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Newmont Mining’s Improving Cost Profile

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Newmont’s improving cost profile

Newmont Mining (NEM) has made significant progress in reducing its per-unit cost profile in the last few years. While other miners have also embarked upon cost-cutting sprees, Newmont has been more successful at it than its peers.

The above chart shows the all-in sustaining costs, or AISC, for gold miners at the end of 1Q15 and 1Q14. Newmont’s AISC has fallen by 18% YoY (year-over-year). AngloGold Ashanti’s (AU) AISC has fallen by 6.7%, and Kinross Gold’s (KGC), by 3.7%.

For more on this subject, read Today’s Gold Environment: Can Gold Miners Cut Costs, Reduce Debt?

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Cost reduction in 1Q15

For Newmont Mining, 1Q15 is the third consecutive quarter of demonstrated cost improvements. Its gold AISC came in at $849 per ounce as compared to $927 per ounce in 4Q14 and $1,034 per ounce in 1Q14. The company kept costs below $1,000 per ounce at every one of its managed operations.

Factors contributing to declining costs

Close to 50% of this improvement is from costs attributable to sales improvements. These benefitted, in turn, from better grades and recoveries, as well as from cost and efficiency improvements. The rest of the savings are a result of lower oil prices, favorable exchange rates, and the timing of capital expenditures.

If you don’t want to pick up individual miners, the VanEck Vectors Gold Miners ETF (GDX) provides an alternative means to invest in the sector. The fund invests in senior and intermediate miners. AngloGold Ashanti and Kinross form 5% and 2.9% of GDX’s holdings, respectively.

To get exposure to gold prices, investors can also invest in gold-backed ETFs such as the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU).

In this next part of this series, we’ll find out how Newmont is making out with its debt reduction targets.

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