Newmont Beats 1Q15 Estimates on Lower Costs, Higher Grades (Part 3 of 4)
(Continued from Part 2)
Costs down 18% year-over-year
For Newmont Mining (NEM), 1Q15 is the third consecutive quarter of demonstrated cost improvements. Its gold AISC (all-in sustaining costs) came in at $849 per ounce as compared to $927 per ounce in 4Q14 and $1,034 per ounce in 1Q14. The company kept costs below $1,000 per ounce at every one of its managed operations.
In comparison, Goldcorp (GG) reported AISC of $900 per ounce, and Barrick Gold (ABX) reported AISC of $927 per ounce.
The Market Vectors Gold Miners ETF (GDX) invests in senior and intermediate gold producers. The SPDR Gold Trust (GLD) provides exposure to spot gold prices. Newmont forms 6% of GDX’s holdings.
What led to the cost improvements?
The above graph shows the contributing factors. Newmont’s gold AISC improved by $185 per ounce in 1Q15 YoY (year-over-year). Close to 50% of this improvement is from costs attributable to sales improvements, which benefitted, in turn, from better grades and recoveries, as well as from cost and efficiency improvements.
For example, at Batu Hijau, the company reached the high-grade phase six ore for which it has been preparing for the last few years. At Twin Creeks also, it achieved improved grades and throughput. Meanwhile, at Yanacocha, higher grades and recoveries offset lower throughput.
Newmont has ~24% of its asset portfolio in Australia. Lower oil prices and a favorable Australian dollar exchange rate led to 30% of the AISC improvement. Lastly, due to the timing of the projects, the company spent less on capital expenditure, which led to 15% of the cost improvements.
Positive surprise on 2015 guidance?
Newmont maintains its AISC guidance at $960–$1,020 per ounce. Guidance assumes an Australian dollar to US dollar exchange rate of 0.85 and oil price at $75 per barrel. However, the average exchange rate between the Australian dollar and US dollar in 1Q15 was 0.80, and the average crude oil prices were closer to $56 per barrel.
The company is leaving the guidance unchanged at this early stage, but these figures do suggest that costs for the full year might come in toward the lower end of the guidance range, or even below it.
During its 4Q14 earnings call, Newmont stated that it was analyzing potential opportunities to pay down its liabilities in advance. In the next part of this series, we’ll discuss the progress on the company’s prepayment goal and its impact on Newmont’s balance sheet.
Continue to Part 4
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