Courtesy Newmont mining.
Newmont Mining Corp. (NYSE:NEM)
This article follows my preceding article on Newmont Mining published on October 30, 2016 about the company's 3Q'16 results.
Yesterday, November 15, 2016, Newmont Mining announced the following:
[NEM] has reached commercial production at Long Canyon, a higher grade oxide mine in an emerging gold district located less than 100 miles from its existing Nevada operations. The Company declared commercial production based on sustaining plant availability of more than 85 percent, and achieving a minimum of 70 percent of modeled leach recovery. The project was completed two months ahead of schedule for an investment of just under $225 million, which is about $50 million or 18 percent below budget.
The first phase of development is expected to produce between 100,000 and 150,000 ounces of gold per year over an eight year mine life at estimated costs applicable to sales of between $400 and $500 per ounce, and all-in sustaining cost of between $500 and $600 per ounce. The project was optimized by taking a phased development approach, relying on refurbished instead of new equipment, and building a leach facility rather than a mill. At current gold prices, the project is expected to generate a 26 percent rate of return with a payback period of just under four years.
The operation includes a surface mine and heap leach pad which currently holds one million tons of ore at an average estimated grade of 1.13 grams of gold per ton. The project was funded through free cash flow and available cash balances, and leverages Newmont's existing infrastructure, expertise and strong stakeholder relationships in Nevada.
Courtesy Newmont Mining.
NEM - Latest production results per mine in K Au Oz.
|NEM details K Au Oz Gold production||3Q'16||2Q'16||1Q'16||4Q'15||3Q'15||2Q'15||1Q'15|
|Total North America||540||477||456||427||434||377||405|
|Total South America||75||81||92||126||141||111||127|
|Batu Hijau (48.5%)||0||92||93||84||105||87||52|
|Total Asia Pacific||429||522||479||493||572||535||438|
So far, NEM has produced 5,007 K Au Oz (4Q15-3Q16) in one year. Based on 125 K Au Oz (mid-point) Long Canyon production will represent an increase in annual production of 2.5%. This is not a big increase but it helps certainly the bottom line, in my opinion.
This news follows another important milestone for Newmont Mining, which is the Merian mine commercial production declared in October 1, 2016. I expect about 100K oz contribution to 4Q'16.
Merian is expected to deliver more than a decade of profitable production and accretive returns. The new mine reached commercial production on October 1, 2016, and was completed on time and more than $150 million below initial development capital budget. Gold production will average between 400,000 and 500,000 ounces (on a 100% basis) annually during the first five years at CAS of between $575 and $675 per ounce and AISC of between $650 and $750 per ounce. Newmont's 75% share of development capital is estimated at $525 million, with an expected $60 million to be spent in 2017 (on an attributable basis) for additional power, crushing facilities and IT infrastructure.
Between the Merian mine and Long Canyon mine we have now a new gold production of 575 K Au Oz annually, which represents an increase of approximately 11.5%, at an AISC below $700/ Oz.
This is an exciting time for the company and its shareholders who got an increase in dividend this previous quarter.
The sale of Batu Hijau interests will be completed before end of 2016. This is a lot of cash coming to NEM pockets -- Batu Hijau has a total consideration of $1.3B = $920M gross cash proceeds + $403M contingent payments -- and I believe we will see a significant decrease of the debt which is now $4.552 billion to probably $4 billion.
Consequently, Newmont mining released on October 27, 2016, that it has commenced a tender offer for cash an aggregate combined principal amount of up to $500 million, expiring November 25, 2016. Assuming the proceeds of Batu Hijau, the net debt to EBITDA will be x1.1, which is impressive.
So far, NEM may have established a support at around $32-$33, if the gold price keeps trading around $1,210-$1,235. The Trump effect has been a strong, unexpected negative news, and the FED is likely to raise interest rates in December, in my opinion. Thus, the immediate outlook for gold is pretty cloudy, I would say.
If the gold price dips well below $1,200, in December, which is a serious possibility, then we may have to look at the next lower support at $26-$28.
On the other hand, If the gold price stays where it is now, and can breach $1,300 early next year, then I believe NEM will rapidly increase in correlation. However, this consideration is beside the point.
Newmont Mining has demonstrated that it is a long-term investment and any weakness due to a lower gold price should be used to accumulate.
Important note: Do not forget to follow me on NEM, and other gold miners. Thank you for your support.
Disclosure: I am/we are long NEM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.