(Updates with closing stock price in third-to-last paragraph.)
July 30 (Bloomberg) -- Newmont Mining Corp. will build a mine in Suriname for as much as $1 billion as the largest U.S. gold producer continues efforts to reduce operating costs following the metal’s decline.
The Merian project will produce 300,000 to 400,000 ounces a year and is expected to start up in late 2016, the Greenwood Village, Colorado-based company said yesterday in a statement. The mine’s forecast costs in the first five years are $750 to $850 an ounce, as much as 29 percent less than Newmont’s total average in the second quarter of this year.
“At current gold prices, we estimate Merian investment could have a payback of less than four years,” Michael S. Dudas, an analyst at Sterne Agee & Leach Inc., said in a note yesterday.
The approval marks the first for a gold project of its size since gold’s 28 percent plunge last year spurred producers to rein in spending, delay expansions and sell less profitable assets to shore up their balance sheets. Newmont has sold smaller assets in Nevada and Australia, as well as holdings in Canadian Oil Sands Ltd. and Paladin Energy Ltd.
Newmont said it plans to fund its share of Merian’s development costs through available cash balances and projected cash flows. The government of Suriname has an option to earn a 25 percent fully funded equity ownership stake, according to the statement.
Newmont also reported a second-quarter profit excluding a tax-valuation allowance and other one-time items of 20 cents a share. That compared with the 19-cent average of 18 analysts’ estimates compiled by Bloomberg. Sales rose 13 percent to $1.77 billion, less than the $1.79 billion average estimate.
The company increased its forecast for gold production this year to 4.7 million to 5 million ounces, from a previous range of 4.6 million to 4.9 million ounces, and said costs will be lower than previously forecast.
Newmont’s average cost in the second quarter was $1,063 an ounce of gold, compared with $1,283 a year earlier and the $1,135 average of three estimates compiled by Bloomberg.
Second-quarter gold output rose to 1.22 million ounces, compared with 1.17 million a year earlier and the 1.15 million average of four estimates. Newmont also produced 20,200 metric tons of copper in the period.
Newmont rose 0.2 percent to $25.59 at the close in New York. The shares have gained 11 percent this year.
Newmont, which operates in the Americas, the Asia-Pacific region and Africa, was in discussions this year to be acquired by Canadian rival Barrick before the talks broke down in April.
Gold averaged $1,290 an ounce on the Comex in New York in the second quarter, 9 percent less than a year earlier and 0.3 percent lower than the first quarter.