In a Sept. 23 research note, BMO Capital Markets analyst Andrew Kaip reported his impressions from 2.5 days spent with the management of both Nevada Gold Mines and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) "reviewing integration efforts at the Nevada operations."
Nevada Gold Mines is the joint venture (JV) between Barrick, the operator and 61.5% owner, and Newmont Goldcorp Corp. (NEM:NYSE), which owns 38.5%. The JV forecasts H2/19 production of 3.5–3.8 million ounces (3.5–3.8 Moz) of gold annually over the next five years.
Kaip highlighted the various synergies Nevada Gold Mines already made or identified since the JV transaction closed earlier this year.
To date, the "easy wins," as Kaip calls them, amounted to about $240 million. They came primarily from consolidating regional general and administrative expenses, integrating Turquoise Ridge into Twin Creeks and eliminating the toll milling agreement. Already the JV attained $70 million in savings from supply chain cost reductions, and another $28 million are expected to be achieved soon.
Also, management started seeking ways to improve efficiencies within each segment of the business, expecting to ultimately realize about $450–500 million worth of synergies and do so in the specific time frame.
Nevada Gold Mines is realizing synergies, too, much faster and easier than anticipated, Kaip noted, from having optimized the routing of ore. For instance, "at Carlin, roaster feed has been realigned with ore from the north mines going to Goldstrike and ore from the southern area and from Cortez going to Mill 6," he explained.
Finally, another effort to yield savings is relocation of the collective mining fleet. For instance, larger equipment from Goldstrike is being moved to Gold Quarry to accelerate mining at lower costs. "In our view, this will lead to reserve increases at the 4.5 Moz ounce deposit," Kaip indicated.
In the underground, Nevada Gold Mines is considering increasing stope sizing and switching to long hole stoping where feasible. The aim in doing so is to reduce costs and more rapidly advance new production areas such as Rita K at Leeville, to ultimately boost mine flexibility.
Kaip pointed out that the JV having made or planning to make some of these changes presented new opportunities for exploration. For instance, removing the Carlin property boundaries opened the margins along the Goldstrike open pit for identifying more ore. The same is happening underground.
"One of the biggest surprises from our perspective was the Little Boulder basin target lying between Leeville to the east and Genesis and Goldstrike to the west," wrote Kaip. Historically, the area was largely ignored because it was near the previous property boundary and the mineralization there was considered deep.
However, after the boundary was erased, the JV's geological team reassessed the basin area, determining that mineralization is likely closer to surface in the southern part, Thus, Nevada Gold Mines launched a drill program there. "It is early days, but the Little Boulder basin could easily be hiding the next discovery," the analyst commented.
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Disclosures from BMO Capital Markets, Newmont Goldcorp and Barrick Gold, September 23, 2019
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 our 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 1: BMO Capital Markets has undertaken an underwriting liability with respect to Newmont Goldcorp within the past 12 months.
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Newmont Goldcorp within the past 12 months.
Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to Newmont Goldcorp within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Newmont Goldcorp within the past 12 months.
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 Goldcorp.
Disclosure 6A: Newmont Goldcorp 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: A) Investment Banking Services
Disclosure 6C: Barrick Gold and Newmont Goldcorp are clients (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 Barrick Gold and Newmont Goldcorp in United States.
Disclosure 16: A research analyst has extensively viewed the material operations of Barrick Gold and Newmont Goldcorp.
Disclosure 17: Barrick Gold and Newmont Goldcorp has paid or reimbursed some or all of the research analyst's travel expenses.
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