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Australian Mines Writedowns Weighs On Newmont's $2 Billion 2Q Loss

By Alex Létourneau of Kitco News
Friday July 26, 2013 1:01 PM

(Kitco News) - Newmont Mining Corp. (NYSE: NEM) announced Thursday massive writedown on two of its mines leading to a $2 billion loss, or $4.06 per share, in the second quarter, adding to what is quickly becoming a troubling trend among major gold producers.

Newmont topped Goldcorp Inc.’s (TSX: G)(NYSE: GG) $1.93 billion loss, or $2.38 per share, which was released earlier Thursday.

The writedown stems from lower gold and copper prices during the second quarter, forcing Newmont to take large impairment charges on two of its Australian assets and stockpiles.

“Attributable impairments to our long-lived assets at Boddington and Tanami totaled approximately $1.5 billion net of tax,” said Tom Mahoney, interim chief financial officer, on a conference call. “We also realized attributable impairments to our stockpiles and ore on leach pads up to $172 million, also net of tax. “

“The same factors that affected these operating assets also affected our deferred taxes assets,” he continued. “As a result, we recorded a valuation allowance of $535 million to reflect the uncertainty of our ability to utilize foreign tax credits.”

The company said, in accordance with the US GAAP regarding asset valuations, for carrying value of the assets, they used a long-term gold price assumption of $1,400 per ounce of gold and $3 per pound of copper.

Further writedowns loom should gold continue its negative trend in the second quarter.

“Where we sit today it would primarily be a change in metal prices. If we did have substantial change in our operating costs then that could also affect our valuations,” said Gary Goldberg, president and chief executive officer of Newmont.

The notion of miners hedging against prices has been making the rounds in the news, however Goldberg snuffed out the possibility.

“That is not something we’re looking to do,” Goldberg said. “I think we’ve got strong business fundamentals underlying and, you know, sure there’s cycles happening in price but looking to hedge our gold and copper positions is not something we’re considering taking on at this time.”

Given the massacre of gold prices in the second quarter, miners have been forced to cut costs and be more cautious with spending. Goldberg is satisfied with the company’s cost cutting performance.

“We’ve been taking action to respond to the volatility we face today [and] at the same time, we believe that long term copper and gold demand outlook remains bright,” Goldberg said. “We reduced spending by $263 million, or 10%, compared to the first half of 2012, excluding development capital. Our capital expenditures were also down $458 million, or 29%, compared to the first half of 2012.”

Second Quarter Operational and Financial Results

Aside from the company’s impairment charge, Newmont’s revenues totaled $2 billion.

Attributable gold production was down in the quarter by 1%, totaling $1.167 million ounces while attributable copper production was down 11%, totaling 34 million pounds. Attributable gold sales were up 6% to 1.213 million ounces while attributable copper sales rose 23% to 37 million pounds, the company said.

The all-in sustaining costs per ounce of gold produced was $1,548. Excluding the impairment charge, all-in sustaining costs totaled $1,136 per ounce of gold produced.

“All-in sustaining costs tracking 10% lower compared to last year’s second-quarter.,” Goldberg said, referring to the price before including the impairment charge.

Cash flow from continuing operations rang in at $293 million in the quarter and $732 million for the first half of 2013.

“We remain on track to meet full year guidance of 4.8 to 5.1 million ounces of gold by year-end and we expect a stronger second half performance due to improved mill throughput here, in Nevada, and new production at Akyem in Ghana,” Goldberg said. “Copper production in the second quarter was in line with our plans and we are maintaining our annual outlook of 150 and 170 million pounds of production.”

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By Alex Létourneau of Kitco News aletourneau@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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