Newmont Mining Corporation: FY2009 Form 10-K Summary
Business context and reporting period
Newmont is a global gold producer with significant copper operations across the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand and Mexico. The filing covers the fiscal year ended December 31, 2009; quarterly information identifies the fourth quarter ended December 31, 2009.
At year-end, Newmont reported 91.8 million equity ounces of proven and probable gold reserves and 9.12 billion equity pounds of copper reserves. Gold represented 83% of 2009 net revenue and copper 17%.
Financial and operating metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Revenue | $7,705 million | $6,124 million | +26% |
| Income from continuing operations | $2,109 million | $1,147 million | +84% |
| Net income attributable to Newmont stockholders | $1,297 million | $831 million | +56% |
| Basic EPS | $2.66 | $1.83 | +45% |
| Adjusted net income | $1,359 million | $792 million | +72% |
| Cash flow from continuing operations | $2,914 million | $1,397 million | +109% |
| Capital expenditures | $1,769 million | $1,870 million | -5% |
| Gold sold | 6.543 million ounces | 6.170 million ounces | +6% |
| Copper sold | 507 million pounds | 290 million pounds | +75% |
Continuing-operations net income attributable to Newmont stockholders was $1,308 million, implying a net margin of approximately 17.0% on revenue. Total net income attributable to Newmont stockholders represented approximately 16.8% of revenue.
- Average realized gold price increased to $977 per ounce from $874; gold Costs applicable to sales declined to $417 per ounce from $436.
- Average realized copper price was $2.60 per pound, compared with $2.59; copper Costs applicable to sales declined substantially to $0.64 per pound from $1.38.
- Cash and cash equivalents increased to $3,215 million from $435 million. Marketable equity securities totaled $1,175 million.
- Total debt increased to $4,809 million from $3,237 million; Newmont stockholders’ equity increased to $10,703 million from $7,291 million.
- Newmont paid $196 million in common-stock dividends, or $0.40 per share for the year.
- The company had no borrowings under its $2.0 billion revolving credit facility at year-end, although $452 million of letters of credit were outstanding under the facility.
Fourth-quarter 2009 results
| Metric | Q4 2009 | Q4 2008 |
|---|---|---|
| Revenue | $2,518 million | $1,325 million |
| Income from continuing operations attributable to Newmont stockholders | $560 million | $8 million |
| Net income attributable to Newmont stockholders | $558 million | $5 million |
| Basic EPS | $1.14 | $0.01 |
Fourth-quarter 2009 results included a $15 million after-tax loss related to Boddington contingent consideration and a $14 million after-tax gain on asset sales.
Material changes versus prior comparable periods
- Revenue growth reflected higher gold prices, increased gold volumes, stronger Batu Hijau production and the start-up of Boddington.
- Boddington became wholly owned in June 2009 after Newmont acquired AngloGold’s remaining 33.33% interest for approximately $996 million including acquisition-related amounts and contingent consideration. Commercial production began in November 2009.
- Boddington contributed 103,300 ounces of gold and 9.0 million pounds of copper in 2009 and was expected to ramp toward approximately 1 million ounces of annual gold production.
- Newmont issued $518 million of convertible senior notes in February 2009 and $2.0 billion of senior notes in September 2009. It also issued 34.5 million common shares for net proceeds of $1,234 million.
- Newmont’s direct ownership in Batu Hijau declined to 35.44% following required Indonesian divestitures, while its effective economic interest increased to 52.44% through a transaction involving PTPI voting rights and dividend interests. Batu Hijau remained consolidated.
- Gold reserves increased by 6.8 million equity ounces to 91.8 million, primarily through Boddington and Batu Hijau-related transactions. Copper reserves increased by 1.34 billion equity pounds to 9.12 billion pounds.
- The company recorded only $7 million of property, plant and mine-development write-downs in 2009, compared with $137 million in 2008. No goodwill impairment was recorded in 2009.
Guidance, outlook, commentary and risks
- For 2010, management expected consolidated gold production of approximately 6.3 to 6.8 million ounces at gold Costs applicable to sales of approximately $450 to $480 per ounce.
- 2010 copper production was expected at approximately 540 to 600 million pounds at Costs applicable to sales of approximately $0.85 to $0.95 per pound.
- Expected 2010 capital expenditures were $1.4 billion to $1.6 billion; exploration spending was expected at $190 million to $220 million; and advanced projects, research and development spending at $185 million to $210 million.
- Management expected production growth from the Boddington ramp-up, partly offset by lower grades, increased waste stripping and mine sequencing at Nevada and Yanacocha. A Gold Quarry geotechnical event was expected to defer up to approximately 150,000 ounces of 2010 production.
- Key projects included Akyem in Ghana, Conga in Peru and Hope Bay in Canada. Akyem and Conga required further development and government approvals before construction decisions.
- Newmont does not hedge gold or copper sales, leaving revenue and cash flow highly exposed to metal prices. It does hedge portions of foreign-currency, diesel and interest-rate exposures.
- Material risks include commodity-price volatility, rising labor and energy costs, foreign-exchange movements, reserve uncertainty, mining accidents and geotechnical failures, permitting and environmental obligations, political and social risks in Indonesia and Peru, and the ability to finance major projects.
- Batu Hijau faced continuing Indonesian Contract of Work and divestiture risks, including the possibility of reduced ownership, loss of operating control or deconsolidation. An additional forest-use permit related to mine-plan and environmental-plan amendments had not been received at the filing date.
- Reclamation and remediation liabilities totaled $859 million, including $698 million for current or recently producing properties and $161 million for former mining operations. Management disclosed that certain former-site liabilities could ultimately be as much as 148% above accrued amounts.
- At Ahafo, an October 2009 processing-solution overflow led to a recommended payment of approximately $5 million to the Ghanaian government and corrective actions.
- After year-end, PTNNT repaid the remaining $220 million of project financing, eliminating the related letters-of-credit requirement and releasing pledged PTNNT assets.
Most important facts for investors to verify
- Reconcile reported cash flow, cash balances and debt issuance with the financing and acquisition funding requirements for Boddington, Akyem, Conga and Hope Bay.
- Assess the sustainability of 2010 production and cost guidance, particularly the Boddington ramp-up and the Nevada and Yanacocha production declines.
- Review the economic effect of Batu Hijau ownership, Indonesian divestiture obligations, operating-control rights and potential deconsolidation.
- Test sensitivity to gold and copper prices, Australian-dollar exchange rates, diesel costs and changes in reserve-price assumptions.
- Evaluate reclamation, remediation, environmental and legal contingencies, including the Midnite Mine, Yanacocha claims and other former-property obligations.
- Distinguish GAAP earnings from adjusted net income and identify the effect of Boddington acquisition costs, contingent consideration, asset sales and discontinued operations.
- Review debt maturities, covenant compliance, convertible-note dilution thresholds and outstanding letters of credit and guarantees.