GFI Gold Fields Ltd

Newmont Mining Corporation (NEM) posted adjusted net earnings of $1.15 per share in the first quarter of 2012, up from the year-ago profit of $1.02 per share. The results edged past the Zacks Consensus Estimate of $1.14 and the company saw its stock record marginal gains in after-hours trading yesterday.

Profit from continuing operations, as reported, rose 9% year over year to $561 million (or $1.11 a share) from $514 million (or $1.03 a share) a year ago.

Total revenues leapt 9% year over year to $2.68 billion and trumped the Zacks Consensus Estimate of $2.63 billion.

Newmont reported attributable gold and copper production of 1.3 million ounces and 35 million pounds in the quarter, a fall of 2% and 35%, respectively, from last year. Costs applicable to sales (CAS) were $620 per ounce of gold and $1.98 per pound of copper, up 11% and 78%, respectively, from the first quarter of 2011. 

Regional Sales

North America

Nevada gold production came in at 435,000 ounces, flat year over year, due to higher grade ore mined after the resumption of mining at Gold Quarry, offset by lower underground ore grade mined at Leeville and Midas. CAS was $617 per ounce, down from the prior-year quarter of $643 per ounce, as inventory build in 2012 more than made up for higher underground mining and milling costs.

La Herradura gold production in the quarter was 54,000 ounces, up 10% year over year, due to higher leach placement at Soledad-Dipolos and beginning of production at the Noche Buena pit. CAS was $581 per ounce during the first quarter and increased 49% from last year due to higher employee profit sharing costs and commencement of production at Noche Buena.

South America

Yanacocha gold production was 188,000 ounces in the quarter, up 27% from the first quarter of 2011 due to higher mill throughput, recovery and grade, which were offset to some extent by lower leach production from La Quinua, Carachugo and Yanacocha. CAS per ounce went down 21% to $458 per ounce due to higher production, partially offset by higher costs and lower by-product credits.

The company continues to expect 2012 attributable gold production at South America of approximately 690,000 to 750,000 ounces.

Asia-Pacific

Boddington gold production was 162,000 ounces in the reported quarter, flat year over year.  Copper production also remained consistent over the prior-year quarter at 14 million pounds. A 17% increase in throughput was offset by 15% lower grade and 2% lower recovery, resulting in the mine’s flat performance.

CAS per ounce of gold increased 31% to $782 per ounce and per pound of copper decreased 11% to $1.94 per pound. The gold cost increase was driven by higher mining cost and milling cost, a higher proportion of costs allocated to gold, and a stronger Australian dollar. Copper costs decreased due to lower costs allocated to copper.

Batu Hijau gold production was 11,000 ounces in the quarter and copper production was 21 million pounds, substantially decreasing from the previous year's quarter due to lower mill throughput, grade and recovery as a result of processing lower grade stockpiled ore due to continuation of Phase 6 stripping.

CAS increased 184% per ounce to $913 per ounce for gold and 108% per pound to $2 per pound due to lower production and higher costs.

Other Australia/New Zealand gold production was 265,000 ounces, 11% lower than the year-ago quarter due to a planned mill closure at Waihi, mill maintenance at Kalgoorlie and an in-process inventory build-up at Jundee and Kalgoorlie, partially offset by higher grade at Tanami. CAS was $757 per ounce, up 35% year over year due to lower production, a stronger Australian dollar, lower by-product credits and higher costs.

Africa

During the first quarter, gold production at Ahafo in Ghana was 175,000 ounces, a decrease of 6% year over year due to lower mill throughput and grade, partially offset by decreased in-process inventory and higher recovery. CAS per ounce increased 26% to $568 per ounce due to lower production and higher costs.  

Financial Position

In the quarter, consolidated capital expenditures were $720 million versus $445 million in the prior-year quarter. Operating cash flow from continuing operations was $613 million in the first quarter, down 38% from last year. Cash and cash equivalents were $2.6 billion as of March 31, 2012, versus $4.5 billion as of March 31, 2011.

Newmont's board of directors approved second-quarter 2012 gold price-linked dividend of 35 cents per share based on the company's average realized gold price of $1,684 per ounce for the first quarter of 2012, an increase of 75% over the  20 cents dividend paid in the second quarter of 2011.

Outlook

For fiscal 2012, the company maintained its erstwhile guidance of attributable gold production of approximately 5 million to 5.2 million ounces, with attributable copper production of 150 to 170 million pounds.

Costs applicable to sales on a co-product basis are expected to be between $625 and $675 per ounce for gold.  Costs applicable to copper sales on a co-product basis are expected to be between $1.80 and $2.20 per pound of copper.

The company also maintained its plan to spend $3 to $3.3 billion in attributable capital expenditures in 2012, or $4 to $4.3 billion on a consolidated basis. Approximately 60% of consolidated capital expenditures for the rest of the year are expected to be related to major project initiatives, under the assumption that development of the Conga project in Peru proceeds as expected, while the remaining 40% is expected to be for growth and sustaining capital.

Our Take

Demand for gold is improving. Investment is rising due to escalating demand for gold exchange-traded funds (ETFs). Demand for gold is expected to remain high due to global instability and U.S. trade/budget deficits. Being an entirely un-hedged gold producer, Newmont reaps immediate benefits from these trends.

However, Newmont’s direct mining costs are increasing due to declining grades, increased royalties, equipment maintenance, waste removal, pit dewatering, and labor and fuel costs.

Based in Colorado, Newmont Mining Corporation is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand, Indonesia and Ghana. It competes with the likes of AngloGold Ashanti Ltd. (AU), Barrick Gold Corporation (ABX) and Gold Fields Ltd. (GFI).

Newmont is the only gold company included in the S&P 500 Index and Fortune 500. It was the first gold company included in the Dow Jones’ world Sustainability Index.

We currently have a long-term Neutral recommendation on Newmont. The stock retains a Zacks #3 Rank, indicating a short-term Hold rating.

 
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