Despite a lacklustre start,
Newmont lost US$10.9 million (or US4 per share) on US$491.6 million in the first three months of this year, compared with a loss of US$39.1 million (US20 per share) on US$427.5 million in corresponding quarter of 2001. However, the company dismisses the recent period as transitional.
“Due to the acquisitions in mid-February, the first quarter had a lot of accounting-related noise, reflecting approximately half a quarter of consolidation,” says Chief Financial Officer David Hansen. “For this reason, the first quarter is really not an accurate representation of coming quarters.”
Newmont had been embroiled in a bidding war for Normandy with
Newmont has accounted for the acquisitions using the purchase method; thus goodwill of US$2.5 billion appears on the asset side of the company’s balance sheet. The accounting method also prevents the company from consolidating revenue and income prior to the acquisition date.
As part of the takeover, Franco-Nevada has been reorganized under the name Newmont Capital to serve as Newmont’s exploration manager, merchant banker and royalty arm. Pierre Lassonde, former president of Franco-Nevada, heads up the division as part of his overall duties as Newmont’s new president.
Three objectives
According to Lassonde, Newmont Capital has three objectives: dispose of non-core assets, pursue new royalty streams, and replace mined reserves. So far, US$210 million of this year’s planned US$400 million in asset sales has been achieved.
The second goal will be met by parceling off the company’s massive property portfolio to other companies. Newmont is the world’s largest corporate landowner, owning as much land as would cover all of Great Britain.
“We are going to work hand-in-hand [with them], particularly in places where we already have infrastructure, such as Nevada,” Lassonde says.
As for exploration, Lassonde says crews will focus on known gold belts. “I won’t hide the fact that replacing seven and a half million ounces of reserves per year is a challenge,” he says, “but with the kind of land package we have, I think we have a better chance of doing it than anybody else.”
For all of 2002, Newmont expects to earn 40-50 per share and generate some US$750 million in operating cash flow. Current gold prices are assumed, but mark-to-market volatility is not.
Gold sales are projected at 7.5 million oz., with 1.5 million ounces having been sold in the recent quarter. The production is expected to come at a total cash cost of US$180 per oz., which is well below the recent quarter’s average of US$196 per oz.
“Our mine plans in Nevada, Yanacocha [in Peru], and Tanami and Yandal [in Australia] indicate a rising production profile and a corresponding decline in costs,” says Chairman Wayne Murdy. “The first quarter will be the lowest- production and highest-cost quarter for the year.”
The Nevada operations, including Normandy’s Midas mine, are expected to contribute 2.7 million oz. at a total cash cost of US$205-210 per oz. The group contributed 606,100 oz. to the recent quarterly output at a total cash cost of US$239 per oz., or 123,500 oz. less and US$39 per oz. more than a year earlier.
The majority-owned Yanacocha mine remains on target to contribute 2.3 million oz. to Newmont’s 2002 production goal. Total cash costs are projected at US$125-130 per oz.
During the first quarter, the open-pit operation cranked out 483,200 oz., or 4% more than last year. Newmont’s share amounted to 248,100 oz.
Total cash costs averaged US$137 per oz., which is US$31 higher than a year earlier, reflecting the ongoing commissioning of the crushing and agglomeration operations at La Quinua. The mine is expected to achieve steady-state production rates of 132,000 tons daily by July.
Newmont operates and owns a 51.35% stake in Yanacocha, with Peruvian-based
Down Under, Newmont expects to crank out roughly 1.7 million oz. in 2002. Total cash costs are projected at between US$174 and US$178 per oz.
During the quarter, Newmont delivered 250,000 oz. into Normandy’s hedge book, thereby reducing it to 7.3 million oz. Also, the book’s exposure to lease rates was reduced to 55% of committed ounces.
Newmont holds to an anti-hedging philosophy but intends to unwind Normandy’s book in a timely and orderly fashion. The book’s mark-to-market is currently valued at negative US$412 million and is mostly susceptible to fluctuations in foreign exchange rates.
As for debt, Newmont has repaid US$150 million worth of notes and US$171 million owed by Normandy. The major plans to cancel the Normandy credit line and replace it with a US$150-million facility to increase its own revolving credit facility to US$750 million.
On March 31, Newmont had a net-debt-to-total-capitalization ratio of 23% and expects to reduce this to less than 20% by year-end. Current assets rang in at US$1.4 billion and current liabilities at US$985.5 million, giving the major a working capital of US$389 million.
Newmont wants to increase its universal shelf registration to US$1 billion and is awaiting approval from the U.S. Securities and Exchange Commission.
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