Newmont Mining Is Positioning Itself for Volatile Metal Prices
All-in sustaining costs
Newmont Mining (NEM) said that it expects to sustain the savings it has achieved over the past two to three years as far as the company’s all-in sustaining costs (or AISC) are concerned. Newmont’s AISC fell by 18% from $1,113 per ounce to $910 (mid-point) guided for 2015. The AISC is expected to remain below $1,000 per ounce for the next five years. For 2016, the AISC is expected to be slightly higher, at $930 per ounce as compared to $900 per ounce for 2017.
The company has been able to lower the costs by 18% since 2013. While the low-hanging fruit has been taken, management is targeting further reductions from optimization, efficiencies, and technology developments. Currently, Newmont’s costs are 45% labor and services, 30% materials, 10% power, and 10% diesel.
Management stated that costs will benefit from higher grades at the Batu Hijau and Carlin underground mines through 2017, and from lower production costs from Tanami and Merian through 2018.
Newmont’s peers, including Gold Fields (GFI), Sibanye Gold (SBGL) and Agnico Eagle Mines (AEM), have also reduced their costs over the last few years.
Agnico Eagle Mines accounts for 2.8% of the total holdings of the Market Vectors Gold Miners ETF (GDX). The ETF provides exposure to senior and intermediate gold miners while ETFs like the SPDR Gold Trust ETF (GLD) give exposure to physical gold prices.
Further cost improvement?
This cost guidance doesn’t include the projects that haven’t yet been approved by the board, such as the Ahafo mill expansion, Subika underground, and North West (or NW) Exodus. So, there could be an upside if those projects are approved, as that will likely reduce the overall costs by $30 per ounce.
Newmont assumes a gold price of $1,100 per ounce, a copper price of $2.50 per pound, $0.75 per US dollar to Australian dollar, and $65 per barrel WTI (West Texas Intermediate) (USO), and this seems to be a reasonable basis for the company’s new guidance.
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