NEWMONT Corp quarterly report, Q1 FY2013

Newmont Mining Corporation: Q1 2013 Form 10-Q Summary

Business context and reporting period

Newmont is a global gold producer with copper operations and assets in the United States, Australia, Peru, Indonesia, Ghana, Mexico and New Zealand. This unaudited Form 10-Q covers the three months ended March 31, 2013, with comparison to the first quarter of 2012. The company reorganized segment reporting to present Indonesia as a separately managed region. On March 12, 2013, Newmont completed the sale of the Hope Bay Project to TMAC Resources but continued consolidating TMAC as its variable-interest entity.

Financial and operating metrics

Metric	Q1 2013	Q1 2012
Sales	$2,177 million	$2,683 million
Income from continuing operations	$357 million	$674 million
Net income	$357 million	$603 million
Net income attributable to Newmont stockholders	$315 million	$490 million
Basic EPS	$0.63	$0.99
Adjusted net income	$354 million	$578 million
Cash flow from operations	$433 million	$609 million
Capital expenditures, cash basis	$510 million	$696 million
Cash and cash equivalents at March 31	$1,378 million	$2,612 million
Total debt at March 31	$6,389 million	Not clearly provided for the comparable date

Consolidated gold production was 1.281 million ounces, or 1.165 million attributable ounces, versus 1.479 million and 1.307 million, respectively. Gold sold declined to 1.252 million ounces from 1.455 million ounces. Consolidated copper production increased to 58 million pounds from 57 million, while copper sold declined to 43 million pounds from 58 million.

Average realized prices were $1,631 per gold ounce and $3.13 per copper pound, compared with $1,684 and $4.01, respectively. Consolidated costs applicable to sales were $758 per gold ounce and $2.19 per copper pound, compared with $620 and $1.98. Operating margin declined to $873 per gold ounce and $0.94 per copper pound from $1,064 and $2.03. All-in sustaining costs increased to $1,086 per consolidated gold ounce and $1,115 on an attributable basis, from $1,016 and $1,046.

The effective tax rate was 33% in both periods. The quarterly dividend declared increased to $0.425 per common share from $0.35. Total assets were $29,451 million and total liabilities were $12,326 million at March 31, 2013.

Material changes versus the prior comparable period

Sales decreased 19%, primarily because of lower gold and copper volumes and lower realized metal prices.
Net income attributable to Newmont stockholders decreased 36%, and basic EPS declined 36%.
Gold production declined 13%, reflecting lower grades, recoveries, throughput and inventory timing at several operations, including Nevada, Yanacocha, Batu Hijau and Ahafo.
Gold costs applicable to sales per ounce increased 22%; copper costs per pound increased 11%. Higher mining and milling costs, lower production and reduced by-product credits were key factors.
Exploration expense decreased to $59 million from $88 million, and advanced projects, research and development expense decreased to $52 million from $102 million.
Cash flow from operations decreased $176 million, while investing cash use decreased $348 million because capital expenditures and marketable-security purchases were lower.
Financing cash flow changed from $1,094 million provided in Q1 2012 to $105 million used in Q1 2013. Q1 2013 included $80 million of net debt proceeds, $211 million of dividends and $32 million from the sale of noncontrolling interests; Q1 2012 included substantial debt issuance and repayments.
Other comprehensive income was a $62 million loss in Q1 2013, compared with $8 million of income, primarily due to marketable-security losses and foreign-currency translation.

Guidance, outlook, commentary and risks

Management maintained 2013 attributable gold production guidance of approximately 4.8 to 5.1 million ounces at consolidated costs applicable to sales of approximately $675 to $750 per ounce.
2013 attributable copper production guidance was approximately 150 to 170 million pounds at consolidated costs of approximately $2.25 to $2.50 per pound.
Expected 2013 capital expenditures were increased or reaffirmed at $2.3 billion to $2.5 billion, including $2.0 billion to $2.2 billion attributable to Newmont. Approximately 40% was expected to be development capital.
Expected 2013 exploration expense was $250 million to $300 million; advanced projects, research and development expense was $350 million to $400 million; amortization was approximately $1.05 billion to $1.10 billion; interest expense was approximately $200 million to $250 million; and the full-year tax rate was expected to be approximately 30% to 32%, assuming a $1,500 gold price for the remainder of the year.
Akyem construction was described as on schedule and on budget, with first production expected in late 2013. Phoenix Copper Leach also targeted first production in late 2013.
Conga development remained subject to community and political opposition. Spending was expected to focus on a “water first” approach, but failure to continue the current plan could lead to capital reallocation and a potential impairment.
Merian remained dependent on approval of a mineral agreement with the government of Suriname; first production was targeted for late 2015 or early 2016.
Newmont does not hedge gold or copper sales, leaving earnings and cash flow exposed to metal prices. It uses derivatives for foreign-currency, diesel and interest-rate exposure.
Key risks include commodity-price volatility, operating performance and grades, foreign-exchange movements, permitting, community and government support, project execution, cost inflation, environmental obligations, political and regulatory matters, and information-technology implementation.
Reclamation and remediation liabilities totaled $1,545 million at March 31, 2013, including $1,350 million for producing or recently producing properties and $195 million for former mining activities.
Outstanding letters of credit, surety bonds and bank guarantees totaled $1,835 million. Minimum royalty payments were $60 million in 2013, $38 million annually from 2014 through 2017, and $317 million thereafter.
Unrecognized tax benefits totaled $402 million, of which $126 million could affect the effective tax rate. Management expected a possible reduction of approximately $15 million to $20 million over the following 12 months.
Material contingencies included environmental claims, Yanacocha regulatory matters, PTNNT’s pending Indonesian divestiture and regulatory disputes, and litigation related to the former Fronteer/NewWest Gold transaction. The filing states that ultimate outcomes cannot be reasonably predicted for several matters.
The company corrected errors in previously presented condensed consolidating financial information. Management concluded the errors were not material to the consolidated financial statements and had no effect on debt covenants or Newmont stockholders’ equity.

Most important facts for investors to verify

Whether production volumes, grades and unit costs are tracking the 2013 guidance ranges, particularly at Nevada, Yanacocha, Ahafo and Batu Hijau.
The effect of gold and copper price movements on margins, provisional pricing adjustments and cash flow.
Progress, cost performance and commissioning timing for Akyem and Phoenix Copper Leach.
The status and ultimate economics of Conga, including community support, water infrastructure and impairment exposure.
Actual capital spending, operating cash generation and liquidity relative to debt maturities, dividends and project funding needs.
Changes in reclamation liabilities, environmental claims, surety requirements and other legal contingencies.
The outcome of PTNNT’s final 7% divestiture obligation and related Indonesian tax, export and permitting disputes.
Whether continued consolidation of TMAC remains appropriate if TMAC completes a potential initial public offering.
The comparability of reported non-GAAP measures, including adjusted net income, costs applicable to sales and all-in sustaining costs, with other mining companies.