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Newmont Mining Reports 1st-Quarter Earnings

- By Alberto Abaterusso

Newmont Mining Corp. (NEM) released its financial and operating results for the first quarter of 2017 on April 24.

The gold producer closed the quarter with net income of $133 million, or 25 cents per share, a 26.5% decline from the comparable quarter of 2016. The company beat analysts' expectations on earnings by two cents, generating a positive surprise of 8.7%.

Source: Yahoo Finance

For the quarter, analysts forecasted Newmont would report adjusted EPS of 23 cents on average, ranging between a low of 14 cents and a high of 31 cents.

First-quarter earnings were generated on revenue of $1.66 billion, a 13.7% increase on a year-over-year basis, missing analysts' expectations on revenue by $80 million. Analysts forecasted revenue would come in at $1.74 billion.

Source: Yahoo Finance

Higher revenue was the result of increased gold and copper prices compared to the first quarter of 2016 (see table 1) and the volumes of gold and copper sold.

Table 1: Gold prices on the LBM and copper prices on the copper futures market.

The company reported the "average realized price for gold improved $29 to $1,221 per ounce for the quarter" and the "average realized price for copper improved 65 cents to $2.68 per pound".

During the quarter, Newmont sold 1.202 million ounces of gold, a 9% increase on a year-over-year basis, and 12,000 tons of copper, a 9% increase compared to the prior-year quarter.

The extraction and processing of the precious metal from ore bodies characterized by a lower concentration of gold in the mineral caused costs applicable to the sale of one ounce of gold to increase 1% from $680 in first-quarter 2016 to $687 in first-quarter 2017. The increase in the volume of gold sold was not enough to completely offset the negative impact of higher operating costs on the cost applicable to sales (CAS) that were reported by the miner at the end of the period, which was $894 million.

Higher CAS together with "higher near-term sustaining capital and increased advanced projects and exploration expense" says the company, also caused all-in sustaining costs (AISC) per ounce of gold sold to increase 1% from $889 in first-quarter 2016 to $900 in first-quarter 2017.

In contrast, both CAS and AISC improved 17% from the comparable quarter of 2016. Copper CAS and AISC were $1.50 and $1.77 per pound in the first quarter of 2017.

Concerning the production of attributable gold, which was 1.23 million ounces for the quarter, geotechnical problems experienced by the company at Carlin and severe weather conditions in Latin America and Australia did not severely impact the new contributions that came from Marian and Long Canyon, so the miner could achieve a 9% increase in the gold outcome compared to the first quarter of 2016.

The attributable production of copper was 13,000 tons, flat compared to the same quarter a year ago.

Higher gold and copper prices combined with increased sales also had a positive impact on the operating cash flow for the quarter. Operating cash flow was $379 million, a 141% increase on a year-over-year basis. After considering capital expenditures of $180 million, the company had free cash flow of $199 million, nearly a 262% increase from the comparable quarter of 2016.

The remarkable quarter in terms of free cash flow helped the miner to further strengthen its balance sheet. Its net debt amounts to $1.7 billion as of March 31. The balance sheet shows cash on hand of $2.9 billion, a nearly 6% increase from the previous quarter. Newmont Mining can rely on considerable financial resources to fund shareholders' value accretion through the expansion of the company's portfolio of assets.

In 2017, Newmont Mining expects to produce between 4.890 million ounces and 5.370 ounces of gold and between 40 million pounds and 60 million pounds of copper. On a consolidated basis, CAS per ounce of gold is expected to range between $700 and $750 and AISC are expected to range between $940 per ounce and $1,000 per ounce. For the year, Newmont guides capital expenditures of $900 million to $1.05 billion.

CAS per pound of copper is expected to range between $1.45 and $1.65 and AISC per pound of copper is expected to range between $1.85 and $2.05.

Gary Goldberg, Newmont's president and CEO, provided shareholders with an important update on the Subika underground mine project, saying, "Permits, funding and resources are in place to build the Subika Underground mine - which will produce 1.8 million ounces of gold over an 11-year mine life, and access ore grades that are three times higher than our surface mines."

Newmont Mining is trading around $33.71 per share with a price-book (P/B) ratio of 1.67 and an EV/Ebitda ratio of 7.74.

Disclosure: I have no positions in Newmont Mining Corp.

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