 4.9 million oz.), and expected costs applicable to sales downward (to US$720 to US$760 per oz., from US$740 to US$790 per oz.).
On revenues of US$1.8 billion, Newmont reported adjusted earnings of US$101 million — or US20¢ per share — for the quarter, above the analyst consensus of US19¢ per share. (Before adjustments, its earnings were US$182 million, or US37¢ per share.)
In last year’s comparable quarter, the company reported an adjusted loss of US$90 million, or US18¢ per share, on revenues of US$2 billion.
Newmont has slashed production costs at its mines: its all-in sustaining costs for the period were US$1,063 per oz. gold and US$3.69 per lb. copper, down from US$1,283 per oz. gold and US$8.72 per lb. copper a year ago.
Newmont produced 1.2 million oz. and 20,000 tonnes (44 million lb.) copper during the quarter — an increase of 5% and 4% over the year-earlier period’s numbers — due to higher production from Africa, Australia and New Zealand.
It sold its gold for US$1,283 per oz., and its copper for US$3.01 per lb.
BMO Capital Markets mining analyst David Haughton has a US$31.50 target on the stock, which traded at US$25.42 on the news.
“The solid operating and financial results in the quarter are encouraging, and bode well for the company’s cost-control initiatives,” Haughton wrote in a client note. “However, uncertainty surrounding Indonesia may weigh on stock-price performance in the near term.”
Newmont suspended production at its Batu Hijau mine in Indonesia in June due to export issues. The company is negotiating with the government and pursuing international arbitration over a newly imposed export tax. It forecasts that it will ship concentrate containing 11,000 oz. gold and 32 million lb. copper from inventory to the Gresik smelter in the country in the year’s second half.
Newmont shares have traded in a 52-week range of $20.79 to $34.27. The company has 498.5 million shares outstanding.
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