Newmont Mining Corporation — Q1 2012 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with copper operations and assets in the United States, Australia, Peru, Indonesia, Ghana, Mexico and New Zealand. This unaudited Form 10-Q covers the three months ended March 31, 2012, compared with the same period in 2011. Amounts are in millions of U.S. dollars unless otherwise stated.
Key financial and operating metrics
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Sales | $2,683 | $2,465 |
| Income from continuing operations | $674 | $670 |
| Net income attributable to Newmont stockholders | $490 | $514 |
| Basic diluted earnings per share | $0.99 / $0.97 | $1.04 / $1.03 |
| Adjusted net income | $578 | $513 |
| Cash flow from continuing operations | $613 | $989 |
| Capital expenditures, cash basis | $696 | $402 |
| Cash and cash equivalents at period end | $2,612 | $4,533 |
| Total debt | $6,150 | $4,313 |
| Quarter-end current assets | $6,092 | $5,388 at December 31, 2011 |
| Quarter-end current liabilities | $2,571 | $3,940 at December 31, 2011 |
Net income attributable to Newmont stockholders represented an approximately 18.3% net margin in Q1 2012, compared with approximately 20.9% in Q1 2011. The current ratio was approximately 2.4 at March 31, 2012. Total debt increased by approximately $1,837 from year-end 2011, while cash increased by $852; reported net debt was approximately $3,538 at quarter-end.
- Gold production attributable to Newmont was 1.3 million ounces, down 2% year over year; consolidated gold production was 1.479 million ounces.
- Attributable copper production was 35 million pounds, down from 54 million pounds; consolidated copper production was 57 million pounds.
- Average realized gold price increased to $1,684 per ounce from $1,382. Average realized copper price was broadly unchanged at $4.01 per pound.
- Consolidated gold costs applicable to sales increased to $620 per ounce from $557. Copper costs increased to $1.98 per pound from $1.11.
- Gold operating margin increased to $1,064 per ounce from $825, while copper operating margin declined to $2.03 per pound from $2.89.
- Cash dividends declared were $0.35 per common share, compared with $0.15 in Q1 2011.
Material changes versus the prior comparable period
- Sales increased 9%, primarily because higher gold prices more than offset lower gold and copper volumes. Gold sales increased 20%, while copper sales declined 45% because of substantially lower copper volumes from Batu Hijau.
- Income from continuing operations was broadly stable, but net income attributable to Newmont stockholders declined 5% because of a $71 loss from discontinued operations related to the Holt property royalty.
- Adjusted net income increased to $578 from $513 after excluding discontinued operations, asset impairments and net asset-sale gains.
- Operating cash flow from continuing operations decreased 38%, primarily because of lower Batu Hijau cash generation and a $356 working-capital use, including increased inventories, stockpiles and ore on leach pads.
- Investing cash outflows more than doubled to $855, reflecting higher mine and project spending and $143 of marketable-security purchases.
- Financing activities provided $1,094, including $2.5 billion of senior-note issuance, partially offset by debt repayments, the $172 conversion premium paid in cash on the 2012 convertible notes and $173 of common-stock dividends.
- Total reclamation and remediation liabilities increased to $1,333 from $1,240 at the beginning of the quarter, including additions and estimate changes of $105.
- Other expense increased to $120 from $73, including $50 of Hope Bay care-and-maintenance expense and higher community-development costs. The prior-year period included a $21 Indonesian value-added-tax settlement.
Guidance, outlook, commentary and risks
- Management maintained its 2012 company-wide outlook: attributable gold production of approximately 5.0–5.2 million ounces at consolidated costs applicable to sales of approximately $625–$675 per ounce; attributable copper production of approximately 150–170 million pounds at approximately $1.80–$2.20 per pound.
- Expected 2012 consolidated capital expenditures are approximately $4.0–$4.3 billion, including $3.0–$3.3 billion attributable to Newmont. Approximately 60% of capital expenditures are directed to growth projects.
- Expected 2012 exploration expense is approximately $400–$430; advanced projects, research and development expense is approximately $475–$525; general and administrative expense is approximately $210–$230; amortization is approximately $1.05–$1.08 billion; and interest expense is approximately $240–$260.
- Management expected a 2012 tax rate of approximately 28%–32%, assuming an average gold price of $1,500 per ounce for the remainder of the year.
- Conga construction and development remained largely suspended because of political and community protests. Although an independent review confirmed the environmental impact assessment met applicable standards, the project’s schedule, economics and capital spending remained subject to further evaluation.
- Akyem construction was progressing toward first production in late 2013 to early 2014. Emigrant production was expected in the second half of 2012; Tanami Shaft and Phoenix Copper Leach were also advancing.
- The company does not hedge gold or copper sales and remains exposed to metal-price volatility. It does hedge portions of foreign-currency, diesel and interest-rate exposures.
- At March 31, 2012, the company had $1,482 of letters of credit, surety bonds and bank guarantees, primarily related to environmental reclamation and other operating requirements.
- Material contingencies include environmental remediation, tax matters, the Holt property royalty, Indonesian Batu Hijau divestiture and permitting disputes, and other litigation. Unrecognized tax benefits totaled $242, of which $45 could affect the effective tax rate if recognized.
- The filing states that there were no material changes to the risk factors disclosed in the 2011 Form 10-K and that disclosure controls and procedures were effective.
Most important facts for investors to verify
- Whether Conga construction resumes and how any revised schedule affects capital expenditures, impairment risk and future production.
- Whether Batu Hijau’s lower-grade stockpile processing and Phase 6 stripping continue to pressure copper and gold production and unit costs.
- Actual 2012 production, cost and capital-spending performance relative to management’s maintained guidance.
- The sustainability of cash flow given substantially higher capital expenditures, dividends and increased debt.
- Changes in gold and copper prices, including final pricing adjustments on provisionally priced sales outstanding at quarter-end.
- Developments in Indonesian Batu Hijau divestiture, permit and litigation matters, including the pending final 7% divestiture stake.
- Revisions to reclamation, remediation, tax and Holt property royalty liabilities, which are sensitive to regulatory outcomes, production assumptions and commodity prices.