Newmont Corporation: Q1 2022 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with copper, silver, lead and zinc operations across North America, South America, Australia, Africa and Nevada. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared primarily with the three months ended March 31, 2021.
Key financial and operating metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Sales | $3,023 million | $2,872 million | +5% |
| Net income attributable to Newmont stockholders | $448 million | $559 million | -20% |
| Continuing-operations EPS, diluted | $0.54 | $0.67 | -$0.13 |
| Adjusted net income | $546 million | $594 million | -$48 million |
| Adjusted EPS, diluted | $0.69 | $0.74 | -$0.05 |
| Adjusted EBITDA | $1,390 million | $1,457 million | -5% |
| Operating cash flow from continuing operations | $689 million | $841 million | -18% |
| Free cash flow | $252 million | $442 million | -43% |
| Gold produced | 1.311 million oz. | 1.422 million oz. | -8% |
| Gold sold | 1.329 million oz. | 1.417 million oz. | -6% |
| Gold realized price | $1,892/oz. | $1,751/oz. | +8% |
| Gold AISC | $1,156/oz. | $1,039/oz. | +11% |
Revenue increased primarily from higher realized prices and stronger copper and zinc sales. Gold revenue increased 1%, while copper revenue rose 90% and zinc revenue rose 67%; silver revenue declined 7%.
Costs applicable to sales increased 15% to $1,435 million. Consolidated gold costs applicable to sales increased to $890 per ounce from $752, reflecting lower volumes, reduced by-product credits and higher royalties. Higher fuel, power, shipping, labor and service costs also affected operations.
At March 31, 2022, cash and cash equivalents were $4.272 billion, total liquidity was $7.272 billion, and net debt was $1.938 billion. The company had $3.0 billion of undrawn revolving-credit capacity and was in compliance with debt covenants. Consolidated debt was $5.566 billion, primarily due after 2026.
Capital expenditures on a cash basis were $437 million, compared with $399 million in the prior-year quarter. Dividends paid were $436 million, or $0.55 per common share. The company had $475 million remaining under its authorized $1 billion share-repurchase program, although no program repurchases occurred during the quarter.
Material changes versus the prior comparable period
- Net income attributable to stockholders declined by $111 million, driven by lower gold sales volume, higher operating costs, a $130 million non-cash pension settlement loss, a $45 million loss on the La Zanja sale and higher reclamation and remediation expense. These factors were partly offset by higher metal prices, investment gains and lower tax expense.
- Gold production declined because of lower throughput, lower grades, recovery issues, inventory movements and COVID-19-related labor shortages. North American production fell particularly sharply, while Boddington and Cerro Negro improved.
- Operating cash flow declined because of timing-related increases in receivables and other working-capital uses. Financing cash outflows increased due to the Yanacocha acquisition, debt redemption and dividends.
- In February 2022, Newmont acquired Buenaventura’s 43.65% Yanacocha interest for $300 million, increasing ownership to 95%. Sumitomo exercised its 5% put option, expected to close in Q2 2022, which would result in 100% ownership.
- Newmont sold its 46.94% La Zanja equity-method interest, contributed $45 million for reclamation costs and recognized a $45 million loss.
- Newmont redeemed the outstanding 3.700% 2023 Goldcorp Senior Notes for approximately $90 million.
Guidance, outlook, commentary and risks
The filing does not provide a clear consolidated full-year production, cost or earnings guidance figure. Management stated that existing cash, operating cash flow and revolver capacity should fund operations, growth projects, debt obligations, dividends and the remaining repurchase authorization for the foreseeable future.
Development spending remains focused on projects including Ahafo North, Tanami Expansion 2, Yanacocha Sulfides, Cerro Negro expansion and Goldrush. Ahafo North development capital is expected to range from $750 million to $850 million. Management expects to fund the project from existing liquidity and future operating cash flow.
- COVID-19 continued to create risks involving labor availability, supply chains, logistics, operating interruptions and additional costs. Direct site-related COVID-19 costs were $17 million in Q1 2022.
- Russia’s invasion of Ukraine created potential commodity-price, currency, supply-chain and capital-market volatility; the filing reported no material direct impact as of filing.
- Yanacocha faces significant water-management and permitting uncertainty due to heavy rainfall, modified water-quality standards and ongoing reclamation-plan studies. Potential fines, penalties and future reclamation costs cannot currently be estimated clearly and could be material.
- Total reclamation and remediation liabilities were $6.131 billion, including $5.779 billion of reclamation liabilities and $352 million of remediation liabilities. Management stated that certain environmental liabilities could be as much as 51% greater than accrued amounts.
- Other contingencies include legal proceedings involving the Holt royalty obligation, historical NewWest Gold allegations, Ghana mining leases, the Conga project and Mexican tax matters. Outcomes generally cannot be predicted with reasonable certainty.
- Results remain highly sensitive to gold and other metal prices, production volumes, ore grades and recoveries, energy and labor costs, foreign currencies, permitting, taxation, environmental requirements and mine operating risks.
Most important facts for investors to verify
- Whether lower gold production and higher AISC persist beyond Q1, particularly at North American and Nevada operations.
- Progress and final cost of the Yanacocha transaction, including the expected Q2 2022 acquisition of Sumitomo’s remaining 5% interest.
- Updated Yanacocha water-management, permitting and reclamation estimates, including potential fines or additional liabilities.
- Execution, capital requirements and schedules for Ahafo North, Tanami Expansion 2, Yanacocha Sulfides and other development projects.
- Whether operating cash flow and free cash flow recover sufficiently to support dividends, development capital, debt management and potential share repurchases.
- Exposure to metal prices, foreign-exchange rates, inflation, energy costs, COVID-19 effects and supply-chain disruption.
- The company’s non-GAAP measures, including adjusted net income, adjusted EBITDA, free cash flow and AISC, against their GAAP reconciliations.