Business Context and Reporting Period
Newmont Goldcorp Corporation filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The company is a global gold producer with copper, silver, lead and zinc operations in North America, South America, Australia and Africa. Results include Goldcorp operations from April 18, 2019 and Newmont’s 38.5% interest in Nevada Gold Mines from July 1, 2019.
Financial and Operating Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Sales | $2,713 million | $1,726 million | $6,773 million | $5,205 million |
| Net income attributable to Newmont stockholders | $2,178 million | $(145) million | $2,240 million | $339 million |
| Continuing operations attributable to stockholders | $2,226 million | $(161) million | $2,340 million | $283 million |
| Diluted EPS from continuing operations | $2.71 | $(0.31) | $3.30 | $0.53 |
| Adjusted net income | $292 million | $175 million | $560 million | $504 million |
| Adjusted diluted EPS | $0.36 | $0.33 | $0.79 | $0.94 |
| Adjusted EBITDA | $1,079 million | $636 million | $2,445 million | $1,825 million |
| Operating cash flow from continuing operations | Not separately provided | Not separately provided | $1,668 million | $1,095 million |
| Free cash flow | Not separately provided | Not separately provided | $635 million | $332 million |
| Gold production | 1.650 million oz. | 1.394 million oz. | 4.599 million oz. | 3.922 million oz. |
| Gold all-in sustaining cost | $987/oz. | $895/oz. | $974/oz. | $937/oz. |
| Average realized gold price | $1,476/oz. | $1,201/oz. | $1,370/oz. | $1,271/oz. |
Gold represented $2,483 million of third-quarter sales and $6,376 million for the nine-month period. Q3 sales also included $78 million of silver, $25 million of lead and $87 million of zinc, primarily from Peñasquito. Costs applicable to sales were $1,392 million in Q3 and $3,736 million for nine months.
As of September 30, 2019, cash and cash equivalents were $2,712 million. Reported debt was $6,765 million excluding lease and other financing obligations; including those obligations, net debt was $4,750 million. The company had $2,940 million of available borrowing capacity under its revolving credit facility and stated that it was in compliance with debt covenants.
Capital expenditures were $1,033 million for the first nine months, including $638 million of sustaining capital and $384 million of development projects on an accrual basis. The company declared a quarterly dividend of $0.14 per share and paid a one-time special dividend of $0.88 per share in May 2019.
Material Changes Versus the Prior Comparable Period
- Sales increased 57% in Q3 and 30% for the first nine months, mainly due to the Goldcorp acquisition, higher gold production and higher realized gold prices.
- Continuing-operations net income attributable to stockholders increased by $2,387 million in Q3 and $2,057 million for nine months. The largest driver was the $2,366 million pretax gain recognized on formation of Nevada Gold Mines, so reported GAAP earnings are not representative of recurring operating performance.
- Adjusted EBITDA increased 70% in Q3 and 34% for nine months, while adjusted diluted EPS increased from $0.33 to $0.36 in Q3 but declined from $0.94 to $0.79 for nine months.
- Gold production increased 18% in Q3 and 17% for nine months. The increase reflected acquired operations, including Éléonore, Porcupine, Peñasquito, Red Lake and Cerro Negro, as well as improved production at Ahafo and certain South American operations.
- Gold AISC increased from $895 to $987 per ounce in Q3 and from $937 to $974 per ounce for nine months. Higher costs reflected acquired assets, sustaining capital, higher royalties and operational disruptions.
- Newmont completed the $9,456 million, primarily stock-based acquisition of Goldcorp on April 18, 2019. The preliminary purchase price allocation included $2,752 million of goodwill and remained subject to refinement.
- Newmont and Barrick formed Nevada Gold Mines on July 1, 2019. Newmont owns 38.5%, Barrick owns and operates 61.5%, and Newmont recognized its interest using proportionate consolidation.
- Debt increased materially following the Goldcorp transaction. Newmont issued $700 million of 2.80% notes due 2029 and used the net proceeds primarily to repay $626 million of notes due in 2019.
- Reclamation and remediation liabilities increased to $3,441 million from $2,481 million at year-end 2018, substantially reflecting liabilities acquired with Goldcorp and updated closure estimates.
Guidance, Outlook, Commentary, Risks and Unusual Items
The filing does not provide a clear consolidated full-year production, cost or financial guidance figure. Management described its strategy as maintaining financial flexibility, self-funding development projects, reducing debt and returning cash to shareholders.
- Quecher Main and the Ahafo Mill Expansion achieved first production in 2019 and were declared commercially producing in October 2019. Quecher Main is expected to extend Yanacocha’s mine life to 2027, with approximately 200,000 consolidated gold ounces of annual production expected between 2020 and 2025. The Ahafo expansion is expected to add 75,000 to 100,000 ounces annually for the first five years beginning in 2020.
- Borden achieved commercial production in October 2019. Musselwhite materials-handling work was delayed by a conveyor fire and was expected to be fully operational in mid-2020.
- Peñasquito was placed into care and maintenance for 17 days in Q3 following a community blockade. The blockade was lifted in early October, but the filing stated that ramp-up would be gradual while negotiations continued.
- Musselwhite had no Q3 gold production following the March 2019 conveyor fire; processing was expected to restart in the first half of 2020. Red Lake also experienced a temporary mining pause at the Cochenour complex, with mining resuming in October.
- Newmont is reviewing potential sale opportunities for Red Lake but had not classified the asset as held for sale as of the filing date.
- Key risks include volatile gold and base-metal prices, cost inflation, grade and recovery variability, permitting, environmental and reclamation obligations, community and governmental support, labor and operating disruptions, foreign exchange, tax disputes, political and currency controls, and project execution risks.
- Argentina introduced temporary currency controls in September 2019. The company reported no significant third-quarter financial statement impact but cautioned that an extension beyond December 31, 2019 could be material.
- Significant contingencies include a Yanacocha tax dispute with potential liability of up to $86 million, unresolved Mexican tax matters that could be material, environmental remediation obligations and various legal proceedings whose outcomes cannot be predicted.
- The company recorded $185 million of Goldcorp transaction and integration costs and $26 million of Nevada JV transaction and implementation costs during the first nine months. The 2018 comparable period included $366 million of long-lived asset impairments, versus $4 million in 2019.
Important Facts for Investors to Verify
- Reconcile recurring operating performance using adjusted net income, adjusted EBITDA, production and AISC rather than relying on the $2,366 million NGM formation gain.
- Review the final Goldcorp purchase price allocation, including goodwill, reclamation liabilities, deferred taxes, silver streaming obligations and unrecognized tax benefits.
- Monitor Peñasquito’s post-blockade ramp-up, Musselwhite’s processing restart and Red Lake operating performance.
- Verify the timing and cost of Quecher Main, Ahafo Mill Expansion, Borden, Tanami Expansion 2 and other development projects.
- Assess leverage and liquidity after the Goldcorp acquisition, including $6,765 million of debt, $697 million of lease and other financing obligations and available revolver capacity.
- Evaluate sensitivity to gold and other metal prices, including provisionally priced sales subject to final settlement and the company’s policy of not hedging metal sales.
- Review environmental, reclamation and remediation exposures, including the $3,441 million recorded liability and potential changes in closure-cost estimates.
- Track the Yanacocha and Mexico tax disputes, Ghana and other legal proceedings, and the potential impact of currency controls in Argentina.