DENVER—Newmont Mining Corp. reported a 51 percent drop in third-quarter net income as its chief executive reaffirmed the gold mining giant’s 2008 forecast but said they may rethink some projects and priorities during the financial turmoil.
During a conference call with analysts, President and Chief Executive Officer Richard O’Brien said they are reviewing budgets and may delay some projects as they hunker down against the global economic slowdown.
“Our company and our industry are currently operating in an unprecedented macro business environment, consisting of extreme commodity price volatility uncertainty, mass portfolio liquidation, global inflation and limited, if any, access to capital,” he said.
“Due to the current volatility in gold and other commodity prices, as well as the collapse of the global financial markets, we will exercise even greater discipline, actively managing our capital projects, our exploration and our other spending, and taking prudent steps to preserve our balance sheet strength and liquidity,” he said.
Newmont blamed the third-quarter net income decline on higher production costs and plummeting copper sales. The company also noted it recorded about $140 million in one-time gains in the year-ago quarter.
Costs applicable to gold sales increased about $100 an ounce, but that was offset somewhat by rising gold prices.
Copper sales in the third quarter tumbled nearly 84 percent to $90 million as prices fell and problems at a mine in Indonesia cut output by 73 percent.
From June 30 to Sept. 30, gold prices fell from $930 an ounce to $885 per ounce, falling even further to $713 an ounce as of Friday. Copper prices dropped from $3.98 per pound to $2.91 per pound on Sept. 30 and down to $1.69 per pound as of Friday.
Barnard Jacobs Mellet analyst Patrick Chidley said the results were disappointing particularly because of the poor production at Batu Hijau in Indonesia and higher operating costs. “It could be this is a short-term thing, but longer term, the copper price going forward is going to hurt them quite badly,” he said.
For the June-September quarter, Newmont reported net income of $196 million or 43 cents a share, which compares with net income of $397 million or 88 cents a share last year when Newmont recorded about $140 million in one-time gains.
Income from continuing operations was $177 million down from $331 million a year ago.
Revenue dipped to $1.4 billion from $1.6 billion.
Analysts surveyed by Thomson Reuters forecast on average earnings of 42 cents a share on revenue of $1.5 billion.
Newmont sold 1.28 million ounces of gold in the third quarter at an average realized price of $865 an ounce, with applicable costs at $480 per ounce.
A year ago, Newmont sold 1.33 million ounces of gold at an average price of $681 an ounce and costs at $388 an ounce.
The higher costs were attributed to higher commodity prices, such as for oil, unfavorable Australian dollar exchange rate changes and higher royalty expenses, the company said.
Newmont reaffirmed its 2008 guidance of selling 5.1 million to 5.4 million ounces at applicable costs ranging between $425 an ounce to $450 per ounce. He said the estimates are based on an oil price of $75 per barrel, which would change $1 per ounce for ever $10 change in the oil price.
In the first nine months, Newmont reported net income of $843 million, or $1.85 a share, compared with a net loss of $1.6 billion, or $3.54 a share. Revenue totaled $4.9 billion up from $4.1 billion.
CEO O’Brien said completion of the Boddington mine project in Australia was delayed about one quarter and is now targeted to start up in mid-2009.
Newmont spokesman Omar Jabara said the company is coping with a severe labor shortage in western Australia which contributed to the delayed start and higher capital expenditures.
Newmont’s shares closed down 57 cents, or 2.2 percent, to $25.90.
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