Newmont Mining Corporation: 2010 Q1 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold and gold/copper mining company with operations and projects in North America, South America, Asia Pacific, Africa and other regions. This unaudited Form 10-Q covers the three months ended March 31, 2010, with comparison to the three months ended March 31, 2009. Dollar amounts are in millions unless otherwise stated.
Financial and operating metrics
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Sales | $2,242 | $1,536 | +46% |
| Net income | $743 | $277 | +168% |
| Net income attributable to Newmont stockholders | $546 | $189 | +189% |
| Basic and diluted EPS | $1.11 | $0.40 | +178% |
| Adjusted net income | $408 | $199 | +105% |
| Net cash from operations | $715 | $385 | +86% |
| Net cash from continuing operations | $728 | $381 | +91% |
| Capital expenditures, cash basis | $309 | $330 | -6% |
| Cash and cash equivalents at period-end | $3,364 | $1,449 | Prior-year comparison shown in cash-flow statement |
| Total debt | $4,574 | $4,809 at December 31, 2009 | Down $235 sequentially |
| Quarterly common dividend | $0.10 per share | $0.10 per share | Unchanged |
Net margin was approximately 33.1% in Q1 2010 versus 18.0% in Q1 2009; net income attributable to Newmont stockholders represented approximately 24.3% and 12.3% of sales, respectively. The filing does not present a single consolidated operating-margin measure.
- Gold production was 1.616 million ounces, compared with 1.537 million ounces; gold sold was 1.581 million ounces versus 1.516 million.
- Copper production was 159 million pounds, compared with 81 million pounds; copper sold was 148 million pounds versus 95 million.
- Average realized gold price increased to $1,106 per ounce from $906; gold cost applicable to sales increased to $480 per ounce from $431.
- Average realized copper price increased to $3.33 per pound from $1.69; copper cost applicable to sales decreased to $0.78 per pound from $0.89.
- At March 31, 2010, current assets were $5,961 and current liabilities were $2,013, implying a current ratio of approximately 3.0x. Cash exceeded current debt by approximately $3,286.
- Reclamation and remediation liabilities totaled $861, including $704 for producing mineral properties and $157 for former mining activities.
Material changes versus the prior comparable period
- Sales growth was driven by higher gold and copper prices, increased sales volumes and the start of commercial production at Boddington in Australia.
- Gold production increased 5%, while copper production nearly doubled, primarily because of higher throughput at Batu Hijau and Boddington’s ramp-up.
- Newmont’s Q1 2010 earnings included a $127 tax benefit from converting non-U.S. tax-paying entities to entities subject to U.S. income tax. The effective tax rate fell to 15% from 27%.
- Other income increased to $48 from $9, primarily due to gains on asset sales and higher Canadian Oil Sands Trust income.
- Interest expense increased to $75 from $32, mainly because of additional senior notes issued in 2009.
- Other expense increased to $89 from $73, principally because of $38 of additional community development commitments at PTNNT.
- Newmont repaid $250 of debt during the quarter, including the remaining $220 balance under the PTNNT project financing facility. The PTNNT facility was fully repaid and related collateral and letter-of-credit requirements were released.
- Newmont sold a further 7% interest in PTNNT to an Indonesian buyer for $229, reducing NTP’s ownership to 56% and Newmont’s direct ownership to 31.5%. Newmont reported a 48.5% effective economic interest and continued to consolidate PTNNT.
Guidance, outlook, commentary and risks
- 2010 consolidated gold production guidance was approximately 6.3 to 6.8 million ounces at costs applicable to sales of approximately $450 to $480 per ounce.
- 2010 consolidated copper production guidance was approximately 540 to 600 million pounds at costs applicable to sales of approximately $0.85 to $0.95 per pound.
- Management expected 2010 capital expenditures of $1.4 billion to $1.6 billion, amortization of $970 million to $1.0 billion, exploration expense of $190 million to $220 million, and net interest expense of $270 million to $290 million.
- Management expected a 2010 effective tax rate of approximately 24% to 28%, assuming an average gold price of $1,100 per ounce.
- Management expected to fund debt maturities through operating cash flow, short-term investments, cash balances and available credit facilities. Scheduled minimum debt repayments were $39 for the remainder of 2010, $290 in 2011, $570 in 2012, $72 in 2013, $540 in 2014 and $3,063 thereafter.
- Key operational risks included geotechnical issues at Nevada’s Gold Quarry, mine sequencing and lower grades at Yanacocha, ramp-up execution at Boddington, and the expected transition at Batu Hijau from Phase 5 mining to stockpile processing.
- Commodity-price exposure remains significant because Newmont does not hedge gold or copper sales. The company hedges portions of foreign-currency operating costs, Nevada diesel costs and interest-rate exposure.
- Environmental and legal contingencies include the Midnite Mine CERCLA matter, Indonesian Buyat Bay litigation, Peruvian Choropampa claims, Ghana’s Ahafo overflow incident, and disputes or future obligations related to PTNNT’s Indonesian divestiture requirements. The filing states that certain outcomes cannot reasonably be predicted.
- Environmental obligations were subject to potentially material estimation uncertainty: liabilities for former mining activities could be as much as 154% greater or 3% lower than the $157 accrued at March 31, 2010.
- Outstanding letters of credit, surety bonds and bank guarantees totaled $999. Management stated that the company was in compliance with debt covenants and expected to satisfy future bonding requirements.
Important facts for investors to verify
- Separate recurring operating performance from the $127 tax benefit, $25 net gain on asset sales and $13 PTNNT community contribution excluded in adjusted net income.
- Confirm whether Boddington’s ramp-up, Batu Hijau’s mine-plan transition and Nevada geotechnical issues affect full-year production and cost guidance.
- Review gold and copper price sensitivity, provisional pricing adjustments and the 153,000 ounces of gold and 174 million pounds of copper subject to final pricing after quarter-end.
- Assess the timing and funding of scheduled debt maturities, capital expenditures and reclamation obligations.
- Monitor PTNNT divestiture compliance, Indonesian tax claims and the effect of future ownership changes on Newmont’s control and economic interest.
- Review environmental and legal contingencies, particularly the Midnite Mine and Choropampa matters, for potential liabilities beyond recorded accruals.
- Evaluate non-GAAP adjusted net income alongside GAAP earnings; the filing states that non-GAAP measures have no standardized meaning.