Newmont’s Revenues Fall Due To Lower Realized Gold And Copper Prices
Newmont Mining (NYSE:NEM) reported its fourth quarter earnings on February 20 and held the earnings conference call on February 21. It reported a net loss of $1,248 million against a profit of $697 million in Q4 2012. Adjusted net profit for the quarter, excluding one-time items, stood at $167 million. The comparable period figure last year was $552 million. As expected, revenues declined by 12% to $2.17 billion from $2.48 billion in Q4 2012. Lower prices of gold and copper were primarily responsible for the lower revenues, which could not be offset by even higher production. Average realized gold and copper price stood at $1,267 per ounce and $2.99 per pound, compared with $1,703 per ounce and $3.22 per pound respectively in Q4 2012. Profits fell much more steeply than revenues due to one-time gains as well as lower costs and expenses. Costs and expenses declined by $131 million compared to last year. [1]
Input and labor costs in the mining industry have been rising rapidly over the last few years, and hence, the cost of getting metals and minerals out of the ground has shot up. This figure stood at $744/ounce of gold and $3.81/pound of copper, up from $726/ounce of gold and $2.52/pound of copper from Q4 2012.
We have a Trefis price estimate for Newmont Mining of $24 which we will revise shortly in view of the recent results.
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In addition to the CAS figure, Newmont also reports an all-in sustaining cash cost measure for gold that includes cost applicable to sales, copper credits, G&A, exploration expense, advanced projects expense, R&D expense, other miscellaneous expenses, and sustaining capital expenditure. This helps investors better gauge the company’s performance. In the fourth quarter, Newmont reported an all-in sustaining cash cost of $1,032/ounce of gold, down from $1,198/ounce in Q4 2012.
Performance Of Some Major Mines
Attributable gold production in Nevada was reported at 535,000 ounces with a CAS of $691/ounce during the fourth quarter. The production increased by 12% from the prior year quarter due to higher tonnes and grade at Mill 6, higher grade at the Juniper mill and higher grades at Phoenix, as well as higher leach production at Carlin North Area and Emigrant. CAS per ounce increased 19% from Q4 2012 mainly due to an impairment of stockpiles and leach pads, as a result of lower gold prices and lower by-product credits. This was partially offset by lower royalties paid due to lower metal prices and higher inventory builds.
Attributable gold production at Yanacocha in Peru stood at 95,000 ounces with a CAS of $833/ounce. Gold production declined by 21% from Q4 2012 levels due to planned lower gold production from the leach pads due to lower grades. CAS increased by 35% from the prior year quarter due to higher direct mining costs, leach pad write-downs and lower production.
Attributable gold and copper production at Batu Hijau in Indonesia was 6,000 ounces and 22 million pounds, respectively, at CAS figures of $1,946/ounce of gold and $4.36 per pound of copper. Gold production declined due to the processing of lower grade ore. CAS decreased by 51%/ounce of gold and 57%/pound of copper due to stockpile writedowns. ((Newmont Achieves 2013 Production Target; Provides 2014 Outlook, Newmont Press Release))
The Road Ahead
Newmont’s management offered some comments on the situation in Indonesia. It said that the Gresik smelter has begun operations after a maintenance shutdown, so the company will send about 50% of its copper production at Batu Hijau here. In case the talks with Indonesian government don’t result in a resolution, Newmont has contingency plans to send up to 90% of its production here. [2]
The company has given a full year production guidance of $4.6-4.9 million ounces of gold and 95-110 million pounds of copper. The Phase 6 stripping campaign at its Batu Hijau mine will be completed in the fourth quarter of 2014 and production of copper will subsequently increase due to higher grades of ore. However, this largely depends on how the situation in Indonesia pans out going forward.
Newmont is planning a capital expenditure of $1.3-1.4 billion in 2014, which will decline by around 30% after that. We interpret this and the company’s statements in the presentation to mean that Newmont will primarily be in consolidation phase for the next few years. The growth projects are more or less over and the Conga project in Peru doesn’t have a realistic chance of going anywhere in this period. [3]
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Notes:- Newmont Q4 2013 8-K, SEC [↩]
- Newmont Mining Q4 2013 Earnings Conference Call, Seeking Alpha [↩]
- Newmont Mining Q4 2013 Earnings Presentation, Newmont Website [↩]