Newmont Mining Corporation — Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with copper operations and exploration and development projects in North America, South America, Asia Pacific and Africa. This unaudited Form 10-Q covers the three and nine months ended September 30, 2011, compared with the corresponding 2010 periods. The company reported 488.2 million common shares and 6.6 million exchangeable shares outstanding as of October 20, 2011.
Key financial and operating metrics
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Sales | $2,744 million | $2,597 million | $7,593 million | $6,992 million |
| Net income | $675 million | $814 million | $1,869 million | $2,094 million |
| Net income attributable to Newmont stockholders | $493 million | $537 million | $1,394 million | $1,465 million |
| Diluted EPS | $0.98 | $1.07 | $2.78 | $2.94 |
| Net cash provided from operations | Not separately provided | Not separately provided | $2,662 million | $2,322 million |
| Capital expenditures, cash basis | Not separately provided | Not separately provided | $1,781 million | $972 million |
| Cash and cash equivalents, period-end | Not separately provided | Not separately provided | $2,135 million | $3,951 million at September 30, 2010 |
- Q3 net margin was approximately 24.6%; net income attributable to Newmont stockholders represented approximately 18.0% of sales. Nine-month margins were approximately 24.6% and 18.4%, respectively.
- At September 30, 2011, total debt was $4,237 million, consisting of $578 million current debt and $3,659 million non-current debt. The company also had a $2.5 billion undrawn corporate revolving credit facility, subject to $241 million of letters of credit.
- Current assets were $6,360 million versus current liabilities of $4,475 million. Liquidity declined from December 31, 2010, primarily because of the Fronteer acquisition, capital spending, debt activity and dividends.
- Gold production was 1.519 million ounces in Q3 and 4.433 million ounces for the first nine months; attributable production was 1.3 million and 3.9 million ounces, respectively.
- Copper production was 102 million pounds in Q3 and 278 million pounds for the first nine months; attributable production was 58 million and 159 million pounds, respectively.
- Average realized gold prices were $1,695 per ounce in Q3 and $1,526 per ounce for the first nine months. Consolidated gold costs applicable to sales were $622 and $587 per ounce, respectively.
- Average realized copper prices were $2.94 per pound in Q3 and $3.58 per pound for the first nine months. Consolidated copper costs applicable to sales were $1.10 and $1.17 per pound, respectively.
Material changes versus the prior comparable period
- Sales increased 6% in Q3 and 9% for the first nine months, driven primarily by higher gold prices. Gold sales increased 23% and 17%, respectively, despite lower volumes.
- Copper sales declined 53% in Q3 and 28% for the first nine months, principally because of significantly lower sales volumes and, in Q3, lower realized prices.
- Gold production declined 10% in Q3 and 9% for the first nine months. Copper production declined 35% and 40%, largely because Batu Hijau processed lower-grade stockpiles and experienced mill motor replacements.
- Gold costs applicable to sales increased to $622 per ounce from $470 in Q3 and to $587 from $477 for the first nine months. Drivers included lower production, higher mining, milling, labor, royalty, diesel and other commodity costs, and unfavorable currency movements.
- Net income attributable to Newmont stockholders decreased 8% in Q3 and 5% for the first nine months. Results were reduced by a $174 million Q3 impairment of marketable equity securities, a $136 million after-tax loss from discontinued operations recognized in Q2, higher costs and higher taxes.
- Adjusted net income, a non-GAAP measure, increased to $635 million in Q3 from $533 million and to $1,593 million for the first nine months from $1,319 million, excluding specified unusual items.
- Investing cash outflows increased to $4,028 million from $1,002 million, primarily due to the $2,301 million Fronteer acquisition and higher capital spending. Cash declined by $1,921 million during the first nine months.
- Reclamation and remediation liabilities increased to $1,088 million from $867 million at September 30, 2010. Total liabilities were $12,435 million versus $9,947 million at December 31, 2010.
Guidance, outlook, commentary and risks
- Management maintained 2011 guidance for attributable gold production of 5.1 to 5.3 million ounces, with consolidated costs applicable to sales of approximately $560 to $590 per ounce.
- Attributable copper production guidance remained approximately 190 to 220 million pounds, with consolidated costs applicable to sales of approximately $1.25 to $1.50 per pound.
- 2011 capital expenditures were expected to be approximately $2.7 billion to $3.0 billion; amortization was expected at approximately $1.025 billion to $1.035 billion; exploration expense at $335 million to $345 million; and advanced projects, research and development expense at $405 million to $415 million.
- Management expected a 2011 consolidated tax rate of approximately 29% to 31%, assuming an average realized gold price of $1,600 per ounce for the remainder of the year.
- Management expected to fund debt maturities, capital expenditures and other needs through operating cash flow, cash and short-term investments, available credit facilities and an expected $2.0 billion debt issuance in the first half of 2012.
- Growth projects include Akyem in Ghana, Conga in Peru and the Tanami shaft in Australia. The company indicated potential production growth to approximately 7 million annual attributable gold ounces by 2017, subject to permitting, community and government support, engineering, procurement, technical, cost and execution risks.
- The company does not hedge gold or copper sales and therefore remains exposed to metal-price volatility. It hedges selected foreign currency, diesel and interest-rate exposures. Copper provisional pricing generated a $74 million Q3 mark-to-market loss and a $102 million nine-month loss.
- The company recorded a $356 million liability on forward-starting swaps associated with an anticipated debt issuance and recognized a $10 million hedge-ineffectiveness charge in Q3.
- Material contingencies include the unfavorable IRS Technical Advice Memorandum concerning the tax treatment of 2007 price-capped forward sales contracts; Indonesian PTNNT divestiture and ownership litigation; environmental and reclamation obligations; the Holt property royalty; and other legal claims. The filing states that no material changes occurred to the risk factors in the 2010 Form 10-K.
- The enhanced gold price-linked dividend policy provides for a fourth-quarter 2011 dividend of $0.35 per share, based on the Q3 realized gold price, but future dividends remain subject to Board approval.
Important facts for investors to verify
- Confirm the timing, amount and terms of the planned $2.0 billion debt issuance and the effect of the $356 million forward-starting swap liability.
- Assess whether Batu Hijau grade, throughput and recovery issues have resolved and whether Phase 6 development remains on schedule.
- Reconcile the reported production and cost guidance with lower year-to-date production and substantially higher per-unit costs.
- Review the valuation and liquidity of marketable equity securities following the $175 million impairment and the company’s remaining investment portfolio.
- Monitor the PTNNT final 7% divestiture transaction, related Indonesian legal proceedings and potential effects on Newmont’s economic interest and control.
- Evaluate reclamation, environmental and tax contingencies, including the IRS matter and the range of possible environmental liability relative to accrued amounts.
- Distinguish GAAP earnings from adjusted net income and other non-GAAP production-cost measures when comparing performance.