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| NEM > SEC Filings for NEM > Form 10-Q on 29-Oct-2008 | All Recent SEC Filings |
29-Oct-2008
Quarterly Report
(dollars in millions, except per share, per ounce and per pound amounts).
The following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Newmont Mining Corporation and its subsidiaries (collectively, "Newmont," the "Company," "our" and "we"). References to "A$" refer to Australian currency, "C$" to Canadian currency, "IDR" to Indonesian currency, "NZ$" to New Zealand currency and "$" to United States currency.
This item should be read in conjunction with our interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this quarterly report. Additionally, the following discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2007.
Selected Financial and Operating Results
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues $ 1,392 $ 1,616 $ 4,857 $ 4,116
Income (loss) from continuing operations $ 177 $ 331 $ 820 $ (30 )
Net income (loss) $ 196 $ 397 $ 843 $ (1,597 )
Per common share, basic
Income (loss) from continuing operations $ 0.39 $ 0.73 $ 1.81 $ (0.07 )
Net income (loss) $ 0.43 $ 0.88 $ 1.86 $ (3.54 )
Consolidated gold ounces sold (thousands) (1) 1,508 1,570 4,633 4,536
Consolidated copper pounds sold (millions) 44 163 201 351
Average price received, net (2)
Gold (per ounce) $ 865 $ 681 $ 900 $ 665
Copper (per pound) $ 2.01 $ 3.34 $ 3.50 $ 3.13
Costs applicable to sales (3)
Gold (per ounce) $ 480 $ 374 $ 438 $ 398
Copper (per pound) $ 1.98 $ 0.64 $ 1.70 $ 1.01
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(1) Includes minority interests' share and incremental start-up ounces of 3 and 20 in the three and nine months ended September 30, 2008, respectively.
(2) After treatment and refining charges.
(3) Excludes Amortization, Accretion, the 2007 Loss on settlement of price-capped forward sales contracts and the 2007 Midas redevelopment.
Consolidated Financial Results
Income from continuing operations for the third quarter of 2008 was $177, or $0.39 per share, compared to $331, or $0.73 per share in 2007. Results for the third quarter of 2008 compared to 2007 were impacted by decreased gold and copper sales volumes, higher costs and lower realized copper prices, partially offset by higher realized gold prices. Income from continuing operations for the first nine months of 2008 was $820, or $1.81 per share, compared to a loss of $30, or $0.07 per share in 2007. Results for the first nine months of 2008 compared to 2007 were impacted by higher realized
gold and copper prices, increased gold sales volume, a lower effective income tax rate and the absence of the 2007 loss on settlement of price-capped forward sales contracts, partially offset by lower copper sales volume and higher costs.
Sales-gold, net for the third quarter of 2008 increased $233 compared to the third quarter of 2007 as a result of a $184 per ounce increase in the average realized price after treatment and refining charges partially offset by a 65,000 decrease in consolidated gold ounces sold. Sales-gold, net for the first nine months of 2008 increased $1,136 compared to the first nine months of 2007 as a result of a 77,000 increase in consolidated gold ounces sold and a $235 per ounce increase in the average price realized after treatment and refining charges. The following analysis summarizes the change in consolidated gold sales revenue:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Consolidated gold sales:
Gross $ 1,303 $ 1,074 $ 4,164 $ 3,030
Less: Treatment and refining charges (1 ) (5 ) (12 ) (14 )
Net $ 1,302 $ 1,069 $ 4,152 $ 3,016
Consolidated gold ounces sold (thousands):
Gross 1,508 1,570 4,633 4,536
Less: Incremental start-up sales (3 ) - (20 ) -
Net 1,505 1,570 4,613 4,536
Average realized price (per ounce):
Before treatment and refining charges $ 866 $ 684 $ 903 $ 668
After treatment and refining charges $ 865 $ 681 $ 900 $ 665
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The change in consolidated gold sales is due to:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 vs. 2007 2008 vs. 2007
(Decrease) increase in consolidated
ounces sold $ (44 ) $ 53
Increase in average realized gold
price 273 1,081
Decrease in treatment and refining
charges 4 2
$ 233 $ 1,136
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Sales-copper, net for the third quarter of 2008 decreased $457 compared to the third quarter of 2007 due to lower sales volume and lower realized prices. Sales-copper, net for the first nine months of 2008 decreased $395 compared to the first nine months of 2007 due to lower sales volume, partially offset by higher realized prices. For a complete discussion regarding variations in gold and copper volumes, see Results of Consolidated Operations below. The following analysis summarizes the change in consolidated copper sales revenue:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Consolidated copper sales:
Gross before provisional pricing and hedging $ 151 $ 568 $ 726 $ 1,150
Provisional pricing mark-to-market (loss) gain (52 ) 38 38 85
Hedging loss - - - (1 )
Gross after provisional pricing and hedging 99 606 764 1,234
Less: Treatment and refining charges (9 ) (59 ) (59 ) (134 )
Net $ 90 $ 547 $ 705 $ 1,100
Consolidated copper pounds sold (millions) 44 163 201 351
Average price realized (per pound):
Gross before provisional pricing and hedging $ 3.39 $ 3.47 $ 3.61 $ 3.27
Provisional pricing mark-to-market (loss) gain (1.18 ) 0.23 0.19 0.26
Hedging loss - - - (0.02 )
Gross after provisional pricing and hedging 2.21 3.70 3.80 3.51
Less: Treatment and refining charges (0.20 ) (0.36 ) (0.30 ) (0.38 )
Net $ 2.01 $ 3.34 $ 3.50 $ 3.13
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The change in consolidated copper sales is due to:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 vs. 2007 2008 vs. 2007
Decrease in consolidated pounds
sold $ (441 ) $ (528 )
(Decrease) increase in average
realized copper price (66 ) 58
Decrease in treatment and refining
charges 50 75
$ (457 ) $ (395 )
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The following is a summary of net gold and copper sales:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Gold
Nevada, USA $ 471 $ 392 $ 1,457 $ 1,102
Yanacocha, Peru 378 245 1,265 750
Australia/New Zealand:
Tanami, Australia 75 64 249 224
Kalgoorlie, Australia 69 56 189 165
Jundee, Australia 94 54 282 144
Waihi, New Zealand 35 15 95 41
273 189 815 574
Batu Hijau, Indonesia 24 140 171 255
Ahafo, Ghana 117 76 321 239
Other Operations:
Kori Kollo, Bolivia 21 13 58 44
La Herradura, Mexico 18 14 64 43
Golden Giant, Canada - - - 8
39 27 122 95
Corporate - - 1 1
$ 1,302 $ 1,069 $ 4,152 $ 3,016
Copper
Batu Hijau, Indonesia $ 90 $ 547 $ 705 $ 1,100
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Following the end of the quarter, global economic conditions have dramatically weakened, creating increased uncertainty and volatility in the short-term prices for commodities including gold and copper. Gold and copper prices have declined from $930 per ounce and $3.98 per pound, respectively, on June 30, 2008 to $885 per ounce and $2.91 per pound, respectively, on September 30, 2008 and further to $713 per ounce and $1.69 per pound, respectively, on October 24, 2008.
Any decrease in the realized price of gold or copper adversely impacts our revenues, net income and cash flows, particularly in light of our policy of generally avoiding gold hedging. We have recorded asset write-downs in the past and we may experience additional impairments as a result of low gold or copper prices in the future.
In addition, sustained low gold or copper prices may exacerbate the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2007, including risks that we must:
• Reduce revenues further through production declines due to cessation of the mining of deposits, or portions of deposits, that have become uneconomic at the then-prevailing gold or copper price;
• Reduce or eliminate the profit that we currently anticipate to receive from ore stockpiles;
• Halt or delay the development of new projects;
• Reduce funds available for exploration; and
• Reduce existing reserves by removing ores from reserves that can no longer be economically processed at prevailing prices.
Costs applicable to sales increased in the third quarter and first nine months of 2008 from 2007 as detailed in the table below. The increase in the third quarter and first nine months of 2008 is due to increased input commodity prices, unfavorable Australian dollar exchange rate changes and higher royalty expenses, partially offset by lower copper pounds sold. For a complete discussion regarding variations in operations, see Results of Consolidated Operations below.
Amortizationincreased in the third quarter and first nine months of 2008 compared to 2007 as detailed in the table below. We expect Amortization expense in 2008 to be approximately $725 to $775.
The following is a summary of Costs applicable to sales and Amortization:
Costs Applicable to Sales Amortization
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2008 2007 2008 2007 2008 2007 2008 2007
Gold
Nevada, USA $ 271 $ 245 $ 724 $ 770 $ 65 $ 48 $ 175 $ 169
Yanacocha, Peru 159 118 488 368 43 42 131 124
Australia/New Zealand:
Tanami, Australia 55 40 162 137 10 8 27 27
Kalgoorlie, Australia 63 49 171 141 4 6 12 19
Jundee, Australia 44 33 126 103 9 7 26 19
Waihi, New Zealand 16 10 45 30 10 6 24 15
178 132 504 411 33 27 89 80
Batu Hijau, Indonesia 20 28 76 74 4 5 15 16
Ahafo, Ghana 55 49 150 135 16 11 47 34
Other Operations:
Kori Kollo, Bolivia 29 8 49 23 3 3 8 8
La Herradura, Mexico 10 7 27 20 2 1 6 4
Golden Giant, Canada - - - 2 - - - -
39 15 76 45 5 4 14 12
722 587 2,018 1,803 166 137 471 435
Copper
Batu Hijau, Indonesia 88 105 342 356 16 24 67 78
Other
Australia/New Zealand - - - - - - 2 2
Corporate and Other - - - - 7 6 15 17
- - - - 7 6 17 19
$ 810 $ 692 $ 2,360 $ 2,159 $ 189 $ 167 $ 555 $ 532
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The Loss on settlement of price-capped forward sales contracts in the first nine months of 2007 resulted from the elimination of the entire 1.85 million ounce gold price-capped forward sales contracts.
Exploration expense increased $10 and $23 for the third quarter and first nine months of 2008, respectively, compared to 2007 primarily as a result of spending at Hope Bay and higher drilling costs. We expect 2008 Exploration expense to be approximately $220 to $230.
Advanced projects, research and development increased $29 for the third quarter and $69 for the first nine months of 2008 compared to 2007. The increase is due to an extensive evaluation of various
options for the long-term development of the Hope Bay district and higher spending for technical studies and drilling at the Fort a la Corne diamond project and the Euronimba iron ore project. We expect 2008 Advanced projects, research and development expenses to be approximately $160 to $190.
General and administrative expenses remained constant for the third quarter and decreased $1 for the first nine months of 2008 compared to 2007. We expect 2008 General and administrative expenses to be approximately $140 to $150.
Write-down of investments for other-than-temporary declines in value of marketable equity securities of $34 and $90 were recognized in the third quarter and first nine months of 2008, respectively. Impairments in the third quarter of 2008 included $26 in Shore Gold Inc. Impairments in the first nine months of 2008 included $58 in Shore Gold Inc. and $13 in Gabriel Resources Ltd. There were no write-downs of investments in the first nine months of 2007.
Other expense, net for the third quarter and first nine months of 2008 and 2007 is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Reclamation estimate revisions $ 13 $ 1 $ 74 $ 18
Community development 15 12 47 39
Regional administration 10 8 31 29
Western Australia power plant 2 2 15 9
Peruvian royalty 4 1 15 5
Pension settlement loss 1 3 12 16
Provision for bad debts 11 1 11 1
World Gold Council dues 3 2 8 8
Accretion non-operating 2 2 7 6
Other 12 10 34 39
$ 73 $ 42 $ 254 $ 170
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Reclamation estimate revisions for the first nine months of 2008 primarily relate to an increase in the reclamation liability at the former Mt. Leyshon and Midnite mine sites. The Mt. Leyshon reclamation revision was for site characterization, stabilization and long-term surface water management due to overflow discharge from heavy rain. The Midnite mine reclamation increased in light of the recent decisions made in the U.S. District Court for the Eastern District of Washington. Reclamation estimate revisions for the first nine months of 2007 relate primarily to the former Resurrection and Empire mines. During the first nine months of 2008, we incurred $7 of additional costs at the Western Australia power plant as a result of an explosion on Varanus Island that damaged a natural gas supplier's plant. During the first nine months of 2008 and 2007, respectively, we incurred $12 and $16 settlement losses related to senior management retirements.
Other income, net for the third quarter and first nine months of 2008 and 2007 is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Canadian Oil Sands Trust income $ 36 $ 11 $ 91 $ 30
Gain on sale of exploration property 32 - 32 -
Gain on sale of investments, net 19 - 29 -
Interest income 7 11 24 34
Income from development projects, net 3 - 12 -
Gain on other asset sales, net 6 8 9 13
Foreign currency exchange (losses)
gains, net (7 ) 14 (20 ) 17
Other 4 2 13 6
$ 100 $ 46 $ 190 $ 100
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Gain on sale of investments, net in the third quarter and first nine months of 2008 was primarily attributable to the sale of marketable equity securities. Income from development projects, net in 2008 includes revenue net of incremental operating costs for the Awonsu pit at Ahafo.
Interest expense, net of capitalized interest decreased by $2 for the third quarter of 2008, compared to 2007 mainly due to repayment of the partner loan at Batu Hijau partially offset by decreased capitalized interest from the completion of the Yanacocha gold mill and increased interest from the corporate revolving credit facility. Interest expense, net of capitalized interest, decreased $4 for the first nine months of 2008 compared to 2007 mainly due to repayment of the partner loan at Batu Hijau and increased capitalized interest partially offset by interest on the convertible senior notes and corporate revolving credit facility. We expect 2008 Interest expense, net of capitalized interest to be approximately $90 to $110.
Income tax expense during the third quarter of 2008 was $3 compared to $86 during the third quarter of 2007, and $201 for the nine months of 2008 compared to $111 for the first nine months of 2007. The effective tax rate for the third quarter of 2008 was 1% compared to 14% for the third quarter of 2007. The decrease from the 2007 third quarter rate primarily relates to the reduction in income taxes resulting from revised estimates of reserves for income tax contingencies in jurisdictions where statute of limitations expired or where uncertain tax positions were considered effectively settled. The other primary reasons that our effective tax rates in the third quarter of 2008 and 2007 are lower than the United States statutory rate of 35% are: (i) U.S. percentage depletion, (ii) the effect of different income tax rates in countries where earnings are indefinitely reinvested, and (iii) the effect of our other foreign earnings, net of foreign taxes. The effective tax rate in the third quarter of 2007 is also different from the United States statutory rate of 35% due to a change in valuation allowance on deferred tax assets associated with foreign tax credits. For a complete discussion of the factors that influence our effective tax rate, see Management's Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report on Form 10-K for the year ended December 31, 2007, filed February 21, 2008. We expect the 2008 full year tax rate to be approximately 19% to 23%, assuming an average gold price of $875 per ounce.
Minority interest in income of consolidated subsidiariesdecreased $167 and $61 in the third quarter and the first nine months of 2008, respectively, as a result of lower earnings at Batu Hijau, partially offset by increased earnings at Yanacocha.
Income (loss) from discontinued operations was $19 for the third quarter of 2008 compared to $66 for the third quarter of 2007, and $23 for the first nine months of 2008 compared to ($1,567) for the first
nine months of 2007. Activity in the three months ended September 30, 2008 primarily relates to the US tax return provision revised tax expense on the sale of the royalty portfolio in 2007. Activity in the nine months ended September 30, 2008 includes the royalty portfolio sale tax revision as well as additional royalty revenue and the sale of Pajingo assets. Activity in the three months ended September 30, 2007 includes a gain on the Zarafshan-Newmont Joint Venture ("ZNJV") settlement related to the Uzbekistan government expropriation in 2006. Activity in the three and nine months ended September 30, 2007 includes the gain on the ZNJV settlement as well as a $1,665 non-cash charge to impair the goodwill associated with the royalty portfolio.
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