Business Context and Reporting Period
Newmont Mining Corporation filed an unaudited Form 10-Q for the three and six months ended June 30, 2009. The company operates primarily in gold and copper mining across North America, South America, Australia/New Zealand, Asia Pacific and Africa.
Results were retrospectively revised for convertible-debt accounting, noncontrolling-interest presentation and the reclassification of the Kori Kollo operation in Bolivia to discontinued operations.
Financial Performance and Position
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Revenue | $1,602 million | $1,503 million | $3,138 million | $3,428 million |
| Income from continuing operations | $320 million | $337 million | $597 million | $886 million |
| Net income attributable to Newmont stockholders | $162 million | $271 million | $351 million | $636 million |
| Diluted EPS | $0.33 | $0.59 | $0.73 | $1.39 |
| Cash flow from operations | Not separately provided | Not separately provided | $894 million | $864 million |
| Capital expenditures, cash basis | Not separately provided | Not separately provided | $910 million | $893 million |
- Q2 revenue increased 7%, while first-half revenue declined 8%, reflecting higher Q2 gold and copper volumes but materially lower copper prices and lower first-half gold sales.
- Q2 income attributable to Newmont stockholders declined 40%; first-half income declined 45%. Approximate attributable net margins were 10.1% in Q2 2009 versus 18.0% in Q2 2008, and 11.2% for the first half versus 18.6%.
- Gold ounces sold were 1.502 million in Q2 and 3.019 million year-to-date, compared with 1.483 million and 3.084 million, respectively. Copper pounds sold were 105 million in Q2 and 201 million year-to-date, versus 51 million and 157 million.
- Average realized gold price was $915 per ounce in Q2 and $911 year-to-date. Average realized copper price was $2.17 per pound in Q2 and $1.94 year-to-date.
- Cash and cash equivalents were $544 million at June 30, 2009, versus $435 million at December 31, 2008. Current assets were $2.457 billion and current liabilities were $1.854 billion.
- Total debt was approximately $3.031 billion, consisting of $221 million current and $2.810 billion long-term debt, compared with $3.237 billion at year-end 2008. The company reported compliance with debt covenants.
- Total stockholders’ equity increased to $10.754 billion from $8.661 billion, primarily reflecting the February 2009 common-stock offering and comprehensive income.
- Cash dividends declared were $0.10 per common share per quarter, or $0.20 per share for the first half.
Material Changes Versus the Prior Comparable Period
- Gold revenue increased $53 million in Q2 from higher realized prices and volumes, but decreased $65 million for the first half because of lower prices and volumes.
- Copper revenue increased $46 million in Q2 because volume more than doubled, but decreased $225 million year-to-date because the realized copper price fell from $3.93 to $1.94 per pound.
- Costs applicable to sales decreased in Q2 to $696 million from $749 million and year-to-date to $1.435 billion from $1.531 billion. Gold unit costs were $423 per ounce in Q2 and $427 year-to-date; copper unit costs were $0.58 per pound and $0.73, respectively.
- Income tax expense was $136 million in Q2 2009 versus a $42 million benefit in Q2 2008; the first-half effective tax rate was 29% versus 17% in 2008. The prior-year benefit included a significant tax recovery.
- The company completed the acquisition of the remaining 33.33% of Boddington on June 25, 2009, bringing ownership to 100%. Consideration included $742 million paid in cash, $240 million payable in cash or shares in December 2009, and contingent consideration valued at $62 million.
- Boddington acquisition costs of $67 million were recorded in other expense, and Boddington development was approximately 98% complete at June 30.
- Newmont issued $518 million of convertible senior notes and 34.5 million common shares in February 2009, generating net proceeds of approximately $504 million and $1.234 billion, respectively.
- Kori Kollo was classified as discontinued operations and was impaired by $44 million. The company subsequently sold its Inti Raymi interest in Bolivia on July 17, 2009.
- Waihi production was disrupted by a May 2009 mill fire; repairs were expected to be completed in August.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2009 consolidated gold sales of 6.35 to 6.7 million ounces at costs applicable to sales of $400 to $440 per ounce.
- Expected 2009 copper sales were approximately 460 to 510 million pounds at costs of approximately $0.50 to $0.65 per pound.
- Management forecast 2009 capital expenditures of $1.5 billion to $1.7 billion, amortization of $740 million to $780 million, exploration expense of $165 million to $175 million, advanced-project and research expense of $140 million to $160 million, general and administrative expense of $150 million to $160 million, and interest expense of $100 million to $110 million.
- The company expected a 2009 effective tax rate of approximately 27% to 31%, assuming a gold price of $925 per ounce.
- Boddington’s total project cost was revised to $2.8 billion to $2.9 billion, excluding capitalized interest, due to a later-than-expected milling start-up.
- Key market exposures include gold and copper prices, oil prices, Australian and New Zealand dollar exchange rates, Indonesian rupiah exposure, diesel costs and interest rates. The company uses currency, diesel and interest-rate hedges.
- Newmont had $851 million of outstanding letters of credit, surety bonds and bank guarantees, plus a contingent support line for PT Newmont Nusa Tenggara with Newmont’s pro-rata share of $11 million.
- Reclamation and remediation liabilities totaled $721 million, including $619 million for producing mineral properties and $157 million for former mining activities. Management stated that the latter liability could be as much as 131% greater or 8% lower than accrued.
- Material contingencies include environmental claims, the Midnite Mine CERCLA litigation, unresolved Peruvian Choropampa claims, Indonesian Batu Hijau divestiture obligations and the pending forest-use permit for Batu Hijau. The Batu Hijau ownership interest could potentially be reduced to 49%, and the permit delay could affect future operations and mine development.
- At June 30, 2009, unrecognized tax benefits totaled $173 million; management expected a possible decrease of approximately $13 million to $37 million over the following 12 months.
Important Facts for Investors to Verify
- Whether Boddington achieved its revised start-up schedule and remained within the $2.8 billion to $2.9 billion project-cost range.
- The outcome and timing of Batu Hijau share-divestiture discussions, the related guarantees and the forest-use permit.
- Actual gold and copper prices, production volumes, unit costs and the effect of provisional pricing adjustments.
- Cash funding for the $240 million Boddington payment, scheduled debt maturities and the company’s continuing capital-expenditure requirements.
- Developments in environmental, legal, tax and reclamation contingencies, particularly the Midnite Mine and remaining Peruvian claims.
- Whether the Kori Kollo disposal and July 2009 Inti Raymi sale reduce ongoing exposure to Bolivian operations and liabilities.