Newmont Mining Corporation
) second quarter-2012 adjusted earnings of 59 cents a share came in
significantly behind last year's earnings of 90 cents, and missed
the Zacks Consensus Estimate of 94 cents by a huge margin.
Reported profit plunged a staggering 47% to $279 million, or 56
cents per share, in the quarter, from $523 million (or $1.06 per
share) in the prior-year quarter.
Revenues went down 6% year over year to $2.2 billion and trailed
the Zacks Consensus Estimate of $2.4 billion. The company's below
par performance in the second quarter did not go down well with the
investors and the stock lost almost 4% in extended trading.
Newmont's attributable gold and copper production declined 3%
and 10%, respectively, from last year to 1.18 million ounces and 38
million pounds. On a year-over-year basis, attributable gold and
copper sales also dropped 6% and 35%, respectively, to 1.14 million
ounces and 29 million pounds.
Moreover, cost applicable to sales (CAS) went up 17% from last
year to $681 per ounce of gold, whereas average realized price of
gold improved only 6% to $1,598 per ounce. In addition, copper
costs shot up 75% year over year and this was further compounded by
a 25% fall in average realized price of copper.
The company, which is the only gold equity in the S&P 500,
has had a challenging year so far. The stock is down roughly 23%
this year as against an 8.14% gain recorded by the S&P 500. It
has struggled with various bottlenecks at its mines, such as
protests in Peru and declining grades.
Gold production at Newmont's Nevada and La Herradura mines
increased 6% and 11%, respectively, due to higher mill throughput
and higher leach placement. However, lower grade at Midas and
Phoenix in Nevada partially offset growth.
CAS per ounce jumped 13% at Nevada as a result of higher
underground mining costs, higher royalties and lower by-product
credits. Also, La Herradura saw CAS per ounce increase 11% year
over year due to higher waste tons mined, higher diesel and higher
employee profit sharing costs. Newmont has lowered the gold
production outlook for both the mines this year.
Gold production at Yanacocha in Peru increased 14% from last year
driven by higher mill grade and recovery, but partially offset by
lower leach placement. CAS per ounce declined 14% year over year as
a result of the production jump and lower mining costs. However,
higher workers' participation costs and lower by-product credits
kept costs from declining further.
Newmont has lowered its 2012 production outlook in South America
as well. The company expects to produce 675,000 to 700,000 ounces
at Yanacocha as against the earlier expectation of 690,000 to
Newmont operates three mines in the Asia-Pacific, namely,
Boddington in Australia, Batu Hijau in Indonesia and Others in
Australia/New Zealand. Boddington produced 180,000 ounces of gold
and 18 million pounds of copper. Gold production was down 10% from
last year due to lower mill grade and recovery but CAS per ounce
jumped 48%, driven by lower gold production and higher milling
At Batu Hijau, both gold and copper production fell 68% and 25%
to 8,000 ounces and 20 million pounds, respectively. CAS per ounce
of gold and per pound of copper bounced 92% and 79%, respectively.
At Others in Australia/New Zealand, gold production dropped 15%
year over year to 207,000 ounces while CAS per ounce jumped
The mines suffered from lower grades, higher costsand a stronger
Australian dollar. Newmont has cut the production forecast for all
three mines in the Asia-Pacific.
Attributable gold production at the company's Ahafo mine in Ghana
dropped 10% from last year to 132,000 ounces as a result of lower
mill throughput and grade. In addition, CAS per ounce jumped 31%
year over year, driven by lower production and higher labor, diesel
and mine maintenance costs. Like other mines, Newmont lowered its
production forecast in this region as well.
Newmont had cash and cash equivalents of $1.9 billion as of June
30, 2012, slightly higher than the $1.85 billion it had as of June
30, 2011. However, the company's long-term debt increased
significantly to $6.1 billion as of June 30, 2012 from $3.8 billion
as of June 30, 2011.
Consolidated capital expenditure in the second quarter came in
at $882 million, up from $618 million last year. Newmont has
lowered its capital expenditure forecast for 2012 on the account of
delays in developing the Conga project in Peru. It now expects to
incur attributable capital expenditure in the range of $2.7 to $3
billion this year, down from the earlier projection of $3 to $3.3
Newmont's Board approved third-quarter 2012 gold price-linked
dividend of 35 cents per share. The dividend is based on the
average London P.M. Fix of $1,609 per ounce for the second quarter
of 2012, an increase of 17% over the dividend paid in the second
quarter of 2011.
Newmont has cut its attributable gold and copper production
forecasts for the year. Gold production is expected to be between 5
to 5.1 million ounces, as against 5 to 5.2 million ounces expected
earlier. The drop in production outlook is a result of lower tons
mined at Tanami.
However, Newmont maintained the forecast for the costs
applicable to sales. Costs applicable to sales on a co-product
basis are expected to be between $625 and $675 per ounce for
gold. Costs applicable to copper sales on a co-product basis
are expected to be between $1.80 and $2.20 per pound of copper.
Based in Colorado, Newmont is one of the world's largest
producers of gold with several active mines in Nevada, Peru,
Australia/New Zealand, Indonesia and Ghana. It competes with the
AngloGold Ashanti Ltd.
Barrick Gold Corporation
Gold Fields Ltd.
Newmont is well-positioned to gain from the rising price of
gold. But the company's direct mining costs are increasing due to
declining grades, increased royalties and other costs.
We currently have a long-term (more than 6 months) Neutral
recommendation on Newmont. The stock retains a Zacks #3 Rank,
indicating a short-term (1 to 3 months) Hold rating.
BARRICK GOLD CP (ABX): Free Stock Analysis
ANGLOGOLD LTD (AU): Free Stock Analysis Report
GOLD FIELDS-ADR (GFI): Free Stock Analysis
NEWMONT MINING (NEM): Free Stock Analysis
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