Newmont Mining (NYSE:NEM) recently announced that it will cut capital spending on its Conga gold mine project in Peru by around $1 billion. The company will reduce its project capex from the earlier estimate of $1.5 billion to $440 million over the next 18 months.  The spending reduction is to align with delays in government and environmental reviews.
We maintain a $60 price estimate for Newmont, which implies a 20% upside to the current market price.
The South American mines are very valuable to Newmont as they contribute 20% to the company’s stock price by our analysis. Of late, Newmont has faced problems in its mining operations in the region due to protests. The Cajamarca mines have seen continued community opposition with the protesters asking the government to tighten environmental norms. The upcoming Minas Conga project is closely located to the Cajamarca region. The Conga project was earlier estimated to start production by late 2014 to early 2015, but is now revised to 2017 – a delay of almost two years. 
Newmont is bullish over the future gold demand and estimates the shipments to rise from 5.2 million ounces in 2013 to 7 million ounces in 2017. However, it’s wary of its operations in South America, especially the Conga project which has attracted many protests previously and believes it might have to revise its gold shipments estimate to nearly 6 million ounces if there is further uncertainty in its Peruvian projects, including the Minas Conga.
We expect the South American gold shipments to decline in coming years before stabilizing over the Trefis forecast period.Notes:
- Newmont to cut over $1bn from planned Peru project spend, mineweb.com, May 24, 2012 [↩]
- New Protests Against Newmont’s Peru Mine Expected Thursday, foxbusiness.com, May 30, 2012 [↩]