Newmont Mining Corporation NEM announced in a filing with the U.S. Securities and Exchange Commission (SEC), that it is likely to record a non-cash impairment charge in the range of $1 billion to $1.2 billion in the fourth quarter of 2016 due to costs associated with the closure of its Yanacocha gold mine in Peru.
According to filing, Newmont is conducting a detailed study of the current Yanacocha reclamation plan. This is part of the requirement to submit an updated closure plan to Peruvian regulators every five years. The company, on Dec 7, submitted its current assessment of the Yanacocha closure plan to the board of directors after completing its review of preliminary changes to the Yanacocha closure plan based on the study work completed so far.
Consequently, management anticipates recording an increase to the asset retirement obligation at Yanacocha of between $400 million and $500 million during the fourth quarter of 2016. The increase is mainly attributed to higher estimated future water treatment costs, earthworks, demolition and related support activities.
The revised closure plan for the mine may change with regard to Newmont’s submission and review of the plan with Peruvian regulators which is expected in the second half of 2017. Due to changes to the closure plan and higher expected closure costs, Newmont declared that it was necessary to assess the mine's assets for impairment.
Newmont’s shares have fallen 16.8% in the past three months, compared with a 21.3% fall recorded by the Zacks-categorized Mining-Gold industry.
The company is exposed to a volatile gold pricing environment and challenges in the copper market. Oversupply in the market poses a threat to copper prices.
However, 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, consequently allowing it to generate positive free cash flow.
Zacks Rank & Key Picks
Newmont currently carries a Zacks Rank #3 (Hold).
Some better-ranked companies in the basic materials space include Denison Mines Corp. DNN, BHP Billiton Limited BHP and Fission Uranium Corp. FCUUF, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Denison Mines has an expected earnings growth rate of 71.4% for the current year.
BHP Billiton has an expected earnings growth of 147.8% for the current year.
Fission Uranium has an expected earnings growth rate of 25% for the current year.
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