Gold mining giant Newmont Mining Corporation’s (NEM) second-quarter 2014 adjusted earnings were 20 cents per share, in contrast to a loss of 18 cents a share recorded a year ago. The results were in line with the Zacks Consensus Estimate.
On a reported basis, the company posted net income from continuing operations of $182 million or 37 cents per share in the quarter versus a loss of $2.1 billion or $4.29 per share a year ago. Higher gold and copper production boosted the bottom line in the reported quarter.
Newmont’s revenues, however, fell around 12.5% year over year to $1,765 million in the quarter and missed the Zacks Consensus Estimate of $1,839 million.
Newmont’s attributable gold and copper productions were 1.22 million ounces and 20,200 tons in the quarter, respectively, up 4.5% and 4.1% year over year, respectively. Improved operations in Australia/New Zealand and Africa led to the higher gold production. Copper production increased due to new production from Phoenix Copper Leach in Nevada.
Gold and copper cost applicable to sales (CAS) were $744 per ounce and $2.53 per pound, respectively, down 16.9% and up 66.7% year over year, respectively. Gold CAS per ounce decreased due to reductions in direct operating costs along with lower stockpile and leach pad inventory adjustments. Copper CAS per pound decreased due to lower stockpile inventory adjustments compared to the prior year quarter.
Gold and copper all-in sustaining costs (AISCs) of $1,063 per ounce and $3.69 per pound, respectively, in the quarter were down 16.9% and 57.7% year over year, respectively.
Regional Performance
North America
Gold production at the Carlin mine increased 3% year over year to 209,000 ounces in the reported quarter due to higher throughput and grade at Mill 6 as well as higher recoveries at Emigrant. Production at La Herradura decreased 15% year over year to 46,000 ounces mainly due to the temporary suspension of an explosives permit.
Gold production at Phoenix decreased 19% year over year to 52,000 ounces owing to lower grades and throughput. At Twin Creeks, gold production declined 19% year over year to 94,000 ounces resulting from lower production following the sale of the Midas mine, and lower grades and volumes at the Twin Creeks Autoclave.
South America
Attributable gold production at Yanacocha in Peru slipped 35% year over year to 190,000 ounces on account of processing of lower grade stockpiled ore and declining grades at Tapado Oeste and Chaquicocha.
Australia/New Zealand
Gold production at the Boddington mine in Australia declined 2% year over year to 168,000 ounces in the reported quarter due to lower ore grade. Copper production at this mine remained flat with the prior-year quarter at 16 million pounds in the second quarter, as higher throughput was mostly offset by lower ore grades.
Production at Tanami increased 53% year over year to 95,000 ounces due to higher grades from the Auron ore body and improved mining rates. At Waihi, gold production increased 64% year over year to 41,000 ounces, resulting from increased mining and throughput. Gold production at Jundee increased 1% year over year due to higher ore grade and throughput, while at KCGM it increased 5%.
Indonesia
At the Batu Hijau mine in Indonesia, attributable gold increased 17% year over year to 15,000 ounces, in the reported quarter, on account of higher grade and higher metal recovery. Attributable copper production decreased 5% to 34 million pounds due to lower throughput related to the ramp down.
Africa
Attributable gold production at Newmont’s Ahafo mine in Ghana declined 10% from the last-year quarter to 125,000 ounces based on lower grades and throughput. The Akyem project’s attributable gold production for the reported quarter was 113,000 ounces.
Financial Position
Newmont had cash and cash equivalents of $1,653 million as of Jun 30, 2014, up 32.5% from $1,248 million as of Jun 30, 2013. The company’s long-term debt decreased roughly 0.8% year over year to $6,673 million. During the quarter, Newmont closed the $575 million five-year, amortizing term loan that was used to repay the $575 million convertible debt issue that matured on Jul 15, 2014.
Indonesia Update
Newmont halted production at its Batu Hijau copper mine in Jun 2014 and has not been able to export for six months due to a dispute with the government. Newmont stated that it is negotiating an agreement to restart exports. The company is working with the Indonesian government to find a fair solution that will allow it to resume normal operations as quickly as possible.
New Development
Newmont announced that it has plans to invest around $1 billion in building a gold mine in Suriname. The Merian gold mine is expected to start production late in 2016, pending receipt of the Right of Exploitation from the government of Suriname. During Merian’s first five years of operation, Newmont expects average annual production between 400,000 and 500,000 attributable ounces of gold at AISC between $750 and $850 per ounce.
Outlook
Newmont increased its expectation for attributable gold production for 2014 to 4.7–5 million ounces from 4.6—4.9 million ounces. The company expects CAS for gold to be $720 to $760 per ounce, down from previous expectations of $740 to $790 per ounce. The company expects total copper production of 90 to 100 thousand tons at CAS of $2.80 to $3.10 per pound and AISC of $3.80 to $4.10 per pound.
For the second half of 2014, Newmont expects PT Newmont Nusa Tenggara (PTNNT) to ship about 58,400 tons of concentrate containing around 14,400 tons of copper and roughly 11,000 ounces of gold from inventory to PT Smelting.
The company has included recent sale of Jundee mine in its outlook for 2015 and 2016 as well as initial production from Merian in late 2016. The guidance also includes the receipt of export permits for Batu Hijau, by Jan 1, 2015. The Batu Hijau mine is in care and maintenance pending receipt of export permits, with PTNNT expected to incur about $20 to $25 million per month in holding costs.
Total consolidated capital expenditure is now forecast to be $1.4 to $1.485 billion, including $200 to $220 million of project capital for Merian, partly offset by lower sustaining capital spending.
Newmont currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the gold mining industry are AngloGold Ashanti Ltd. (AU), Pretium Resources Inc. (PVG) and Sibanye Gold Limited (SBGL), all carrying a Zacks Rank #1 (Strong Buy).
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