01—Abstract
Summary
Summary of the 10-K filed February 19, 2009. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining's 2008 Form 10-K (filed February 19, 2009) shows a company in transition: record-level gold price realizations offset rising costs, a weaker copper segment, and a heavy capital program.
Revenues rose 12% to $6,199 million and net income swung to $853 milliona from a $1,886 million loss in 2007, which had been driven by goodwill write-downs. Income from continuing operations was $829 million. Gold sales were 6.3 million ounces at an average net realized price of $874 per ounce, while costs applicable to sales rose to $440 per ounce from $389, reflecting higher diesel, labor, and royalty costs.
Balance sheet and liquidity deserve close attention. Total debt rose to $3,542 millionb from $2,938 million, and cash fell to $435 million from $1,231 million as capital expenditures reached $1,875 million, largely for the Boddington project. Shareholder equity declined to $7,102 million after a $1,210 million hit to other comprehensive income from falling equity markets and currency moves.
Management guided to 2009 gold sales of 6.35 to 6.85 million ounces and capital spending of $1,400 to $1,600 millionc, and noted that investing and financing outflows are expected to exceed operating cash flow. Subsequent events are material.
In February 2009 Newmont raised about $1.7 billiond through convertible notes and common equity, and it agreed to buy AngloGold Ashanti's 33.33% stake in Boddington for $750 million cash plus contingent payments. Key risks include the Indonesian Batu Hijau contract-of-work arbitration, which could curtail mining rights, a pending forest-use permit, the Midnite CERCLA litigation, and pension underfunding after 2008 market declines.
02—Key points
Key Highlights
- Revenue rose 12% to $6,199 million, with gold sales of $5,447 million and copper sales of $752 million, down from $1,221 million in 2007.
- Net income was $853 million ($1.87 diluted EPS), versus a $1,886 million net loss in 2007 that included a $1,122 million goodwill write-down and a $1,665 million Merchant Banking charge.
- Average realized gold price was $874 per ounce, up from $697; costs applicable to sales rose to $440 per ounce from $389.
- Cash fell to $435 million from $1,231 million, and total debt rose to $3,542 million from $2,938 million, after $1,875 million of capital expenditures.
- Subsequent to year-end, Newmont completed about $1.7 billion of equity and convertible note offerings and agreed to acquire the remaining 33.33% of Boddington for $750 million cash plus up to $340 million in deferred or contingent consideration.
- The Batu Hijau contract-of-work dispute with the Indonesian government, which could terminate or curtail PTNNT's mining rights, is in international arbitration with a ruling expected in the first half of 2009.
- Dividends were $0.40 per share, and the Board declared a $0.10 quarterly dividend in February 2009; shareholders' equity fell to $7,102 million after a $1,210 million decline in other comprehensive income.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 19, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| R&D Expenses | $166.00M$62.00M | +167.7% |
| Operating Expenses | $4.82B$5.84B | −17.4% |
| Operating Income | $816.00M-$988.00M | +182.6% |
| Interest Expense | $135.00M$118.00M | +14.4% |
| Net Income | $831.00M-$1.90B | +143.9% |
| EPS (Basic) | $1.83— | — |
| EPS (Diluted) | $1.83— | — |
| Shares Outstanding (Basic) | 454.00M— | — |
| Shares Outstanding (Diluted) | 455.00M— | — |
05—Questions
Frequently Asked Questions
Why did Newmont swing from a large loss in 2007 to a profit in 2008?
The 2007 loss was driven largely by non-cash charges: a $1,122 million write-down of Exploration Segment goodwill, a $1,665 million impairment tied to ceasing Merchant Banking activities, and a $531 million loss on settling price-capped forward sales. In 2008 none of those charges recurred, and the higher realized gold price ($874 per ounce versus $697) lifted earnings, partly offset by higher operating costs and a $251 million write-down of marketable securities.
How strong is Newmont's balance sheet and liquidity after the 2008 capital program?
Liquidity weakened during 2008. Cash declined to $435 million, debt rose to $3,542 million, and the company drew $757 million on its $2,000 million revolver. Management expects investing and financing outflows to exceed operating cash flow in coming years. The February 2009 offerings, roughly $1.7 billion gross, were designed to fund Boddington and other projects and to protect the investment-grade rating, which S&P rated BBB+ with a negative outlook.
What are the biggest operational risks for the Batu Hijau mine?
Batu Hijau faces three overlapping risks. The Indonesian government alleges PTNNT breached divestiture obligations under the Contract of Work and has threatened termination, with arbitration pending and a ruling expected in 2009. A forest-use (Pinjam Pakai) permit extension has not been received, which has already affected the mine plan. Finally, the share-pledge dispute with senior lenders is being resolved in the same arbitration. Batu Hijau's 2008 copper output fell to 285 million pounds from 484 million, reflecting lower grades and recoveries.
What does the Boddington acquisition mean for Newmont's production outlook?
Acquiring AngloGold's 33.33% stake would give Newmont 100% of Boddington, a project about 89% complete at year-end 2008, with mill start-up expected in mid-2009. Newmont estimates it would add about 6.7 million equity ounces to reserves. Management expects Boddington to lower costs applicable to sales and drive 2009 gold sales of 6.35 to 6.85 million ounces. Completion depends on regulatory approvals, including Australia's Foreign Investment Review Board, and there is no assurance the deal will close.
What is the outlook for 2009 costs and earnings?
Management guides to 2009 gold costs applicable to sales of $400 to $440 per ounce, down from $440 in 2008, driven by Boddington's start-up and lower oil and Australian dollar assumptions. Copper costs are expected at $0.65 to $0.75 per pound. Amortization is expected to rise to $775 to $825 million, interest expense to $150 to $160 million, and the effective tax rate to 28% to 32%. Exploration spending is expected to fall to $165 to $175 million, and the company says results may differ significantly from these expectations.
06—Continue