October 29, 2009 / 2:29 PM / 8 years ago

WRAPUP 2-High gold, low costs boost Newmont, Barrick results

* Barrick, Newmont adjusted earnings top estimates

* Barrick takes net loss on $5.7 bln accounting charge

* Shares of both companies rise (Adds comments and details)

By Cameron French and Steve James

TORONTO/NEW YORK, Oct 29 (Reuters) - Soaring gold prices and lower costs allowed top gold miners Barrick Gold ABX.TO and Newmont Mining NEM.N to record stronger core earnings on Thursday, driving their shares higher despite a multibillion-dollar bottom-line loss for Barrick.

Barrick, the world’s biggest gold miner, took a $5.7 billion charge -- which it had previously announced -- to eliminate most of its gold hedge book, resulting in a third-quarter net loss of $5.4 billion.

Stripping out the charge and some smaller items, Toronto-based Barrick reported earnings of 54 cents a share, well above Wall Street expectations of 46 cents a share.

Denver-based Newmont, the world’s No. 2 gold miner, did even better, reporting net earnings of $388 million, or 79 cents a share, against estimates of 55 cents.

Both companies benefited from gold prices that approached record levels during the quarter, while costs declined from the year-before period.

“It’s a perfect market (for gold producers),” said Salman Partners analyst Haytham Hodaly.

Analysts said the cost performance was better than expected as lower costs for fuel and chemical reagents combined with a largely trouble-free quarter on the production front.

The combination of high gold prices and steady costs was a stark contrast from 2008, when the impact of strong prices was largely offset by rampant cost inflation.

“Last year, oil prices went up much more dramatically than the price of gold. Something like 35 percent of the cost for these mining companies is the input cost of energy. So energy prices took away their profit margins,” said Frank Holmes, CEO of U.S. Global Investors of San Antonio, Texas.

“Now gold is up and oil is down - that is a key factor for the Newmonts of the world.”

The U.S. miner extracted gold at a cost of $404 an ounce, down from $467 an ounce a year earlier, while Barrick’s cash costs per ounce fell to $456 from $466.

Both companies expect rising production next year, which will allow them more exposure to a gold price that was trading just shy of $1,050 an ounce on Thursday. The precious metal hit a record high of $1,070.40 an ounce on Oct. 14.

At mid-afternoon, Barrick stock was up C$2.37 at C$39.41 in Toronto, while Newmont rose $1.65 to $43.13 in New York.

BIG LOSS, BUT GAIN

Barrick’s decision to get rid of its hedges, or forward sales, will relieve it of sales obligations it entered into when the gold price was a fraction of its current level.

It originally entered the hedges to protect against falling gold prices, but gold’s surge since 2001 quickly turned them into a weight on both revenues and investor sentiment.

Barrick said on Thursday it has bought back about one-third of its 2.9 million ounce fixed hedge position, which means the company will continue to be active in buying back gold to fill the hedges, which could help underpin gold prices.

“I would have thought they would have reversed more (by now),” said John Ing, president of Toronto-based investment dealer Maison Placements.

“They’re going to have to remain ongoing buyers.”

The money set aside under the umbrella of the $5.7 billion charge has been used both to buy back hedges to this point and to buy back the remaining hedges to close out its position.

STRONG GOLD=STRONG REVENUE

Barrick’s quarterly revenue rose 11.6 percent to $2.1 billion as its average realized gold price in the quarter rose to $971 per ounce from $874 a year earlier.

The company reiterated its full-year 2009 gold production forecast of 7.2 million to 7.6 million ounces, and expects that to rise to 7.7 million to 8.1 million ounces in 2010.

Newmont’s profit doubled, meanwhile, to $388 million from $191 million, as revenue rose 50 percent to $2.05 billion.

Newmont expects its gold production to improve by about 5 percent to 10 percent for 2010, primarily as a result of higher production its new Boddington mine in Australia and from Batu Hijau in Indonesia.

$1=$1.07 Canadian Additional reporting by Euan Rocha in Toronto; editing by Peter Galloway

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