Newmont Mining Corporation Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. The interim financial statements are unaudited and should be read with the 2014 Form 10-K. Newmont is a global gold and copper producer with operations and assets in the United States, Australia, Peru, Indonesia, Ghana and New Zealand.
Financial and Operating Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Sales | $1,972 million | $1,764 million | +12% |
| Income from continuing operations | $221 million | $65 million | +240% |
| Net income attributable to Newmont stockholders | $183 million | $100 million | +83% |
| Basic earnings per share | $0.37 | $0.20 | +85% |
| Adjusted net income | $229 million | $121 million | +89% |
| Adjusted net income per share | $0.46 | $0.24 | +92% |
| Net cash provided by operations | $625 million | $180 million | +$445 million |
| Capital expenditures | $284 million | $235 million | +21% |
| Cash and cash equivalents at period end | $2,598 million | $1,475 million | +76% year over year |
| Total debt | $6,452 million | $6,646 million at December 31, 2014 | -$194 million |
Profitability and production: Pre-tax income increased to $423 million from $143 million. The effective income and mining tax rate was 46%, compared with 55% in the prior-year quarter. Consolidated gold production was 1.362 million ounces and copper production was 139 million pounds. Gold costs applicable to sales were $609 per ounce, gold all-in sustaining costs were $849 per ounce, and gold operating margin was $594 per ounce. Copper costs applicable to sales were $1.33 per pound, copper all-in sustaining costs were $1.73 per pound, and copper operating margin was $1.01 per pound.
Average realized prices declined to $1,203 per ounce for gold from $1,293 and to $2.34 per pound for copper from $2.50. Gold sold increased to 1.367 million ounces from 1.278 million, while copper sold increased to 139 million pounds from 45 million pounds.
Liquidity and debt: Cash increased by $195 million during the quarter after $625 million of operating cash flow, $214 million of investing outflows and $196 million of financing outflows. Newmont repaid $205 million of debt, including $200 million on its term loan. The $3.0 billion revolving credit facility was amended; $2.725 billion was extended to March 2020, and no borrowings were outstanding at March 31, 2015. Scheduled minimum debt repayments are $160 million for the remainder of 2015, $222 million in 2016, $770 million in 2017, $1.175 billion in 2019 and $4.2 billion thereafter.
Newmont reported $1.879 billion of outstanding letters of credit, surety bonds and bank guarantees. Reclamation and remediation liabilities totaled $1.684 billion, including $1.512 billion related to operating properties and $172 million related primarily to former mining activities.
Material Changes Versus the Prior Comparable Period
- Sales growth was driven primarily by a 189% increase in copper sales, reflecting substantially higher Batu Hijau production and sales after access to phase 6 ore and continued export permits.
- Gold production increased 5%, while gold costs applicable to sales per ounce fell 19%. Copper production increased 81%, and copper costs applicable to sales per pound fell 51%.
- Operating performance benefited from the Full Potential program, lower fuel prices, favorable Australian dollar exchange rates and lower stockpile and leach-pad inventory adjustments.
- Net income also benefited from lower project spending, lower interest expense and an $8 million benefit from discontinued operations. These benefits were partly offset by lower realized metal prices and a $57 million impairment of marketable securities, primarily Regis Resources.
- Advanced projects, research and development expense declined $14 million as studies were deferred, project costs were reduced and Merian moved from advanced projects to execution.
- The quarterly common dividend was reduced to $0.025 per share from $0.150 per share in the prior-year quarter.
- 2014 asset disposals affected comparability: Newmont sold its interests in La Herradura and the Jundee mine, resulting in lower comparable production from those assets.
Outlook, Management Commentary and Risks
Management is focused on portfolio optimization, productivity and cost reductions through the Full Potential program. No consolidated financial or production guidance was provided in the filing text. The company expects to fund debt maturities from operating cash flow, cash balances, short-term investments and available credit facilities.
- Merian, Suriname: Construction began in August 2014. Commercial production is expected in late 2016, with estimated average annual production of 400,000 to 500,000 ounces during the first five years. Attributable capital spending is expected to total $600 million to $700 million.
- Turf Vent Shaft, Nevada: Commercial production is planned for late 2015, with expected incremental production of 100,000 to 150,000 ounces annually. Estimated project capital costs are $350 million to $400 million.
- Long Canyon, Nevada: Construction is expected to support commercial production in the first half of 2017, with estimated production of 100,000 to 150,000 ounces annually. Estimated capital costs are $250 million to $300 million.
- Waihi Correnso: Achieved commercial production in January 2015, but construction was expected to continue through the second quarter.
- Waihi Martha pit: Two north-wall slips in April 2015 temporarily suspended pit activities. The company was evaluating remediation options and potential impacts on 2015 production; underground and processing operations continued.
- Batu Hijau, Indonesia: The export permit was extended on March 30, 2015 through late September 2015. Contract of Work renegotiations remain ongoing, and failure to renew the permit or reach agreement could negatively affect operations and financial results. The company identified $3.256 billion of Batu Hijau assets at March 31, 2015 and continued to evaluate potential impairments, inventory write-downs and tax valuation allowances.
- Environmental and legal matters: Yanacocha faces regulatory and litigation matters in Peru, including proposed water-quality criteria that could require additional treatment infrastructure, costs or time. A Conga project constitutional claim was remanded for further proceedings. PTNNT also faces an Indonesian administrative claim concerning its export permit and memorandum of understanding.
- Commodity and market risks: Newmont does not hedge gold or copper sales and therefore remains exposed to metal prices. It hedges selected foreign currency and diesel costs. At March 31, 2015, provisionally priced sales included 161,000 ounces of gold and 157 million pounds of copper.
- Unusual items and contingencies: The filing includes the $57 million securities impairment, an $8 million discontinued-operations benefit, stockpile and leach-pad write-downs, $398 million of unrecognized tax benefits and $1.879 billion of letters of credit, surety bonds and bank guarantees.
Most Important Facts for Investors to Verify
- Whether Batu Hijau’s export permit was renewed after its late-September 2015 expiration and the outcome of Contract of Work renegotiations.
- The production and cost effect of the Waihi Martha pit-wall slips and any required remediation spending.
- Whether Merian, Turf Vent Shaft and Long Canyon remain on schedule and within stated capital-cost ranges.
- The sustainability of lower unit costs and higher copper production, particularly at Batu Hijau.
- Exposure to gold and copper price declines, including potential stockpile, inventory and mine-asset impairments.
- The availability of cash held at foreign subsidiaries and cash attributable to noncontrolling interests.
- Changes in reclamation, environmental, tax and litigation liabilities, including the Yanacocha and PTNNT matters.
- The effect of the reduced dividend and scheduled debt repayments on future capital allocation.
- The filing states that disclosure controls were effective and that no material change occurred in internal control over financial reporting during the quarter.