Newmont Mining's ( NEM ) Q2 results were marked by lower output across its mines and higher production costs that hit its margins, but the impact was offset by higher realized prices of gold. The lower ore grades may have hurt Newmont's production numbers in 2011 with the annual production pegged at 5.3 million ounces of gold and 200 million pounds of copper. We believe that the company has much more to offer over the next few years with some important projects under development. Newmont, primarily a gold miner, competes with other international gold producers like Barrick Gold Corporation ( ABX ), AngloGold Ashanti Ltd. ( AU ) and Goldcorp Inc. ( GG )
We currently have a $75.80 price estimate for Newmont's stock , implying a 30% premium to the market price.
High Gold and Copper Prices will Continue to Reap Profits
As of July 2011, gold is trading comfortably over the $1,600 mark. With the country's debt concerns and the fear of possible slowdown, we do not see the gold price hikes slowing down for at least a year or two. Newmont's CEO estimates the average realized gold price for the company in 2012 at $1,750 per ounce, translating into a jump of more than 10% in the overall operating margins. Copper also will witness a bull run by the end of 2011 as the demand from China is set to increase.
New Projects Can Ease Newmont's Production Woes
Gold production for the second quarter was 1.2 million ounces down by 5% same period last year. The decline was primarily due to the mining of lower grade ores in the existing mines.
Although there is no immediate respite from the production loss, Newmont has plenty of new projects lined up for development that will alleviate its production concerns. The Conga project in Peru is set to commence production by 2014, producing close to 400,000 ounces of gold and up to 150 million pounds of copper annually. The Akyem project in Ghana is also expected to commence production by the end of 2014. Other important project for the company includes the development of the Hope Bay region in Canada, which has around 9 million ounces of potential reserves and is the largest known undeveloped gold project in the world. The exploration and feasibility studies for the region are underway. We estimate the company's gold production to reach close to 7 million ounces by 2015.