Business Context and Reporting Period
Newmont Mining Corporation filed a Form 10-K for the fiscal year ended December 31, 2018. The filing includes unaudited fourth-quarter data but is primarily an annual report. Newmont is a global gold producer with copper and silver by-products, operating in the United States, Australia, Peru, Ghana and Suriname. Gold represented approximately 96% of sales and copper approximately 4%.
Continuing operations exclude the Batu Hijau mine in Indonesia, which was sold in 2016 and presented as a discontinued operation.
Financial and Operating Metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Sales | $7,253 million | $7,379 million | Down 2% |
| Net income from continuing operations | $319 million | $(71) million | Improved $390 million |
| Net income attributable to Newmont stockholders | $341 million | $(114) million | Improved $455 million |
| Continuing-operations EPS, diluted | $0.53 | $(0.14) | Improved $0.67 |
| Adjusted net income | $718 million | $774 million | Down 8% |
| Adjusted EBITDA | $2,584 million | $2,650 million | Down 2% |
| Operating cash flow from continuing operations | $1,837 million | $2,139 million | Down $302 million |
| Free cash flow | $805 million | $1,273 million | Down $468 million |
| Cash and cash equivalents | $3,397 million | $3,259 million | Up $138 million |
| Total debt | $4,044 million | $4,040 million | Broadly unchanged |
| Net debt | $864 million | $806 million | Up $58 million |
Costs applicable to sales were $4,093 million, or approximately 56% of sales. Gold all-in sustaining cost was $909 per ounce, compared with $890 in 2017; copper all-in sustaining cost was $2.02 per pound, compared with $1.80.
- Consolidated gold production was 5.479 million ounces, including 5.101 million attributable ounces, down 3% from 2017.
- Consolidated copper production was 109 million pounds, down 4%.
- Average realized gold price increased to $1,260 per ounce from $1,255; average realized copper price decreased to $2.74 per pound from $2.83.
- Capital expenditures were $1,032 million on a cash basis, including $419 million for development projects and $600 million for sustaining capital on an accrual basis.
- Dividends declared increased to $0.56 per share from $0.25. The company paid $301 million in common-stock dividends and repurchased $98 million of common stock.
- The revolving credit facility had no borrowings outstanding and approximately $2,914 million of borrowing capacity remaining.
Material Changes Versus the Prior Comparable Period
- Reported profitability improved substantially because of lower income tax expense, a $100 million pre-tax gain from the royalty portfolio transaction with Maverix Metals, and the absence of the significant 2017 tax effects from the U.S. Tax Cuts and Jobs Act.
- Adjusted earnings and cash generation declined despite the reported return to profitability. Lower production, higher operating costs, increased capital spending and unfavorable working-capital movements reduced operating cash flow and free cash flow.
- Gold output declined because of lower grades and lower leach tons at several North American and Australian operations, partly offset by higher grade and recovery at Tanami and Ahafo.
- Costs applicable to sales per gold ounce increased to $708 from $692, while gold AISC increased to $909 from $890.
- The company recorded $369 million of long-lived-asset impairments, primarily $331 million related to North American exploration properties and $35 million related to the Emigrant operation.
- Attributable proven and probable gold reserves declined to 65.4 million ounces from 68.5 million ounces. The decrease reflected depletion of 6.1 million ounces, negative revisions of 3.6 million ounces and divestments of 0.1 million ounces, partly offset by 6.7 million ounces of additions.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Subika Underground reached commercial production in the fourth quarter of 2018 and is expected to produce 150,000 to 200,000 ounces annually during its first five years beginning in 2019.
- The Ahafo Mill Expansion is expected to begin production in the second half of 2019 and add approximately 75,000 to 100,000 ounces annually during its first five years beginning in 2020.
- Quecher Main at Yanacocha achieved first gold in late 2018, with commercial production expected in the second half of 2019 and approximately 200,000 consolidated ounces annually from 2020 through 2025.
- The Tanami Power project is expected to lower power costs, reduce fuel-supply risk and reduce emissions beginning in 2019. The project carries significant build-to-suit financing obligations.
- On January 14, 2019, Newmont agreed to acquire Goldcorp in a primarily stock transaction valued at approximately $10 billion at announcement. Closing was expected in the second quarter of 2019, subject to shareholder, regulatory and other approvals. The arrangement included a potential $650 million termination fee in specified circumstances.
- Newmont does not hedge gold or copper sales and therefore remains directly exposed to metal prices. A $100 per ounce decline in the long-term gold-price assumption could result in up to approximately $1.5 billion of impairment to long-lived assets, before considering value beyond proven and probable reserves.
- Reclamation liabilities were $2,316 million and remediation liabilities were $279 million at year-end. Total contractual obligations were $14,655 million, including debt, environmental liabilities, employee benefits, purchase obligations and leases.
- 2018 included seven fatalities: six contractor fatalities at the Ahafo Mill Expansion in Ghana and one employee fatality at the Pete-Bajo operation in Nevada. The incidents were subject to investigations.
- Key ongoing risks include gold and copper price volatility, reserve replacement, operating and capital-cost inflation, geotechnical failures, water availability, permitting, environmental and reclamation obligations, political and community opposition, labor disruptions, foreign exchange movements, cybersecurity and mining-related safety hazards.
- Material contingencies include an Australian tax dispute of approximately $83 million, a Peruvian Yanacocha tax dispute with potential liability of up to $83 million, unresolved environmental matters, and a $1.2 billion damages claim in the Fronteer-related litigation. Management stated that outcomes cannot be predicted.
Most Important Facts for Investors to Verify
- Whether the Goldcorp transaction closed as planned, including final consideration, share issuance, regulatory approvals, integration costs and realized synergies.
- 2019 production, AISC and capital-spending performance for Subika Underground, Ahafo Mill Expansion, Quecher Main and Tanami Power.
- The sustainability of reported earnings after excluding the $100 million royalty-portfolio gain, tax benefits and other nonrecurring items.
- The effect of lower reserves, mine-plan changes and the $369 million impairment charge on future production, mine lives and depreciation.
- Exposure to gold and copper prices, particularly because the company does not hedge its metal sales.
- Progress and ultimate costs of reclamation, remediation, water-management requirements and environmental contingencies.
- Resolution of the identified tax disputes, litigation and other contingent liabilities.
- Safety performance and the operational or regulatory consequences of the 2018 fatalities.