Newmont hoses down Oz/African expectations

Company News

by Glenn Dyer

Newmont, the world’s biggest gold miner has warned of delays and cost increases at its expansion projects in Australia and Africa, blaming current market conditions for labour and materials, as well as delayed land access in Ghana.

At the same time the company reported no growth in revenue for the June quarter (because of production lost from some of its mines thanks to labour shortages and Covid) and revealed a sharp fall in earnings for the three months.

Newmont also raised its annual cost forecast and warned that inflationary pressures would persist into 2023 after its second-quarter profit miss saw Newmont shares lose more than 13% in a major sell off to the lowest they have been for more than two years.

The company cut its gold output forecast for the year for the second year in a row to 6 million ounces from 6.2 million. Newmont blamed operational challenges and competitive labour markets in Canada and Australia, especially because of the impact of Covid.

Gold production in the second quarter rose about 3.4% to 1.5 million ounces from a year earlier.

Revenue for the quarter was flat at $US3.1 billion but earnings slumped to $US375 million, down a massive $US261 million from the June, 2021 quarter’s figure of $US636 million

The company blamed higher operating costs related to labour, energy and supply chains for forcing it the to hike its annual forecast for all-in sustaining costs (AISC), an industry metric that reflects total expenses, to $US1,150 an ounce from $US1,050 an ounce earlier.

But the June quarter saw a 15% plus surge in AISC to $US1,199 an ounce as Newmont revealed a 20-30% spike in prices for raw materials such as cyanide and explosives and a tight labour market

This would drive an additional 7% of cost escalation this year, on top of the 5% outlined in December, Newmont CEO Tom Palmer told analysts on a conference call.

On top of this gold prices fell around 7% in the quarter thanks to the stronger US dollar and rate rises from central banks.

The $US395-million Tanami Expansion 2 project, in the Northern Territory has seen a 25% surge in its costs compared with the original estimate, Newmont revealed in its quarterly statement

The cost blowout was the result of significant impacts from Covid-related restrictions and rules, as well as the current market conditions for labour and materials.

Tanami Expansion 2 projects entails a new 1.46 kilometre hoisting shaft and supporting infrastructure to process 3.3-million tonnes a year, increasing the mine’s output by 150,000 oz a year to 200,000 oz a year for the first five years and reduce operating costs by about 10%.

At Ahafo North, in Ghana, where Newmont is building four new openpit mines and a standalone mill about 30 km from the Ahafo South operations, the project is behind schedule, and costs are rising.

Newmont said that capital costs would be about 15% above the prior estimate, thanks to higher costs associated with delayed land access.

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