NEWMONT Corp quarterly report, Q3 FY2009

Newmont Mining Corporation Form 10-Q Summary

Business context and reporting period

Newmont Mining Corporation filed an unaudited Form 10-Q for the three and nine months ended September 30, 2009, comparing results with the corresponding 2008 periods. The company is a global gold and copper producer with operations in North America, South America, Asia Pacific and Africa. Gold and copper sales are the principal revenue sources.

Financial performance and key metrics

MetricQ3 2009Q3 2008Nine months 2009Nine months 2008
Revenue$2,049 million$1,371 million$5,187 million$4,799 million
Income from continuing operations$645 million$215 million$1,242 million$1,101 million
Net income attributable to Newmont stockholders$388 million$191 million$739 million$827 million
Basic earnings per share$0.79$0.42$1.52$1.82
Operating cash flowNot separately provided for the quarterNot separately provided for the quarter$1,949 million$1,063 million
Capital expenditures, cash basisNot separately provided for the quarterNot separately provided for the quarter$1,314 million$1,350 million
  • Gold sales were $1,653 million in the quarter and $4,401 million for the nine months. Gold ounces sold increased to 1.715 million in the quarter and 4.734 million for the nine months.
  • Copper sales were $396 million in the quarter and $786 million for the nine months. Copper pounds sold increased to 141 million in the quarter and 342 million for the nine months.
  • Average realized gold prices increased to $964 per ounce in the quarter and $930 per ounce for the nine months, versus $865 and $900, respectively, in 2008.
  • Average realized copper prices were $2.80 per pound in the quarter, up from $2.01, but $2.30 per pound for the nine months, down from $3.50.
  • Consolidated costs applicable to sales were $404 per gold ounce in the quarter and $419 per ounce for the nine months, compared with $467 and $433 in 2008. Copper costs were $0.50 per pound in the quarter and $0.63 for the nine months, compared with $1.98 and $1.70.
  • Cash and cash equivalents were $3,022 million at September 30, 2009, compared with $435 million at December 31, 2008. Current assets were $5,038 million and current liabilities were $2,201 million.
  • Total debt was $4,923 million, consisting of $225 million current debt and $4,698 million long-term debt, compared with $3,237 million at December 31, 2008.
  • Newmont had no borrowings outstanding under its $2 billion revolving credit facility at September 30, 2009, although the facility supported $320 million of letters of credit.
  • Total assets were $21,147 million and total equity was $11,669 million at September 30, 2009.
  • Quarterly and year-to-date dividends declared were $0.10 and $0.30 per common share, respectively.

Material changes versus the prior comparable period

  • Third-quarter revenue increased approximately 50%, driven by higher gold and copper volumes, higher gold prices and improved copper pricing.
  • Nine-month revenue increased approximately 8%, while stockholder-attributable net income declined approximately 11% because the prior-year period included stronger copper pricing and the 2009 period included higher noncontrolling-interest allocations and share dilution.
  • Production benefited materially from Batu Hijau. Third-quarter copper sales more than tripled, and gold sales increased substantially, reflecting higher throughput, grade and recovery and the absence of a comparable 2008 shipment delay.
  • Yanacocha production increased, while Nevada gold production declined because of lower leach tons and grades. Waihi production was affected by a mill fire that suspended milling until August 2009.
  • Newmont acquired the remaining 33.33% interest in Boddington for consideration estimated at $1,044 million, bringing ownership to 100%. Boddington began milling and produced its first gold pour and copper concentrate shipments in September.
  • The company raised $1,233 million net from a February common-stock offering and issued $504 million net of convertible notes. It also issued senior notes due 2019 and 2039 for net proceeds of $896 million and $1,082 million, respectively.
  • Cash flow from operations increased primarily because of higher metal sales and income-tax refunds. Investing cash outflows increased because of the Boddington acquisition and project spending.

Guidance, outlook, commentary and unusual items

  • Management expected 2009 consolidated gold sales of 6.4 to 6.5 million ounces at costs applicable to sales of $400 to $425 per ounce.
  • Management expected 2009 consolidated copper sales of approximately 460 to 510 million pounds at costs applicable to sales of approximately $0.50 to $0.65 per pound.
  • Expected 2009 capital expenditures were narrowed to $1.6 billion to $1.7 billion. Expected amortization was $740 million to $760 million; exploration expense was $165 million to $175 million; advanced projects, research and development expense was $155 million to $165 million; general and administrative expense was $150 million to $160 million; and net interest expense was $100 million to $110 million.
  • Management expected a 2009 income-tax rate of approximately 28% to 30%, assuming an average gold price of $900 per ounce.
  • Boddington was expected to enter commercial production in the fourth quarter of 2009. Total project costs were expected to be approximately $3.0 billion, excluding capitalized interest, on a 100% basis.
  • A September 2009 geotechnical failure at Batu Hijau suspended pit mining for approximately three weeks. Mining resumed October 10, 2009. Management did not expect a significant effect on previously released 2009 volume or cost guidance, but anticipated accelerated waste removal and possible delays in ore access during 2010 and 2011.
  • The Boddington acquisition produced $67 million of transaction costs and included a contingent royalty with a fair value of $62 million and a maximum undiscounted amount of $100 million.
  • Discontinued operations, including Kori Kollo, produced a $14 million loss for the nine months, compared with $17 million of income in 2008.
  • Environmental and reclamation liabilities totaled $777 million at September 30, 2009. The company also had $872 million of outstanding letters of credit, surety bonds and bank guarantees.
  • Unrecognized tax benefits totaled $120 million. Management believed net unrecognized tax benefits could decrease by approximately $55 million to $87 million during the following 12 months.
  • The company’s key risks include gold and copper price volatility, foreign-exchange and diesel-price exposure, mining and construction execution, environmental obligations, political and permitting risks, and the required divestiture of interests in Indonesia’s Batu Hijau operation.
  • Under the Indonesian Contract of Work, the Newmont-Sumitomo partnership could be reduced to a 49% interest in PTNNT. The company could potentially lose control and deconsolidate Batu Hijau if the divestiture affects its ability to direct the operation.

Most important facts an investor should verify

  • Whether Boddington achieved commercial production as planned and whether actual project costs remained near the approximately $3.0 billion estimate.
  • The outcome and timing of PTNNT share divestitures to the Indonesian government, including any effect on Newmont’s ownership, control and consolidation of Batu Hijau.
  • The operational and financial effects of the Batu Hijau wall failure, including accelerated waste-removal costs and future ore-access delays.
  • Actual gold and copper prices, production volumes and unit costs relative to the 2009 guidance ranges.
  • The company’s ability to fund debt maturities, capital expenditures, reclamation obligations and contingent Boddington consideration from operating cash flow and available liquidity.
  • Potential changes in environmental liabilities, particularly the Midnite Mine and other historic mining matters, where the ultimate exposure cannot be reliably predicted.
  • Final pricing adjustments on provisional sales: 140 million pounds of copper and 96,000 ounces of gold remained subject to final pricing after September 30, 2009.
  • The potential impact of the pending variable-interest-entity accounting guidance on consolidation of the Nusa Tenggara Partnership.