Sale Of Waihi Mine Consistent With Newmont’s Strategy To Adapt To Low Gold Prices

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Newmont Mining (NYSE:NEM) completed the sale of the Waihi mine post the announcement of its Q3 results, a move that is largely in line with the company’s strategy for adapting to the prevailing environment of subdued gold prices. [1] The company sold off the Waihi mine, located in New Zealand, to OceanaGold Corporation for cash proceeds of $101 million. [1] Newmont has tried to lower its average costs of production as well as reduce its outstanding debt through the sale of non-core assets. Newmont’s moves closely mirror those of other major gold miners, such as Barrick Gold, which are also trying to come to terms with the subdued gold pricing environment.

Non-Core Asset Sales

Gold miners struck deals worth $18 billion in 2014, as large gold mining companies shed non-core assets in order to reduce average production costs and repay debt. [2] Gold prices have averaged roughly $1,172 per ounce so far in 2015, around 7% lower than in the full year 2014. [3] Fears of an interest rate hike by the Federal Reserve negatively impacted the investment demand for gold, driving down gold prices.

Gold Prices in 2015, Source: Kitco

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Newmont Mining reported a 16% year-over-year decline in its all-in sustaining costs (AISC) in Q3 2015, largely as a result of the sale of high cost, non-core assets. [4] The AISC metric captures all the costs required to sustain a company’s ongoing mining operations. Including the sale of the Waihi mine, Newmont has generated roughly $1.7 billion through non-core asset sales over the last couple of years. [1] Though the AISC for the Waihi mine compares favorably with the overall AISC for the company as a whole, the mine is coming towards the end of its life, housing roughly two years of proven and probable reserves at 2014 production rates. [5] The company management favors a strategic focus on its longer lasting, low-cost mining operations, with proceeds from the sales of assets such as Waihi helping the company manage its debt.

Other major gold producers such as Barrick Gold have been making similar moves. Barrick raised $3.2 billion in 2015 through a combination of assets sales, joint ventures, and other partnerships, with the majority of the proceeds earmarked for debt reduction. [6] Adopting such a strategy has made the likes of Newmont and Barrick leaner, more efficient organizations, more suited to the prevailing pricing environment. With lower cost structures, these companies are also nicely poised to benefit from the eventual recovery in gold prices.

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Notes:
  1. Newmont Completes Sale of Waihi Operations in New Zealand, Newmont Mining News Release [] [] []
  2. OceanaGold Remains on M&A Hunt After Newmont Mine Acquisition, Bloomberg []
  3. Gold Prices, Kitco []
  4. Newmont’s Q3 2015 Earnings Presentation, Newmont Mining Website []
  5. Newmont Mining 2014 10-K, SEC []
  6. Barrick Announces Sale of Non-Core Assets for $720 Million, Barrick Gold News Release []