Contrasting decisions from two major miners on multi-billion dollar projects in the past week or so – one in Peru and the other in Australia.
Newmont Corp, the world’s biggest gold miner says it now will not proceed with its best (and most talked about) $US2 billion plus gold copper expansion project in Peru for at least two years.
The phrase ‘record inflation’ featured heavily in Newmont’s explanation for the postponement of the project that was designed to refresh what was once South America’s biggest gold mine.
But on Friday, OZ Minerals surprised with the greenlight for the $A1.7 billion West Musgrave copper nickel mine in far eastern WA (near the South Australian border) that only in July looked in doubt because of ‘inflation’ and labour shortages.
The driver in this case is the looming shadow of BHP which has offered $A25 a share for OZ, which could rise to $A30 a share, with the added irony that years ago BHP owned and sold West Musgrave because it couldn’t see any prospect for getting it up and running.
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In a matter of five months, Newmont has gone from ‘hot to trot’ in April for the project to an almost complete halt in this month as it stopped work on the final investment decision for one of the world’s largest gold/copper projects – the $US2.5 billion expansion of the company’s Yanacocha gold mine in Peru which is designed to become a gold/copper operation once the project is completed.
Newmont blamed market conditions for the delay, including the “continued war in Ukraine, record inflation, rising prices of commodities and raw materials, prolonged supply-chain disruptions, and competitive labor markets”.
The decision by the world’s biggest gold miner, will mean it will depend more on its two big Australian mines – the Tanami gold operation in the Northern territory which is in the closing stages of a half a billion-dollar expansion and the Boddington gold/copper mine near Perth in WA.
After seeming to be pushing hard towards greenlighting the massive expansion of the existing gold mine to a copper future, Newmont has stepped back and delaying the final decision to the closing months of 2024.
The decision is a big move by a global miner and is the biggest reported postponement of a project since the Ukrainian invasion by Russia in February triggered a surge in commodity prices.
The project is part of the planned extension of Newmont’s Yanacocha gold mine to extend its life beyond 2040. It is South America’s biggest gold mine and also turns out silver and copper.
The mine has been operating since 1993 and the extension was orginally due to be completed by 2026. Now it will be late mid 2028.
Yanacocha has provided Newmont and its joint venture partners with more than 40 million ounces of gold and 30 million ounces of silver. “It is one of the major gold deposits in the history of mining and is one of our world-class assets,” said tCEO Tom Palmer told a Peruvian mining conference a year ago.
“Due to COVID-19, we have decided to extend our decision to fully fund the project until the second half of 2022 and we will move forward with the project as the pandemic allows,” he said. in September 2021
Yanacocha’s Sulfides project gives it an opportunity to diversify its metals profile, but this time taking advantage of the copper resources hidden in the deposit. “Going forward, Yanacocha will be a copper and gold mine,” Palmer said.
In April Newmont lifted the spend for the Yanacocha Sulfides project in Peru from $US2.25 billion to $US2.5 billion, with a firm decision on the amount to be made by year-end.
After the investment decision, Newmont said the project to take more than three years to develop, and add average annual production of about 525,000 gold equivalent ounces a year for the first five years of operation.
The first phase will centre on the Yanacocha Verde and Chaquicocha deposits, which will extend current operations beyond 2040. The following two phases could potentially add “several more decades” to the mine’s productive life, Newmont said in April.
“We’ve been in Peru for 30 years. The Yanacocha Sulphides project will ultimately position us to be in Peru for at least another 30 or 40 years,” CEO Palmer told investors in late 2021.
Newmont said it would continue to manage the Yanacocha operations, including the construction of two water treatment plants, with an anticipated initial spend of around $US350 million over the next two years.
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In contrast to Newmont’s move, OZ Minerals has given the go ahead to its new $1.7 billion copper-nickel mine in remote Western Australia in a development that could flush out the much-forecast higher bid from BHP.
The West Musgrave mine will add to the gold copper mines OZ has in South Australia at Prominent Hill and Carapateena and its new Santa Lucia gold copper mine in Brazil.
What is odd about this decision is that, in July, OZ cast doubt on the mine’s chances of going ahead because of fears about inflation and labour shortages and costs.
The cost fears have been met with the original $1.1 billion cost now $1.7 billion according to Friday’s statement.
West Musgrave was expected to produce 32,000 tonnes of copper and 26,000 tonnes of nickel a year from later this decade over a 24 year life. That has been upped to 41,000 tonnes of nickel a year and 35,000 tonnes of copper annually.
The mine was discovered by Western Mining in the late 90s (BHP took over WMC in 2005) and has the right iron and magnesium ratios to be processed at BHP’s Nickel West smelter in Kalgoorlie.
BHP sold the project for just $250,000 to Cassini Resources back in 2014 before the junior was consumed by JV partner OZ a couple years ago
In order to fund the project, OZ Minerals has entered into credit-approved commitment letters with key relationship banks to provide a new $1.2 billion, 18-month syndicated term loan facility.
OZ Minerals believes that the syndicated debt facility allows the company to maximise stakeholder value by commencing development of the project while optimising the final funding mix, which may come from a range of sources.
The big rise in costs – nearly 50% – is a worrying sign about the project. The higher copper and nickel targets and shortened life (it originally had a 26-year lifespan, now 24) suggests that some of the numbers have been re-crunched.
It has suggested that these could include existing debt facilities, long-term infrastructure leases, and the potential to sell a minority interest in the project to a strategic partner. The latter follows a significant number of expressions of interest from parties with a strategic interest in modern minerals in the past six months.
Whether OZ gets to develop this project and sell a stake to an ‘investor’ is in the hands of BHP.
