Newmont cuts costs; kicks off commercial production at two projects

The last week of October was upbeat for shareholders and management of Newmont Mining (TSX: NMC; NYSE: NEM).

The last week of October was upbeat for shareholders and management of Newmont Mining (TSX: NMC; NYSE: NEM).

At mid-week the company announced that it had brought two of its projects into commercial production on schedule and budget: Akyem in Ghana and Phoenix Copper in Nevada. At the end of the week, Newmont revealed in its third quarter financial results that it had increased production and implemented cost reductions while trimming 2013 capital spending by another US$200 million.

David Haughton of BMO Capital Markets commented in a research note to clients that Newmont’s project delivery and cost control measures “have been ahead of BMO Research expectations in 2013, and the trend appears to set the company up for continued improvements through 2014.”

Describing Akyem as a “core asset that will deliver profitable gold production at competitive costs,” Newmont says the large open pit mine in eastern Ghana, about 180 km northwest of the city of Accra, will produce an average of between 350,000 and 450,000 oz Au a year at costs applicable to sales in the range of US$500 and US$650 per oz and all-in sustaining costs of between US$750 and US$850 per oz, during the first five years of its estimated 16-year mine life. Attributable production in 2013 will reach between 50,000 and 100,000 oz Au.

The Phoenix Copper leach project, meanwhile, an expansion of the Phoenix mine just south of Battle Mountain, will recover material previously considered waste via leaching and processing at a solvent extraction/electrowinning facility. In its first five years of operation, the Phoenix leach project should produce an average of about 20 million pounds lb Cu at costs applicable to sales of US$1.75 to US$2 per lb, the company says. Management also forecasts that its attributable production will total about 4 million to 5 million lb Cu and expects the operation will run approximately two decades. The project was developed at a cost of about US$175 million.

On the financial front, declines of 20% in gold prices and 13% in copper prices during the third quarter were partially offset by higher production from Nevada, Australia and New Zealand, Newmont reported. Overall gold production for the quarter was up 4% year-on-year at 1.28 million oz, while copper production rose 3% from the year earlier quarter to 34 million lb.

The company expects attributable gold production this year will come in at between 4.8 million and 5.1 million oz. Attributable copper production should reach between 135 million and 145 million lb.

Consolidated spending in the first nine months of 2013 was down 13%, or US$700 million year-on-year, and management slashed its capital expenditure outlook for the year by an additional US$200 million in the quarter, bringing the total for the year so far to US$400 million.

Third quarter all-in sustaining costs were down 16% from a year earlier at US$993 per oz of gold, and the company ended the quarter with cash and equivalents of US$1.48 billion.

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