Business Context and Reporting Period
Newmont Mining Corporation, a global gold and gold/copper producer with operations in North America, South America, Australia/New Zealand, Indonesia and Africa, filed an unaudited Form 10-Q for the three and six months ended June 30, 2013. Results are compared with the same periods of 2012 and are subject to interim-period limitations.
Key Financial and Operating Metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Sales | $1,993 million | $2,229 million | $4,170 million | $4,912 million |
| Income from continuing operations | $(2,305) million | $371 million | $(1,948) million | $1,045 million |
| Net income attributable to Newmont stockholders | $(2,019) million | $279 million | $(1,704) million | $769 million |
| Basic EPS | $(4.06) | $0.56 | $(3.43) | $1.55 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $721 million | $956 million |
| Capital expenditures, cash basis | Not separately provided for the quarter | Not separately provided for the quarter | $1,120 million | $1,578 million |
| Gold production | 1.284 million ounces | 1.362 million ounces | 2.567 million ounces | 2.841 million ounces |
| Copper production | 52 million pounds | 60 million pounds | 111 million pounds | 117 million pounds |
| Average realized gold price | $1,386/oz | $1,598/oz | $1,505/oz | $1,643/oz |
| Average realized copper price | $2.66/lb | $2.85/lb | $2.86/lb | $3.49/lb |
| Gold operating margin | $501/oz | $917/oz | $681/oz | $994/oz |
Costs applicable to sales increased to $885 per gold ounce in the quarter and $824 per ounce for the first half, compared with $681 and $649, respectively, in the prior-year periods. Copper costs applicable to sales increased to $8.53 per pound in the quarter and $5.75 per pound for the first half, compared with $2.35 and $2.14, respectively.
Balance Sheet and Liquidity
- Cash and cash equivalents were $1,248 million at June 30, 2013, down from $1,561 million at December 31, 2012. Approximately $464 million was attributable to noncontrolling interests.
- Total debt was $6,774 million, comprising $48 million current and $6,726 million non-current debt, versus $6,298 million at December 31, 2012.
- The corporate revolving credit facility had $310 million borrowed and $325 million of letters of credit outstanding against a $3.0 billion facility.
- Scheduled minimum debt repayments were $43 million for the remainder of 2013, $558 million in 2014, $11 million in 2015, $11 million in 2016, $1,087 million in 2017 and $5,064 million thereafter.
- Outstanding letters of credit, surety bonds and bank guarantees totaled $1,805 million at June 30, 2013.
- Management stated that debt maturities and capital expenditures are expected to be funded through operating cash flow, short-term investments, existing cash and available credit facilities. The company was in compliance with debt covenants.
Material Changes Versus the Prior Comparable Period
- Sales declined 11% in the second quarter and 15% in the first half, primarily because of lower gold and copper prices and lower production in several regions.
- Newmont recorded $2,261 million of second-quarter write-downs, primarily related to Boddington and other Australia/New Zealand assets, following lower long-term commodity price assumptions and rising operating costs. The long-term assumptions used were $1,400 per gold ounce and $3.00 per copper pound.
- Stockpile and leach-pad write-downs materially increased production costs, including $161 per gold ounce and $6.00 per copper pound in the second quarter.
- The company recorded a $535 million tax valuation allowance, including $535 million related to U.S. foreign and alternative minimum tax credits and $150 million related to stockpile impairments as described in the tax reconciliation.
- Adjusted net loss attributable to stockholders was $50 million, or $0.10 per share, in the second quarter, compared with adjusted net income of $294 million, or $0.59 per share, in the prior-year quarter. For the first half, adjusted net income was $304 million, or $0.61 per share, compared with $872 million, or $1.76 per share.
- Operating cash flow declined $235 million year over year, while capital expenditures declined $458 million. Financing cash flow was $87 million, compared with $894 million in the prior-year period, reflecting lower debt issuance.
- Comprehensive loss attributable to Newmont stockholders was $2,519 million for the quarter and $2,265 million for the first half, including significant unfavorable changes in marketable securities and cash-flow hedge valuations.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2013 attributable gold production of 4.8 million to 5.1 million ounces at consolidated costs applicable to sales of $750 to $825 per ounce, including stockpile and leach-pad write-downs.
- 2013 attributable copper production was expected at 150 million to 170 million pounds at consolidated costs applicable to sales of $4.05 to $4.40 per pound.
- 2013 consolidated capital expenditures were expected at $2.2 billion to $2.4 billion, including $1.9 billion to $2.1 billion attributable to Newmont. Expected amortization was $1.25 billion to $1.30 billion, exploration expense $250 million to $300 million, advanced projects and research and development $300 million to $350 million, general and administrative expense $180 million to $230 million, and net interest expense $225 million to $275 million.
- Management expected a 2013 consolidated tax benefit of approximately 5% to 10%, assuming an average realized gold price of $1,400 per ounce.
- A land dispute affecting Minera Penmont in Mexico resulted in an order to cease Dipolos production. The operation projected no production at Soledad and Dipolos for the remainder of 2013, with an estimated reduction of up to 50,000 ounces, or approximately 22,000 ounces attributable to Newmont.
- Conga construction and development remained largely suspended because of local political and community protests. Further investment depends on safe execution and risk-adjusted returns; failure to continue the current plan could lead to capital reallocation and an additional impairment.
- Akyem construction was reported on schedule and budget, with commercial production expected in late 2013. Phoenix Copper Leach first production was targeted for the fourth quarter of 2013.
- On July 8, 2013, after the reporting date, Newmont sold its Canadian Oil Sands investment for approximately C$608 million and expected to record a pretax gain of approximately $300 million.
- Environmental and legal contingencies include reclamation and remediation liabilities of $1,548 million, unresolved Yanacocha matters and possible OEFA penalties ranging from $0.1 million to $17.4 million, the Empire Mine CERCLA litigation, PTNNT Indonesian regulatory and divestiture matters, and a claim seeking rescission of the Fronteer-NewWest transaction and $750 million in damages.
- Newmont does not hedge gold or copper sales and remains exposed to commodity prices. A 10% decline in long-term gold and copper prices could have caused additional pretax stockpile and leach-pad write-downs of approximately $650 million to $700 million.
Most Important Facts for Investors to Verify
- Whether lower gold and copper prices and the $2.3 billion impairment reset the company’s sustainable cost and return profile.
- The operating recovery and grade outlook at Boddington, Batu Hijau, Yanacocha and other higher-cost operations.
- Progress toward the revised 2013 production, cost and capital-expenditure guidance.
- Liquidity after the decline in cash, increased debt and required letters of credit, including the 2014 and 2017 maturities.
- The financial impact and duration of the Minera Penmont land dispute and the status of Conga permitting and community support.
- The realizability of deferred tax assets after the increased valuation allowance and the effect of future commodity prices on taxes and impairments.
- The timing and accounting effect of the post-quarter Canadian Oil Sands sale and expected $300 million pretax gain.
- Exposure to environmental, legal, Indonesian regulatory, reclamation and other contingent liabilities not fully resolved in the filing.