Newmont seeks growth

Vancouver — Newmont Mining (NEM-N) will spend up to US$230 million this year exploring and developing core gold projects, chiefly in Nevada, Ghana and Peru. Most of the programs are ahead of schedule, and if the accelerated pace continues, the major could have a much fatter portfolio of assets in as little as five years.

Newmont currently operates mines in North and South America, Australia, New Zealand, Central Asia and Indonesia, including some near or at the end of their productive lives. Collectively these mines produced 1.9 million oz. in the first quarter of 2005, down from 2.2 million oz. a year earlier. Equity gold sales (excluding production from the Golden Grove polymetallic mine in Australia) amounted to 1.5 million oz., down from 1.8 million oz.

Lower production and increased energy and labour costs clipped earnings and drove up production costs in the recent 3-month period. The total cash cost per equity ounce was US$257, compared with US$230 a year earlier, while total production costs climbed to US$325 from US$297 per oz.

Revenues and net income fell to US$961 million and US$84 million, respectively, from US$1.1 billion and US$87 million. The net earnings included gains of US$39 million from the sale of the Mezcala property, in Mexico, and changes in Australia’s tax laws, offset by almost US$10 million in legal and remediation expenses.

North America will remain Newmont’s production cornerstone for decades to come, with Nevada alone accounting for 37%, or 33.7 million oz., of total reserves. But along with most producers in the state, the company is feeling the squeeze of higher energy, labour, equipment, and even environmental costs.

Between the first quarters of 2004 and 2005, consolidated North American gold sales slipped from 742,000 to 665,000 oz., while cash costs rose from US$288 to US$313 per oz. The bulk of the production was from Nevada, with the remainder from the nearly exhausted Golden Giant mine in Ontario (15,000 oz.), the Holloway mine in Ontario, and La Herradura in Mexico.

With the Kori Kollo mine in Bolivia now closed, Newmont’s sole operation in South America is the Yanacocha mine in Peru. Equity gold sales in the first quarter were 403,000 oz.; the total cash cost, US$136 per oz.

Production in Australia and New Zealand slipped to 440,000 oz., compared with 544,000 oz. in the first quarter of last year, while total cash costs rose to US$297 from US$251 per oz.

In Uzbekistan, the Zarafshan mine contributed 34,000 oz., down from 62,000 oz. in the first quarter of 2004.

In Indonesia, equity copper sales from the Batu Hijau mine were 53 million lbs., down from 74 million lbs. a year earlier. Equity gold sales fell to 40,000 from 56,000 oz. a year earlier. Total cash costs for copper and gold rose 45% and 66%, respectively.

On the development front, Newmont is building two gold mines near its core operations in Nevada’s Carlin trend. The Leeville underground mine is on schedule for production late this year, and the Phoenix project should start up early in 2006. Combined, the mines are expected to produce 900,000 oz. gold annually (plus 21 million lbs. copper from Phoenix).

Newmont is awaiting permits and approvals to build a 200-MW, coal-fired power plant that could reduce production costs by up to US$20 per oz.

Africa will become Newmont’s next core mining district once production begins at the Ahafo and Akyem gold projects in Ghana. Collectively, they would contribute about 900,000 equity ounces annually. Construction is about 30% complete at Ahafo, with startup slated for later this year. With an updated feasibility study in hand, Newmont plans to make a development decision for Akyem this summer.

Indonesia’s reputation is in decline, and not just because the Minahasa gold mine in North Sulawesi has ceased operations. Newmont is still struggling to free six company executives who were arrested and jailed last autumn for alleged environmental violations at Minahasa. Local police threw five of the six men in jail for more than a month. Although later released, they are still forbidden to leave the country.

Newmont says it will “aggressively defend” its employees despite a “legally flawed” Supreme Court ruling that overturned a lower court decision which found the men had been denied due process of law.

Meanwhile, numerous international studies and a study by the Indonesian environmental ministry have all concluded that the mine did not harm the environment or the people living in the region.

Furthermore, the Indonesian doctor who accused Newmont of environmental negligence leading to alleged health problems among villagers (such as tumors and skin diseases) has since confessed that her findings were premature and not based on proper medical procedures.

Newmont is seeking to have the charges against its executives dropped on the grounds that the local police and villagers were misled by various parties, including the aforementioned doctor and a lawyer involved in a US$543-million lawsuit against the company.

This lawsuit was dropped after Newmont sued the doctor and lawyer for defamation. The defamation case was dropped after both parties conceded that they had no scientific or medical evidence to back their claims.

— The author is a former editor of The Northern Miner and currently works as a business reporter and script writer based in Vancouver.