Newmont Mining Corporation Form 10-Q Summary
Business context and reporting period
Newmont Mining Corporation filed an unaudited Form 10-Q for the three and nine months ended September 30, 2009, comparing results with the corresponding 2008 periods. The company is a global gold and copper producer with operations in North America, South America, Asia Pacific and Africa. Gold and copper sales are the principal revenue sources.
Financial performance and key metrics
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $2,049 million | $1,371 million | $5,187 million | $4,799 million |
| Income from continuing operations | $645 million | $215 million | $1,242 million | $1,101 million |
| Net income attributable to Newmont stockholders | $388 million | $191 million | $739 million | $827 million |
| Basic earnings per share | $0.79 | $0.42 | $1.52 | $1.82 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $1,949 million | $1,063 million |
| Capital expenditures, cash basis | Not separately provided for the quarter | Not separately provided for the quarter | $1,314 million | $1,350 million |
- Gold sales were $1,653 million in the quarter and $4,401 million for the nine months. Gold ounces sold increased to 1.715 million in the quarter and 4.734 million for the nine months.
- Copper sales were $396 million in the quarter and $786 million for the nine months. Copper pounds sold increased to 141 million in the quarter and 342 million for the nine months.
- Average realized gold prices increased to $964 per ounce in the quarter and $930 per ounce for the nine months, versus $865 and $900, respectively, in 2008.
- Average realized copper prices were $2.80 per pound in the quarter, up from $2.01, but $2.30 per pound for the nine months, down from $3.50.
- Consolidated costs applicable to sales were $404 per gold ounce in the quarter and $419 per ounce for the nine months, compared with $467 and $433 in 2008. Copper costs were $0.50 per pound in the quarter and $0.63 for the nine months, compared with $1.98 and $1.70.
- Cash and cash equivalents were $3,022 million at September 30, 2009, compared with $435 million at December 31, 2008. Current assets were $5,038 million and current liabilities were $2,201 million.
- Total debt was $4,923 million, consisting of $225 million current debt and $4,698 million long-term debt, compared with $3,237 million at December 31, 2008.
- Newmont had no borrowings outstanding under its $2 billion revolving credit facility at September 30, 2009, although the facility supported $320 million of letters of credit.
- Total assets were $21,147 million and total equity was $11,669 million at September 30, 2009.
- Quarterly and year-to-date dividends declared were $0.10 and $0.30 per common share, respectively.
Material changes versus the prior comparable period
- Third-quarter revenue increased approximately 50%, driven by higher gold and copper volumes, higher gold prices and improved copper pricing.
- Nine-month revenue increased approximately 8%, while stockholder-attributable net income declined approximately 11% because the prior-year period included stronger copper pricing and the 2009 period included higher noncontrolling-interest allocations and share dilution.
- Production benefited materially from Batu Hijau. Third-quarter copper sales more than tripled, and gold sales increased substantially, reflecting higher throughput, grade and recovery and the absence of a comparable 2008 shipment delay.
- Yanacocha production increased, while Nevada gold production declined because of lower leach tons and grades. Waihi production was affected by a mill fire that suspended milling until August 2009.
- Newmont acquired the remaining 33.33% interest in Boddington for consideration estimated at $1,044 million, bringing ownership to 100%. Boddington began milling and produced its first gold pour and copper concentrate shipments in September.
- The company raised $1,233 million net from a February common-stock offering and issued $504 million net of convertible notes. It also issued senior notes due 2019 and 2039 for net proceeds of $896 million and $1,082 million, respectively.
- Cash flow from operations increased primarily because of higher metal sales and income-tax refunds. Investing cash outflows increased because of the Boddington acquisition and project spending.
Guidance, outlook, commentary and unusual items
- Management expected 2009 consolidated gold sales of 6.4 to 6.5 million ounces at costs applicable to sales of $400 to $425 per ounce.
- Management expected 2009 consolidated copper sales of approximately 460 to 510 million pounds at costs applicable to sales of approximately $0.50 to $0.65 per pound.
- Expected 2009 capital expenditures were narrowed to $1.6 billion to $1.7 billion. Expected amortization was $740 million to $760 million; exploration expense was $165 million to $175 million; advanced projects, research and development expense was $155 million to $165 million; general and administrative expense was $150 million to $160 million; and net interest expense was $100 million to $110 million.
- Management expected a 2009 income-tax rate of approximately 28% to 30%, assuming an average gold price of $900 per ounce.
- Boddington was expected to enter commercial production in the fourth quarter of 2009. Total project costs were expected to be approximately $3.0 billion, excluding capitalized interest, on a 100% basis.
- A September 2009 geotechnical failure at Batu Hijau suspended pit mining for approximately three weeks. Mining resumed October 10, 2009. Management did not expect a significant effect on previously released 2009 volume or cost guidance, but anticipated accelerated waste removal and possible delays in ore access during 2010 and 2011.
- The Boddington acquisition produced $67 million of transaction costs and included a contingent royalty with a fair value of $62 million and a maximum undiscounted amount of $100 million.
- Discontinued operations, including Kori Kollo, produced a $14 million loss for the nine months, compared with $17 million of income in 2008.
- Environmental and reclamation liabilities totaled $777 million at September 30, 2009. The company also had $872 million of outstanding letters of credit, surety bonds and bank guarantees.
- Unrecognized tax benefits totaled $120 million. Management believed net unrecognized tax benefits could decrease by approximately $55 million to $87 million during the following 12 months.
- The company’s key risks include gold and copper price volatility, foreign-exchange and diesel-price exposure, mining and construction execution, environmental obligations, political and permitting risks, and the required divestiture of interests in Indonesia’s Batu Hijau operation.
- Under the Indonesian Contract of Work, the Newmont-Sumitomo partnership could be reduced to a 49% interest in PTNNT. The company could potentially lose control and deconsolidate Batu Hijau if the divestiture affects its ability to direct the operation.
Most important facts an investor should verify
- Whether Boddington achieved commercial production as planned and whether actual project costs remained near the approximately $3.0 billion estimate.
- The outcome and timing of PTNNT share divestitures to the Indonesian government, including any effect on Newmont’s ownership, control and consolidation of Batu Hijau.
- The operational and financial effects of the Batu Hijau wall failure, including accelerated waste-removal costs and future ore-access delays.
- Actual gold and copper prices, production volumes and unit costs relative to the 2009 guidance ranges.
- The company’s ability to fund debt maturities, capital expenditures, reclamation obligations and contingent Boddington consideration from operating cash flow and available liquidity.
- Potential changes in environmental liabilities, particularly the Midnite Mine and other historic mining matters, where the ultimate exposure cannot be reliably predicted.
- Final pricing adjustments on provisional sales: 140 million pounds of copper and 96,000 ounces of gold remained subject to final pricing after September 30, 2009.
- The potential impact of the pending variable-interest-entity accounting guidance on consolidation of the Nusa Tenggara Partnership.