UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-31240
NEWMONT MINING CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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84-1611629 |
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
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6363 South Fiddler’s Green Circle |
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Greenwood Village, Colorado |
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80111 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code (303) 863-7414
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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(Do not check if a smaller reporting company.) |
Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). ☐ Yes ☒ No
There were 533,336,470 shares of common stock outstanding on October 19, 2017.
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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NEWMONT MINING CORPORATION
THIRD QUARTER 2017 RESULTS AND HIGHLIGHTS
(unaudited, in millions, except per share, per ounce and per pound)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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Financial Results: |
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Sales |
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$ |
1,879 |
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$ |
1,791 |
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$ |
5,413 |
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$ |
4,922 |
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Gold |
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$ |
1,799 |
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$ |
1,728 |
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$ |
5,186 |
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$ |
4,751 |
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Copper |
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$ |
80 |
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$ |
63 |
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$ |
227 |
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$ |
171 |
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Costs applicable to sales (1) |
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$ |
1,053 |
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$ |
983 |
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$ |
2,985 |
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$ |
2,736 |
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Gold |
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$ |
1,017 |
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$ |
918 |
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$ |
2,866 |
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$ |
2,571 |
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Copper |
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$ |
36 |
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$ |
65 |
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$ |
119 |
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$ |
165 |
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Net income (loss) from continuing operations |
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$ |
205 |
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$ |
135 |
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$ |
452 |
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$ |
109 |
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Net income (loss) |
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$ |
198 |
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$ |
(313) |
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$ |
407 |
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$ |
(116) |
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Net income (loss) from continuing operations attributable to Newmont stockholders |
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$ |
213 |
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$ |
169 |
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$ |
474 |
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$ |
171 |
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Per common share, diluted: |
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Net income (loss) from continuing operations attributable to Newmont stockholders |
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$ |
0.39 |
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$ |
0.32 |
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$ |
0.88 |
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$ |
0.32 |
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Net income (loss) attributable to Newmont stockholders |
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$ |
0.38 |
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$ |
(0.67) |
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$ |
0.80 |
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$ |
(0.53) |
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Adjusted net income (loss) (2) |
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$ |
183 |
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$ |
202 |
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$ |
564 |
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$ |
486 |
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Adjusted net income (loss) per share, diluted (2) |
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$ |
0.35 |
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$ |
0.38 |
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$ |
1.06 |
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$ |
0.91 |
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Earnings before interest, taxes and depreciation and amortization (2) |
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$ |
659 |
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$ |
622 |
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$ |
1,920 |
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$ |
1,768 |
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Adjusted earnings before interest, taxes and depreciation and amortization (2) |
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$ |
653 |
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$ |
666 |
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$ |
1,917 |
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$ |
1,736 |
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Net cash provided by (used in) operating activities of continuing operations |
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$ |
1,596 |
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$ |
1,333 |
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Free Cash Flow (2) |
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$ |
1,039 |
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$ |
501 |
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Cash dividends declared per common share |
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$ |
0.075 |
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$ |
0.025 |
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$ |
0.175 |
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$ |
0.075 |
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Operating Results: |
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Consolidated gold ounces (thousands): |
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Produced |
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1,441 |
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1,318 |
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4,208 |
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3,810 |
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Sold |
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1,411 |
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1,300 |
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4,151 |
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3,766 |
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Attributable gold ounces (thousands): |
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Produced |
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1,339 |
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1,246 |
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3,925 |
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3,575 |
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Sold |
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1,312 |
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1,230 |
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3,865 |
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3,534 |
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Consolidated and attributable copper pounds (millions): |
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Produced |
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27 |
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32 |
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87 |
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89 |
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Sold |
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26 |
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30 |
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84 |
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84 |
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Average realized price: |
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Gold (per ounce) |
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$ |
1,276 |
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$ |
1,329 |
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$ |
1,250 |
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$ |
1,261 |
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Copper (per pound) |
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$ |
3.06 |
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$ |
2.04 |
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$ |
2.71 |
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$ |
2.03 |
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Consolidated costs applicable to sales: (1)(2) |
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Gold (per ounce) |
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$ |
721 |
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$ |
706 |
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$ |
690 |
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$ |
682 |
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Copper (per pound) |
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$ |
1.38 |
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$ |
2.14 |
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$ |
1.42 |
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$ |
1.96 |
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All-in sustaining costs: (2) |
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Gold (per ounce) |
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$ |
943 |
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$ |
925 |
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$ |
909 |
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$ |
910 |
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Copper (per pound) |
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$ |
1.65 |
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$ |
2.57 |
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$ |
1.70 |
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$ |
2.30 |
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(1) |
Excludes Depreciation and amortization and Reclamation and remediation. |
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(2) |
See “Non-GAAP Financial Measures” beginning on page 72. |
1
Third Quarter 2017 Highlights
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Portfolio improvements: Declared commercial production for the Tanami Expansion Project at the end of August 2017, mined first ore at the Twin Creeks Underground mine in August 2017 and approved the Quecher Main project in October 2017 to extend the mine life at Yanacocha to 2027; |
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Attributable gold production: Increased 7% from the prior-year quarter to 1.34 million ounces, primarily due to new production from Merian and Long Canyon, partially offset by lower throughput at Twin Creeks and lower grades at Boddington; |
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Net income (loss): Delivered Net income (loss) from continuing operations attributable to Newmont stockholders of $213 or $0.39 per diluted share, an increase of $44 from the prior-year quarter, primarily due to higher gold production and lower income and mining taxes, partially offset by lower average realized gold prices; |
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Adjusted net income (loss): Delivered Adjusted net income (loss) of $183 or $0.35 per diluted share, an 8% decrease from the prior-year quarter (See “Non-GAAP Financial Measures” beginning on page 72); |
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Adjusted EBITDA: Generated $653 in Adjusted EBITDA, a 2% decrease from the prior-year quarter (See “Non-GAAP Financial Measures” beginning on page 72); and |
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Financial strength: Ended the quarter with $3.0 billion cash on hand and increased the dividend declared for the third quarter of 2017 to $0.075 per share, a 50% increase from the prior-year quarter dividend. |
Our global project pipeline
Projects included in our global pipeline comprise an important part of the Company’s growth strategy and reflect opportunities throughout the development cycle. The most advanced projects, including early stage development and projects in or near the execution phase are described below. The exploration, construction and execution of these projects may require significant funding to complete.
Tanami Expansion, Australia. This project included a second decline in the mine and incremental capacity in the plant to increase profitable production and serve as a platform for future growth. The project achieved commercial production at the end of August 2017 and is expected to maintain Tanami’s annual gold production at 425,000 to 475,000 ounces for the first five years of production. Development capital costs (excluding capitalized interest) since approval were $108, of which $8 related to the third quarter of 2017.
Subika Underground, Africa. This project leverages existing infrastructure and an optimized approach to develop Ahafo’s most promising underground resource. First production was achieved in June 2017, with commercial production expected in the second half of 2018. The project is expected to increase average annual gold production by between 150,000 and 200,000 ounces per year for the first five years beginning in 2019 with an initial mine life of approximately 11 years. Development capital costs (excluding capitalized interest) since approval were $44, of which $22 related to the third quarter of 2017.
Ahafo Mill Expansion, Africa. This project is designed to maximize resource value by improving production margins and accelerating stockpile processing. The project also supports profitable development of Ahafo’s highly prospective underground resource. First production is expected in the first half of 2019, with commercial production expected in the second half of 2019. The expansion is expected to increase average annual gold production by between 75,000 and 100,000 ounces per year for the first five years beginning in 2020. Development capital costs (excluding capitalized interest) since approval were $22, of which $13 related to the third quarter of 2017.
Twin Underground, North America. This project is a portal mine beneath Twin Creek’s Vista surface mine with similar mineralization. First production was achieved in August 2017, with commercial production expected in mid-2018. The expansion is expected to average between 30,000 and 40,000 ounces per year between 2018 and 2022. Development capital costs (excluding capitalized interest) since approval were $4, all of which related to the third quarter of 2017.
Quecher Main, South America. The Board of Directors approved the full funding of the Quecher Main project in October 2017. This project will add oxide production at Yanacocha, leverage existing infrastructure and enable potential future growth at Yanacocha. First production is expected in early 2019 with commercial production in the fourth quarter of 2019. Quecher Main extends the life of the Yanacocha operation to 2027 with average annual gold production of about 200,000 ounces per year (on a consolidated basis) between 2020 and 2025.
We manage our wider project portfolio to maintain flexibility to address the development risks associated with our projects including permitting, local community and government support, engineering and procurement availability, technical issues, escalating costs and other associated risks that could adversely impact the timing and costs of certain opportunities.
2
NEWMONT MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions except per share)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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Sales |
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$ |
1,879 |
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$ |
1,791 |
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$ |
5,413 |
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$ |
4,922 |
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Costs and expenses: |
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Costs applicable to sales (1) |
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1,053 |
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983 |
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2,985 |
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2,736 |
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Depreciation and amortization |
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327 |
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335 |
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928 |
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892 |
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Reclamation and remediation (Note 5) |
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29 |
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25 |
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103 |
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67 |
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Exploration |
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48 |
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39 |
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135 |
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107 |
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Advanced projects, research and development |
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41 |
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34 |
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99 |
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105 |
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General and administrative |
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58 |
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63 |
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171 |
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178 |
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Other expense, net (Note 6) |
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1 |
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21 |
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32 |
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54 |
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1,557 |
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1,500 |
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4,453 |
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4,139 |
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Other income (expense): |
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Other income, net (Note 7) |
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10 |
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(4) |
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32 |
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93 |
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Interest expense, net |
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(56) |
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(64) |
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(187) |
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(204) |
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(46) |
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(68) |
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(155) |
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(111) |
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Income (loss) before income and mining tax and other items |
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276 |
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223 |
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805 |
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672 |
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Income and mining tax benefit (expense) (Note 8) |
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(72) |
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(90) |
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(349) |
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(555) |
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Equity income (loss) of affiliates |
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1 |
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2 |
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(4) |
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(8) |
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Net income (loss) from continuing operations |
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205 |
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135 |
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452 |
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109 |
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Net income (loss) from discontinued operations (Note 3) |
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(7) |
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(448) |
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(45) |
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(225) |
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Net income (loss) |
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198 |
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(313) |
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407 |
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(116) |
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Net loss (income) attributable to noncontrolling interests |
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Continuing operations (Note 9) |
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8 |
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34 |
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22 |
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62 |
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Discontinued operations (Note 3) |
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— |
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(79) |
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— |
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(229) |
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8 |
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(45) |
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22 |
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(167) |
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Net income (loss) attributable to Newmont stockholders |
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$ |
206 |
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$ |
(358) |
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$ |
429 |
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$ |
(283) |
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Net income (loss) attributable to Newmont stockholders: |
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Continuing operations |
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$ |
213 |
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$ |
169 |
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$ |
474 |
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$ |
171 |
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Discontinued operations |
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(7) |
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(527) |
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(45) |
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(454) |
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$ |
206 |
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$ |
(358) |
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$ |
429 |
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$ |
(283) |
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Net income (loss) per common share (Note 10) |
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Basic: |
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Continuing operations |
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$ |
0.39 |
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$ |
0.32 |
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$ |
0.88 |
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$ |
0.32 |
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Discontinued operations |
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(0.01) |
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(0.99) |
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(0.08) |
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(0.85) |
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$ |
0.38 |
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$ |
(0.67) |
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$ |
0.80 |
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$ |
(0.53) |
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Diluted: |
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Continuing operations |
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$ |
0.39 |
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$ |
0.32 |
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$ |
0.88 |
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$ |
0.32 |
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Discontinued operations |
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(0.01) |
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(0.99) |
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(0.08) |
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(0.85) |
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$ |
0.38 |
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$ |
(0.67) |
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$ |
0.80 |
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$ |
(0.53) |
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Cash dividends declared per common share |
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$ |
0.075 |
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$ |
0.025 |
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$ |
0.175 |
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$ |
0.075 |
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(1) |
Excludes Depreciation and amortization and Reclamation and remediation. |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
3
NEWMONT MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in millions)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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||||
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Net income (loss) |
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$ |
198 |
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$ |
(313) |
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$ |
407 |
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$ |
(116) |
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Other comprehensive income (loss): |
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Change in marketable securities, net of $-, $-, $- and $- tax benefit (expense), respectively |
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5 |
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19 |
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(6) |
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(37) |
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Foreign currency translation adjustments |
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|
8 |
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3 |
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12 |
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|
10 |
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Change in pension and other post-retirement benefits, net of $(2), $(1), $(7) and $(3), tax benefit (expense), respectively |
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|
4 |
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1 |
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13 |
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8 |
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Change in fair value of cash flow hedge instruments, net of $(4), $(4), $(11) and $(19) tax benefit (expense), respectively |
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|
9 |
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|
16 |
|
|
23 |
|
|
51 |
|
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Other comprehensive income (loss) |
|
|
26 |
|
|
39 |
|
|
42 |
|
|
32 |
|
|
Comprehensive income (loss) |
|
$ |
224 |
|
$ |
(274) |
|
$ |
449 |
|
$ |
(84) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newmont stockholders |
|
$ |
232 |
|
$ |
(319) |
|
$ |
471 |
|
$ |
(251) |
|
|
Noncontrolling interests |
|
|
(8) |
|
|
45 |
|
|
(22) |
|
|
167 |
|
|
|
|
$ |
224 |
|
$ |
(274) |
|
$ |
449 |
|
$ |
(84) |
|
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
4
NEWMONT MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
|
|
|
Nine Months Ended September 30, |
|
||||
|
|
|
2017 |
|
2016 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
407 |
|
$ |
(116) |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
928 |
|
|
892 |
|
|
Stock-based compensation (Note 12) |
|
|
53 |
|
|
54 |
|
|
Reclamation and remediation |
|
|
97 |
|
|
60 |
|
|
Loss (income) from discontinued operations (Note 3) |
|
|
45 |
|
|
225 |
|
|
Deferred income taxes |
|
|
97 |
|
|
456 |
|
|
Gain on asset and investment sales, net |
|
|
(21) |
|
|
(109) |
|
|
Write-downs of inventory and stockpiles and ore on leach pads |
|
|
158 |
|
|
207 |
|
|
Other operating adjustments |
|
|
74 |
|
|
90 |
|
|
Net change in operating assets and liabilities (Note 22) |
|
|
(242) |
|
|
(426) |
|
|
Net cash provided by (used in) operating activities of continuing operations |
|
|
1,596 |
|
|
1,333 |
|
|
Net cash provided by (used in) operating activities of discontinued operations (1) |
|
|
(12) |
|
|
826 |
|
|
Net cash provided by (used in) operating activities |
|
|
1,584 |
|
|
2,159 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Additions to property, plant and mine development |
|
|
(557) |
|
|
(832) |
|
|
Purchases of investments |
|
|
(113) |
|
|
— |
|
|
Proceeds from sales of investments |
|
|
34 |
|
|
184 |
|
|
Other |
|
|
9 |
|
|
(13) |
|
|
Net cash provided by (used in) investing activities of continuing operations |
|
|
(627) |
|
|
(661) |
|
|
Net cash provided by (used in) investing activities of discontinued operations |
|
|
— |
|
|
(41) |
|
|
Net cash provided by (used in) investing activities |
|
|
(627) |
|
|
(702) |
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Repayment of debt |
|
|
(579) |
|
|
(777) |
|
|
Distributions to noncontrolling interests |
|
|
(119) |
|
|
— |
|
|
Dividends paid to common stockholders |
|
|
(94) |
|
|
(41) |
|
|
Funding from noncontrolling interests |
|
|
70 |
|
|
58 |
|
|
Payments for withholding of employee taxes related to stock-based compensation |
|
|
(13) |
|
|
(6) |
|
|
Dividends paid to noncontrolling interests |
|
|
— |
|
|
(146) |
|
|
Acquisition of noncontrolling interests |
|
|
— |
|
|
(19) |
|
|
Other |
|
|
(13) |
|
|
(1) |
|
|
Net cash provided by (used in) financing activities of continuing operations |
|
|
(748) |
|
|
(932) |
|
|
Net cash provided by (used in) financing activities of discontinued operations |
|
|
— |
|
|
(319) |
|
|
Net cash provided by (used in) financing activities |
|
|
(748) |
|
|
(1,251) |
|
|
Effect of exchange rate changes on cash |
|
|
4 |
|
|
4 |
|
|
Net change in cash and cash equivalents |
|
|
213 |
|
|
210 |
|
|
Less net cash provided by (used in) Batu Hijau discontinued operations |
|
|
— |
|
|
474 |
|
|
|
|
|
213 |
|
|
(264) |
|
|
Cash and cash equivalents at beginning of period |
|
|
2,756 |
|
|
2,363 |
|
|
Cash and cash equivalents at end of period |
|
$ |
2,969 |
|
$ |
2,099 |
|
|
(1) |
Net cash provided by (used in) operating activities of discontinued operations includes $(3) related to closing costs for the sale of Batu Hijau that were paid in 2017 and $(9) and $(8) related to the Holt royalty obligation, all of which were paid out of cash and cash equivalents held for use for the nine months ended September 30, 2017 and 2016, respectively. For additional information regarding our discontinued operations, including cash flows from Batu Hijau, see Note 3. |
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
5
NEWMONT MINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions)
|
|
|
At September 30, |
|
At December 31, |
|
||
|
|
|
2017 |
|
2016 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,969 |
|
$ |
2,756 |
|
|
Trade receivables |
|
|
131 |
|
|
160 |
|
|
Other accounts receivables |
|
|
116 |
|
|
183 |
|
|
Investments (Note 15) |
|
|
76 |
|
|
56 |
|
|
Inventories (Note 16) |
|
|
692 |
|
|
617 |
|
|
Stockpiles and ore on leach pads (Note 17) |
|
|
714 |
|
|
763 |
|
|
Other current assets |
|
|
110 |
|
|
142 |
|
|
Current assets |
|
|
4,808 |
|
|
4,677 |
|
|
Property, plant and mine development, net |
|
|
12,173 |
|
|
12,485 |
|
|
Investments (Note 15) |
|
|
292 |
|
|
227 |
|
|
Stockpiles and ore on leach pads (Note 17) |
|
|
1,796 |
|
|
1,864 |
|
|
Deferred income tax assets |
|
|
1,288 |
|
|
1,331 |
|
|
Other non-current assets |
|
|
479 |
|
|
447 |
|
|
Total assets |
|
$ |
20,836 |
|
$ |
21,031 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Debt (Note 18) |
|
$ |
4 |
|
$ |
566 |
|
|
Accounts payable |
|
|
315 |
|
|
320 |
|
|
Employee-related benefits |
|
|
258 |
|
|
304 |
|
|
Income and mining taxes payable |
|
|
195 |
|
|
153 |
|
|
Other current liabilities (Note 19) |
|
|
378 |
|
|
407 |
|
|
Current liabilities |
|
|
1,150 |
|
|
1,750 |
|
|
Debt (Note 18) |
|
|
4,046 |
|
|
4,049 |
|
|
Reclamation and remediation liabilities (Note 5) |
|
|
2,066 |
|
|
2,029 |
|
|
Deferred income tax liabilities |
|
|
606 |
|
|
592 |
|
|
Employee-related benefits |
|
|
380 |
|
|
411 |
|
|
Other non-current liabilities (Note 19) |
|
|
357 |
|
|
326 |
|
|
Total liabilities |
|
|
8,605 |
|
|
9,157 |
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
Common stock |
|
|
853 |
|
|
849 |
|
|
Additional paid-in capital |
|
|
9,526 |
|
|
9,490 |
|
|
Accumulated other comprehensive income (loss) (Note 21) |
|
|
(292) |
|
|
(334) |
|
|
Retained earnings |
|
|
1,051 |
|
|
716 |
|
|
Newmont stockholders' equity |
|
|
11,138 |
|
|
10,721 |
|
|
Noncontrolling interests |
|
|
1,093 |
|
|
1,153 |
|
|
Total equity |
|
|
12,231 |
|
|
11,874 |
|
|
Total liabilities and equity |
|
$ |
20,836 |
|
$ |
21,031 |
|
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
6
The interim Condensed Consolidated Financial Statements (“interim statements”) of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont” or the “Company”) are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with Newmont’s Consolidated Financial Statements for the year ended December 31, 2016 filed on February 21, 2017 on Form 10-K. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by United States (“U.S.”) generally accepted accounting principles (“GAAP”) have been condensed or omitted. References to “A$” refers to Australian currency and “C$” refers to Canadian currency.
On November 2, 2016, Newmont completed the sale of its 48.5% economic interest in PT Newmont Nusa Tenggara (“PTNNT”), which operated the Batu Hijau copper and gold mine (“Batu Hijau”) in Indonesia (the “Batu Hijau Transaction”). As a result, Newmont presents Batu Hijau as a discontinued operation for all periods presented. Accordingly, (i) our Condensed Consolidated Statements of Operations and Cash Flows have been reclassified to present Batu Hijau as a discontinued operation for all periods presented and (ii) the amounts presented in these notes relate only to our continuing operations, unless otherwise noted. For additional information regarding our discontinued operations, see Note 3.
The Company has reclassified $33 from Other accounts receivables to Trade receivables as of December 31, 2016 to conform to the 2017 presentation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
As a global mining company, the Company’s revenue, profitability and future rate of growth are substantially dependent on prevailing prices for gold and copper. Historically, the commodity markets have been very volatile, and there can be no assurance that commodity prices will not be subject to wide fluctuations in the future. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows, access to capital and on the quantities of reserves that the Company can economically produce. The carrying value of the Company’s Property, plant and mine development, net; Inventories; Stockpiles and ore on leach pads and Deferred income tax assets are particularly sensitive to the outlook for commodity prices. A decline in the Company’s price outlook from current levels could result in material impairment charges related to these assets.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. The Company must make these estimates and assumptions because certain information used is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methodologies. Actual results could differ from these estimates.
Recently Adopted Accounting Pronouncements
Inventory
In July 2015, Accounting Standard Update (“ASU”) No. 2015-11 was issued related to inventory, simplifying the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net
7
realizable value test. The update is effective in fiscal years, including interim periods, beginning after December 15, 2016. The Company records inventory at the lower of cost or net realizable value and the adoption of this guidance, effective January 1, 2017, had no impact on the Consolidated Financial Statements or disclosures.
Stock-based compensation
In March 2016, ASU No. 2016-09 was issued related to stock-based compensation. The new guidance simplifies the accounting for stock-based compensation transactions, including income tax consequences, classification of awards as either equity or liabilities and classification of cash payments related to tax withholdings on behalf of employees on the Consolidated Statements of Cash Flows. This update is effective in fiscal years, including interim periods, beginning after December 15, 2016. The Company adopted this guidance as of January 1, 2017, and reclassified $(6) from Net cash provided by (used in) operating activities of continuing operations to Net cash provided by (used in) financing activities of continuing operations for the nine months ended September 30, 2016. Adoption of this guidance had no other impact on the Consolidated Financial Statements or disclosures.
Business Combinations
In January 2017, ASU No. 2017-01 was issued clarifying the definition of a business and providing additional guidance for determining whether transactions should be accounted for as acquisitions of assets or businesses. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is permitted. The new guidance is required to be applied on a prospective basis. Adoption of this guidance, effective April 1, 2017, had no impact on the Consolidated Financial Statements or disclosures.
Goodwill
In January 2017, ASU No. 2017-04 was issued, which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early adoption is permitted. Adoption of this guidance, effective April 1, 2017, had no impact on the Consolidated Financial Statements or disclosures.
Recently Issued Accounting Pronouncements
Revenue recognition
In May 2014, ASU No. 2014-09 was issued related to revenue from contracts with customers. This ASU was further amended in August 2015, March 2016, April 2016, May 2016, December 2016, and September 2017 by ASU No. 2015-14, No. 2016-08, No. 2016-10, No. 2016-12, No. 2016-20 and No. 2017-13, respectively. The new guidance provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the effective date was deferred to reporting periods, including interim periods, beginning after December 15, 2017, and will be applied retrospectively.
The Company has performed an assessment of the revised guidance and the impacts on the Company’s Consolidated Financial Statements and disclosures. The Company has completed the review of all contracts and determined that the adoption of this guidance will primarily impact the timing of revenue recognition on certain concentrate contracts based on the Company’s determination of when control is transferred. Currently, revenue is recognized for these contracts based on varying contractual terms indicating when risk of loss and title have transferred to the buyer. Upon adoption, revenue related to concentrate sales will typically be recognized upon completion of
8
loading the material for shipment to the customer and satisfaction of the Company’s significant performance obligations. The Company is finalizing the assessment and quantifying the impacts of changes on certain concentrate contracts.
The Company completed its evaluation of variable consideration for concentrate sales related to the variable nature of the price and metal quantity. Based on our current analysis, the estimate of revenue recognized for concentrates will remain unchanged as sales will initially be recorded on a provisional basis based on the forward prices for the estimated month of settlement and the Company’s estimated metal quantities delivered based on weighing and assay data. The Company believes changes in the underlying weight and metal content are not significant to the sale as a whole and therefore do not preclude the recognition of revenue upon transfer of control. The Company’s provisional gold and copper concentrate sales will continue to contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the gold and copper concentrates at the prevailing indices’ prices at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to final settlement.
The Company will adopt the new guidance effective January 1, 2018. The guidance may be applied retrospectively for all periods presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company currently anticipates adopting the guidance retrospectively with the cumulative effect of initially applying the amended guidance recognized at January 1, 2018.
Under this approach, results for reporting periods beginning after January 1, 2018, will be presented in the Consolidated Financial Statements under the new guidance, while prior period amounts will not be adjusted and continue to be reported under the guidance in effect for those periods. In the related disclosures, results for reporting periods beginning after January 1, 2018, will be presented under prior guidance along with prior period amounts for comparative purposes. Expanded disclosures will also include gold revenue from doré production, gold and copper revenue from concentrate sales and copper revenue from cathode sales, as well as information pertaining to receivable balances, and revenue recognized in the current reporting period related to changes in price and metal quantity from performance obligations satisfied in previous periods, if material.
Investments
In January 2016, ASU No. 2016-01 was issued related to financial instruments. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. This new guidance also updates certain disclosure requirements for these investments. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and upon adoption, an entity should apply the amendments with the cumulative effect of initially applying the guidance recognized at January 1, 2018. Early adoption is not permitted. The Company expects the updated guidance to result in a reclassification of unrealized holding gains and losses and deferred income taxes related to investments in marketable equity securities from Accumulated other comprehensive income (loss) to Retained earnings in the Consolidated Balance Sheets upon adoption. Accumulated other comprehensive income (loss) at September 30, 2017 included $(107) of unrealized holding gains and losses and deferred income taxes related to marketable equity securities.
Leases
In February 2016, ASU No. 2016-02 was issued related to leases, which was further amended in September 2017 by ASU No. 2017-13. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities arising from most leases on the balance sheet. The Company has begun its assessment of the new guidance and the impact it will have on the Consolidated Financial Statements and disclosures and expects to complete its analysis
9
in 2018. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted. The Company anticipates adopting the new guidance effective January 1, 2019.
Statement of Cash Flows
In August 2016, ASU No. 2016-15 was issued related to the statement of cash flows. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is permitted. The Company has evaluated this guidance and does not expect it to have a material impact on the Consolidated Financial Statements and disclosures. The Company anticipates retrospectively adopting the new guidance effective December 31, 2017.
Intra-Entity Transfers
In October 2016, ASU No. 2016-16 was issued related to the intra-entity transfers of assets other than inventory. This new guidance requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is permitted. The Company does not expect this guidance to have an impact on the Consolidated Financial Statements or disclosures. The Company anticipates adopting the new guidance effective January 1, 2018.
Restricted Cash
In November 2016, ASU No. 2016-18 was issued related to the inclusion of restricted cash in the statement of cash flows. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is permitted. The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes in restricted cash activity, which is currently recognized in Other within financing activities, on the Consolidated Statements of Cash Flows. Furthermore, the Company will be required to reconcile Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total shown in the Consolidated Statements of Cash Flows. The Company anticipates retrospectively adopting this new guidance effective December 31, 2017, and does not expect it to have a material impact on the Consolidated Financial Statements or disclosures.
Employee Benefits
In March 2017, ASU No. 2017-07 was issued related to the presentation of net periodic pension and postretirement cost. The new guidance requires the service cost component of net benefit costs be classified similar to other compensation costs arising from services rendered by employees. Other components of net benefit costs are required to be classified separately from the service cost and outside income from operations. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017. The Company anticipates adopting this new guidance effective January 1, 2018. The adoption of this guidance will result in the recognition of other components of net benefit costs within Other income, net rather than Costs and expenses and will no longer be included in costs that benefit the inventory/production process. The adoption of this guidance is not expected to have a material impact on the Consolidated Financial Statements or disclosures.
10
Hedging
In August 2017, ASU No. 2017-12 was issued related to hedge accounting. The new guidance expands the ability to hedge nonfinancial risk components, eliminates the current requirement to separately measure and report hedge ineffectiveness, and requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item, when reclassified from Accumulated other comprehensive income (loss). The guidance also eases certain hedge effectiveness documentation and assessment requirements. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating when to adopt this guidance and the impact it will have on the Consolidated Financial Statements and disclosures.
NOTE 3 DISCONTINUED OPERATIONS
The details of our Net income (loss) from discontinued operations are set forth below:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Holt royalty obligation |
|
$ |
(7) |
|
$ |
(19) |
|
$ |
(45) |
|
$ |
(72) |
|
|
Batu Hijau operations |
|
|
— |
|
|
148 |
|
|
— |
|
|
424 |
|
|
Loss on classification as held for sale |
|
|
— |
|
|
(577) |
|
|
— |
|
|
(577) |
|
|
Net income (loss) from discontinued operations |
|
$ |
(7) |
|
$ |
(448) |
|
$ |
(45) |
|
$ |
(225) |
|
The Holt Royalty Obligation
Discontinued operations include a retained royalty obligation to Holloway Mining Company. Holloway Mining Company, which owned the Holt-McDermott property (“Holt”), was sold to St. Andrew Goldfields Ltd. (“St. Andrew”) in 2006. In January 2016, St. Andrew was acquired by Kirkland Lake Gold Ltd.
At September 30, 2017 and December 31, 2016, the estimated fair value of the Holt royalty obligation was $248 and $187, respectively. Changes to the estimated fair value resulting from periodic revaluations are recorded to Net income (loss) from discontinued operations. During the three and nine months ended September 30, 2017, the Company recorded a gain (loss) of $(7) and $(45), net of a tax benefit (expense) of $4 and $25, respectively. During the three and nine months ended September 30, 2016, the Company recorded a gain (loss) of $(19) and $(72), net of tax benefit (expense) of $9 and $32, respectively.
During the nine months ended September 30, 2017 and 2016, the Company paid $9 and $8, respectively, related to the Holt royalty obligation. Refer to Note 13 for additional information on the Holt royalty obligation.
The Batu Hijau Transaction
On November 2, 2016, Newmont completed the sale of its 48.5% economic interest in PTNNT, which operated the Batu Hijau copper and gold mine, previously reported in the Asia Pacific segment (renamed as the Australia segment during the first quarter of 2017).
As of September 30, 2016, the Company classified PTNNT as held for sale. As a result, and in accordance with ASC 360, the Company compared the estimated fair value of the PTNNT disposal group to its carrying value and determined that the carrying value exceeded the fair value. Consequently, the Company recorded a charge to Loss on classification as held for sale of $577 for the quarter ended September 30, 2016.
11
Net income (loss) from discontinued operations in the Condensed Consolidated Statements of Operations that relates to Batu Hijau consists of the following:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||
|
|
|
September 30, 2016 |
|
September 30, 2016 |
|
||
|
Sales |
|
$ |
469 |
|
$ |
1,408 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Costs applicable to sales (1) |
|
|
184 |
|
|
571 |
|
|
Depreciation and amortization |
|
|
36 |
|
|
115 |
|
|
Reclamation and remediation |
|
|
4 |
|
|
13 |
|
|
Advanced projects, research and development |
|
|
1 |
|
|
2 |
|
|
General and administrative |
|
|
2 |
|
|
8 |
|
|
Other expense (income), net |
|
|
(1) |
|
|
2 |
|
|
|
|
|
226 |
|
|
711 |
|
|
Interest expense, net |
|
|
(5) |
|
|
(15) |
|
|
Income (loss) before income and mining tax and other items |
|
|
238 |
|
|
682 |
|
|
Income and mining tax benefit (expense) |
|
|
(90) |
|
|
(258) |
|
|
Net income (loss) from discontinued operations |
|
|
148 |
|
|||