Business Context and Reporting Period
Newmont Mining Corporation filed its Form 10-K for the fiscal year ended December 31, 2016. The company is primarily a gold producer with operations and assets in the United States, Australia, Peru, Ghana and Suriname, and also produces copper. The filing presents Batu Hijau in Indonesia as a discontinued operation following completion of its sale on November 2, 2016.
Continuing operations produced 5.243 million ounces of gold, including 4.898 million attributable ounces, and 119 million pounds of copper. Gold represented approximately 96% of continuing-operations sales.
Key Financial and Operating Metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Sales from continuing operations | $6,711 million | $6,085 million | +10% |
| Gold sales | $6,461 million | $5,805 million | +11% |
| Copper sales | $250 million | $280 million | -11% |
| Net loss attributable to Newmont stockholders | $(627) million | $220 million income | Unfavorable |
| Continuing-operations loss attributable to Newmont stockholders | $(220) million | $(1) million | Unfavorable |
| Adjusted net income | $619 million | $327 million | +89% |
| Adjusted EBITDA | $2,365 million | $1,896 million | +25% |
| Operating cash flow from continuing operations | $1,917 million | $1,588 million | +21% |
| Free cash flow | $784 million | $277 million | +183% |
| Capital expenditures | $1,133 million | $1,311 million | -14% |
Average realized gold price increased to $1,243 per ounce from $1,149, while the average realized copper price declined slightly to $2.15 per pound from $2.17. Gold all-in sustaining costs declined to $912 per ounce from $933; copper all-in sustaining costs increased to $2.30 per pound from $2.15. These are non-GAAP measures and may not be comparable with similarly titled measures used by other companies.
| Balance-sheet and liquidity metric | December 31, 2016 | December 31, 2015 |
|---|---|---|
| Cash and cash equivalents | $2,756 million | $2,363 million |
| Debt, including current portion | $4,615 million | $5,863 million |
| Net debt | $1,859 million | $3,500 million |
| Total assets | $21,031 million | $25,130 million |
| Newmont stockholders’ equity | $10,721 million | $11,350 million |
Newmont had no borrowings under its $3.0 billion corporate revolving credit facility, which matures in March 2020. Scheduled minimum debt repayments are $575 million in 2017 and $626 million in 2019, with $3,466 million due thereafter. The company stated that it was in compliance with debt covenants at year-end.
Material Changes Versus Prior Comparable Period
- Sales increased primarily because of higher gold prices and volumes, the full-year contribution from CC&V, and the addition of Long Canyon and Merian, which reached commercial production in November and October 2016, respectively.
- Gold production increased 4% to 5.243 million ounces, while copper production declined 5% to 119 million pounds.
- Operating cash flow and free cash flow improved substantially, while capital expenditures declined and debt repayments increased to $1,312 million from $229 million.
- Newmont sold its 48.5% economic interest in Batu Hijau for $920 million in cash, recognized a $600 million loss on sale, and recorded Batu Hijau as discontinued operations for all periods presented.
- Attributable proven and probable gold reserves declined to 68.5 million ounces from 73.7 million ounces, primarily because of depletion, divestiture of Batu Hijau and discontinued operations, partly offset by revisions and additions. Continuing-operations gold reserves were approximately 68.5 million ounces at year-end.
- Attributable copper reserves declined to 2.490 billion pounds from 5.670 billion pounds, principally because of the Batu Hijau divestiture and lower reserve assumptions.
Guidance, Outlook, Commentary and Unusual Items
- Management’s stated priorities were improving safety and efficiency, maintaining environmental and social performance, strengthening the portfolio of longer-life and lower-cost mines, reducing debt and returning cash to shareholders.
- The Tanami Expansion was expected to reach commercial production by mid-2017 and support production of approximately 425,000 to 475,000 gold ounces annually for its first five years.
- Potential projects included Subika Underground and the Ahafo Mill Expansion, with investment decisions expected in the first half of 2017, and Quecher Main and Twin Underground, with decisions expected in the second half of 2017. The filing does not provide a consolidated 2017 production or cost guidance figure.
- The fourth quarter included a $970 million non-cash impairment charge related primarily to Yanacocha, following an updated closure plan and higher estimated water-management, heap-leach and support costs. The Yanacocha reclamation obligation increased by $425 million, including a $77 million non-cash reclamation expense charge.
- Income and mining tax expense was $563 million despite a pretax loss, reflecting changes in deferred-tax valuation allowances. The year-end valuation allowance was $3,844 million, compared with $2,735 million in 2015.
- Reclamation liabilities for producing or recently producing properties were $1,792 million; environmental remediation liabilities for former properties were $298 million. Outstanding surety bonds, letters of credit and bank guarantees totaled $2,227 million.
- The company does not hedge gold or copper sales, retaining exposure to spot prices. It hedges limited Australian-dollar operating costs and Nevada diesel costs.
- Newmont was cooperating with the SEC and U.S. Department of Justice in an investigation relating to certain business activities outside the United States, including potential Foreign Corrupt Practices Act issues. The filing states that no provision was recorded because the outcome could not be predicted.
- Principal risks include gold and copper price volatility, rising operating and closure costs, reserve uncertainty, permitting and environmental obligations, political and community opposition in Peru and Suriname, labor disruptions, geotechnical failures, water and power availability, foreign exchange movements and potential additional impairments.
Most Important Facts for Investors to Verify
- Whether Yanacocha’s revised closure plan, water-treatment requirements and additional reclamation bonding will create further cash costs or impairments.
- The timing, capital requirements, production benefits and approvals for Tanami Expansion, Subika Underground, Ahafo Mill Expansion, Quecher Main and Twin Underground.
- The effect of the Batu Hijau sale, including the $403 million of potential contingent payments and the absence of future Batu Hijau operating cash flows.
- 2017 debt maturities, refinancing plans and the continued availability of the $3.0 billion revolving credit facility.
- Realized gold and copper prices, production volumes, all-in sustaining costs and the sensitivity of cash flow to commodity prices.
- The status and potential financial or reputational consequences of the SEC and DOJ investigation.
- The recoverability of deferred tax assets, stockpiles and leach-pad inventories under lower metal prices or higher operating costs.
- The filing’s full legal-proceedings, environmental, mine-safety and contingent-liability disclosures, including the Fronteer litigation and Peruvian tax and regulatory matters.