Newmont Mining Corporation: Q3 2012 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with copper operations and exploration, development and mining assets in the United States, Australia, Peru, Indonesia, Ghana, Mexico and New Zealand. The unaudited filing covers the three and nine months ended September 30, 2012, compared with the corresponding 2011 periods. Dollar amounts are in millions unless otherwise stated.
Key financial and operating metrics
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Sales | $2,480 | $2,744 | $7,392 | $7,593 |
| Income from continuing operations | $480 | $675 | $1,525 | $2,005 |
| Net income attributable to Newmont stockholders | $367 | $493 | $1,136 | $1,394 |
| Basic EPS | $0.74 | $1.00 | $2.29 | $2.82 |
| Adjusted net income | $426 | $635 | $1,298 | $1,593 |
| Cash flow from continuing operations | Not provided for the quarter | Not provided for the quarter | $1,542 | $2,666 |
| Capital expenditures, cash basis | Not provided for the quarter | Not provided for the quarter | $2,394 | $1,781 |
| Gold produced | 1.397 million oz. | 1.510 million oz. | 4.238 million oz. | 4.414 million oz. |
| Copper produced | 55 million lb. | 97 million lb. | 172 million lb. | 266 million lb. |
| Realized gold price | $1,659/oz. | $1,695/oz. | $1,649/oz. | $1,526/oz. |
| Realized copper price | $3.55/lb. | $2.94/lb. | $3.51/lb. | $3.58/lb. |
| Gold costs applicable to sales | $693/oz. | $622/oz. | $664/oz. | $587/oz. |
| Copper costs applicable to sales | $2.38/lb. | $1.10/lb. | $2.23/lb. | $1.17/lb. |
Net income attributable to Newmont margins were approximately 14.8% in Q3 and 15.4% for the first nine months. Continuing-operations margins were approximately 19.4% and 20.6%, respectively, based on reported sales.
- Cash and cash equivalents were $1,549 at September 30, 2012, down from $1,760 at December 31, 2011.
- Total debt was $6,124, including $25 current debt and $6,099 non-current debt, compared with $4,313 at year-end 2011. Approximate net debt was therefore $4,575 versus $2,553 at year-end.
- Current assets were $5,324 and current liabilities were $2,571, producing an approximate current ratio of 2.1.
- The corporate revolving credit facility was increased to $3,000 and extended to 2017. At September 30, $558 was used to support letters of credit.
- Reclamation and remediation liabilities totaled $1,338, including $1,149 for producing or recently producing properties and $189 for former mining activities.
- Dividends declared were $0.35 per common share in Q3 and $1.05 per share for the first nine months, compared with $0.30 and $0.65 in the comparable 2011 periods.
Material changes versus the prior comparable period
- Q3 sales declined 10% and nine-month sales declined 3%, primarily reflecting substantially lower copper volumes and lower Q3 gold volumes and prices.
- Q3 net income attributable to Newmont fell 26%; nine-month net income fell 19%. The decline reflected lower production, higher production costs, restructuring and other charges, and a $33 discontinued-operations charge.
- Gold production declined 7% in Q3 and 4% for the first nine months. Copper production declined 43% and 35%, respectively, largely because Batu Hijau processed lower-grade stockpiles.
- Gold costs applicable to sales increased 11% in Q3 and 13% year to date. Copper costs increased 116% and 91%, respectively, due principally to lower Batu Hijau production and higher mining costs.
- Cash flow from continuing operations decreased 42% to $1,542, primarily because of lower Batu Hijau production and an unfavorable change in operating assets and liabilities, including stockpiles and accrued taxes.
- Capital expenditures increased 34% to $2,394 year to date, with significant spending on Conga, Akyem, Yanacocha, Nevada and other development projects.
- Debt increased following the issuance of $2,500 of senior notes due 2022 and 2042, partly offset by repayment of the 2012 convertible notes and other debt.
- Other expense increased to $131 in Q3 and $377 year to date, including Hope Bay care-and-maintenance costs, restructuring, regional administration and community-development expenses.
- Comprehensive income was $682 in Q3 versus a loss of $176 in Q3 2011, mainly because of favorable changes in marketable securities, currency translation and cash-flow hedge valuations.
Guidance, outlook, commentary and unusual items
- Management expected 2012 attributable gold production at the low end of the previously announced 5.0 to 5.1 million ounce range.
- 2012 consolidated gold costs applicable to sales were expected at the high end of the revised $650 to $675 per ounce range. Attributable copper production was expected at 145 to 165 million pounds, with consolidated copper costs of $2.20 to $2.35 per pound.
- 2012 consolidated capital expenditures remained forecast at $3,300 to $3,600, including $2,700 to $3,000 attributable to Newmont.
- Management expected 2012 amortization of $1,050 to $1,080, exploration expense of $370 to $400, advanced-projects expense of $410 to $440, general and administrative expense of $200 to $220, interest expense of $240 to $260, and a consolidated tax rate of approximately 31% to 33%.
- Akyem construction was progressing toward first production in late 2013. Conga development was largely suspended after protests; Newmont adopted a reduced-spending “go slow, water first” approach, cutting planned 2012–2013 spending from $2,900 to $850.
- Hope Bay remained on care and maintenance, with approximately $25 of additional Q4 2012 spending expected and approximately $25 annually thereafter. Tanami Shaft development was deferred, with reassessment expected in 2015.
- The Holt property royalty liability generated a $33 Q3 charge and a $104 year-to-date charge, net of tax benefits, based on higher gold prices and lower expected future production.
- Newmont does not hedge gold or copper sales, retaining exposure to metal prices. It uses derivatives principally for foreign currency, diesel and interest-rate risk.
- Outstanding letters of credit, surety bonds and bank guarantees totaled $1,885, up from $1,354 at year-end 2011. The company stated that it expected to fund debt maturities and capital expenditures through operating cash flow, investments, cash and available credit facilities.
- Material exposures include environmental and reclamation obligations, the Empire Mine CERCLA lawsuit, unresolved Choropampa claims, Indonesian PTNNT divestiture and litigation matters, and the NWG Investments lawsuit seeking rescission and approximately $750 in damages.
- Management reported no material changes to the risk factors in the 2011 Form 10-K, and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether Batu Hijau production and costs improve as Phase 6 ore is expected to be reached in the second half of 2013.
- Progress, permitting, community support, spending and impairment risk at Conga, as well as construction and cost execution at Akyem.
- Whether full-year gold and copper production and cost guidance is achieved, particularly given the first nine months’ production declines and cost inflation.
- The sustainability of cash generation after capital expenditures, dividends, reclamation spending and higher debt service.
- The amount and timing of future debt repayments, including $539 scheduled in 2014 and $5,535 thereafter, and available revolver capacity after letters of credit.
- Potential changes in reclamation, remediation, tax, royalty and legal liabilities, including the Holt royalty and PTNNT-related Indonesian matters.
- The valuation and liquidity of marketable equity securities and Level 3 investments, including asset-backed commercial paper and auction-rate securities.
- Commodity-price sensitivity: each $0.10 change in copper prices for provisionally priced sales was estimated to affect Newmont stockholders’ net income by approximately $3, while each $25 change in gold prices was estimated to affect it by approximately $1.