Vancouver — North America’s largest gold producer has 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.
For the first nine months of 2001, Newmont incurred a loss of US$51 million (26 per share), including one-time charges of US$43.7 million (23 per share), compared with a year-earlier loss of US$56.3 million (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 Chief Executive Officer 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 between the two third quarters rose to US$424.4 million from US$419.4 million. Despite seeing its average realized gold price fall to US$274 from 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. incurred in the year-ago quarter.
Production from worldwide operations increased to 1.55 million oz. from 1.5 million oz., with Newmont’s share rising to 1.39 million oz. from 1.32 million oz. Driving the increase was a 30% rise in production from overseas mines, contributing 625,100 oz. to Newmont at a total cash cost of US$127 per oz. The star performer continues to be Yanacocha in Peru, which recorded a 24% rise in production. The mine remains on target to produce 2 million oz. gold at a cash cost of US$120 per equity ounce.
North American production dropped 12% in the quarter, to 765,200 oz., while total cash costs rose to US$232 per oz. The production shortfall is attributed to lower grades and higher mining costs.
Strengthening Newmont’s bottom line was Batu Hijau in Indonesia. In its second full year of operations, the mine contributed US$16.9 million to Newmont’s coffers in the third quarter, a significant jump from the US$700,000 added in the corresponding period of 2000.
The major sold 199.1 million lbs. copper at a total cash cost of only US29 per lb. (after gold credits), compared with year-earlier sales of 119.4 million lbs. at US60 per lb. Newmont’s share was 112 million lbs., up from 67.2 million lbs. a year ago.
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 with US93 per lb. a year ago. For the first nine months of this year, Batu Hijau contributed US$23.2 million in equity income to Newmont.
The solid performance of Batu Hijau has induced the company to lower its total cash cost of producing a pound of copper US40 for the year. In 2001, the mine is expected to crank out 320-350 million lbs. copper and 260,000 oz. gold.
Strong second-half earnings (before non-cash and merger costs) are expected to offset first-half operating losses. For the year, Newmont expects overall production to top 5.4 million oz. gold at a total cash cost of US$183 per oz.
In the meantime, fourth-quarter figures should benefit from the major’s recent deal to treat ore from
“This type of deal demonstrates our ability to leverage our unrivaled processing flexibility for oxide and refractory ores,” states Murdy.
Placer Dome took a US$292-million writedown on Getchell in the latest quarter and agreed to sell its stockpiled ore. Under the terms of the deal, which runs for 30 months or until 1 million tons of ore are sold, Newmont receives a credit for its processing cost, plus a fee.
Processing is to begin late this quarter. Currently there are 160,000 tons of stockpiled ore, with the prospect of additional tons coming from future mining at Getchell.
Newmont has also agreed to buy the eastern half of the Section 13 property, northwest of the current Twin Creeks pit. Newmont will pay Placer Dome US$1 million, which is due one year after an agreement is signed. 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.
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