Newmont 1st-Quarter Profit Falls 67% on Mining Costs

Newmont Mining Corp., the world’s second-biggest gold producer, said profit plunged 67 percent in the first quarter as slumping output and higher mining costs erased the benefits of a price rally.

Net income fell to $68 million, or 15 cents a share, from $209 million, or 47 cents, a year earlier, Denver-based Newmont said today in a statement. Profit was boosted $17 million by an exchange of securities. Excluding the gain, the average estimate was 24 cents in a Bloomberg survey of 11 analysts.

Newmont said costs of mining and selling gold may surge 32 percent this year to $400 an ounce, up from the 25 percent jump forecast in September, after the weakening dollar eroded margins in Australia and expenses climbed at two new Nevada mines. Chief Executive Officer Wayne Murdy said in February the first half of 2007 will probably be “challenging.”

“Investors will be disappointed that Newmont did not benefit from the higher gold and copper prices this quarter,” John Bridges, an analyst at J.P. Morgan Securities Inc., said today in a report. “2007 is likely to be its trough year as it incurs both the weak results of its declining mines and the teething problems of its new projects.”

The shares fell $1.51, or 3.4 percent, to $42.72 at 12:53 p.m. in New York Stock Exchange composite trading, the biggest drop since Feb. 27. They have fallen 26 percent in the past year, valuing the company at $19.3 billion. Gold for June delivery fell as much as 2.4 percent to $674.40 an ounce today in New York.

The company appointed Chief Financial Officer Richard O’Brien as president, effective immediately.

Rising Sales

Newmont’s sales rose 11 percent to $1.26 billion as the company sold gold for an average of $653 an ounce, up 17 percent from a year earlier. Newmont sold 48 million pounds of copper from its Batu Hijau mine in Indonesia, a 12 percent increase, at an average price of $2.74 a pound, up 32 percent.

Costs jumped 53 percent to $421 an ounce. The Phoenix and Leeville mines in Nevada and Ahafo mine in Ghana began commercial production last year. Costs at the Nevada mines rose 25 percent to $493 an ounce as Phoenix’s ore was harder and contained less gold than expected.

“Our financial results were adversely impacted by higher than anticipated operating costs resulting from metallurgical and startup challenges at Phoenix in Nevada, increased waste removal costs during the quarter, and adverse exchange rate movements impacting our Australian operations,” Murdy said in the statement.

Escalating Costs

Costs at Newmont’s Australia and New Zealand mining operations jumped 35 percent to $519 an ounce, with the strengthening Australian dollar alone boosting costs by $26 an ounce. The Australian dollar gained 13 percent against the U.S. dollar in the year through March.

Newmont has said it expects to improve efficiency after 2007 by completing the Boddington project in Australia and constructing a power plant in Nevada and a gold mill at the Yanacocha mine in Peru.

So-called equity gold sales, made up of the gold attributable to Newmont from mines it controls or shares, fell 3.6 percent to 1.34 million ounces during the quarter from a year earlier. Sales from Yanacocha, the world’s biggest gold mine, plunged 41 percent to 234,000 ounces.

Mature Mines

“Many of their operations are mature mines,” John Ing, chief executive officer of brokerage Maison Placements Canada Inc. in Toronto, said before earnings were released. “They are stuck on a treadmill to replace the ounces they produce.”

Newmont reiterated a September forecast for gold sales of 5.2 million to 5.6 million ounces for the year, down from 5.9 million ounces in 2006. Shares of Newmont fell 15 percent last year as the company cut its sales estimate three times on reduced output in Ghana and Uzbekistan, missing out a 23 percent rally in gold prices.

Barrick Gold Corp. is the world’s largest gold producer. The Toronto-based company is scheduled to report earnings May 2.

Information from: quote.bloomberg.com