Newmont Mining: Indonesia Strike Ends, Protests in Peru Continue

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Newmont Mining (NYSE:NEM) can breathe a sigh of relief as the company and workers at the Batu Hijau mine in Indonesia were able to reach a settlement regarding the calculation of compensation for overtime duty. [1] However the protests at the company’s Conga mine, near its Yanacocha mines in Peru, continue to trouble the miner. The company has already lowered its production outlook at some of its mines for 2011. 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 nearly 10% premium to the market price.

See our complete analysis for Newmont Mining here.

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Resolution at Batu Hijau

Newmont has been successful in negotiating a deal to calculate the compensation for overtime duty for the workers at its Batu Hijau mine in Indonesia. Earlier this month, close to 400 workers at the mine went on strike due to a dispute over shifts. Even during the strike, production was not a big issue for the company as the mine has more than 7000 employees and contract workers. The details of the negotiations and final resolution have yet to be released. This strike was not as big as the country’s longest running strike at Freeport’s Grasberg mine, where workers are demanding a raise in wages and better working conditions.

…But Peru continues to create problems

However, regional issues continue to trouble Newmont  – the company was forced to close its operations near the Yanacocha mine in Peru as local protesters damaged mining equipment and demanded $72 million for development of the region. 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.

Approximately 10,000 people in Northern Peru joined protests on Thursday against the development of the Conga gold mine project, fearing that the project will damage the lakes in the region, thereby leaving no water source for them. A building in the Conga mine premises storing PVC pipes was also set ablaze by the protesters. The Conga project, an extension of the aging Yanacocha mines, is expected to start production by 2015.

The company officials say that the necessary precautions have been taken to minimize the environmental impact of the project and it has planned to displace the four small lakes to approximately 3,500 meters above sea level. Officials have said that this will eventually be beneficial for the locals and farmers, ensuring them a smoother water supply.

The locals have had a bad experience during the development of Yanacocha mine; according to them company officials have not kept their promises in the past. Therefore, they are skeptical that the company or the government officials will actually adhere to the promises. The government is mediating the talks between the company and the locals, which has been of little help thus far.

The protests forced the company to temporarily halt the operations at the Yanacocha mine as a precautionary measure. Should the development of the mines continue to face similar issues going forward, the company may face significant losses in the region as the output from Yanacocha continues to fall due to lower ore grade.

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Notes:
  1. Newmont’s Indonesia Strike Ends, Zacks []