Newmont’s Long Canyon is early and below budget

Newmont Mining (NYSE: NEM) has brought its newest gold mine, Long Canyon, online in Nevada, two months ahead of schedule and US$50 million under budget.

The company poured first gold from Long Canyon on Nov. 8 and declared commercial production on Nov. 15.

Long Canyon — located 161 km from Newmont’s Nevada complex — started production before the early 2017 target. Capital costs came in at US$225 million, or 18% below budget.

“Newmont has been one of the only large producers investing in growth through the lower price cycle, and has continued to generate peer-leading free cash flow while building two mines,” BMO analyst Andrew Kaip writes.

In October, the company started commercial production at the Merian gold mine in Suriname. Newmont completed Merian’s construction on time and more than US$150 million — or nearly 20% — below its initial development capital budget.

A month later, it christened Long Canyon. During its first phase, the operation should deliver between 100,000 and 150,000 oz. gold annually over an eight-year mine life. Estimated all-in sustaining costs are US$500 to US$600 per oz. gold. This puts Long Canyon among the lowest-cost producers in Newmont’s portfolio.

A northward view along the axis of the deposit at Newmont Mining’s Long Canyon gold project in Nevada. Credit: Newmont Mining.

Newmont describes Long Canyon as the “most significant oxide gold discovery in Nevada in a decade.” The operation has similar traits to the Carlin trend, where the company has operated for more than 50 years.

Gary Goldberg, Newmont’s president and CEO, said staging development at Long Canyon attributed to the project’s lower development costs, as well as strong returns, with a 26% rate of return and four-year payback period.

Newmont’s decision to use refurbished equipment instead of new equipment, build a leach facility instead of a mill and leverage its existing infrastructure, expertise and relationships in Nevada also led to lower costs.

A gold pour at Newmont Mining’s Long Canyon gold mine in Nevada. Credit: Newmont Mining.

At the end of 2015, Long Canyon’s global resource stood at 3.4 million oz., up 30% from its initial resource of 2.6 million oz. in 2013. The current resource includes reserves of 1.2 million oz. (16.3 million tonnes grading 2.3 grams gold per tonne), plus measured, indicated and inferred resources of 2.2 million oz. gold (22.1 million tonnes at 3.1 grams gold). Little over half of the resources are in the inferred category.

Newmont is expanding mineralization. It had up to 11 drill rigs active on Long Canyon in 2016. It has grown the project’s mineralized strike length 70% to over 5 km. Oxide mineralization remains open in all directions.

Long Canyon is the fourth operation Newmont has brought online in the last three years, after Merian in October 2016, Cripple Creek & Victor in Colorado in August 2014, and Akyem in Ghana in November 2013. Over the same time, Newmont also raked in US$2.8 billion from asset sales. Combined, these efforts have strengthened the company’s balance sheet and improved its free cash flow generation.

Newmont generated free cash flow of US$240 million in the third quarter, compared to US$158 million in last year’s third quarter. The increase came from higher gold prices and lower development capital expenses. The miner ended September with US$2.1 billion in consolidated cash on its balance sheet.

BMO’s Kaip has an “outperform” rating and a $45 target price on the stock.