Newmont cancels Post mine deal with American Barrick

A change of emphasis at Newmont Gold’s (NYSE) Carlin operations in Nevada has resulted in the cancellation of a joint mining agreement between the Newmont Mining (NYSE) subsidiary and neighbor American Barrick Resources (TSE). Colorado-based Newmont Gold, which has outlined reserves of 20.5 million oz. in 15 deposits along the 38-mile Carlin trend, is hoping to reduce costs and lock in higher profits despite uncertainty in the gold market.

As part of that plan, Newmont has elected to increase the amount of higher-grade oxide ore mined from its Genesis gold deposit, while postponing for several years the mining of relatively lower-grade ore from its Post deposit.

As a result, Newmont has decided that there is no advantage in reimbursing Barrick for material mined at the boundary separating the Post claims from Barrick’s Goldstrike mine.

Under a 3-year agreement signed in January, Barrick was scheduled to mine and stockpile mill and leach grade ore for Newmont’s No. 4 mill and “North Area” leach pad. In return, Newmont agreed to reimburse Barrick for all of its mining costs while allowing the Toronto company to be sole operator in the Post pit.

In an effort to increase production at Goldstrike to 900,000 oz. by 1992, Barrick is digging a huge open pit on the Goldstrike claims, just across the boundary from the claims hosting Newmont’s Post deposit.

By July 1, when the agreement was terminated, Barrick had mined 2.9 million tons of oxide ore and 11.8 million tons of waste ore on Newmont ground at a cost of US88 cents per ton.

Newmont’s change of plan means that Barrick will not receive the US$9.6 million it would have been paid for 1.6 million tons of ore and eight million tons of waste mined from Newmont ground in the second half of 1990.

But according to Barrick spokesman Isabelle Mulligan, the loss of funds will have no effect on the company’s earnings and only a small impact on cash flow. “The net effect will be about $11 million between now and 1992,” said Mulligan. She said that Barrick has already received $29 million for work completed this year.

Meanwhile, Newmont Gold has spent US$500 million since 1987 to expand production at its Carlin operations where recoveries achieved through leaching methods have increased to 70% from 60%.

By using the less costly leaching methods, instead of milling, to treat more ore from the “North Area” at Carlin, Newmont expects to produce 1.7 million oz. this year, instead of an anticipated 1.54 million oz.

Newmont Gold, which last year produced 1.47 million oz. of the yellow metal, also expects its annual production costs to drop to US$210 per oz. from US$227 per oz.

According to Newmont President Peter Philip, projections for 1990 are based on efficiencies already achieved throughout the company in the first half of the year as well as the changes being introduced in the “North Area.”

Newmont Gold’s net earnings increased by 9% to US$118 million or US$1.13 per share, compared to US$108.1 million or US$1.03 per share a year earlier.

Having repaid all of its remaining bank and inter-company indebtedness in the second quarter, Newmont Gold is now debt-free.