There Is a Huge Shift Underway Within the Gold Mining Industry

Gold miners are trying to break bad habits, and Newmont Mining has confirmed the shift is underway.

Feb 3, 2014 at 12:28PM

After years of excess in the mining industry, gold miners are now starting to wake up and realize that they need to get their act together. Indeed, there has been a lot of talk about restructuring and cost cutting during the last year or so, and Newmont Mining Corp (NYSE:NEM), one of the first large gold miners to report its fourth-quarter production results has confirmed that things within the industry are changing. In addition, there is an amount of consolidation going on within the gold mining sector as profitable companies make use of depressed valuations to swoop in on peers; Primero Mining Corp (NYSE:PPP) is one of these predators.

Making progress
Within its fourth quarter production report, Newmont revealed that is was making progress streamlining operations, cutting spending while driving profits higher. The company's attributable gold production for the fourth quarter was 1.5 million ounces, taking yearly production to 5.1 million ounces; at the top end of estimates. The company also divested $600 million of non-core assets in the period.

However, what's really interesting here is the company's outlook for 2014. In particular, Newmont's management is forecasting gold output for the year of 5.1 to 5.3 million ounces, while overhead expenses are slated to fall 20%. Current forecasts predict an all-in-sustaining cost of production per ounce of gold to be in the region of $1,075 to $1,175. This forecast is slightly lower than Newmont's full-year 2013 forecast, which predicted AISC's in the region of $1,100 to $1,200 -- a lower AISC brings to an end years of rapidly rising costs in the mining industry.

So all in all, with a 20% cut in overheads and a lower cost of production, Newmont should be ready for a good year next year, as long as the gold price moves in its favor.

Across the industry
But it's not just the larger miners that are driving down costs. Indeed, as I mentioned above Harmony Gold Mining (NYSE:HMY) has also been driving down costs despite struggling with a volatile labor market within South Africa. In addition, the company is ramping up output. During the fiscal third quarter the company's output increased by 12%, operating profit increased 55%, and the company's AISC dropped 19% from the previous quarter.

That being said, Harmony's AISC stood at $1,264 for the third quarter, above the current gold price, so it's not all good news.

However, the current turmoil in emerging financial markets and unrest in South Africa have sent the South African rand to a 10-year high against the dollar. As a result, the price of gold, expressed in South African rand has rebounded to levels not seen since 2012  -- Great news for Harmony as the company pays its workers in rand, which implies that costs will drop further over the next few months.

While some miners have been overspending and struggling with rising costs, other have remained prudent and profitable from the outset; Primero Mining is one such company. Primero has been ramping up production recently, averaging 41,998 gold equivalent ounces in the third quarter of last year, up from 25,582 in 2012. Production costs were $974 per ounce in the third quarter, down 22% year on year. Primero is also financially stable with a reported debt-to-equity ratio of only 4.6% at the end of the fiscal third quarter. On a net-debt-to-equity basis Primero was sitting in a net cash position.

With this robust financial position, Primero has made a swoop on Brigus gold, an equally profitable gold miner. For example, during the fiscal third quarter Brigus sold 28,344 ounces of gold, a 49% year-on-year increase. The company's AISC of production was $992 per ounce of gold sold, and cash generated from operations was $15.5 million, a 38% year-on-year increase. Primero's management expects this merger to be immediately accretive to both production and cash flow and shareholders should reap the benefits from the joining of these two great mining companies .

Foolish takeaway
In conclusion, it would appear that the gold mining industry is changing for the better. Costs are falling and miners are starting to realize that they need to make up for the mistakes they made in the past. Meanwhile, companies such as Primero, which have remained profitable throughout, are looking for acquisitions, which, if conducted correctly should be long-term beneficial for shareholders. 

Where should you put your money in 2014?
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.


Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information