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Contrasting results for world's top two gold firms

31/10/07

By Steve James

NEW YORK (Reuters) - On a day when the price of gold hit a 28-year high, the world's top two gold miners reported contrasting third-quarter results.

Canada's Barrick Gold Corp , the largest producer, said on Wednesday its profit fell 15 percent on lower sales and rising costs. It also forecast 2007 gold production of 8.1 million ounces, at the low end of its previous outlook.

But rival Newmont Mining Corp reported earnings in the quarter doubled, easily surpassing Wall Street expectations and boosting the Denver-based company's stock by more than 9 percent.

Both results came on a day when oil hit a record high past $95 a barrel and gold rose to a 28-year high as the dollar fell after the Federal Reserve cut a benchmark interest rate.

Gold is often seen by investors as a safe haven in times of economic uncertainty, and gold futures were buoyed on Wednesday by both the weaker dollar and the surge in crude oil prices.

Spot gold rose to $795.40/796.20, versus $781.25/781.85 in New York late on Tuesday, passing Monday's peak of $794.40 -- the highest level since January 1980 -- to a high of $796.50.

While Newmont narrowed its forecast for fourth-quarter sales because of "operational challenges" in Nevada, analysts were impressed with its operational results under new Chief Executive Officer Richard O'Brien.

Since succeeding Wayne Murdy as CEO on July 1, O'Brien has focused on Newmont's leverage to the gold price. He eliminated the hedging book, moved to sell or spin off its merchant banking business, and made a major acquisition -- a pending $1.52 billion deal for Canada's Miramar Mining Corp .

"The operations were generally better than we and the Street had expected," said JP Morgan analyst John Bridges.

"We had expected a strong fourth quarter ... and this is reinforcing this view. We expect analysts will be raising earnings estimates for the fourth quarter and the full year."

Credit Suisse analyst David Gagliano was less optimistic. "While we believe the solid third-quarter results are a positive sign of some incremental operating improvements at the company," he wrote in a research note, "some of the stronger-than-expected third quarter may come at the expense of a reduction in the fourth quarter."

In its earnings release, Newmont said its share of total gold sales decreased nearly 4 percent in the third quarter to 1.33 million ounces, but the price it received for the precious metal rose to $681 per ounce from $611 a year earlier.

Newmont's third-quarter net profit was $397 million, or 88 cents per share, up from $198 million, or 44 cents per share, a year earlier. Excluding extraordinary items, it earned 41 cents per share, well above analysts' average forecast of 25 cents, according to Reuters Estimates. Revenue rose to $1.65 billion from $1.1 billion.

On the other hand, Barrick earned $345 million, or 39 cents a share, down from a year-before $405 million, or 46 cents a share. Analysts had expected, on average, 42 cents per share. Operating cash flow fell to $557 million from $748 million.

Barrick produced 1.93 million ounces of gold in the quarter at a total cash cost of $370 an ounce, compared with 2.16 million ounces at $281 per ounce in the year-before quarter.

This was partially offset by a higher realized gold price of $681 an ounce, up from $564, as the elimination of operating gold hedges this year allowed Barrick to take advantage of higher prices.

Newmont's stock rose $4.42 to close on the New York Stock Exchange at $50.86. Shares of Barrick, which released its earnings after the market closed, had risen 4.1 percent to $44.14 in New York and C$1.63 in Toronto to C$42.00.

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