Newmont Corporation: Q2 2021 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with operations and investments involving gold, copper, silver, lead and zinc across North America, South America, Australia, Africa and Nevada. The filing covers the quarter and six months ended June 30, 2021. Results are unaudited and should be read with the 2020 Form 10-K.
Financial and operating metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Sales | $3,065 million | $2,365 million | $5,937 million | $4,946 million |
| Net income attributable to Newmont stockholders | $650 million | $344 million | $1,209 million | $1,166 million |
| Continuing operations attributable earnings | $640 million | $412 million | $1,178 million | $1,249 million |
| Diluted EPS from continuing operations | $0.80 | $0.51 | $1.47 | $1.55 |
| Adjusted net income | $670 million | $261 million | $1,264 million | $587 million |
| Adjusted EBITDA | $1,591 million | $984 million | $3,048 million | $2,102 million |
| Operating cash flow from continuing operations | Not separately provided | Not separately provided | $1,834 million | $1,607 million |
| Free cash flow | Not separately provided | Not separately provided | $1,020 million | $999 million |
Approximate net margin was 21.2% in Q2 2021 and 20.4% for the first six months, based on net income attributable to Newmont stockholders divided by sales. Consolidated gold production increased 15% year over year in Q2 to 1.430 million ounces and 5% for the six-month period to 2.852 million ounces. Q2 consolidated gold all-in sustaining cost was $1,035 per ounce, compared with $1,097 in the prior-year quarter; the six-month figure was $1,037 versus $1,061.
- Q2 realized prices were $1,823 per gold ounce, $4.37 per copper pound, $23.00 per silver ounce, $1.02 per lead pound and $1.34 per zinc pound.
- Q2 sales increased 30%, driven by higher volumes and metal prices. Gold sales rose 21%; copper, silver, lead and zinc sales rose 116%, 130%, 87% and 117%, respectively.
- Cash and cash equivalents were $4,583 million at June 30, 2021. Total liquidity, including the undrawn revolving credit facility, was approximately $7,583 million.
- Debt was $5,480 million, down from $6,031 million at December 31, 2020. Net debt, including lease and other financing obligations, was $1,574 million.
- The company paid $881 million of common-stock dividends, repaid $550 million of debt and repurchased $134 million of common stock during the first six months.
Material changes versus the prior comparable period
- Q2 continuing-operations earnings attributable to Newmont increased $228 million, primarily from the recovery of operations previously disrupted by COVID-19, higher realized metal prices and lower care-and-maintenance costs. These benefits were partly offset by lower investment gains and higher income taxes.
- Six-month continuing-operations earnings declined $71 million because the 2020 period included $592 million of gains from asset and investment sales, including Kalgoorlie, Continental Gold and Red Lake. Higher metal prices, higher volumes and lower care-and-maintenance costs partly offset the comparison.
- Care-and-maintenance expense declined to $2 million in Q2 and $2 million year to date, compared with $125 million and $145 million, respectively, in 2020.
- Higher production reflected the restart or improvement of operations affected by COVID-19 in 2020, particularly Musselwhite, Éléonore, Peñasquito and Cerro Negro. Tanami was placed into care and maintenance in late June 2021 but was reportedly ramping back toward full capacity by July 22.
- Newmont acquired the remaining 85.1% of GT Gold for cash consideration of $326 million, with total acquisition consideration of $378 million including the previously held interest.
Guidance, outlook, commentary and risks
- The Board approved full funding for Ahafo North in July 2021. The project is expected to produce 275,000 to 325,000 ounces annually during its first five years, with estimated capital costs of $750 million to $850 million, construction completion in the second half of 2023 and commercial production in early 2024.
- Tanami Expansion 2 is expected to add approximately 150,000 to 200,000 ounces of annual gold production during its first five years beginning in 2024, reduce operating costs by approximately 10%, and require $850 million to $950 million of capital.
- Management stated that existing cash, operating cash flow and the undrawn $3 billion revolving facility should fund operations, projects, debt obligations, dividends and other liquidity needs for the foreseeable future. No specific consolidated full-year production or cost guidance is presented in the supplied filing text.
- COVID-19 remains an operational risk. Cerro Negro was not yet fully operational at quarter-end, Tanami experienced a temporary shutdown, and future restrictions could affect production, labor, supply chains, transportation and costs.
- Yanacocha faces potential increases in closure and water-treatment costs related to revised Peruvian water-quality requirements. The company is seeking additional time to comply; the filing states that reclamation obligations could increase materially.
- Environmental, permitting, political, social and legal risks include Peru-related opposition to Yanacocha and Conga, Mexican tax matters, Ghanaian mining-lease litigation and other unresolved proceedings.
- Reclamation and remediation liabilities totaled $3,855 million at June 30, 2021. The filing states that certain environmental remediation liabilities could ultimately be as much as 47% greater than the amount accrued.
- Metal prices and foreign exchange rates remain key sensitivities. Provisionally priced sales at June 30 included 260,000 gold ounces, 18 million copper pounds, 6 million silver ounces, 28 million lead pounds and 57 million zinc pounds subject to later settlement.
Most important facts for investors to verify
- Whether COVID-19 restrictions, the Tanami restart and the Goldstrike mill outage affect second-half production and cost performance.
- Actual full-year production, all-in sustaining cost and capital-expenditure guidance, which is not clearly provided in the supplied filing text.
- Updated cost, schedule, permitting and funding assumptions for Ahafo North and Tanami Expansion 2.
- Potential changes to Yanacocha reclamation and water-treatment obligations and the status of Peru-related political and regulatory matters.
- Commodity-price, currency and provisional-pricing exposures, including the filing’s sensitivity estimates for a 10% price change.
- Future dividend and share-repurchase decisions, which remain subject to Board discretion and operating cash requirements.