Newmont Corporation Form 10-Q Summary
Business context and reporting period
Newmont Corporation is a global gold producer with by-product production of copper, silver, lead and zinc. The filing covers the unaudited three and six months ended June 30, 2022, compared primarily with the corresponding 2021 periods. Operations span North America, South America, Australia, Africa and Nevada.
During the period, Newmont acquired the remaining 5% interest in Yanacocha from Sumitomo and held 100% of Yanacocha at June 30, 2022. The company also completed the acquisition of Buenaventura’s 43.65% Yanacocha interest in the first quarter and sold its interest in La Zanja.
Financial and operating metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Sales | $3,058 million | $3,065 million | $6,081 million | $5,937 million |
| Net income attributable to Newmont stockholders | $387 million | $650 million | $835 million | $1,209 million |
| Continuing-operations net income attributable to stockholders | $379 million | $640 million | $811 million | $1,178 million |
| Diluted continuing-operations EPS | $0.48 | $0.80 | $1.02 | $1.47 |
| Adjusted net income | $362 million | $670 million | $908 million | $1,264 million |
| Adjusted diluted EPS | $0.46 | $0.83 | $1.14 | $1.58 |
| Adjusted EBITDA | $1,149 million | $1,591 million | $2,539 million | $3,048 million |
| Operating cash flow from continuing operations | Not separately provided for the quarter | Not separately provided for the quarter | $1,722 million | $1,834 million |
| Free cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $766 million | $1,020 million |
Q2 sales were essentially flat year over year: higher gold revenue of $2,722 million was offset by lower copper, silver, lead and zinc revenue. Six-month sales increased 2%, principally from higher gold and copper revenue.
Costs applicable to sales increased 33% in Q2 to $1,708 million and 24% for the six-month period to $3,143 million. Consolidated gold costs applicable to sales rose to $932 per ounce in Q2 from $755, while gold all-in sustaining costs rose to $1,199 per ounce from $1,035. For the six months, gold all-in sustaining costs increased to $1,179 per ounce from $1,037.
- Consolidated gold production was 1.453 million ounces in Q2 and 2.764 million ounces for the six months, compared with 1.430 million and 2.852 million ounces, respectively, in 2021.
- Attributable gold production was 1.495 million ounces in Q2 and 2.839 million ounces for the six months.
- Other-metals production increased to 330 thousand gold-equivalent ounces in Q2 and 680 thousand for the six months.
- Gold’s average realized price was $1,836 per ounce in Q2 and $1,863 for the six months, versus $1,823 and $1,788, respectively, in 2021.
- Q2 operating income before income taxes and other items was $408 million, compared with $943 million in 2021. The effective tax rate was 8%, compared with 36%, partly reflecting a $125 million Mexican tax settlement benefit.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $4,307 million at June 30, 2022, compared with $4,992 million at December 31, 2021.
- Total liquidity was $7,307 million, consisting of cash and $3,000 million of undrawn revolving-credit capacity.
- Debt was $5,568 million, and net debt including lease and other financing obligations was $1,866 million, compared with $1,310 million at year-end 2021.
- Capital expenditures were $956 million for the six months, including $507 million of development capital and $476 million of sustaining capital on an accrual basis.
- Cash dividends paid were $0.55 per share in Q2 and $1.10 per share for the six months. The board declared another $0.55-per-share dividend in July 2022.
- No share repurchases occurred during Q2. Approximately $475 million remained available under the $1 billion repurchase authorization at June 30, 2022.
Material changes versus the prior comparable period
- Profitability declined sharply despite stable revenue, driven by input-cost inflation, especially fuel and energy, higher labor and supply-chain costs, lower by-product credits and higher inventory adjustments.
- Q2 costs applicable to sales included a $70 million charge related to a Peñasquito workforce profit-sharing agreement covering 2021 site performance. The related payment was expected in Q3 2022.
- Q2 adjusted EBITDA declined 28%, and six-month adjusted EBITDA declined approximately 17%.
- Gold production increased in Q2 but declined for the six-month period. Australia and Africa delivered stronger production, while North America and several South American operations experienced lower production.
- The company recorded a $130 million non-cash pension settlement loss in Q1 2022 and a $45 million loss on the La Zanja sale. Unrealized investment losses were $135 million in Q2 and $96 million for the six months.
- Net cash from continuing operations decreased 6% for the six months, while free cash flow decreased from $1,020 million to $766 million, primarily due to higher operating costs, reclamation payments and capital spending.
Outlook, commentary, risks and unusual items
Management stated that existing cash, operating cash flow and revolving-credit availability should fund operations, growth projects, debt obligations and shareholder returns for the foreseeable future. The filing does not provide a clear consolidated production, cost or earnings guidance update for the full year.
- COVID-19, the Russian invasion of Ukraine, inflation and supply-chain disruptions may cause operating interruptions, higher input costs, logistical challenges, project delays, impairment charges and volatility in metal prices.
- Yanacocha requested an extension of its deadline for full compliance with revised Peruvian water-quality standards from January 2024 to January 2027. Potential fines, higher reclamation costs and water-management expenses cannot currently be reasonably estimated.
- Yanacocha experienced above-average rainfall and water-balance stress in early 2022. No untreated water was released off-site, but untreated water accumulated in mine pits; possible permit-related fines remain uncertain.
- Total reclamation and remediation liabilities were $6,126 million at June 30, 2022. Management stated that the liability for certain environmental matters could be as much as 53% greater or zero lower than the amount accrued.
- Significant legal and regulatory matters include the Royal Gold-related Holt royalty litigation, Ghana mining-lease litigation, legacy NewWest Gold litigation and Yanacocha-related proceedings. Outcomes cannot reasonably be predicted.
- Newmont expects to invest up to $100 million under its Caterpillar electric and autonomous mining alliance; $34 million was paid in July 2022.
- At June 30, 2022, $200 thousand ounces of gold and substantial quantities of copper, silver, lead and zinc remained subject to provisional pricing, creating earnings exposure to subsequent metal-price changes.
Most important facts for investors to verify
- Whether inflation, fuel and energy costs continue to push gold all-in sustaining costs above realized gold prices.
- The timing and cost of Yanacocha water-treatment, reclamation and closure obligations, including any regulatory extension or penalties.
- Updated full-year production, all-in sustaining cost and capital-spending guidance, which is not clearly provided in the filing text.
- The sustainability of free cash flow after development capital, sustaining capital, dividends and reclamation payments.
- Exposure to gold and other-metal prices, foreign currencies, provisional pricing and potential inventory or long-lived-asset write-downs.
- Progress and final costs associated with Ahafo North, Tanami Expansion 2, Yanacocha Sulfides and other development projects.
- Potential outcomes and financial exposure from disclosed legal, environmental and tax contingencies.