GOLD ANALYSIS

Newmont unleashes some old fashioned charm

A relatively scintillating performance for 2009 restores some confidence in the notion that gold miners can produce genuine free cash flows, in this case, USD 1.2bn.

JOHANNESBURG - 

Newmont, abroad the NYSE since 1940, has reported relatively scintillating results for 2009, for which it headlined "record operating cash flow", computing at USD 3bn. This outcome is by far the best - so far - from the latest season's quarterly and annual gold company reporting; among the global league of Tier I gold miners, and the rest, it's unlikely to be beaten.

Goldcorp and Yamana are yet to report; until now, the top operating cash flow number has come from Barrick, the world's biggest gold name, by output and value. Barrick reported operating cash flow of USD 2.9bn for 2009, just below Newmont's number, but after capital expenditure, Barrick's free cash flow for the year was USD 548m, compared to Newmont's USD 1.2bn.

Newmont's operating cash flow outcome for 2009 beats its pervious high, set in 2004, at USD 1.6bn. The group's stock price rose until eventually peaking out early in 2006, when it touched USD 60 a share. The year 2007 turned out to be a low water mark for Newmont, low since at least 2003, but the subsequent recovery has been convincing as the group rediscovered its previous form, and focused heavily on growth and cost control. The stock currently trades around the USD 46.50 a share mark, roughly double the multi year lows seen late in 2008.

This year may be a time for an interesting tussle between Newmont and its rivals. Barrick's 2009 outcome was hampered by its hedge book, which it practically wiped out towards the end of the year, at a cash cost of USD 5.2bn. Barrick raised USD 4bn in a rights issue, mainly aimed at financing the hedge book attack; its net debt climbed to end 2009 at USD 3.8bn.

Newmont raised USD 1.3bn in a 2009 rights issue, its biggest equity issue since 2003, when it raised the same amount. Newmont cut its net debt by nearly half in 2009, to USD 1.6bn by year end. The group continued to rank as the world's second-biggest gold miner by output, with 5.3m ounces sold in 2009, along with 226m pounds of copper.

Newmont anticipates producing around 5.5m ounces of gold in 2010, compared to Barrick's 7.8m ounces. Newmont is headed for about 365m pounds of copper production this year, compared to Barrick's 350m pounds.

Copper prices recovered strongly across 2009, and played an important part in cash production for gold companies producing the metal. Freeport-McMoRan, which produced 2.6m ounces of gold in 2009, but which ranks primarily as a copper producer, with 4.1bn pounds of output (plus 58m pounds of molybdenum), announced spectacular financial results for 2009, with USD 4.4bn in operating cash flows, and USD 2.8bn in free cash flows.

Both Barrick and Newmont are working on developing projects aimed at increasing gold, and also copper, production.