Newmont writes down assets

Low gold prices in the fourth quarter of 1998 forced Newmont Gold (NEM-N) to write down the value of the assets it acquired as a result of merging with Santa Fe Pacific in the previous year.

The company took an after-tax charge of US$424.7 million (or $2.55 per share) during the 3-month period, which resulted in a net loss of US$421.4 million ($2.53 per share). For the year, the loss amounted to US$393.4 million ($2.47 per share), including charges.

Most of the writedown stemmed from assets in Nevada, including part of the value of the Sage and Pinon mills at the Twin Creeks mine, processing facilities at the Lone Tree mine, and Mill No. 5 at Carlin. The book value of some of these assets was revised upward for a Santa Fe transaction in 1993.

Newmont also wrote down US$160 million in stockpile and capitalized mining costs, US$127 million in deferred mine development and mineral rights, part of its investment in the Mesquite mine in California, and various exploration properties.

Excluding charges, the company posted net earnings of US$5.8 million (3 cents per share) for the fourth quarter and US$69.2 million (44 cents per share) for the year.

Newmont became the first company in North America to produce more than 4 million oz. gold in 1998. Cash costs were US$183 per oz., down US$4 from 1997.

U.S. operations were credited with 2.9 million oz., down slightly from the previous year. Cash costs were unchanged at US$207 per oz. However, output fell 22% in the fourth quarter as production was scaled back at higher-cost pits.

Newmont’s share of international production hit 1.1 million oz., up from 952,000 oz. in 1997. The Yanacocha mine in Peru, which achieved full production at a fourth pit and a second processing plant, accounted for much of the increase. Production was up to 1.34 million oz., of which Newmont’s share was 686,000 oz. The company bought a 13% stake in the mine following a favorable ruling in the Peruvian Supreme Court early in the year.

Production at the 80%-held Minahasa mine in Indonesia rose 26% to 261,000 oz. as a result of higher grades.

Meanwhile, construction is nearly 80% complete at the Batu Hijau gold-copper project, also in Indonesia, and the company expects to finish under the US$1.9-billion budget. Startup is expected in the fourth quarter of 1999, and, by 2000, Newmont’s 45% share of production is expected to be 175,000 oz. gold and 270 million lbs. copper.

Closer to home, Newmont reached an agreement-in-principle with Barrick Gold (ABX-T) for an exchange of assets in the northern part of the Carlin trend.

Each company will swap 2 million oz. of reserves and various land rights, thereby consolidating land positions around Barrick’s Goldstrike and Newmont’s North Area and Deep Star operations.

Newmont will receive the following from Barrick:

• its portion of the reserves of the underground Deep Post deposit, amounting to 450,000 oz. (within 820,000 tons averaging 0.55 oz. gold per ton);
• its 40% interest in the High Desert joint venture, which reportedly contains 1.2 million oz. in 2.9 million tons grading 0.42 oz. per ton;
• immediate access to 3.8 million tons of stockpiled low-carbonate ore grading 0.09 oz. per ton, for 350,000 oz.; and
• the land corridor between the Deep Post and Deep Star deposits, and surface rights to lands south of Barrick’s dumps.

For its part, Barrick will receive the following:

• the Goldbug deposit, adjacent to Barrick’s Rodeo deposit, which contains 1.1 million oz. within 2.9 million tons of 0.39 oz. per ton;
• Newmont’s reserves of 860,000 oz. (within 7.4 million tons at 0.12 oz. per ton) in the Betze-Post open-pit; and
• the land corridor separating the Betze-Post and Meikle mines, as well as the Banshee property, north of Meikle.

With the land swap, Newmont intends to accelerate mining from the Deep Post with a decline at the bottom of the Betze-Post pit. The company will begin development this year, more than two years ahead of schedule and at a savings of US$30 million over the cost of sinking a shaft.

Newmont does not expect to gain access to the Leeville, Four Corners and Turf deposits within the Leeville property before 2005. The low-grade stockpile will be processed through Mill No. 5.

Year-end reserves for Newmont remained unchanged at 52.6 million oz., whereas mineralized resources increased to 21.6 million oz. from 18.9 million oz. at the end of 1997.

Newmont calculated the reserves at a long-term price of US$350 per oz. gold. Using a price of US$325 per oz., reserves would decline 6% to 49.5 million oz.; at US$300, they would fall 16% to 44.2 million oz.

The company expects to crank out 4 million oz. in 1999, falling somewhat to 3.8 million oz. in 2000. Cash costs should stay under US$190 per oz., with total costs under US$240 per oz.

While unhedged against the current price, Newmont expects to break even at a gold price as low as US$275 per oz.