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What a difference a year makes as CEO O'Brien turns around Newmont

Newmont CEO Richard O'Brien has apparently achieved the financial turnaround he promised when he took the reins of America's top gold miner in 2007.

Author: Dorothy Kosich
Posted: Friday , 20 Feb 2009

RENO, NV -

Newmont President and CEO Richard O'Brien delivered on his long-promised turnaround of Newmont Mining as the company bounced back from a nearly $1.9 billion loss or negative $4.17 per share in 2007 to a net profit of $853 million ($1.88/sh) last year.

In a conference call Thursday to discuss financial results, O'Brien said his goal is to have Newmont maintain an annual average gold production of 5.25 million ounces.

However, maturing mines in Nevada are proving a challenge to maintain production as Newmont Nevada operators seek to extend the life of Nevada mines through higher grade additions underground, O'Brien told analysts. Gold production dropped due to slower than anticipated recoveries at the Phoenix and Carlin mills, and the timing of gold sales related to Phoenix copper concentrates which remain in inventory at the end of the year.

Nevada gold production is expected to drop from 2.225 million ounces last year to a range of 1.8 million to 2 million ounces of gold this year with average costs increasing from $460/oz in 2008 to a range of $535/oz to $575/oz this year.

However, another maturing operation, Peru's Yanacocha gold mine exceeded expectations with equity gold sales for 2008 reported at 946,000 ounces at a cost of $346/oz. The outlook for Yanacocha is now forecast at between 975,000 and 1.025 million ounces primarily due to increased recoveries and throughput resulting from its new gold mill.

Company-wide gold output is expected to increase from 5.2 million ounces last year at a cost of $440/oz to a range of 5.2 million to 5.5 million ounces at a cost of $400 to $440/oz in 2009.

Newmont also forecasts equity copper sales of 210 million to 230 million pounds this year.

In 2008, Newmont reported capital expenditures of $1.9 billion as the company continued construction of the Boddington project in Australia of which Newmont hopes to assume 100% ownership this year. Capital expenditures will decline in Nevada and South America this year as Newmont projects an overall capex budget ranging between $1.4 billion to $1.6 billion.

Start up at Boddington is expected in mid-2009 and is anticipated at a total capex ranging between $2.6 billion to $2.9 billion. O'Brien said recent volatility has led Newmont to defer decisions on its Conga project in Peru and the Akyem project in Ghana.

Newmont has budgeted exploration spending of $165 million to $175 million, focusing the majority of spending on sulfide targets at Yanacocha, and on reserve and non-reserve mineralization conversion in Nevada, at Hope Bay in Canada, Ahafo in Ghana, Tanami in Australia and Yanacocha.

For the fourth-quarter 2008, Newmont reported a net income of $10 million (2-cents/sh), an improvement over the $289 million loss (negative 63-cents) during the same period a year ago.

Despite the fact the company "continues to operate under extremely difficult conditions, O'Brien noted that Newmont has a strong liquid balance sheet and maintains a high investment grade rating.