Summary
This 8-K filing from Newmont Corporation (NEM) on July 15, 2011, primarily addresses an adverse court ruling concerning a royalty dispute related to the Holt Property, originally acquired from Barrick Gold Corporation. Newmont Canada Corporation, a subsidiary, is now deemed liable for a sliding scale royalty payable to Royal Gold, Inc., after selling the property to Holloway Mining Company, which was subsequently acquired by St. Andrew Goldfields Ltd. The Ontario Court of Appeal upheld a lower court decision, ruling in favor of St. Andrew's interpretation of the royalty obligations. As a result of this ruling, Newmont expects to record a significant accrual for the royalty liability. The company estimates this accrual to be between $160 million and $200 million as of June 30, 2011. This will lead to an additional charge to discontinued operations in the second quarter of 2011, ranging from $120 million to $160 million on a pre-tax basis, on top of a $40 million provision already recorded at the end of 2010. The company is employing Monte Carlo simulations to estimate this liability, which will be adjusted to fair value as market conditions and gold prices change, with such adjustments also impacting discontinued operations.
Key Highlights
- 1Newmont Canada Corporation has been found liable for a sliding scale royalty on the Holt Property following an adverse ruling by the Ontario Court of Appeal.
- 2The royalty in question was originally held by Barrick Gold Corporation and is now owned by Royal Gold, Inc.
- 3Newmont expects to record an accrual for this royalty liability ranging from $160 million to $200 million as of June 30, 2011.
- 4An additional pre-tax charge of $120 million to $160 million is anticipated to be recognized in discontinued operations for the second quarter of 2011.
- 5This charge is in addition to a $40 million provision for the royalty already recorded in discontinued operations at December 31, 2010.
- 6The company is using Monte Carlo simulations to estimate the royalty liability, considering various gold price and production scenarios.
- 7Future adjustments to the liability for changes in fair value, due to significant shifts in gold price assumptions or other factors, will also be recorded as discontinued operations.