01—Abstract
Summary
Summary of the 10-K filed February 24, 2011. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining (NYSE: NEM) closed 2010 with record results driven by a sharp rise in gold and copper prices.
Sales rose 24% to $9.54 billiona, and net income attributable to Newmont stockholders reached $2.28 billion, or $4.63 per basic share, versus $2.66 in 2009. The average realized gold price climbed 25% to $1,222 per ounce, while consolidated Costs applicable to sales rose 18% to $485 per ounce, leaving a gold operating margin of $737 per ounce. Operating cash flow from continuing operations hit a record $3.18 billion.
Adjusted net income was $1.89 billionb, or $3.85 per share, after excluding a $391 million tax benefit from internal restructuring and other items. The balance sheet strengthened, with cash of $4.06 billion against debt of $4.44 billion, and Newmont stockholders' equity rose to $13.3 billion. Proven and probable gold reserves grew 1.7 million ounces to 93.5 million ounces, and copper reserves reached 9.42 billion pounds.
Investors should note the guidance for 2011, which calls for lower attributable gold output of 5.1 to 5.3 million ounces, higher unit costs of $560 to $590c per ounce, and capital spending of $2.7 to $3.0 billion. Newmont does not hedge its gold or copper sales, so earnings are highly leveraged to metal prices.
Key risks include the Batu Hijau divestiture under Indonesia's Contract of Work, which could eventually cause Newmont to lose control of the operation, as well as ongoing litigation in Indonesia, Peru and the United States. The company also agreed on February 3, 2011 to acquire Fronteer Gold for about C$2.3 billiond, expected to close in the second quarter of 2011.
02—Key points
Key Highlights
- Record sales of $9.54 billion, up 24% from 2009, driven by a 25% rise in the average realized gold price to $1,222 per ounce.
- Net income attributable to Newmont stockholders of $2.28 billion ($4.63 basic EPS); adjusted net income of $1.89 billion ($3.85 per share) excluding a $391 million tax benefit from restructuring.
- Record operating cash flow from continuing operations of $3.18 billion, up 9%, while the company spent $1.40 billion on capital expenditures.
- Gold reserves rose to 93.5 million ounces (net addition of 1.7 million ounces); copper reserves reached 9.42 billion pounds.
- 2011 guidance calls for 5.1 to 5.3 million attributable gold ounces, costs of $560 to $590 per ounce, and capex of $2.7 to $3.0 billion.
- Balance sheet: $4.06 billion cash and $4.44 billion debt; quarterly dividend raised to $0.15 per share, with $0.50 paid in 2010.
- Pending acquisition of Fronteer Gold (Long Canyon project, Nevada) for about C$2.3 billion, expected to close in Q2 2011.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 24, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| R&D Expenses | $216.00M$135.00M | +60.0% |
| Operating Expenses | $5.37B$4.72B | +13.9% |
| Operating Income | $2.31B$1.31B | +76.2% |
| Interest Expense | $279.00M$120.00M | +132.5% |
| Net Income | $2.28B$1.30B | +75.6% |
| EPS (Basic) | $4.63$2.66 | +74.1% |
| EPS (Diluted) | $4.55$2.66 | +71.1% |
| Shares Outstanding (Basic) | 492.00M487.00M | +1.0% |
| Shares Outstanding (Diluted) | 500.00M487.00M | +2.7% |
05—Questions
Frequently Asked Questions
How did Newmont's profitability change in 2010?
Profitability improved substantially. Net income attributable to Newmont stockholders rose to $2.28 billion from $1.30 billion in 2009, and basic EPS reached $4.63 versus $2.66. Higher realized gold and copper prices drove most of the increase, partly offset by higher costs applicable to sales from the first full year of Boddington production. Management's adjusted net income, which excludes items such as the tax restructuring benefit, was $1.89 billion.
What is the main risk to Newmont's Batu Hijau operation?
Under Indonesia's 1986 Contract of Work, PTNNT must divest up to 51% of its shares to Indonesian parties. Newmont's direct stake has already fallen to 31.5%, and its effective economic interest is 48.5%. Further divestiture could reduce Newmont's control and force deconsolidation. There is also litigation in Indonesia, including a South Jakarta District Court ruling in favor of PT Pukuafu Indah that the company is appealing. Its Indonesian STD permit also comes up for renewal in May 2011.
Does Newmont hedge its gold and copper production?
No. Management deliberately does not hedge gold or copper sales, so the company keeps full exposure to spot prices. Newmont does hedge certain input costs: about 72% of forecast 2011 Australian-dollar operating costs are hedged, along with diesel for Nevada. Realized prices are therefore fully exposed to metal price movements. The company estimates that every $10 change in the price of provisionally priced gold sales moves net income by about $1 million.
What does the Fronteer acquisition add?
Newmont agreed to acquire Fronteer Gold for C$14.00 in cash per share, plus one Pilot Gold share, for about C$2.3 billion. The main asset is the exploration-stage Long Canyon project in Nevada, roughly 100 miles from Newmont's existing infrastructure, which management believes offers development and operating synergies. The deal requires approval from at least 66% of Fronteer shareholders and Ontario court approval, and is expected to close in the second quarter of 2011.
What are Newmont's major growth projects and capital needs?
The main projects are Conga in Peru, Akyem in Ghana, Hope Bay in Canada and the Nevada portfolio. Conga's construction decision is expected in the first half of 2011, with production targeted for late 2014 or early 2015. Akyem's decision is also expected in the first half of 2011, with production in late 2013 or early 2014. Management expects 2011 capital spending of $2.7 to $3.0 billion, of which about 40% goes to major projects. Management states that operating cash flow may not be sufficient to fund these projects without new capital.
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