UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
For the Quarterly Period Ended March 31, 2014
or
For the transition period from to
Commission File Number: 001-31240
NEWMONT MINING CORPORATION
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
Registrant’s telephone number, including area code (303) 863-7414
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). ¨ Yes x No
There were 498,529,240 shares of common stock outstanding on April 16, 2014.
TABLE OF CONTENTS
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1A.
ITEM 5.
ITEM 6.
SIGNATURES
EXHIBIT INDEX
PART I—FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions except per share)
Sales (Note 4)
Costs and expenses
Costs applicable to sales (1) (Note 4)
Amortization (Note 4)
Reclamation and remediation (Note 5)
Exploration
Advanced projects, research and development
General and administrative
Other expense, net (Note 6)
Other income (expense)
Other income, net (Note 7)
Interest expense, net
Income before income and mining tax and other items
Income and mining tax expense (Note 8)
Equity income (loss) of affiliates
Income from continuing operations
Income (loss) from discontinued operations (Note 9)
Net income
Net loss (income) attributable to noncontrolling interests (Note 10)
Net income attributable to Newmont stockholders
Net income (loss) attributable to Newmont stockholders:
Continuing operations
Discontinued operations
Income (loss) per common share (Note 11)
Basic:
Diluted:
Cash dividends declared per common share
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
STATEMENTS OF CONDENSED CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(unaudited, in millions)
Other comprehensive income (loss):
Unrealized gain(loss) on marketable securities, net of $(1) and $38 tax benefit (expense), respectively
Foreign currency translation adjustments
Change in pension and other post-retirement benefits, net of $1 and $3 tax expense, respectively
Change in fair value of cash flow hedge instruments, net of $4 and $15 tax benefit (expense), respectively
Net change from periodic revaluations
Net amount reclassified to income
Net unrecognized (loss) gain on derivatives
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Newmont stockholders
Noncontrolling interests
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Adjustments:
Amortization
Stock based compensation and other non-cash benefits
Reclamation and remediation
Loss (income) from discontinued operations
Impairment of marketable securities
Deferred income taxes
Gain on asset and investment sales, net
Other operating adjustments and write-downs
Net change in operating assets and liabilities (Note 24)
Net cash provided from continuing operations
Net cash used in discontinued operations
Net cash provided from operations
Investing activities:
Additions to property, plant and mine development
Acquisitions, net
Sale of marketable securities
Purchases of marketable securities
Proceeds from sale of other assets
Other
Net cash used in investing activities
Financing activities:
Proceeds from debt, net
Proceeds from stock issuance, net
Sale of noncontrolling interests
Acquisition of noncontrolling interests
Dividends paid to common stockholders
Net cash provided from (used in) financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
3
CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents
Trade receivables
Accounts receivable
Investments (Note 16)
Inventories (Note 17)
Stockpiles and ore on leach pads (Note 18)
Deferred income tax assets
Other current assets (Note 19)
Current assets
Property, plant and mine development, net
Other long-term assets (Note 19)
Total assets
Debt (Note 20)
Accounts payable
Employee-related benefits
Income and mining taxes
Other current liabilities (Note 21)
Current liabilities
Reclamation and remediation liabilities (Note 5)
Deferred income tax liabilities
Other long-term liabilities (Note 21)
Total liabilities
Commitments and contingencies (Note 26)
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Newmont stockholders’ equity
Total equity
Total liabilities and equity
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(dollars in millions, except per share, per ounce and per pound amounts)
NOTE 1 BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements (“interim statements”) of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont” or the “Company”) are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with Newmont’s Consolidated Financial Statements for the year ended December 31, 2013 filed February 20, 2014 on Form 10-K. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by United States generally accepted accounting principles (“GAAP”) have been condensed or omitted. References to “A$” refer to Australian currency, “C$” to Canadian currency and “NZ$” to New Zealand currency.
On February 18, 2014 the Company redeemed all outstanding exchangeable shares (other than those held by Newmont and its affiliates). On the date of the redemption, holders of exchangeable shares received, in exchange for each exchangeable share, one share of common stock of Newmont. At December 31, 2013, the value of the remaining outstanding exchangeable shares was included in Additional paid-in capital and Common shares.
Certain amounts in prior years have been reclassified to conform to the 2014 presentation. Reclassifications are related to a change in our reportable segments (see Notes 2 and 4), and include a change from by-product accounting for our Phoenix segment to co-product accounting.
In March 2014, we completed a review of our deferred tax and stockpile balances that resulted in the identification of certain errors in these accounts. These errors were not material to our consolidated financial condition, results of operations or cash flows as presented in our previously filed annual and quarterly financial statements; however, the adjustment to correct the cumulative effect of these errors would have been material if recorded in the first quarter of 2014. Accordingly, we revised our financial statements to correct these errors at and for the year ended December 31, 2013. The cumulative decrease to retained earnings was $148 at January 1, 2014. See Note 2 Revision of Financial Statements.
NOTE 2 REVISION OF FINANCIAL STATEMENTS
In March 2014, we determined our deferred tax assets related to certain foreign subsidiaries and Yanacocha stockpiles were overstated by $143 and $20 ($14 net of tax) at December 31, 2013, respectively. The stockpiles revision increased Costs applicable to sales by $2 ($1 net of tax) for the three months ended March 31, 2013. We have assessed the materiality of these misstatements in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 99 and concluded that these errors are not material to our previously issued consolidated financial statements. Accordingly, by reference to SAB No. 108, our previously issued consolidated financial statements have been revised as follows:
Condensed Consolidated Statement of
Income
Sales
Costs applicable to sales
Net income (loss)
Net income (loss) attributable to Newmont stockholders
Income (loss) per common share
Basic
Diluted
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Condensed Consolidated Statement of Cash Flows
Net changes in operating assets and liabilities
Condensed Consolidated Balance Sheet
Stockpiles and ore on leach pads(2)
Deferred income tax assets(3)
Other long-term assets
Total Assets
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements
Presentation of an Unrecognized Tax Benefit
In July 2013, ASC guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carryforward, a similar tax loss, or tax credit carryforwards. A gross presentation will be required only if such carryforwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. Adoption of the new guidance, effective for the fiscal year beginning January 1, 2014, had no impact on the consolidated financial position, results of operations or cash flows.
6
Foreign Currency Matters
In March 2013, ASC guidance was issued related to Foreign Currency Matters to clarify the treatment of cumulative translation adjustments when a parent sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The updated guidance also resolves the diversity in practice for the treatment of business combinations achieved in stages in a foreign entity. Adoption of the new guidance, effective for the fiscal year beginning January 1, 2014, had no impact on the consolidated financial position, results of operations or cash flows.
Discontinued Operations
In April 2014, ASC guidance was issued related to Discontinued Operations which changed the criteria for determining which disposals can be presented as discontinued operations and modified related disclosure requirements. The updated guidance requires an entity to only classify discontinued operations due to a major strategic shift or a major effect on an entity’s operations in the financial statements. The updated guidance will also require additional disclosures relating to discontinued operations. The Company early adopted this guidance prospectively at the beginning of fiscal year January 1, 2014. Adoption of the new guidance did not have an impact on the consolidated financial position, results of operations or cash flows.
NOTE 4 SEGMENT INFORMATION
The Company’s reportable segments are based upon the Company’s management structure that is focused on the geographic region for the Company’s operations. Geographic regions include North America, South America, Australia/New Zealand, Indonesia, Africa and Corporate and Other. Segment results for 2013 have been retrospectively revised to reflect a change in our reportable segments to align with a change in the chief operating decision makers’ evaluation of the organization, effective in the first quarter of 2014. The Nevada operations have been revised to reflect Carlin, Phoenix, and Twin Creeks segments and Other Australia/New Zealand operations have been revised to reflect Tanami, Jundee, Waihi and Kalgoorlie segments. The Conga development project will be reported in the Other South America segment. The Nimba and Merian development projects, historically reported in Other Africa and Other South America, respectively, will be reported in Corporate and Other. The financial information relating to the Company’s segments for all periods presented have been updated to reflect these changes and is as follows:
7
Three Months Ended March 31, 2014
Carlin
Phoenix
Gold
Copper
Total
Twin Creeks
La Herradura
Other North America
North America
Yanacocha
Other South America
South America
Boddington:
Tanami
Jundee
Waihi
Kalgoorlie
Other Australia/New Zealand
Australia/New Zealand
Batu Hijau:
Indonesia
Ahafo
Akyem
Other Africa
Africa
Corporate and Other
Consolidated
8
Three Months Ended March 31, 2013
Other Indonesia
9
NOTE 5 RECLAMATION AND REMEDIATION
The Company’s Reclamation and remediation expense consisted of:
Accretion—operating
Accretion—non-operating
At March 31, 2014 and December 31, 2013, $1,441 and $1,432, respectively, were accrued for reclamation obligations relating to operating properties. In addition, the Company is involved in several matters concerning environmental obligations associated with former, primarily historic, mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. At March 31, 2014 and December 31, 2013, $174 and $179, respectively, were accrued for such obligations. These amounts are also included in Reclamation and remediation liabilities.
The following is a reconciliation of Reclamation and remediation liabilities:
Balance at beginning of period
Additions, changes in estimates and other
Liabilities settled
Accretion expense
Balance at end of period
The current portion of Reclamation and remediation liabilities of $96 and $98 at March 31, 2014 and December 31, 2013, respectively, are included in Other current liabilities (see Note 21).
NOTE 6 OTHER EXPENSE, NET
Regional administration
Community development
Restructuring and other
Western Australia power plant
World Gold Council dues
Transaction/Acquisition costs
10
NOTE 7 OTHER INCOME, NET
Gain on Midas sale
Refinery income, net
Gain on sale of investments, net
Development projects, net
Interest
Canadian Oil Sands dividends
Derivative ineffectiveness, net
Foreign currency exchange, net
NOTE 8 INCOME AND MINING TAXES
During the first quarter of 2014, the Company recorded estimated income and mining tax expense of $78 resulting in an effective tax rate of 55%. Estimated income and mining tax expense during the first quarter of 2013 was $180 for an effective tax rate of 33%.
The Company’s income and mining tax expense differed from the statutory rate of 35% for the following reasons:
Tax on income at 35% statutory rate
Reconciling items:
Percentage depletion
Change in valuation allowance on deferred tax assets
Disallowed loss on sale of Midas
Mining and other taxes
Effect of foreign earnings, net of credits
Income and mining tax expense
The Company operates in numerous countries around the world and accordingly it is subject to, and pays annual income taxes under, the various income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual agreements with the local government, and others are defined by the general corporate income tax laws of the country. The Company has historically filed, and continues to file, all required income tax returns and pay the income taxes reasonably determined to be due. The tax rules and regulations in many countries are highly complex and subject to interpretation. From time to time the Company is subject to a review of its historic income tax filings and in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain rules to the Company’s business conducted within the country involved.
At March 31, 2014, the Company’s total unrecognized tax benefit was $321 for uncertain income tax positions taken or expected to be taken on income tax returns. Of this, $78 represents the amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate.
11
As a result of the statute of limitations that expire in the next 12 months in various jurisdictions, and possible settlements of audit-related issues with taxing authorities in various jurisdictions with respect to which none of the issues are individually significant, the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax benefits will decrease by approximately $5 to $10 in the next 12 months.
NOTE 9 DISCONTINUED OPERATIONS
Discontinued operations include Holloway Mining Company, which owned the Holt-McDermott property (“Holt property”) that was sold to St. Andrew Goldfields Ltd. (“St. Andrew”) in 2006. In 2009, the Superior Court issued a decision finding Newmont Canada Corporation (“Newmont Canada”) liable for a sliding scale royalty on production from the Holt property, which was upheld in 2011 by the Ontario Court of Appeal. During the first quarter of 2014, the Company recorded a charge of $17, net of tax benefits of $8, related to an increase in gold price, an increase in expected future production and a decrease in discount rates at quarter end.
Net operating cash used in discontinued operations of $3 and $6 in the first quarter of 2014 and 2013 respectively relates to payments on the Holt property royalty.
NOTE 10 NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Minera Yanacocha
Batu Hijau
TMAC
Newmont has a 51.35% ownership interest in Minera Yanacocha S.R.L. (“Yanacocha”), with the remaining interests held by Compañia de Minas Buenaventura, S.A.A. (43.65%) and the International Finance Corporation (5%).
Newmont has a 48.5% effective economic interest in PT Newmont Nusa Tenggara (“PTNNT”) with remaining interests held by an affiliate of Sumitomo Corporation of Japan and various Indonesian entities. PTNNT operates the Batu Hijau copper and gold mine in Indonesia. Based on ASC guidance for variable interest entities, Newmont consolidates PTNNT in its Condensed Consolidated Financial Statements.
Newmont has a 70.4% economic ownership interest in TMAC, with remaining interests held by various outside investors.
12
NOTE 11 INCOME PER COMMON SHARE
Basic income per common share is computed by dividing income available to Newmont common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is computed similarly except that weighted average common shares is increased to reflect all dilutive instruments.
Weighted average common shares (millions):
Effect of employee stock-based awards
Net income attributable to Newmont stockholders per common share
Options to purchase 3 and 4 million shares of common stock at average exercise prices of $48 and $49 were outstanding at March 31, 2014 and 2013, respectively, but were not included in the computation of diluted weighted average common shares because their exercise prices exceeded the average price of the Company’s common stock for the respective periods presented.
Newmont is required to settle the principal amount of its 2014 and 2017 Convertible Senior Notes in cash and may elect to settle the remaining conversion premium (average share price in excess of the conversion price), if any, in cash, shares or a combination thereof. The effect of contingently convertible instruments on diluted earnings per share is calculated under the net share settlement method in accordance with ASC guidance. The conversion price exceeded the Company’s share price for the periods presented, therefore no additional shares were included in the computation of diluted weighted average common shares.
13
NOTE 12 EMPLOYEE PENSION AND OTHER BENEFIT PLANS
Pension benefit costs, net
Service cost
Interest cost
Expected return on plan assets
Amortization, net
Other benefit costs, net
NOTE 13 STOCK BASED COMPENSATION
Stock options
Restricted stock units
Performance leveraged stock units
Stock performance units
14
NOTE 14 FAIR VALUE ACCOUNTING
The following table sets forth the Company’s assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Assets:
Cash equivalents
Marketable equity securities:
Extractive industries
Marketable debt securities:
Asset backed commercial paper
Auction rate securities
Trade receivable from provisional copper and gold concentrate sales, net
Liabilities:
Derivative instruments, net:
Foreign exchange forward contracts
Boddington contingent consideration
Holt property royalty
The fair values of the derivative instruments in the table above are presented on a net basis. The gross amounts related to the fair value of the derivatives instruments above are included in the Derivatives Instruments Note (see Note 15). All other Fair Value disclosures in the above table are presented on a gross basis.
The following table sets forth a summary of the quantitative and qualitative information related to the unobservable inputs used in the calculation of the Company’s Level 3 financial assets and liabilities at March 31, 2014:
Description
Unobservable input
Auction Rate Securities
Asset Backed Commercial Paper
Boddington Contingent Consideration
15
The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial assets and liabilities at March 31, 2014:
Settlements
Revaluation
At March 31, 2014, assets and liabilities classified within Level 3 of the fair value hierarchy represent 2% and 76%, respectively, of total assets and liabilities measured at fair value.
NOTE 15 DERIVATIVE INSTRUMENTS
The Company’s strategy is to provide shareholders with leverage to changes in gold and copper prices by selling its production at spot market prices. Consequently, the Company does not hedge its gold and copper sales. The Company continues to manage certain risks associated with commodity input costs, interest rates and foreign currencies using the derivative market. All of the derivative instruments described below were transacted for risk management purposes and qualify as cash flow hedges.
Cash Flow Hedges
The foreign currency and diesel contracts are designated as cash flow hedges, and as such, the effective portion of unrealized changes in market value have been recorded in Accumulated other comprehensive income (loss) and are reclassified to income during the period in which the hedged transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings.
Foreign Currency Contracts
Newmont had the following foreign currency derivative contracts outstanding at March 31, 2014:
A$ Operating Fixed Forward Contracts:
A$ notional (millions)
Average rate ($/A$)
Expected hedge ratio
NZ$ Operating Fixed Forward Contracts:
NZ$ notional (millions)
Average rate ($/NZ$)
16
Diesel Fixed Forward Contracts
Newmont had the following diesel derivative contracts outstanding at March 31, 2014:
Diesel Fixed Forward Contracts:
Diesel gallons (millions)
Average rate ($/gallon)
Expected Nevada hedge ratio
Derivative Instrument Fair Values
Newmont had the following derivative instruments designated as hedges at March 31, 2014 and December 31, 2013:
Foreign currency exchange contracts:
A$ operating fixed forwards
NZ$ operating fixed forwards
Diesel fixed forwards
Total derivative instruments (Notes 19 and 21)
17
The following tables show the location and amount of gains (losses) reported in the Company’s Consolidated Financial Statements related to the Company’s cash flow hedges.
For the three months ended March 31,
Cash flow hedging relationships:
Gain (loss) recognized in other comprehensive income (effective portion)
Gain (loss) reclassified from Accumulated other comprehensive income into income (effective portion) (1)
Gain (loss) reclassified from Accumulated other comprehensive income into income (ineffective portion) (2)
The amount to be reclassified from Accumulated other comprehensive income, net of tax to income for derivative instruments during the next 12 months is a loss of approximately $5.
Provisional Copper and Gold Sales
The Company’s provisional copper and gold sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the gold and copper concentrates at the prevailing indices’ prices at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to final settlement.
London Metal Exchange (“LME”) copper prices averaged $3.19 per pound during the first quarter of 2014, compared with the Company’s recorded average provisional price of $3.12 per pound before mark-to-market adjustments and treatment and refining charges. During the first quarter of 2014, changes in copper prices resulted in a provisional pricing mark-to-market loss of $17 ($0.37 per pound). At March 31, 2014, Newmont had copper sales of 63 million pounds priced at an average of $3.02 per pound, subject to final pricing over the next several months.
The average London P.M. fix for gold was $1,293 per ounce during the first quarter of 2014, compared to the Company’s recorded average provisional price of $1,292 per ounce before mark-to-market adjustments and treatment and refining charges. During the first quarter of 2014, changes in gold prices resulted in a provisional pricing mark-to-market gain of $4 ($4 per ounce). At March 31, 2014, Newmont had gold sales of 130,000 ounces priced at an average of $1,295 per ounce, subject to final pricing over the next several months.
18
NOTE 16 INVESTMENTS
Current:
Marketable Equity Securities:
Gabriel Resources Ltd.
Long-term:
Marketable Debt Securities:
Regis Resources Ltd.
Other investments, at cost
Investment in Affiliates:
Euronimba Ltd.
Minera La Zanja S.R.L.
Novo Resources Corp.
19
Paladin Energy Ltd.
In March 2014, the Company sold its investment in Paladin Energy Ltd. for $25, resulting in a pre-tax gain of $4 recorded in Other income, net.
The following tables present the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by length of time that the individual securities have been in a continuous unrealized loss position:
At March 31, 2014
Marketable equity securities
At December 31, 2013
20
While the fair value of the Company’s investment in auction rate securities is below its cost, the Company views this decline as temporary. The Company has the ability and intends to hold its investment in auction rate securities until maturity or such time that the market recovers and therefore considers this loss temporary.
NOTE 17 INVENTORIES
In-process
Concentrate
Precious metals
Materials, supplies and other
The Company recorded write-downs of $1 and $1, classified as components of Costs applicable to salesand Amortization, respectively, for the first quarter of 2014, to reduce the carrying value of Yanacocha’s inventories to net realizable value.
NOTE 18 STOCKPILES AND ORE ON LEACH PADS
Stockpiles
Ore on leach pads
21
Stockpiles and ore on leach pads:
Boddington
The Company recorded write-downs of $110 and $35, classified as components of Costs applicable to salesand Amortization, respectively, for the first quarter of 2014 to reduce the carrying value of stockpiles and ore on leach pads to net realizable value. Of the write-downs in 2014, $24 are related to Carlin, $2 to Twin Creeks, $54 to Yanacocha, $30 to Boddington and $35 to Batu Hijau.
NOTE 19 OTHER ASSETS
Other current assets:
Refinery metal inventory and receivable
Prepaid assets
Other refinery metal receivables
Derivative instruments
Other long-term assets:
Income tax receivable
Goodwill
Intangible assets
Prepaid royalties
Restricted cash
Debt issuance costs
Prepaid maintenance costs
22
NOTE 20 DEBT
Scheduled minimum debt repayments are $623 for the remainder of 2014, $161 in 2015, $221 in 2016, $771 in 2017, $1 in 2018 and $5,105 thereafter.
Term Loan and Revolver Extension
On March 31, 2014, the Company entered into a $575 uncollateralized term loan facility with a syndicate of banks. The term loan allows for a single drawing any business day on or prior to July 15, 2014 (the “Funding Date”) and will mature five years after the Funding Date. Borrowings under the facility will bear interest at LIBOR plus a margin ranging from 0.875% to 1.65%. Fees and other debt issuance costs related to the facility will be capitalized and amortized over the term of the debt. Proceeds from the term loan are expected to be used to retire the $575 of maturing convertible debt in July 2014. There are no borrowings outstanding under the facility at March 31, 2014.
On March 31, 2014, the Company’s Corporate Revolving Credit Facility was amended to extend the facility two years to 2019. The available capacity under the Corporate Revolving Credit Facility remains at $3,000. There are no borrowings outstanding under the facility at March 31, 2014.
NOTE 21 OTHER LIABILITIES
Other current liabilities:
Refinery metal payable
Accrued operating costs
Reclamation and remediation liabilities
Deferred income tax
Accrued capital expenditures
Royalties
Taxes other than income and mining
Other long-term liabilities:
Power supply agreements
23
NOTE 22 CHANGES IN EQUITY
Common stock:
At beginning of period
Redemption of Exchangeable Shares
Stock based awards
At end of period
Additional paid-in capital:
Accumulated other comprehensive income (loss):
Retained earnings:
Dividends Paid
Noncontrolling interests:
Net income (loss) attributable to noncontrolling interests
Sale of noncontrolling interests, net
Other comprehensive income
24
NOTE 23 RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
December 31, 2013
Change in other comprehensive income (loss) before reclassifications
Reclassifications from accumulated other comprehensive income (loss)
Net current-period other comprehensive income (loss)
March 31, 2014
Details about Accumulated Other Comprehensive Income(Loss) Components
Marketable securities adjustments:
Total before tax
Tax benefit (expense)
Net of tax
Pension liability adjustments:
Tax (expense) benefit
Hedge instruments adjustments:
Operating cash flow hedges
Forward starting swap hedges
Total reclassifications for the period, net of tax
25
NOTE 24 NET CHANGE IN OPERATING ASSETS AND LIABILITIES
Net cash provided from operations attributable to the net change in operating assets and liabilities is composed of the following:
Decrease (increase) in operating assets:
Trade and accounts receivable
Inventories, stockpiles and ore on leach pads
EGR refinery assets
Other assets
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities
EGR refinery liabilities
Reclamation liabilities
NOTE 25 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following Condensed Consolidating Financial Statements are presented to satisfy disclosure requirements of Rule 3-10(e) of Regulation S-X resulting from the inclusion of Newmont USA Limited (“Newmont USA”), a wholly-owned subsidiary of Newmont, as a co-registrant with Newmont on debt securities issued under a shelf registration statement on Form S-3 filed under the Securities Act of 1933 under which securities of Newmont (including debt securities guaranteed by Newmont USA) may be issued (the “Shelf Registration Statement”). In accordance with Rule 3-10(e) of Regulation S-X, Newmont USA, as the subsidiary guarantor, is 100% owned by Newmont, the guarantees are full and unconditional, and no other subsidiary of Newmont guaranteed any security issued under the Shelf Registration Statement. There are no restrictions on the ability of Newmont or Newmont USA to obtain funds from its subsidiaries by dividend or loan.
In April 2013, the Company merged one of its subsidiaries into Newmont USA. As a result of the merger, the prior periods presented have been revised to reflect this change as if the transaction had occurred at the beginning of the earliest period presented in accordance with the accounting guidance for business combinations between entities under common control. Additionally, the changes related to the revisions as described in Note 2 have also been included herein.
26
Condensed Consolidating Statement of Income
Costs applicable to sales (1)
Other expense, net
Other income, net
Interest income—intercompany
Interest expense—intercompany
Income (loss) from discontinued operations
Net income attributable to noncontrolling interests
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Newmont stockholders
27
28
Condensed Consolidating Statement of Cash Flows
Adjustments
Net change in operating assets and liabilities
Net cash provided from (used in) continuing operations
Net cash provided from (used in) operations
Net intercompany borrowings (repayments)
29
30
Condensed Consolidating Balance Sheet
Assets
Intercompany receivable
Investments
Inventories
Stockpiles and ore on leach pads
Other current assets
Investments in subsidiaries
Long-term intercompany receivable
Liabilities
Debt
Intercompany payable
Other current liabilities
Long-term intercompany payable
Other long-term liabilities
Equity
31
32
Condensed ConsolidatingStatement of Income
Income (loss) before income and mining tax and other items
Income and mining tax benfit (expense)
33
Condensed Consolidating Statement of
Cash Flows
Net borrowings (repayments)
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Total liabilities and stockholders’ equity
35
NOTE 26 COMMITMENTS AND CONTINGENCIES
General
The Company follows ASC guidance in accounting for loss contingencies. Accordingly, estimated losses from contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the contingency and estimated range of loss, if determinable, is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Operating Segments
The Company’s operating segments are identified in Note 4. Except as noted in this paragraph, all of the Company’s commitments and contingencies specifically described in this Note 26 relate to the Corporate and Other reportable segment. The Yanacocha matters relate to the Yanacocha reportable segment. The Minera Penmont matters relate to the La Herradura reporting segment. The PTNNT matters relate to the Batu Hijau reportable segment.
Environmental Matters
The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.
Estimated future reclamation costs are based principally on legal and regulatory requirements. At March 31, 2014 and December 31, 2013, $1,441 and $1,432, respectively, were accrued for reclamation costs relating to currently or recently producing mineral properties in accordance with asset retirement obligation guidance. The current portions of $64 and $66 at March 31, 2014 and December 31, 2013, respectively, are included in Other current liabilities.
In addition, the Company is involved in several matters concerning environmental obligations associated with former mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. The Company believes that the related environmental obligations associated with these sites are similar in nature with respect to the development of remediation plans, their risk profile and the compliance required to meet general environmental standards. Based upon the Company’s best estimate of its liability for these matters, $174 and $179 were accrued for such obligations at March 31, 2014 and December 31, 2013, respectively. These amounts are included in Other current liabilities and Reclamation and remediation liabilities. Depending upon the ultimate resolution of these matters, the Company believes that it is reasonably possible that the liability for these matters could be as much as 133% greater or 1% lower than the amount accrued at March 31, 2014. The amounts accrued are reviewed periodically based upon facts and circumstances available at the time. Changes in estimates are recorded in Reclamation and remediation in the period estimates are revised.
Details about certain of the more significant matters involved are discussed below.
Newmont Mining Corporation
Empire Mine. On July 19, 2012, the California Department of Parks and Recreation (“Parks”) served Newmont, New Verde Mines LLC, Newmont North America Exploration Limited, Newmont Realty Company and Newmont USA Limited with a complaint for damages and declaratory relief under CERCLA, specifically for costs associated with water treatment at the Empire Mine State Park and for a declaration that Newmont is liable for past and future response costs, as well as indemnification to Parks. In 1975 Parks purchased the Empire Mine site in Grass Valley, California from Newmont to create a historic state park featuring the mining of the Empire Mine. Parks has operated the Empire Mine Site for over 35 years. Newmont intends to vigorously defend this lawsuit. Newmont cannot reasonably predict the outcome of this matter.
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Newmont USA Limited—100% Newmont Owned
Ross-Adams Mine Site. By letter dated June 5, 2007, the U.S. Forest Service notified Newmont that it had expended approximately $0.3 in response costs to address environmental conditions at the Ross-Adams mine in Prince of Wales, Alaska, and requested Newmont USA Limited pay those costs and perform an Engineering Evaluation/Cost Analysis (“EE/CA”) to assess what future response activities might need to be completed at the site. Newmont intends to vigorously defend any formal claims by the EPA. Newmont has agreed to perform the EE/CA. Newmont cannot reasonably predict the likelihood or outcome of any future action against it arising from this matter.
Hope Bay Mining Ltd.—100% Newmont Owned
In July 2011 Environment Canada Enforcement Officers discovered a release of drill water containing calcium chloride on Hope Bay Mining Ltd. (“HBML”) property in Nunavut, Canada. Orbit Garant Drilling Inc. (“Orbit”) operated a diamond drill rig on the HBML property. On February 13, 2013, HBML received service of a summons and charges from a Judge for Nunavut alleging violation of the Fisheries Act relating to the release of drill water and alleged failure to report a discharge. Orbit operated the drill at issue in the summons. Total potential fines and penalties for proven charges of this nature could be up to $1. Newmont cannot reasonably predict the outcome of this matter.
Other Legal Matters
Minera Yanacocha S.R.L. (“Yanacocha”)—51.35% Newmont Owned
Choropampa. In June 2000, a transport contractor of Yanacocha spilled approximately 151 kilograms of elemental mercury near the town of Choropampa, Peru, which is located 53 miles (85 kilometers) southwest of the Yanacocha mine. Elemental mercury is not used in Yanacocha’s operations but is a by-product of gold mining and was sold to a Lima firm for use in medical instruments and industrial applications. A comprehensive health and environmental remediation program was undertaken by Yanacocha in response to the incident. In August 2000, Yanacocha paid under protest a fine of 1,740,000 Peruvian soles (approximately $0.5) to the Peruvian government. Yanacocha has entered into settlement agreements with a number of individuals impacted by the incident. As compensation for the disruption and inconvenience caused by the incident, Yanacocha entered into agreements with and provided a variety of public works in the three communities impacted by this incident. Yanacocha cannot predict the likelihood of additional expenditures related to this matter.
Additional lawsuits relating to the Choropampa incident were filed against Yanacocha in the local courts of Cajamarca, Peru, in May 2002 by over 900 Peruvian citizens. A significant number of the plaintiffs in these lawsuits entered into settlement agreements with Yanacocha prior to filing such claims. In April 2008, the Peruvian Supreme Court upheld the validity of these settlement agreements, which the Company expects to result in the dismissal of all claims brought by previously settled plaintiffs. Yanacocha has also entered into settlement agreements with approximately 350 additional plaintiffs. The claims asserted by approximately 200 plaintiffs remain. In 2011, Yanacocha was served with 23 complaints alleging grounds to nullify the settlements entered into between Yanacocha and the plaintiffs. Yanacocha has answered the complaints and the court has dismissed several of the matters and the plaintiffs have filed appeals. All appeals were referred to the Civil Court of Cajamarca, which affirmed the decisions of the lower court judge. The plaintiffs have filed appeals of such orders before the Supreme Court. Some of these appeals were dismissed by the Supreme Court in favor of Yanacocha, and others are pending resolution. Yanacocha will continue to vigorously defend its position. Neither the Company nor Yanacocha can reasonably estimate the ultimate loss relating to such claims.
Administrative Actions. The Peruvian government agency responsible for environmental evaluation and inspection, Organismo Evaluacion y Fiscalizacion Ambiental (“OEFA”), conducts periodic reviews of the Yanacocha site. In 2011, 2012, and 2013, OEFA issued notices of alleged violations of OEFA standards to Yanacocha and Conga relating to past inspections. In April 2013, OEFA issued a finding and penalty with respect to three 2008 allegations in the amount of $0.1. OEFA issued notice of additional alleged violations of OEFA standards in October 2013. Total fines for all outstanding OEFA alleged violations could range from $0.1 to $69. Yanacocha and Conga are responding to all notices of alleged violations, but cannot reasonably predict the outcome of the agency allegations.
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Minera Penmont- 44% Newmont Owned
Newmont owns a 44% interest in the La Herradura joint venture and related gold properties (Herradura, Soledad-Dipolos and Noche Buena), which are located in the Sonora desert. La Herradura is operated by Fresnillo PLC (“Fresnillo”) through Minera Penmont S. de R.L. de C.V. (“Minera Penmont”) and Fresnillo owns the remaining 56% interest. Soledad-Dipolos commenced operations in January 2010. In 2009 five members of the El Bajio agrarian community in the state of Sonora (the “Claimants”), who claim rights over certain surface land in the proximity of the operations of Minera Penmont, lodged a legal claim with the Unitarian Agrarian Court of Hermosillo, Sonora to have Minera Penmont vacate an area of this surface land and associated claims. The land in dispute encompasses a portion of surface area where part of the operations of Dipolos, one of Minera Penmont’s three operating mines, is located as well as the processing plant for both the Dipolos mine and the Soledad mine. Minera Penmont’s mining concessions are held by way of separate title to that relating to the surface land. In September 2012, the Claimants obtained a ruling on the surface property dispute in their favor by the Mexican Supreme Court and in July 2013, a magistrate ordered Minera Penmont to vacate the property at issue, requiring cessation of production at the Dipolos operations. Minera Penmont has initiated legal proceedings to seek the expropriation of the disputed land in its favor, a process defined under Federal law in Mexico. Claimants also obtained temporary suspension of all of Minera Penmont’s explosives permits. On February 26, 2014, Fresnillo announced that the Mexican Ministry of Defense granted an explosives permit for the Herradura and Noche Buena mining units. Minera Penmont intends to vigorously contest this matter, but cannot reasonably predict the outcome.
PT Newmont Nusa Tenggara (“PTNNT”) – 31.5% Newmont Owned
Under the Batu Hijau Contract of Work, beginning in 2006 and continuing through 2010, a portion of PTNNT’s shares were required to be offered for sale, first, to the Indonesian government or, second, to Indonesian nationals, equal to the difference between the following percentages and the percentage of shares already owned by the Indonesian government or Indonesian nationals (if such number is positive): 23% by March 31, 2006; 30% by March 31, 2007; 37% by March 31, 2008; 44% by March 31, 2009; and 51% by March 31, 2010. As PT Pukuafu Indah (“PTPI”), an Indonesian national, owned a 20% interest in PTNNT at all relevant times, in 2006, a 3% interest was required to be offered for sale and, in each of 2007 through 2010, an additional 7% interest was required to be offered (for an aggregate 31% interest). The price at which such interests were offered for sale to the Indonesian parties was the fair market value of such interest considering PTNNT as a going concern, as agreed with the Indonesian government. Following certain disputes and an arbitration with the Indonesian government, in November and December 2009, sale agreements were concluded pursuant to which the 2006, 2007 and 2008 shares were sold to PT Multi Daerah Bersaing (“PTMDB”), the nominee of the local governments, and the 2009 shares were sold to PTMDB in February 2010, resulting in PTMDB owning a 24% interest in PTNNT.
On December 17, 2010, the Ministry of Energy & Mineral Resources, acting on behalf of the Indonesian government, accepted the offer to acquire the final 7% interest in PTNNT. Subsequently, the Indonesian government designated Pusat Investasi Pemerintah (“PIP”), an agency of the Ministry of Finance, as the entity that will buy the final stake. On May 6, 2011, PIP and the foreign shareholders entered into a definitive agreement for the sale and purchase of the final 7% divestiture stake, subject to receipt of approvals from certain Indonesian government ministries. Subsequent to signing the agreement, a disagreement arose between the Ministry of Finance and the Indonesian parliament in regard to whether parliamentary approval was needed to allow PIP to make the share purchase. In July 2012, the Constitutional Court ruled that parliament approval is required for PIP to use state funds to purchase the shares, which approval has not yet been obtained. Further disputes may arise in regard to the divestiture of the 2010 shares.
Additionally, in September 2011, WALHI brought an administrative law claim against Indonesia’s Ministry of Environment to challenge the May 2011 renewal of PTNNT’s submarine tailings permit. PTNNT and the regional government of KSB (“KSB”) filed separate applications for intervention into the proceedings, both of which were accepted by the Administrative Court. KSB intervened on the side of WALHI, and PTNNT joined on the side of the Ministry of Environment. On April 3, 2012, the Administrative Court ruled in favor of the Ministry of Environment and PTNNT, finding that the Ministry of Environment properly renewed the permit in accordance with Indonesian law and regulations. WALHI appealed the verdict. On October 2, 2012, the High Administrative Law Court rejected WALHI’s appeal, after which WALHI filed a notice to appeal the case to the Supreme Court. On May 28, 2013, the Supreme Court of Indonesia updated its website to provide that WALHI’s appeal in this matter was rejected. The parties are still awaiting the written decision from the court. PTNNT will continue to defend its submarine tailings permit and is confident that the Ministry of Environment acted properly in renewing PTNNT’s permit.
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NWG Investments Inc. v. Fronteer Gold Inc.
In April 2011, Newmont acquired Fronteer Gold Inc. (“Fronteer”).
Fronteer acquired NewWest Gold Corporation (“NewWest Gold”) in September 2007. At the time of that acquisition, NWG Investments Inc. (“NWG”) owned approximately 86% of NewWest Gold and an individual named Jacob Safra owned or controlled 100% of NWG. Prior to its acquisition of NewWest Gold, Fronteer entered into a June 2007 lock-up agreement with NWG providing that, among other things, NWG would support Fronteer’s acquisition of NewWest Gold. At that time, Fronteer owned approximately 42% of Aurora Energy Resources Inc. (“Aurora”), which, among other things, had a uranium exploration project in Labrador, Canada.
NWG contends that, during the negotiations leading up to the lock-up agreement, Fronteer represented to NWG that Aurora would commence uranium mining in Labrador by 2013, that this was a firm date, that Fronteer was not aware of any obstacle to doing so, that Aurora faced no serious environmental issues in Labrador and that Aurora’s competitors faced greater delays in commencing uranium mining. NWG further contends that it entered into the lock-up agreement and agreed to support Fronteer’s acquisition of NewWest Gold in reliance upon these purported representations. On October 11, 2007, less than three weeks after the Fronteer-NewWest Gold transaction closed, a member of the Nunatsiavut Assembly introduced a motion calling for the adoption of a moratorium on uranium mining in Labrador. On April 8, 2008, the Nunatsiavut Assembly adopted a three-year moratorium on uranium mining in Labrador. NWG contends that Fronteer was aware during the negotiations of the NWG/Fronteer lock-up agreement that the Nunatsiavut Assembly planned on adopting this moratorium and that its adoption would preclude Aurora from commencing uranium mining by 2013, but Fronteer nonetheless fraudulently induced NWG to enter into the lock-up agreement.
On September 24, 2012, NWG served a summons and complaint on NMC, and then amended the complaint to add Newmont Canada Holdings ULC as a defendant. The complaint also named Fronteer Gold Inc and Mark O’Dea as defendants. The complaint sought rescission of the merger between Fronteer and NewWest Gold and $750 in damages. In August 2013 the Supreme Court of New York, New York County issued an order granting the defendants’ motion to dismiss on forum non conveniens. Subsequently, NWG filed a notice of appeal of the decision and then a notice of dismissal of the appeal on March 24, 2013.
On February 26, 2014, NWG filed a lawsuit in Ontario Superior Court of Justice against Fronteer Gold Inc., Newmont Mining Corporation, Newmont Canada Holdings ULC, Newmont FH B.V. and Mark O’Dea. The Ontario Complaint is based upon the same allegations contained in the New York lawsuit with claims for fraud and negligent misrepresentation. NWG seeks disgorgement of profits since the close of the NWG deal on September 24, 2007 and punitive damages.
Newmont intends to vigorously defend this matter, but cannot reasonably predict the outcome.
Other Commitments and Contingencies
Tax contingencies are provided for in accordance with ASC income tax guidance (see Note 8).
The Company has minimum royalty obligations on one of its producing mines in Nevada for the life of the mine. Amounts paid as a minimum royalty (where production royalties are less than the minimum obligation) in any year are recoverable in future years when the minimum royalty obligation is exceeded. Although the minimum royalty requirement may not be met in a particular year, the Company expects that over the mine life, gold production will be sufficient to meet the minimum royalty requirements. Minimum royalty payments payable are $30 in 2014, $34 in 2015 through 2018 and $323 thereafter.
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As part of its ongoing business and operations, the Company and its affiliates are required to provide surety bonds, bank letters of credit and bank guarantees as financial support for various purposes, including environmental reclamation, exploration permitting, workers compensation programs and other general corporate purposes. At March 31, 2014 and December 31, 2013, there were $1,803 and $1,807, respectively, of outstanding letters of credit, surety bonds and bank guarantees. The surety bonds, letters of credit and bank guarantees reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined in the market place. The obligations associated with these instruments are generally related to performance requirements that the Company addresses through its ongoing operations. As the specific requirements are met, the beneficiary of the associated instrument cancels and/or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure. Generally, bonding requirements associated with environmental regulation are becoming more restrictive. However, the Company believes it is in compliance with all applicable bonding obligations and will be able to satisfy future bonding requirements through existing or alternative means, as they arise.
Newmont is from time to time involved in various legal proceedings related to its business. Except in the above described proceedings, management does not believe that adverse decisions in any pending or threatened proceeding or that amounts that may be required to be paid by reason thereof will have a material adverse effect on the Company’s financial condition or results of operations.
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The following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont,” the “Company,” “our” and “we”). We use certain non-GAAP financial performance measures in our MD&A. For a detailed description of each of the non-GAAP financial measures used in this MD&A, please see the discussion under “Non-GAAP Financial Performance Measures” beginning on page 58. References to “A$” refer to Australian currency, “C$” to Canadian currency and “NZ$” to New Zealand currency.
This item should be read in conjunction with our interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this quarterly report. Additionally, the following discussion and analysis should be read in conjunction withManagement’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations and the consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2013 filed February 20, 2014.
Overview
Newmont is one of the world’s largest gold producers and is the only gold company included in the S&P 500 Index and the Fortune 500, and has been included in the Dow Jones Sustainability World Index for seven consecutive years. We have adopted the World Gold Council’s Conflict-Free Gold Policy. We are also engaged in the exploration for and acquisition of gold and gold/copper properties. We have significant operations and/or assets in the United States, Mexico, Peru, Australia, New Zealand, Indonesia, and Ghana.
Our vision is to be the most valued and respected mining company through industry leading performance. First quarter 2014 highlights are included below and discussed further in Results of Consolidated Operations.
Operating highlights
Our global project pipeline.
Approximately 90% of our consolidated capital expenditures in 2014 will be allocated to sustaining capital. Only projects that create value, lower costs and extend mine life, such as the Turf Vent Shaft in Nevada, will be implemented, in keeping with the strategy to strengthen the portfolio. We manage our wider project portfolio to maintain flexibility to address the development risks associated with our projects including permitting, local community and government support, engineering and procurement availability, technical issues, escalating costs and other associated risks that could adversely impact the timing and costs of certain opportunities.
Our opportunities in or near the Execution phase of development comprise a part of the Company’s growth strategy and include the Turf Ventilation Shaft project in Nevada, the Conga project in Peru, and potentially the Merian project in Suriname, as described further below.
Turf Vent Shaft, Nevada. The Turf No. 3 Vent Shaft Project is in the construction phase and is planned to achieve commercial production in late 2015. Capital costs for the project are estimated at approximately $400. The Turf No.3 Vent Shaft project provides the ventilation required to increase production, decrease mine costs, and to unlock an additional 3 million ounces of resource in greater Leeville over the 11 year mine life.
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Merian, Suriname. On February 19, 2014 we completed the acquisition of the remaining 20% minority interest in the Merian project. The Mineral and Partnership Agreements were signed by Newmont’s indirect subsidiary, Suriname Gold Company, LLC, and the Government of Suriname on November 22, 2013. The project feasibility study is now complete and subject to a final review process before being submitted to the Board of Directors for full funding consideration in the second quarter of 2014. If approved, the project will allow Newmont to pursue a new district with upside potential and the opportunity to grow and extend the operating life of the South American region. Initial estimated gold production (on a 100% basis) of 350,000 to 450,000 ounces is expected per year, once Merian comes into production. At December 31, 2013, we reported 3.4 million attributable ounces of gold reserves at Merian.
Conga, Peru. Due to local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian Central Government initiated Environmental Impact Assessment (“EIA”) independent review were announced on April 20, 2012 and confirmed our initial EIA met Peruvian and International standards. The review made recommendations to provide additional water capacity and social funds, which we have largely accepted. We announced our decision to move the project forward on a “water first” approach on June 22, 2012. We anticipate spending in 2014 to be approximately $80, focusing on building access roads and permitting work around the Perol water reservoir, and gaining further social acceptance for the project. Total property, plant and mine development was $1,615 at March 31, 2014. At December 31, 2013 we reported 6.4 million attributable ounces of gold reserves and 1,690 million attributable pounds of copper reserves at Conga. Construction of Conga and the implementation of the independent EIA review recommendations will continue provided it can be done in a safe manner with risk-adjusted returns that justify future investment. Should we be unable to continue with the current development plan at Conga, we may reprioritize and reallocate capital to other alternatives, which may result in a potential accounting impairment. See Item1A, Risk Factors in Newmont’s Annual Report on Form 10-K for the year ended December 31, 2013 filed February 20, 2014 for a description of political risks related to the project’s development.
We continue to advance earlier stage development assets through our project pipeline in our five operating regions. The exploration, construction and operation of these earlier stage development assets may require significant funding if they go into execution. Three of our top development prospects are described further below:
Long Canyon, Nevada. The project is in the definition stage of development and we continue to develop our understanding of Long Canyon and the district. We have submitted the Plan-of-Operations to the Bureau of Land Management in support of our Environmental Impact Statement (“EIS”) and continue to progress the exploration program. At December 31, 2013, we reported 1.0 million attributable ounces of gold reserves at Long Canyon. We anticipate the definition stage engineering and permitting to be completed by the end of 2014.
Subika Underground, Ghana. Subika Underground is in the selection stage of development as work continues to optimize the mine plan and reduce costs. The project is expected to produce approximately 200,000 ounces of gold per year and an investment decision is expected in late 2015 or 2016.
Ahafo Mill Expansion, Ghana. We continue to evaluate development alternatives for this project. Current engineering efforts are focused on reducing the scale of the project. The potential improved economics and feasibility of the project will be assessed by the end of 2014.
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Selected Financial and Operating Results
Per common share, basic:
Income from continuing operations attributable to Newmont stockholders
Adjusted net income (1)
Adjusted net income per share (1)
Consolidated gold ounces (thousands)
Produced
Sold(2)
Consolidated copper pounds (millions)
Sold
Consolidated copper tonnes (thousands)
Average price realized, net:
Gold (per ounce)
Copper (per pound)
Consolidated costs applicable to sales:(3)
Attributable costs applicable to sales:(1)
Operating margin(1)
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Consolidated Financial Results
Net income attributable to Newmont stockholders for the first quarter of 2014 was $100, or $0.20 per share, compared to $314, or $0.63 per share, for the first quarter of 2013. Results for the first quarter of 2014 compared to the first quarter of 2013 were impacted by lower average realized gold and copper prices and higher gold and copper unit costs partially offset by the gain on asset sales and higher gold sales.
Gold Sales decreased 19% in the first quarter of 2014 compared to the first quarter of 2013 due to lower average realized gold price partially offset by increased sales volume. The following analysis summarizes the changes in consolidated gold sales:
Consolidated gold sales:
Gross before provisional pricing
Provisional pricing mark-to-market
Gross after provisional pricing
Treatment and refining charges
Net
Consolidated gold ounces sold (thousands):
Average realized gold price (per ounce):
The change in consolidated gold sales is due to:
Change in consolidated ounces sold
Change in average realized gold price
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Copper Sales decreased 23% in the first quarter of 2014 compared to the first quarter of 2013 due to decreased sales volume and a lower average realized copper price. The following analysis summarizes the changes in consolidated copper sales:
Consolidated copper sales:
Consolidated copper pounds sold (millions):
Average realized copper price (per pound):
The change in consolidated copper sales is due to:
Change in consolidated pounds sold
Change in average realized copper price
Change in treatment and refining charges
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The following is a summary of consolidated gold and copper sales, net:
North America:
South America:
Australia/New Zealand:
Indonesia:
Africa:
Costs applicable to sales for gold increased in the first quarter of 2014 compared to the first quarter of 2013 due to the addition of Akyem as a new production site and planned stockpile and leach pad inventory adjustments. Costs applicable to sales for copper increased in the first quarter of 2014 compared to the first quarter of 2013 due to costs related to the new Phoenix copper leach facility and planned stockpile inventory adjustments at Boddington and Batu Hijau. For a complete discussion regarding variations in operations, see Results of Consolidated Operations below.
Amortization increased in the first quarter of 2014 compared to the first quarter of 2013 due largely to the portion of the planned stockpile and leach pad inventory adjustments as well as costs related to amortization at Akyem. We expect Amortization expense to be approximately $1,050 to $1,125 in 2014.
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The following is a summary of Costs applicable to sales and Amortization by operation:
Corporate and other
Exploration expense decreased $25, or 42% in the first quarter of 2014 compared to the first quarter of 2013 due to a decrease in both brownfields and greenfields expenditures in all our regions.
Advanced projects, research and development expense decreased $10, or 19% in the first quarter of 2014 compared to the first quarter of 2013 due to decreases in North America, primarily Carlin, South America, primarily Yanacocha and in Africa, primarily Ahafo.
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We expect combined Exploration and Advanced projects, research and developmentexpenses to be approximately $400 to $450 in 2014. Exploration expense will be focused primarily on Carlin underground and Long Canyon in North America, Yanacocha in South America, Ahafo and Subika in Africa and Tanami in Australia.Advanced projects, research and development expense will be focused primarily on Conga and Verde Bio Leach in South America, La Herradura and North Exodus in North America, Subika in Africa, and Merian in Suriname.
General and administrative expenses decreased $11 in the first quarter of 2014 compared to the first quarter of 2013 primarily due to decreases in salaries and benefits. We expect 2014 General and administrative expenses to be approximately $175 to $200.
Other expense, net was $52 and $100 for the three months ended March 31, 2014 and 2013, respectively. The decrease is mainly due to lower expenses for Community development and Regional administration and higher expenses in the first quarter of 2013 due to the TMAC transaction.
Other income, net was $46 and $26 for the three months ended March 31, 2014 and 2013, respectively. The increase is primarily related to the gain on the sale of Midas in the first quarter of 2014, partially offset by higher foreign currency exchange losses as well as lower dividend as a result of the sale of Canadian Oil Sands in 2013.
Interest expense, net increased by $28 in the first quarter of 2014 compared to the first quarter of 2013 due to decreased capitalized interest. Capitalized interest decreased from capital projects being completed at Akyem and Phoenix copper leach. We now expect 2014 Interest expense, net to be approximately $325 to $350.
Income and mining tax expense during the first quarter of 2014 was $78 resulting in an effective tax rate of 55%. Income and mining tax expense during the first quarter of 2013 was $180 for an effective tax rate of 33%. The effective tax rate in the first quarter of 2014 is different than the effective tax rate in the first quarter of 2013 primarily due to increased valuation allowances and non-cash expense related to the sale of the Midas mine. The effective tax rates in the first quarter of 2014 and 2013 are different from the United States statutory rate of 35% primarily due to valuation allowances, mining tax, U.S. percentage depletion and non-cash expense related to the sale of the Midas mine. For a complete discussion of the factors that influence our effective tax rate, see Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations in Newmont’s Annual Report on Form 10-K for the year ended December 31, 2013 filed February 20, 2014. We now expect the 2014 full year tax rate to be approximately 37% to 40%, assuming an average gold price of $1,300 per ounce for the remainder of the year. We anticipate continued rate volatility due to our sensitivity to gold price, margins and the jurisdictional blend of our income.
Net income attributable to noncontrolling interests decreased to $(52) in the first quarter of 2014 compared to $42 in the first quarter of 2013 as a result of decreased earnings at Minera Yanacocha and Batu Hijau, slightly offset by the TMAC transaction in March 2013.
Income (loss) from discontinued operations includes an increase in the Holt property royalty liability as of March 31, 2014. During the first quarter of 2014, we recorded a charge of $17, net of tax benefits of $8, related to an increase in the gold price, an increase in expected future production and a decrease in discount rates at quarter end. Due to the nature of the sliding scale royalty calculation, changes in expected production and the gold price have a significant impact on the fair value of the liability.
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Results of Consolidated Operations
Three Months Ended March 31,
Total/Weighted-Average
Attributable to Newmont(2)(3)
Net Attributable to Newmont(3)
Attributable to Newmont(3)
First quarter 2014 compared to 2013
Consolidated gold ounces produced increased 1% due to new production from Akyem in Africa, higher production at Tanami related to higher throughput and ore grade milled, and higher grade, throughput, and recovery at Kalgoorlie partially offset by lower production from Yanacocha. Consolidated copper pounds produced increased 18% due to higher production at Batu Hijau related to higher Phase 6 ore grades and production from the new Phoenix copper leach facility that reached commercial production in the fourth quarter of 2013.
Costs applicable to sales per consolidated gold ounce sold decreased 1% due to new production in Africa as well as higher production from Australia/New Zealand partially offset by planned leach pad inventory adjustments at Yanacocha as well as lower gold ounces sold from Batu Hijau. Costs applicable to sales per consolidated copper pound sold increased 19% due to the planned stockpile inventory adjustments at Boddington and Batu Hijau and lower copper pounds sold from Batu Hijau.
Amortizationper consolidated gold ounce sold increased 11% due to the portion of the planned stockpile and leach pad inventory adjustments related to amortization and lower ounces sold at Yanacocha and Batu Hijau. Amortization per consolidated copper pound sold increased 4% due to the planned stockpile inventory adjustments at Boddington and Batu Hijau and lower copper pounds sold from Batu Hijau.
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We continue to expect 2014 gold production of approximately 4.6 to 4.9 million attributable ounces at consolidated Costs applicable to sales per ounce of approximately $740 to $790 and 2014 copper production of approximately 160 to 175 million attributable pounds at consolidated Costs applicable to sales per pound of approximately $2.00 to $2.25.
North America Operations
La Herradura(2)(3)
Attributable to Newmont
Carlin, USA. Gold ounces produced decreased 1% due primarily to lower grades at Mill 6. Costs applicable to salesper ounce increased 4% due to planned stockpile and leach pad inventory adjustments partially offset by lower operating costs. Amortization per ounce increased 7% due to the portion of the planned stockpile and leach pad inventory adjustments related to amortization and higher underground production.
Phoenix, USA. Gold ounces produced increased 4% due to slightly higher grade at the Phoenix mill. Copper pounds produced increased 71% due to production from the Phoenix Copper Leach facility which was completed in the fourth quarter of 2013. Costs applicable to sales per ounce decreased 48% due to higher ounces sold and a higher allocation of costs to copper with the copper leach facility in production. Costs applicable to sales per pound decreased 25% due to higher copper pounds sold as a result of the new copper leach facility. Amortizationper ounce decreased 53% due to higher ounces sold and the higher allocation of costs to copper, as mentioned above. Amortization per pound decreased 56% due to higher copper pounds sold as a result of the new production from copper leach.
Twin Creeks, USA. Gold ounces produced decreased 3% due to lower production following the sale of Midas partially offset by higher mill throughput at the Autoclave. Costs applicable to sales per ounce decreased 1% due to higher ounces sold. Amortization per ounce decreased 44% per ounce due to lower amortization as a result of the Midas sale.
La Herradura, Mexico. Gold ounces produced decreased 49% due to the suspension of their explosives permit. Costs applicable to sales per ounce decreased 6% due to a decrease in stripping with the ramp up of production after receiving the explosives permit at the end of February partially offset by lower ounces sold. Amortization increased 203% due to lower mining activities from the suspension of the explosives permit with the same scheduled amortization of the truck fleet.
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We expect gold production in North America of approximately 1.6 to 1.7 million ounces atCosts applicable to sales per ounce of approximately $720 to $790 in 2014. We expect copper production in North America of approximately 15,000 to 25,000 tonnes at Costs applicable to sales of approximately $2.25 to $2.50 per pound in 2014.
South America Operations
Attributable to Newmont:
Yanacocha (51.35%)
La Zanja (46.94%)
Yanacocha, Peru. Gold ounces produced decreased 27% mainly due to planned lower gold production with increased stripping at El Tapado Oeste. Production is expected to increase in the second half of 2014 as mining returns to higher grade at the El Tapado Oeste pit. Costs applicable to sales per ounce increased 87% due to higher stripping costs to access higher grade ore in the second half of 2014, and planned leach pad inventory adjustments. Amortization per ounce increased 94% due to lower production as well as the portion of the planned leach pad inventory adjustments associated with amortization.
We expect consolidated gold production in South America of approximately 895,000 to 985,000 ounces (510,000 to 560,000 attributable ounces) at Costs applicable to sales per ounce of approximately $725 to $790 in 2014.
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Australia/New Zealand Operations
Boddington, Australia. Gold ounces produced decreased 2% and copper pounds produced decreased 6% primarily due to lower mill grade. Boddington realized record setting throughput levels this quarter due to the sustainable process improvements implemented with Full Potential. These benefits were partially offset by lower grades during the quarter. Costs applicable to salesdecreased 3% per ounce due a combination of lower mill maintenance costs and favorable foreign exchange rates. Costs applicable to sales increased 12% per pound primarily due to planned stockpile inventory adjustments.Amortization decreased 29% per ounce and decreased 20% per pound due to the asset impairment recorded in the second quarter of 2013.
Tanami, Australia. Gold ounces produced increased 40% due to higher grades from the Auron ore body and due to lower mining dilution from improved mining practices with improved mining rates from higher truck utilization and stope availability leading to higher tons mined. Costs applicable to sales decreased 45% per ounce due to higher production coupled with lower operating costs and favorable foreign exchange rates. Amortization decreased 21% per ounce due to higher production.
Jundee, Australia. Gold ounces produced decreased 17% primarily as a result of lower ore grade milled. Costs applicable to salesdecreased 6% per ounce due to lower underground mining costs and favorable foreign exchange rates partially offset by lower production. Amortization increased 29% per ounce due to lower production.
Waihi, New Zealand. Gold ounces produced decreased 10% due to lower ore grade milled and a build of in-circuit inventory partially offset by higher mill throughput. Costs applicable to sales decreased 18% per ounce due to lower underground mining costs. Amortization decreased 23% per ounce due to the stripping campaign in the prior year period.
Kalgoorlie, Australia. Gold ounces produced increased 15% due to higher milled ore grade and throughput. Costs applicable to sales decreased 17% per ounce and Amortization decreased 12% per ounce due to higher production.
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We expect consolidated gold production for Australia/New Zealand of approximately 1.6 to 1.7 million ounces at Costs applicable to sales per ounce of approximately $855 to $930 in 2014. We expect consolidated copper production for Australia/New Zealand to be approximately 25,000 to 35,000 tonnes at Costs applicable to sales per pound of approximately $2.50 to $2.80 in 2014.
Indonesia Operations
Attributable to Newmont(2)
Batu Hijau, Indonesia. Copper pounds and gold ounces produced increased 20% and 14%, respectively, due to higher ore grade as well as higher recovery partially offset by lower mill throughput. Costs applicable to sales per pound and per ounce increased 46% and 29%, respectively, due to planned stockpile inventory adjustments and lower pounds and ounces sold.Amortization per pound and per ounce increased 65% and 36%, respectively, due to lower copper and gold sales and the portion of the planned stockpile inventory adjustments related to amortization.
We expect consolidated gold production for Indonesia of approximately 135,000 to 150,000 ounces (60,000 to 65,000 attributable ounces) atCosts applicable to sales per ounce of approximately $630 to $690 in 2014. We expect consolidated copper production for Indonesia to be approximately 110,000 to 125,000 tonnes (45,000 to 55,000 attributable tonnes) at Costs applicable to sales per pound of approximately $1.75 to $2.00 in 2014.
In January 2014, the Indonesian government issued new regulations for the export of copper concentrate that contain potentially restrictive conditions for obtaining an export permit, as well as a significant, progressive export duty. While the 2009 mining law preserves the validity of PTNNT’s Contract of Work (the investment agreement entered into by PTNNT and the Indonesian government in 1986, which includes the right to export copper concentrates and a prohibition against new taxes, duties, and levies), the Indonesian government has stated its intention to enforce the new regulations on PTNNT’s operations and has not yet recognized PTNNT’s rights to export copper concentrate and only pay the taxes, duties, and levies specified in the Contract of Work. The Company believes that these new 2014 regulations conflict with the Contract of Work. Although PTNNT is continuing to engage with government officials in Indonesia in an effort to resolve this issue and gain clarity on implementation of the new regulations, while also considering other remedies, including possible legal action, the Company can make no assurances that the new regulations will not impact operations or outlook. In April 2014, PTNNT received the required approval as a registered exporter from the Ministry of Trade and continues working through the process and engaging with the government to secure the newly required export permit. At this time, operations continue at Batu Hijau. However, to the extent there are continued delays in obtaining approvals for 2014 exports, PTNNT will implement contingency plans to scale back production taking into consideration copper concentrate storage capacity and in-country smelter availability, which would impact the Company’s ability to achieve its outlook. For a discussion of factors which could impact future financial performance and operating results in Indonesia, see Item 1A, under the heading “Risk Factors,” of the Company’s Form 10-K, filed on February 21, 2014.
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Africa Operations
Total / Weighted Average
Ahafo, Ghana. Gold ounces produced decreased 16% due to lower mill grade and throughput. Costs applicable to sales andAmortization per ounce was in line with prior year.
Akyem, Ghana. Gold ounces produced of 120,000, Costs applicable to sales per ounce of $311, and Amortization per ounce of $175 are due to the commencement of commercial production in the fourth quarter of 2013.
As a result of mine plan optimization at the Ahafo operation in Africa, the Company is increasing production outlook from between 785,000 to 850,000 ounces to between 790,000 to 870,000 ounces. In addition to the mine plan optimization work at Ahafo, the Akyem operation is also realizing lower input and labor costs and consequently, the Company is reducing Africa regional Costs applicable to sales from between $575 to $625 per ounce to between $510 to $555 per ounce in 2014.
Foreign Currency Exchange Rates
Our foreign operations sell their gold and copper production based on U.S. dollar metal prices. Approximately 39% and 49% of our Costs applicable to sales were paid in local currencies during the first quarter of 2014 and 2013, respectively. Variations in the local currency exchange rates in relation to the U.S. dollar at our foreign mining operations increased consolidated Costs applicable to sales per ounce by approximately $39, net of hedging gains and losses, during the first quarter of 2014 as compared to the first quarter of 2013.
Liquidity and Capital Resources
Cash Provided from Operating Activities
Net cash provided from continuing operations was $183 in the first quarter of 2014, a decrease of $256 from the first quarter of 2013, primarily due to lower average realized gold price and a net increase in operating assets and liabilities. The increase in net operating assets and liabilities of $63 in the first quarter of 2014 compared to the first quarter of 2013 is due to increase in accounts receivable and other assets and decrease in accounts payable and other accrued liabilities.
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Investing Activities
Net cash used in investing activities decreased to $178 during the first quarter of 2014 compared to $507 during the same period of 2013, respectively. Additions to property, plant and mine development were as follows:
Accrual basis
Decrease (increase) in accrued capital expenditures
Cash basis
Capital expenditures in North America during the first quarter of 2014 primarily related to the development of the Turf Vent Shaft project, surface and underground mine development, infrastructure improvements and capitalized component purchases in Nevada, as well as mill construction capital in Mexico. Capital expenditures in South America were primarily related to the Conga project, surface mine development, infrastructure improvements and equipment component purchases. The majority of capital expenditures in Australia and New Zealand were for underground mine development, tailings and support facility construction and mining equipment purchases. Capital expenditures in Batu Hijau were primarily for equipment and equipment component purchases. Capital expenditures in Africa were related to tailings facility construction using waste material, capitalized component purchases for large equipment and mining and support equipment purchases. We expect 2014 consolidated capital expenditures to be $1,300 to $1,400.
Capital expenditures in North America during the first quarter of 2013 were primarily related to the construction of the Phoenix Copper Leach project, the development of the Turf Vent Shaft project, surface and underground mine development in both Nevada and Mexico and infrastructure improvements in Nevada. Capital expenditures in South America were primarily related to the Conga project, surface mine development and equipment purchases. The majority of capital expenditures in Australia and New Zealand were for underground mine development, tailings facility construction, mining equipment purchases and infrastructure improvements. Capital expenditures in Indonesia were primarily for equipment and equipment component purchases and infrastructure improvements. Capital expenditures in Africa were primarily related to Akyem development and the Subika expansion project, equipment purchases and surface mine development at Ahafo. Capital expenditures in Corporate were primarily related to the Merian project.
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Acquisitions, net. During the first quarter of 2014 we purchased the remaining 20% noncontrolling interest in the Merian project. During the first quarter of 2013 we paid $8 in contingent payments in accordance with the 2009 Boddington acquisition agreement.
Proceeds from the sale of marketable securities. During the first quarter of 2014 we received $25 primarily from the sale of Paladin securities.
Purchases of marketable securities. During the first quarter of 2014 and 2013 we purchased $1 and $1, respectively, of marketable equity securities.
Proceeds from sale of other assets. During the first quarter of 2014, we received $70, of which, $57 was from the Midas sale and $13 primarily from the sale of equipment at Conga. During the first quarter of 2013 we received $25 primarily from the sale of equipment at Conga.
Financing Activities
Net cash provided from (used in) financing activities was $(80) and $(105) during the first quarter of 2014 and 2013, respectively.
Proceeds from and repayment of debt. During the first quarter of 2014, we received net proceeds from debt of $3 from our other short-term debt. During the first quarter of 2013, we received net proceeds from debt of $80, from the PTNNT revolving credit facility. At March 31, 2014, $168 of the $3,000 Corporate revolving credit facility were used to secure the issuance of letters of credit, primarily supporting reclamation obligations (see “Off-Balance Sheet Arrangements” below).
Scheduled minimum debt repayments are $623 for the remainder of 2014, $161 in 2015, $221 in 2016, $771 in 2017, $1 in 2018 and $5,105 thereafter. We expect to be able to fund debt maturities and capital expenditures from Net cash provided by operating activities, short-term investments, existing cash balances and available credit facilities.
At March 31, 2014 and 2013, we were in compliance with all required debt covenants and other restrictions related to debt agreements.
Proceeds from stock issuance, net. We received proceeds of $1 during the first quarter of 2013, from the issuance of common stock, primarily related to employee stock sales and option exercises.
Sale of noncontrolling interests. We received $32 in proceeds, net of transaction costs, during the first quarter of 2013 related to the TMAC transaction.
Acquisition of noncontrolling interests. In the first quarter of 2014 and 2013, we advanced certain funds to PTPI, an unrelated noncontrolling shareholder of PTNNT, in accordance with a loan agreement. Our economic interest in PTNNT did not change as a result of these transactions.
Dividends paid to common stockholders. We declared regular quarterly dividends totaling $0.15 and $0.425 per common share for the three months ended March 31, 2014 and 2013, respectively. Additionally, Newmont Mining Corporation of Canada Limited, a subsidiary of the Company, declared regular quarterly dividends on its exchangeable shares totaling C$0.4319 through March 31, 2013. We paid dividends of $77 and $211 to common stockholders in the first quarter of 2014 and 2013, respectively.
Net operating cash used in discontinued operations was $3 and $6 in the first quarter of 2014 and 2013, respectively, related to payments on the Holt property royalty.
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Off-Balance Sheet Arrangements
We have the following off-balance sheet arrangements: operating leases (as discussed in Note 28 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 20, 2014) and $1,803 of outstanding letters of credit, surety bonds and bank guarantees (see Note 26 to the Condensed Consolidated Financial Statements).
We also have sales agreements to sell copper and gold concentrates at market prices as follows (in thousands of tons):
Other Liquidity Matters
At March 31, 2014, the Company had $1,475 in cash and cash equivalents, of which $1,129 was held in foreign subsidiaries and is primarily held in U.S. dollar denominated accounts with the remainder in foreign currencies readily convertible to U.S. dollars. At March 31, 2014, $395 of the consolidated cash and cash equivalents was attributable to noncontrolling interests primarily related to our Indonesian and Peruvian operations which is being held to fund those operations and development projects. At March 31, 2014, $273 in consolidated cash and cash equivalents ($161 attributable to Newmont) was held at certain foreign subsidiaries that, if repatriated may be subject to withholding taxes, which would generate foreign tax credits in the U.S. As a result, we expect that there would be minimal U.S. tax liability upon repatriation of these amounts after considering available foreign tax credits. All other amounts represent earnings that are taxed in the U.S. on a current basis due to being held in U.S. subsidiaries or non-U.S. subsidiaries that are flow-through entities for U.S. tax purposes.
We believe that our liquidity and capital resources from U.S. operations and flow-through foreign subsidiaries are adequate to fund our U.S. operations and corporate activities.
Environmental
Our mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. At March 31, 2014 and December 31, 2013, $1,441 and $1,432, respectively, were accrued for reclamation costs relating to currently or recently producing mineral properties.
In addition, we are involved in several matters concerning environmental obligations associated with former mining activities. Based upon our best estimate of our liability for these matters, $174 and $179 were accrued for such obligations at March 31, 2014 and December 31, 2013, respectively. We spent $5 and $4 during the first quarter of 2014 and 2013, respectively, for environmental obligations related to the former, primarily historic, mining activities and have classified $32 as a current liability at March 31, 2014.
During the first quarter of 2014 and 2013, capital expenditures were approximately $15 and $20, respectively, to comply with environmental regulations. Ongoing costs to comply with environmental regulations have not been a significant component of operating costs.
For more information on the Company’s reclamation and remediation liabilities, see Notes 5 and 26 to the Condensed Consolidated Financial Statements.
Accounting Developments
For a discussion of Recently Adopted and Recently Issued Accounting Pronouncements, see Note 3 to the Condensed Consolidated Financial Statements.
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Non-GAAP Financial Measures
Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles (“GAAP”). These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Adjusted net income
Management of the Company uses Adjusted net income to evaluate the Company’s operating performance, and for planning and forecasting future business operations. The Company believes the use of Adjusted net income allows investors and analysts to compare results of the continuing operations of the Company and its direct and indirect subsidiaries relating to the production and sale of minerals to similar operating results of other mining companies, by excluding exceptional or unusual items. Management’s determination of the components of Adjusted net income are evaluated periodically and based, in part, on a review of non-GAAP financial measures used by mining industry analysts. Net income attributable to Newmont stockholders is reconciled to Adjusted net income as follows:
Discontinued operations loss
Impairments
Gain on asset sales
TMAC transaction costs
Adjusted net income per share, basic
Adjusted net income per share, diluted
Costs applicable to sales per ounce/pound
Costs applicable to sales per ounce/pound are non-GAAP financial measures. These measures are calculated by dividing the costs applicable to sales of gold and copper by gold ounces or copper pounds sold, respectively. These measures are calculated on a consistent basis for the periods presented on both a consolidated and attributable to Newmont basis. Attributable costs applicable to sales are based on our economic interest in production from our mines. For operations where we hold less than a 100% economic share in the production, we exclude the share of gold or copper production attributable to the noncontrolling interest. We include attributable costs applicable to sales per ounce/pound to provide management, investors and analysts with information with which to compare our performance to other gold producers. Costs applicable to sales per ounce/pound statistics are intended to provide additional information only and do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. Other companies may calculate these measures differently.
Net attributable costs applicable to sales per ounce measures the benefit of copper produced in conjunction with gold, as a credit against the cost of producing gold. A number of other gold producers present their costs net of the contribution from copper and other non-gold sales. We believe that including a measure on this basis provides management, investors and analysts with information with which to compare our performance to other gold producers, and to better assess the overall performance of our business. In addition, this measure provides information to enable investors and analysts to understand the importance of non-gold revenues to our cost structure.
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The following tables reconcile these non-GAAP measures to the most directly comparable GAAP measures.
Costs applicable to sales:
Consolidated per financial statements
Noncontrolling interests(1)
Gold/Copper sold (thousand ounces/million pounds):
Costs applicable to sales per ounce/pound:
Net attributable costs applicable to sales per ounce
Attributable costs applicable to sales:
Copper revenue:
Net attributable costs applicable to sales
Attributable gold ounces sold (thousands)
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All-In Sustaining Costs
Newmont has worked to develop a metric that expands on GAAP measures such as cost of goods sold and non-GAAP measures to provide visibility into the economics of our mining operations related to expenditures, operating performance and the ability to generate cash flow from operations.
Current GAAP-measures used in the mining industry, such as cost of goods sold, do not capture all of the expenditures incurred to discover, develop, and sustain gold production. Therefore, we believe that All-in sustaining costs and attributable All-in sustaining costs are non-GAAP measures that provide additional information to management, investors, and analysts that aid in the understanding of the economics of our operations and performance compared to other producers and in the investor’s visibility by better defining the total costs associated with production.
All-in sustaining cost (“AISC”) amounts are intended to provide additional information only and do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. Other companies may calculate these measures differently as a result of differences in the underlying accounting principles, policies applied and in accounting frameworks such as in International Financial Reporting Standards (“IFRS”), or by reflecting the benefit from selling non-gold metals as a reduction to AISC. Differences may also arise related to definitional differences of sustaining versus development capital activities based upon each company’s internal policies.
The following disclosure provides information regarding the adjustments made in determining the All-in sustaining costs measure:
Cost Applicable to Sales—Includes all direct and indirect costs related to current production incurred to execute the current mine plan. Costs Applicable to Sales (“CAS”) includes by-product credits from certain metals obtained during the process of extracting and processing the primary ore-body. CAS is accounted for on an accrual basis and excludes Amortization and Reclamation and remediation, which is consistent with our presentation of CAS on the Condensed Consolidated Statements of Income. In determining All-in sustaining costs, only the CAS associated with producing and selling an ounce of gold or a pound of copper is included in the measure. Therefore, the amount of CAS included in AISC is derived from the CAS presented in the Company’s Condensed Consolidated Statements of Income. The allocation of CAS between gold and copper at the Phoenix, Boddington, and Batu Hijau mines is based upon the relative sales percentage of copper and gold sold during the period.
Remediation Costs—Includes accretion expense related to asset retirement obligations (“ARO”) and the amortization of the related Asset Retirement Cost (“ARC”) for the Company’s operating properties recorded as an ARC asset. Accretion related to ARO and the amortization of the ARC assets for reclamation and remediation do not reflect annual cash outflows but are calculated in accordance with GAAP. The accretion and amortization reflect the periodic costs of reclamation and remediation associated with current gold production and are therefore included in the measure. The allocation of these costs to gold and copper is determined using the same allocation used in the allocation of CAS between gold and copper at the Phoenix, Boddington, and Batu Hijau mines.
Advanced Projects and Exploration—Includes incurred expenses related to projects that are designed to increase or enhance current gold production and gold exploration. We note that as current resources are depleted, exploration and advance projects are necessary for us to replace the depleting reserves or enhance the recovery and processing of the current reserves. As this relates to sustaining our gold production, and is considered a continuing cost of a mining company, these costs are included in the AISC measure. These costs are derived from the Advanced projects, research and development andExploration amounts presented in the Company’s Condensed Consolidated Statements of Income. The allocation of these costs to gold and copper is determined using the same allocation used in the allocation of CAS between gold and copper at the Phoenix, Boddington, and Batu Hijau mines.
General and Administrative—Includes cost related to administrative tasks not directly related to current gold production, but rather related to support our corporate structure and fulfilling our obligations to operate as a public company. Including these expenses in the AISC metric provides visibility of the impact that general and administrative activities have on current operations and profitability on a per ounce basis.
Other Expense, net—Includes costs related to regional administration and community development to support current production. We exclude certain exceptional or unusual expenses from Other expense, net, such as restructuring, as these are not indicative to sustaining our current operations. Furthermore, this adjustment to Other expense, net is also consistent with the nature of the adjustments made to Net income (loss) as disclosed in the Company’s non-GAAP financial measure Adjusted net income (loss). The allocation of these costs to gold and copper is determined using the same allocation used in the allocation of CAS between gold and copper at the Phoenix, Boddington, and Batu Hijau mines.
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Treatment and Refining Costs—Includes costs paid to smelters for treatment and refining of our concentrates to produce the salable precious metal. These costs are presented net as a reduction of Sales.
Sustaining Capital—We determined sustaining capital as those capital expenditures that are necessary to maintain current gold production and execute the current mine plan. Capital expenditures to develop new operations, or related to projects at existing operations where these projects will enhance gold production or reserves, are considered development. We determined the breakout of sustaining and development capital costs based on a systematic review of our project portfolio in light of the nature of each project. Sustaining capital costs are relevant to the AISC metric as these are needed to maintain the Company’s current gold operations and provide improved transparency related to our ability to finance these expenditures from current operations. The allocation of these costs to gold and copper is determined using the same allocation used in the allocation of CAS between gold and copper at the Phoenix, Boddington, and Batu Hijau mines.
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Ounces(000)/
Pounds
GOLD
Total Gold
COPPER
Total Copper
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Operating margin per ounce/pound
Operating margin per ounce/pound are non-GAAP financial measures. These measures are calculated by subtracting the costs applicable to sales per ounce of gold and per pound of copper from the average realized gold price per ounce and copper price per pound, respectively. These measures are calculated on a consistent basis for the periods presented on a consolidated basis. Operating margin per ounce/pound statistics are intended to provide additional information only and do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. Other companies may calculate these measures differently. Operating margin per ounce/pound is calculated as follows:
Average realized price per ounce/pound
Safe Harbor Statement
Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided for under these sections. Our forward-looking statements include, without limitation: (a) statements regarding future earnings, and the sensitivity of earnings to gold and other metal prices; (b) estimates of future mineral production and sales for specific operations and on a consolidated basis; (c) estimates of future production costs and other expenses, for specific operations and on a consolidated basis; (d) estimates of future cash flows and the sensitivity of cash flows to gold and other metal prices; (e) estimates of future capital expenditures and other cash needs for specific operations and on a consolidated basis and expectations as to the funding thereof; (f) statements as to the projected development of certain ore deposits, including estimates of development and other capital costs, financing plans for these deposits, and expected production commencement dates; (g) estimates of future costs and other liabilities for certain environmental matters; (h) estimates of reserves, and statements regarding future exploration results and reserve replacement; (i) statements regarding modifications to Newmont’s hedge positions; (j) statements regarding future transactions relating to portfolio management or rationalization efforts; and (k) projected synergies and costs associated with acquisitions and related matters.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. Important factors that could cause actual results to differ materially from such forward-looking statements (“cautionary statements”) are disclosed under “Risk Factors” in the Newmont Annual Report on Form 10-K for the year ended December 31, 2013, as well as in other filings with the Securities and Exchange Commission. Many of these factors are beyond Newmont’s ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.
All subsequent written and oral forward-looking statements attributable to Newmont or to persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Newmont disclaims any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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Metal Prices
Changes in the market price of gold significantly affect our profitability and cash flow. Gold prices can fluctuate widely due to numerous factors, such as demand; forward selling by producers; central bank sales, purchases and lending; investor sentiment; the strength of the U.S. dollar; inflation, deflation, or other general price instability; and global mine production levels. Changes in the market price of copper also affect our profitability and cash flow. Copper is traded on established international exchanges and copper prices generally reflect market supply and demand, but can also be influenced by speculative trading in the commodity or by currency exchange rates.
Decreases in the market price of gold and copper can also significantly affect the value of our product inventory and stockpiles and it may be necessary to record a write-down to the net realizable value (“NRV”). NRV represents the estimated future sales price based on short-term and long-term metals prices, less estimated costs to complete production and bring the product to sale. The primary factors that influence the need to record write-downs of stockpiles and product inventory include short-term and long-term metals prices and costs for production inputs such as labor, fuel and energy, materials and supplies, as well as realized ore grades and recovery rates. The significant assumptions in determining the stockpile NRV for each mine site reporting unit at March 31, 2014 included production cost and capitalized expenditure assumptions unique to each operation, a long-term gold price of $1,300 per ounce, a long-term copper price of $3.00 per pound and an Australian to U.S. dollar exchange rate of $ 0.920.
The NRV measurement involves the use of estimates and assumptions unique to each mining operation regarding current and future operating and capital costs, metal recoveries, production levels, commodity prices, proven and probable reserve quantities, engineering data and other factors. A high degree of judgment is involved in determining such assumptions and estimates and no assurance can be given that actual results will not differ significantly from those estimates and assumptions.
Hedging
Our strategy is to provide shareholders with leverage to changes in gold and copper prices by selling our production at spot market prices. Consequently, we do not hedge our gold and copper sales. We have and will continue to manage certain risks associated with commodity input costs, interest rates and foreign currencies using the derivative market.
By using derivatives, we are affected by credit risk, market risk and market liquidity risk. Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. We mitigate credit risk by entering into derivatives with high credit quality counterparties, limiting the amount of exposure to each counterparty, and monitoring the financial condition of the counterparties. Market risk is the risk that the fair value of a derivative might be adversely affected by a change in underlying commodity prices, interest rates, or currency exchange rates, and that this in turn affects our financial condition. We manage market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We mitigate this potential risk to our financial condition by establishing trading agreements with counterparties under which we are not required to post any collateral or make any margin calls on our derivatives. Our counterparties cannot require settlement solely because of an adverse change in the fair value of a derivative. Market liquidity risk is the risk that a derivative cannot be eliminated quickly, by either liquidating it or by establishing an offsetting position. Under the terms of our trading agreements, counterparties cannot require us to immediately settle outstanding derivatives, except upon the occurrence of customary events of default such as covenant breaches, including financial covenants, insolvency or bankruptcy. We further mitigate market liquidity risk by spreading out the maturity of our derivatives over time.
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Foreign Currency Exchange Risk
We had the following foreign currency derivative contracts outstanding at March 31, 2014:
The fair value of the A$ foreign currency operating derivative contracts was a net liability position of $58 at March 31, 2014 and $96 at December 31, 2013. The fair value of the NZ$ foreign currency derivative contracts was a net asset position of $5 at March 31, 2014 and $1 at December 31, 2013.
Diesel Price Risk
We had the following diesel derivative contracts outstanding at March 31, 2014:
The fair value of the diesel derivative contracts was nil at March 31, 2014 and a net asset position of $4 at December 31, 2013.
Commodity Price Risk
Our provisional copper and gold sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the gold and copper concentrates at the prevailing indices’ prices at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to final settlement.
London Metal Exchange (“LME”) copper prices averaged $3.19 per pound during the first quarter of 2014, compared with our recorded average provisional price of $3.12 per pound before mark-to-market adjustments and treatment and refining charges. During the first quarter of 2014, changes in copper prices resulted in a provisional pricing mark-to-market loss of $17 ($0.37 per pound). At March 31, 2014, we had copper sales of 63 million pounds priced at an average of $3.02 per pound, subject to final pricing over the next several months. Each $0.10 change in the price for provisionally priced sales would have an approximate $3 effect on our Net income attributable to Newmont stockholders.
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The average London P.M. fix for gold was $1,293 per ounce during the first quarter of 2014, compared with our recorded average provisional price of $1,292 per ounce before mark-to-market adjustments and treatment and refining charges. During the first quarter of 2014, changes in gold prices resulted in a provisional pricing mark-to-market gain of $4 ($4 per ounce). At March 31, 2014, we had gold sales of 130,000 ounces priced at an average of $1,295 per ounce, subject to final pricing over the next several months. Each $25 change in the price for provisionally priced gold sales would have an approximate $2 effect on our Net income attributable to Newmont stockholders.
During the fiscal period covered by this report, the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in its reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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PART II—OTHER INFORMATION
Information regarding legal proceedings is contained in Note 26 to the Condensed Consolidated Financial Statements contained in this Report and is incorporated herein by reference.
There were no material changes to the risk factors disclosed in Item 1A of Part 1 in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on February 20, 2014.
Period
January 1, 2014 through January 31, 2014
February 1, 2014 through February 28, 2014
March 1, 2014 through March 31, 2014
None.
At Newmont, safety is a core value and we strive for superior performance. Our health and safety management system, which includes detailed standards and procedures for safe production, addresses topics such as employee training, risk management, workplace inspection, emergency response, accident investigation and program auditing. In addition to strong leadership and involvement from all levels of the organization, these programs and procedures form the cornerstone of safety at Newmont, ensuring that employees are provided a safe and healthy environment and are intended to reduce workplace accidents, incidents and losses, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.
In addition, we have established our “Rapid Response” process to mitigate and prevent the escalation of adverse consequences if existing risk management controls fail, particularly if an incident may have the potential to seriously impact the safety of employees, the community or the environment. This process provides appropriate support to an affected site to complement their technical response to an incident, so as to reduce the impact by considering the environmental, strategic, legal, financial and public image aspects of the incident, to ensure communications are being carried out in accordance with legal and ethical requirements and to identify actions in addition to those addressing the immediate hazards.
The operation of our U.S. based mines is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Following passage of The Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the numbers of citations and orders charged against mining operations. The dollar penalties assessed for citations issued has also increased in recent years.
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Newmont is required to report certain mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, and that required information is included in Exhibit 95 and is incorporated by reference into this Quarterly Report.
Compensatory Arrangements of Certain Officers.
On April 23, 2014, the Board of Directors amended the Newmont Senior Executive Compensation Program of Newmont and the Newmont Strategic Stock Unit Bonus Program for Grades E-5 to E-6 to address the treatment of the strategic stock unit bonus in the event of a change of control. The amended plans provide that upon a change of control the strategic stock unit bonus shall convert to restricted stock units at target level with a vesting period for the remainder of the one year performance period and the following two years. Additionally, the Board amended the Newmont Senior Executive Compensation Program of Newmont to address the treatment of the performance leveraged stock unit bonus in the first year of the three year performance period in the event of a change in control, to align it with the treatment of performance leveraged stock unit bonuses in years two and three of the performance period. Specifically, in the event of a change of control the performance leveraged stock unit bonuses for all years (previously the program excluded the performance leveraged stock unit bonus in the first year) shall be determined using the change in control price with a pro-rata actual payout immediately delivered in common stock for the percentage of the three year performance period that has elapsed and the remainder of the performance leveraged stock unit bonus converting to restricted stock units that shall cliff vest at the end of the three year performance period. Finally, the Board amended the Newmont Section 16 Officer and Senior Executive Annual Incentive Compensation Program to provide that upon a upon a change of control, each eligible employee shall become entitled to the payment of a target annual bonus if a change of control occurs between September 1 and December 31, and pro-rata target bonus if a change of control occurs between January 1 and August 31.
Amendment to the Registrant’s Code of Ethics.
On April 23, 2014, our Board approved a new Code of Conduct, which will be made available on www.newmont.com under the Investor Relations/Governance section. It provides clear guidance on the behaviors Newmont employees and those engaged in activities on our behalf must demonstrate at all times. Our Board and executive leadership are committed to making sure Newmont is a leader in how we conduct ourselves. Through strong ethical business practices and strict compliance with the law, we generate sustainable value for all our stakeholders.
(a) The exhibits to this report are listed in the Exhibit Index.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
/s/ LAURIE BRLAS
Laurie Brlas
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ CHRISTOPHER S. HOWSON
Christopher S. Howson
Vice President and Controller
(Principal Accounting Officer)
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Exhibit
Number
71
72