Newmont Corporation: Q1 2021 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with significant copper, silver, lead and zinc by-product production. Operations span North America, South America, Australia, Africa and Nevada. This unaudited report covers the three months ended March 31, 2021, compared primarily with the three months ended March 31, 2020.
Key financial and operating metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Sales | $2,872 million | $2,581 million | +11% |
| Net income attributable to Newmont stockholders | $559 million | $822 million | -$263 million |
| Continuing-operations net income attributable to stockholders | $538 million | $837 million | -$299 million |
| Diluted EPS from continuing operations | $0.67 | $1.04 | -$0.37 |
| Adjusted net income | $594 million | $326 million | +$268 million |
| Adjusted diluted EPS | $0.74 | $0.40 | +$0.34 |
| Adjusted EBITDA | $1,457 million | $1,118 million | +30% |
| Operating cash flow from continuing operations | $841 million | $939 million | -$98 million |
| Free cash flow | $442 million | $611 million | -$169 million |
| Gold production | 1.422 million ounces | 1.476 million ounces | -4% |
| Gold all-in sustaining cost | $1,039/oz. | $1,030/oz. | +1% |
Sales increased primarily because realized prices rose across the portfolio: gold averaged $1,751 per ounce versus $1,591, copper $4.20 per pound versus $1.56, silver $19.73 per ounce versus $14.13, lead $0.88 per pound versus $0.64, and zinc $1.06 per pound versus $0.62. Costs applicable to sales declined 6% to $1,247 million, although gold production and attributable production volumes were lower.
Gold represented $2,482 million of sales, followed by silver at $168 million, zinc at $126 million, lead at $44 million and copper at $52 million. At March 31, 2021, cash and cash equivalents were $5,518 million, net debt was $1,196 million and total liquidity was approximately $8,507 million, including $2,989 million of undrawn revolving-credit capacity.
Material changes versus the prior comparable period
- GAAP continuing-operations earnings declined primarily because Q1 2020 included substantial gains from the sales of Kalgoorlie, Continental Gold and Red Lake. Q1 2021 included only a $43 million net gain, principally from the TMAC sale, versus $593 million in Q1 2020.
- Income and mining tax expense increased to $235 million from a $23 million benefit, producing a 32% effective tax rate versus a negative 3% rate in the prior-year quarter.
- Adjusted earnings improved because the comparison excludes significant 2020 gains, investment impairment, debt-extinguishment charges and other unusual items.
- Gold production decreased because of lower production at Yanacocha, Merian, Cerro Negro and Nevada Gold Mines, as well as the 2020 sale of Red Lake. Peñasquito, Musselwhite, Boddington and Akyem were stronger contributors.
- Operating cash flow and free cash flow declined, reflecting higher tax payments, payments on accounts payable and higher capital expenditures. Cash capital expenditures increased to $399 million from $328 million.
- Cash dividends paid increased to $441 million from $112 million; the declared dividend was $0.55 per share versus $0.25 in the prior-year quarter.
Guidance, outlook, management commentary, risks and unusual items
- No consolidated full-year production, cost or financial guidance is provided in the supplied filing text. Management states that available liquidity and operating cash flow are expected to fund operations, growth, debt obligations and dividends for the foreseeable future.
- The Tanami Expansion 2 project is expected to increase annual gold production by approximately 150,000 to 200,000 ounces during its first five years beginning in 2024 and reduce operating costs by approximately 10%. Development capital incurred since approval was $159 million, including $33 million in Q1 2021.
- Newmont agreed to acquire the remaining 85.1% of GT Gold for estimated cash consideration of $313 million; closing was expected in Q2 2021.
- In April 2021, after quarter-end, Newmont redeemed its remaining 3.625% Senior Notes due June 2021 for $557 million. In March, it amended its $3.0 billion revolving credit facility, extending maturity to March 2026 and adding an ESG-based interest-rate adjustment of up to plus or minus 0.05%.
- COVID-19 costs were $22 million in Q1 2021 versus $2 million in Q1 2020, including $21 million of incremental operational costs included in all-in sustaining costs. All sites were operational at March 31 except Cerro Negro, which continued working toward full capacity under COVID-related constraints.
- Key risks include metal-price volatility, production and grade variability, inflation and foreign-exchange movements, COVID-19 disruptions, permitting and regulatory matters, environmental and reclamation obligations, geopolitical conditions, tax disputes, community relations and project-development risks.
- Reclamation and remediation liabilities totaled $3,841 million. The filing states that certain environmental remediation liabilities could ultimately be up to 48% greater than the amount accrued, depending on resolution.
- Provisionally priced sales subject to future settlement included 201,000 gold ounces, 11 million pounds of copper, 6 million ounces of silver, 29 million pounds of lead and 85 million pounds of zinc. A 10% price change in these provisional sales would have an estimated effect on stockholder net income of approximately $23 million, $3 million, $9 million, $2 million and $7 million, respectively.
Most important facts for investors to verify
- Whether higher metal prices can offset lower production volumes and rising or uneven mine-level sustaining costs.
- The status, cost and production timing of Tanami Expansion 2 and other development projects, including permitting and execution risks.
- The completion and cash funding of the GT Gold acquisition and the effect of the post-quarter-end debt redemption on liquidity.
- Cerro Negro’s recovery to full capacity and the potential for further COVID-19-related operating interruptions or costs.
- The sustainability of the $0.55-per-share dividend and the announced $1 billion share-repurchase authorization.
- Exposure to tax, environmental and legal contingencies, including the Yanacocha tax dispute, Mexican tax matters, the Zacatecas ecological tax agreement and reclamation obligations.
- The filing’s non-GAAP reconciliations and definitions for adjusted net income, adjusted EBITDA, free cash flow and all-in sustaining costs when comparing Newmont with other mining companies.