Newmont Corporation 2020 Form 10-K Summary
Business context and reporting period
Newmont Corporation is a global gold producer with operations and interests across North America, South America, Australia, Africa and Nevada. The filing covers the fiscal year ended December 31, 2020, with comparisons primarily to 2019. Newmont also produces copper, silver, lead and zinc. The company held attributable proven and probable reserves of 94.2 million ounces of gold at year-end.
Results include Newmont’s 38.5% proportionate share of Nevada Gold Mines, operated by Barrick, and the full-year effects of the 2019 Goldcorp acquisition. Newmont sold its Red Lake complex and 50% interest in Kalgoorlie during 2020.
Key financial and operating metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Sales | $11,497 million | $9,740 million | +18% |
| Net income from continuing operations attributable to Newmont stockholders | $2,666 million | $2,877 million | -$211 million |
| Diluted EPS from continuing operations | $3.31 | $3.91 | -$0.60 |
| Adjusted net income | $2,140 million | $970 million | +$1,170 million |
| Adjusted diluted EPS | $2.66 | $1.32 | +$1.34 |
| Adjusted EBITDA | $5,537 million | $3,734 million | +48% |
| Operating cash flow from continuing operations | $4,890 million | $2,876 million | +70% |
| Free cash flow | $3,588 million | $1,413 million | +154% |
| Cash and cash equivalents | $5,540 million | $2,243 million | +$3,297 million |
| Debt | $6,031 million | $6,138 million | -$107 million |
| Net debt | $1,162 million | $4,591 million | -$3,429 million |
| Total liquidity | $8,468 million | $5,183 million | +63% |
Sales were composed of gold of $10,350 million, silver of $510 million, zinc of $348 million, lead of $134 million and copper of $155 million. Average realized prices were $1,775 per gold ounce, $17.86 per silver ounce, $0.86 per zinc pound, $0.72 per lead pound and $2.78 per copper pound.
Consolidated gold production was 5.824 million ounces, down from 6.392 million ounces in 2019. Attributable gold production was approximately 5.5 million ounces, down 6%. Consolidated gold all-in sustaining cost was $1,045 per ounce, compared with $966 in 2019. Gold costs applicable to sales were $756 per ounce, compared with $721 in 2019.
Capital expenditures totaled $1,302 million on a cash basis, including $933 million of sustaining capital and $406 million of development capital on an accrual basis. Regular cash dividends paid were $1.04 per common share; $1.45 per share was declared for the period, including the company’s variable dividend framework.
Material changes versus the prior comparable period
- Higher gold prices and increased contributions from Peñasquito, Musselwhite, Porcupine, Pueblo Viejo and Nevada Gold Mines supported revenue and adjusted earnings.
- Reported GAAP continuing earnings declined because 2019 included a $2.390 billion noncash gain from the formation of Nevada Gold Mines. Excluding this unusual item, management stated that 2020 net income increased materially.
- Five sites were temporarily placed into care and maintenance in response to COVID-19: Musselwhite, Éléonore, Peñasquito, Yanacocha and Cerro Negro. All had resumed operations by year-end except that Cerro Negro was still ramping up.
- COVID-19 resulted in $178 million of direct cash care-and-maintenance costs, $88 million of noncash care-and-maintenance depreciation, and $92 million of incremental direct response costs.
- Gold production declined because of temporary shutdowns, lower grades at several operations, and the sales of Red Lake and Kalgoorlie. Production was partly offset by a full year of operations at acquired assets, the Musselwhite restart and expanded production at Peñasquito.
- Newmont completed asset sales generating significant gains, including the sale of Kalgoorlie, Continental Gold holdings, royalty interests and Red Lake. Gain on asset and investment sales was $677 million.
- Debt declined modestly while cash increased substantially. Newmont issued $1.0 billion of 2.25% 2030 Senior Notes and used the proceeds and cash to repurchase approximately $1.0 billion of higher-coupon 2022 and 2023 notes.
- Attributable gold reserves declined from approximately 100.2 million ounces at December 31, 2019 to 94.2 million ounces at December 31, 2020, reflecting depletion, divestitures and reserve changes.
Guidance, outlook, management commentary and unusual items
Management emphasized financial flexibility, self-funding of development projects, debt reduction and shareholder returns. In 2020, the Board adopted a non-binding framework to return 40% to 60% of incremental attributable free cash flow generated above a $1,200 per ounce gold price. Newmont also announced a new $1 billion share-repurchase program to run through July 2022.
The project pipeline includes Tanami Expansion 2, expected to add approximately 150,000 to 200,000 ounces of annual gold production during the first five years beginning in 2024 and reduce operating costs by approximately 10%. Musselwhite’s materials-handling project reached commercial production in December 2020. Ahafo North and Yanacocha Sulfides were expected to seek full funding approval in 2021.
Management stated that liquidity was adequate for operations, growth projects, debt obligations, dividends and planned repurchases. The revolving credit facility had $2,928 million of available capacity and no borrowings outstanding at year-end. The company was in compliance with debt covenants.
Debt maturities include approximately $550 million in 2021, $492 million in 2022, $414 million in 2023 and $4.624 billion thereafter. Contractual obligations totaled $19.360 billion, including debt, reclamation and remediation liabilities, employee benefits, leases, royalties and purchase obligations.
Important unusual items included the $677 million gain on asset and investment sales, $213 million of adjusted reclamation and remediation charges, a $93 million impairment of the TMAC investment, $92 million of pension settlement charges, $77 million of debt-extinguishment losses and $49 million of long-lived-asset impairments.
Newmont committed to a 30% reduction in greenhouse-gas emissions by 2030, an aspiration of net-zero carbon emissions by 2050 and $500 million of climate-related investment from 2021 through 2025.
Principal risks and contingencies
- COVID-19 may cause renewed mine shutdowns, workforce disruptions, supply-chain interruptions, shipping or refining delays and higher operating costs.
- Results are highly sensitive to gold and other metal prices. Newmont generally does not hedge its metal sales, increasing exposure to price declines.
- Production and costs depend on ore grades, recoveries, geotechnical conditions, energy and water availability, labor relations, equipment availability and permitting.
- Environmental, reclamation and remediation obligations are significant. Accrued reclamation and remediation liabilities totaled $4.032 billion, and management disclosed that certain remediation liabilities could be up to 48% greater than accrued amounts.
- Newmont faces political, tax, currency, community and regulatory risks in multiple jurisdictions, including Argentina, Suriname, Peru, Ghana and Mexico.
- Potential contingencies include tax disputes in Peru, Australia and Mexico; the Zacatecas ecological tax; litigation involving Ghanaian mining leases, Conga and former Goldcorp disclosures; and other legal proceedings whose outcomes cannot be predicted.
- Conga in Peru remains in care and maintenance, and management does not anticipate development within the next ten years. A future sale, abandonment or project reprioritization could result in an impairment.
- Newmont’s 38.5% interest in Nevada Gold Mines is operated by Barrick, limiting Newmont’s direct control over operations and strategic decisions. Nevada mining-tax proposals could increase costs.
- The company’s asset valuations and impairment analyses rely on significant assumptions, including a $1,500 per ounce long-term gold price. A $100 decrease in this assumption could result in up to approximately $2.5 billion of long-lived-asset and goodwill impairment before considering value beyond reserves.
Investor verification checklist
- Reconcile the decline in GAAP continuing EPS with the increase in adjusted EPS, particularly the 2019 Nevada Gold Mines formation gain and 2020 asset-sale gains.
- Review gold production, AISC, ore grades and recovery trends by mine, with particular attention to Yanacocha, Ahafo, Cerro Negro, Boddington and Nevada Gold Mines.
- Assess whether the $1,200 gold-price dividend framework and the new $1 billion repurchase authorization are sustainable under lower metal prices or higher costs.
- Verify debt maturities, interest costs, covenant headroom and the availability of the $2.928 billion revolving credit facility.
- Evaluate the reserve decrease to 94.2 million ounces and the assumptions used for reserve prices, depletion and reserve replacement.
- Monitor COVID-19 impacts, Cerro Negro’s ramp-up, project approvals and spending for Tanami Expansion 2, Ahafo North and Yanacocha Sulfides.
- Review reclamation, remediation, tax and legal contingencies, including the Zacatecas ecological tax and Peru tax disputes.
- Consider the effect of metal-price, currency, energy, water, permitting, community and climate risks on mine plans and asset carrying values.
- Confirm the proportionate-consolidation treatment and operating dependence on Barrick for Nevada Gold Mines.