February 24, 2011 / 12:05 PM / in 7 years

UPDATE 5-Newmont sees gold, copper output off; stock drops

* Q4 adj EPS $1.16 vs Wall Street view $1.14

* Sees less gold from Australia, drop in copper

* Stock down 7 percent (Adds CEO, analyst comments; stock movement)

By Steve James

NEW YORK, Feb 24 (Reuters) - Newmont Mining Corp (NEM.N) forecast a big drop in copper production in 2011 and slightly less gold, partly because of lower ore grades at its flagship mine in Australia, and its shares fell 7 percent.

The world’s No. 2 gold producer also said on Thursday its fourth-quarter profit rose above Wall Street’s expectations, while attributable gold reserves increased 2 percent to 93.5 million ounces.

But Newmont shares dropped 7.02 percent to $54.96 in afternoon New York Stock Exchange trading and analyst Adam Graf of Dahlman Rose & Co said investors appeared to be reacting to the lower production forecasts.

“2010 (results) looked good, but everybody is looking forward and the stock is trading on that forward look. People are disappointed with the 2011 guidance,” he said.

Analyst Michael Dudas of Jefferies & Co also pointed to the 2011 forecast being lower than expected. But he said a combination of macro, micro, and technical drivers should allow gold prices to edge up in the next 12 to 18 months.

“As investors continue to discount a higher perceived price for gold, we anticipate Newmont shares to better reflect pricing,” he said in a research note.

In the fourth quarter, Newmont produced 1.4 million ounces of gold and 74 million pounds of copper. Full-year 2010 gold production was up slightly at 5.4 million ounces and copper production rose 44 percent to 327 million pounds.

But for 2011, Newmont lowered its gold target to a range of 5.1 million to 5.3 million ounces and said it expected 190 million to 220 million pounds of copper, mostly because of reduced production at Batu Hijau in Indonesia.

On a conference call with analysts, Newmont’s president and chief executive officer, Richard O’Brien, said he was comfortable with the 5.1 million to 5.3 million level, saying it was “a pretty good base for the next five years or so.”

He acknowledged he now expects 750,000 ounces to 800,000 ounces of gold per year in the first few years of production from Newmont’s Boddington mine in Western Australia.

Newmont originally expected to get 1 million ounces annually in the initial years before production fell back to a rate of around 550,000 ounces annually.

“We feel good about that level of production,” O’Brien said, noting Boddington is a long-term project with a 20-million ounce reserve.

Although 2010 gold production of 728,000 ounces at Boddington was within the targeted range, it was lower than Newmont’s original estimate of 750,000 to 825,000 ounces for the year.

Newmont said Boddington’s lower-than-expected gold production stemmed mainly from lower ore grades it is currently mining, while higher operating costs are expected from the lower production volumes.

Analyst Graf said he expected “somewhat short of a million” in the early years of production until it stabilizes at around 550,000 ounces in 2018 and beyond. “(But) it doesn’t impair the resource,” he said.

He also noted that copper production, which is not a major part of Newmont’s business, was particularly good at Batu Hijau last year, but that it would be lower in 2011 and 2012 as miners work through lower-grade ores. “But it will come back again as it’s cyclical.”

Denver-based Newmont said fourth-quarter net earnings rose to $812 million, or $1.61 per share, from $558 million, or $1.13 per share, a year earlier.

Adjusted for certain items, earnings per share were $1.16, which beat analysts’ estimates of $1.14, according to Thomson Reuters I/B/E/S.

Sales rose to $2.55 billion from $2.52 billion, said the company, which operates mines in North and South America, Africa, Australia and Indonesia. Spot gold XAU= gained 8.5 percent during the fourth quarter, rising from $1,309.05 per ounce on Oct. 1 to $1,419.45 on Dec. 31. (Reporting by Steve James; Editing by Derek Caney, Gerald E. McCormick, Lisa Von Ahn and Gunna Dickson)

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