Newmont Mining Corporation: FY2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing is an annual Form 10-K; fourth-quarter information is presented in unaudited supplementary data. Newmont is a global gold producer with significant operations in the United States, Australia, Peru, Ghana and Suriname, and a smaller copper business.
Financial and Operating Metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Sales | $7,348 million | $6,711 million | Up 9% |
| Net income attributable to Newmont stockholders | $(98) million | $(627) million | Improved $529 million |
| Continuing-operations loss attributable to stockholders | $(60) million; $(0.11) per diluted share | $(220) million; $(0.41) per diluted share | Improved $160 million |
| Adjusted net income | $780 million; $1.46 per diluted share | $619 million; $1.16 per diluted share | Up 26% |
| Adjusted EBITDA | $2,653 million | $2,365 million | Up 12% |
| Operating cash flow from continuing operations | $2,350 million | $1,923 million | Up 22% |
| Free cash flow | $1,484 million | $790 million | Up 88% |
| Cash and cash equivalents | $3,259 million | $2,756 million | Up $503 million |
| Total debt | $4,065 million | $4,615 million | Down $550 million |
| Net debt | $806 million | $1,859 million | Down $1,053 million |
| All-in sustaining cost per gold ounce | $924 | $912 | Up 1% |
| All-in sustaining cost per copper pound | $1.80 | $2.30 | Down 22% |
Gold represented approximately 96% of sales. Consolidated gold production increased 8% to 5.654 million ounces, including 5.266 million attributable ounces. Gold ounces sold increased to 5.605 million, and the average realized gold price rose to $1,255 per ounce from $1,243. Copper production declined 5% to 113 million pounds, while the average realized copper price increased to $2.83 per pound from $2.15.
Costs applicable to sales were $4,038 million, up 7%, reflecting a full year of production at Merian and Long Canyon, the CC&V expansion and higher direct operating costs. Depreciation and amortization was $1,249 million. Reclamation and remediation expense was $177 million, exploration expense was $179 million and advanced projects, research and development expense was $143 million.
Material Changes Versus Prior Period
- Results benefited from a full year of commercial production at Merian and Long Canyon, higher production at CC&V and higher realized metal prices.
- Gold production increased in North America and South America but declined in Australia because of lower grades. Yanacocha and Tanami were affected by lower grades, adverse weather and access disruptions.
- Yanacocha gold production fell 18% to 535,000 ounces, and its all-in sustaining cost increased to $1,194 per ounce from $1,058.
- The 2016 comparison included a $970 million impairment charge related primarily to Yanacocha. 2017 impairment expense was $14 million.
- 2017 income taxes included significant provisional effects of the U.S. Tax Cuts and Jobs Act: approximately $346 million for deferred-tax remeasurement, $395 million for tax restructuring and an offsetting $48 million benefit from releasing an AMT-credit valuation allowance.
- Attributable proven and probable gold reserves were maintained at 68.5 million ounces, replacing 6.4 million ounces of depletion with additions, revisions and acquisitions. Copper reserves increased to 2.670 billion pounds from 2.490 billion pounds.
- Capital expenditures declined to $866 million from $1,133 million. Development capital was $290 million and sustaining capital was $600 million.
Liquidity, Debt and Capital Allocation
Newmont reported $3.3 billion of cash, no borrowings under its $3.0 billion revolving credit facility and $2.920 billion of available borrowing capacity. Debt maturities include $626 million in 2019, $992 million in 2022 and $2.474 billion thereafter. All debt was fixed-rate, and the company was in compliance with its debt covenants.
Management stated that existing cash, operating cash flow and available revolver capacity should be adequate for working capital, project funding, debt obligations and dividends for the foreseeable future. The company repaid $580 million of debt in 2017, including the $575 million convertible notes at maturity, and paid $134 million of common-stock dividends. In February 2018, it eliminated the gold-price-linked dividend formula and declared a fourth-quarter dividend of $0.14 per share.
Guidance, Outlook and Projects
- Subika Underground achieved first production in June 2017, with commercial production expected in the second half of 2018 and projected average annual production of 150,000 to 200,000 ounces during the first five years.
- Twin Underground achieved first production in August 2017, with commercial production expected in mid-2018 and projected annual production of 30,000 to 40,000 ounces from 2018 through 2022.
- Ahafo Mill Expansion is expected to begin production in the first half of 2019 and reach commercial production in the second half of 2019, with projected annual production of 75,000 to 100,000 ounces during the first five years.
- Quecher Main is expected to begin production in early 2019 and reach commercial production in the fourth quarter of 2019. It is expected to extend Yanacocha’s life to 2027 and add approximately 200,000 ounces annually from 2020 through 2025.
- Tanami Power is expected to lower power costs, reduce fuel-supply risk and reduce emissions beginning in 2019.
- Management’s stated strategy is to self-fund profitable development projects, reduce debt and return cash to shareholders. The filing does not provide a consolidated 2018 production or cost guidance figure in the supplied text.
Risks, Contingencies and Unusual Items
- Newmont does not hedge gold or copper sales, leaving revenue and cash flow highly exposed to metal prices. A sustained decline could reduce production, reserves, asset values and liquidity.
- Energy, labor, fuel, currency, water, weather, geotechnical, equipment and processing risks may affect production and costs. 2017 rainfall and flooding disrupted Tanami and Yanacocha.
- Yanacocha faces declining production, community and political opposition, water-management requirements and pending regulatory matters. Conga remains in care and maintenance, and management does not anticipate development for at least five years; its assets totaled approximately $1.65 billion at year-end.
- Environmental and closure obligations totaled $2.254 billion, comprising $1.965 billion of reclamation liabilities and $289 million of remediation liabilities. Undiscounted contractual reclamation and remediation cash outflows were estimated at $3.748 billion.
- Potentially material tax matters include an Australian Taxation Office position of approximately $83 million, including interest and penalties, related to a 2011 reorganization, and a Peruvian Yanacocha tax dispute with potential liability of up to $75 million. Management disputes both matters.
- Outstanding surety bonds, bank letters of credit and guarantees totaled $2.321 billion. The filing also reports a $243 million fair value for the retained Holt royalty obligation.
- Key operating jurisdictions expose the company to permitting, political, community, anti-bribery, litigation, cybersecurity and nationalization risks. The SEC and Department of Justice closed a prior foreign-corruption investigation in 2017 without enforcement action.
Most Important Facts to Verify
- Whether production and cost performance at Yanacocha, Tanami, Twin Creeks and other higher-cost operations is tracking the stated mine plans.
- Commercial start-up timing, final capital costs and projected production for Subika Underground, Twin Underground, Ahafo Mill Expansion, Quecher Main and Tanami Power.
- The sustainability of free cash flow after sustaining capital, development spending, debt maturities, dividends and noncontrolling-interest distributions.
- Exposure to gold, copper, Australian-dollar, fuel and energy-price changes, given limited commodity hedging.
- Resolution and cash impact of the Australian tax review, Yanacocha tax and water matters, Conga-related disputes, and environmental remediation obligations.
- Whether reserve replacement continues at the filing’s stated price assumptions of $1,200 per gold ounce and $2.50 per copper pound.
- The effect of provisional Tax Cuts and Jobs Act accounting estimates, deferred-tax valuation allowances and subsequent tax guidance on future earnings and cash taxes.