Business Context and Reporting Period
Newmont Mining Corporation filed an unaudited Form 10-Q for the three months ended March 31, 2014. Newmont is a global gold producer with copper operations and assets in North America, South America, Australia/New Zealand, Indonesia, and Africa. The filing reflects revised prior-period presentation for segment changes and corrections to deferred tax and stockpile balances.
Key Financial and Operating Metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Sales | $1,764 million | $2,188 million | Down 19% |
| Income from continuing operations | $65 million | $356 million | Down 82% |
| Net income attributable to Newmont stockholders | $100 million | $314 million | Down 68% |
| Basic earnings per share | $0.20 | $0.63 | Down $0.43 |
| Adjusted net income | $108 million | $353 million | Down 69% |
| Cash provided from operations | $180 million | $433 million | Down 59% |
| Capital expenditures | $235 million | $510 million | Down 54% |
| Cash and cash equivalents | $1,475 million | $1,378 million | March 31, 2014 versus March 31, 2013 |
| Total debt | $6,761 million | Not provided in the filing excerpt | Debt was $6,761 million at March 31, 2014 |
Operating income before income and mining tax and other items was $143 million, compared with $540 million in the prior-year quarter. The effective tax rate increased to 55% from 33%. Net income margin attributable to Newmont stockholders was approximately 5.7%, compared with approximately 14.4% in Q1 2013.
- Gold production was 1.292 million ounces, including 1.210 million attributable ounces, versus 1.281 million and 1.165 million, respectively.
- Copper production was 77 million pounds, including 52 million attributable pounds, versus 65 million and 45 million, respectively.
- Average realized gold and copper prices were $1,293 per ounce and $2.50 per pound, compared with $1,631 and $3.12.
- Consolidated gold costs applicable to sales were $751 per ounce, versus $760; copper costs were $2.71 per pound, versus $2.27.
- Gold operating margin declined to $542 per ounce from $871; copper operating margin declined to negative $0.21 per pound from positive $0.85.
- Dividends declared were $0.15 per common share, compared with $0.425 in Q1 2013.
Material Changes Versus the Prior Comparable Period
- Lower metal prices were the primary driver of the sales and earnings decline. Gold sales fell to $1,651 million from $2,042 million, while copper sales fell to $113 million from $146 million.
- Production increased modestly, supported by new Akyem production in Ghana, higher Tanami and Kalgoorlie output, higher Batu Hijau grades, and the Phoenix copper leach facility.
- Yanacocha production declined 27%, with higher unit costs and amortization due to stripping activities and planned leach-pad inventory adjustments.
- Costs applicable to sales included planned stockpile and leach-pad inventory adjustments. The company recorded $110 million of stockpile costs and $35 million of amortization-related write-downs.
- Other income included a $47 million gain on the Midas sale. Other expense declined to $52 million from $100 million, partly because Q1 2013 included $45 million of transaction and acquisition costs.
- Interest expense increased to $93 million from $65 million because less interest was capitalized as Akyem and Phoenix projects were completed.
- Cash flow from operations declined primarily because of lower realized metal prices and a $350 million use of cash from operating assets and liabilities.
- Capital expenditures declined substantially as Akyem and Phoenix construction spending rolled off. Full-year 2014 capital expenditures were estimated at $1.3 billion to $1.4 billion.
Guidance, Outlook, Risks, and Unusual Items
- Management maintained 2014 attributable gold production guidance of approximately 4.6 million to 4.9 million ounces, with consolidated gold costs applicable to sales of approximately $740 to $790 per ounce.
- 2014 attributable copper production guidance was approximately 160 million to 175 million pounds, with consolidated costs of approximately $2.00 to $2.25 per pound.
- Expected 2014 amortization was approximately $1.05 billion to $1.125 billion; exploration and advanced project spending was expected at approximately $400 million to $450 million; general and administrative expense was expected at approximately $175 million to $200 million; and interest expense was expected at approximately $325 million to $350 million.
- Management expected a 2014 tax rate of approximately 37% to 40%, assuming a $1,300 gold price for the remainder of the year, while noting continued volatility.
- A $575 million term loan facility was established to refinance convertible debt maturing in July 2014. The $3.0 billion revolving credit facility was extended to 2019; no borrowings were outstanding under either facility at March 31, 2014.
- Scheduled minimum debt repayments totaled $623 million for the remainder of 2014 and $5.105 billion thereafter. Management stated that debt maturities and capital expenditures were expected to be funded through operating cash flow, cash balances, investments, and available credit.
- Indonesian export regulations for copper concentrate created uncertainty regarding permits, duties, and potential production reductions at Batu Hijau. In April 2014, PTNNT received registered-exporter approval but was still working to obtain the required export permit.
- Conga development remained largely suspended because of political and community opposition. Newmont expected approximately $80 million of 2014 spending on access roads, permitting, and social acceptance and warned of potential impairment if the development plan could not continue.
- La Herradura production was affected by a suspension of explosives permits, although permits for certain mining units were granted in February 2014.
- Reclamation and remediation liabilities totaled $1.615 billion at March 31, 2014. Letters of credit, surety bonds, and bank guarantees totaled $1.803 billion.
- Discontinued operations included a $17 million after-tax charge for the Holt property royalty liability, driven by higher gold prices, higher expected production, and lower discount rates.
- The company reported $321 million of unrecognized tax benefits, of which $78 million could affect the effective tax rate if recognized.
- Legal, environmental, permitting, tax, foreign-exchange, metal-price, and community risks remain material. The filing states that no material changes were made to the risk factors in the 2013 Form 10-K.
Most Important Facts for Investors to Verify
- Whether realized gold and copper prices and provisional pricing adjustments support the production and earnings outlook.
- Progress on Indonesian copper export permits and any effect on Batu Hijau production, inventory, cash flow, and guidance.
- Whether Yanacocha’s planned stripping and inventory adjustments normalize in the second half of 2014.
- Funding and refinancing of the $575 million convertible debt maturity and the timing of term-loan drawdown.
- Actual 2014 capital expenditures, debt repayments, operating cash flow, and liquidity relative to management’s projections.
- Development decisions and potential impairment exposure for Conga, Merian, and the Turf Vent Shaft project.
- Changes in reclamation, environmental, tax, royalty, and legal contingencies, including the Holt property royalty and Indonesian and Peruvian matters.
- The effect of the $148 million cumulative retained-earnings revision at January 1, 2014 and related deferred-tax and stockpile accounting corrections.