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Newmont Gold Output to Double

Zacks Equity Research

Gold miner Newmont Mining Corp's (NYSE: NEM - News) Peruvian subsidiary aims to double annual output to 2.5 million ounces by 2017, once the key projects start operations.

Yanacocha, a joint venture between Newmont and Peru's Buenaventura, is developing the $4.8 billion Minas Conga. It will be the largest investment in Peruvian mines ever producing 1.46 million ounces of gold in 2010.

Minas Conga is located in the northern region of Cajamarca and will produce between 580,000 and 680,000 ounces of gold per year for the first five years.

The mine should also produce between 155 and 234 million pounds of copper per year when it starts producing in 2014.

The company released its second-quarter results for 2011 in July, thereby increasing its adjusted net income to $445 million or 90 cents per share in the second quarter from last year’s $377 million or 77 cents per share. The result was below the Zacks Consensus Estimate of $1.00 per share.

Total revenue was $2.4 billion, up 11% year over year, but below the Zacks Consensus Estimate of $2.5 billion.

Newmont reported attributable gold and copper production of 1.2 million ounces and 44 million pounds, respectively, in the quarter at costs applicable to sales (CAS) of $583 per ounce, and $1.34 per pound on a co-product basis.

In the quarter, the board of directors of Newmont also approved a third-quarter 2011 gold price-linked dividend of $0.30 per share, an increase of 50% over $0.20 paid in the second quarter of 2011, and a rise of 100% over the third quarter of 2010 dividend. This is based on the company's net average realized gold price of $1,501 per ounce in the second quarter of 2011.

For fiscal 2011, the company reiterated its previous expectation of attributable gold production of approximately 5.1 million to 5.3 million ounces, with attributable copper production of 190 to 220 million pounds.

Costs applicable to sales are expected to be between $560 and $590 per ounce for gold and those for copper between $1.25 and $1.50 per pound.

The company currently plans to spend $2.1 to $2.5 billion in attributable capital expenditures in 2011, or $2.7 to $3.0 billion on a consolidated basis. Approximately 40% of 2011 consolidated capital expenditures are expected to be related to major project initiatives, including further development of the Akyem project in Ghana, the Conga project in Peru, Hope Bay in Canada, and the Nevada project portfolio, while the remaining 60% is expected to be for growth and sustaining capital.

The company faces stiff competition from Barrick Gold Corporation (NYSE: ABX - News) and AngloGold Ashanti Ltd. (NYSE: AU - News).

We currently have a short-term Zacks #3 (Hold rating) on the stock.

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