01—Abstract
Summary
Summary of the 10-K filed February 22, 2018. Cited figures are marked; the original filing is the authoritative source.
Newmont Mining's 2017 Form 10-K shows a year of recovery in operating results and cash generation, with a sharp rise in the GAAP tax line that kept bottom-line earnings negative.
Sales rose 9.5% to $7.35 billiona, driven by higher gold ounces from a full year at Merian and Long Canyon and higher realized gold prices ($1,255/oz vs. $1,243/oz). Attributable gold production increased 8% to 5.3 million ounces. Adjusted net income was $780 million ($1.46 per diluted share, up 26%) and Adjusted EBITDA was $2.65 billion, up 12%.
Operating cash flow from continuing operations rose 22% to $2.35 billionb, and free cash flow reached $1.48 billion, up 88%. GAAP results remained weak. Net loss attributable to Newmont stockholders was $(98) million, or $(0.18) per diluted share, and continuing operations loss was $(60) million.
The result was weighed down by a $1.1 billionc income and mining tax expense, which included provisional charges from the Tax Cuts and Jobs Act: a $346 million re-measurement of deferred tax assets, a $395 million restructuring charge, and a $48 million AMT credit benefit. Management has flagged that these figures are provisional and may be revised within the one-year measurement period. Balance sheet strength improved, with $3.26 billion in cash, net debt reduced to $806 million from $1.86 billion, and no borrowings on the $3 billion revolver.
For investors, the key items are the reserve base (68.5 million attributable ounces, flat year over year and fully replacing depletion at a constant gold price), the project pipeline (Subika Underground, Ahafo Mill Expansion, Twin Underground, Quecher Main, Tanami Power), and capital allocation. In February 2018 the company eliminated its gold-price-linked dividend formula and declared a $0.14d quarterly dividend, a notable shift in policy. Ongoing risks include Peru political and social exposure at Yanacocha and the Conga project (in care and maintenance), Suriname political risk at Merian, the Australian Taxation Office capital gains dispute (approximately A$83 million claimed), and the company's unhedged exposure to gold and copper prices.
02—Key points
Key Highlights
- Sales of $7.35 billion, up 9.5% from $6.71 billion, on higher gold volumes (5.6 million ounces sold) and a $1,255/oz average realized gold price.
- Adjusted net income of $780 million ($1.46/diluted share), up 26%; Adjusted EBITDA of $2.65 billion, up 12%.
- Operating cash flow from continuing operations of $2.35 billion (up 22%); free cash flow of $1.48 billion (up 88%).
- GAAP net loss attributable to Newmont of $(98) million ($(0.18)/share), including $1.1 billion income and mining tax expense with large provisional Tax Cuts and Jobs Act charges.
- Gold reserves of 68.5 million attributable ounces, flat year over year; reserves fully replaced depletion of 6.4 million ounces at a constant $1,200/oz price assumption.
- Net debt reduced to $806 million from $1.86 billion; $3.26 billion cash on hand and an undrawn $3 billion revolver.
- Dividend policy changed in February 2018: gold-price-linked formula eliminated, with a $0.14 quarterly dividend declared.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 22, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.38B$6.68B | +10.5% |
| R&D Expenses | $143.00M$134.00M | +6.7% |
| Operating Expenses | $6.12B$6.70B | −8.6% |
| Operating Income | -$76.00M-$226.00M | +66.4% |
| Net Income | -$114.00M-$629.00M | +81.9% |
| EPS (Basic) | $-0.21$-1.19 | +82.4% |
| EPS (Diluted) | $-0.21$-1.18 | +82.2% |
| Shares Outstanding (Basic) | 533.00M530.00M | +0.6% |
| Shares Outstanding (Diluted) | 535.00M532.00M | +0.6% |
05—Questions
Frequently Asked Questions
Why was Newmont's GAAP result a loss in 2017 despite higher sales and cash flow?
The GAAP loss was driven mainly by a $1.1 billion income and mining tax expense, which included provisional charges from the 2017 Tax Cuts and Jobs Act: a $346 million re-measurement of U.S. deferred tax assets and a $395 million restructuring-related charge. Partially offsetting these, a $48 million AMT credit release was recorded. Underlying operations improved, as shown by the adjusted net income of $780 million.
What drove the improvement in operating performance?
Attributable gold production rose 8% to 5.3 million ounces, mainly from a full year at Merian (Suriname) and Long Canyon (Nevada), plus higher realized gold prices. Partially offsetting this, Tanami and Yanacocha were hurt by weather and lower grades, and Costs applicable to sales per gold ounce rose about 1%.
Is the dividend sustainable after the policy change?
The 2017 dividend totaled $0.25 per share, paid under a formula linked to the prior quarter's average gold price. In February 2018 the company removed that link and declared a fixed $0.14 quarterly dividend. Future dividends remain at the Board's discretion and depend on results, cash needs and financial conditions. Free cash flow of $1.48 billion and reduced debt provide support, but the dividend is not guaranteed.
What are the main risks investors should monitor?
Key risks include gold and copper price volatility (the company does not hedge its gold and copper sales), political and social unrest in Peru affecting Yanacocha and the Conga project, which is in care and maintenance, political and economic risk in Suriname at Merian, and an Australian Taxation Office dispute over a 2011 reorganization with about A$83 million claimed including interest and penalties. The company also faces reclamation liabilities of about $2.25 billion and ongoing labor negotiations in Ghana and upcoming contract expirations in Peru and Nevada in 2019.
06—Continue