Merger costs hurt first quarter for Newmont

Denver — Newmont Mining (NEM-T) posted a loss in the first three months of the year, worsened by non-recurring items related to its recent acquisition of Battle Mountain Gold.

The company posted a net loss of US$39.2 million (or 20 per share), compared with a net loss of US$6.5 million (3 per share) in the first quarter of last year. Non-recurring items included US$43.7 million in merger-related and severance costs and a US$10.1-million mark-to-market gain on call options.

Before the non-recurring items, the company recorded a net operating loss of US$5.5 million, compared with a net operating income of US$10.3 million in the first quarter of 2000.

Newmont produced 1.39 million oz. gold during the quarter at total cash costs of US$172 per oz., up from 1.29 million oz. at US$171 per oz. a year ago. Total production costs were down 4% to US$221 per oz. The company also saw a US$24-per-oz. decrease in the realized gold price, which averaged US$264 per oz.

“As an essentially unhedged producer, we continue to be challenged by historically low gold prices even as our operations perform well,” says Wayne Murdy, Newmont’s president.

The lower gold price resulted in revenues of US$424.1 million, down 6% from a year ago. Cash flow from operations was down to US$18.6 million from US$92.4 million. Nevertheless, the company believes it is off to a good start in 2001.

“We are on schedule for production of 5.4 million oz. for the year and have the potential to beat our previously stated cash-cost-per-ounce forecast of less than US$180 per oz.,” says Murdy.

Since acquiring Battle Mountain in January, Newmont has closed seven exploration offices around the world and reduced its exploration budget by US$20 million to an estimated US$45 million in 2001. It has reduced the workforce by 5% through an early retirement program.

The company continues to adjust capital and operating plans to minimize spending. To save US$6 million this year, it has deferred pre-stripping for the Gold Quarry expansion project near Carlin, Nevada.

Nevada operations benefited from higher average ore grades and better recoveries at the refractory mills to contribute 723,000 oz. gold in the quarter at total cash costs of US$200 per oz.

With the contribution of Battle Mountain’s operations in Canada, North American production grew 7% to 857,000 equity oz. gold. Overseas operations produced 533,000 oz.

The giant Yanacocha operation in northern Peru, where Newmont owns a 51.35% interest, produced 437,400 oz. gold during the first quarter, leading Newmont’s overseas contributions with 224,600 equity oz. Cash operating costs increased significantly to US$109 per oz., due to higher stripping costs and fuel costs.

In Bolivia, the Kori Kollo mine produced 55,900 equity oz. at US$200 per oz. Newmont gained an 88% interest in the open-pit mine from Battle Mountain.

In Indonesia, improved mill performance and enhanced head grades enhanced recovery rates at the Batu Hijau copper-gold operation. Production hit 161.5 million lbs. copper and 125,400 oz. gold during the quarter. Newmont’s share was 90.8 million lbs. copper and 70,500 oz. gold.

Cash costs, after gold credits, fell to US48 per lb. copper. Unfortunately, the average realized copper price also declined to US74 per lb., resulting in an equity loss of US$4.4 million for the company’s stake in the operation.

Newmont will put two new mines, Deep Post and La Quinua, into production this year.

The company mined the first ore from Deep Post (near Carlin) in March, five months ahead of schedule. Newmont expects to ramp up production over the next two years, including 200,000 oz. gold for this year at cash costs of US$150 per oz. At full capacity, Deep Post should produce 380,000 oz. at less than US$150 per oz.

During the first quarter, Newmont spent US$64 million for the La Quinua project, the latest development program at Yanacocha. Startup is due in the fourth quarter. The project should produce 1 million oz. gold per year from heap-leaching. Total cash costs should be US$125 per oz.

Newmont has also begun construction of a leach-pad expansion project at the Zarafshan joint venture in Uzbekistan, which should extend the life of the project to 2013.

In all, the company ended the first three months of the year with cash of US$47.2 million and long-term debt of US$1.2 million. Newmont plans to refinance part of that debt through a new US$250-million public debt issue in May.