01—Abstract
Summary
Summary of the 10-K filed February 21, 2019. Cited figures are marked; the original filing is the authoritative source.
Newmont Corp (NEM) closed 2018 with a mixed but improving profile: attributable net income from continuing operations rose to $280 milliona ($0.53 per diluted share) from a loss in 2017, largely on lower income tax expense and a $100 million gain from selling its royalty portfolio to Maverix Metals.
Adjusted net income fell 8% to $718 millionb ($1.34 per diluted share), and Adjusted EBITDA declined 2% to $2.6 billion, reflecting lower gold output. Attributable gold production fell 3% to 5.1 million ounces, driven by lower grades and leach placements at Carlin, Phoenix, CC&V and Yanacocha, partially offset by gains at Tanami and Ahafo. Consolidated gold sales declined 2% and costs applicable to sales per ounce rose 2%, so margin pressure was visible even as gold prices held at about $1,260 per ounce realized.
The balance sheet remains a strength. Newmont ended the year with $3.4 billionc in cash and $0.9 billion of net debt, operating cash flow from continuing operations was $1.8 billion, and free cash flow was $0.8 billion. Dividends were raised to $0.56 per share for the year, and the company remains investment-grade (S&P BBB, Moody's Baa2).
Offsetting these positives were $369 milliond of long-lived asset impairments, mainly at North American exploration properties and the Emigrant mine, a $150 million valuation allowance on U.S. deferred tax assets, and a 2018 fatal accident count of seven workers, which the filing highlights as a serious operational and reputational concern. The dominant event for investors is the pending all-stock acquisition of Goldcorp, announced January 14, 2019, for roughly $10 billion. Goldcorp holders would receive 0.3280 Newmont shares plus $0.02 in cash per share, with closing expected in Q2 2019 subject to shareholder and regulatory approvals.
The filing flags integration, synergy, dilution, political-jurisdiction and reserve-reporting risks, and a $650 million termination fee exposure. Investors should weigh the strategic scale benefit against these execution and dilution risks.
02—Key points
Key Highlights
- Net income from continuing operations attributable to Newmont stockholders was $280 million ($0.53 per diluted share), up $356 million year over year, driven by lower income tax expense and a gain on the royalty portfolio sale.
- Adjusted net income fell 8% to $718 million ($1.34 per diluted share) and Adjusted EBITDA fell 2% to $2.6 billion.
- Attributable gold production declined 3% to 5.1 million ounces, while year-end attributable proven and probable gold reserves fell to 65.4 million ounces from 68.5 million.
- Cash of $3.4 billion and net debt of $0.9 billion; operating cash flow of $1.8 billion and free cash flow of $0.8 billion; dividends of $0.56 per share declared.
- Impairments of long-lived assets totaled $369 million, mainly at North American exploration properties and the Emigrant mine, and a $150 million valuation allowance was placed on U.S. net deferred tax assets.
- Pending Goldcorp acquisition (about $10 billion, primarily stock, expected to close Q2 2019) would create the combined company Newmont Goldcorp, with a $650 million termination fee exposure.
- Seven fatalities in 2018 (six at Ahafo Mill Expansion in Ghana and one at Pete-Bajo in Nevada) highlight ongoing health and safety and geotechnical risk.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 21, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.25B$7.38B | −1.7% |
| R&D Expenses | $153.00M$143.00M | +7.0% |
| Operating Expenses | $6.46B$6.12B | +5.6% |
| Operating Income | $280.00M-$76.00M | +468.4% |
| Net Income | $341.00M-$114.00M | +399.1% |
| EPS (Basic) | $0.64$-0.21 | +404.8% |
| EPS (Diluted) | $0.64$-0.21 | +404.8% |
| Shares Outstanding (Basic) | 533.00M533.00M | 0.0% |
| Shares Outstanding (Diluted) | 535.00M535.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did net income improve so sharply in 2018 even though operating results weakened?
The improvement was mostly non-operating and tax-related. Income tax expense fell to $386 million from $1,127 million in 2017, which had included a large one-time Tax Cuts and Jobs Act charge. Newmont also recorded a $100 million pre-tax gain from exchanging royalty interests for cash and Maverix Metals equity. These gains were partly offset by higher impairments and lower production.
How does the Goldcorp transaction change Newmont's investment case?
The all-stock deal would significantly enlarge Newmont's scale and add assets in Canada, Mexico, Chile, Argentina and the Dominican Republic. Investors would receive a larger share of the combined company's cash flow and reserves, but existing holders would face dilution from new share issuance and integration and political-jurisdiction risks. The deal is subject to shareholder and regulatory approvals, and either party can terminate if it is not completed by July 31, 2019 absent an extension.
What is driving the decline in gold production and rising unit costs?
Attributable gold output fell 3% because of lower ore grades and reduced leach tons placed at Carlin, Phoenix, CC&V and Yanacocha, partly offset by higher grades at Tanami and Ahafo. Costs applicable to sales per consolidated ounce rose 2%, reflecting lower ounces sold, higher stockpile and leach pad inventory write-downs, and higher oil prices. Copper costs rose 15% per pound due to a higher co-product cost allocation.
How strong is Newmont's balance sheet and dividend capacity?
The balance sheet remains solid, with $3.4 billion of cash, $0.9 billion of net debt, no borrowings under its $3.0 billion revolver, and an investment-grade rating (BBB at S&P, Baa2 at Moody's). Free cash flow of $0.8 billion covered the $0.56 per share dividend. Investors should note, however, that the filing warns a rating downgrade or sustained low gold prices could constrain financing and dividends, and that the pending Goldcorp deal would add debt and equity considerations.
What are the main risks flagged in the filing that investors should monitor?
Key risks include gold and copper price declines, since Newmont does not hedge its production; reserve replacement and declining grades; cost inflation and currency exposure, particularly to the Australian dollar; political and fiscal risk in Peru, Suriname and Ghana, including the Conga project being in care and maintenance; geotechnical failures and tailings risk after pit wall failures in 2018; and workplace safety after seven fatalities in 2018. Regulatory changes in U.S. mine safety enforcement and climate policy are also noted.
06—Continue