Newmont Replaces Gold Reserves, Plans To Focus On Margins
Wednesday February 4, 5:56 pm ET
VANCOUVER (Dow Jones)--Newmont Mining Corp. , whose title as the world's largest gold producer is threatened by growing competitor AngloGold Ltd. , had "tremendous success" in replacing gold reserves last year, chairman and chief executive Wayne Murdy said.
On a conference call Wednesday, Murdy noted that year-end proven and probable reserves grew to 91.3 million ounces, mainly via exploration success, despite the sale of properties containing about 4 million ounces.
Newmont calculated its reserves using a gold price of $325 an ounce, up from $ 300/oz the previous year, in accordance with Securities & Exchange Commission guidelines, Murdy said.
Other North American gold producers may also use $325/oz for their year-end reserve calculations, which has the effect of increasing the amount of gold considered econmically mineable, all else being equal. Companies are under pressure to replace or grow reserves as mine production depletes reserves.
In a brief research note, analyst Geoff Stanley at BMO Nesbitt Burns said Newmont's increase in reserves, to 91.3 million ounces from 86.9 million ounces at 2002 yearend, was about 5 million ounces higher than he had expected. It wasn't immediately known if Stanley owns Newmont shares or whether his firm has an investment banking relationship with the company.
As reported earlier Wednesday, Denver-based Newmont said 2003 fourth-quarter net income doubled to $153.1 million or 36 cents a share, from net income of $ 75.1 million or 19 cents in the 2002 quarter.
For the full year, net income tripled to $475.7 million, or $1.15 a share, on sales of $3.2 billion. The average realized gold price was 17% higher than in 2002 and offset lower sales, the company noted.
After production costs, margins for the year were $100/ounce, and management is focused on boosting per-ounce margins, Murdy said on the conference call.
While being the largest gold producer "is important" to Newmont, bottom-line profitability is the real driver, Murdy said.
Although bullish on gold, president Pierre Lassonde said the company looks for acquisitions that make a decent return on capital at current gold prices, rather than relying on a higher future price. For example, if one bought ounces for $ 300/oz and it costs a further $200/oz to mine them, even if gold is at $500/oz, "you're not doing anything for your shareholders," Lassonde said on the call.
April gold futures on the Comex division of the New York Mercantile Exchange settled $1.80 higher at $401.70 an ounce.
Newmont expects 2004 equity gold sales of 7 million to 7.2 million ounces, lower than the 7.4 million ounces sold in 2003. Total cash costs are seen rising to a range of $220-$230 an ounce, up from $203/oz in 2003, due to foreign- exchange rates, higher energy-related costs and other factors.
It expects production of between 7 million and 7.5 million ounces a year through 2006.
Last week, competitor AngloGold reported 2003 gold production of 5.6 million ounces, down 5% from the previous year, but it's on the verge of acquiring Ashanti Goldfields Co. Ltd. (NYSE:ASL) of Ghana, which produced 1.6 million ounces in 2003.
AngloGold expects the transaction to close in April.
On the New York Stock Exchange Wednesday, Newmont shares closed up 4 cents at $41.54 on 7 million shares.
Newmont Replaces Gold Reserves, Plans To Focus On Margins
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05-02-2004 02:13
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