Newmont Mining – Boddington brings it on
With the price of gold hovering around the mid $900s, pressure is beginning to build for a decisive break that could see the yellow metal once again cross $1,000. Despite this though, the gold miners themselves have not fully participated in the recent market rally. This is in our view set to change in the months ahead and the gold sector is therefore attractively valued at present.
In terms of which, sector giant Newmont’s second quarter gold production would be an impressive full year achievement for most of the world’s gold miners. Newmont produced 1.2 million ounces of gold at a cash cost of $423 per ounce. Encouragingly, costs fell 4% from last year’s $439 per ounce.
With the exception of the key Nevada operations, each of Newmont’s projects met or exceeded management’s previous guidance. Nevada delivered 415,000 ounces compared to initial expectations of 430,000 ounces. The primary culprit was a ground failure at Midas. The failure forced the suspension of mining during much of April, although the upper end of full year production guidance remains unchanged at 2 million ounces.
Meanwhile, Nevada’s slight weakness was more than offset by Yanacocha in Peru. The project delivered 274,000 ounces of gold against expectations for 233,000 ounces. The project’s production benefited from both higher ore grades and mill throughput, while the site’s leach pads also exceeded expectations. Costs came in at an impressive $323 per ounce.
Yanacocha continued to perform well through July, contributing to a 9% boost for Peru’s overall gold production.
Australia and New Zealand contributed 283,000 ounces to group production, albeit at a rather expensive $500 per ounce. The region’s production and cost outlook is considerably more appealing though, now that Australia’s Boddington project is in production.
The site is currently ramping up to nameplate capacity of around 1 million ounces of gold annually through its first full five years. Management expect Boddington’s contribution for the current year to come in at around 200,000 and 300,000 ounces.
With a proven and probable gold reserve of 20.1 million ounces, Boddington’s mine life will extend considerably beyond five years. Indeed, management estimate at least 24 years of operations and given the site’s exploration potential, further upside is likely.
Boddington will contribute to Newmont’s low cost profile, with cash costs forecast to remain below $300 per ounce after by-product credits.
Although the lower range of the project’s total capital expenditure has increased, there is encouragingly no revision to the $2.9 billion upper limit. The project has therefore met its budget and development timeframe, which is never a foregone conclusion with a project of Boddington’s size.
