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What Could Cause Production Upside for Newmont Mining?

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Project pipeline

Newmont Mining (NEM) has four projects in the final stages, all of which will start production either this year or next. Two of its very important projects came online in 2016 ahead of schedule and below budget.

Newmont’s project pipeline continues to be one of the strongest among peers like Barrick Gold (ABX), Kinross Gold (KGC), and AngloGold Ashanti (AU). Notably, AngloGold Ashanti and Kinross make up 3.7% and 2.8%, respectively, of the VanEck Vectors Gold Miners ETF (GDX).

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Long Canyon

Newmont declared commercial production for Long Canyon in Nevada on November 15, 2016. The project was completed two months ahead of schedule and 18% (or $225 million) below budget. Newmont also completed its Merian project before time and below budget. The first phase of Long Canyon is expected to produce between 100,000 and 150,000 ounces of gold per year. The all-in sustaining costs (or AISC) for the project are expected to be between $500 and $600 per ounce over an eight-year mine life. The company also mentioned that at current gold prices, the project is expected to generate a return of 26%.

Other projects

The company approved funding for its Northwest Exodus project in June 2016, and the project is now under construction.

According to the company, this project is a profitable expansion located near its existing underground mine in the Carlin North area. It will use the existing infrastructure at the site to add low-cost ounces to the company’s portfolio. It will add ~700,000 ounces later this year while extending the mine life by seven years. The project is expected to reach full production in 2018.

The Tanami Expansion in Australia is also on budget and on schedule. It’s expected to start production by the second half of 2017 and will increase the production and lower all-in sustaining costs at the existing Tanami operation. The company expects to generate an internal rate of return in the mid-30% range on this project. The company also mentioned during the call that the recent exploration results at Tanami have confirmed the potential to double the current reserve base.

Meanwhile, Goldstar, which is located in the Carlin North area, is expected to deliver over 500,000 ounces of production over a 13-year period.

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