Go to the mobile version of this Web site.

Login | Contact Us | Site Map | Paid archives | Electronic edition | Subscription Questions | Extras

Home › Business › Energy

Upgrades on horizon for Newmont

Gold producer to spend at least $1.8 billion in '07

Gargi Chakrabarty, Rocky Mountain News

Published March 20, 2007 at midnight

Text size  

More Energy

More stories »

Newmont Mining Corp., the world's second-biggest gold producer, will spend $1.8 billion to $2 billion this year to build new gold mines, improve older ones and cut mining costs.

The move comes as the Denver-based gold company staves off declining production, skyrocketing costs and faltering stock prices amid takeover speculation by the world's biggest gold miner, Barrick Gold.

Newmont this year will focus on developing new mines in Ghana, Nevada and Australia - in keeping with its strategy to invest equally in developed and developing countries to balance risk exposure, said Newmont Chairman Wayne Murdy during a recent interview.

"That's the real story this year," Murdy told the Rocky Mountain News. "We are starting to ramp up production, and we expect gold sales to grow over 6 million ounces by late 2008 or early 2009."

Newmont has underground gold reserves of 95 million ounces, making it one of the richest mining companies in the world. Developing new mines will help bring a portion of those reserves to the market, boosting its gold sales and bolstering its bottom line.

The company will pour millions of dollars into its Phoenix and Leeville mines in Nevada and its Ahafo mine in Ghana to ramp up for full production. Those three mines could produce close to 1 million ounces of gold this year.

The Boddington mine in Australia is scheduled to become one of Newmont's most important assets in the coming years. The mine, expected to go online in late 2008 or early 2009, could produce up to 700,000 ounces per year. Murdy said the investments are in line with Newmont's strategy to divide its focus equally between developed and developing nations.

The company is building a $600 million power plant in Nevada to save on energy costs. It's looking into building another power plant with partners at Ahafo to resolve the shortage of electricity affecting operations in the African nation.

"Ghana is a real investment potential for us," Murdy said. "It's been a democracy for 30 years, and its president has done a good job of running the country in past years."

Newmont also plans to spend $175 million in exploration this year. It is important to explore and add new mine deposits each year to offset depleting reserves.

"Exploration is our lifeblood," Murdy said. "We are exploring in Peru, Indonesia and we have land position in Surinam in South America where the geology is very similar to Western Africa."

Newmont must keep spending big amounts to maintain its production profile, said analyst Patrick Chidley with Barnard Jacobs Mellet.

"Costs for mining projects have gone up dramatically as things like cost of labor, steel, and consulting and engineering fees have risen sharply. And that's why the investment numbers are so large," he said.

In 2006, Newmont's gold sales fell to 5.87 million ounces from 6.49 million ounces in 2005 as the company mined less ore at its Peruvian, Australian and New Zealand mines.

Production costs jumped to $304 an ounce last year from $237 an ounce the previous year.

Newmont is not the only company facing these issues. For example, rival AngloGold Ashanti's gold production dipped to 5.6 million ounces in 2006 from 6.2 million ounces in 2005. At the same time, AngloGold, which also has assets in Ghana, saw costs rise to $308 an ounce in 2006 from $281 an ounce the previous year.

Still, Newmont earned a robust $791 million, or $1.75 a share, in 2006 - more than double the $322 million, or 72 cents a share, earned in 2005, beating Wall Street's estimates. Revenue rose to $4.99 billion last year from $4.35 billion a year earlier. But most of the earnings came from higher gold prices, which helped offset sliding sales and rising costs.

Newmont says gold sales in 2007 likely will fall further, to between 5.2 million ounces and 5.6 million ounces, as it plans to mine less ore at Yanacocha in Peru and existing mines in Australia. However, that trend will reverse in 2008 as newer mines go into full production.

Ramping up production is important for Newmont not only to boost its flagging stock price but also to keep away potential buyers.

Newmont shares plunged 15 percent in the past year partly because the company cut its sales estimates three times and raised its forecast of operating costs at its mines. During the same period, the Philadelphia Gold & Silver Index rose 11 percent as gold prices rallied 23 percent.

On Friday, Wall Street reacted positively to rumors about a potential takeover by Barrick Gold. Newmont's shares touched a three-week high in the New York Stock Exchange - although the company denied any such deal, as did Barrick.

"Newmont, which has been an underperformer as a result of several problems, could be a nice takeover target for" Barrick, said Gijsbert Groenewegen, founder of New York-based hedge fund Gold Arrow Capital Management LLC, which manages $17 million including Barrick shares.

or 303-954-2976