Gold mining giant
Newmont Mining Corporation
) third-quarter 2012 adjusted earnings of 85 cents a share came
in well behind last year's earnings of $1.26 and trailed the
Zacks Consensus Estimate of 90 cents. The adjusted earnings
exclude one-time items including restructuring expenses.
Profit (attributable to Newmont shareholders), as reported,
tumbled roughly 26% year over year to $367 million or 74 cents
per share from $493 million (or 98 cents per share) in the
prior-year quarter. Profit from continuing operation slipped 19%
year over year to $400 million or 81 cents a share. The bottom
line was hurt by the twin impact of lower sales and higher costs.
Newmont, which is the only gold equity in the S&P 500, has
been struggling with increasing mining and non-mining costs. The
Colorado-based company incurred $48 million in restructuring and
other costs in the third quarter.
Newmont's revenues fell nearly 10% year over year to $2,480
million, missing the Zacks Consensus Estimate of $2,528 million.
Sales were hit by a significant decline in production at the
company's Batu Hijau mine in Indonesia.
The company's attributable gold and copper production fell 5% and
38% year over year, respectively, to 1.2 million ounces and 35
million pounds. Attributable gold and copper sales also dropped
4% and 27% from the prior-year quarter, respectively, to 1.2
million ounces and 37 million pounds. Production was hurt by
lower mill availability and recoveries at Boddington and lower
ore tons and grade mined at Tanami in Australia.
Cost applicable to sales (CAS) jumped 11% year over year to $693
per ounce of gold, whereas average realized price of gold fell 2%
to $1,659 per ounce. Copper costs propelled 116% year over year
to $2.38 a pound while average realized price of copper climbed
21% to $3.55 per pound.
Newmont's shares, which are down roughly 14% so far this year,
fell 1.9% in extended trading yesterday.
Gold production at the Nevada mine rose 7% year over year due to
higher mill grade and leach placement. However, lower grade at
Phoenix partly offset the growth. Production at La Herradura
declined 6% as higher leach placement was more than offset by
smelter adjustments. Newmont narrowed the gold production outlook
for the Nevada mine while retaining its production target for La
Gold production at Yanacocha in Peru rose 8% year over year from
the last year driven by higher mill recovery, partly offset by
lower leach placement. Newmont has narrowed its 2012 production
outlook for Yanacocha and now expects to produce 680,000 to
690,000 ounces as against the earlier expectation of 675,000 to
Newmont operates three mines in the Asia-Pacific, namely,
Boddington in Australia, Batu Hijau in Indonesia and Others in
Australia/New Zealand. Gold and copper production from Boddington
rose 1% and 7% year over year, respectively, due to higher mill
At Batu Hijau, both gold and copper production plunged 89% and
54%, respectively, to 7,000 ounces and 19 million pounds due to
lower ore grade. At Others in Australia/New Zealand, gold
production dropped 14%, partly due to lower underground mining
rates at Tanami. Newmont cut the gold production forecast for
both Boddington and Others operations while keeping its target
for Batu Hijau.
Attributable gold production at the company's Ahafo mine in Ghana
dropped 10% from the last year as a result of lower ore grade, in
part, masked by higher mill throughput. Like other mines, Newmont
kept its production forecast for Ahafo.
Newmont had cash and cash equivalents of $1.5 billion as of
September 30, 2012, down 27% year over year. The company's
long-term debt increased roughly 45% year over year to $6.1
Newmont's Board has approved gold price-linked dividend of 35
cents per share for the fourth quarter. The dividend is based on
the average London P.M. Fix for the previous quarter.
Outlook and Recommendation
Newmont noted that its attributable gold and copper production is
now expected to be at the bottom end of its earlier released
production targets of 5 million to 5.1 million ounces and 145
million to 165 million pounds, respectively.
Moreover, Newmont expects its CAS (on a co-product basis) for
gold to be at the top end of its forecast of between $650 and
$675 per ounce. The company raised its CAS target for copper to
between $2.20 and $2.35 per pound from the earlier view of $1.80
and $2.20 per pound factoring in the increased cost production
across Boddington and Batu Hijau.
The company continues to expect attributable capital expenditure
in the range of $2.7 billion to $3 billion this year. Capital
spending for the third quarter was $811 million.
Newmont is one of the world's largest producers of gold with
several active mines in Nevada, Peru, Australia/New Zealand,
Indonesia and Ghana. The company continues to invest in growth
projects in a calculated manner and is ramping up production
capacity. But rising costs and delays in project developments are
significant headwinds that may reduce the company's earnings
Newmont, which competes with the likes of
AngloGold Ashanti Ltd.
Barrick Gold Corporation
), retains a short-term Zacks #3 Rank (Hold). We currently have a
long-term (more than 6 months) Underperform recommendation on the
BARRICK GOLD CP (ABX): Free Stock Analysis
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