Will This Gold Miner Thrive in 2014?

The stalled Conga project and the copper-concentrate tax in Indonesia could weigh on Newmont's prospects.

Jan 29, 2014 at 8:23AM

Just like other gold miners, Newmont Mining (NYSE:NEM) has been pressured by depressed gold prices. At the same time, Newmont has company-specific obstacles, such as its stalled Conga project in Peru and a new Indonesian tax on copper-concentrate exports. Will the company overcome those difficulties in the current year?

Conga project
Conga is a big mining project, with 6.5 million ounces of gold reserves and 1.7 billion pounds of copper reserves situated near Newmont's Yanacocha mine in Peru. The project received heavy opposition from the local community, and Newmont decided to build the water-management system first before proceeding with the other work.

The situation is similar to Barrick Gold's (NYSE:ABX) Pascua-Lama project. Barrick decided to suspend construction of Pascua-Lama and to allocate money exclusively for the water-management system. However, there is an important difference between Barrick's and Newmont's cases.

For Barrick, Pascua-Lama is a growth project. For Newmont, Conga's ounces must replace gold from Yanacocha when the mine runs out of reserves -- and there isn't much time left. In the last year's annual report, Newmont estimated that Yanacocha possessed 3 million ounces of gold reserves.

The company recently stated that Yanacocha was on track to produce 550,000–600,000 ounces in 2013. This means that there were less than 2.5 million ounces of reserves left at the beginning of this year. If the reserve numbers do not change significantly, Newmont has five years to start its Conga project. Otherwise, its production levels could suffer.

It's worth noting that the company sounded optimistic when it was talking about the Conga project at the CIBC Annual Whistler Institutional Investor Conference. Newmont stated that it was really progressing with the water-management system and was working on the access road between Yanacocha and Conga.

Possible reserves cut
Newmont's last year's reserves estimates were calculated with a price assumption of $1,400 per ounce. Clearly, gold is significantly below this level. If Newmont changes this assumption, reserves estimates will be lower.

Some companies, like Kinross Gold (NYSE:KGC), were cautious in lifting their gold-price assumptions when the price of gold was rising. As a result, Kinross calculated last year's reserves at $1,200 per ounce, so there shouldn't be any negative surprises when the company reports its reserves estimates when presenting its full-year results on Feb. 12.

Uncertainty in Indonesia
Newmont and Freeport-McMoRan Copper & Gold (NYSE:FCX) faced a progressive tax on copper-concentrate exports in Indonesia. Indonesia tries to force copper producers to process ore within the country. Both companies stated that the new tax contradicts their existing contracts of work.

This could be the start of a lengthy battle. Bachrul Chairi, director general of foreign trade at the trade ministry, told Reuters that there had been no concentrate export since Jan. 12. Copper is not a major source of revenue for Newmont, but the company needs every bit of revenue in current conditions.

Bottom line
Newmont is facing several headwinds at the beginning of the year. The Conga project needs to get going in order to replace Yanacocha's ounces in the future. The uncertainty about the copper-concentrate exports in Indonesia will most likely hurt Newmont's results, at least in the short term.

Newmont managed to lower its all-in sustaining costs to $993 per ounce in the third quarter. A lot will depend on whether the company is able hold its costs under the $1,000 level. As for now, I don't think that Newmont will be an outperformer this year.

The Motley Fool's Stock of the Year
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Vladimir Zernov has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers