Newmont Mining (NEM) is one of the largest gold mining firms in the world with projects on 5 continents globally and gold reserves of 93.5 million attributable ounces and 9.4 billion pounds of attributable copper.
Fourth quarter results released Thursday show revenue growth of 24% over 2009 with adjusted net income per share rising by 38%.
Costs were contained as the average realized gold and copper prices rose by 25% and 32% respectively, while costs only rose by 18% and 25%. This allowed for margin expansion and with the gold and copper operating margins increasing by 30% and 34% respectively.
Fourth quarter gold and copper production was down year over year with higher prices offsetting the decline keeping leading to a rise of 2% in the EPS for the quarter.
Attributable gold production rose by 4% to 5.4 million ounces in 2010 from 5.2 million ounces in 2009.
The Akyem project in Ghana has the potential to double Newmont’s gold production in Ghana. Reserves total 7.7 million ounces with production expected to average in the 400-550 thousand ounce range during the first five years of production with initial capex in the $700 million to $1 billion range.
The Subika mine is being expanded to include an underground segment with permitting currently in progress. The ore body continues to be open at depth and along strike. An underground pre-feasibility study is currently in progress and expected to be delivered during the second quarter of 2011.
The Nimba JV with BHP Billiton (BHP) is an attempt to diversify outside of gold with a world class iron ore venture.
The acquisition of Fronteer Gold (FRG) continues what has been a theme among gold producers which is bolt-on acquisitions in a major gold camp in order to expand the initial resource and get more life out of existing equipment.
Fronteer Gold is a major new discovery in a new district which, along with potential opportunities in the Sandman and Northumberland camps, allows Newmont to leverage existing operating knowledge and personnel in Nevada to create efficiencies.
As an example there is the potential to leverage the Twin Creeks infrastructure significantly lowering mine build-out costs.
Shareholders of Fronteer Gold will receive C$14.00 in cash and one share of Pilot Gold per Fronteer Gold share. Pilot Gold will initially be seeded with C$10 million in cash and a portfolio of Newmont properties in Peru, Nevada, and Turkey. Newmont will maintain a 19.9% stake in Pilot Gold with a 2 year right to participate in future financings to remain position and standstill.
In terms of 2011 guidance, Newmont guided flat gold production over 2010 with rising costs due to a higher oil price which translates into higher diesel prices. In addition, capex is expected to be in the $2.8 billion range with no significant increase in production expected in the medium term.
Investors witnessing the pullback in Newmont’s stock may want to look elsewhere in the short to medium term as the African risk in Newmont’s portfolio gets rerated and production growth looks to remain flat.
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