Newmont Mining Corp., one of the world’s largest gold producers, said Wednesday its third-quarter net income dropped by 51% due to higher production costs and plummeting copper sales.
The Denver-based company and costs applicable to gold sales increased about US$100 an ounce, but that was offset somewhat by rising gold prices.
Although Newmont reiterated guidance for the full year, it said the global economic slowdown has created more volatility in short-term prices for commodities such as gold and copper which could impact operations.
Copper sales in the third quarter tumbled nearly 84% to US$90 million as prices fell and problems at a mine in Indonesia cut output by 73%.
From June 30 to September 30, gold prices fell from US$930 an ounce to US$885 per ounce, falling even further to US$713 an ounce as of Friday. Copper prices dropped from US$3.98 per pound to US$2.91 per pound on September 30 and down to US$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 US$196 million or 43 cents a share, which compares with net income of US$397 million or 88 cents a share last year when Newmont recorded about US$140 million in one-time gains. Income from continuing operations was US$177 million down from US$331 million a year ago.
Revenue dipped to US$1.4 billion from US$1.6 billion.
Analysts surveyed by Thomson Reuters forecast on average earnings of 42 cents a share on revenue of US$1.5 billion.
Newmont sold 1.28 million ounces of gold in the third quarter at an average realised price of US$865 an ounce, with applicable costs at US$480 per ounce. A year ago, Newmont sold 1.33 million ounces of gold at an average price of US$681 an ounce and costs at US$388.
The higher costs were attributed to higher commodity prices, such as for oil, unfavourable Australian dollar exchange rate changes and higher royalty expenses, the company said.
President and Chief Executive Officer Richard O’Brien said the results were within line with company expectations.
“Despite the current strains on global financial markets, Newmont remains well-positioned with a strong balance sheet, a disciplined project review and execution process and a continued focus on the daily operation of our business,” he said in a statement.
He reaffirmed the 2008 guidance of selling 5.1 million to 5.4 million ounces at applicable costs ranging between US$425 an ounce to US$450 per ounce. He said the estimates are based on an oil price of US$75 per barrel, which would change US$1 per ounce for ever US$10 change in the oil price.
In the first nine months, Newmont reported net income of US$843 million, or US$1.85 a share, compared with a net loss of US$1.6 billion, or US$3.54 a share. Revenue totaled US$4.9 billion up from US$4.1 billion.
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 labour shortage in western Australia which contributed to the delayed start and higher capital expenditures.
Shares slipped 7 cents to US$26.40 at the open of trade.