01—Abstract
Summary
Summary of the 10-K filed February 21, 2017. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining (NYSE: NEM) closed 2016 as a gold-led producer in transition: it sold its 48.5% interest in Batu Hijau (Indonesia) on November 2, 2016, and reported a net loss attributable to stockholders of $(627) million, or $(1.18) per diluted share, driven largely by a $970 milliona pre-tax impairment at Yanacocha (Peru) and a $600 million loss on the Batu Hijau sale.
Results from continuing operations were $(220) million, or $(0.41) per share. Underlying operations improved: sales rose 10% to $6,711 millionb, consolidated gold production increased to 5.24 million ounces, and gold all-in sustaining costs fell to $912 per ounce. Adjusted net income was $619 million, or $1.16 per diluted share, and Free Cash Flow reached $784 million, supporting a debt reduction of roughly $1.2 billion and a balance sheet with $2.76 billion in cash and $4.6 billion in debt at year-end.
The filing highlights several risks for investors. Yanacocha's closure plan revision increased reclamation obligations by $425 millionc and triggered a valuation allowance and impairment, while Conga remains on hold, with management not expecting development for at least five years. Peru's new water-quality standards may require costly treatment facilities, and Yanacocha's production is declining.
Gold-price sensitivity is substantial: a $100d per ounce decline in the long-term price assumption could cause stockpile write-downs of about $150 million and deferred tax asset write-downs of about $1.5 billion. The company also disclosed an ongoing SEC and Department of Justice investigation into overseas business practices. Newmont does not hedge its gold or copper sales, so its earnings leverage to metal prices is direct.
Looking forward, the company is focused on developing a pipeline of longer-life projects, including Subika Underground, the Ahafo Mill Expansion, Quecher Main, and Twin Underground, with investment decisions targeted for 2017. Debt maturities are manageable at $575 million in 2017 and $626 million in 2019. The quarterly dividend was set at $0.05 per share, with a payout tied to the gold price.
02—Key points
Key Highlights
- Net loss attributable to Newmont stockholders of $(627) million, or $(1.18) per diluted share, versus net income of $(20)... (see note), driven by a $970 million Yanacocha impairment and a $600 million loss on the Batu Hijau sale
- Adjusted net income of $619 million ($1.16 per diluted share) and Free Cash Flow of $784 million, both non-GAAP measures
- Sales rose 10% to $6,711 million, supported by higher realized gold prices ($1,243/oz) and the addition of Long Canyon and Merian to production
- Consolidated gold production of 5.24 million ounces, with gold all-in sustaining costs of $912 per ounce and copper AISC of $2.30 per pound
- Proven and probable gold reserves fell to 68.5 million ounces (from 73.7 million) after divestments of Batu Hijau and depletion, partly offset by revisions
- Debt reduced from $5.9 billion to $4.6 billion, with $2.76 billion in cash at year-end and a $3.0 billion undrawn revolving credit facility
- Conga project will not be developed for at least five years, and Yanacocha faces a declining production profile, rising closure costs, and a full valuation allowance on related deferred tax assets
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 21, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $6.68B$6.08B | +9.8% |
| R&D Expenses | $134.00M$126.00M | +6.3% |
| Operating Expenses | $6.70B$5.63B | +19.0% |
| Operating Income | -$226.00M-$13.00M | −1638.5% |
| Net Income | -$629.00M$220.00M | −385.9% |
| EPS (Basic) | $-1.19$0.43 | −376.7% |
| EPS (Diluted) | $-1.18$0.43 | −374.4% |
| Shares Outstanding (Basic) | 530.00M516.00M | +2.7% |
| Shares Outstanding (Diluted) | 532.00M516.00M | +3.1% |
05—Questions
Frequently Asked Questions
Why did Newmont report a net loss in 2016 when operations improved?
The net loss of $(627) million was driven mainly by non-cash and one-time charges: a $970 million pre-tax impairment at Yanacocha after its closure plan was revised, a $600 million loss on the sale of Batu Hijau, and an increase in valuation allowances against deferred tax assets. Excluding these items, adjusted net income was $619 million, or $1.16 per diluted share.
What is the outlook for the Conga project and Yanacocha?
Management does not expect to develop Conga for at least the next five years, given the social and political environment, and has allocated development capital elsewhere. Yanacocha's production is declining, and the company must meet new Peruvian water-quality standards within four years, which may require significant treatment investment and could lead to fines if not met.
How sensitive is Newmont's profitability to gold prices?
Highly sensitive. Newmont does not hedge gold or copper sales, so it is exposed to spot prices. The filing indicates that a $100 per ounce decrease in the long-term gold price assumption could cause roughly $150 million in stockpile write-downs, $50 million in leach pad write-downs, and about $1.5 billion in reductions to deferred tax assets. Each $25 change in the price of provisionally priced gold sales affects net income by roughly $2 million.
Is Newmont's balance sheet and dividend secure?
Leverage improved in 2016: debt fell to $4.6 billion, net debt to $1.9 billion, and the company had $2.76 billion in cash, plus a $3.0 billion undrawn revolver maturing in 2020. Scheduled debt repayments are $575 million in 2017 and $626 million in 2019. The company paid $0.125 per share in dividends for 2016, and the quarterly dividend is set on a gold-price-linked, non-binding guideline that the Board can change.
What are the main regulatory or legal risks disclosed?
The filing discloses an ongoing investigation with the SEC and the U.S. Department of Justice into business activities outside the U.S. under the Foreign Corrupt Practices Act; no provision has been recorded. Other exposures include Yanacocha environmental notices of violation, the Choropampa mercury-spill claims, a Yanacocha tax dispute with potential liability up to $75 million, and a Canadian lawsuit seeking C$1.2 billion related to the Fronteer acquisition.
06—Continue