Newmont Mining (
) reported its third quarter earnings on October 31 and held
the earnings conference call on November 1. It reported a
net profit of $408 million against $367 million in Q3 2012.
Adjusted net profit for the quarter, excluding one-time items,
stood at $227 million. The comparable period figure last year was
$426 million. As expected, revenues declined by 20% to $1.98
billion from $2.48 billion in Q3 2012. Lower prices of gold and
copper were primarily responsible for the lower revenues, which
could not be offset by even higher production. Profits rose despite
lower revenues due to one-time gains as well as lower costs and
expenses. Costs and expenses declined by $131 million compared to
Input and labor costs in the mining industry have been rising
rapidly over the last few years and hence the cost of getting
metals and minerals out of the ground has shot up. However, due to
improved efficiency in operations in the third quarter this year,
the Cost Applicable to Sales (
) figure declined for both gold and copper as compared to Q3 2012.
This figure stood at $854/ounce of gold and $2.23/pound of
copper, down from $930/ounce of gold and $2.29/pound of copper from
We have a
Trefis price estimate for Newmont Mining of $22
which represents a 20% downside to the current market price. This
will be revised shortly in view of the recent results.
See our complete analysis for Newmont here
In addition to the CAS figure, Newmont also reports an all-in
sustaining cash cost measure for gold that includes cost applicable
to sales, copper credits, G&A, exploration expense, advanced
projects expense, R&D expense, other miscellaneous expenses,
and sustaining capital expenditure. This helps investors better
gauge the company's performance. In the third quarter, Newmont
reported an all-in sustaining cash cost of $1,068/ounce of
gold, down from $1,248/ounce in Q3 2012.
Performance Of Some Major Mines
Attributable gold production in Nevada was reported at
468,000 ounces with a CAS of $527/ounce during the third
quarter. The production increased by 2% from the prior year
quarter due to higher leach production from Emigrant and Carlin
North Area, as well as higher grade and throughput at Juniper
Mill and Phoenix. Cost declined by 20% from Q3 2012 due
to a higher number of ounces sold, higher by-product credits and
Attributable gold production at Yanacocha
in Peru stood at 132,000 ounces with a CAS
of $591/ounce. Gold production declined by 28% from Q3 2012
levels due to lower leach production as a result of placing lower
grade leach ore from Tapado Oeste. CAS increased by 14% from the
prior year quarter due to higher mining costs related to the
commencement of production at Cerro Negro and El Tapado Oeste as
well as leach pad write-downs at La Quinua, Yanacocha, and Maqui
Attributable gold and copper production at Batu Hijau
in Indonesia was 4,000 ounces and 19 million pounds,
respectively, at CAS figures of $846/ounce of gold
and $2.74 per pound of copper. Gold production declined due to
the processing of lower grade ore, lower recovery, and lower mill
throughput. CAS decreased by 24%/ounce of gold due to lower costs
allocated to gold on a co-product basis, lower operating costs and
royalties. CAS increased by 15%/pound of copper due to higher
costs allocated to copper on a co-product basis.
The Road Ahead
Newmont continues to spend on the development of the Turf Vent
Shaft project. The Turf Vent project will improve ore grades and
facilitate further exploration when it comes on line in 2015.
Newmont also continues to move forward with drilling at Long Canyon
and the first production is targeted by 2017.
In South America, Newmont is going slow in order to build social
acceptance for the project. Accordingly it has reduced its capital
spend on the project.
At Batu Hijau, the problem of low grade ore is expected to
persist for the rest of the year. Newmont is still working
through the Phase 6 stripping campaign and plans to reach higher
grade ore later in 2014. Upon completion of this stripping
phase, it expects gold production to increase by as much as 10
times in 2015 over the 2013 outlook.
Newmont's African production is expected to grow over the
next few years, primarily through the development of Akyem in
Ghana, which began commercial production in the last week of
October. Gold production from here is expected to be 350,000 to
450,000 ounces per year for the first five years.
The company is maintaining its full year production guidance of
$4.8-5.1 million ounces of gold but reduced copper production
expectations to 135-145 million pounds from 150-170 million pounds.
The revision in copper production expectations is due to lower
than expected mill throughput at Boddington and lower than expected
ore grade processed at Batu Hijau.
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