Newmont Goldcorp Corporation — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and six months ended June 30, 2019. Newmont is a global gold producer with operations and investments in North America, South America, Australia, Africa and other jurisdictions, and also produces copper, silver, lead and zinc. The period includes Goldcorp results from the April 18, 2019 acquisition date.
Key financial and operating metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Sales | $2,257 million | $1,662 million | $4,060 million | $3,479 million |
| Net income attributable to Newmont stockholders | $(25) million | $292 million | $62 million | $484 million |
| Continuing-operations net income attributable to stockholders | $1 million | $274 million | $114 million | $444 million |
| Diluted continuing-operations EPS | $0.00 | $0.51 | $0.18 | $0.83 |
| Adjusted net income | $92 million | $144 million | $268 million | $329 million |
| Adjusted diluted EPS | $0.12 | $0.26 | $0.41 | $0.61 |
| Adjusted EBITDA | $679 million | $545 million | $1,366 million | $1,189 million |
| Operating cash flow from continuing operations | Not separately provided | Not separately provided | $875 million | $667 million |
| Free cash flow | Not separately provided | Not separately provided | $270 million | $178 million |
| Gold produced, consolidated | 1.612 million ounces | 1.242 million ounces | 2.949 million ounces | 2.528 million ounces |
| Gold all-in sustaining cost | $1,016/ounce | $978/ounce | $967/ounce | $961/ounce |
Q2 sales increased 36%, primarily from the Goldcorp acquisition and higher gold volumes. Gold represented $2,154 million of Q2 sales. Gold production increased 30%, while the average realized gold price increased to $1,317 per ounce from $1,292. Copper sales declined to $59 million from $81 million, reflecting lower volumes and realized prices.
Q2 costs applicable to sales were $1,366 million, or approximately 60.6% of sales, compared with 58.1% in the prior-year quarter. Q2 continuing-operations EBITDA was $589 million, approximately 26.1% of sales, compared with $633 million, or approximately 38.1%, in the prior-year quarter. These comparisons were affected by acquisition-related items, mine interruptions and changes in the portfolio.
At June 30, 2019, cash and cash equivalents were $1,827 million, total debt was $6,101 million, lease and other financing obligations were $671 million, and net debt was $4,945 million. The company reported $2,929 million of available borrowing capacity under its revolving credit facility and no outstanding revolver borrowings. Debt maturities include $626 million due in the remainder of 2019, including a payment due October 1, 2019.
Material changes versus the prior comparable period
- Newmont completed the primarily stock-based Goldcorp acquisition for total consideration of $9,456 million and issued approximately 285 million shares. The purchase price allocation remained preliminary at June 30.
- The acquisition added mines including Red Lake, Musselwhite, Porcupine, Éléonore, Peñasquito and Cerro Negro, as well as equity-method interests including Pueblo Viejo. Goldcorp contributed $449 million of sales and an $89 million net loss from April 18 through June 30.
- Net income declined sharply because of $114 million of Q2 Goldcorp transaction and integration costs, $11 million of Nevada joint venture costs, higher interest expense, operating interruptions at Peñasquito and Musselwhite, and the absence of a $100 million prior-year royalty-portfolio gain.
- Adjusted net income fell 36% to $92 million, while adjusted EBITDA rose 25% to $679 million, reflecting higher production and the acquired portfolio but also integration and operating disruption effects.
- Operating cash flow from continuing operations increased 31% for the six-month period to $875 million. Capital additions increased to $605 million from $489 million, and free cash flow rose to $270 million from $178 million.
- Financing cash outflows increased to $2,036 million, including $1,250 million of debt repayment and $666 million of dividends. The company paid a one-time special dividend of $0.88 per share and declared a regular dividend of $0.14 per share.
- Reclamation and remediation liabilities increased to $3,170 million, including liabilities acquired with Goldcorp and additional estimates for the Dawn remediation site and Con Mine water management.
- Peñasquito was in care and maintenance for 49 days because of a community-led blockade, which was lifted June 16. Musselwhite was materially affected by a March conveyor fire and remained in care and maintenance; the company received $41 million of insurance proceeds, with $14 million offsetting abnormal costs.
Outlook, management commentary, risks and unusual items
- Nevada Gold Mines was established with Barrick on July 1, 2019. Newmont owns 38.5%, Barrick owns and operates 61.5%, and the joint venture is expected to be reported as a separate segment beginning in the third quarter. The valuation of Newmont’s interest was incomplete at June 30, and a gain or loss was expected to be recognized in the third quarter.
- Management stated that cash, operating cash flow and available revolver capacity should be adequate for working capital, projects, debt obligations, dividends and other foreseeable liquidity needs. Newmont also made an initial $90 million cash contribution to the Nevada joint venture in July 2019.
- Near-term projects include Quecher Main, the Ahafo Mill Expansion, Borden and Musselwhite Materials Handling. First or commercial production was expected in late 2019 for Quecher Main, Ahafo Mill Expansion and Borden; Musselwhite Materials Handling was expected to be fully operational in mid-2020.
- Key risks include metal-price volatility, higher operating and capital costs, mine interruptions, geotechnical and tailings risks, permitting and environmental obligations, political and community disruption, labor disputes, foreign exchange and inflation, tax disputes, integration execution and dependence on Barrick as operator of Nevada Gold Mines.
- Significant contingencies include a potential Yanacocha tax liability of up to $88 million, Mexican tax matters that could materially affect the company but were not fully determinable, environmental obligations, and various legal proceedings for which outcomes could not be predicted.
- Newmont does not hedge gold or copper sales, leaving earnings and cash flow directly exposed to metal prices. At quarter-end, 119,000 ounces of gold and 23 million pounds of copper remained subject to final pricing.
Most important facts for an investor to verify
- Whether Goldcorp integration costs, mine interruptions and expected synergies develop as projected.
- The final Goldcorp purchase price allocation, including goodwill, acquired environmental liabilities, deferred taxes, debt and the silver streaming agreement.
- The third-quarter valuation gain or loss and operating results of the 38.5% Nevada Gold Mines interest.
- Progress and cost performance at Peñasquito, Musselwhite, Borden, Ahafo Mill Expansion and Quecher Main.
- Debt repayment capacity, the October 2019 $626 million maturity, net debt reduction and continued dividend funding.
- Exposure to gold, copper, silver, lead and zinc prices, production volumes, realized prices and AISC.
- Resolution of the Yanacocha, Mexican tax, environmental, community and other legal contingencies.
- Whether the company maintains compliance with debt covenants and successfully integrates Goldcorp’s financial reporting and internal controls.