Newmont Mining Corporation 2013 Form 10-K Summary
Business context and reporting period
Newmont Mining Corporation is a global gold producer with significant operations and assets in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Mexico. It also produces copper, principally at Batu Hijau in Indonesia and Boddington in Australia. The filing is an annual report for the fiscal year ended December 31, 2013; quarterly fourth-quarter information is included in the annual supplementary data.
At year-end, Newmont reported 88.4 million attributable ounces of proven and probable gold reserves, 8,130 million attributable pounds of copper reserves and 153.0 million attributable ounces of silver reserves.
Financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Sales | $8,322 million | $9,868 million |
| Income from continuing operations | $(2,777) million | $2,194 million |
| Net income attributable to Newmont stockholders | $(2,462) million | $1,809 million |
| Basic loss per share | $(4.94) | $3.65 |
| Adjusted net income | $695 million | $1,850 million |
| Net cash from continuing operations | $1,561 million | $2,388 million |
| Capital expenditures | $1,900 million | $3,210 million |
| Cash and cash equivalents | $1,555 million | $1,561 million |
| Total debt | $6,740 million | $6,298 million |
| Net debt | $5,185 million | $4,737 million |
| Total assets | $24,764 million | $29,650 million |
Consolidated gold production was 5.463 million ounces, with 5.065 million attributable ounces. Gold ounces sold were 5.489 million. Average realized gold price declined to $1,393 per ounce from $1,662, while gold costs applicable to sales increased to $761 per ounce from $677. Gold operating margin fell to $632 per ounce from $985.
Consolidated copper production was 227 million pounds, with 144 million attributable pounds. Copper pounds sold were 229 million. Average realized copper price declined to $2.96 per pound from $3.43, while copper costs applicable to sales increased to $4.42 per pound from $2.34, producing a negative operating margin of $1.46 per pound.
Gold represented approximately 92% of sales and copper approximately 8%. The company paid $611 million in dividends to common shareholders, or $1.225 per share, compared with $695 million and $1.40 per share in 2012.
Material changes versus the prior comparable period
- Sales declined 16%, primarily because realized gold and copper prices fell 16% and 14%, respectively. Volumes were comparatively stable for gold and copper.
- Costs applicable to sales increased 22%, driven principally by stockpile and leach-pad write-downs, higher waste mining, milling and royalty costs.
- Newmont recorded $4,352 million of property, plant and mine-development write-downs, versus $52 million in 2012. The principal charges related to Boddington in Australia and the Long Canyon project in Nevada.
- Stockpile and leach-pad write-downs totaled approximately $1,194 million before tax, including significant charges at Batu Hijau, Boddington, Yanacocha and Nevada.
- Net cash from continuing operations decreased $827 million, while capital expenditures decreased $1,310 million as major construction programs neared completion.
- Gold reserves declined from 99.2 million ounces to 88.4 million ounces, reflecting 6.2 million ounces of depletion and 4.6 million ounces of net revisions and additions. Copper reserves declined from 9,510 million pounds to 8,130 million pounds.
- Akyem in Ghana and the Phoenix Copper Leach project in Nevada reached commercial production in the fourth quarter. Akyem produced 129,000 ounces in 2013.
- Newmont completed the sale of the Hope Bay project to TMAC Resources in March 2013 and retained a controlling financial interest for accounting purposes at year-end.
Guidance, outlook, commentary and risks
For 2014, management expected consolidated gold production of approximately 5.0 to 5.4 million ounces, or 4.6 to 4.9 million attributable ounces, at costs applicable to sales of approximately $740 to $790 per ounce. Consolidated copper production was expected at approximately 160,000 to 175,000 tonnes, or 95,000 to 110,000 attributable tonnes, at costs applicable to sales of approximately $2.00 to $2.25 per pound.
Management forecast 2014 capital expenditures of approximately $1,300 million to $1,400 million, with about 90% allocated to sustaining capital, and all-in sustaining costs of approximately $1,075 to $1,175 per gold ounce and $2.75 to $2.95 per copper pound. The company expected capital expenditures to decline approximately 30% from 2013 as Akyem and Phoenix construction ended and Conga spending decreased.
Key development priorities included the Turf/Leeville ventilation shaft in Nevada, Phase 6 stripping at Batu Hijau and determining the appropriate path for Conga in Peru. Conga development remained constrained by local political and community opposition; 2014 spending was expected to be approximately $80 million.
- Newmont does not hedge gold or copper sales, leaving revenue and cash flow highly exposed to metal prices.
- Principal operating risks include lower gold and copper prices, rising energy and labor costs, foreign exchange movements, geological and metallurgical uncertainty, water availability, equipment failures, labor disruption and mine-safety incidents.
- Batu Hijau faced significant Indonesian regulatory and export uncertainty following January 2014 copper-concentrate export regulations, including potential export duties or restrictions. The pending final 7% divestiture could reduce Newmont's direct ownership and potentially affect operational control.
- Conga remained exposed to permitting, community opposition, protests and potential impairment risk.
- Environmental and reclamation liabilities included $1,432 million for current or recently producing properties and $179 million for historic properties at December 31, 2013. Total contractual obligations were $16,820 million, including $11,636 million of debt principal and estimated interest and $2,336 million of reclamation and remediation obligations.
- Standard & Poor's downgraded Newmont's credit rating from BBB+ to BBB in November 2013, and Moody's placed the debt under review for possible downgrade in January 2014.
- Newmont had $609 million of scheduled minimum debt repayments in 2014. It subsequently obtained commitments for a new $575 million term loan expected to refinance the $575 million convertible notes maturing in July 2014.
Most important facts for an investor to verify
- Whether 2014 production, cost and all-in sustaining-cost guidance was achieved and how subsequent metal prices affected cash flow.
- The composition, timing and reversibility of the $4,352 million impairment charge and the sensitivity of asset values to gold, copper and currency assumptions.
- The resolution and financial impact of Indonesia's copper-concentrate export rules, the Batu Hijau divestiture and related control or deconsolidation risk.
- The permitting, community-support and funding status of Conga, and whether additional impairment charges were required.
- Debt refinancing, covenant compliance, credit ratings, liquidity and the sustainability of dividends in light of higher net debt and lower operating cash flow.
- Changes in proven and probable reserves, especially the impact of lower price assumptions, depletion, operating costs and reserve revisions.
- Pending environmental, tax and legal matters, including potential outcomes of the Yanacocha, La Herradura, Empire Mine, Indonesian and Fronteer-related proceedings.
- The comparability of non-GAAP measures such as adjusted net income, operating margin, costs applicable to sales and all-in sustaining costs with measures reported by other mining companies.