Newmont keeps tight grip on costs; strong second-quarter results

Despite industry-wide challenges of escalating operating and capital costs, Newmont Mining Corp. (NEM-N) says its strong second-quarter results demonstrate that it is managing to keep a tight lid on costs.

Newmont’s adjusted net income rose 123% to US$230 million (51 per share) compared with US$103 million (23 per share) in the same quarter last year.

Net income on a GAAP basis was US$277 million (61 per share) during the second quarter, compared with a net loss of $2.1 billion (-$4.57 per share) in the year ago quarter.

Gold sales reached 1.27 million equity oz. at an average realized gold price of US$900 per oz. and costs applicable to sales of US$440 per oz., up from US$417 per oz. in the second quarter last year.

Looking ahead, Newmont says it expects to keep costs at bay with the help of its new 200-megawatt coal-fired power plant in Nevada, which went into production in May.

Newmont believes it can save about US$70-US$80 million per year in costs applicable to sales from the lower cost of self-generated electricity, compared to purchasing power in the current market. Capital costs for the power plant are expected to be in the range of US$620 million.

Revenues rose 19% from the year-ago quarter to US$1.5 billion at an average realized gold price of $900 per oz., compared with an average realized gold price of US$665 per oz. in the same quarter last year.

Other highlights include Newmont’s Yanacocha gold mill in Peru, which went into production in April, ahead of schedule. Production from the mill contributed about 40,000 oz. to equity gold sales during the second quarter, with mill ramp-up exceeding expectations, according to Newmont.

During the first five years of operation, the design throughput is anticipated to be roughly 5 million tons per year with gold and silver recoveries averaging between 75% and 85% and between 60% and 75%, respectively.

Equity gold production from the mill is currently forecast to average about 200,000 oz. to 250,000 oz. per annum at costs applicable to sales of about US$250 per oz. to US$320 per oz.

The company is sticking to its initial 2008 annual equity gold salesguidance of between 5.1 and 5.4 million oz. gold and its initial costsapplicable to sales guidance of between US$425 per oz. and US$450 per oz.

Costs applicable to sales are expected to change by about $4 per oz. for every $10 change in the oil price and by roughly $3 per oz. for every 0.10 change in the Australian dollar exchange rate during the remainder of the year.

Newmont is currently trading at about US$49.11 per share and has a 52-week trading window of $38.01-$57.55 per share. The company has 437.7 million shares outstanding.