Newmont Mining ( NEM ) 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 last year.
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 ( CAS ) 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 Q3 2012.
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.
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 higher royalties.
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 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.