Newmont Corporation 2019 Form 10-K Summary
Business context and reporting period
Newmont is a global gold producer with additional copper, silver, lead and zinc operations across the United States, Canada, Mexico, Peru, Suriname, Argentina, Chile, Australia and Ghana. The filing covers the fiscal year ended December 31, 2019; it is an annual filing rather than a standalone fourth-quarter filing.
2019 included the April 18 acquisition of Goldcorp for total consideration of $9.456 billion, primarily through issuance of 285 million Newmont shares, and the July 1 formation of Nevada Gold Mines with Barrick. Newmont owns 38.5% of NGM, which Barrick operates, and proportionately consolidates its interest.
Financial and operating metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Sales | $9,740 million | $7,253 million | +34% |
| Net income from continuing operations attributable to Newmont stockholders | $2,877 million | $280 million | +$2,597 million |
| Diluted continuing-operations EPS | $3.91 | $0.53 | +$3.38 |
| Adjusted net income | $970 million | $718 million | +35% |
| Adjusted diluted EPS | $1.32 | $1.34 | Down slightly |
| Adjusted EBITDA | $3,734 million | $2,584 million | +45% |
| Operating cash flow from continuing operations | $2,876 million | $1,837 million | +57% |
| Free cash flow | $1,413 million | $805 million | +76% |
| Gold produced, consolidated | 6.392 million ounces | 5.479 million ounces | +17% |
| Gold produced, attributable | 6.004 million ounces | 5.101 million ounces | +18% |
| Gold all-in sustaining cost per ounce | $966 | $909 | +6% |
Gold represented approximately 93% of 2019 sales. Average realized prices were $1,399 per gold ounce, $2.63 per copper pound, $15.79 per silver ounce, $0.79 per lead pound and $0.80 per zinc pound. Silver, lead and zinc sales were added primarily through Goldcorp’s Peñasquito mine.
Reported net income benefited substantially from the $2.390 billion gain on formation of NGM. Adjusted results exclude this gain and other unusual items, including $217 million of Goldcorp transaction and integration costs, $30 million of Nevada JV costs and $120 million of reclamation and remediation charges.
Approximate sales-based net margins were 29.6% on reported net income attributable to Newmont stockholders and 10.0% on adjusted net income. These figures are not company-defined GAAP or non-GAAP margins.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $2,243 million at year-end, down from $3,397 million.
- Total debt was $6,138 million, up from $4,044 million; lease and other financing obligations were $696 million versus $217 million.
- Net debt, including lease and other financing obligations less cash, was $4,591 million versus $864 million.
- Borrowing capacity under the revolving credit facility was $2,940 million, with no borrowings outstanding and $60 million used for letters of credit.
- Capital expenditures were $1,463 million on a cash basis, including $955 million of sustaining capital and $499 million of development projects on an accrual basis.
- Cash dividends declared were $1.44 per share, including a one-time special dividend of $0.88 per share. The company repurchased $479 million of common stock during 2019 and authorized a new program of up to $1 billion through December 2020.
Material changes versus the prior comparable period
- Goldcorp materially expanded the operating portfolio, asset base and production profile; Goldcorp contributed $2,074 million of sales and $128 million of net income from the acquisition date through year-end.
- NGM replaced Newmont’s previously separate Nevada operations for the second half of 2019 and generated a $2.390 billion accounting gain. Newmont has limited control because Barrick operates NGM and owns 61.5%.
- Gold production increased primarily from acquired Canadian, Mexican and Argentine mines, NGM, and improved Ahafo performance following the mill expansion.
- All-in sustaining costs rose from $909 to $966 per gold ounce, reflecting higher sustaining capital and higher costs applicable to sales.
- Debt increased principally from the Goldcorp transaction, although Newmont repaid Goldcorp’s $1.25 billion term loan and revolving facility and issued $700 million of 2029 senior notes.
- Assets held for sale included Red Lake and Kalgoorlie. Kalgoorlie was sold on January 2, 2020 for $800 million; Red Lake was expected to close in the first quarter of 2020 for $375 million plus potential contingent payments of up to $100 million.
Guidance, outlook, commentary and risks
The filing does not provide a clear consolidated 2020 production or cost guidance figure in the supplied text. Management emphasized a longer-life, lower-cost portfolio, self-funded development, debt reduction, shareholder returns and project flexibility.
- Tanami Expansion 2 is expected to add approximately 150,000 to 200,000 ounces of annual gold production during its first five years beginning in 2023 and reduce operating costs by approximately 10%.
- Musselwhite Materials Handling was expected to become fully operational in mid-2020. Musselwhite processing had been suspended following a March 2019 conveyor fire, with restart expected in the first half of 2020.
- Peñasquito experienced 74 days of care and maintenance due to community blockades, materially affecting production and costs.
- Key risks include gold and other metal price volatility, rising energy and labor costs, foreign exchange and inflation, permitting, community opposition, strikes, political and tax changes, water availability, environmental obligations, geotechnical failures, tailings incidents, cybersecurity, reserve uncertainty and potential impairments.
- Reclamation liabilities were $3,334 million and historic remediation liabilities were $299 million at December 31, 2019. Contractual obligations totaled $20.605 billion, including debt, reclamation, employee benefits, royalties and purchase obligations.
- A $100 per ounce decrease in the long-term gold price assumption could result in a potential long-lived-asset impairment of up to approximately $4.5 billion before considering value beyond proven and probable reserves.
- Important legal and tax contingencies include disputes in Peru, Ghana, Mexico, Australia and Canada. The Yanacocha tax dispute could involve up to approximately $90 million, although the ultimate outcome remains uncertain.
Most important facts for an investor to verify
- Whether the large reported earnings increase is appropriately evaluated using adjusted earnings because of the $2.390 billion NGM formation gain and other transaction-related items.
- The sustainability of production and cost performance after the Goldcorp integration, NGM formation and the disposal of Red Lake and Kalgoorlie.
- 2020 production, all-in sustaining cost and capital-spending guidance, which is not clearly provided in the supplied filing text.
- Debt maturities, interest burden and the effect of higher net debt on dividends, repurchases and development spending.
- Progress at Tanami Expansion 2, Musselwhite, Ahafo, Quecher Main and other development projects, including permitting, construction and cost risks.
- Exposure to community blockades, labor disputes and political or tax actions, particularly at Peñasquito, Cerro Negro, Yanacocha and the Ghana operations.
- The valuation sensitivity of reserves, goodwill and long-lived assets to gold prices, operating costs, recovery rates and mine-plan changes.
- Control limitations: management excluded Goldcorp from its year-end internal-control assessment and excluded NGM because Barrick operates it; together these businesses represented substantial portions of reported assets and activity.