Newmont Mining Corporation Form 10-Q Summary
Business context and reporting period
Newmont is a global gold and copper producer with operations in North America, South America, Australia/New Zealand, Indonesia and Africa. The filing covers the three and six months ended June 30, 2014, compared with the corresponding 2013 periods. The interim financial statements are unaudited.
Key financial and operating metrics
| Metric | Q2 2014 | Six months 2014 | Comparable 2013 |
|---|---|---|---|
| Sales | $1,765 million | $3,529 million | $2,018 million and $4,206 million |
| Net income attributable to Newmont stockholders | $180 million | $280 million | $(2,059) million and $(1,745) million |
| Basic EPS | $0.36 | $0.56 | $(4.14) and $(3.51) |
| Adjusted net income | $101 million | $210 million | $(90) million and $263 million |
| Cash provided by operations | Not separately provided | $555 million | $721 million |
| Capital expenditures, cash basis | Not separately provided | $489 million | $1,120 million |
| Gold production | 1.299 million ounces | 2.591 million ounces | 1.284 million and 2.567 million ounces |
| Copper production | 62 million pounds | 139 million pounds | 61 million and 127 million pounds |
| Gold costs applicable to sales | $744 per ounce | $747 per ounce | $895 and $830 per ounce |
| Copper costs applicable to sales | $2.53 per pound | $2.62 per pound | $7.59 and $5.35 per pound |
| Gold operating margin | $539 per ounce | $541 per ounce | $491 and $675 per ounce |
| Cash and cash equivalents at period end | $1,653 million | $1,555 million at Dec. 31, 2013 |
Reported net margins were approximately 10.2% for the quarter and 5.5% for the first half, based on net income attributable to Newmont stockholders divided by sales. These are calculated measures and are not management-defined profitability metrics.
At June 30, 2014, total debt was $6,785 million, consisting of $112 million current debt and $6,673 million long-term debt. The company had a $3,000 million revolving credit facility, with no borrowings outstanding; $167 million was used to support letters of credit. On July 11, 2014, Newmont borrowed $575 million under a new term loan and used the proceeds to retire convertible debt due July 15, 2014.
Material changes versus the prior comparable period
- Sales declined 13% in the second quarter and 16% in the first half, primarily because of lower gold prices and lower gold and copper sales volumes.
- Gold prices fell to $1,283 per ounce in the quarter and $1,288 per ounce in the first half, from $1,386 and $1,505, respectively, in 2013.
- Gold production increased modestly, but gold sales declined. Africa and Australia/New Zealand production improved, while Yanacocha and parts of North America declined.
- Production costs improved substantially, reflecting lower direct operating costs, lower stockpile and leach-pad adjustments, the Akyem ramp-up and Full Potential efficiency initiatives.
- Net income improved sharply from the prior-year loss because 2014 write-downs were only $13 million versus $2,261 million in the second quarter of 2013. The 2013 charge was primarily associated with Boddington and Tanami impairment evaluations.
- First-half operating cash flow declined $166 million, or approximately 23%, despite lower capital spending, principally because of lower realized gold prices.
- Cash increased $98 million from year-end, while total liabilities increased to $11,885 million from $11,698 million. Common dividends paid fell to $89 million from $385 million.
Guidance, outlook, commentary and risks
- Management expects 2014 attributable gold production of approximately 4.7 to 5.0 million ounces at consolidated costs applicable to sales of $720 to $760 per ounce.
- Management expects 2014 attributable copper production of approximately 90,000 to 100,000 tonnes at costs applicable to sales of $2.80 to $3.10 per pound.
- Expected 2014 consolidated capital expenditures were revised to $1,400 million to $1,485 million. Approximately 70% of capital expenditures are expected to be sustaining capital.
- Management expects 2014 depreciation and amortization of $1,050 million to $1,125 million, exploration and advanced-project spending of approximately $400 million to $450 million, general and administrative expense of $175 million to $200 million, and net interest expense of $325 million to $350 million.
- Management expects a 2014 consolidated tax expense rate of approximately 37% to 40%, assuming an average realized gold price of $1,300 per ounce.
- Batu Hijau in Indonesia was affected by export restrictions. Newmont invoked force majeure in June 2014 and placed the operation on care and maintenance. The company initiated ICSID arbitration and could not predict the outcome. Management’s revised 2014 assumption was no additional production, resulting in attributable Indonesia guidance of 15,000 to 20,000 gold ounces and 15,000 to 20,000 tonnes of copper.
- Batu Hijau generated $27 million of abnormal costs in the first half, including $16 million in costs applicable to sales and $11 million in depreciation and amortization.
- Key development projects include the Turf Vent Shaft, Conga and Merian. Merian was fully funded, with expected production beginning in late 2016 and estimated total capital spending of $900 million to $1,000 million on a 100% basis.
- Major risks include volatile gold and copper prices, potential inventory and asset impairments, operating-cost inflation, foreign exchange exposure, permitting and community opposition, environmental obligations, political and regulatory actions, and the ability to resume Batu Hijau exports.
- Reclamation and remediation liabilities totaled $1,622 million, including $1,457 million related to operating properties and $165 million related primarily to historic mining activities. Outstanding letters of credit, surety bonds and bank guarantees totaled $1,835 million.
- Unrecognized tax benefits totaled $396 million at June 30, 2014; management expected a possible reduction of approximately $5 million to $10 million over the following 12 months.
Most important facts for investors to verify
- Whether Batu Hijau resumes exports and production, and the financial effect of the Indonesian regulations and ICSID arbitration.
- Actual gold and copper prices, production volumes, realized costs and operating cash flow relative to the 2014 guidance ranges.
- The sustainability of cost reductions from the Full Potential program and the effect of lower grades at Yanacocha.
- Capital spending, funding needs and schedule execution for Turf Vent Shaft, Conga and Merian.
- Potential impairment or inventory write-down exposure using the company’s long-term assumptions of $1,300 per ounce gold and $3.00 per pound copper.
- Debt maturities, including $5,680 million scheduled after 2018, and the July 2014 refinancing of $575 million of convertible debt.
- Environmental, reclamation, tax and legal contingencies, including the Batu Hijau, Yanacocha, Minera Penmont and NWG matters.
- The reconciliation and comparability of non-GAAP measures such as adjusted net income, costs applicable to sales and all-in sustaining costs.