Newmont’s Merian Gold Project Facilitated With Government Of Suriname’s Equity Stake

+45.69%
Upside
35.25
Market
51.36
Trefis
NEM: Newmont Mining logo
NEM
Newmont Mining

The Government of Suriname has exercised its option to participate in Newmont Mining’s (NYSE:NEM) Merian gold project through a 25% equity stake. The Government will participate through Staatsolie Maatschappij Suriname N.V.,  a corporation fully owned by the state. [1] This is good news for Newmont as the Government’s participation will reduce the company’s capital expenditure outlay for the project as well as facilitate the completion of the project.

See our complete analysis for Newmont Mining

The Merian Mine

Relevant Articles
  1. Is Newmont Stock Attractive Post The Q2 Sell-Off?
  2. What To Expect From Newmont’s Q1 2023 Earnings
  3. What’s Happening With Newmont Stock?
  4. Why Newmont Stock Looks Attractive
  5. What’s Next For Newmont Stock After A Tough Q2 Report
  6. Will Newmont Stock Bounce Back?

The Merian mine has reserves totaling 4.2 million ounces of gold. To put this into context, Newmont’s attributable gold reserves stood at 88.4 million ounces at the end of December 31, 2013. [2] The mine is expected to produce 300,000-400,000 ounces of gold on an average over a life of 11 years. However, gold production is expected to average 400,000-500,000 ounces of gold over the first five years of operation. ((Newmont to Develop Merian Gold Mine in Suriname, Newmont Press Release)) To put this into context, Newmont’s gold production for 2014 is expected to be 4.7-5 million ounces. [3] The estimated all-in sustaining costs (AISC) are expected to be $750-850 per ounce for the first five years and between $825-960 per ounce over the life of the mine. ((Newmont to Develop Merian Gold Mine in Suriname, Newmont Press Release)) The average expected AISC for the Merian mine of  $825-960 per ounce over the life of the mine, compares favorably with the company’s overall AISC for its  gold mining operations, which stood at $1,031 per ounce for the first nine months of 2014. ((Newmont’s Q3 2014 10-Q, SEC))

The AISC metric includes costs applicable to sales, remediation costs, general and administrative costs, advanced projects and exploration expenses, treatment and refining costs, sustaining capital expenditure and other miscellaneous expenses. This metric captures the total recurring costs to sustain current levels of production and helps investors better gauge the company’s performance.

Benefits of Government Participation

The most immediate benefit of the participation of the Government for Newmont is a reduction in capital outlay. The total capital expenditure for the project is expected to range between $900 million to $1 billion. [1] With the Government’s participation, Newmont’s capital expenditure outlay for the project will reduce to $600-700 million. [1] Further, the Government’s equity stake in the project would also include contributions to future operating and exploration expenses. [1] Reducing expenses and conserving cash is extremely important for the company in the prevailing environment of subdued gold prices. London PM Fix spot gold prices stood at $1,160 per ounce at the end of October, approximately 12% lower year-over-year. [4] With the lowering of its capital expenditure commitments for the project, the company has immediately allocated $100 million towards the reduction of its debt. Newmont has divested non-core assets worth approximately $1.4 billion over the last 18 months, in order to reduce its operating costs and bring down its debt burden. [1]

In addition to the lowering of Newmont’s capital expenditure and future operating expense commitments, the Government’s direct participation will reduce risk for the company and facilitate the timely completion of the project. The Government’s participation will make it easier for Newmont to obtain various clearances and permits that are typically required during the course of the construction of a mining project. Various international mining projects have recently been hampered by delays in obtaining clearances and even regulatory changes. Barrick Gold’s stalled Pascua Lama project, located on the Chile-Argentina border, is a prominent example of this. The Pascua Lama project has been blighted by time and cost overruns as a result of delays in obtaining relevant approvals from government authorities. It is currently suspended as a result of legal and regulatory hurdles. [5] The Government of Suriname’s direct stake in the Merian gold project should lower the risk of such eventualities materializing.

Thus, the Government’s equity stake in the Merian gold project is definitely good news for Newmont, as it looks to develop this low-cost gold mine.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Newmont Welcomes Suriname’s Decision to Participate in the Merian Gold Project, Newmont Press Release [] [] [] [] []
  2. Newmont’s 2013 10-K, SEC []
  3. Newmont’s Q3 2014 Earnings Presentation, SEC []
  4. Historical Gold Prices, Kitco []
  5. A Look At Barrick Gold’s Pascua Lama Project, Trefis []