Business Context and Reporting Period
Newmont Corporation, a global gold and multi-metal mining company, filed this unaudited Form 10-Q for the three months ended March 31, 2020. The quarter reflects the Goldcorp acquisition completed in April 2019 and Newmont’s 38.5% interest in Nevada Gold Mines, established in July 2019; therefore, year-over-year comparability is affected by significant portfolio changes.
Key Financial and Operating Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Sales | $2,581 million | $1,803 million | +43% |
| Net income attributable to Newmont stockholders | $822 million | $87 million | +$735 million |
| Continuing-operations net income attributable to stockholders | $837 million | $113 million | +$724 million |
| Diluted EPS from continuing operations | $1.04 | $0.21 | +$0.83 |
| Adjusted net income | $326 million | $176 million | +$150 million |
| Adjusted diluted EPS | $0.40 | $0.33 | +$0.07 |
| Adjusted EBITDA | $1,118 million | $687 million | +63% |
| Operating cash flow from continuing operations | $939 million | $574 million | +64% |
| Free cash flow | $611 million | $349 million | +75% |
| Gold produced | 1.476 million ounces | 1.337 million ounces | +10% |
| Gold all-in sustaining cost | $1,030/ounce | $907/ounce | +14% |
Sales growth was led by gold revenue of $2,321 million, up 33%, and the addition of silver, lead and zinc revenue from Peñasquito. Copper revenue declined 67% to $21 million. The average realized gold price increased to $1,591 per ounce from $1,300.
Reported net income benefited materially from nonrecurring or market-sensitive items. Reported net margin was approximately 31.9%, compared with approximately 6.6% in the prior-year quarter; adjusted net margin was approximately 12.6%, compared with approximately 9.8%.
At March 31, 2020, cash and cash equivalents were $3,709 million, total debt was $6,116 million, lease and other financing obligations were $623 million, and net debt was $3,030 million. Available liquidity was $6,637 million, consisting of cash and $2,928 million of undrawn revolving-credit capacity. The company reported compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Gold production increased primarily from Goldcorp-acquired operations, including Peñasquito, Cerro Negro, Porcupine, Éléonore and Red Lake, partially offset by lower grades at several legacy operations and the sale of Kalgoorlie.
- Gold costs applicable to sales rose to $781 per ounce from $701, while gold AISC increased to $1,030 per ounce from $907, reflecting lower grades, royalties, sustaining capital and COVID-19 care-and-maintenance costs.
- Depreciation and amortization increased 81% to $565 million, principally because of acquired assets and the Nevada Gold Mines formation.
- Gain on asset and investment sales increased to $593 million, including gains of $493 million on Kalgoorlie, $91 million on Continental Gold and $9 million on Red Lake.
- Other income declined to a $189 million expense, primarily due to a $93 million TMAC investment impairment, a $93 million decline in investment fair values and $74 million of debt-extinguishment charges.
- Investing cash flow was $1,123 million, supported by $1,121 million of proceeds from mining-asset sales and other asset disposals. Financing cash flow was negative $586 million after $1,070 million of debt repayments, $321 million of share repurchases and $112 million of dividends, partly offset by $985 million of new debt proceeds.
Guidance, Outlook, Commentary and Risks
The filing does not provide a clear new quantitative 2020 production, cost or capital-expenditure guidance range. Management cautioned that operating and financial performance may differ from previously issued outlook because of the evolving COVID-19 environment.
- COVID-19 caused Musselwhite, Éléonore, Cerro Negro and Yanacocha to enter care and maintenance during March. Peñasquito was subsequently ramped down and placed on care and maintenance on April 12, 2020.
- Management expects gold prices to remain supported while financial-market uncertainty, low interest rates and government stimulus continue, but other metal prices weakened and remain volatile.
- The company incurred $20 million of cash care-and-maintenance costs and $2 million of incremental COVID-19-specific costs in the quarter. It also established a $20 million Global Community Support Fund in April.
- Management stated that no COVID-19-related impairment indicators existed at March 31, 2020, but warned that prolonged restrictions could result in material impairments to long-lived assets or goodwill.
- Key risks include additional mine shutdowns, supply-chain and transportation interruptions, refinery or smelter closures, labor and productivity issues, metal-price volatility, foreign-exchange exposure, permitting and environmental obligations, tax disputes and litigation.
- Reclamation and remediation liabilities totaled $3,521 million. The filing states that certain remediation liabilities could be as much as 37% greater than the amount accrued, depending on ultimate resolution.
- Significant contingencies include Yanacocha regulatory matters with potential fines disclosed at up to approximately $182 million, a Peru tax dispute involving $29 million recognized in the quarter and potential interest of up to $60 million, and unresolved Mexican tax matters that could materially affect the company.
Investor Verification Priorities
- Verify the duration and financial impact of COVID-19 shutdowns, including restart timing for the five affected operations and any additional restrictions.
- Reconcile reported earnings to adjusted earnings and assess the sustainability of results excluding the $593 million asset-sale gain, investment losses, impairment and debt-extinguishment charges.
- Monitor gold prices, realized prices, production volumes and AISC, particularly at operations with materially higher costs such as Yanacocha and Musselwhite.
- Confirm progress on debt tender offers, the 2.25% 2030 notes, future debt maturities and the availability of the revolving credit facility.
- Evaluate whether dividends and the remaining share-repurchase authorization remain appropriate under prolonged operational disruption.
- Review reclamation, environmental, tax and legal contingencies, including the disclosed potential ranges and the status of unresolved Mexican and Peruvian matters.
- Assess the effect of Goldcorp integration, Nevada Gold Mines accounting and portfolio divestitures on future-period comparability.