Protests Force Newmont to Close Mine in Peru

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Newmont Mining (NYSE: NEM) was forced to shut down operations at its Yanacocha mine in Peru as local protesters blocked access roads to the site and also vandalized certain production equipment. [1] Below, we assess the impact that this will have on the Newmont’s overall gold production. Newmont, primarily a gold miner, competes with other international gold producers like Barrick Gold Corporation (NYSE: ABX), AngloGold Ashanti Ltd. (NYSE: AU) and Goldcorp Inc. (NYSE: GG)

We currently have a $76 price estimate for Newmont’s stock, implying a 20% premium to the market price.

See our complete analysis for Newmont Mining here.

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Protesters demanding $72 million for development

Newmont Mining and Buenaventura are moving ahead with the joint development of a $4.8 billion copper-gold mining project located at Minas Congas near Yanacocha. Additional details of the project under development are posted on the company’s website. The local protesters demand a community relations pact be signed by the companies that will bind the miners to shell out $72 million for the development of the region. Apart from the damage done to the access road to the mine, heavy mining equipment worth $2 million, owned by an independent contractor, was vandalized during the protest. Similar protests have been going on in various rural parts of Peru, posing a potential threat to more than 200 mining establishments in the country.

We expect compromise, minimal earnings impact

Yanacocha is the largest open pit gold mine in the Latin-American region, producing close to 1.5 million ounces of gold annually. Suspension of production from the mine results in a loss of more than 4500 ounces of gold daily for the company, which is almost 25 percent of its daily gold output from all its mines combined. While the loss of 25 percent of production is troublesome, we believe that the issue will be resolved soon and the overall impact of this closure will be much minimal.

The state government has already increased taxes in the past in order to fund development activities in the region, adversely affecting the profitability of operations in the region. However we believe that the company’s profits remain healthy and that it is well-positioned to withstand these issues. Unless this issue continues for a long period, or Newmont’s future investments encounter similar issues,we do not expect a substantial impact on earnings.

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Notes:
  1. Newmont suspends work at Peru gold mine, Reuters []