Boddington Bobbles, but Newmont Still Glitters

Imagine if LeBron James came out for the Miami Heat next season and started missing shots.

You never want your long-awaited superstar to start out in a slump, but early results from Newmont Mining's (NYSE: NEM  ) world-class Boddington mine in Australia have created a touch of disappointment in this highly anticipated operation.

After continuing to encounter ore grades averaging about 12% lower than anticipated, and experiencing greater wear on equipment than expected, Newmont was forced to lower anticipated 2010 production from the mine by 50,000 ounces. The miner also raised 2010 cost guidance for Boddington substantially, from less than $400 to a range between $475 and $550 per ounce.

But just as surely as LeBron still has his mojo, Newmont executives were quick to point out in the conference call that it's "too soon to draw conclusions" about the suitability of existing mine models. Pollsters don't make their calls after 2% of the votes are counted, and Newmont urges your restraint against jumping to conclusions after just 2% of Boddington's reserves have been mined.

In the meantime, there are plenty of offsetting positive developments at Newmont to keep a Fool's interest piqued:

  • Although Boddington's woes pressed overall co-product operating costs sequentially higher to $492 per ounce, an average realized gold price of $1,200 permitted slight margin expansion to $708 per ounce (or 59%). It's not the bonanza-type margin expansion that I still expect from rival miners, and Goldcorp (NYSE: GG  ) is likely to regain its low-cost crown for a major producer, but Newmont remains one seriously profitable company.
  • Newmont increased its quarterly dividend by 50% to $0.15 per share, for a 1% yield. Who said gold can't pay dividends? I submit that we are witnessing only the beginning of what will become a long-term, industrywide trend toward a meaningful income component for precious metal mining investments. Agnico-Eagle Mines (NYSE: AEM  ) , for one, has been quite explicit about this intention.
  • Newmont's fresh injection of $753 million in operating cash flow fueled a handsome $238 million (7%) increase in the company's cash balance during the quarter. At $3.6 billion, Newmont holds more cash than larger rival Barrick Gold (NYSE: ABX  ) did at the end of the first quarter.
  • With all that cash on hand, Newmont finds itself in a favorable position to consider strategic acquisitions, and the recent dip in both gold prices and the shares of attractive targets create a potentially winning combination. With producers like Northgate Minerals (AMEX: NXG  ) trading for mere pennies on the dollar relative to the market value of proven and probable reserves, enticing possibilities abound. At some stage, somebody is bound to make a move on Seabridge Gold's (AMEX: SA  ) 30-million-ounce KSM property in British Columbia, and only the top three producers possess the heft to get it done.

Although I continue to promote investment in midtier and junior miners for their robust growth potential, and despite my view that Goldcorp remains the prince of the elite major producers, Newmont Mining remains a profitable force to be reckoned with in this highly attractive sector.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 55 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker lost his silver coin that read: "Honest value never fails." He can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines and Northgate Minerals. The Motley Fool's disclosure policy is 0.999 pure.


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