Newmont Cutting Its Cost Outlook Shows Why Gold Can Keep Falling

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Newmont Mining Corp., the largest U.S. gold producer, reduced its outlook for the cost of mining this year, a sign that the slump for the metal that took prices to a five-year can keep going.

The forecast for so-called costs applicable to gold sales was cut to a range of $630 an ounce to $680 an ounce, from $660 to $710, the Greenwood Village, Colorado-based company said in a statement Wednesday.

“It’s probably a sign the rout in gold will continue,” said Martin Leclerc, the founder and chief investment officer of Barrack Yard Advisors LLC, which oversees $160 million. “Newmont is positioning itself to at least be the last man standing.”

Gold’s drop to the lowest since 2010 has investors focusing on metal-production costs, because they’re trying to see how far prices will drop before output is cut back. Even as Newmont reports net income that fell 61 percent from year earlier to 14 cents a share last quarter, lower energy expenses means that it’s getting cheaper to mine and the company is expanding production as it tries to reduce debt.

Newmont is working to cut costs and debt after a sustained slide in the price of the metal, which dropped to a five-year low this week. A rout in bullion this month has sapped investor confidence in gold miners, sending the benchmark 30-member Philadelphia Stock Exchange Gold and Silver Index of the largest producers to its lowest since 2001.

Oil Prices

“Favorable oil prices and exchange rates largely offset the impacts of lower metal prices,” Chief Executive Officer Gary Goldberg said in the statement. “Based on this performance, we are improving our full-year outlook for both production and costs.”

Newmont’s so-called costs applicable to sales averaged $638 an ounce in the second quarter, compared with the $654 average of eight estimates compiled by Bloomberg.

“It is a trend that’s been taking place across the board for the miners,” said Dan Denbow, a portfolio manager at the $600 million USAA Precious Metals & Minerals Fund in San Antonio. “They’ve been having to live with lower commodity prices, and therefore you have to adjust your operating cost if you’re going to keep making money.”

Newmont’s earnings excluding one-time items were 26 cents a share, trailing the 27-cent average of 15 estimates compiled by Bloomberg. Sales were $1.91 billion, lower than the $1.99 billion average estimate. Second-quarter gold output rose to 1.24 million compared with 1.22 million ounces a year earlier and the 1.18 million average of nine estimates.

(Newmont scheduled a conference call to discuss the results for Thursday at 10 a.m. New York time, accessible in North America at 1-800-857-6428 and for other callers at 1-517-623-4916. The passcode is Newmont.)

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