Newmont still firmly in the black

Higher sales volumes and metal prices enabled Newmont Mining (NEM-N) to post its second profitable quarter as the world’s largest gold producer.

Newmont earned US$24 million, or US6 per share, in the three months ended Sept. 30, compared with just under US$19 million, or US10 per share, in the corresponding period of 2001. The shortfall at the per-share level reflects dilution resulting from the takeover of Normandy Mining and Franco-Nevada Mining in mid-February.

Revenue also was up, at about US$728 million versus US$421 million a year earlier, and cash flow more than doubled to US$247 million. The increases reflect a 50% rise in equity sales, to 2.1 million oz., and a 15% increase in average realized prices to US$315 per oz.

For the first nine months of this year, Newmont netted nearly US$86.6 million (US22 per share) on US$1.9 billion, compared with losses of US$57.2 million (29 per share) on US$1.2 billion in the first nine months of 2001. Meanwhile, cash flow has risen to US$445 million from US$223 million.

By year-end, Newmont expects earnings to have settled at around US40 per share, exclusive of mark-to-market adjustments. That is the lower end of its original forecast, though still considered acceptable.

Also, Newmont now expects to generate between US$650 million and US$680 million in cash flow, which, at the lower end, is US$100 million short of a previous prediction. The revision reflects, among other things, the accelerated reduction of the Normandy hedge book.

During the quarter, Newmont delivered 748,000 oz. into the book and bought back 270,000 oz. at a cost of US$13 million. At Sept. 30, the book had been trimmed to 5.8 million oz., and deliveries of least 279,000 committed ounces are scheduled for the remainder of the year.

The mark-to-market value has decreased to negative US$412 million, which is the same valuation given to it on March 31. Still, Newmont says it has restructured the book so that fluctuations in bullion prices and exchange rates no longer have as great an effect as they once did.

Debt

Newmont also repaid US$115 million of debt, reducing its net debt-to-total capitalization to 21%. At the same time, US$145 million in new long-term debt has been created by the adoption of new accounting methods for prepaid forward-sales transactions. The sales are now being treated as loans, so long-term liabilities have been reduced correspondingly by US$137.2 million.

“When you look at our overall objectives for this year, I feel very comfortable with where we stand,” says Chairman Wayne Murdy.

During the quarter, Newmont sliced a buck off its total cash costs, but higher depreciation and amortization charges saw total production costs rise to US$255 per oz. Total cash costs are expected to fall in the current quarter and average out at US$185 per oz. for the year.

The flagship Nevada operations sold 722,000 equity ounces in the recent quarter at a total cash cost of US$225 per oz. This is up from a year ago, and the operations are expected to have sold 2.7 million oz. before the year ends at a total cash cost of US$222 per oz.

The Yanacocha mine, in Peru, had a stellar quarter, sending a record 558,000 tons to the mill every day. That, in turn, translated into a 25% increase in gold sales, to 642,000 oz.

However, total cash costs rose 2.6%, to US$117 per oz., and total production costs climbed 37%, to US$184 per oz. Depreciation and amortization charges are now being recorded for the La Quinua deposit, which was advanced to production a year ago.

By year-end, Yanachocha is expected to have sold 2.3 million oz. at a total cash cost of US$123 per oz. Newmont’s share comes to 1.2 million oz.

Another 1.62 million equity ounces will come from the Australian operations, which sold 475,300 oz. of the yellow metal during the recent quarter. Total cash costs are projected to average US$189 per oz. for the year.

Batu Hijau

In Indonesia, the Batu Hijau copper mine sold 203.5 million lbs. of copper at a net cash cost of US24 per lb. A total of 97,000 oz. of the yellow metal were sold as well, putting total costs at US38 per lb.

Before the year ends, Batu Hijau is expected to have sold between 350 million and 360 million lbs. copper. Cash costs are projected at US36 per lb., exclusive of byproduct credits.

Overall, Newmont expects to have sold 7.5 million equity ounces in 2002 at a total cash cost of US$185 per oz. The forecast for 2003 has been set at between 7 million and 7.2 million equity ounces, with the decrease reflecting the expected departure from a joint venture with mid-tier operator TVX Gold (TVX-T). TVX is pursuing a 3-way merger with Echo Bay Mines (ECO-T) and Kinross Gold (K-T).

Newmont expects to pocket US$180 million from the sale, half in the form of cash and the rest as a one-year note. That would bring non-core sales to US$401 million.

Newmont is also keeping up with its aggressive approach to exploration, having spent more than US$56 million to date. The company has about 100 drills turning at its various properties around the globe, and has narrowed its sights to projects capable of generating at least US$75 million in cash flow or producing more than 750,000 oz. annually.

At Sept. 30, Newmont had US$465.6 million in working capital, including US$292.1 million in cash.