01—Abstract
Summary
Summary of the 10-K filed February 22, 2013. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining (NYSE: NEM) closed 2012 as a gold-focused producer with 5.6 million consolidated ounces (5.0 million attributable) produced and sales of $9.87 billiona, down 5% from $10.36 billion in 2011.
Net income attributable to Newmont stockholders was $1.81 billionb, or $3.65 per basic share, versus $366 million in 2011, which was depressed by a $2.08 billion Hope Bay write-down. Management's adjusted net income was $1.85 billion ($3.73 per share), with gold operating margin at $985 per ounce, roughly flat year over year. Lower Batu Hijau copper and gold output (Phase 6 waste stripping) and higher costs weighed on results: costs applicable to sales rose to $677 per ounce from $591, and copper output fell 34% to 224 million pounds.
Balance sheet leverage increased meaningfully. Debt rose to $6.3 billionc from $4.3 billion after $2.5 billion of senior notes were issued in March 2012, and net debt reached $4.7 billion versus $2.6 billion. Capital expenditures were $3.2 billion, and operating cash flow fell to $2.4 billion from $3.6 billion.
Dividends were raised to $1.40d per share for the year, and the board declared a $0.425 quarterly dividend in February 2013 under a gold-price-linked policy. Looking ahead, 2013 guidance calls for attributable gold production of 4.8 to 5.1 million ounces and all-in sustaining costs of $1,100 to $1,200 per ounce, with capex falling about 20% to $2.4 to $2.6 billion.
Key growth projects include Akyem in Ghana (first production late 2013), Merian in Suriname, and Conga in Peru, which remains politically contested. Material risks include Indonesian export and divestiture disputes affecting Batu Hijau, Peruvian social unrest, and the lack of gold price hedging by design.
02—Key points
Key Highlights
- Gold production of 5.6 Moz consolidated (5.0 Moz attributable) in 2012, down from 5.9 Moz in 2011; copper fell 34% to 224 Mlb as Batu Hijau processed lower-grade stockpiles.
- Sales of $9.87 billion, down 5% year over year, on lower volumes partly offset by a 6% higher realized gold price of $1,662/oz.
- Net income attributable to Newmont of $1.81 billion ($3.65/share) versus $366 million in 2011, which included a $2.08 billion Hope Bay impairment; adjusted net income of $3.73/share.
- Costs applicable to sales rose to $677/oz (+15%), leaving gold operating margin roughly flat at $985/oz.
- Total debt climbed to $6.3 billion from $4.3 billion after March 2012 senior note issuance; net debt of $4.7 billion versus $2.6 billion.
- Dividends of $1.40/share declared for 2012, and a $0.425 quarterly dividend declared in February 2013 under a gold-price-linked policy.
- 2013 guidance: 4.8–5.1 Moz attributable gold, AISC of $1,100–$1,200/oz, and capex of $2.4–$2.6 billion, about 20% lower than 2012.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 22, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $9.96B$10.44B | −4.6% |
| R&D Expenses | $348.00M$373.00M | −6.7% |
| Operating Expenses | $6.88B$8.32B | −17.3% |
| Operating Income | $1.88B$468.00M | +301.3% |
| Interest Expense | $249.00M$244.00M | +2.0% |
| Net Income | $1.80B$366.00M | +392.3% |
| EPS (Basic) | $3.64$0.74 | +391.9% |
| EPS (Diluted) | $3.61$0.73 | +394.5% |
| Shares Outstanding (Basic) | 496.00M494.00M | +0.4% |
| Shares Outstanding (Diluted) | 499.00M504.00M | −1.0% |
05—Questions
Frequently Asked Questions
Why did Newmont's earnings improve so much in 2012 even though production and sales declined?
Most of the swing reflects the absence of 2011's $2.08 billion Hope Bay write-down. The higher realized gold price ($1,662/oz versus $1,562/oz) also helped. Operating results were weaker: sales fell 5%, and cost increases lifted costs applicable to sales per ounce to $677 from $591. Adjusted net income actually declined to $1.85 billion from $2.17 billion.
What is driving the drop in copper production and the outlook for Batu Hijau?
Copper output fell 34% to 224 million pounds, mainly from Phase 6 waste stripping at Batu Hijau, which forced processing of lower-grade stockpiled ore. Management expects Batu Hijau output to stay low until Phase 6 ore becomes the primary mill feed in 2014. Indonesian export rules requiring in-country processing of copper concentrate after January 2014 create additional uncertainty.
How much debt does Newmont carry, and is the balance sheet under pressure?
Total debt was $6.3 billion at year-end 2012, up from $4.3 billion, after issuing $2.5 billion of senior notes due 2022 and 2042. Net debt was $4.7 billion. Management says liquidity is adequate, with $1.56 billion of cash and a $3.0 billion revolver of which $394 million was used for letters of credit. Operating cash flow of $2.4 billion covered the dividend and part of capex, but capex of $3.2 billion exceeded operating cash flow, so the company depends on external funding for its growth plans.
What are the main risks to the Conga project and Yanacocha in Peru?
Conga construction was suspended in November 2011 after local protests and was restarted on a 'water first' basis in June 2012. Spending is being reduced to about $250–$300 million in 2013. Regional authorities continue to oppose the project, and management warns that continued opposition could lead to reallocation of capital and a possible impairment of Conga. Yanacocha, which Newmont owns at 51.35%, faces similar community and government risk.
Does Newmont hedge its gold production?
No. Newmont's stated strategy is to sell gold and copper at spot prices to give shareholders leverage to metal prices, so it does not hedge its gold or copper sales. It does hedge a portion of Australian dollar operating costs (76% of 2013 exposure) and some diesel and Nevada fuel exposure to limit cost volatility.
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