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Why Newmont Mining’s Unit Costs Could Trend Higher Going Forward

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Cost performance in 4Q16

For 4Q16, Newmont Mining (NEM) reported AISC (all-in sustaining costs) of $918 per ounce, which is 11% lower YoY (year-over-year) and 1% lower quarter-over-quarter. The AISC for 2016 as a whole came in at $912 per ounce. This is a 2% improvement over 2015. Plus, 2016 marks the fourth consecutive year of lower AISC for the company.

Lower sustaining capital and advanced projects spending were the main reasons behind its cost improvements in 4Q16.

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Costs trending higher for the next two years

Newmont Mining (NEM) guided for AISC between $940–$1,000 per ounce for 2017 and $950–$1,050 per ounce for 2018. The midpoints of $970 and $1,000 per ounce are significantly higher than its AISC of $912, which the company posted for 2016.

The company noted during its 4Q16 results call that the higher cost outlook is mainly due to the “recent events” that it continues to manage. These events include:

  • larger slip in Carlin Silverstar mine in late November
  • record rainfall at Tanami
  • cost allocation shift between copper and gold production starting in 2017
  • increased investment in advanced projects and expiration

Newmont Mining expects its AISC to come in between $880–$990 per ounce for 2019–2021.

Upside in the long term?

As Newmont Mining’s new, low-cost mines come online to replace its maturing, high-cost mines, its cost structure should see a favorable shift. Its Merian project came online in October 2016, and its all-in sustaining costs lie between $650–$750 per ounce. Long Canyon came online in 4Q16, and its all-in sustaining costs lie between $500–$600 per ounce. Both mines have lower costs than the company’s current average 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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