Summary
Newmont Mining Corporation (NEM) has disclosed significant operational and legal challenges concerning its 50% owned Zarafshan-Newmont Joint Venture (ZNJV) in Uzbekistan. Following prior rulings in favor of Uzbek tax authorities and appeals filed by ZNJV, government actions have escalated. Authorities have prevented ZNJV gold exports, seized assets, and initiated purported criminal investigations. Most critically, on August 14, 2006, an Uzbek court accepted a petition to institute bankruptcy proceedings against ZNJV, appointing a temporary administrator who will now oversee all operations and restrict normal business activities, including gold exports and loan repayments, without court approval. The company views these actions, including the bankruptcy proceeding and criminal investigations, as a potential attempt to expropriate its interest in the ZNJV. Newmont intends to pursue all available legal remedies, including international arbitration, to protect its rights. The situation is expected to prevent Newmont from realizing approximately 90,000 equity ounces of gold sales in the second half of 2006, impacting its previously stated sales guidance. The book value of Newmont's stake in ZNJV was approximately $94 million as of June 30, 2006, and ZNJV represented a significant portion of the company's gold reserves.
Key Highlights
- 1Uzbekistan's Navoi Economic Court has accepted a petition to institute bankruptcy proceedings against the Zarafshan-Newmont Joint Venture (ZNJV), in which Newmont holds a 50% stake.
- 2The court has ordered 'supervisory measures' restricting ZNJV's normal operations, including gold exports and loan repayments, pending approval from a court-appointed temporary administrator.
- 3Newmont believes these actions, including purported criminal investigations, may be an effort to expropriate its interest in ZNJV.
- 4Government authorities have continued to prevent the shipment of ZNJV gold out of Uzbekistan and have seized some gold and other assets.
- 5The European Bank for Reconstruction and Development (EBRD) has restricted ZNJV's access to approximately $18 million in offshore funds due to an outstanding debt obligation.
- 6Newmont expects to be unable to realize approximately 90,000 equity ounces of gold sales in the second half of 2006 due to these events.
- 7Newmont intends to pursue all available legal remedies, including international arbitration, to protect its rights.