Newmont Mining Corporation (NEM) reported excellent fourth-quarter 2010 results. GAAP net income increased 45.5% to $812 million or $1.65 per share in 2010 compared with $558 million or $1.14 per share in the prior year. Adjusted net income rose 2.3% to $574 million or $1.16 per share from $561 million or $1.14 per share in 2009. Results were above the Zacks Consensus Estimate of $1.11 per share.

GAAP net income increased 76% to $2.3 billion or $4.63 per share in 2010 compared with $1.3 billion or $2.66 per share in the prior year. Adjusted net income rose 39% to a record $1.9 billion or $3.85 per share from $1.4 billion or $2.79 per share in 2009

Revenue

In fourth-quarter 2010, total revenue was $2.5 billion, up 1.2% year over year. However, the results were below the Zacks Consensus Estimate of $2.6 billion. Total revenue was $9.5 billion in fiscal 2010, up 24% year over year.

Newmont’s gold operating margin increased by 30% year over year to $737 per ounce in 2010.

In fourth-quarter 2010, Newmont reported attributable gold and copper production of 1.4 million ounces and 74 million pounds, respectively, at costs applicable to sales of $512 per ounce, and $0.95 per pound, respectively, on a co-product basis.  

In 2010, Newmont reported attributable gold and copper production of 5.4 million ounces and 327 million pounds, respectively, at costs applicable to sales of $485 per ounce, and $0.80 per pound, respectively, on a co-product basis.  

Region-wise Sales

1) North America

Nevada  gold production came in at 429,000 ounces in the fourth quarter and 1.7 million ounces in 2010.  Costs applicable to sales were $520 and $565 per ounce for the fourth quarter and full-year 2010, respectively.

La Herradura gold production was 49,000 ounces in the fourth quarter and 174,000 ounces in 2010.  Costs applicable to sales were $434 and $420 per ounce in the fourth quarter and 2010, respectively.  Fourth-quarter production increased annually due to higher leach placement. 

2) South America

Yanacocha gold production was 170,000 ounces in the fourth quarter and 750,000 ounces in 2010.  Costs applicable to sales were $559 and $431 per gold ounce in the fourth quarter and full fiscal 2010, respectively.

La Zanja gold production was 16,000 ounces in the fourth quarter and 21,000 ounces in 2010.  La Zanja achieved commercial production in the third quarter of 2010. 

3) Asia Pacific

Boddington gold production was 206,000 ounces in the fourth quarter and 728,000 ounces in 2010.  Attributable copper production was 15 million pounds in the fourth quarter and 58 million pounds in 2010.

Fourth-quarter 2010 production accelerated from the prior-year quarter due to the commencement of commercial production in November 2009. 

Batu Hijau gold production was 88,000 ounces in the fourth quarter and 364,000 ounces in 2010. Attributable copper production was 59 million pounds in the fourth quarter and 269 million pounds in 2010. 

Other Australia/New Zealand gold production was 259,000 ounces in the fourth quarter and 1.1 million ounces in 2010. Costs applicable to sales were $554 and $546 per ounce in the fourth quarter and 2010, respectively.

Fourth-quarter production decreased from the prior-year quarter due to lower mill grade at Jundee and Kalgoorlie, partially offset by higher throughput at Tanami. 

4) Africa

During the fourth quarter and full fiscal 2010, gold production was 137,000 and 545,000 ounces, respectively.  Costs applicable to sales were $433 and $450 per ounce for the fourth quarter and fiscal 2010, respectively.

Fourth-quarter production increased from the prior-year quarter due to higher mill grade. Costs applicable to sales per ounce decreased from the prior-year quarter due to higher production, partially offset by higher labor, power and royalty costs.

Financial Position

In fiscal 2010, capital expenditures were $1.4 billion versus $1.8 billion in 2009. Operating cash flow was a record of $3.2 billion in 2010 compared with $2.9 billion in 2009. Cash and cash equivalents was more than $4 billion as of December 31, 2010.

Outlook

For fiscal 2011, attributable gold production is expected to be 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 due to lower than expected production at Batu Hijau, combined with higher expected costs for energy, labor, and contracted services.  Costs applicable to sales are expected to be between $1.25 and $1.50 per pound of copper resulting from lower production at Batu Hijau.

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.  

North America: For fiscal 2011, gold production is expected to be approximately 2.0 to 2.1 million ounces at costs applicable to sales of approximately $560 to $600 per ounce. Production from Nevada has been impacted by the December 2009 slope failure at Gold Quarry, limiting access to ore originally scheduled to be mined in 2010 and 2011.

South America: For fiscal 2011, gold production in South America is expected to be approximately 715,000–775,000 ounces, primarily due to lower leach production at Yanacocha. Costs applicable to sales are expected to increase in 2011 to approximately $500 to $550 per ounce, primarily due to lower gold production and higher contracted services and supplies.

AsiaPacific: For full-year 2011, gold production at Boddington is expected to be approximately 750,000–800,000 ounces at costs applicable to sales of approximately $580 to $620 per ounce on a co-product basis

For full fiscal 2011, gold production for Batu Hijau is expected to be approximately 110,000–40,000 ounces, at costs applicable to sales of between $400 and $440 per ounce. On the other hand, attributable copper production is expected to be approximately 120 to 140 million pounds, at costs applicable to sales of between $1.10 and $1.30 per pound. 

The Asia Pacific region expected attributable gold production to be approximately 1.9 to 2.0 million ounces, primarily resulting from lower production at Batu Hijau. Costs applicable to sales are expected to increase to approximately $600 to $675 per ounce in 2011, primarily driven by lower production at Batu Hijau.

Africa: For fiscal 2011, gold production for the Africa operations is expected to be approximately 550,000 to 590,000 ounces due to mining higher ore grade. Costs applicable to sales of approximately $485 to $535 per ounce are expected for 2011, primarily as a result of higher energy prices and higher labor and royalty costs.

We maintain our Outperform recommendation on Newmont. Currently, it holds a Zacks #3 Rank (Hold) on the stock.

 
NEWMONT MINING (NEM): Free Stock Analysis Report
 
Zacks Investment Research