One certainty about the future is that it's cloaked in uncertainty. Nevertheless, Newmont Mining (NYSE:NEM) management has graciously provided investors with a few peeks behind the cloak.
Out with the old...
In June, Newmont announced that it will be selling its stake in PT Newmont Nusa Tenggara, which operates the Batu Hijau mine in Indonesia. Representing 4% of Newmont's gold reserves at the end of 2015, the Batu Hijau mine was one of the company's more expensive operations. At $965 per gold ounce, Batu Hijau's all-in sustaining costs (AISC) were the third highest of Newmont's 12 gold-producing mines in 2015. But it was strained relations with the Indonesian government that most likely led the company to leave the country.
Identifying several benefits on the company's second-quarter conference call, management believes Newmont will emerge as a much stronger company following the closing of the transaction. According to Gary Goldberg, Newmont's president and CEO, besides mitigating risk, the deal "improves the underlying business by monetizing future production to fuel further balance sheet and portfolio improvements." The deal includes cash proceeds of $920 million, which Goldberg says "will be used to repay debt and self-fund our best projects."
... and in with the new
While Newmont is bidding farewell to operations in Indonesia, it will soon be welcoming gold production at two new mines: Merian and Long Canyon.
Located in Suriname, the Merian mine is about 90% complete, while gold production is expected to begin before the end of 2016. Estimating production to fall between 400,000 and 500,000 ounces on average for the first five years of production, management believes Merian may prove to be of substantial value for years to come. On the recent conference call, management stated, "We also continue to see strong exploration results, both beneath the current pit and elsewhere in the concession."
About 80% complete, the Long Canyon mine, located in Nevada, is expected to begin commercial production in the first half of 2017. Management is forecasting production for the Long Canyon mine to average between 100,000 and 150,000 ounces for the first five years of production; moreover, the AISC is expected to fall between $500 and $600 per gold ounce.
With numerous projects in varying stages of development, Newmont has its sights set on projects as far as 10 years away from actual gold production. The decision to pursue development of a project, however, is influenced by many factors, and there's no guarantee that each project in the pipeline will make it through to execution.
By the end of 2016, management expects to announce its decisions regarding the approval of two expansion projects at its Ahafo mine in Ghana: the Ahafo Mill Expansion and the Subika Underground mine.
According to management's estimates, the Ahafo Mill Expansion would contribute gold production of 75,000 to 100,000 ounces on average for the first five full years with production beginning in 2018. The Subika Underground, on the other hand, has the potential to produce between 150,000 and 200,000 gold ounces on average for the first five full years
Although investors can expect to soon learn management's intentions regarding its projects in Ghana, they will have to wait longer to hear about operations in South America. When asked about the future of the company's Conga project -- where Newmont suspended construction operations in 2011 under political pressure -- in Peru, management revealed that it has "put Conga on the shelf for now." Elaborating further on the project, Gary Goldberg commented, "I don't see us in the current price environment, in the current social climate moving that project forward before 2020."
Despite its lack of interest in Conga, management is looking closely at expanding operations at another project in Peru: Yanacocha, the largest gold mine in South America. Conducting definitive feasibility studies of Quecher Main, management estimates that this could extend the life of Yanacocha mine, translating to 200,000 ounces of gold production from 2019 through 2024. Management expects to announce its decision regarding the project in 2017.
A global leader in the gold-mining industry, Newmont is taking a big step in further strengthening its positioning by selling its stake in the Batu Hijau mine in Indonesia. And with a strong pipeline of projects in varying stages of development, the company is well-positioned to prosper even more in the future. Investors will surely want to monitor the company's announcements regarding decisions to move forward or not with expansion projects, for these could provide great insights into where the company is headed.