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Why Newmont’s Production Could Pull Back Slightly in 2018

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Production growth drivers

Newmont Mining (NEM) has been trying to achieve higher production, although not at all costs. It is following a strategy of value over volume strategy. Most of the mines it has added to its portfolio in the last few years have had lower per-unit costs than for the company as a whole.

Since 2012, the company has built three new mines—Akyem in Ghana, Merian in Suriname, and Long Canyon in Nevada. This has not only added to lower cost ounces, it has strengthened NEM’s foothold in new gold districts.

Accelerating production due to start of new mines

In 2016, two of NEM’s mines—Merian and Long Canyon—started commercial production on schedule and under budget. In the third quarter of 2017, it started commercial production for the Tanami expansion. It is expected to finish Northwest Exodus in 2018.

In addition, Newmont Mining (NEM) has announced that it would fund four expansion projects in 2018. These projects would improve margins and extend the mine life at Ahafo, Twin Creeks, and Yanacocha.

The company’s peers (GDX) are also trying to increase profitable production. While Barrick Gold’s (ABX) production growth is falling, Agnico-Eagle Mines (AEM) and Goldcorp (GG) have steadily increased production profiles due to their strong project pipelines.

The upside to Kinross Gold’s (KGC) production growth lies in the Tasiast Phase I and Tasiast Phase II expansion.

Near-term production growth

In 2017, Newmont Mining (NEM) is guiding for production of 5.0 million–5.4 million ounces. Its production for the first three quarters was 3.9 million ounces, which is in line with fiscal 2017 guidance. At the midpoint, the gold production for 2017 implies year-over-year (or YoY) growth of 6.2%.

In 2018, however, the company’s production growth is expected to be slightly weaker. At the midpoint (4.9 million–5.4 million ounces), the production would be 1.0% lower. This is due to higher stripping expected at the Carlin and Boddington mines. The production should eventually increase as these mines return to full potential.

However, 2018 could be lower in terms of production. If this lower-to-flat production is accompanied by flat-to-weaker gold prices, Newmont Mining’s revenues could come under pressure in 2018.

In the long term, however, there are several catalysts that have the potential to drive Newmont Mining’s production and revenues. We’ll discuss these factors in the next part of this series.

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