Newmont Mining Corporation 2015 Form 10-K Summary
Business context and reporting period
Newmont Mining Corporation is primarily a gold producer with copper operations in the United States, Australia, Peru, Indonesia, Ghana and Suriname. This Form 10-K covers the fiscal year ended December 31, 2015. The filing is an annual report; fourth-quarter results are included in the unaudited supplementary data.
Newmont reported 73.7 million attributable ounces of proven and probable gold reserves and 5.7 billion attributable pounds of copper reserves at year-end. Gold represented 84% of 2015 sales and copper 16%.
Key financial and operating metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Sales | $7,729 million | $7,292 million | +6% |
| Net income attributable to Newmont stockholders | $220 million | $508 million | -57% |
| Basic earnings per share | $0.43 | $1.02 | Down |
| Adjusted net income | $507 million | $545 million | -7% |
| Adjusted net income per share | $0.98 | $1.09 | Down |
| Net cash from continuing operations | $2,157 million | $1,451 million | +$706 million |
| Free cash flow | $756 million | $341 million | +$415 million |
| Capital expenditures | $1,401 million | $1,110 million | +26% |
| Debt | $6,236 million | $6,646 million | -6% |
| Cash and cash equivalents | $2,782 million | $2,403 million | +16% |
| Net debt | $3,454 million | $4,243 million | -19% |
Reported operating performance improved despite lower prices. Consolidated gold production increased 9% to 5.707 million ounces, while copper production increased 128% to 619 million pounds. Average realized prices declined to $1,141 per gold ounce from $1,258 and to $2.13 per copper pound from $2.65.
| Operating metric | 2015 | 2014 |
|---|---|---|
| Gold costs applicable to sales | $633/oz | $706/oz |
| Gold operating margin | $508/oz | $552/oz |
| Gold all-in sustaining cost | $898/oz | $1,002/oz |
| Copper costs applicable to sales | $1.21/lb | $2.88/lb |
| Copper operating margin | $0.92/lb | $(0.23)/lb |
| Copper all-in sustaining cost | $1.59/lb | $3.65/lb |
Gross margin was pressured in the fourth quarter: fourth-quarter sales were $1,816 million and income from continuing operations attributable to Newmont stockholders was a $247 million loss, compared with $202 million of income in the third quarter. The filing attributes significant fourth-quarter impacts to tax adjustments, reclamation charges, the Ghana Investment Agreement, investment and long-lived-asset impairments, and other unusual items.
Material changes versus the prior comparable period
- Sales rose because higher gold and copper volumes more than offset lower realized metal prices.
- Batu Hijau returned to substantially higher production after 2014 export-related disruptions and contributed materially to the increase in copper and gold volumes.
- Costs applicable to sales declined 3% overall, supported by operating improvements, lower fuel prices, favorable Australian currency movements and asset divestitures.
- Net income attributable to Newmont fell substantially because of a higher effective tax rate, investment impairments, reclamation charges and other unusual items.
- The effective tax rate increased to 66% from 26%, primarily because of changes in valuation allowances, jurisdictional income mix and lower percentage-depletion benefits.
- Gold reserves declined from 81.6 million to 73.7 million attributable ounces. The reduction reflected depletion, revisions, lower reserve-price assumptions and the reclassification of Conga reserves to Mineralized Material, partly offset by 4.0 million ounces acquired with CC&V.
- Copper reserves declined from 7.93 billion to 5.67 billion attributable pounds, primarily due to revisions, depletion and lower copper-price assumptions.
- Newmont acquired the Cripple Creek & Victor mine in Colorado for $821 million and funded the transaction partly with $675 million of common-stock proceeds. It also sold Waihi, Valcambi and certain other assets.
- Newmont deconsolidated TMAC after its IPO and recognized a $76 million gain; its retained 29.37% interest was accounted for under the equity method.
Guidance, outlook, management commentary and risks
Management emphasized productivity and cost improvements through the Full Potential program, portfolio optimization and disciplined project development. The filing does not provide a single consolidated 2016 earnings or production guidance figure in the supplied text.
- Merian construction was 61% complete at year-end and was expected to begin commercial production in the fourth quarter of 2016. First-five-year production was estimated at 400,000 to 500,000 ounces annually on a 100% basis, with attributable capital spending of $575 million to $625 million.
- Long Canyon was under construction and expected to begin commercial production in the first half of 2017, with estimated annual production of 100,000 to 150,000 ounces and capital costs of $250 million to $300 million.
- Tanami expansion was approved with estimated capital spending of $100 million to $120 million and expected production of 425,000 to 475,000 ounces annually during the first five years after expansion.
- Conga remained suspended because of social and political opposition. Management did not anticipate full development for the foreseeable future and had reclassified Conga reserves to Mineralized Material.
- Batu Hijau remained exposed to Indonesian export-permit renewals, Contract of Work renegotiation, smelting requirements, royalties, export duties and possible ownership changes. The latest export permit described in the filing expired in May 2016.
- Ghana operations experienced power shortages and load shedding, reducing Ahafo production. Revised Ghana investment agreements changed tax stabilization and introduced a sliding-scale royalty system.
- The principal business risks include gold and copper price declines, operating and capital-cost inflation, reserve replacement, impairment risk, foreign-exchange exposure, permitting and environmental obligations, labor disruptions, political and community instability, water and power availability, geotechnical failures and cybersecurity.
- Environmental accruals totaled $1,553 million for reclamation and $318 million for remediation of former mining properties. Outstanding letters of credit, surety bonds and bank guarantees totaled $2,060 million.
- Scheduled minimum debt repayments were $143 million in 2016, $765 million in 2017, $1,175 million in 2019 and $4,200 million thereafter. Newmont had no borrowings under its $3.0 billion corporate revolving facility at year-end and was in compliance with debt covenants.
Most important facts for investors to verify
- Reconcile consolidated versus attributable production, sales and reserves, particularly for Batu Hijau, Yanacocha, Merian and other non-wholly-owned operations.
- Review the sustainability of 2015 cost improvements and whether lower metal prices could trigger additional stockpile, leach-pad, deferred-tax-asset or long-lived-asset impairments.
- Confirm the status and terms of Batu Hijau export permits, Contract of Work amendments, Indonesian divestiture requirements and the potential effect on consolidation.
- Monitor Merian, Long Canyon, Tanami, CC&V and other projects for capital overruns, permitting delays, commissioning performance and production timing.
- Assess Conga’s recoverability and the distinction between Mineralized Material and SEC-compliant proven and probable reserves.
- Evaluate debt maturities, refinancing needs, credit ratings and liquidity after capital spending, dividends and reclamation commitments.
- Review environmental, tax and legal contingencies, including the Midnite Mine remediation estimate, Yanacocha matters, Indonesian tax disputes and the NWG litigation.
- Use the company-defined non-GAAP measures, including adjusted net income, free cash flow and all-in sustaining costs, together with their GAAP reconciliations rather than as substitutes for GAAP results.