Newmont Mining's Yanacocha mine in Peru
Newmont Mining Corp., reported a big jump in quarterly profit Wednesday, driven by record high prices for gold, but the results fell short of Wall Street estimates as the company cut the production target for its flagship Australian gold mine.
The world's second-largest gold miner increased its quarterly dividend and maintained its full-year production target, despite higher-than-expected costs and lower ore grades at the Boddington mine in Western Australia.
Newmont lowered its 2010 production estimate for Boddington to between 750,000 and 825,000 ounces of gold at costs applicable to sales of $475 (U.S.) to $550 per ounce. Previously, it had expected 800,000 to 875,000 ounces at costs applicable to sales of $375 to $395 per ounce from the Australian mine.
"We encountered approximately 12 per cent lower-than-modelled contained gold thus far, offset by 23 per cent more contained copper," Brian Hill, vice-president for operations, told Wall Street analysts on a conference call.
He noted a stronger Australian dollar accounted for about 25 per cent of the expected increase in operating costs, with increased mining costs accounting for some 50 per cent and lower volume and other factors the rest.
Hill said production in South America decreased 32 per cent in the second quarter, due to lower ore grade and recovery.
"Costs applicable to sales were $389 per ounce, up 20 per cent from 2009, due to lower production, higher waste mining and higher maintenance costs, production taxes and royalties as a result of the higher gold price," he said.
But he said Newmont anticipated Yanacocha, in Peru, would have a strong second half.
Despite falling short of estimates, Newmont's second quarter "was in line from an operating standpoint," said analyst Tanya Jakusconek of Canada's National Bank Financial.
Lower realized prices for copper - which Newmont produces as a byproduct at some gold mines - accounted for the reported earnings falling short of Wall Street expectations, she said in a research note.
Newmont said that, during the quarter, it produced 1.3 million equity ounces of gold and 80 million equity pounds of copper at an average realized gold price of $1,200 per ounce and $2.33 per pound for copper.
Equity production is the amount accruing to Newmont in mines it jointly operates with other companies.
Ms. Jakusconek said the average spot price for copper in the quarter was $3.18 per pound. The price of gold reached an all-time high of $1,264 per ounce on June 21.
"On the positive front, Newmont announced an increase in its dividend," she wrote.
Denver-based Newmont said net earnings rose to $382-million, or 78 cents per share, from $162-million, or 33 cents per share, a year earlier.
Excluding asset sales and impairment of assets, earnings were 77 cents per share, below the analysts' average estimate of 84 cents, according to Thomson Reuters I/B/E/S.
Sales rose about 34 per cent to $2.15-billion from $1.6-billion, but missed Wall Street's expectation of $2.2-billion.
The board of Newmont, which operates mines in Nevada, Indonesia, Australia and Africa, increased its quarterly dividend to 15 cents per share from 10 cents.
Chief executive officer Richard O'Brien said Newmont still expected 2010 equity gold production of 5.3 million to 5.5 million ounces at a slightly narrower cost range of between $460 and $480 per ounce.