Newmont’s Purchase Of CC&V Gold Mine A Smart Move

Newmont Mining (NYSE:NEM) has announced that it has reached an agreement for the purchase of the Cripple Creek & Victor (CC&V) gold mine from AngloGold Ashanti Ltd. for $820 million in cash and a 2.5% royalty for potential future underground gold ore production. ^[1] The mine is expected to produce between 350,000 to 400,000 ounces of gold annually, as compared to Newmont’s annual production of around 5 million ounces. ^[1] We think that this is a smart move by Newmont, as the purchase of the CC&V gold mine is in line with the company’s strategy to lower the average cost of production of its gold mining operations, in response to low gold prices.

• Newmont’s average realized price for gold sales declined 7% year-over-year in Q1 primarily due to expectations of an interest rate hike by the Fed, which is expected to make gold less attractive as an investment relative to interest bearing securities. ^[2]
• Newmont has realized around $1.5 billion through the sale of non-core assets over the last two years, as it looks to adapt to an environment of lower gold prices. ^[3] The AISC reported in Q1 2015 was around 18% lower as compared to the value reported in the corresponding period of 2014, primarily due to the sale of the company’s high-cost mines. ^[4]
• The all-in sustaining costs (AISC) metric for the CC&V mine, which is a measure of the recurring costs required to sustain mining operations, is expected to range between $825 and $875 per ounce. ^[3] This value is close to the AISC for Newmont’s overall gold mining operations, which stood at $849 per ounce in Q1 2015. ^[4]
• The purchase of the CC&V mine will significantly boost Newmont’s gold production at relatively low production costs. Given the subdued gold pricing environment, reflected in our forecasts for average realized prices for the North American Mining division shown below, the purchase of the CC&V mine is a smart move by Newmont Mining.

See the links below for more information and analysis:

Trends In Jewelry Demand For Gold

Two Scenarios That Could Boost Newmont’s Stock Price

Cost Reductions Boost Newmont’s Q1 Results Despite Weak Gold Prices

A Look At Newmont’s Response To Low Gold Prices

Newmont Continues Sale of Non-core Assets With Sale Of Interest In Penmont Joint Venture

Reasons For The Recent Decline In Gold Prices

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1. Newmont to Buy Colorado Gold Mine for $820 Million, Wall Street Journal [↩] [↩]
2. Analysis: Fed on Track for Rate Rise, Wall Street Journal [↩]
3. Newmont to Add Profitable Production with Purchase of Cripple Creek & Victor Mine in Colorado, Newmont Mining News Release [↩] [↩]
4. Newmont Mining Q1 2015 10-Q, SEC [↩] [↩]