01—Abstract
Summary
Summary of the 10-K filed February 17, 2016. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining (NYSE: NEM) closed 2015 with sales of $7.7 billiona, up 6% year over year, as higher gold and copper volumes offset lower realized prices.
The average realized gold price fell 9% to $1,141b per ounce and the realized copper price fell 20% to $2.13 per pound. Net income attributable to Newmont stockholders was $0.43 per share (adjusted net income was $0.98 per share), a sharp improvement from the large 2013 impairment-driven loss. Consolidated gold production rose 9% to 5.7 million ounces, and all-in sustaining costs fell to $1,002 per ounce, with the Batu Hijau ramp-up and the CC&V acquisition contributing to volume growth.
Adjusted EBITDA rose to $2.7 billionc from $2.1 billion, and free cash flow turned positive at $756 million after a deficit in 2013 (see the cash flow reconciliation). Balance sheet and capital allocation: Net debt fell to $3.5 billion from $4.2 billion, cash rose to $2.8 billion, and total debt was $6.2 billion. The company raised $675 million in equity to fund the $821 million acquisition of the Cripple Creek & Victor mine, and it sold Waihi, Valcambi and TMAC interests for additional proceeds.
Dividends were cut to $0.025d per quarter. Key risks in the filing include Indonesian export permits and Contract of Work renegotiations at Batu Hijau, the political and community opposition that has halted the Conga project in Peru, Ghana's new fiscal terms, the Peru valuation allowance, and credit rating pressure (Moody's placed the company on review for downgrade in January 2016).
Reserves declined to 73.7 million attributable ounces of gold (from 81.6 million) and 5.7 billion pounds of copper, largely because of a lower gold price assumption ($1,200 from $1,300) and the removal of Conga from reserves. Management is focused on the Merian, Long Canyon and Tanami expansion projects, and it expects Merian to reach commercial production in late 2016.
02—Key points
Key Highlights
- Sales rose 6% to $7.7 billion, but average realized gold price fell 9% to $1,141/oz and copper fell 20% to $2.13/lb.
- Adjusted EBITDA increased to $2.73 billion from $2.13 billion, while reported net income attributable to Newmont was $0.43 per share versus $1.02 in 2014.
- All-in sustaining costs fell to $1,002/oz for gold (from $1,113) and to $1.59/lb for copper (from $3.65), driven by cost reductions and higher Batu Hijau volumes.
- Free cash flow was positive at $756 million (operating cash flow $2.1 billion less capex $1.4 billion); net debt fell to $3.5 billion from $4.2 billion.
- Proven and probable gold reserves declined to 73.7 Moz from 81.6 Moz, mainly from a lower price assumption and reclassification of Conga to mineralized material; the company acquired CC&V for $821 million.
- Batu Hijau Indonesian export permit runs only to May 2016 and the Contract of Work renegotiation remains unresolved, a key operational and financial risk.
- Dividend reduced to $0.025 per quarter ($0.10 for 2015 vs $0.225 in 2014); Moody's placed the company on review for downgrade in January 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 17, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $6.08B$6.82B | −10.8% |
| R&D Expenses | $126.00M$159.00M | −20.8% |
| Operating Expenses | $5.63B$5.83B | −3.4% |
| Operating Income | -$13.00M$650.00M | −102.0% |
| Net Income | $220.00M$508.00M | −56.7% |
| EPS (Basic) | $0.43$1.02 | −57.8% |
| EPS (Diluted) | $0.43$1.02 | −57.8% |
| Shares Outstanding (Basic) | 516.00M499.00M | +3.4% |
| Shares Outstanding (Diluted) | 516.00M499.00M | +3.4% |
05—Questions
Frequently Asked Questions
Why did Newmont's revenue rise even though gold and copper prices fell?
Sales increased 6% to $7,729 million because consolidated gold sales volumes rose 8% to 5.68 million ounces and copper sales volumes more than doubled to 589 million pounds, driven mainly by Batu Hijau's phase 6 ore and the addition of CC&V. These volume gains more than offset a 9% decline in realized gold prices and a 20% decline in realized copper prices.
Is Newmont generating positive free cash flow now?
Yes. Free cash flow, as the company defines it (operating cash flow plus discontinued operations cash flow less capital additions), was $756 million in 2015, compared with a deficit of $339 million in 2013. The 2015 figure reflects $2.16 billion of cash from continuing operations and $1.40 billion of capital expenditures, though the company's own definition excludes acquisitions and debt service.
How much of Newmont's reserve base could be affected by a lower gold price?
The filing says reserves would decline about 5.1% (3.8 Moz) at a $1,100/oz gold price and rise about 6.3% (4.6 Moz) at $1,300/oz, all else equal. Reserves are calculated at a $1,200/oz gold price assumption (A$1,500). Stockpile and leach pad carrying values are also sensitive, with 2015 write-downs totaling $342 million.
What are the biggest political and regulatory risks to Newmont's operations?
The main risks are Batu Hijau's Indonesian export permit (valid until May 2016), the unresolved Contract of Work renegotiation with the Indonesian government, the stalled Conga project in Peru amid community opposition, Peru's new water quality standards that may require costly treatment at Yanacocha, and Ghana's revised investment agreement that increases royalties and taxes. Newmont also faces the risk of losing effective control of Batu Hijau if its interest in PTNNT falls to 27.56%.
Why did Newmont pay a much lower dividend in 2015?
Dividends declared fell to $0.10 per share for 2015 from $0.225 in 2014 and $1.225 in 2013, and the quarterly dividend is set at $0.025. The dividend policy has been tied to the gold price, and the filing describes it as a non-binding guideline subject to Board discretion, with no commitment to future payments.
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