Newmont Cuts Costs at Conga

Zacks

Gold miner Newmont Mining Corporation (NEM) announced that it will be cutting costs at its Conga gold and copper project in Peru. The company has halted the project since November 2011 due to protests by the farmers and local Government officials. The protestors are of the idea that the mine will replace the existing alpine lakes with artificial reservoirs, thereby causing pollution.

The investment in the project is estimated to be $4.8 billion and its halt was costing the company around $2 million each day. Further, Newmont took adequate measures to slash costs and announced the termination of contract with 6000 people. The company is considering revising the project’s costs.

Newmont is waiting for the government’s environmental impact study of the project, scheduled in the first week of April 2012, after which Newmont expects to restart the project. Though the company has completed all the legal requirements, Newmont has undertaken this additional process.

In February 2012, Newmont reported earnings of $1.17 per share in the fourth quarter of 2011 compared with $1.16 per share in the prior-year quarter and missed the Zacks Consensus Estimate of $1.25 per share.

Total revenue was $2.77 billion, up 9% year over year from $2.548 billion. It missed the Zacks Consensus Estimate of $2.78 billion. Newmont reported attributable gold and copper production of 1.3 million ounces and 47 million pounds, respectively, in the quarter at costs applicable to sales of $602 per ounce, and $1.58 per pound on a co-product basis. 

For fiscal 2012, the company expects attributable gold production of approximately 5.0 million to 5.2 million ounces and copper production of 150 to 170 million pounds. Costs applicable to sales are expected to be between $625 and $675 per ounce for gold. Costs applicable to copper sales are expected to be between $1.80 and $2.20 per pound of copper.

The company currently plans to spend $3.0 to $3.3 billion in attributable capital expenditures in 2012, or $4.0 to $4.3 billion on a consolidated basis. Approximately 60% of 2012 consolidated capital expenditures are expected to be related to major project initiatives, including further development of the Akyem project in Ghana, Tanami Shaft, the Conga project in Peru, while the remaining 40% is expected to be for growth and sustaining capital.

Currently, the company retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating and we have recommended the shares of the company as “Neutral” for the long-term (more than 6 months). Newmont competes with AngloGold Ashanti Ltd. (AU), Barrick Gold Corporation (ABX) and Gold Fields Ltd. (GFI).

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