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Opportunities, Challenges for Newmont: What Investors Should Know

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Opportunities

Newmont Mining’s (NEM) Merian project remains on schedule for its first production in 2016. According to Newmont management, while engineering work is 90% complete, construction is about 25% complete.

On June 8, Newmont announced the acquisition of the Cripple Creek & Victor (or CC&V) mine from AngloGold Ashanti (AU). The transaction is expected to close in early August. In the meantime, Newmont has started to integrate the mine into its portfolio.

These two projects are opportunities for Newmont to increase its near-term production profile. These are the major reasons behind Newmont’s production guidance upgrade.

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Challenges

Newmont Mining (NEM) faces challenges in Indonesia. It’s working with the Indonesian government to effect modifications to its contract of work (or CoW) and to renew its export permit. Its copper concentrate export permit comes up for renewal in September 2015. Meanwhile, Freeport-McMoRan (FCX) reached an agreement with the Indonesian government on July 27 to extend its export permit by six months.

Newmont’s African segment reported a decline in production due to power shortage issues in Ghana. During the 2Q15 earnings call, Newmont management mentioned that the company has installed a 14 MW (or megawatt) temporary power generation at Akyem and is in the process of installing another 21 MW of permanent capacity at Ahafo by year end. Labor negotiations are also ongoing in Ghana. Management is confident the company will reach a mutually beneficial agreement.

While working in Indonesia and Ghana remains challenging for several reasons, Newmont is working through the system to reach an agreement that is beneficial for all the stakeholders.

The VanEck Vectors Gold Miners ETF (GDX) has 7.2% exposure to Goldcorp, its largest holding. The SPDR Gold Shares (GLD) gives exposure to spot gold prices.

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