Business Context and Reporting Period
Newmont Mining Corporation filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. Newmont is a global gold producer with copper production and operations or assets in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Suriname. The filing reports consolidated results for continuing and discontinued operations; dollar amounts are in millions unless otherwise stated.
Financial and Operating Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Sales | $2,033, versus $1,746 in 2014 | $5,913, versus $5,275 in 2014 |
| Income from continuing operations | $268, versus $72 | $628, versus $284 |
| Net income attributable to Newmont stockholders | $219, versus $213 | $474, versus $493 |
| Basic earnings per share | $0.42, versus $0.43 | $0.93, versus $0.99 |
| Adjusted net income | $126, versus $249 | $487, versus $459 |
| Net cash provided by operations | Not separately provided for the quarter | $1,873, versus $879 |
| Capital expenditures, cash basis | Not separately provided for the quarter | $941, versus $766 |
| Cash and cash equivalents | $2,964 at September 30, 2015 | $2,403 at December 31, 2014 |
| Total debt | $6,351 at September 30, 2015 | $6,646 at December 31, 2014 |
- Third-quarter gold production was 1.538 million ounces, with costs applicable to sales of $608 per ounce; nine-month production was 4.302 million ounces at $618 per ounce.
- Third-quarter copper production was 180 million pounds at $1.15 per pound; nine-month production was 476 million pounds at $1.22 per pound.
- Average realized prices were $1,104 per gold ounce and $1.95 per copper pound in the third quarter, and $1,159 and $2.21, respectively, for the first nine months.
- Reported operating margin, a non-GAAP measure, was $496 per gold ounce and $0.80 per copper pound in the third quarter; nine-month margins were $541 and $0.99, respectively.
- The corporate revolving credit facility was fully extended to March 3, 2020; no borrowings were outstanding at September 30. Scheduled minimum debt repayments are $50 for the remainder of 2015, $212 in 2016, $765 in 2017, $1,175 in 2019 and $4,200 thereafter.
- Liquidity includes cash held by foreign subsidiaries and noncontrolling interests; $751 of consolidated cash was attributable to noncontrolling interests and $1,734 was held at foreign subsidiaries potentially subject to withholding taxes upon repatriation.
Material Changes Versus the Prior Comparable Period
- Sales increased 16% in the third quarter and 12% for the first nine months, primarily from higher gold and copper volumes. Copper sales increased 134% and 154%, respectively, driven principally by Batu Hijau.
- Gold production increased 23% in the quarter and 12% year to date; copper production increased 429% and 175%, respectively. Batu Hijau benefited from access to higher-grade Phase 6 ore and relief from the prior-year export issues.
- Realized gold and copper prices declined materially from 2014, but lower operating costs, higher volumes and lower inventory adjustments supported results. Direct operating costs declined 1% in the quarter and 11% year to date.
- Operating cash flow more than doubled year to date, reflecting higher volumes, lower direct costs and improved working capital, partly offset by lower realized metal prices.
- Newmont acquired the Cripple Creek & Victor gold business in Colorado on August 3, 2015, for $821, funded primarily with $675 of net common-stock issuance proceeds. CC&V contributed less than 1% of consolidated revenue during the reporting period.
- Newmont deconsolidated TMAC after its financing transactions and recognized a $76 gain; its retained 29.38% interest is now accounted for under the equity method.
- Newmont sold its 60.64% interest in European Gold Refinery Holdings for $119 and recorded a $53 gain. Waihi was agreed to be sold for approximately $101, with closing expected in the fourth quarter of 2015.
- Stockpile and leach-pad write-downs totaled $62 in the third quarter and $159 for the first nine months, reflecting estimated future processing costs and net realizable value adjustments.
Outlook, Commentary, Risks and Unusual Items
- Management emphasized the Full Potential program, intended to improve productivity, efficiency, operating cash flow and costs over the next three years.
- Merian was under construction and expected to begin production in late 2016, with estimated attributable capital spending of $600 to $650. Long Canyon was under construction and expected to begin production in the first half of 2017. The CC&V expansion was expected to ramp up through 2016.
- The Turf No. 3 Vent Shaft project was expected to reach commercial production in the fourth quarter of 2015 and add approximately 100,000 to 150,000 ounces annually to Leeville.
- Newmont approved full funding for the Tanami Expansion on October 28, 2015, after the quarter end. The filing text does not provide a formal consolidated production or earnings guidance range.
- Batu Hijau’s export permit renewal remained pending at September 30, 2015, and Contract of Work negotiations with the Indonesian government continued. A delayed renewal could negatively affect operations and financial results, and impairment or inventory charges remained possible.
- Conga development remained largely suspended because of community and political opposition. Newmont will not proceed with full development without social acceptance, government support, acceptable economics and potentially another partner; failure to continue could result in impairment of the project’s $1,687 asset balance.
- Key risks include volatile gold and copper prices, foreign exchange, permitting and regulatory changes, environmental obligations, community opposition, mine operating and geological risks, tax uncertainty, and access to financing.
- Reclamation and remediation liabilities totaled $1,712 at September 30, including $1,611 for operating properties and $163 for former mining activities. Outstanding letters of credit, surety bonds and bank guarantees totaled $1,954.
- The company recorded $34 of income from discontinued operations in the first nine months, primarily from changes in the Holt property royalty liability. It also recorded $101 of investment impairments year to date and a $52 reduction in post-retirement benefit liability from plan amendments.
Most Important Facts for Investors to Verify
- Whether the Batu Hijau export permit was renewed and how Indonesian Contract of Work negotiations affected production, costs, taxes and asset carrying values.
- Actual performance and final purchase-price accounting for CC&V, including the potential underground-ore royalty and the $63 reclamation obligation assumed.
- Progress, capital requirements and commissioning schedules for Merian, Long Canyon, Turf, CC&V expansion and Tanami Expansion.
- The sustainability of improved Batu Hijau volumes and costs once higher-grade Phase 6 ore and prior-year export disruptions cease to influence comparisons.
- Exposure to lower gold and copper prices, including potential inventory, stockpile, leach-pad and mine-asset impairments.
- Future cash availability after capital spending, debt maturities, reclamation obligations, restricted cash and cash attributable to noncontrolling interests.
- Potential outcomes and costs associated with environmental, regulatory and legal matters in Peru, Indonesia, Canada and the United States.
- Non-GAAP reconciliations and adjustments underlying adjusted net income, EBITDA, operating margin and all-in sustaining costs.