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Forget Newmont’s 3Q16 Costs—They’re Going Much Lower

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Nov. 20 2020, Updated 3:27 p.m. ET

Cost performance in 3Q16

For 3Q16, Newmont Mining (NEM) reported AISC (all-in sustaining costs) of $925 per ounce, which is 5% higher YoY (year-over-year) and 6% higher quarter-over-quarter. Higher-than-expected costs during the quarter were primarily due to the inventory adjustments at its Yanacocha and Ahafo mines.

These adjustments offset improved costs from the following:

  • Carlin mine, which benefitted from higher grade production at underground Leeville mine
  • additional production from the Cripple & Vector mine, which resulted in lower unit costs
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Upside to cost outlook?

Despite higher-than-expected costs in 3Q16, Newmont Mining maintained its 2016 cost outlook of between $870–$930 per ounce. The company mentioned that slightly higher cost applicable to sales should be offset by lower sustaining capital.

As Newmont’s new, low-cost mines come online to replace its maturing, high-cost mines, its cost structure should favorably alter. Merian, which came online in October 2016, has AISC of between $650–$750 per ounce. Long Canyon is expected to come online in the fourth quarter of 2016, with AISC of between $500–$600 per ounce. Both of these mines have lower costs than the company’s current average cost.

The company also stated during its call that the upcoming growth projects will add about 1 million ounces of gold at an average AISC of less than $700 per ounce over the next two years. This should benefit the company’s overall unit costs.

Newmont Mining is not unique in bringing down its costs. Peers (GDX) (RING) Barrick Gold (ABX), Goldcorp (GG), Agnico-Eagle Mines (AEM), and Yamana Gold (AUY) have also brought down their costs considerably in the past year.

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