An investor's guide to Newmont Mining Corporation (Part 18 of 19)

What risks should investors consider before investing in Newmont?

By Annie Gilroy Jan 13, 2015 11:56 am EDT

Industry-wide risks

There are certain industry-wide risks that could impact Newmont Mining (NEM ), including renewed and sustained weakness in gold prices. Weak prices will also negatively impact Newmont’s gold peers, including Barrick Gold (ABX ), Goldcorp (GG ), and Yamana Gold (AUY). Weak prices will also negatively impact the ETFs investing in these stocks like the Market Vectors Gold Miners ETF (GDX ). They will also be negative for ETFs tracking spot gold price like SPDR Gold Trust ETF (GLD ).

In this article, we’ll talk about other company-specific risks that investors should be aware of for Newmont.

Batu Hijau

Newmont Mining (NEM ) is subject to political and economic risks in Indonesia. There have been sudden policy changes in Indonesia in the past, including the ban on export of unprocessed minerals. Newmont’s Batu Hijau operation faced demonstrations by the local community in 2011 relating to a worker recruitment process, including protests and roadblocks.

Batu Hijau also faced temporary work stoppages in 2011 and 2012, and the operation’s collective bargaining agreement with the workforce is subject to renewal in late 2014.

Conga

Newmont owns a 51.35% interest in Yanacocha, whose properties include the mining operations at Yanacocha and the Conga project in Peru. During the last several years, Yanacocha has been the target of local political and community protests, some of which blocked the road between the Yanacocha mine and Conga project complexes and the city of Cajamarca in Peru. The protests also resulted in vandalism and equipment damage.

Newmont suspended construction activities on its Conga project in November 30, 2011, at the request of Peru’s central government following increasing protests in Cajamarca by anti-mining activists led by the regional president. Development of Conga is dependent on risk-adjusted returns high enough to weather all these protests and also the support of local community and government.

Reserve replenishment

Newmont’s reserves are becoming depleted due to maturing mines, especially in the Yanacocha mine in Peru. However, Newmont has found a suitable replacement in the form of a new mine with a comparable production profile. Plus, Newmont has several mines in the execution stage, including Merian and the turf vent shaft project. However, recent asset sales by Newmont aimed to dispose of high-cost assets, which will make a dent in the production growth going forward.

Newmont’s production profile will be declining for the next two years, and the company needs projects to replace the maturing projects to maintain its production.