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Merian will drive Newmont’s volumes and cost reductions

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Operations

Newmont Mining’s (NEM) South American operations are centered in the Yanacocha mining complex in Peru. Most of the mines in this region are near maturity. As a result, their production profile will likely decline going forward—in absence of any mine life extensions.

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Weak production

Attributable production from Newmont’s South American region was also weak—compared to last year. It produced 565 thousand gold ounces in 2014—compared to 588 thousand gold ounces in 2013. It was primarily due to lower leach production from fewer beginning ounces on leach pads at the beginning of the period at Yanacocha.

All-in sustaining costs, or AISC, were slightly lower at $988 per ounce in 2014—compared to $1,041 in 2013. The decrease was due to full potential projects that increased haul efficiency—including fuel and tire savings.

Merian to drive volumes and cost reduction

South American production is expected to decline from 510,000–560,000 ounces in 2015 to 450,000–550,000 ounces in 2016. Production is expect to rise to 650,000–750,000 ounces in 2017. The first full year of production at Merian will offset the impact of maturing operations at Yanacocha.

In this region, AISC were expected to increase from $950–$1,020 per ounce in 2015 to $1,050–$1,150 per ounce in 2016. It’s expected to decrease to $950–$1,050 per ounce in 2017. Similarly, CAS (costs applicable to sales) are expected to increase from $550–$590 per ounce in 2015 to $700–$800 per ounce in 2016. It’s expected to decrease to $650–$750 per ounce in 2017. The primary driver is the addition of lower-cost production from Merian.

Other producers, including Barrick Gold (ABX) and Goldcorp (GG), also have several projects in pipeline. Going forward, this could increase their production.

Investors can also consider investing in gold-backed ETFs—like the SPDR Gold Trust (GLD)—and ETFs investing in senior and intermediate gold names—like the VanEck Vectors Gold Miners ETF (GDX). Newmont forms 7.2% of GDX’s holdings.

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