Newmont's lower cost guide leans on credits that fade as its capital bill rises

Newmont lowered its guidance for all-in sustaining cost this year, the cost of producing an ounce of gold including the capital spent to keep its mines running, to about $1,520 an ounce, down from the figure it set in February. It did so while generating a great deal of cash: free cash flow in the first nine months came to $7.3 billion, almost exactly what the company produced in all of last year. The same results also describe next year, when the credits that helped this year's cost cut shrink and the bill for an underground block cave at its Red Chris mine in British Columbia starts to arrive.

Set against what the company actually spent, the improvement looks smaller. Last year's cost was $1,358 an ounce, so the new guide is still 11.9% higher, calculated from the two figures. The fourth quarter is guided to be the most expensive of the year, at about $1,900 an ounce.

The reason lies in how Newmont measures cost. Its headline figure is a by-product measure: revenue from the copper, silver, lead and zinc dug out alongside the gold is subtracted from costs, so strong prices for those metals make gold look cheaper to produce. The company also reports a co-product measure, which shares costs among the metals instead. The gap between the two, the credits less the costs the co-product measure assigns to those metals, was $509 an ounce in the September 2026 quarter against $263 a year earlier, calculated from the reported figures.

Newmont sold its copper last quarter well above the price its cost guidance assumes, and the company credits the better outlook largely to cost discipline and to co-product prices above those assumptions. Those credits are now shrinking. Silver output at Peñasquito is expected to fall in the fourth quarter to about half of the third quarter's volume. For next year the company says unit costs will trend higher, pointing to inflation above the assumption built into this year's guidance, dearer diesel, the Australian dollar, royalties that rise with the gold price and lower silver, lead and zinc output at Peñasquito. Brian Tabolt, the chief financial officer, said: "Based on current conditions, we anticipate unit cost to trend higher next year, reflecting macroeconomic headwinds and lower co-product credits".

Unit cost is one claim on the cash; capital is the other. Sustaining capital next year is expected to stay roughly in line with this year, while development capital, the money for new projects, rises by about $500 million as construction ramps up on the Lihir Nearshore Barrier and the Red Chris cave. Lower reclamation spending on water treatment plants at Yanacocha, which are nearing completion, covers part of the rise. Natascha Viljoen, the chief executive, said half of the increase is for Red Chris.

Red Chris is where the larger commitment lies. The company has now put a price on the cave: development capital of $4.2 billion to $4.8 billion in real terms for the whole project, after an expected grant from the Government of Canada and excluding the cost of moving from open-pit to underground mining. Newmont owns 70%; if the partners pay in proportion to ownership, its share comes to roughly $2.9 billion to $3.4 billion, calculated from the range. Construction is to start next year, with commercial production targeted for 2033.

The decision has also moved. In February the company was targeting full-funds approval in the second half of this year; it now expects the decision early next year. It plans to pay for the project from internal cash flow.

That cash is ample, though less of it is spare than the cash flow figure suggests. Newmont ended the quarter with net cash of $3.2 billion, before a $1.95 billion payment to Barrick due in the fourth quarter under the amended Nevada Gold Mines agreement. That leaves about $1.25 billion by our arithmetic, close to the net cash level the company targets.

The company tested the cave's economics at a gold price of $3,600 an ounce, below the price it realised last quarter. That is a cautious assumption, and it shows where the exposure lies: the metal prices that helped lower this year's cost guidance will also decide how easily next year's larger capital bill is paid.