Newmont banks on strong second half (October 29, 2001)

Vancouver — North America’s largest gold producer tabled a solid third-quarter profit on the back of improved sales and a strong contribution from its Batu Hijau copper-gold mine in Indonesia.

Newmont Mining (NEM-N) recorded net earnings of US$21.5 million, or 11 per share in the latest quarter ended Sept. 30, compared with a loss of US$36.5 million, or 19 per share in the corresponding period of 2000. For the first nine months of 2001, Newmont reported a net loss of US$51 million, or 26 per share, including one-time charges of US$43.7 million, or 23 per share. In the first nine months of 2000, the company tabled a loss of US$56.3 million, or 29 per share.

“Newmont expects to be profitable for all of 2001 and to generate US$400 million, or US$2 per share, in operating cash flow,” says the company’s CEO, Wayne Murdy. “We are on target to produce 5.4 million equity ounces of gold at only slightly higher total production costs than a year ago.”

Gold sales during the quarter rang in at US$424.4 million, up from the US$419.4 million tabled in the third quarter of 2000. Despite seeing its average realized gold price fall to US$274 per oz., from the year-ago US$280 per oz., the company benefited from expense reductions related to its January merger with Battle Mountain Gold. Total production costs came in at US$241 per oz., a slight decline from the US$239 per oz hit in the third quarter of 2000.

Global operations produced 1.55 million oz. in the quarter, up for the 1.5 million oz. tallied in the third quarter of 2000. Newmont’s share of this output came in at 1.39 million oz., up from 1.32 million oz last year. Driving the increase was a 30% rise in production from its overseas mines, contributing 625,100 oz. to Newmont at total cash cost of US$127 per oz.. The star performer continues to be the Yanacocha mine in Peru, which recorded a 24% rise in production.

North American production dropped 12% in the quarter to 765,200 oz. while total cash cost rose to US$232 per oz. The production shortfall is attributed to lower grades and higher mining costs.

Adding some lift to Newmont’s bottom line was the Batu Hijau copper-gold mine on the island of Sumbawa in Indonesia. In its second full year of operations, the mine contributed US$16.9 million to Newmonts’ coffers in the third quarter, a significant jump from the US$700,000 added in the corresponding period of 2000. Sales rang in at 199.1 million lbs. of copper, at a total cash cost of only US29 per lb. after gold credits. This compares to the 119.4 million lbs. of copper produced in the third quarter of 2000 at a total cash cost of US60 per lb. Newmont’s share of the production tallied 112 million lbs., up from 67.2 million lbs. a year earlier. Higher ore grades, increased recovery rates and higher mill throughput at the mine more than offset a falling copper price, which averaged US67 per lb. during the quarter, compared to US93 per lb in the third quarter of 2000. For the first nine months of the year, Batu Hijau contributed US$23.2 million in equity income to Newmont.

As a result of the good operating performance at Batu Hijau, the company has lowered its total cash costs to produce a lb. of copper for the full year to US40. This year, the mine is expected to crank out 320-to-350 million lbs. of copper and 260,000 oz. of gold.

“We remain focused on sound capital management, investing in only the most deserving projects such as the start up this year of the La Quinua open pit operation at the Yanacocha mine in Peru and the Deep Post underground mine in Nevada, ” adds Murdy. “The first gold produced from La Quinua will occur this quarter.”

Yanacocha remains on target to produce 2 million oz. of gold at a cash cost of US$120 per equity oz.

Strong second-half earnings, before non-cash and merger costs, are slated to offset first-half operating losses. The company expects production to hit 5.4 million oz. of gold at total cash costs of US$183 per oz. this year.

The company also cited its recent deal to treat ore from Placer Dome‘s (PDG-T) Getchell property at its adjacent Twin Creeks mill in Nevada as a benefit for the up coming quarter.

“This type of deal demonstrates our ability to leverage our unrivaled processing flexibility for oxide and refractory ores,” states Murdy. “Just as we did with Barrick Gold on the asset exchange in Carlin two-and-a-half years ago, we are partnering with Placer Dome in a win-win arrangement.”

Placer took a US$292-million write down on the Getchell mine in the latest quarter and agreed to sell its stockpiled ore. Under the terms of the deal, which runs for thirty months or until a maximum of about 1 million tons of ore is sold, Newmont receives a credit for its processing cost, plus a fee. Processing is scheduled to begin late this quarter. Currently there is about 160,000 tons of stockpiled ore with the prospects of additional tons coming from any future mining done at Getchell, subsequent to a positive decision regarding the mine’s future development. Newmont has also agreed to purchase the eastern half of the Section 13 property. Located northwest of the current Twin Creeks pit, Newmont will pay Placer US$1 million, payable one year after signing the agreement. Placer retains a 2% gross royalty on any gold production coming from the ground that exceeds 50,000 oz. Newmont expects to begin mining the property next year.