UPDATE 5-Miner Newmont's profit misses, CEO sees gold soaring

Fri Jul 29, 2011 1:05pm EDT

* Q2 adj profit 90 cts/shr v Street view 99 cts/shr

* Revenue up 11 pct to $2.4 bln

* CEO sees gold at $1,750/oz next year

* Stock drops 2.5 percent (Adds CEO comments on gold price, Peru; stock down)

By Steve James

NEW YORK, July 29 (Reuters) - Newmont Mining Corp's (NEM.N) second-quarter profit missed Wall Street expectations as higher costs and lower production offset a soaring gold price that hit a record high on Friday.

The company's stock fell over 3 percent but rallied later when Chief Executive Officer Richard O'Brien said he expected gold to be at $1,750 per ounce next year and to boost Newmont's profits. In afternoon trading on the New York Stock Exchange the shares were down 2.5 percent at $56.24

On a day when gold hit a record $1,632.12 per ounce, O'Brien was asked on cable TV's CNBC to forecast where the price was headed. "My headline: I think we're heading to $1,750 in gold next year."

He said that by containing costs, "I think you'll continue to see margins grow.

"Despite some inflationary pressures, higher gold prices are really adding to our bottom line...and I think we'll continue to see that," O'Brien said.

Earlier, on a conference call with Wall Street analysts, he said Newmont maintained its outlook for capital expenditures and costs this year.

"Although capital spending through the first half of 2011 has been lower than expected across the portfolio, we do expect to accelerate capital spending in the second half of the year," O'Brien said.

Newmont said its capital expenditure for this year was in the range of $2.1 billion to $2.5 billion, much of it for new mining projects in Ghana, Peru, Canada and Nevada.

O'Brien also told analysts he was anticipating discussions with Peruvian officials over President-elect Ollanta Humala's idea to tax the windfall profits of mining firms.

"I hope that President Humala will be a president who values the contribution of business in general and mining in particular."

He said Newmont has "a pretty good sense" of what Humala has in mind "and we've incorporated that into our economics."

"I won't tell you what our assumption is, but we have made some assumptions," said O'Brien.

Newmont and partner Buenaventura (BVN.N) agreed this week to invest up to $4.8 billion into the Conga gold and copper mine in Peru.

In a press release, Newmont said second-quarter earnings from continuing operations were $523 million, or $1.06 per share, compared with $382 million, or 78 cents per share, a year earlier.

Adjusted for items, earnings were 90 cents per share, and on that basis, fell short of analysts' average estimate of 99 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 11 percent to $2.4 billion, said the Denver-based company, which operates mines in North and South America, Africa, Australia and Indonesia. Its average realized price for gold rose 25 percent in the second quarter to $1,501 per ounce over the 2010 quarter.

But results were hurt by a drop in gold and copper production and higher mining costs, Newmont said, Gold production of 1.2 million ounces was down 5 percent and the 44 million pounds of copper mined was 45 percent lower.

Gold costs applicable to sales (CAS) rose to $583 per ounce from $485 and copper CAS soared to $1.34 from 77 cents, the company said, citing several factors, including higher diesel prices, currency exchanges, royalties and labor costs.

In Nevada, gold costs rose 9 percent to $636 per ounce as production decreased 15 percent, Newmont said.

At Yanacocha, Peru, gold production decreased 3 percent but costs rose 40 percent to $545 per ounce, due to higher waste mining, higher diesel prices and labor and royalty costs.

At Boddington, the largest gold mine in Australia, gold production increased 11 percent, but costs were up 10 percent because of higher conveyor maintenance costs, royalties and power, higher diesel prices and a stronger Australian dollar.

At Batu Hijau, Indonesia, gold production decreased 70 percent and copper was off 56 percent in the second quarter due in part to lower grade ores being mined.

Newmont maintained its 2011 outlook for total gold production of 5.1 million to 5.3 million ounces at CAS of between $560 and $590 per ounce. Its copper production target is 190 million to 220 million pounds at CAS of between $1.25 and $1.50 per pound.

(Reporting by Steve James; Editing by Lisa Von Ahn, Derek Caney, Dave Zimmerman and Gunna Dickson)

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