Newmont Waihi Gold

Economics 2013Economics 2013

2013

Newmont Waihi Gold General Induction 2

Who are we?

Newmont Mining Corporation

more than 20 locations

5 continents

35,000 staff & contractors

10 countries

Martha Mine – Historic Workings

• 1880s to 1952

• 7 vertical shafts

• 170 km drives

• 600 metres deep

• Open pit approx 250 metres deep

Waihi today

Martha East Layback

Favona

TrioCorrenso

Moonlight

Martha Exploration Project

NWGOffice

2nd June 2011 Strictly Confidential 4

Demand

5

Elastic Demand ?? Maybe the law of demand? Gold is something like a vacation - when the price goes up, less people will want to buy - because the demand is "sensitive" to the price - some of the reasons why a product is “sensitive" is because there are alternatives. - a good example of a product like this is gold.- when gold is relatively cheap, people will buy lots of gold jewellery, when the price of gold goes up, people switch to silver jewellery - the demand curve is shallow because this represents the fact that when the price changes, the number of people that will buy changes a lot

Gold demand changes as price increases . The higher the price the less people consume.

Gold price

•Last Five Years Gold price Graph

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Gold production has been in decline since the early 2000s. One factor is that all the "easy gold" has already been mined; miners now have to dig deeper to access quality gold reserves. The fact that gold is more challenging to access raises additional problems: the miners are exposed to additional hazards, and the environmental impact is heightened. In short, it costs more to get less gold. These add to the costs of gold mine production, resulting in rising gold prices.

Mining companies now explore• residential areas•conservation land,• difficult countries to work in.

What is gold used for?

Who uses Gold?

Gold Mining, The Market and Externalities

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“Any environmental policy that is directed towards the mining industry

has to confront a very intricate trade-off. Mineral production provides

society with a number of important benefits, out of which the market

value of the metals and minerals produced is the most important.

However, it also produces negative impacts on important environmental

amenities (…), whose values are much harder to determine since these

goods are not traded in the market. To what extent is society willing to

give up certain environmental services in the name of mineral

development and vice versa?”

Fostering the Positive Externalities of Mining ... - University of Dundeewww.dundee.ac.uk/cepmlp/journal/html/Vol15/Vol15_16.pdf

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Definitions

Market Failure – A market failure exists whenever the free market equilibrium quantity of output is greater or less than the socially optimal level of output. The free market will produce either too much of a good or too little.

Negative Externality of Production – When the production of a good creates unintended spillover costs for society as a whole that are not born by the producer of that good.

Positive Externalities – When the production of a good creates unintended spillover benefits for society as a whole that are not born by the producer of that good.

Aim: Marginal Private Cost + Tax = Marginal Social Cost

Govt. Intervention – Royalties and Regulations

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Q1 Q Q

P= Benefits/Costs

amenity effect paymentsVibration ReductionNoise reductionDust reductionMonitoringCompliance costs

Increased cost of production reducing gold output

P1

P

AEP-The Amenity Effects programme pays money to people in Waihi impacted by mining activity. Regulations/ConsentsA range of strict consents are in place to reduce effects of externalities.

The graph above shows that without intervention, a greater amount of gold would be produced at a lower cost with the environmental and social effects being burdened on the population NOT the company. When interventions (consent limits and regulations etc.) are imposed, a lesser quantity of gold is produced at a higher cost. (Only high value ore bodies are worthwhile mining where Q1 and P1 intersect.)

Supply = Marginal private costDemand = Marginal benefit

Supply 1 = Marginal Social cost 1

Gold

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Government Intervention in goldmining to internalise and minimise negative externalities

Internalising externalities

Dust – water trucks traveling the haul roads constantly watering down roads etc.Dust suppressants being put onto unrehabilitated areas.Dust monitoring throughout town, recording and reportingConveyor belt housed and water with sprinklers

Noise – Working in the Mine Pit from 7am – 7pm weekdays, ½ a day Saturday and not on Sundays or public holidaysSound reducers on trucks.Conveyor belt completely housed and watered to reduce dust and noisePrimary crusher set down below groundSilent horn systems installed on trucks

Further, if a company wants to prospect, explore, or mine, they may or will need approvals from: the Ministry of Business, Innovation and Employment (MBIE); Landowners, Iwi, Councils; Department of Conservation (for concessions, access to land, and Wildlife Act permits); and Heritage New Zealand Pouhere Taonga. Then there are consents required in relation to health & safety legislation, hazardous substances, buildings and construction, and, in some cases, overseas investment.

http://www.straterra.co.nz/Perspectives#regulatory

Support for mining over time

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Independent poll carried out by Phoenix Research Ltd

Which of these are negative externalities?

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Disadvantages of Mining

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Don't know about the mine

Tailing dams

Pollution

Mine becoming larger

Houses difficult to sell

Eyesore

Safety issues

Vibrations

Damage to the environment

Dust

Noise

None/no disadvantages

Total

Waihi East

Waihi Town (not East)

Waihi Environs

%N = 500 Only disadvantages mentioned by 7% in total, or more, are shown in this graph

Which of these if any are positive externalities?

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Benefits of Mining

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8

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Don't know about the mine

Improved safety

Takes up less land

More life in the town

Mine not visible

Beautification

Good for local business

Services to schools

Company generous with donations

Tourist attraction

More money in community

Provides work opportunities

Total

Waihi East

Waihi Town (not East)

Waihi Environs

N = 500 Only benefits mentioned by 8% in total, or more, are shown in this graph

%

The Macro Economic Effect on a Town. What is a gold mine worth?

• We employ 400 staff and contractors

• Another 400 people indirectly employed

• On average we spend around $190M a year on goods, services, rates, taxes, royalties.

• 32% is spent locally (within 30km of Waihi)

• 29% is spent regionally (Bay of Plenty, Waikato, Coromandel)

• 21% is spent in the rest of NZ

• 18% is spent overseas

• In the last five years: $239m in capital expenditure and $694m in operational expenditure

• 82% of this money is spent in New Zealand

• Since 2006 we have spent $264m on goods and services in and around Waihi, a town of 4,500 people

• Since 1987 more than 2.5 million ounces of gold and 20 million ounces of silver have been produced

Resource Management Act to regulate and minimise negative externalities

Before: evidence required for a RMA application

• Project description (mine design, mining method, geology, etc.)• Metallurgy• Air quality• Vibration• Receiving water quality / ecology• Noise • Geochemistry• Hydrogeology / settlement• Traffic• Economic impact• Property / community investment• Consultation summary….

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During: monitoring of operations and reporting

• Real-time monitoring of vibration• Noise monitoring• Dust / air quality monitoring• Water levels• Water quality – bores around TSF; water in discharge and overflow ponds; water treatment plant quality; upstream and downstream monitoring

• Bio-monitoring• Ground settlement and tilt• Complaints

Reporting on all of the above to District and Regional Councils.

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Resource Management Act to regulate and minimise negative externalities

Resource Management Act to regulate and minimise negative externalities

After: rehabilitation and monitoring, Govt. Intervention

• Progressive environmental rehabilitation

• Economic and social sustainability

• Rehabilitation and capitalisation bonds:– Martha Pit Rehabilitation Bond: $26.2m (two separate bonds - jointly overseen by HDC and WRC).

– Ministry of Energy and Resources Bond: $1.25m– Water rights bond with WRC: $2m– Conservation bond: $0.057m (for DoC land)– Capitalisation bond: $10.4m (formation of Martha trust)

• Martha Trust: responsible for management of sites, rehabilitation, and monitoring in perpetuity.

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14/09/11

Resource Consents

•Community Relations – NWG must appoint a Company Liaison Officer to receive complaints from the community

14/09/11

River monitoring sites

a) OC2

b) OH3/Ac) OH5/Bd) OH1/UPDe) OH6/DPDf) RU1/R2

OC2 - Upstream of site OH3 – u/s of upper discharge OH5 d/s of upper discharge

Ruahorehore confluence OH1 u/s of lower discharge OH6 – d/s of lower discharge

14/09/11

TSF management

•Pond water level monitoring

Bird monitoring

Peak recorded number of birds taking sanctuary on any day = 900

TSF 1A Freeboard clearance

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m

14/09/11

Vibration Monitoring System

•Compliance Requirements– Monitoring specifications comply with the criteria set down in the Hauraki District Plan

– A complete record of each blast is required, including all blast design details

– Any complaints are documented

14/09/11

Dust Monitoring

Ambient air trigger limit = 45 µg/m³ Trigger limits are from the National Air Quality Guidelines and not a compliance limit. The Mining Licence limit = 100 µg/m³)

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EnvironmentWaikato

6:61 Grey St(NWG)

Mining Limit

NWG Trigger

Positive Externalities

•Tourism – From our gold mining venture many groups, individuals, couples and families arrive to look into our Mine and watch our operation. This has an impact on our town in relation to tourism and spending in our township.

• Riparian planting -–In line with consents to ensure that river quality of our local river the Ohinemuri River was in the best possible health, the mining company planted over 200,00 native trees and shrubs along the river embankment. This has helped improve the water quality of the river. The Ohinemuri river was chosen as one of the World Fly Fishing competition rivers in 2008 and is well used by anglers today. •www.marthamine.co.nz/environment/biodiversity-projects/bridge-to-bridge/ www.nzfishing.com/FishingWaters/AucklandWaikato/AWFishingWaters/AWOhinemuri.htm

•NZ Dotterels•have been found breeding on our waste rock embankments which are small hills we have built out of all of the waste rock from our mine pit. This is the first inland breeding area for Dotterels in the North Island. We came across this in 1997. They are a threatened species with around 1600 left in NZ•www.marthamine.co.nz/environment/biodiversity-projects/the-nz-dotterel/

•Walk ways around black hill have been created which are used by the public

•Manuka plantings are well used by beekeepers, orchards benefiting from this also

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Negative Externalities

Negative externalities

•Dust – during mining operations dust may affect air quality and may land on housing and cars costing residents time to clean these.

•Noise – noise pollution can occur with our mine pit being in the middle of town.

•Vibration – residents of our town at times are affected by vibrations which can cost them sleep hours, especially day shift workers.

•Mine Pit – some residents see the Open Cast mine as an eye sore

•Waste Rock Embankments – people living next to the waste rock embankments have a changed landscape and may not get the same amount of sun on their grass reducing milk production.

•Housing – Some people believe that the gold mining operation reduces the value of their house in Waihi.

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14/09/11

Rehabilitation Plans for the Future

•Martha Pit filled to create recreational lake and park

– Estimate 27 years to fill with rain and natural groundwater inflows

– Est. 6-7 years to fill if supplemented by Ohinemuri River flood flows

Tailings Storage FacilitiesWetlands and native plantingsGrazing