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Newmont Reaches Commercial Production at Long Canyon Mine

NEM VALE BHP EXK

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Newmont (NEM - Free Report) said that its Long Canyon mine located less than 100 miles from its existing Nevada complex has reached commercial production. The gold miner declared commercial production based on sustaining plant availability of over 85% and achieving at least 70% of modeled leach recovery.

The project was completed two months before schedule for just below $225 million which was around $50 million or 18% below budget. During the first phase, Newmont is expected to produce between 100,000 and 150,000 ounces of gold annually over an eight-year mine life at some of the lowest costs in its portfolio. Costs applicable to sales are anticipated to be in the range of $400 to $500 per ounce while all-in sustaining costs are projected to be between $500 and $600 per ounce.

Newmont took a phased development approach to optimize the project, utilizing refurbished equipment instead of new, building a leach facility instead of a mill, as well as leveraging the established infrastructure, expertise and stakeholder relationships in Nevada. The project is expected to generate a 26% rate of return with a payback period of just below four years at current gold prices.

Newmont has grown the resource base at Long Canyon by 30% in two years. Long Canyon is among the four profitable operations the company has added to its portfolio over the last three years and is the most significant oxide gold discovery in Nevada in more than a decade. Phase Two studies are currently underway at the mine and Newmont expects to complete these and secure the required permits to proceed before Phase One is depleted.

Newmont’s shares closed around 4% higher at $33.91 yesterday.

Newmont’s adjusted earnings for third-quarter 2016 were in line with the Zacks Consensus Estimate. Revenues rose by double digits year over year, but missed expectations.

The company’s attributable gold production rose roughly 3% year over year to 1.25 million ounces in the quarter, with increases at Cripple Creek & Victor, Carlin and Boddington mines more than offseting lower production at Yanacocha. Newmont anticipates attributable gold production to be in the range of 4.8–5 million ounces in 2016.

Newmont continues to invest in growth projects that are expected to boost its production performance. The company is also making significant progress with its cost and efficiency improvement programs, which is allowing it to generate positive free cash flow. However, Newmont is exposed to a volatile pricing environment and challenges in the copper market.

Newmont, earlier this month, closed the sale of its 48.5% ownership interest in PT Newmont Nusa Tenggara (“PTNNT”), which operates the Batu Hijau copper and gold mine in Indonesia, to PT Amman Mineral Internasional (“PTAMI”) for a total consideration of $1.3 billion. The company said that it will utilize the proceeds from the transaction to finance its highest margin projects, pare debt and pay dividends.

Newmont currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked companies in the basic materials space include BHP Billiton Limited (BHP - Free Report) , Vale S.A. (VALE - Free Report) and Endeavour Silver Corp. (EXK - Free Report) .

BHP Billiton holds a Zacks Rank #1 (Strong Buy). The company has an expected earnings growth of 217.4% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vale has an expected earnings growth of around 315.2% for the current year. The stock carries a Zacks Rank #2 (Buy).

Endeavour Silver carries a Zacks Rank #2 and has an expected earnings growth of around 187.9% for the current year.

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