Newmont Mining Corporation Form 10-Q Summary
Business context and reporting period
Newmont Mining Corporation is a global gold producer with copper and exploration activities in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Suriname. This unaudited Form 10-Q covers the three and six months ended June 30, 2015, with comparisons to the corresponding 2014 periods. The company reported 529.1 million common shares outstanding as of July 16, 2015.
Key financial and operating metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Sales | $1,908 million | $1,765 million | $3,880 million | $3,529 million |
| Income from continuing operations | $139 million | $147 million | $360 million | $212 million |
| Net income | $148 million | $145 million | $377 million | $193 million |
| Net income attributable to Newmont stockholders | $72 million | $180 million | $255 million | $280 million |
| Basic EPS | $0.14 | $0.36 | $0.51 | $0.56 |
| Operating cash flow | Not separately provided | Not separately provided | $1,063 million | $555 million |
| Capital expenditures, cash basis | Not separately provided | Not separately provided | $606 million | $489 million |
| Cash and cash equivalents at period end | Not applicable | Not applicable | $3,308 million | $1,653 million |
| Total debt | Not separately provided | Not separately provided | $6,383 million | Not provided at June 30, 2014 |
Gold production was 1.402 million ounces in the second quarter and 2.764 million ounces in the first half, while copper production was 157 million pounds and 296 million pounds, respectively. Consolidated gold costs applicable to sales were $638 per ounce in the quarter and $623 per ounce in the first half; copper costs were $1.20 and $1.27 per pound. Gold operating margin was $541 per ounce in the quarter and $569 per ounce in the first half. These cost and margin measures are non-GAAP measures.
At June 30, 2015, total assets were $25,961 million, total liabilities were $11,693 million, and total equity was $14,268 million. Current assets were $6,556 million versus current liabilities of $2,356 million. The company had no borrowings under its $3.0 billion corporate revolving credit facility, although $86 million was used to support letters of credit.
Material changes versus the prior comparable period
- Sales increased 8% in the second quarter and 10% in the first half, primarily because of substantially higher copper volumes from Batu Hijau and higher gold production, despite lower realized metal prices.
- Realized gold prices declined to $1,179 per ounce in the quarter and $1,192 per ounce in the first half, compared with $1,283 and $1,288, respectively, in 2014. Realized copper prices declined to $2.41 and $2.37 per pound from $3.01 and $2.76.
- Newmont stockholders’ net income declined 60% in the quarter and 9% in the first half. The principal pressures were lower metal prices, higher income and mining taxes, investment impairments and increased income attributable to noncontrolling interests.
- Direct operating costs declined 10% in the quarter and 14% in the first half, supported by Full Potential initiatives, lower fuel prices, favorable Australian dollar exchange rates and lower stockpile adjustments.
- Gold production increased 8% in the quarter and 7% in the first half. Copper production increased 153% and 113%, respectively, primarily because Batu Hijau accessed higher-grade phase 6 ore and resumed exports after the 2014 export restrictions.
- Operating cash flow nearly doubled year over year, while capital expenditures increased from $489 million to $606 million in the first half.
- The company issued common stock for net proceeds of $675 million and paid $281 million of debt during the first half. The quarterly dividend remained $0.025 per share, versus $0.025 in the second quarter of 2014; first-half dividends declined to $0.050 per share from $0.175.
- Newmont recorded $73 million of investment impairment charges in the first half, primarily related to Regis Resources securities, and recorded $141 million of stockpile and leach-pad write-downs.
Guidance, outlook, commentary and risks
- Management emphasized the Full Potential program and expected continued productivity, cost and cash-flow improvements. The filing does not provide a clear consolidated full-year production or earnings guidance figure.
- Newmont expected to close its approximately $820 million acquisition of the Cripple Creek & Victor mine in Colorado in the third quarter of 2015, funded with the stock issuance proceeds and cash. The mine expansion was expected to require approximately $200 million of capital, including $50 million to $60 million in 2015, and to produce 350,000 to 400,000 ounces annually in 2016 and 2017.
- Major development projects included Turf Vent Shaft, Merian and Long Canyon. Merian was expected to begin production in late 2016; Long Canyon was expected to reach commercial production in the first half of 2017.
- Construction and development at Conga in Peru remained constrained by community opposition. Newmont stated it would not proceed with full development without social acceptance, acceptable economics and potentially another partner. The Conga assets totaled $1,691 million at June 30, 2015, creating potential impairment risk.
- Batu Hijau’s copper export permit expired in late September 2015, and negotiations with the Indonesian government to amend the Contract of Work remained unresolved. Failure to renew the permit or adverse changes to royalties, taxes, export duties or ownership terms could materially affect operations.
- Waihi’s open-pit activities were suspended after wall slips in April 2015, although underground and processing operations continued. The company agreed to sell Waihi for approximately $101 million, subject to closing expected in the third quarter.
- Ahafo and Akyem production was affected by power shortages and load shedding in Ghana. Labor negotiations in Ghana remained ongoing, and several collective bargaining agreements were approaching expiration.
- Key risks include volatile gold and copper prices, reserve and recovery uncertainty, higher operating and development costs, environmental and reclamation obligations, permitting and regulatory changes, political and community opposition, currency movements, labor disruptions, geotechnical failures, water and power availability, and litigation.
- Reclamation and remediation liabilities totaled $1,717 million at June 30, 2015. Outstanding letters of credit, surety bonds and bank guarantees totaled $1,962 million.
- The company reported $399 million of unrecognized tax benefits and expected that approximately $50 million to $55 million could decrease during the following 12 months as statutes expire or matters are settled.
Most important facts for investors to verify
- Whether Batu Hijau obtained continued copper export permits and completed Contract of Work negotiations after the September 2015 permit expiration.
- The closing, purchase accounting, financing and operating performance of the Cripple Creek & Victor acquisition.
- Actual gold and copper prices, production, costs applicable to sales and all-in sustaining costs relative to the company’s plans.
- The effect of stockpile write-downs, investment impairments, tax valuation allowances and the unusually high 2015 effective tax rate.
- Progress, capital requirements and impairment exposure for Conga, Merian, Long Canyon and Turf Vent Shaft.
- Developments involving Ghana power shortages and labor negotiations, Waihi’s sale and geotechnical conditions at Leeville and other mines.
- The adequacy of liquidity after acquisition spending, scheduled debt repayments and required reclamation, environmental and bonding commitments.
- The final pricing of 210,000 ounces of provisionally priced gold and 133 million pounds of provisionally priced copper outstanding at quarter-end.