Newmont Cautious on New Mine

On Sept. 16, Newmont Mining Corp. (NEM - Analyst Report) said it was still evaluating the decision to develop its Minas Conga copper-gold project in Northern Peru. Production at the mine was delayed due to the global economic downturn and credit crunch, which led to a higher projected cost for development. The world’s largest gold producer was scheduled to announce its decision in the first quarter of 2009.

Newmont has a 40% share in the project, while Compania de Minas Buenvaventura SAA (BVN), Peru’s largest publicly traded precious metals miner, holds the rest. The Minas Conga mine has equity gold reserves of more than 6 million ounces and roughly 1.7 billion pounds of copper.

Elsewhere in Peru, Newmont controls the Yanacocha gold pit, one of South American's largest gold mines with a 51.35% stake, while BVN holds a 43.65% share. International Finance Corp. holds the remaining 5% interest in the mine. Newmont kept its 2009 gold production estimate of 1.9 million ounces from Yanacocha.

We expect Newmont’s gold sales to rise with improved gold sales at the low-cost Yanacocha (Peru) and Batu Hijau (Indonesia) operations. Commencing production at the recently acquired Boddington mining facility in Australia will also boost the company’s gold sales.

This apart, Newmont is also planning to raise $2 billion by issuing 5.125% Senior Notes due 2019 in the principal amount of $900 million and 6.250% Senior Notes due 2039 in the principal amount of $1.1 billion. The offering is expected to close on Sept. 18. The company said that the notes would be guaranteed on a senior unsecured basis by its subsidiary Newmont USA Ltd.

Newmont expects net proceeds of about $1,966 million from the offering after deducting estimated discounts and expenses. It plans to use the net proceeds for working capital and general corporate purposes. We maintain our Neutral recommendation on the stock.

Read the full analyst report on NEM