In a Nov. 7, 2018, research note, analyst Andrew Kaip reported that the overall impressions from BMO Capital Markets' site visit to Newmont Mining Corp.'s (NEM:NYSE) Tanami project in Australia's Northern Territory are that it is "a great success that keeps getting better," it is "quickly heading to tier 1 status" and it offers a "treasure trove of exploration opportunities."
Kaip supported those statements with evidence.
As for Tanami already being fruitful, he noted that over time there, gold production and processing rose while costs dropped, he highlighted. Between 2012 and 2018, production increased to 440–515 thousand ounces (450–515 Koz) from 183 Koz. Processing rates went up as well, by 80% to 2.6 million tons per annum, resulting from mine and mill optimizations along with fresh discoveries.
Simultaneously, the all-in sustaining cost decreased to $705–775 per ounce, per 2018 guidance, from more than $2,000 per ounce. "Tanami is able to keep costs in the second quartile given the morphology of ore zones that are amenable to low cost, long hole stoping," Kaip explained.
The growth of reserves has been "impressive," noted Kaip, doubling to 4.4 million ounces at 5.7 grams per ton (5.7 g/t) gold (Au). Further, Tanami hosts another 700 Koz of Measured and Indicated resources at 5 g/t Au and 800 Koz of Inferred resources at 5.4 g/t Au.
Regarding the Northern Territory mine continuing to improve and on the cusp of becoming tier 1, Newmont began shaft development and mill upgrading work for its next phase, an expansion, with the ultimate primary goal of bolstering reserves. When finished, Kaip relayed, "phase 2 is expected to lift annual production to the 600 Koz range with costs declining a further 10%, an outlook that clearly positions Tanami as a tier 1 mine."
Finally, in terms of the exploration upside at Tanami, the main ore shoots are open at depth. Resources at Liberator, a new ore shoot at the project, seemingly with grades better than those of the reserves, have yet to be delineated. A third area with potential is Orac, which "could support further mine expansion," Kaip pointed out.
BMO Capital maintains its Outperform rating and $42 per share price target on Newmont. The stock is trading at around $32.02 per share.
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Disclosures from BMO Capital Markets, Newmont Mining, Nov. 7, 2018
IMPORTANT DISCLOSURES
Analyst's Certification
I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Newmont Mining.
Disclosure 6C: Newmont Mining is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 9B: BMO Capital Markets makes a market in Newmont Mining in United States.
Disclosure 16: A research analyst has extensively viewed the material operations of Newmont Mining.
Disclosure 17: Newmont Mining has paid or reimbursed some or all of the research analyst's travel expenses.
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