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Newmont Mining (NYSE: NEM) has made impressive progress cutting costs during the past year.

For example, during the first quarter, compared to year-ago figures, Newmont’s all-in sustaining cost of production per gold ounce dropped 8%, or around $83 million in savings, around 80% of net income for the period.

Net cash used in investing activities dropped from $507 million reported during the first quarter of 2013 to $178 million for the first quarter of this year.

However, the problem is that while Newmont is benefiting from these cost cuts now, the company is beginning to look like it will suffer from these decisions in the future.

Low spending is not always good
Newmont’s level of capital spending is extremely low by the company’s historical standards. In particular, the company’s capital spending is around a fifth below historical levels.

And it seems as if this low level will impact the company’s future. Some Wall Street analysts are now stating that Newmont’s volumes could fall 10% to 15% by 2020 if the company doesn’t ramp up capital and exploration spending, in order to fill the production gap left by the deterioration of output from certain mines.

Further, it would appear that Newmont’s drive to be free cash flow positive is limiting options, although it must be said that free cash flow is rarely a bad thing.

Needs to spend more
For a company to be free cash flow positive, it has to spend less on capital projects than it generates from operations. According to Morgan Stanley, Newmont requires a gold price of $1,200 or more to be free cash flow positive with its current low levels of capital spending.

Nevertheless, Newmont requires an additional $2 billion to $3 billion in capital spending to bring enough projects online in order to prevent production from declining. So, Newmont needs to increase capital spending, although to do this the company will miss its target to become free cash flow positive.

The company’s debt-to-EBITDA ratio already comes out to 3.5, a relatively high level.

It’s possible that these projects will be abandoned; Newmont has to make some tough choices.

Meanwhile, Newmont’s larger peer, Barrick Gold (NYSE: ABX) has a portfolio of assets under development, despite the company’s drastic cost cutting.

Plenty of gold
Barrick’s most impressive project underdevelopment is the Gold Rush asset in Nevada, which is estimated to contain 10 million ounces of gold. The project is currently undergoing feasibility testing.

Another of Barrick’s sizable development projects is the Turquoise Ridge mine optimization. This project is also located within Nevada and has reserves of 6.7 million ounces. Once again this project is currently undergoing a pre-feasibility study, and if this study proves successful, Barrick will have the opportunity to expand the mine’s production by 75% over the next eight years.

Then there is Barrick’s huge, but now mothballed, Pascua-Lama project on the border of Chile and Argentina. Pascua-Lama is one of the world’s largest gold and silver resources with more than 15 million ounces of proven and probable gold reserves, and 675 million ounces of silver contained within the gold reserves.

The final development of note is the Cerro Casale project, one of the world’s largest undeveloped gold-copper deposits. Cerro Casale has total proven and probable gold and copper mineral reserves of 23 million ounces of gold and 5.8 billion pounds of copper. Although Barrick has reduced its development budget for Cerro, the company has the opportunity to ramp up spending if output starts to fall.

Foolish summary
All in all, it would appear that in its rush to cut costs, Newmont has forgotten to plan for the future. With the company cutting capital spending, project developments have been put on hold, and this could dent future production.

Meanwhile, Barrick Gold has a strong pipeline of world-leading projects under development, and the company should have no trouble sustaining output.

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The article Newmont Mining Isn’t Spending Enough originally appeared on Fool.com.

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