As every mining company knows, closing a mine can be costly, especially one the size of Newmont’s (NYSE:NEM) Yanacocha in Peru.
On Tuesday, the largest U.S. gold company said in a filing with the US Securities and Exchange Commission that it will likely record a non-cash impairment charge of between $1 billion and $1.2 billion in the fourth quarter due to runaway costs associated with closing the mine, which is nearing the end of its life.
Started in 1993, Yanacocha is the largest gold mine in South America, and number 6 on Frank Holmes’ list of top 10 producing gold mines.
In a statement, Newmont said it expects increasing costs to retire the mine in the order of $400 million to $500 million in Q4, based on more costly water treatment, demolition and earthworks expenses. Denver-based Newmont has to submit a closure plan to Peruvian government authorities every five years. The mine is currently 51.3%-owned by Newmont, with the rest owned by Minas Buenaventura of Peru (43.6%) and International Finance Corporation (5%).
Newmont planned to replace Yanacocha production from the nearby Conga copper and gold mine, but years of local opposition including violent protests in 2011, led the company to abandon the $5 billion project earlier this year.
While Newmont acknowledged that local opposition was an important factor in their decision, a company spokesman noted there were many other factors involved.
“At the end of the day, our decision to reclassify Conga’s reserves as resources was a business decision triggered by certain operating and construction permits expiring at the end of 2015, uncertain prospects for future development and permitting and market conditions,” he told MINING.com back in April.