Zacks Investment Research

Gold mining giant Newmont Mining Corporation’s (NEM) fourth-quarter 2012 adjusted earnings of $1.11 cents a share dropped 2.6% from last year’s earnings of $1.14 but exceeded the Zacks Consensus Estimate of 98 cents.

On a reported basis, the company posted a profit of $673 million in the quarter versus a loss of $1,028 million a year ago. The year-ago quarter’s bottom line was hit by a sizable impairment charge.

For full-year 2012, adjusted earnings came in at $3.71 per share, down from $4.31 per share in 2011 but ahead of the Zacks Consensus Estimate of $3.58.

Profit for the full year (attributable to Newmont shareholders), as reported, jumped nearly five-fold year over year to $1,809 million or $3.63 per share from $366 million or 73 cents per share in the prior year. Profit from continuing operation soared almost four-fold year over year to $1,885 million or $3.78 a share in 2012.

Newmont’s revenues in the quarter fell nearly 10.5% year over year to $2,476 million, missing the Zacks Consensus Estimate of $2,643 million. Sales were affected by lower production from Asia Pacific due to continued Phase 6 waste mining at Batu Hijau.

For the full year, sales were $9,868 million, down 4.7% year over year, missing the Zacks Consensus Estimate of $10,229 million.

The company’s attributable gold and copper production was 1.3 million ounces and 35 million pounds, respectively, in the quarter. Gold and copper Cost applicable to sales (CAS) was $720 per ounce and $2.61 per pound, respectively. All-in sustaining cost was $1,192 per ounce.

Regional Performance

North America

Gold production at the Nevada mine declined 8% year over year to 478,000 ounces in the reported quarter due to lower tons and grades from Leeville. Production at La Herradura decreased 14% to 48,000 ounces due to the timing of leach recoveries, a refinery adjustment, and lower grade ore.

South America

Gold production at Yanacocha in Peru plunged 30% year over year to 121, 000 ounces on account of lower mill grade and lower leach placement earlier in the year. Gold production at La Zanja was 13,000 ounces, a decline of 13.3% year over year.

Asia Pacific

Newmont operates three mines in the Asia-Pacific, namely, Boddington in Australia, Batu Hijau in Indonesia and Others in Australia/New Zealand. Gold and copper production from Boddington increased 7% and decreased 10% year over year, respectively, due to higher gold grade and lower copper recovery, respectively.

At Batu Hijau, both gold and copper production plunged 56% and 33%, respectively, to 7,000 ounces and 16 million pounds due to lower ore grade and recovery as a result of processing lower grade stockpiled material. At Others in Australia/New Zealand, gold production increased 7%, partly due to higher throughput at Jundee, higher grade at Waihi and higher throughput and grade at Tanami.

Newmont will split the Asia Pacific region into two regions in 2013, namely, Australia/New Zealand and Indonesia.  The Australia/New Zealand region will include Boddington and Other Australia/New Zealand while the Indonesia region will include Batu Hijau.

Africa

Attributable gold production at the company’s Ahafo mine in Ghana jumped 40% from last year as a result of drawdown on in-process inventory, higher grade and recovery.

Financial Position

Newmont had cash and cash equivalents of $1.56 billion as of Dec 31, 2012, versus $1.76 billion as of Dec 31, 2011. The company’s long-term debt increased roughly 74% year over year to $6.29 billion. Consolidated capital expenditures in 2012 were $3.2 billion, up from $3 billion in 2011.

Dividend

Newmont has increased its quarterly dividend by 21% to 42.5 cents per common share for the first quarter of 2013. The company's dividend is linked to the bullion price.

Outlook

Newmont expects gold production to be roughly 4.8 million to 5.1 million in 2013. Copper production is anticipated to be in the range of 150 million to 170 million pounds. The company expects lower production at Batu Hijau and Yanacocha. The company also expects Akyem to start production in late 2013.

CAS for gold has been forecast in the range of $675 and $750 per ounce due to lower production at Batu Hijau and Yanacocha combined with higher expected costs for energy, labor and contracted services. All-in sustaining cost is expected to be between $1,100 and $1,200 per ounce.

CAS for copper is expected to be between $2.25 and $2.50 per pound due to lower production at Batu Hijau.

Newmont expects gold production in North America to be in the range of roughly 2 to 2.1 million ounces at CAS of around $600 to $650 per ounce.

Newmont forecasts South America to produce 550,000-600,000 ounces at CAS of roughly $600 to $650 per ounce. It expects Australia/New Zealand to produce 1,625,000-1,725,000 ounces at CAS of around $900 to $1,000 per ounce.

Newmont expects 2013 attributable gold production for its African operations to be about 625,000 to 675,000 ounces due to new production from Akyem in late 2013 at CAS of roughly $525 to $575 per ounce.

The company expects to invest roughly $2.1 billion to $2.3 billion in attributable capital expenditures in 2013.

Newmont is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand, Indonesia and Ghana. The company continues to invest in growth projects in a calculated manner and is ramping up production capacity. But rising costs and delays in project developments are significant headwinds that may reduce the company’s earnings power.

Currently, Newmont retains a Zacks Rank #3 (Hold).
Other companies in the gold mining industry having favorable Zacks Rank are AngloGold Ashanti Ltd. (AU), Banro Corporation (BAA) and Sandstorm Gold Ltd. (SAND). All of them carry a Zacks Rank #2 (Buy).
 


 
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