01—Abstract
Summary
Summary of the 10-K filed February 25, 2010. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining Corporation (NYSE: NEM) closed 2009 as a stronger, more heavily capitalized company.
Revenues rose 26% to $7.7 billiona and net income attributable to Newmont stockholders reached $1.3 billion ($2.66 per diluted share), supported by a gold realized price of $977 per ounce and consolidated gold sales of 6.5 million ounces at Costs Applicable to Sales (CAS) of $417 per ounce. Operating cash flow from continuing operations was a record $2.9 billion, and cash ended the year at $3.2 billion. Management did not hedge its gold or copper sales, so the company retains full exposure to metal prices, which is a central investment consideration.
The balance sheet changed meaningfully. Newmont raised roughly $4.3 billionb of debt, including $2.0 billion of senior notes in September 2009 and $518 million of 3% convertible notes in February 2009, plus $1.2 billion of net equity proceeds from a 34.5 million share offering. Total debt rose to $4.8 billion from $3.2 billion, and total assets grew to $22.3 billion.
The funds financed the $1.0 billionc acquisition of AngloGold Ashanti's remaining 33.33% of Boddington, which began commercial production in November 2009 and is expected to be Australia's largest gold mine. Consolidated 2010 guidance calls for 6.3 to 6.8 million ounces of gold and capital expenditures of $1.4 to $1.6 billion.
Key risks flagged in the filing include the Batu Hijau (Indonesia) Contract of Work divestiture obligations, which could reduce Newmont's ownership and control, a January 2010 fatal pit wall failure and a September 2009 geotechnical failure at Batu Hijau, an expected 150,000-ounce deferral at Nevada's Gold Quarry following a late-2009 geotechnical event, Peru political and social risk at Yanacocha ahead of 2011 national elections, and Australian dollar exposure (roughly 30%d appreciation in 2009). Costs are expected to rise in 2010 due to energy and labor inflation and lower Nevada and Yanacocha output.
02—Key points
Key Highlights
- Revenue grew 26% to $7.7 billion; net income attributable to Newmont stockholders was $1.3 billion, or $2.66 per diluted share, versus $0.8 billion in 2008.
- Consolidated gold sales of 6.5 million ounces at CAS of $417/oz; gold operating margin rose 28% to $451/oz on a 12% higher realized price ($977/oz).
- Record operating cash flow from continuing operations of $2.9 billion (up 109%); year-end cash of $3.2 billion.
- Acquired the remaining 33.33% of Boddington for about $1.0 billion; the mine reached commercial production in November 2009 and is expected to produce about 1 million ounces per year.
- Total debt rose to $4.8 billion from $3.2 billion after $2.0 billion of senior notes (2019/2039), a $518 million 2012 convertible, and a $1.2 billion equity raise; the company is rated BBB+ (S&P) and Baa2 (Moody's), both stable.
- Proven and probable gold reserves rose to 91.8 million equity ounces (up 8%) and copper reserves to 9.1 billion equity pounds, though reserve estimates assume an $800/oz gold price.
- Batu Hijau's ownership was reduced to 35.44% under Indonesian divestiture rules, with an unresolved risk that further divestitures could cost operating control; a 2010 forest-use permit remains pending.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 25, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| R&D Expenses | $135.00M$166.00M | −18.7% |
| Operating Expenses | $4.72B$4.82B | −2.1% |
| Operating Income | $1.31B$816.00M | +60.3% |
| Interest Expense | $120.00M$135.00M | −11.1% |
| Net Income | $1.30B$831.00M | +56.1% |
| EPS (Basic) | $2.66$1.83 | +45.4% |
| EPS (Diluted) | $2.66$1.83 | +45.4% |
| Shares Outstanding (Basic) | 487.00M454.00M | +7.3% |
| Shares Outstanding (Diluted) | 487.00M455.00M | +7.0% |
05—Questions
Frequently Asked Questions
Does Newmont hedge its gold and copper production?
No. Newmont's stated strategy is to sell its gold and copper at prevailing market prices to give shareholders leverage to metal price changes. It does use derivatives to manage input costs, principally Australian dollar operating expenses, diesel in Nevada, and interest rates. Price-capped forward sales were settled in 2007, so the company has no legacy gold hedge book.
What is the outlook for 2010 production and costs?
Management expects consolidated gold production of 6.3 to 6.8 million ounces and copper of 540 to 600 million pounds. Gold CAS is expected to rise to $450 to $480 per ounce, reflecting higher energy and labor costs and lower output at Nevada and Yanacocha. Capital expenditures are guided to $1.4 to $1.6 billion and exploration to $190 to $220 million. Newmont also expects amortization of $940 to $970 million and an effective tax rate of 28% to 32%.
What are the main operational risks disclosed for 2010?
The most immediate are geotechnical problems: a September 2009 wall failure at Batu Hijau was followed by a fatal slide in January 2010, and a late-2009 event at Gold Quarry may defer up to about 150,000 ounces. Other concerns include the pending Indonesian forest-use permit for Batu Hijau, Contract of Work divestiture disputes, the Yanacocha labor agreement expiring February 2010, Peruvian political risk ahead of April 2011 elections, and Ghanaian power constraints. Newmont does not carry political-risk insurance.
How exposed is Newmont to the Australian dollar?
Significantly. The company estimates that every $0.10 rise in the US dollar/Australian dollar rate increases annual costs by about $40 per ounce of gold produced in Australia before hedging. The Australian dollar rose about 30% against the US dollar during 2009. Newmont has hedged 60%, 37% and 13% of forecast 2010, 2011 and 2012 Australian operating costs, respectively, at average rates of about 0.77, 0.75 and 0.78.
Could Newmont lose control of Batu Hijau?
Possibly. Under the 1986 Contract of Work, Indonesian shares in PT Newmont Nusa Tenggara must be offered for sale through 2010, potentially reducing Newmont's economic interest to as low as 27.56% and the partnership's stake to 49%. Loss of control could require deconsolidation, reducing reported sales and cash flow attributable to the mine. Newmont holds 52.44% effective economic interest after a December 2009 transaction. The filing states that a dispute over the Contract of Work is subject to international arbitration but is not guaranteed to be won.
06—Continue