NEWMONT Corp annual report, FY2014

Newmont Mining Corporation — FY2014 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2014. The filing also presents fourth-quarter 2014 results. Newmont is a global gold producer with copper production and assets in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Suriname.

Financial and Operating Metrics

Metric	2014	2013
Sales	$7,292 million	$8,414 million
Income from continuing operations	$369 million	$(2,856) million
Net income attributable to Newmont stockholders	$508 million	$(2,534) million
Basic EPS	$1.02	$(5.09)
Net cash from continuing operations	$1,451 million	$1,561 million
Capital expenditures	$1,110 million	$1,900 million
Cash and cash equivalents	$2,403 million	$1,555 million
Total debt	$6,646 million	$6,740 million
Net debt	$4,243 million	$5,185 million

Consolidated gold production was 5.231 million ounces, including 4.845 million attributable ounces; gold sold was 5.240 million ounces.
Consolidated copper production was 271 million pounds, including 191 million attributable pounds; copper sold was 264 million pounds.
Average realized prices were $1,258 per gold ounce and $2.65 per copper pound.
Gold costs applicable to sales were $706 per ounce, producing a reported non-GAAP gold operating margin of $552 per ounce. Consolidated gold all-in sustaining cost was $1,002 per ounce.
Copper costs applicable to sales were $2.88 per pound, exceeding the $2.65 realized price and producing a negative non-GAAP operating margin of $0.23 per pound. Consolidated copper all-in sustaining cost was $3.65 per pound.
Newmont reported $82.2 million attributable ounces of proven and probable gold reserves, 7,930 million attributable pounds of copper reserves and 143.6 million attributable ounces of silver reserves.
The company maintained a $3,000 million revolving credit facility with no borrowings outstanding at year-end; $141 million was used for letters of credit.
Dividends declared fell to $0.225 per share from $1.225 per share in 2013. A quarterly dividend of $0.025 per share was declared in February 2015.

Material Changes Versus the Prior Comparable Period

Sales declined 13%, primarily because the average realized gold price fell 10%, the average realized copper price fell 11%, and gold ounces sold declined 14%.
Gold production declined 4%, reflecting planned stripping at Carlin and Twin Creeks, the sales of Midas, La Herradura and Jundee, and lower South American recoveries. Higher Akyem and Batu Hijau production partly offset the decline.
Copper production increased 3%, primarily due to a full year of production from the Phoenix Copper Leach facility.
Costs applicable to sales decreased 16% overall, and gold costs per ounce declined 9%; copper costs per pound declined 30%, helped by operational improvements and unfavorable prior-year inventory adjustments.
The company returned to profitability after significant 2013 impairment charges. Property, plant and mine-development write-downs were $26 million in 2014 versus $4,352 million in 2013.
Cash flow remained strong but declined modestly from 2013 as lower metal prices and lower gold sales offset lower operating costs and improved working capital.
Newmont sold its Midas operation, its Jundee mine and its 44% interest in La Herradura, generating total proceeds of approximately $661 million from asset sales.
Gold reserves declined from 88.4 million ounces to 82.2 million ounces after 5.5 million ounces of depletion, 2.5 million ounces of divestments and 1.8 million ounces of net additions and revisions.

Fourth-Quarter 2014 Results

Sales were $2,017 million, compared with $2,188 million in the fourth quarter of 2013.
Income from continuing operations attributable to Newmont stockholders was $39 million, and net income was $15 million, or $0.03 per basic share.
Significant fourth-quarter items included a $43 million tax valuation allowance charge, a $24 million discontinued-operations loss, a $23 million gain on asset sales, a $14 million asset-impairment loss and a $10 million reclamation-settlement loss.

Outlook, Projects and Management Commentary

Management emphasized the Full Potential program, portfolio optimization and cost and cash-flow improvement initiatives.
Merian in Suriname received full funding approval in July 2014 and began construction in August 2014. Newmont expected production in late 2016, average life-of-mine production of 300,000 to 400,000 ounces annually on a 100% basis and attributable capital spending of $600 million to $700 million.
The Turf Vent Shaft project was expected to begin commercial production in late 2015 and add approximately 100,000 to 150,000 ounces annually; estimated capital cost was approximately $400 million.
Waihi Correnso was expected to begin commercial production in 2015, with estimated capital costs of $30 million to $35 million.
Investment decisions were expected in 2015 for Long Canyon and the Tanami Expansion. Subika Underground and the Ahafo Mill Expansion remained under evaluation.
Conga development remained conditional on social acceptance, acceptable project economics and potentially obtaining another partner. The filing states that failure to proceed could result in an impairment of the project; Conga assets totaled $1,700 million at year-end.
Newmont does not hedge gold or copper sales, leaving revenue and cash flow directly exposed to metal prices. It hedges portions of foreign-currency, diesel and interest-rate exposures.

Risks, Contingencies and Unusual Items

Batu Hijau, Indonesia: A six-month copper-concentrate export permit was scheduled to expire in mid-March 2015. Contract-of-Work renegotiations remained unresolved and could result in higher royalties, export duties, additional processing requirements, reduced production or loss of operating control. Batu Hijau assets totaled $3,107 million.
Ghana: Power shortages related to insufficient rainfall could cause intermittent shutdowns or production curtailments at Ahafo and Akyem.
Commodity prices: Lower gold or copper prices could reduce revenue, impair assets, require further stockpile and leach-pad write-downs and reduce reserves. The filing states that a $1,200 gold-price assumption would reduce 2014 gold reserves by approximately 13%.
Environmental obligations: Accrued reclamation liabilities were $1,497 million for current or recently producing properties and $192 million for primarily historic properties. Total reclamation and remediation liabilities were $1,689 million.
Off-balance-sheet support: Letters of credit, surety bonds and bank guarantees totaled $1,865 million, primarily supporting reclamation, permitting and other obligations.
Debt and ratings: Standard & Poor’s had reduced Newmont’s rating to BBB and assigned a negative outlook; Moody’s had downgraded the debt to Baa2 with a negative outlook. Scheduled minimum debt repayments were $165 million in 2015, $222 million in 2016 and $799 million in 2017.
Tax matters: Deferred-tax valuation allowances were $2,817 million, and gross unrecognized tax benefits were $394 million at year-end.
Market and operating risks: The filing highlights political and permitting risks, community opposition, labor disruptions, water and energy availability, geotechnical failures, environmental liabilities, currency movements, cybersecurity and the difficulty of replacing depleted reserves.

Most Important Facts for Investors to Verify

Whether Batu Hijau obtained continuing export permits and finalized its amended Contract of Work after the mid-March 2015 deadline.
Actual 2015 gold and copper production, realized prices, costs applicable to sales and all-in sustaining costs, particularly at Batu Hijau, Ghana and mature Nevada operations.
Funding, construction progress, capital costs and expected production timing for Merian, Turf, Correnso and other development projects.
Whether Conga received sufficient community and government support to resume full development and whether any impairment was recorded.
Changes in gold, copper and foreign-exchange prices relative to the assumptions used for reserves, impairment testing, stockpile valuation and deferred-tax assets.
Debt maturities, covenant compliance, credit ratings and the availability of the revolving credit facility.
Updates to reclamation, remediation, environmental, tax and litigation exposures, including the amount of outstanding guarantees and letters of credit.
The impact of divestitures and ownership changes on consolidated sales, cash flow, reserves and operating control.