Newmont Mining Corporation NEM has announced the commencement of construction of the first phase of the Long Canyon mine. This oxide mine, with substantial upside potential, is located in an emerging gold district within 100 miles of the company’s current Nevada operations.
Long Canyon, in its first phase of development involving an open pit mine and heap leach operation, is expected to generate gold for eight years of mine life in the range of 100,000–150,000 ounces per year. This gold production is anticipated to bear all-in-sustaining costs in the range of $500–$600 per ounce. Given the present gold price environment, the mine is anticipated to deliver annual EBITDA of $100 million, 2017 onward.
According to Gary Goldberg, President and Chief Executive Officer at Newmont, the phase development approach for this mine will help the company to decrease development capital to the range of $250–$300 million, and deliver a 17% internal rate of return. It will also help Newmont to trim down the payback period to just over four years after the mine’s first commercial production.
The company expects Long Canyon’s first commercial production to occur during the first half of 2017. Given Newmont’s knowledge on mining and proper agreements related to this project, the company is confident of delivering the project safely, both in terms of time and budget.
The project features higher grade oxide ore processed by heap leaching, gold reserves of 1.2 million ounces at an average grade of 2.29 grams per ton, and potential mineralization over a three mile strike length. Expected annual gold production from the mine is between 100,000 and 150,000 ounces over an eight year mine life for the first phase of operation. The projected average costs applicable to sales and all-in sustaining costs for gold production range on the lower end of $400–$500 per ounce, and $500–$600 over the life of the mine.
The project will be funded by the available cash balance and free cash flow of the company, strengthening Newmont’s existing equipment, infrastructure and personnel. Capital expenditures by Newmont will be distributed almost equally in 2015 and 2016 with least spending in 2017. Newmont has already received federal and state permits necessary to proceed with the development of the project. Once the mine is functional, Phase 1 is expected to employ around 260 people.
Newmont reinforced its business in 2014 by reducing its consolidated all-in-sustaining costs by about 10% or $100 per ounce. Moreover, the company exited 2014 with liquidity of $6 billion. It also generated $1.4 billion through the sale of non-core assets over the last two years. Newmont expects to generate strong cash flows over the next three years and invest in growth projects, debt redemption, and enhance shareholder returns.
Newmont currently carries a Zacks Rank #2 (Buy).
Other well-ranked companies in the gold mining industry include Asanko Gold Inc. AKG, Banro Corporation BAA and Gold Standard Ventures Corp GSV, all carrying a Zacks Rank #2.
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