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Newmont profit up on gold, but stock falls

Steve James
Associated Press
July 28, 2006
NEW YORK (Reuters) - Newmont Mining Corp. said on Thursday its second quarter profit nearly doubled on high gold prices, but the results fell short of Wall Street expectations and the company's stock fell almost 5 percent. Despite higher bullion prices, Newmont sold less gold in the quarter than a year earlier and costs for energy and labor also rose. It said sales were likely to be lower in the third quarter than in the fourth. Chairman and Chief Executive Officer Wayne Murdy said 2006 sales would be lower than previously expected, reflecting lower production in Australia and Indonesia and the ramp-up of three new projects in Nevada and Ahafo, Ghana. "'06 costs are expected to be slightly higher," he said, citing energy, labor and consumable costs. "When we did the estimates, we were looking at crude oil at $55-$60. Now we see $70 a barrel crude. "All the projects coming in will have cash costs below the industry average. While we have had our worst year in Nevada (for costs), we are still seeing improvements," said Murdy. He also said Newmont was in discussions with authorities in Uzbekistan to resolve a taxation dispute over its joint venture there. If it is not resolved, the company night pull out, he told analysts on a conference call. Denver-based Newmont reported net income of $161 million, or 36 cents per share, for the second quarter, compared with $88 million, or 20 cents per share, a year earlier. Revenue rose to $1.31 billion from $997 million. Excluding one-time items, such as prepaid forward deliveries and litigation over environmental issues in Indonesia, the company earned 44 cents per share, including stock options expense of 1 cent per share. Analysts' average forecast was 49 cents, according to Reuters Estimates, which excludes stock options expense. Newmont spokesman Randy Engel said the company fell short of Wall Street forecasts because of "slightly lower sales and production levels and slightly higher costs." Newmont stock closed down $2.50, or 4.71 percent, at $50.53 on the New York Stock Exchange. The price of gold surged over 40 percent in the first five months of the year, from $513 to $730 per ounce. It was trading at around $634 an ounce on Thursday in New York. Peter Schiff, president of broker-dealer Euro Pacific Capital in Darien, Connecticut, said that, although gold is selling high, it does not automatically translate into higher profits for gold miners because of the higher cost of mining. "(But) the chart looks very good for Newmont and I see more positive reaction (from Wall St) soon. Gold and silver look strong and the mining stocks have tracked well," said Schiff, who forecast gold would pass $800 in the near future. "Then you'll see profits and dividends build up." Newmont said consolidated gold sales were 1.87 million ounces in the quarter. Of that total, 1.38 million ounces were "equity ounces" -- gold owned outright by Newmont -- and the rest was from joint operations in mines in Peru and Indonesia. But those figures were down from a year earlier, when consolidated sales were 1.99 million ounces, with 1.54 million equity ounces. The revenue figures were based on costs applicable to sales of $298 per ounce and an average realized price of $605 per ounce, Newmont said. The company expects to sell 5.9 million to 6.2 million equity ounces of gold this year at costs of $290 to $310 per ounce and 225 million to 235 million equity pounds of copper at costs of 65 cents to 70 cents per pound. Asked on the call if Newmont would increase its dividend, Murdy said the issue came up at every board neeting. "But the issue now and in the next few years is we are spending a tremendous amount of capital, with $1.4 billion to $1.6 billion this year and next year not looking any different. "As we get through this spending, you'll see a resumption of the dividend," he said.