Newmont Mining Is Positioning Itself for Volatile Metal Prices
(Continued from Prior Part)
Production guidance
Newmont Mining (NEM) provided its production and cost guidance for next five years. Overall, the production and cost guidance was slightly higher to almost in line with what market was expecting. Newmont guided for an attributable gold production of 4.8 million to 5.3 million ounces for 2016 due to the full year of Cripple Creek and Victor (or CC&V) and Merian’s production coming online.
The production in 2017 is expected to be higher still, at 5.2 million to 5.7 million ounces as Long Canyon comes online. This would offset the falls from Yanacocha and Twin Creeks. For three years after that, production could be in the range of 4.5 million to 5 million ounces. During the call, management mentioned that they see an end to the higher grade phase at Batu Hijau, leading to lower production in 2018 and beyond as compared to 2017.
Upside to guidance
This guidance, however, has an upside if the projects that are not yet approved do get approved. Those projects could contribute close to 250,000–400,000 ounces starting 2018. Management sees this long-term production profile to be steady, profitable ounces as they focus on value over volume over the next five years.
Copper production, on the other hand, is expected to fall 35% from 2016 and 2017 to 2018, with the production of 140 kilotons and 90 kilotons, respectively. This is due to the depletion of the Batu Hijau ore.
Keeping steady production
Keeping a steady to rising production profile is very important in a volatile gold price environment so that revenues can remain steady and costs can fall due to scale benefits. Newmont’s peers (GDX) are also trying to increase their production. While Agnico Eagle Mines (AEM), Goldcorp (GG), and Eldorado Gold (EGO) have stable production profiles, Barrick Gold (ABX) and Kinross Gold (KGC) might have problems replacing their reserves in the long-term.
There are various ways to invest in gold, such as physically purchasing gold, investing directly in gold miners, and investing in gold ETFs. The gold-backed SPDR Gold Trust (GLD), for example, is a major ETF for investors looking for exposure to gold.
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