Business Context and Reporting Period
Company: Newmont Mining Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2007
Business Overview: Newmont is a global gold and copper producer. The reporting period is significantly impacted by the decision to discontinue the Merchant Banking Segment, the settlement of price-capped forward sales contracts, and operational challenges at key sites including Yanacocha (Peru) and Midas (Nevada).
Key Financial Metrics
| Metric (in millions, except per share) | Three Months Ended June 30, 2007 |
Three Months Ended June 30, 2006 |
Six Months Ended June 30, 2007 |
Six Months Ended June 30, 2006 |
|---|---|---|---|---|
| Total Revenues | $1,302 | $1,293 | $2,558 | $2,425 |
| Net (Loss) Income | $(2,062) | $161 | $(1,994) | $370 |
| (Loss) Income from Continuing Ops | $(406) | $128 | $(370) | $322 |
| Net Cash from Operations | $(563) | $571 | $(563) | $571 |
| Total Debt (Current + Long-term) | $2,654 | N/A | $2,654 | N/A |
| Cash and Cash Equivalents | $668 | N/A | $668 | N/A |
| Diluted EPS (Net) | $(4.57) | $0.36 | $(4.42) | $0.82 |
Note: Debt figures represent the sum of Current portion of long-term debt ($161M) and Long-term debt ($2,493M) as of June 30, 2007.
Material Changes vs. Prior Period
- Discontinued Operations: The Company recorded a non-cash goodwill impairment charge of $1,665 million related to the Merchant Banking Segment, which was reclassified to discontinued operations. This resulted in a net loss from discontinued operations of $1,656 million for the quarter and $1,624 million for the six-month period.
- Forward Sales Settlement: Newmont paid $578 million to eliminate 1.85 million ounces of price-capped forward sales contracts, recognizing a pre-tax loss of $531 million in the second quarter. This was a primary driver of the loss from continuing operations.
- Production Volumes: Consolidated gold ounces sold decreased 21% in the quarter (1.448M vs 1.843M) and 16% for the six months (3.053M vs 3.652M), primarily due to lower production at Yanacocha. Copper sales decreased 17% in the quarter and 5% for the six months.
- Costs: Costs applicable to sales per gold ounce increased 45% in the quarter and 49% for the six months, driven by lower production volumes, higher waste removal costs, and unfavorable foreign exchange rates (specifically the Australian dollar).
- Tax Settlement: The Company paid $276 million in the second quarter to settle pre-acquisition Australian income tax liabilities related to Normandy.
Guidance, Outlook, and Risks
Management Guidance (Full Year 2007)
- Gold Sales: Expected to be 6.1 to 6.6 million ounces.
- Copper Sales: Expected to be 400 to 435 million pounds.
- Costs Applicable to Sales (Gold): Expected to be $375 to $400 per ounce (excluding Phoenix impact); with Phoenix challenges, projected at $400 to $440 per ounce.
- Costs Applicable to Sales (Copper): Expected to be $1.10 to $1.20 per pound.
- Capital Expenditures: Expected to be $1,800 to $2,000 million.
- Effective Tax Rate: Expected to be 42% to 47% for the full year.
Key Risks and Contingencies
- Midas Mine Suspension: Operations at the Midas underground mine in Nevada were suspended following a ground subsidence incident on June 19, 2007, which resulted in an employee fatality. The reopening date is uncertain.
- Phoenix Mine Performance: Ongoing metallurgical issues, hard ore, and reduced crusher availability at the Phoenix mine in Nevada are negatively impacting throughput and costs.
- Legal Proceedings: Significant ongoing litigation includes the Buyat Bay environmental case in Indonesia (PTNMR), the Zarafshan-Newmont Joint Venture dispute (settled in July 2007 for $80 million), and various CERCLA environmental claims in the US.
- Foreign Exchange: The strengthening of the Australian dollar has increased costs in the Australia/New Zealand region.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the treatment of the $1,665 million Merchant Banking goodwill impairment and its exclusion from continuing operations metrics.
- Forward Contract Settlement: Confirm the $531 million pre-tax loss on the settlement of price-capped forward sales contracts and its impact on cash flow.
- Midas Mine Status: Monitor updates on the regulatory investigation and expected timeline for the reopening of the Midas mine in Nevada.
- Yanacocha Production: Assess the sustainability of the significant production decline at Yanacocha (Peru) and the impact of the new gold mill construction.
- Debt Structure: Review the subsequent issuance of $1,150 million in convertible senior notes (July 2007) and the repayment of the revolving credit facility.
- Environmental Liabilities: Review the $636 million total reclamation and remediation liability and the potential range of additional costs (up to 59% higher) for historic sites.