Newmont Mining (NEM)

Q3 2011 Earnings Call

October 28, 2011 10:00 am ET


Randy Engel - Executive Vice President of Strategic Development

Russell D. Ball - Chief Financial Officer and Executive Vice President

John Seaberg - Vice President of Investor Relations

Guy Lansdown - Executive Vice President of Development

Richard T. O'Brien - Chief Executive Officer, President and Executive Director


John Tumazos - Independent Research

Brian MacArthur - UBS Investment Bank, Research Division

John D. Bridges - JP Morgan Chase & Co, Research Division

George Topping - Stifel, Nicolaus & Co., Inc., Research Division

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

David Haughton - BMO Capital Markets Canada



Good morning, and welcome to the Newmont Mining Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Sir, you may begin.

John Seaberg

Thank you, operator, and good morning, everyone. Thank you for joining us on Newmont's third quarter 2011 earnings call. Joining us today are Richard O'Brien, President and Chief Executive Officer, and other members of our executive leadership team.

Before we begin, I'd like to refer you to our cautionary statement on Slide 2 as we will be discussing forward-looking information, which is subject to a number of risks, as further described in our SEC filings, which can be found on our website at And now I'll turn the call over to Richard O'Brien.

Richard T. O'Brien

Thanks, John. Those of you on the webcast, we'll begin on Slide 3. In the third quarter, we continued to advance our strategic growth plans. We achieved several key project milestones, including initiation of earthworks at Conga in Peru and our first concrete pour at Akyem in Ghana.

Across our wider project pipeline, we have advanced approximately 20 earlier-stage development assets through our project pipeline in each of our 4 operating regions thus far in 2011. Our investment-grade balance sheet continues to strengthen as we delivered our 11th straight quarter of increase in gross margin, while generating quarterly records of revenue at $2.7 billion, operating cash flow of $1.3 billion and net income of $635 million adjusted. We also ended the quarter with over $3 billion in cash and marketable securities. We also continued to explore one of the most extensive land positions in the gold industry. Across our exploration portfolio, we are currently operating 100 drill rigs around the globe in over 40 locations, spanning greenfields and brownfields projects, as well as surface and underground opportunities.

And as we announced on Wednesday, we increased our dividend again for the sixth straight quarter to $0.35 per share based on our average realized gold sales price for the third quarter of $1,695. This is a 133% increase over the year-ago quarter. On an annualized basis, Newmont's dividend stands at a yield of over 2%, which is higher than the current S&P 500 average yield and certainly the highest in the gold industry.

And finally, thanks to the continued focus of our employees on disciplined execution, we are maintaining our outlook for production, operating costs and capital expenditures, as described further in our press release. Now I'll turn the call over to Russell Ball, our CFO, to discuss our third quarter results.

Russell D. Ball

Thanks, Richard, and good morning, everyone. As illustrated on Slide 4, I'm pleased to be able to talk to you this morning about another strong quarter of operating and financial results. Clearly, we benefited from a 39% increase in the gold price, realizing $1,695 an ounce, which was $7 or approximately 0.4% lower than the average of the daily fix. This was due to the timing of doré sales, concentrated shipments and mark-to-market adjustments at quarter end in what was a very volatile quarter. Details of the realized gold price calculation for the quarter and year-to-date are included in our 10-Q on Page 49.

Net income from continuing operations of $493 million was impacted by a noncash impairment charge of approximately $152 million on an after-tax basis. And this is related to marketable securities of Paladin Energy Limited, a uranium producer, and Pilot Gold, both acquired on April 6, 2011, as part of the acquisition of Fronteer. These charges were offset by a $10 million after-tax gain realized on the sale of a minority position in Lydian Resources. The net noncash impairment of $142 million equates to $0.29 a share on an after-tax basis and results in adjusted net income for the quarter of $1.29 a share.

Net income for the quarter was also adversely impacted by an effective tax rate of 36% due to some timing issues and a valuation allowance on certain capital losses. In comparison with the quarter, the effective tax rate for the first 9 months of the year was 30% and our estimated effective tax rate for the year remains somewhere around 30%. The standout number for the quarter was a continued strong operating cash flow generation of almost $1.3 billion, a 48% increase from the year-ago quarter. The portfolio continues to deliver on what we consider to be the most important determinant of long-term value, operating cash flow per share.

Moving to Slide 5. Gold production was down by about 7% from a year ago due to the transition from Phase 5 ore production to largely Phase 6 waste stripping at Batu Hijau in Indonesia and lower grades in mill throughput in Nevada. Gold cost applicable to sales of $622 an ounce was up 32% versus the prior year quarter due to a combination of lower production, higher input costs and a higher coproduct allocation of operating cost to gold from copper as a result of the relative outperformance of gold in the quarter. The coproduct accounting issue is, of course, just a geography issue on the income statement and has no bottom line impact.

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