<PAGE> 1
NEWMONT MINING CORPORATION
<PAGE> 2
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
MARCH 19, 1997
NEWMONT MINING CORPORATION
<TABLE>
<S> <C> <C>
DELAWARE 1-1153 13-1806811
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION)
</TABLE>
1700 LINCOLN STREET, DENVER, CO 80203
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(303) 863-7414
================================================================================
<PAGE> 3
ITEM 5. OTHER EVENTS.
In connection with the filing by Newmont Mining Corporation ("Newmont
Mining") of Amendment No. 1 to its Registration Statement on Form S-4 (No.
333-19335), Newmont Mining is filing as Exhibits herewith a copy of its
consolidated financial statements for the year ended December 31, 1996, together
with the report thereon of Arthur Andersen LLP, independent auditors, (which is
attached as Exhibit 99.1 and is incorporated herein by reference) and a copy of
its Management's Discussion and Analysis of Results of Operations and Financial
Condition for the three year period ended December 31, 1996 (which is attached
as Exhibit 99.2 and is incorporated herein by reference).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) None.
(b) None.
(c) Exhibits.
23.1 Consent of Arthur Andersen LLP.
99.1 Newmont Mining's consolidated financial statements for the year
ended December 31, 1996, together with the report thereon of Arthur
Andersen LLP, independent auditors.
99.2 Newmont Mining Management's Discussion and Analysis of Results of
Operations and Financial Condition for the three year period ended
December 31, 1996.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEWMONT MINING CORPORATION
By: /s/ TIMOTHY J. SCHMITT
------------------------------------
Timothy J. Schmitt
Vice President, Secretary
and Assistant General Counsel
Date: March 19, 1997
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 23.1 Consent of Arthur Andersen LLP.
Exhibit 99.1 Newmont Mining's consolidated financial statements for the
year ended December 31, 1996, together with the report
thereon of Arthur Andersen LLP, independent auditors.
Exhibit 99.2 Newmont Mining Management's Discussion and Analysis of
Results of Operations and Financial Condition for the
three-year period ended December 31, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Current Report on Form 8-K dated March 19, 1997
into Newmont Mining Corporation's previously filed S-8 Registration Statement
No. 33-49872, S-8 Registration Statement No. 33-53267, S-3 Registration
Statement No. 33-54249, S-8 Registration Statement No. 33-62469, S-8
Registration Statement No. 333-04161 and S-4 Registration Statement No.
333-19335.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado
March 19, 1997.
<PAGE> 1
EXHIBIT 99.1
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newmont Mining Corporation:
We have audited the accompanying consolidated balance sheets of Newmont
Mining Corporation (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related statements of consolidated income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newmont Mining Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 28, 1997,
except for Note 17
as to which the date is
March 10, 1997.
1
<PAGE> 2
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales and other income
Sales.................................................... $768,455 $636,219 $597,370
Dividends, interest and other............................ 26,471 42,157 22,316
Gain on disposition of investment........................ -- 113,188 --
-------- -------- --------
794,926 791,564 619,686
-------- -------- --------
Costs and expenses
Costs applicable to sales................................ 476,090 370,617 326,385
Depreciation, depletion and amortization................. 124,841 106,835 91,115
Exploration and research................................. 58,709 57,291 69,151
General and administrative............................... 48,093 43,219 38,518
Interest, net of amounts capitalized..................... 43,987 36,415 9,823
Write-off of exploration properties...................... -- 52,537 --
Other.................................................... 13,855 11,681 46,029
-------- -------- --------
765,575 678,595 581,021
-------- -------- --------
Income before equity income and income taxes............... 29,351 112,969 38,665
Equity in income of affiliated companies................... 45,221 28,895 15,395
-------- -------- --------
Pre-tax income............................................. 74,572 141,864 54,060
Income tax benefit (provision)............................. 19,400 (16,992) 29,334
Minority interest in income of Newmont Gold Company........ (8,896) (12,238) (7,273)
-------- -------- --------
Net income................................................. 85,076 112,634 76,121
Preferred stock dividends.................................. -- 11,157 15,813
-------- -------- --------
Net income applicable to common shares..................... $ 85,076 $101,477 $ 60,308
======== ======== ========
Net income per common share................................ $ 0.86 $ 1.17 $ 0.70
======== ======== ========
Average shares outstanding................................. 99,357 87,006 86,147
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
NEWMONT MINING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 185,681 $ 59,142
Short-term investments...................................... 12,724 11,820
Accounts receivable......................................... 28,692 24,458
Inventories................................................. 188,345 173,984
Other current assets........................................ 40,440 20,128
---------- ----------
Current assets............................................ 455,882 289,532
Property, plant and mine development, net................... 1,301,952 1,255,278
Other long-term assets...................................... 323,240 228,960
---------- ----------
Total assets...................................... $2,081,074 $1,773,770
========== ==========
LIABILITIES
Short-term debt............................................. $ 45,981 $ 29,179
Current portion of long-term debt........................... 19,250 4,375
Accounts payable............................................ 48,099 38,570
Other accrued liabilities................................... 110,764 122,312
---------- ----------
Current liabilities....................................... 224,094 194,436
Long-term debt.............................................. 585,009 604,259
Reclamation and remediation liabilities..................... 60,672 64,795
Other long-term liabilities................................. 79,244 85,352
---------- ----------
Total liabilities................................. 949,019 948,842
---------- ----------
Minority interest in Newmont Gold Company................... 107,168 81,981
---------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock -- $1.60 par value; 120,000 shares authorized;
99,829 and 94,802 shares issued less 307 and 591 treasury
shares, respectively...................................... 159,237 150,738
Capital in excess of par value.............................. 565,246 308,566
Retained earnings........................................... 300,404 283,643
---------- ----------
Total stockholders' equity........................ 1,024,887 742,947
---------- ----------
Total liabilities and stockholders' equity........ $2,081,074 $1,773,770
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN
----------------- ----------------- EXCESS OF RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS
------ -------- ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... 2,875 $ 14,375 85,796 $137,274 $293,031 $185,152
Transaction with parent (Note 2)..... -- -- -- -- -- 14,069
Common stock issued from treasury,
primarily for stock options
exercised......................... -- -- 284 454 9,769 (350)
Net income........................... -- -- -- -- -- 76,121
Common stock dividends -- $0.48 per
share............................. -- -- -- -- -- (41,452)
Preferred stock dividends -- $5.50
per share......................... -- -- -- -- -- (15,813)
Minimum pension liability
adjustment........................ -- -- -- -- -- 835
------ -------- ------ -------- -------- --------
Balance at December 31, 1994........... 2,875 14,375 86,080 137,728 302,800 218,562
Stock options exercised.............. -- -- 232 372 8,126 (280)
Preferred stock redemption and
conversion, net of costs.......... (2,875) (14,375) 7,899 12,638 (2,360) 5,260
Net income........................... -- -- -- -- -- 112,634
Common stock dividends -- $0.48 per
share............................. -- -- -- -- -- (41,823)
Preferred stock dividends -- $3.88
per share......................... -- -- -- -- -- (11,157)
Minimum pension liability
adjustment........................ -- -- -- -- -- 447
------ -------- ------ -------- -------- --------
Balance at December 31, 1995........... -- -- 94,211 150,738 308,566 283,643
Common stock issuance................ -- -- 4,651 7,442 233,814 (19,465)
Stock options exercised.............. -- -- 660 1,057 23,182 (1,190)
Net income........................... -- -- -- -- -- 85,076
Common stock dividends -- $0.48 per
share............................. -- -- -- -- -- (47,732)
Minimum pension liability
adjustment........................ -- -- -- -- -- 72
Other................................ -- -- -- -- (316) --
------ -------- ------ -------- -------- --------
Balance at December 31, 1996........... -- $ -- 99,522 $159,237 $565,246 $300,404
====== ======== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income............................................ $ 85,076 $ 112,634 $ 76,121
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization........... 124,841 106,835 91,115
Undistributed earnings of affiliates............... (13,134) (3,603) (14,553)
Minority interest, net of dividends................ 3,901 7,253 1,318
Deferred taxes..................................... (15,840) (16,300) (28,052)
Gain on sale of investments........................ -- (113,188) --
Write-off of exploration properties................ -- 52,591 --
Other.............................................. 1,644 1,128 (1,950)
(Increase) decrease in operating assets:
Accounts receivable.............................. (4,113) 13,815 9,970
Inventories...................................... (45,960) (55,669) (13,336)
Other assets..................................... (15,202) 8,816 1,609
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses............ 14,412 43,552 24,868
Other liabilities................................ (246) (5,683) (3,378)
--------- --------- ---------
Net cash provided by operating activities............... 135,379 152,181 143,732
--------- --------- ---------
Investing Activities
Additions to property, plant and mine development..... (231,174) (309,269) (402,030)
Proceeds from sale of investment...................... -- 116,357 --
Advances to joint venture............................. (3,684) (30,543) (14,675)
Other................................................. (4,126) (8,345) 15,533
--------- --------- ---------
Net cash used in investing activities................... (238,984) (231,800) (401,172)
--------- --------- ---------
Financing Activities
Short-term borrowings................................. 16,802 13,440 --
Proceeds from long-term borrowings.................... -- 15,000 528,634
Repayments of long-term borrowings.................... (4,375) -- (127,000)
Proceeds from issuance of common stock................ 265,449 8,034 10,599
Dividends paid on common stock........................ (47,732) (41,823) (41,452)
Dividends paid on preferred stock..................... -- (11,860) (15,813)
Preferred stock redemption and conversion costs....... -- (4,442) --
Debt issuance costs................................... -- (225) (6,641)
--------- --------- ---------
Net cash provided by (used in) financing activities..... 230,144 (21,876) 348,327
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 126,539 (101,495) 90,887
Cash and cash equivalents at beginning of year.......... 59,142 160,637 69,750
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 185,681 $ 59,142 $ 160,637
========= ========= =========
</TABLE>
See Note 14 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont
Mining Corporation ("NMC") and its more-than-50% owned subsidiaries
(collectively, the "Corporation"). The Corporation also includes its pro-rata
share of assets, liabilities and operations for joint ventures in which it has
an interest. All significant intercompany balances and transactions have been
eliminated. NMC's principal subsidiary is Newmont Gold Company ("NGC"), which
holds all of the operating assets of the Corporation and is approximately 91%
owned by NMC. The functional currency for all subsidiaries is the U.S. dollar.
NATURE OF OPERATIONS
The Corporation is a worldwide company engaged in gold production,
exploration for gold and acquisition of gold properties. Substantially all of
the Corporation's consolidated sales and operating profit in 1995 and 1994
related to its gold mining activities in the United States. In 1996, the
Corporation's consolidated sales resulted from operations in the United States,
Uzbekistan and Indonesia. See geographic information in Note 15. Although most
of the Corporation's consolidated identifiable assets relate to domestic
activities, 19% of its assets as of December 31, 1996 related to foreign
operations. The Minahasa project in Indonesia began production in early 1996,
operations commenced in Uzbekistan in 1995 and the Corporation has a
nonconsolidated equity interest in a property in Peru that went into production
in 1993. The Corporation carries political risk insurance on its investments in
all three countries. The Corporation also conducts exploration for gold deposits
worldwide.
Gold mining requires the use of specialized facilities and technology. The
Corporation relies heavily on such facilities to maintain its production levels.
Also, the profitability of the Corporation's current operations is
significantly affected by the market price of gold. Market gold prices can
fluctuate widely and are affected by numerous factors beyond the Corporation's
control.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of the
short maturity of these investments, the carrying amounts approximate their fair
value. Excess cash balances are primarily invested in United States Treasury
bills, with lesser amounts invested in high-quality commercial paper and time
deposits.
INVESTMENTS
Short-term investments are carried at cost, which approximates market, and
include Eurodollar government and corporate obligations rated AA or higher. At
December 31, 1996 and 1995, $8.7 million and $7.9 million, respectively, of such
investments secured letters of credit.
6
<PAGE> 7
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in companies in which NGC's ownership is 20% to 50% are
accounted for by the equity method of accounting and are included in other
long-term assets. Included in such investments is NGC's 38% equity investment in
Minera Yanacocha S.A. (See Note 17). Summarized financial information for Minera
Yanacocha S.A. follows (in millions):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales.................................................... $313.9 $212.5 $116.6
Costs applicable to sales and depreciation, depletion and
amortization........................................... $ 89.2 $ 66.7 $ 42.2
Exploration.............................................. $ 17.5 $ 11.4 $ 4.1
Other, including Peruvian income tax provision........... $ 82.5 $ 53.6 $ 29.1
Net income............................................... $124.7 $ 80.8 $ 41.2
Dividends applicable to NGC's 38% interest............... $ 29.6 $ 23.2 $ --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Current assets.............................................. $ 85.2 $ 71.7
Noncurrent assets........................................... 108.2 88.1
------ ------
Total assets...................................... $193.4 $159.8
====== ======
Current liabilities......................................... $ 45.4 $ 50.0
Noncurrent liabilities...................................... 39.8 48.3
------ ------
Total liabilities................................. $ 85.2 $ 98.3
====== ======
Total equity...................................... $108.2 $ 61.5
====== ======
</TABLE>
As a result of the contemplated ownership structure discussed in Note 16,
the Batu Hijau project in Indonesia is being accounted for as an equity
investment effective July 1996. The Corporation's investment at December 31,
1996 was $46.6 million.
Investments in companies owned less than 20% are recorded at the lower of
cost or net realizable value. Income from such investments is recorded when
dividends are paid. The Corporation held no such investments at December 31,
1996 or 1995.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at the
lower of average cost or net realizable value. Precious metals are stated at
market value.
Non-current inventories are stated at the lower of average cost or net
realizable value and represent ore-in-stockpiles from which no material is
expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which extend the useful
lives of existing facilities are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives of such facilities. Productive lives range from 2 to
21 years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body and remove overburden to initially expose the ore body, are capitalized.
Such costs, and
7
<PAGE> 8
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated future development costs, are amortized using a unit-of-production
method over the estimated life of the ore body. On-going development
expenditures to maintain production are generally charged to operations as
incurred.
Significant payments related to the acquisition of exploration interests
are capitalized. If a mineable ore body is discovered, such costs are amortized
using a unit-of-production method. If no mineable ore body is discovered, such
costs are expensed in the period in which it is determined the property has no
future economic value.
Interest expense allocable to the cost of developing mining properties and
to constructing new facilities is capitalized until operations commence.
Gains or losses from normal sales or retirements of assets are included in
other income or expense.
REVENUE RECOGNITION
Gold sales are recognized when gold is produced.
MINING COSTS
In general, mining costs are charged to operations as incurred. However,
certain of the Corporation's deposits have diverse grade and waste-to-ore ratios
over the mine's life. Mining costs for these deposits, to the extent they do not
relate to current gold production, are capitalized and then charged to
operations when the applicable gold is produced.
RECLAMATION AND REMEDIATION COSTS
Estimated future reclamation and remediation costs are based principally on
legal and regulatory requirements. Such costs related to active mines are
accrued and charged over the expected operating lives of the mines using a
unit-of-production method. Future reclamation and remediation costs for inactive
mines are accrued based on management's best estimate at the end of each period
of the undiscounted costs expected to be incurred at a site. Such cost estimates
include where applicable, ongoing care, maintenance and monitoring costs.
Changes in estimates are charged to earnings in the period an estimate is
revised.
INCOME TAXES
The Corporation accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the liability method of SFAS 109, the Corporation recognizes certain temporary
differences between the financial reporting basis of the Corporation's
liabilities and assets and the related income tax basis for such liabilities and
assets. This generates a net deferred income tax liability or net deferred
income tax asset for the Corporation as of the end of the year, as measured by
the statutory tax rates in effect as enacted. The Corporation derives its
deferred income tax charge or benefit by recording the change in the net
deferred income tax liability or net deferred income tax asset balance for the
year.
The Corporation's deferred income tax assets include certain future tax
benefits such as net operating losses or tax credit carryforwards. The
Corporation must record a valuation allowance against any portion of those
deferred income tax assets which it believes it will more likely than not fail
to realize.
GOLD HEDGING ACTIVITIES
The Corporation may enter into gold loans, options contracts and forward
sales contracts to hedge the effect of price changes on the gold it produces.
Gains and losses realized on such instruments, as well as any cost or revenue
associated therewith, are recognized in sales when the related gold is produced.
8
<PAGE> 9
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
The treasury stock method is used in computing earnings per common and
common equivalent share. Earnings per common and common equivalent share are
based on the sum of the weighted average number of common shares outstanding
during each period and the assumed exercise of stock options having exercise
prices less than the average market prices of the common stock. The convertible
preferred shares outstanding until conversion, as discussed in Note 8, were not
common stock equivalents as they were anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
1996 presentation.
(2) TRANSACTION WITH NEWMONT GOLD COMPANY
Effective January 1, 1994, NGC acquired essentially all of the
Corporation's non-NGC assets and assumed essentially all of the Corporation's
non-NGC liabilities. As part of the transaction, NMC transferred 8,649,899
shares of NGC stock to NGC. The result of the transaction is that the common
shareholders of both entities have interests in the same assets and liabilities.
Furthermore, NMC declared a 1.2481 shares to 1 share stock split on March 21,
1994 which resulted in the two entities having identical per share earnings.
The transfer of assets, NGC common stock and liabilities to NGC was
recorded at historical cost since the transaction was between entities under
common control. As a result of the transaction, consolidated retained earnings
increased approximately $14 million and the minority interest in NGC decreased
by a like amount. This resulted because net liabilities, with a historical cost
of approximately $203 million, were transferred to NGC, offset partially by
NMC's decrease in ownership of NGC resulting from the transfer of NGC shares to
NGC.
(3) INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current:
Ore and in-process inventories............................ $ 95,922 $101,684
Precious metals........................................... 33,304 29,691
Materials and supplies.................................... 57,413 40,651
Other..................................................... 1,706 1,958
-------- --------
$188,345 $173,984
======== ========
Non-current:
Ore-in-stockpiles (included in other long-term assets).... $ 85,652 $ 53,167
======== ========
</TABLE>
9
<PAGE> 10
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY, PLANT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and mining claims...................................... $ 71,432 $ 56,846
Buildings and equipment..................................... 1,472,090 1,387,586
Mine development............................................ 254,297 246,043
Construction-in-progress.................................... 58,829 137,436
---------- ----------
1,856,648 1,827,911
Accumulated depreciation, depletion and amortization........ (747,320) (695,501)
Capitalized mining costs.................................... 192,624 122,868
---------- ----------
$1,301,952 $1,255,278
========== ==========
</TABLE>
(5) OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest.................................................... $ 26,927 $ 33,696
Contingent dividends received (see Note 17)................. 18,556 8,143
Payroll and related benefits................................ 17,497 18,443
Reclamation and remediation................................. 10,000 10,000
Plant and equipment......................................... 4,981 17,926
Other....................................................... 32,803 34,104
-------- --------
$110,764 $122,312
======== ========
</TABLE>
10
<PAGE> 11
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
Components of the Corporation's consolidated deferred income tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Accelerated tax depreciation.............................. $(60,016) $(63,219)
Capitalized mining costs.................................. (24,719) (3,843)
Capitalized interest...................................... (8,951) (8,158)
Depletion of the cost of land and mining claims........... (2,474) (2,872)
Net undistributed earnings from equity investment......... (2,108) (1,357)
Other..................................................... (487) (923)
-------- --------
Deferred tax liabilities.......................... (98,755) (80,372)
-------- --------
Deferred tax assets:
Exploration costs......................................... 61,405 69,746
Remediation and reclamation costs......................... 33,391 31,842
Alternative minimum tax credit carryforward............... 23,166 7,769
Sale/leaseback transaction, net........................... 12,512 9,638
Foreign tax credit carryforward........................... 12,461 1,262
Retiree benefit costs..................................... 11,277 9,933
Capitalized inventory costs............................... 9,937 10,622
Deferred gain on interest rate hedges..................... 2,940 3,240
Mine development costs.................................... 2,759 199
Relocation/reorganization costs........................... 2,491 2,610
Other..................................................... 3,857 2,911
-------- --------
Deferred tax assets............................... 176,196 149,772
-------- --------
Valuation allowance for deferred tax assets............... (14,000) (9,800)
-------- --------
Net deferred tax assets................................... $ 63,441 $ 59,600
======== ========
</TABLE>
As of December 31, 1996, the Corporation had approximately $23.2 million of
nonexpiring alternative minimum tax credit carryforwards and approximately $12.5
million of foreign tax credit carryforwards. Of these foreign tax credit
carryforwards, $1.3 million expire in 2000 and $11.2 million expire in 2001.
Based primarily upon estimates of future operations, the Corporation, more
likely than not, will utilize $162.2 million of the $176.2 million of deferred
income tax assets at December 31, 1996. This estimate reflects a valuation
allowance of $14.0 million, which is an increase of $4.2 million from December
31, 1995's valuation allowance.
The Corporation, however, gives no assurance that it will generate
sufficient taxable income to fully realize the $162.2 million of deferred income
tax assets at December 31, 1996. The Corporation's future levels of taxable
income will depend, in part, upon gold prices, general economic conditions and
other factors beyond the Corporation's control.
11
<PAGE> 12
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation's pre-tax financial statement income (loss) consists of (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Domestic................................................ $28,013 $136,387 $ 68,880
Foreign................................................. 46,559 5,477 (14,820)
------- -------- --------
$74,572 $141,864 $ 54,060
======= ======== ========
</TABLE>
The Corporation's benefit (provision) for income taxes consists of (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Current:
Domestic............................................... $ 7,565 $(30,815) $(3,660)
Foreign................................................ (4,005) (2,477) (586)
------- -------- -------
3,560 (33,292) (4,246)
------- -------- -------
Deferred:
Domestic............................................... 17,465 16,300 33,580
Foreign................................................ (1,625) -- --
------- -------- -------
15,840 16,300 33,580
------- -------- -------
$19,400 $(16,992) $29,334
======= ======== =======
</TABLE>
The Corporation's resulting benefit (provision) for income taxes differ
from the amounts computed by applying the United States corporate income tax
statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. corporate income tax at statutory rate........ $(26,100) $(49,652) $(18,921)
Percentage depletion............................... 24,933 26,999 27,437
Resolution of tax issues associated with prior
years............................................ 6,000 -- 16,250
Foreign tax credits................................ 13,057 8,658 4,421
Foreign losses (earnings).......................... 1,705 (1,715) --
State taxes........................................ -- (1,300) (500)
Non-taxable portion of dividends received from
domestic corporations............................ -- 700 564
Other.............................................. (195) (682) 83
-------- -------- --------
$ 19,400 $(16,992) $ 29,334
======== ======== ========
</TABLE>
12
<PAGE> 13
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) DEBT
LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Sale-leaseback of refractory ore treatment plant............ $349,134 $349,134
8 5/8% notes................................................ 150,000 150,000
Medium-term notes........................................... 42,000 42,000
Project financing........................................... 63,125 67,500
-------- --------
604,259 608,634
Current maturities.......................................... (19,250) (4,375)
-------- --------
$585,009 $604,259
======== ========
</TABLE>
Scheduled minimum long-term debt repayments are $19.3 million in 1997,
$25.0 million in 1998, $33.5 million in 1999, $14.4 million in 2000, $11.9
million in 2001 and $500.2 million thereafter. Actual payments may be greater in
any one year due to actual operating cash flows realized. The Corporation is in
compliance with all covenants associated with its debt.
Sale-Leaseback of the Refractory Ore Treatment Plant
In September 1994, NGC entered into a sale and leaseback agreement for its
refractory ore treatment plant located in Carlin, Nevada for $349.1 million. The
transaction was accounted for as debt for financial statement purposes, with the
cost of the refractory ore treatment plant recognized as an asset and
depreciated. The lease is for 21 years and the aggregate future minimum lease
payments, which include interest, as of December 31, 1996 and 1995 were $638.2
million and $667.9 million, respectively. Payments began in January 1996 and are
$29.7 million annually through 2000. Principal payments are included in these
amounts beginning in 1998. The lease has purchase options during and at the end
of the lease at predetermined prices. The interest rate on this sale-leaseback
transaction is 6.36%. Because of the uniqueness of this transaction, the
Corporation determined that it is not practicable to estimate the fair value of
this debt.
In connection with this transaction, the Corporation entered into certain
interest rate contracts to hedge the interest cost of the financing. These
contracts were settled for a gain of $11 million which is being recognized as a
reduction of interest expense over the term of the lease. As a result of this
gain, the effective interest rate on this sale and leaseback transaction is
6.15%.
8 5/8% Notes
Unsecured notes with a principal amount of $150 million due April 1, 2002
bearing an annual interest rate of 8 5/8% were outstanding at December 31, 1996
and 1995. Interest is payable semi-annually in April and October and the notes
are not redeemable prior to maturity. Using interest rates prevailing on similar
instruments at December 31, 1996 and 1995, this debt was estimated to have a
fair value of $165.7 million and $169.5 million, respectively.
Medium-Term Notes
Notes totaling $42 million, with a weighted average interest rate of 7.7%,
maturing on various dates ranging from mid-1999 to late 2004, were outstanding
as of December 31, 1996 and 1995. Interest is payable semi-annually in March and
September and the notes are not redeemable prior to maturity. Using the interest
13
<PAGE> 14
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rates prevailing on similar instruments at December 31, 1996 and 1995, this debt
was estimated to have a fair value of $44.4 million and $44.9 million,
respectively.
Project Financing Facility
NGC, through a wholly-owned subsidiary, is a 50% participant in
Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") in the Republic of
Uzbekistan. The other 50% participants are two entities of the Uzbekistan
government.
As of December 31, 1996, Zarafshan-Newmont had $126.25 million outstanding
on a project financing loan secured by the assets of the project. The loan is to
be repaid in semi-annual installments until 2001. Starting in 1997, the average
interest rate is between 3.9 and 4.25 percentage points over the three-month
London Interbank Offered Rate. The carrying amount of the loan is estimated to
approximate its fair market value. The weighted average interest rates for 1996
and 1995 were 8.2% and 8.4%, respectively, and the interest rates at December
31, 1996 and 1995 were 9.4% and 8.2%, respectively.
Until defined completion tests have been satisfied, the Corporation has
guaranteed the payment of certain amounts due under the loan which totaled
$58.75 million at December 31, 1996. The 50% Uzbek partner has guaranteed the
repayment of the remaining amount due under the loan until such completion tests
have been satisfied. After satisfaction of the completion tests, the loan
becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed
to extend the date by which the completion tests must be met to October 1998.
Revolving Credit Facility
The Corporation has a $400 million revolving credit facility with a
consortium of banks that expires in April 1998. No amounts were outstanding
under the facility as of December 31, 1996 and 1995. Interest rates are variable
and adjust subject to changes in the Corporation's long-term debt ratings and to
usage of the facility in terms of borrowings as a percentage of commitments.
Currently, the Corporation's interest rate is the lenders' base rate plus 0.25%.
The Corporation has the option to fix the rate for up to six months. There is an
annual facility fee which will also adjust subject to the Corporation's debt
ratings. This fee is currently 0.15% of the lenders' total commitment.
The credit agreement contains covenants that limit consolidated
indebtedness, as defined, to 67% of total capitalization; require minimum net
worth, as defined, of $300 million and $275 million in 1996 and 1995,
respectively, which then increases to $325 million in 1997; and require an
interest coverage ratio, as defined, of not less than 2.5 to 1.
SHORT-TERM DEBT
All short-term debt at December 31, 1996 and 1995 consisted of bank debt.
The Corporation had unsecured demand bank lines of credit aggregating $70
million and $39 million at December 31, 1996 and 1995, respectively, of which
$46.0 million and $29.2 million were outstanding at the same respective periods.
These facilities bear interest at customary short-term rates for borrowers with
similar credit ratings. The carrying value of this debt is assumed to
approximate its fair value. The weighted average interest rates for 1996 and
1995 were 6.9% and 8.8%, respectively, and the interest rates at December 31,
1996 and 1995 were 8.25% and 8.5%, respectively.
CAPITALIZED INTEREST
Capitalized interest was $5.4 million, $11.6 million and $19.7 million in
1996, 1995 and 1994, respectively.
14
<PAGE> 15
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCKHOLDERS' EQUITY
COMMON STOCK OFFERING
In January 1996, NMC issued 4.65 million shares of common stock for $51.87
per share under an existing "shelf" registration statement with the Securities
and Exchange Commission. Proceeds of the issue netted $241.3 million and were
used to purchase an equal number of shares of common stock of NGC. Such proceeds
were used by NGC to fund its operations. This transaction increased NMC's
ownership of NGC to 90.5%.
PREFERRED STOCK
NMC called all of the outstanding 2.875 million shares of $5.50 convertible
preferred stock, $5.00 par value, for redemption on December 14, 1995 at a
redemption price of $105.21 per share. Each share of preferred stock was
convertible at the option of the shareholder into shares of common stock at a
conversion price of $36.395 per share of common stock (equivalent to a
conversion rate of 2.7476 shares of common stock for each whole share of
convertible preferred stock). Substantially all of the preferred stock was
converted prior to the redemption date. A total of 7.9 million common shares
were issued in the redemption.
COMMON STOCK RIGHTS
Equal Value Rights
In September 1987, the Board of Directors declared a dividend distribution
of one equal value right ("EVR") on each share of common stock outstanding on
October 5, 1987. Each share issued subsequent to such date automatically
receives an EVR. The EVRs, which are non-voting, expire in September 1997 unless
redeemed earlier by NMC, and separate from the common shares effective with the
public announcement (the "Control Date") that a person or group has acquired
more than 50% of the common stock. Until an EVR is exercised, the holder thereof
has no rights as a stockholder of NMC. Until the Control Date, the EVRs will be
evidenced by NMC's common stock and will be transferred with and only with such
certificates. In the event of a subsequent merger or other specified transaction
by NMC, each EVR would entitle the holder, under certain circumstances, to
receive from NMC an amount in cash equal to the amount by which the highest
price per share paid by such acquirer within 91 days prior to and including the
Control Date exceeds the fair market value of the consideration paid for each
share of NMC's common stock in connection with the merger or other transaction.
At any time prior to the Control Date, NMC may (but only with the concurrence of
continuing directors) redeem the EVRs at a price of $0.02 per EVR.
Preferred Share Purchase Rights
In August 1990, the Board of Directors declared a dividend distribution of
one preferred share purchase right ("PSPR") on each share of common stock
outstanding on September 11, 1990. Each share issued subsequent to September 11,
1990 and prior to the "Distribution Date" referred to below (and in certain
limited circumstances thereafter) will be issued with a PSPR. Each PSPR entitles
the holder to purchase from NMC one five-hundredth of a share of participating
preferred stock of NMC for $150, subject to adjustment. Prior to the
Distribution Date, the PSPRs are not exercisable, will be evidenced by NMC's
common stock certificates and will be transferred with and only with such
certificates. The PSPRs expire in September 2000 unless earlier redeemed. Until
a PSPR is exercised, the holder thereof has no rights as a stockholder of NMC.
The Distribution Date, which is the date on which the PSPRs separate from
the common stock and become exercisable, is the earlier of (i) ten days after
the public announcement that a person or group (other than NMC's present
shareholder groups subject to a standstill agreement dated as of December 7,
1990, as amended and certain related entities and their transferees, but only to
the extent of their current share ownership) (an "Acquiring Person") has
acquired 15% or more of the common stock (the date of such first
15
<PAGE> 16
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
public announcement being the "Stock Acquisition Date"), or (ii) ten business
days after the commencement of a tender or exchange offer that would result in a
person or group owning 15% or more of the common stock. If after the
Distribution Date a person shall become an Acquiring Person (other than pursuant
to certain offers approved by the Board of Directors) each holder of a PSPR
(other than the Acquiring Person and, in certain circumstances, transferees of
the Acquiring Person) will have the right to receive, upon exercise, common
stock (or, in certain circumstances, cash, property or other securities of NMC)
having a value equal to two times the purchase price of the PSPR. In addition,
if after a Stock Acquisition Date NMC is not the surviving entity in certain
business combinations, or 50% or more of NMC's assets or earning power is sold
or transferred, each holder of a PSPR shall have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the purchase price of the PSPR. Prior to the earlier of a Stock
Acquisition Date or the expiration date of the PSPR, NMC, in certain
circumstances with the approval of continuing directors, may redeem the PSPRs at
a price of $0.01 per PSPR.
Each one five-hundredth share of preferred stock is designed to have
similar rights to one share of common stock. The preferred shares have a
preferential quarterly dividend that is 500 times the dividends on the common
stock, but in no event less than one dollar. The liquidation preference per
preferred share is the greater of $500 (plus accrued dividends to the date of
distribution) or an amount equal to 500 times the aggregate amount of dividends
to be distributed per share to holders of NMC's common stock. In the event of a
business combination in which shares of NMC's common stock are exchanged, each
preferred share will be entitled to receive 500 times the amount and type of
consideration received per share of common stock. Each preferred share will have
500 votes and vote together with the common stock. The preferred shares are not
redeemable.
(9) EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
Under the Corporation's stock option plans, options to purchase shares of
NMC are granted to key employees generally at the fair market value of such
shares on the date of grant. The options under these plans generally vest over a
two year period and are exercisable over a period not exceeding ten years. At
December 31, 1996, 2,831,003 shares were available for future grants under the
Corporation's plans.
In 1994, 1993 and 1992 certain key executives were granted NMC options
that, although the exercise price is generally equal to the fair market value on
the date of grant, cannot be exercised when otherwise vested unless the market
price of NMC's common stock is a defined amount above the NMC option exercise
price. In addition, the same executives were granted NMC options in 1994, 1993
and 1992 having exercise prices in excess of the fair market value on the date
of grant. Generally, these key executive NMC options vest over a period of one
to five years and are exercisable over a ten year period. At December 31, 1996,
605,989 of these NMC options were outstanding.
16
<PAGE> 17
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes annual total stock option activity for each
of the three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 2,350,587 $40 2,177,546 $39 2,055,087 $37
Granted........................... 869,909 $55 534,035 $41 476,703 $41
Exercised......................... (660,136) $37 (232,109) $34 (276,894) $31
Forfeited......................... (110,009) $46 (128,885) $41 (77,350) $41
--------- --------- ---------
Outstanding at end of year........ 2,450,351 $46 2,350,587 $40 2,177,546 $39
========= ========= =========
Options exercisable at year end... 1,205,399 1,287,688 1,007,998
Weighted-average fair value of
options granted during the
year............................ $ 20.83 $ 16.14 Not calculated
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996 with exercise prices equal to the fair market value on the
date of grant and no restrictions on exercisability after vesting:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$27 to $35 91,553 4.3 years $31 91,553 $31
$35 to $43 817,699 7.9 years $40 555,298 $40
$43 to $51 533,790 9.4 years $51 90,351 $46
$51 to $59 401,320 9.3 years $58 -- $--
--------- -------
$27 to $59 1,844,362 8.5 years $47 737,202 $40
========= =======
</TABLE>
Information about all other stock options outstanding at December 31, 1996
is summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
TYPE OF OPTION PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options with exercise prices in excess
of the fair market value on the date
of the grant.......................... $40 to $56 355,581 6.2 years $49 286,687 $47
Options that cannot be exercised until
the market price of NMC's stock
exceeds a fixed amount above the
exercise price........................ $30 to $41 250,408 6.7 years $37 181,510 $37
</TABLE>
17
<PAGE> 18
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation applies APB Opinion 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the options been
determined based upon their fair value at their grant dates in 1995 and 1996,
consistent with the methodology prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," the Corporation's
net income (in thousands) and earnings per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1995
------- --------
<S> <C> <C> <C>
Net income................................... As reported $85,076 $112,634
Pro forma $81,090 $111,848
Earnings per share........................... As reported $ 0.86 $ 1.17
Pro forma $ 0.82 $ 1.16
</TABLE>
For purposes of determining the pro forma amounts, the fair value of each
option grant was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following assumptions for 1996 and 1995,
respectively: weighted-average risk-free interest rates of 6.1% and 5.8%,
dividend yield of 1% for both years, expected lives of 5 years for both periods
and volatility of 35% and 39%, respectively.
Compensation costs included in the pro forma amounts above only reflect
fair values associated with options granted after January 1, 1995. These amounts
may not be indicative of future amounts that will apply to all future
outstanding nonvested awards or future grants.
PENSION BENEFITS
The Corporation has two qualified non-contributory defined benefit pension
plans, one which covers salaried employees and the other which covers
substantially all hourly employees. The Corporation also has a non-qualified
supplemental pension plan for salaried employees whose benefits under the
qualified plan are limited by federal legislation. The vesting period is five
years of service for each plan. The plans' benefit formulas are based on an
employee's years of credited service and either such employee's last five years
average pay (salaried plan) or a flat dollar amount adjusted by a
service-weighted multiplier (hourly plan).
Pension costs are determined annually by independent actuaries and pension
contributions to the qualified plans are made based on funding standards
established under the Employee Retirement Income Security Act of 1974 ("ERISA").
The components of pension expense for these three plans, in the aggregate,
consist of (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service cost......................................... $ 4,351 $ 2,651 $ 3,070
Interest cost on projected benefit obligation........ 5,317 4,755 4,633
Return on assets..................................... (10,754) (5,938) (5,370)
Net amortization and deferral........................ 4,812 176 211
-------- ------- -------
Pension expense...................................... $ 3,726 $ 1,644 $ 2,544
======== ======= =======
</TABLE>
18
<PAGE> 19
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the funded status of the Corporation's
pension plans and the amounts recognized in the Corporation's consolidated
balance sheets at December 31, 1996 and 1995, respectively (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
---------------------------------
SALARY HOURLY SUPPLEMENTAL
PENSION PENSION SALARY
PLAN PLAN PENSION PLAN
-------- ------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation --
Vested benefits................................. $(56,997) $(7,737) $ (590)
Non-vested benefits............................. (2,420) (1,293) (53)
-------- ------- -------
(59,417) (9,030) (643)
Effect of future salary increases/service-weighted
benefit multiplier.............................. (9,020) (654) (157)
-------- ------- -------
Projected benefit obligation......................... (68,437) (9,684) (800)
Plan assets at fair value............................ 76,979 8,870 --
-------- ------- -------
Plan assets greater (less) than projected benefit
obligation......................................... 8,542 (814) (800)
Unrecognized prior service cost...................... (505) 1,220 523
Unrecognized net (gain) loss......................... (4,306) (492) 3,493
Unrecognized net transition (asset) liability........ (1,750) (66) 1,939
Adjustment required to recognize minimum liability... -- -- (5,798)
-------- ------- -------
Net pension asset (liability).............. $ 1,981 $ (152) $ (643)
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------------
SALARY HOURLY SUPPLEMENTAL
PENSION PENSION SALARY
PLAN PLAN PENSION PLAN
-------- ------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation --
Vested benefits................................. $(56,420) $(6,637) $ (430)
Non-vested benefits............................. (2,102) (1,381) (20)
-------- ------- -------
(58,522) (8,018) (450)
Effect of future salary increases.................. (7,631) -- (43)
-------- ------- -------
Projected benefit obligation......................... (66,153) (8,018) (493)
Plan assets at fair value............................ 68,331 6,918 --
-------- ------- -------
Plan assets greater (less) than projected benefit
obligation......................................... 2,178 (1,100) (493)
Unrecognized prior service cost...................... (548) 130 567
Unrecognized net loss................................ 2,752 871 3,549
Unrecognized net transition (asset) liability........ (2,215) (72) 2,327
Adjustment required to recognize minimum liability... -- -- (6,400)
-------- ------- -------
Net pension asset (liability).............. $ 2,167 $ (171) $ (450)
======== ======= =======
</TABLE>
In October 1996, an amendment was made to increase the benefit multiplier
of the benefits under the Hourly Pension Plan. The effect of this amendment was
to increase the accumulated benefit obligation by approximately $0.5 million,
the projected benefit obligation and prior service cost by $1.2 million and to
increase the annual pension cost by $0.3 million.
19
<PAGE> 20
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," an adjustment was
required to reflect a minimum liability for the supplemental pension plan in
1996, 1995 and 1994. Such adjustment resulted in recording an intangible asset
and, to the extent the minimum liability adjustment exceeded the unrecognized
net transition liability, a reduction of $2.0 million, $2.0 million and $2.5
million in stockholders' equity, which is net of related deferred income tax
benefits, for 1996, 1995 and 1994, respectively.
In measuring the projected benefit obligation for the plans, the following
actuarial assumptions were used:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Weighted average discount rate......................... 7.5% 7.0%
Rate of increase in future compensation (applicable
only to salaried plans).............................. 4.0% 4.0%
</TABLE>
The weighted average expected long-term rate of return on plan assets was
assumed to be 8.75% for 1996, 9.00% for 1995 and 8.25% for 1994.
The Corporation maintains a trust for the purpose of funding the
supplemental pension plan as well as death benefits for officers of the
Corporation. This trust is funded at the discretion of the Corporation and had a
balance, which approximated market value, of $2 million at both December 31,
1996 and December 31, 1995. Although the trust's assets can be used to pay
benefits for the supplemental pension plan, they cannot be used in determining
the net pension liability for the supplemental pension plan. The qualified
plans' assets consist of stocks, bonds and cash.
RETIREE BENEFITS OTHER THAN PENSIONS
The Corporation provides defined medical benefits to qualified retirees who
were salaried employees and to their eligible dependents, and it provides
defined life insurance benefits to qualified retirees who were salaried
employees. In general, participants become eligible for these benefits upon
retirement directly from the Corporation if they are at least 55 years old and
the combination of their age and years of service with the Corporation equals 75
or more.
The defined medical benefits cover most of the reasonable and customary
charges for hospital, surgical, diagnostic and physician services and
prescription drugs. Life insurance benefits are based on a percentage of final
base annual salary and decline over time after retirement commences.
The Corporation accounts for these postretirement benefits other than
pensions under Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The statement
requires that postretirement benefits other than pensions be accrued during an
employee's service to the Corporation.
The components of expense for postretirement benefits other than pensions
are shown in the table below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $2,199 $1,570 $1,846
Interest cost............................................ 1,747 1,904 1,642
Amortization of net gain................................. (64) (80) --
------ ------ ------
Expense for postretirement benefits other than
pensions............................................... $3,882 $3,394 $3,488
====== ====== ======
</TABLE>
20
<PAGE> 21
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of the liability for the
Corporation's plans for postretirement benefits other than pensions recognized
in its balance sheet (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
("APBO"):
Retirees and eligible dependents.......................... $11,290 $12,510
Other fully eligible plan participants.................... 1,874 1,974
Other active plan participants............................ 13,541 13,076
------- -------
Total APBO........................................ 26,705 27,560
Unrecognized net gain..................................... 4,776 820
------- -------
Accrued liability for postretirement benefits other than
pensions.................................................. $31,481 $28,380
======= =======
</TABLE>
At December 31, 1996 and 1995, $2.6 million of assets, with a market value
of approximately the same amount, was designated in a trust to pay
postretirement benefits other than pensions. Since these assets could be used to
pay other employee benefits, they cannot be used for the postretirement benefit
calculations. The Corporation has no formal policy for funding postretirement
benefit obligations.
Weighted average discount rates of 7.5% and 7.0% were used in calculating
the APBO at December 31, 1996 and 1995, respectively. The assumed health care
cost trend rates to measure the expected cost of benefits at December 31, 1996
start at an 8% annual increase for coverage before the age of 65 and a 7% annual
increase for coverage after the age of 64. The assumed health care cost trend
rates to measure the expected cost of benefits at December 31, 1995 start at a
9% annual increase for coverage before the age of 65 and an 8% annual increase
for coverage after the age of 64. These rates were assumed to decrease one
percentage point each year until a 5% annual rate of increase was reached, at
which point a 5% annual rate of increase was assumed thereafter. The effect of a
one percentage point annual increase in the assumed cost trend rates would
increase the aggregate of service and interest costs by approximately 19% in
1996 and the APBO at December 31, 1996 by approximately 15%. The effect of a one
percentage point annual increase in the assumed cost trend rates would increase
the aggregate of service and interest costs in 1995 by approximately 23% and the
APBO at December 31, 1995 by approximately 19%.
SAVINGS PLAN
The Corporation has two qualified defined contribution savings plans, one
which covers salaried employees and the other which covers substantially all
hourly employees. In addition, the Corporation has a non-qualified supplemental
savings plan for salaried employees whose benefits under the qualified plan are
limited by federal regulations.
Upon the employee meeting eligibility requirements, the Corporation matches
100% of employee contributions of up to 6% and 4% of base salary for the
salaried and hourly plans, respectively.
The Corporation's matching contributions to such plans were $4.6 million,
$3.7 million and $3.3 million in 1996, 1995 and 1994, respectively.
(10) WRITE-OFF OF EXPLORATION PROPERTIES
In 1995, the Corporation recorded write-offs of two exploration properties
totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over
the next three years, extensive drilling, environmental studies and mine models
were developed to determine the economics of extracting gold from the property.
A feasibility report was issued in June 1995 that reflected high levels of
environmental and mining costs that
21
<PAGE> 22
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resulted in financial returns much lower than the Corporation's threshold for
development. Accordingly, the decision was made not to develop the property and
$18.8 million of capitalized costs associated with the property were written off
in June 1995. An additional charge of $4.6 million was taken as other expense
for estimated costs to reclaim areas disturbed by previous mining and
exploration activity on the property.
The Grassy Mountain property was purchased in September 1992. At the time
of the purchase, certain reliance was placed upon geological models prepared by
the seller. Work performed by the Corporation in 1993 demonstrated that the gold
was not distributed as modeled by the seller. In 1994, the Corporation created
new detailed models of the deposit based on its revised geologic interpretation.
These models resulted in fewer high grade ounces, which led to the
reclassification of 996,000 ounces of reserves to mineralized material at the
end of 1994. However, additional drilling and modeling was required to determine
whether there was an impairment of the asset based on the work performed through
that date. Based on economic information at that time and the use of
undiscounted cash flows, no write-down was considered necessary as of December
31, 1994. Throughout 1995, further refinement of geological and economic models
continued with open-pit, underground and price hedging scenarios all resulting
in deposit sizes and economic returns smaller than the Corporation's threshold
for development. Based on these results, capitalized costs of $33.8 million
relating to the Grassy Mountain property were written off in December 1995.
(11) GAIN ON SALE OF INVESTMENTS
In May 1995, NGC sold its 10.7% interest in Southern Peru Copper
Corporation for $116.4 million, which resulted in a gain of $113.2 million.
(12) DIVIDEND, INTEREST AND OTHER INCOME
Included in dividends, interest and other income are $3.1 million, $28.3
million and $9.2 million for 1996, 1995 and 1994, respectively, for business
interruption insurance that was received for problems associated with the
refractory ore treatment plant at the Carlin, Nevada operations.
(13) MAJOR CUSTOMERS
The Corporation is not economically dependent on a limited number of
customers for the sale of its product because gold commodity markets are
well-established worldwide. In 1996, sales to three customers accounted for
$213.3 million, $108.5 million and $107.2 million of total sales, each of which
represented more than 10% of total sales and together accounted for 56% of the
annual sales. During 1995, four such customers accounted for $109 million, $85.7
million, $82.2 million and $73.1 million of total sales, or 55% of the annual
sales. In 1994, sales to three such major customers accounted for $125.2
million, $99.6 million and $88.5 million, or 52% of total sales.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income taxes, net of refunds..................... $(4,477) $18,992 $21,375
Interest, net of amounts capitalized............. $43,021 $12,197 $ 6,975
</TABLE>
22
<PAGE> 23
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excluded from the statements of consolidated cash flows are the effects of
certain non-cash transactions. In July 1996, NGC began accounting for the Batu
Hijau project as an equity investment (See Note 16). The adjustments that were
made to the Corporation's balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------
<S> <C>
Assets
Other current assets...................................... $ (849)
Property, plant and mine development, net................. (43,936)
Other long-term assets.................................... 44,603
--------
Total assets...................................... $ (182)
========
Liabilities
Accounts payable.......................................... $ (182)
--------
Total liabilities................................. $ (182)
========
</TABLE>
In 1996, the Corporation retired mostly fully depreciated property, plant
and equipment with an original cost of $77.0 million, which is not reflected in
the statements of consolidated cash flows.
In 1996 and 1994, the Corporation recognized income tax benefits of $6.0
million and $16.2 million, respectively, resulting from the resolution of
certain tax issues associated with prior years.
In 1996, as discussed in Note 8, NMC issued 4.65 million shares of common
stock. This resulted in a $19.5 million decrease to retained earnings to adjust
for NMC's ownership interest in NGC.
In 1995, as discussed in Note 8, NMC called for redemption of all of the
outstanding 2.875 million shares of convertible preferred stock. Substantially
all of the convertible preferred stock was converted into common stock of NMC.
This transaction resulted in a non-cash decrease to preferred stock offset by a
non-cash increase to common stock and capital in excess of par value. Also,
retained earnings increased $5.3 million to adjust for NMC's ownership interest
in NGC.
(15) GEOGRAPHIC INFORMATION
The Corporation operates predominantly in a single industry as a worldwide
corporation engaged in gold production, exploration for gold and acquisition of
gold properties. The Corporation has consolidated operations in the United
States, Indonesia and Uzbekistan. In computing earnings from operations, no
allocations of general corporate expenses, exploration and research, interest or
income taxes have been made.
Identifiable assets by country represent those assets related to the
operations in those countries. Information by geographic location for the year
ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
INDONESIA
UNITED STATES UZBEKISTAN AND OTHER CONSOLIDATED
------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales.................................. $ 657,882 $ 62,609 $ 47,964 $ 768,455
Earnings from Operations............... $ 144,134 $ 14,423 $ 14,231 $ 172,788
Exploration and Research............... $ 35,238 $ 1,184 $ 22,287 $ 58,709
Identifiable Assets.................... $1,221,552 $226,721 $172,035 $1,620,308
</TABLE>
Included in the United States sales are $647.2 million of export sales. In
1995 and 1994, export sales from the United States were $629.1 million and
$497.2 million, respectively.
Prior to 1996, substantially all operations were in the United States.
23
<PAGE> 24
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above geographic information does not include NGC's equity investment
in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996 sales,
earnings from operations and exploration was $119.3 million, $76.9 million and
$6.6 million, respectively. NGC's equity in Minera Yanacocha's total assets at
December 31, 1996 was $73.5 million. See Notes 1 and 17.
(16) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Corporation's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Corporation conducts its operations so
as to protect the public health and environment and believes its operations are
in compliance with all applicable laws and regulations. The Corporation has
made, and expects to make in the future, expenditures to comply with such laws
and regulations. The Corporation cannot predict such future expenditures.
Estimated future reclamation and remediation costs are based principally on
legal and regulatory requirements. At December 31, 1996 and 1995, $20.8 million
and $19.0 million, respectively, were accrued for reclamation and remediation
costs relating to currently producing mineral properties.
In addition, the Corporation is involved in several matters concerning
environmental obligations associated with former mining activities. Generally,
these matters concern developing and implementing remediation plans at the
various sites involved. The Corporation believes that the related environmental
obligations associated with these sites are similar in nature with respect to
the development of remediation plans, their risk profile and the compliance
required to meet general environmental standards. Based upon the Corporation's
best estimate of its liability for these matters, $49.8 million and $55.8
million were accrued for such obligations at December 31, 1996 and 1995,
respectively. These amounts are included in other current liabilities and
reclamation and remediation liabilities. Depending upon the ultimate resolution
of these matters, the Corporation believes that it is reasonably possible that
the liability for these matters could be as much as 100% greater or 40% lower
than the amount accrued at December 31, 1996. The amounts accrued for these
matters are reviewed periodically based upon facts and circumstances available
at the time. Changes in estimates are charged to other expense in the period
estimates are revised. Charges related to these matters were $6.6 million, $3.0
million and $16.1 million in the years ended December 31, 1996, 1995 and 1994,
respectively.
Details about certain of the more significant sites involved are discussed
below.
Idarado Mining Company ("Idarado") -- 80.1% owned by NGC
In July 1992, the Corporation and Idarado signed a consent decree with the
State of Colorado ("State") which was agreed to by the U.S. District Court of
Colorado to settle a lawsuit brought by the State under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), generally
referred to as the "Superfund Act." Idarado settled natural resources damages
and past and future response costs and provided habitat enhancement work. In
addition, Idarado agreed in the consent decree to undertake specified
remediation work at its former mining site in the Telluride/Ouray area of
Colorado. The Corporation expects to complete the remediation work at this
property by the end of 1997. If the remediation work does not meet specific
technical criteria specified in the consent decree, the State and the court
reserve the right to require Idarado to perform other remediation work. Idarado
and the Corporation have obtained a $16.3 million letter of credit to secure
their obligations under the consent decree.
24
<PAGE> 25
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Resurrection Mining Company ("Resurrection") -- 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act
which involves a Resurrection Mining Company and Asarco Incorporated ("Asarco")
joint venture mining operation near Leadville, Colorado. This action was
subsequently consolidated with a lawsuit filed by the U.S. Environmental
Protection Agency ("EPA") in 1986, with the EPA taking the lead role. The
proceedings seek to compel the defendants to remediate the impacts of
pre-existing, historic mining activities that date back to the mid-1800's which
the government agencies claim are causing substantial environmental problems in
the area. The lawsuits have named the Corporation, Resurrection, the joint
venture and Asarco as defendants in the proceedings. The EPA is also proceeding
against other companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses the
Yak Tunnel, a drainage and access tunnel owned by the joint venture. Phase II
addresses the remainder of the site.
In 1988 and 1989, the EPA issued administrative orders with respect to
Phase I work for the Yak Tunnel. The joint venture, Asarco, Resurrection and the
Corporation have collectively implemented those orders by constructing a water
treatment plant which was placed in operation in early 1992. The joint venture
is in negotiations regarding remaining remedial work for Phase I, which
primarily consists of environmental monitoring and operating and maintenance
activities.
The parties have entered into a consent decree with respect to Phase II
which apportions liabilities and responsibilities for the site among the various
parties. The EPA has approved remedial actions for selected components of
Resurrection's portion of the site, which were initiated in 1995. However, the
EPA has not yet selected the final remedy for the site. Accordingly, the
Corporation cannot yet determine the full extent or cost of its share of the
remedial action which will be required under Phase II. The government agencies
may also seek to recover for damages to natural resources.
Dawn Mining Company ("Dawn") -- 51% owned by NGC
Dawn leased a currently inactive open-pit uranium mine on the Spokane
Indian Reservation in the State of Washington. The mine is subject to regulation
by agencies of the U.S. Department of Interior, the Bureau of Indian Affairs and
the Bureau of Land Management, as well as the EPA. Dawn also owns a nearby
uranium millsite facility.
In 1991, Dawn's lease was terminated. As a result, Dawn was required to
file a formal mine closure and reclamation plan. The Department of Interior has
commenced an Environmental Impact Study to analyze Dawn's proposed plan and to
consider alternate closure and reclamation plans for the mine. Dawn cannot
predict at this time what type of mine reclamation plan may be selected by the
Department of Interior. Dawn does not have sufficient funds to pay for the
reclamation plan it proposed, for any alternate plan, or for the closure of its
mill.
The Department of Interior previously notified Dawn that when the lease was
terminated, it would seek to hold Dawn and the Corporation (as Dawn's then 51%
owner) liable for any costs incurred as a result of Dawn's failure to comply
with the lease and applicable regulations. If asserted, the Corporation will
vigorously contest any such claims. The Corporation cannot reasonably predict
the likelihood or outcome of any future action against Dawn or the Corporation
arising from this matter.
Dawn has received a license for a mill closure plan which would generate
funds to close and reclaim both the mine and the mill. The license is being
challenged by third parties.
Insurance Receivables
The Corporation carried insurance policies for which it filed claims for
the costs of certain of its remediation activities. The Corporation recorded
receivables for claims under such policies when management
25
<PAGE> 26
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
believed the likelihood of recovery was probable. Prior to 1993, three of the
insurance companies commenced actions against NMC seeking judgments that they
had no liability. In the fall of 1993, NMC instituted a comprehensive lawsuit
against its carriers.
Based on the views of prior lead counsel, the Corporation had believed that
significant progress in certain settlement discussions would have been achieved
by mid-summer 1994, but that expectation was not realized. The absence of such
anticipated progress in settlement discussions, as well as the Corporation's
discussions with new lead counsel for the insurance recovery actions regarding
its review of such actions, caused the Corporation in the second quarter of 1994
to provide a $20.0 million valuation allowance on its insurance receivables,
which was recorded as other expense, resulting in a net balance of $16.7 million
outstanding at December 31, 1994.
In the first quarter of 1995, settlement in certain of the insurance
litigation was reached enabling the Corporation to realize the receivable
outstanding at December 31, 1994. Settlement discussions continue with respect
to additional insurance litigation. Trial of this litigation has been scheduled
for late 1997. The Corporation intends to vigorously pursue its claims with
respect to the remaining litigation and believes that it is reasonably possible
that additional amounts will be recovered, although no such amounts are accrued.
BATU HIJAU
In July 1996, NGC and Sumitomo Corporation ("Sumitomo") entered into a
definitive partnership agreement to develop and operate the Batu Hijau
copper/gold deposit in Indonesia. The estimated cost for development of the open
pit mine, mill, and infrastructure including employee housing, a port,
electrical generation facilities, interest during construction, cost escalations
and working capital is expected to approximate $1.9 billion. Batu Hijau contains
proven and probable reserves of 12.1 million ounces (5.4 million equity ounces)
of gold and 10.6 billion pounds (4.8 billion equity pounds) of copper.
Production is expected to begin around the turn of the century, with a projected
mine life in excess of 20 years.
Under the terms of the agreement with Sumitomo, NGC will contribute its
interest in the company that owns the project and Sumitomo will contribute an
agreed upon amount of cash, expected to be approximately $235 million. After the
contributions are made, NGC will retain a 45% interest in the company that owns
the project and Sumitomo will have a 35% interest. The remaining 20% will be
held by an unrelated Indonesian company. The parties' obligations to make their
contributions to the partnership are subject to the receipt of certain approvals
from the Indonesian government. Until such approvals are received, Sumitomo has
agreed to fund up to $100 million of costs through non-interest bearing loans,
($20.2 million of which were outstanding at December 31, 1996) which NGC has
effectively guaranteed. Effectively, any amounts outstanding under such loans
will go towards meeting Sumitomo's cash contribution of the previously mentioned
$235 million. If such approvals are not received by March 31, 1997, either party
has the right to terminate the agreement and the loans would become due. After
the Sumitomo contributions are made, additional contributions required by the
parties will be contributed 56.25% by NGC and 43.75% by Sumitomo. Project
financing for development of the property is expected to be approximately $1
billion and will be guaranteed by NGC and Sumitomo, 56.25% and 43.75%,
respectively, until project completion tests are met. The source of NGC's future
contributions will be operating cash flow, bank credit lines or other third
party financing as needed.
As a result of the contemplated ownership structure, the Corporation is
accounting for its investment in Batu Hijau as an equity investment effective
July 1996. The Corporation's investment at December 31, 1996, which is included
in other long-term assets, was $46.6 million.
In anticipation of Indonesian government approvals related to the Batu
Hijau project, the entity owning the project has entered into a construction
contract for approximately $1 billion.
26
<PAGE> 27
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GUARANTEE OF THIRD PARTY INDEBTEDNESS
The Corporation guaranteed a former subsidiary's $35.7 million Pollution
Control Revenue Bonds, due 2009. The former subsidiary is BHP Copper Inc.,
formerly known as Magma Copper Company. It is expected that the Corporation will
be required to remain liable on this guarantee as long as the bonds remain
outstanding; however, the Corporation has not been required to pay any of these
amounts, nor does it expect to have to pay any in the future.
GOLD PRICE HEDGING CONTRACTS
The Corporation has entered into hedging transactions, that began maturing
in January 1996 and continue through December 2000, for production from its
Minahasa property, located in Indonesia. These transactions consist of forward
sales of 125,000 ounces of gold per year at an average price of $454 an ounce,
plus 40% of the amount by which the market price exceeds the forward sales
price. No production was hedged in 1995 or 1994.
OTHER COMMITMENTS AND CONTINGENCIES
Under a 1992 agreement with Barrick Goldstrike Mines, Inc. ("Barrick"),
Barrick is mining NGC's Carlin, Nevada Post deposit which extends beyond NGC's
property boundaries onto Barrick's property. NGC and Barrick share the costs so
that each ounce of gold mined bears the same mining cost. NGC is obligated to
pay Barrick for such costs as Barrick mines the deposit. In addition, the
Corporation is obligated to share dewatering costs which are associated with the
deposit. NGC incurred $63.7 million, $62.5 million and $39.0 million of such
mining and dewatering costs in 1996, 1995 and 1994, respectively, and expects to
incur approximately $15 million in 1997.
The Corporation has minimum royalty obligations on one of its producing
mines for the life of the mine. The amount to be paid to meet the royalty
obligations is based upon a defined average market gold price. Any amounts paid
due to the minimum royalty obligation not being met in any year are recoverable
in future years when the minimum royalty obligation is exceeded. Although the
minimum royalty requirement may not be met in any certain year, the Corporation
expects the mine's gold production over its life will meet the minimum royalty
requirements.
At December 31, 1996, there were $100.2 million of outstanding letters of
credit that were primarily for bonding reclamation plans and electric supply and
reinsurance agreements. The Corporation has provided investment collateral for
$8.7 million of these letters of credit. The remaining $91.5 million represents
unsecured letters of credit. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees competitively
determined in the market place.
The Corporation is from time to time involved in various legal proceedings
of a character normally incident to its business. It does not believe that
adverse decisions in any pending or threatened proceedings or any amounts which
it may be required to pay by reason thereof will have a material adverse effect
on its financial condition or results of operations.
(17) SUBSEQUENT EVENTS
PROPOSED MERGER WITH SANTA FE PACIFIC GOLD CORPORATION
In March 1997, NMC announced it had entered into a merger agreement with
Santa Fe Pacific Gold Corporation ("Santa Fe") under which each outstanding
share of Santa Fe common stock would be exchanged for 0.43 of a share of NMC
common stock. A condition of the merger is that it would be accounted for as a
pooling of interests. The merger is also subject to the approval of the
shareholders of both companies and other customary conditions. It is expected to
be consummated during the second quarter of 1997. If NMC
27
<PAGE> 28
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is successful in acquiring Santa Fe, Santa Fe would become a wholly-owned
subsidiary of NGC. NGC would issue shares of common stock to NMC equal to the
number of common shares the Corporation issues to acquire Santa Fe (estimated to
be approximately 56.5 million). Santa Fe reported 1996 sales of $337.2 million
and net income of $21.1 million with total assets at December 31, 1996 of $1.3
billion, long-term debt of $454.9 million and net worth of $570.0 million as of
the same date.
ADDITIONAL INTEREST IN MINERA YANACOCHA
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the
geological and mining bureau of the French government ("BRGM"). In September
1994, BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha to another entity. NGC and Compania de Minas Buenaventura, S.A.
("Buenaventura"), then 38.0% and 32.3% owners of Minera Yanacocha, respectively,
filed suit in Peru to seek enforcement of a provision in the bylaws of Minera
Yanacocha giving shareholders preemptive rights on the proposed sale or transfer
of any shareholder's interest. In February 1995, an appellate court in Peru
issued a preliminary ruling in favor of NGC and Buenaventura, both of whom
elected to exercise their preemptive rights to acquire their proportionate share
of the 24.7% interest. In accordance with the court ruling, Minera Yanacocha
canceled the BRGM shares and issued shares representing interests in Minera
Yanacocha of 13.35% to NGC and 11.35% to Buenaventura. NGC deposited $48.6
million for its additional interest, together with the additional shares, with a
Peruvian bank pending the final resolution of the case. NGC borrowed the $48.6
million from the same Peruvian bank with the right of set off against the
deposit, and accordingly, these amounts have been netted in the accompanying
balance sheet. Through December 31, 1996, NGC had received $18.6 million of
dividends on the additional shares. In September 1996, a court ruling provided
that NGC and Buenaventura had the right to acquire the 24.7% interest for a
purchase price of $109.3 million, $59.1 million attributable to the 13.35%
interest of NGC. As established by such ruling, the preemptive rights were
triggered in November 1993 and thus the valuation of the shares held in escrow
were calculated as of such date. BRGM and other defendants filed an appeal to
the Superior Court of Lima challenging the court's determination that the
preemptive rights were triggered and the date and amount of the valuation. In
February 1997, the Superior Court upheld the decision of the trial court.
Therefore, beginning in 1997, NGC will consider the additional interest to have
been acquired and will consolidate Minera Yanacocha in its financial statements
to reflect the increase in its ownership from 38% to 51.35%. BRGM and other
defendants have filed a request for review of the resolution by the Superior
Court of Peru. Peruvian counsel has advised the Company that decisions of the
Superior Court can be modified by the Supreme Court only in very limited
instances and that it is not likely that any further review will be granted.
The following pro forma income statement assumes the acquisition of the
additional interest occurred on January 1, 1996 and the pro forma balance sheet
assumes the acquisition occurred on December 31, 1996. The pro forma financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the consolidated financial position or results of operations which
would have been realized had the acquisition of the additional interest been
considered to occur as of the dates for which the pro forma financial statements
are presented. The pro forma financial statements also are not necessarily
indicative of the consolidated position or results of operations in the future.
28
<PAGE> 29
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED INCOME STATEMENT -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEWMONT MINERA PRO FORMA PRO FORMA
MINING YANACOCHA ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Sales and other income
Sales................................. $768,455 $313,870 $1,082,325
Dividends, interest and other......... 26,471 2,336 28,807
-------- -------- --------- ----------
794,926 316,206 1,111,132
-------- -------- --------- ----------
Costs and expenses
Costs applicable to sales............. 476,090 89,206 $ (2,172)(A)
(1,624)(B) 561,500
Depreciation, depletion and
amortization....................... 124,841 24,595 12,289 (C) 161,725
Exploration and research.............. 58,709 17,482 76,191
General and administrative............ 48,093 -- 1,624 (B)
(617)(D) 49,100
Interest, net......................... 43,987 5,447 49,434
Other................................. 13,855 -- 13,855
-------- -------- --------- ----------
765,575 136,730 9,500 911,805
Equity in income of affiliated
companies............................. 45,221 -- (47,381)(E)
(617)(D)
(2,172)(A) (4,949)
-------- -------- --------- ----------
Pretax income........................... 74,572 179,476 (59,670) 194,378
Income tax (provision) benefit.......... 19,400 (54,784) (599)(F) (35,983)
Minority interest in income of
subsidiaries.......................... (8,896) -- (60,663)(G)
(356)(H) (69,915)
-------- -------- --------- ----------
Net income.............................. $ 85,076 $124,692 $(121,288) $ 88,480
======== ======== ========= ==========
Income per common share................. $ 0.86 $ 0.89
======== ==========
Weighted average number of shares of
common stock and common stock
equivalents outstanding............... 99,357 99,357
======== ==========
</TABLE>
- ---------------
(A) To eliminate royalties paid by Minera Yanacocha to an equity affiliate of
NGC.
(B) To eliminate management fees paid by Minera Yanacocha to a subsidiary of
NGC.
(C) Estimated additional amortization of excess purchase price over book value
of net assets acquired.
(D) Reclassification of NGC's share (38%) of management fees charged to Minera
Yanacocha.
(E) Elimination of equity income recognized for Minera Yanacocha to reflect
consolidation.
(F) Additional adjustment to taxes required for consolidation of Minera
Yanacocha.
(G) Minority interest (48.65%) in income of Minera Yanacocha.
(H) Adjustment of minority interest due to increased income of NGC resulting
from additional interest in Minera Yanacocha.
29
<PAGE> 30
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED BALANCE SHEET -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEWMONT MINERA PRO FORMA PRO FORMA
MINING YANACOCHA ADJUSTMENTS CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents............. $ 185,681 $ 40,705 $ 226,386
Inventories........................... 188,345 15,661 204,006
Other................................. 81,856 28,848 110,704
---------- -------- -------- ----------
Current assets..................... 455,882 85,214 541,096
Property, plant and mine development,
net................................ 1,301,952 106,308 $ 53,368(A)
(14,445)(B) 1,447,183
Other long-term assets................ 323,240 1,887 (41,115)(C)
(2,843)(A) 281,169
---------- -------- -------- ----------
Total assets.................. $2,081,074 $193,409 $ (5,035) $2,269,448
========== ======== ======== ==========
Liabilities
Short-term debt and current portion of
long-term debt..................... $ 65,231 $ 14,256 $ 79,487
Other current liabilities............. 158,863 31,190 $ 50,525(A) 240,578
---------- -------- -------- ----------
Current liabilities................ 224,094 45,446 50,525 320,065
Long-term debt........................ 585,009 24,244 609,253
Other long-term liabilities........... 139,916 15,520 155,436
---------- -------- -------- ----------
Total liabilities............. 949,019 85,210 50,525 1,084,754
---------- -------- -------- ----------
Minority interest in subsidiaries....... 107,168 -- 52,639(D) 159,807
---------- -------- -------- ----------
Stockholders' Equity.................... 1,024,887 108,199 (14,445)(B)
(41,115)(C)
(52,639)(D) 1,024,887
---------- -------- -------- ----------
Total liabilities and
stockholders' equity........ $2,081,074 $193,409 $ (5,035) $2,269,448
========== ======== ======== ==========
</TABLE>
- ---------------
(A) To record acquisition of additional 13.35% interest.
(B) Elimination of 13.35% of Minera Yanacocha's net book value.
(C) Elimination of NGC's investment in Minera Yanacocha to reflect
consolidation.
(D) To reflect minority interest in Minera Yanacocha.
30
<PAGE> 31
(18) UNAUDITED SUPPLEMENTARY DATA
QUARTERLY DATA
The following is a summary of selected quarterly financial information
(amounts in millions except per share amounts):
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales........................... $ 154.7 $ 181.2 $226.0 $ 206.6 $ 768.5
Gross profit(1)................. $ 28.1 $ 38.2 $ 58.5 $ 42.7 $ 167.5
Net income...................... $ 10.7 $ 19.5 $ 35.4 $ 19.5 $ 85.1
Net income per common share..... $ 0.11 $ 0.20 $ 0.35 $ 0.20 $ 0.86
Weighted average shares
outstanding(2)................ 98.5 99.9 99.8 99.7 99.4
Dividends declared per common
share......................... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Closing price of common stock... $56.625 $49.375 $47.25 $ 44.75 $ 44.75
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales........................... $ 134.5 $ 145.1 $172.3 $ 184.4 $ 636.2
Gross profit(1)................. $ 26.6 $ 31.6 $ 52.1 $ 48.6 $ 158.8
Net income...................... $ 15.6 $ 67.8(3) $ 25.3 $ 4.0 (4) $ 112.6(3,4)
Preferred stock dividends....... $ 4.0 $ 4.0 $ 4.0 $ (0.7)(5) $ 11.2(5)
Net income applicable to common
stock......................... $ 11.6 $ 63.8(3) $ 21.3 $ 4.7 (4) $ 101.5(3,4)
Net income per common share..... $ 0.14 $ 0.74(3) $ 0.25 $ 0.05 (4) $ 1.17(3,4)
Weighted average shares
outstanding................... 86.1 86.3 86.5 89.3 (5) 87.0(5)
Dividends declared per common
share......................... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Closing price of common stock... $ 42.75 $41.875 $42.50 $45.375 $45.375
</TABLE>
- ---------------
(1) Sales less costs applicable to sales and depreciation, depletion and
amortization.
(2) In January 1996, 4.65 million shares of common stock were issued under an
existing shelf registration statement (see Note 8).
(3) Includes an after-tax gain of $72 million, or $0.75 per share for the
quarter and $0.74 per share for the year, from the sale of the Corporation's
interest in Southern Peru Copper Corporation and an after-tax charge of
$15.1 million, or $0.16 per share, for the write-off of the investment and
additional reclamation provision of the Ivanhoe exploration property (see
Notes 10 and 11).
(4) Includes an after-tax charge of $22 million, or $0.22 per share, for the
quarter and $0.23 per share for the year, for the write-off of the
investment in the Grassy Mountain property (see Note 10).
(5) Substantially all of the convertible preferred stock was converted into
common stock in December 1995 (see Note 8).
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 2.1, 3.6, 1.7, 6.3 and 6.5 for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The
Corporation guarantees certain third party debt which had total interest
obligations of $1.2 million, $1.4 million, $1 million, $0.8 million and $3.3
million for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively. The Corporation has not been required to pay any of these amounts,
nor does it expect to have to pay any amounts; therefore, such amounts have not
been included in the ratio of earnings to fixed charges.
31
<PAGE> 1
EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of Newmont Mining
Corporation ("NMC") and its subsidiaries' (collectively, the "Corporation")
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto. NMC's principal subsidiary is Newmont Gold Company ("NGC"), which
holds all of the operating assets of the Corporation, and is approximately 91%
owned by NMC. As a result, all per share amounts take into consideration the
minority interest in NGC.
The discussion and analysis, as well as the notes to such financial
statements, contain "forward-looking statements" within the meaning of Section
27A of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially, as discussed in "Forward-Looking
Statements" below.
SUMMARY
Over the past two years, the Corporation's earnings per share, on a
comparable basis, have increased on average approximately 10% annually. The
Corporation earned $85.1 million ($0.86 per share) in 1996, compared with $70.3
million ($0.81 per share) in 1995, before considering certain gains and charges,
and $76.1 million ($0.70 per share) in 1994. Additionally in 1995, there was a
gain on the sale of an investment and the write-off of two exploration
properties. NGC sold its 10.7% interest in Southern Peru Copper Corporation
("SPCC") for $116.4 million, resulting in a pre-tax gain of $113.2 million, or
$72 million after-tax ($0.74 per share). The write-off of the Grassy Mountain
and Ivanhoe exploration properties resulted in a pre-tax charge of $57.1
million, or $37.1 million after-tax ($0.38 per share). Including these items,
net income in 1995 was $112.6 million ($1.17 per share).
NGC's total equity gold production increased 23% in 1996 to 2,284,200
ounces from 1,862,800 ounces in 1995. NGC's equity production in 1995 increased
11% from 1994's equity production of 1,671,000 ounces. Weighted average total
cash costs per ounce of equity production of NGC were $220, $210 and $202 for
1996, 1995 and 1994, respectively.
RESULTS OF OPERATIONS
Consolidated sales revenues have increased primarily from gold production
of 1,970,200 ounces, 1,653,000 ounces and 1,555,300 ounces in 1996, 1995 and
1994, respectively. (Such production does not include the Corporation's share of
gold production from Minera Yanacocha S.A. ("Minera Yanacocha") which was
accounted for on the equity method during these periods, but commencing in 1997
will be consolidated in the Corporation's financial statements as discussed
below.) The average annual gold price per ounce received on such production was
$390, $385 and $384 in 1996, 1995 and 1994, respectively.
The profitability of the Corporation's operations is significantly affected
by the market price of gold. Gold prices can fluctuate widely and are affected
by numerous factors beyond the Corporation's control. During the beginning of
1997, the market price of gold declined from 1996 levels. The Corporation has
forward sales contracts that began in January 1996 and continue through December
2000 for production from its Minahasa property, located in Indonesia. These
contracts provide for forward sales of 125,000 ounces per year at an average
price of $454 an ounce, plus 40% of the amount by which the market price exceeds
the forward sales price. No production was hedged in 1995 or 1994.
1
<PAGE> 2
The effects of the changes in the average annual gold price received and
annual consolidated production levels on sales revenues between years are
reflected in the following table (in thousands):
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
------------- -------------
<S> <C> <C>
Increase in sales revenues due to:
Gold price................................................ $ 10,154 $ 1,339
Production................................................ 122,082 37,510
-------- -------
Total............................................. $132,236 $38,849
======== =======
</TABLE>
NGC's North American operations are located on the geological feature known
as the Carlin Trend, hereafter, referred to as "Carlin." Carlin gold production
has increased approximately 5% in each of the last two years from 1,555,300
ounces in 1994 to 1,634,500 ounces in 1995 to 1,700,000 ounces in 1996. Improved
operating rates at the refractory ore treatment plant in conjunction with
increased amounts of high grade underground ore processed were the primary
reasons for the increase in gold production between 1995 and 1996. The
refractory ore treatment plant, which began operations in mid-1994, operated at
reduced rates in 1994 and 1995 due primarily to a crack in a weld of a riding
ring in the double rotator mill in August 1994 and a fire in an electrostatic
precipitator in November 1994. As the plant operated at steadily increasing
rates during 1995 and production from high grade underground ores increased,
production also increased from 1994 to 1995.
Carlin's ore production is shifting from open-pit oxide ore to refractory
ore coming from both open-pits and underground operations. The refractory ore
treatment plant, which processes most of the refractory ore, is expected to
account for approximately 40% of Carlin's gold production in 1997, up from
approximately 30% in 1996 and 20% in 1995. Carlin's production is expected to
continue to increase approximately 5% annually in 1997 and 1998 with the mining
of higher grade ores from the Post deposit. This deposit is mined by Barrick
Goldstrike Mines, Inc. ("Barrick") under a joint mining agreement, as discussed
below.
The Corporation's international operations include the Zarafshan-Newmont
Joint Venture ("Zarafshan-Newmont"), a 50%-50% joint venture between a
subsidiary of NGC and two Uzbekistan governmental entities. Zarafshan-Newmont,
which began production in September 1995, produces gold by crushing and leaching
low grade oxide ore from existing stockpiles at the government owned Muruntau
mine in Uzbekistan. Production was 326,500 ounces (163,200 equity ounces) for
1996 and 37,000 ounces (18,500 equity ounces) for 1995. Although problems were
encountered in the startup of the leach facility in 1995, gradual improvements
were made throughout 1996. In 1997, production is expected to be approximately
400,000 ounces with 50% attributable to NGC's interest.
In Indonesia, the Corporation began production in 1996 at NGC's 80% owned
Minahasa ("Minahasa") property. Revenue production was 107,000 ounces. In
addition, 5,700 ounces were produced before commercial operations commenced, and
the revenue from these ounces was credited against the capitalized costs of the
project. Although NGC has an 80% interest in this project, it is entitled to
100% of the gold production until its investment has been recovered, since it
funded 100% of the construction costs. Production is expected to reach
approximately 150,000 ounces in 1997, with higher levels expected in future
years.
NGC has also had a 38% interest in Minera Yanacocha, a Peruvian entity
which is managed by a subsidiary of NGC. Minera Yanacocha has increased its
production 166% over the past two years. Production totaled 811,400 ounces
(308,300 equity ounces), 552,000 ounces (209,800 equity ounces) and 304,600
ounces (115,700 equity ounces) in 1996, 1995 and 1994, respectively, at total
cash costs of $107, $119, and $135 per ounce produced, respectively. The
increased production in 1996 was primarily due to production beginning at a
third mine. In 1995, production began at a second mine, resulting in increased
production levels over 1994. Production is expected to increase at least 5% in
1997 and future production levels are expected to be consistent with those of
1997. Total cash costs are expected to increase slightly in 1997 and 1998, due
primarily to higher mining costs.
2
<PAGE> 3
As discussed in Note 17 of Item 8 -- "Financial Statements and
Supplementary Data," in February 1997 the Peruvian Superior Court upheld the
decision of a Peruvian trial court which ruled that NGC had the right to
exercise its preemptive right increasing its interest in Minera Yanacocha from
38% to 51.35% at a purchase price of $59.1 million. The court ruled that the
preemptive right was triggered in November 1993. Due to the dispute over the
exercise of the preemptive right, NGC had continued to account for the interest
in Minera Yanacocha on an equity basis at 38%. As a result of the Superior
Court's decision, the additional 13.35% interest will be accounted for as having
been acquired in 1997 and the 51.35% interest will be consolidated in the
Corporation's financial results, net of the amortization of the purchase price
of the incremental interest over its net book value and the NGC minority
interest therein. BRGM and other defendants have filed a request for review of
the Superior Court decision by the Supreme Court of Peru. Peruvian counsel have
advised the Corporation that decisions of the Superior Court can be modified by
the Supreme Court in very limited circumstances and that it is not likely that
further review will be granted. See the previously mentioned Note 17 in Item 8
for pro forma statements reflecting the additional interest.
NGC has targeted total equity gold production of approximately 2.6 million
ounces for 1997.
Costs applicable to sales were $476.1 million, $370.6 million and $326.4
million in 1996, 1995 and 1994, respectively. In 1996, $415.3 million relates to
the Carlin operations, $36.9 million relates to NGC's share of costs at
Zarafshan-Newmont and $23.9 million relates to Minahasa. Of the 1995 amount,
$4.1 million of the costs relate to NGC's share of costs attributable to
Zarafshan-Newmont. All other costs applicable to sales for 1995 and 1994 were
attributable to the Carlin operations.
The Corporation's costs applicable to consolidated sales on a per ounce of
gold sold basis were as follows for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
ZARAFSHAN-
CARLIN NEWMONT MINAHASA CONSOLIDATED
------------------ ----------- -------- ------------------
1996 1995 1994 1996 1995 1996 1996 1995 1994
---- ---- ---- ---- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash operating costs.................... $222 $189 $178 $225 $218 $217 $222 $189 $178
Royalties............................... 20 31 25 0 0 7 17 31 25
Other cash costs........................ 1 3 5 0 0 0 1 3 5
---- ---- ---- ---- ---- ---- ---- ---- ----
Total cash costs............... 243 223 208 225 218 224 240 223 208
Other................................... 1 1 2 1 1 2 1 1 2
---- ---- ---- ---- ---- ---- ---- ---- ----
Total costs applicable to
sales........................ $244 $224 $210 $226 $219 $226 $241 $224 $210
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
The above consolidated amounts do not take into account NGC's interest in
Minera Yanacocha because it was accounted for on the equity basis. If NGC's
equity interest in Minera Yanacocha were included with the consolidated amounts,
the weighted-average total cash costs per ounce of equity production would have
been $220, $210 and $202 in 1996, 1995 and 1994, respectively.
Cash operating costs consist principally of charges for mining ore and
waste associated with current period gold production and processing ore through
milling and leaching facilities. Total Carlin cash operating costs were $376.8
million in 1996, $308.4 million in 1995, and $277.3 million in 1994. The
increases in aggregate and per ounce costs between 1996 and 1995 were primarily
attributable to higher mining and milling costs. Approximately half of the
increase is attributable to increased mining costs which resulted from more
underground mining and higher waste-to-ore ratios at the open-pit mines in 1996.
Another quarter of the increase was due to higher milling costs primarily
associated with the refractory ore treatment plant. High maintenance costs were
incurred at the plant in 1996 as certain components corroded more quickly than
anticipated. In 1997, it is planned that these components will be replaced using
materials which are expected to significantly increase their operating lives.
The remainder of the 1996 increase was attributable to various other factors.
The increases in costs between 1995 and 1994 were primarily attributable to
increased milling costs associated with the refractory ore treatment plant
during its first full year of operation and increased underground mining costs.
Per ounce cash operating costs at Carlin are expected to decrease in 1997 and
1998 when the production of higher grade ore from the Post deposit enters the
production stream.
3
<PAGE> 4
NGC's share of cash operating costs at Zarafshan-Newmont increased to $36.9
million from $4.1 million in 1995 due to a full year of operation in 1996. Per
ounce cash costs increased slightly from 1995 to 1996 primarily due to a
reduction in the estimated ultimate gold recovery rate in 1996. Per ounce cash
operating costs are expected to slightly decrease in 1997 as greater
efficiencies and higher production levels are achieved, but may increase in 1998
as lower ore grades are expected to be encountered.
Per ounce cash operating costs at Minahasa in 1997 are expected to be
approximately the same as those in 1996. In the years thereafter, per ounce
costs are expected to decline as higher grade ores enter the production stream.
In addition to the cash operating costs expensed, the Corporation is
capitalizing a portion of mining costs associated with tons mined from deposits
having diverse grade and waste-to-ore ratios over a mine's life. In 1996 and
1995, such costs were capitalized for certain deposits at Carlin ($63.7 million
and $56.2 million, respectively) and at Minahasa ($6.1 million and $1.2 million,
respectively), whereas in 1994, these costs only related to the Carlin
operations ($33.2 million). The Carlin costs substantially relate to the Post
deposit. As previously mentioned, this deposit is being mined by Barrick under a
1992 joint mining agreement. Under such agreement, Barrick, which has a separate
and distinct interest in the same ore body, mines the deposit and charges NGC on
a basis that will result in both companies ultimately bearing the same cost per
contained ounce of gold mined. Some of NGC's contained ounces in this deep
deposit are expected to be processed in 1997, at which time such mining costs
will be matched against the revenues from the ounces that are produced.
Capitalized mining costs increased in 1996 and 1995 due to elevated mining
rates for the Post deposit, as well as commencement of production at Minahasa in
1996. Such capitalized mining costs are expected to decrease in 1997 from the
1996 amount, as the Company mines a higher proportion of Post ore relative to
waste material.
Royalty costs, which are a function of the amount of royalty ore processed,
were $34.4 million, $51.6 million and $38.7 million in 1996, 1995 and 1994,
respectively. In 1995, greater amounts of royalty-burdened ore were processed
than in 1996 and 1994. Including the effect of royalties at Minera Yanacocha,
royalty costs are expected to decrease from 1996 to 1997 by approximately 35%
due to a significant reduction in the amount of royalty-burdened ore processed
from open-pit mines at Carlin.
On a consolidated basis, the Corporation's costs applicable to sales per
ounce are expected to significantly decrease in 1997 with the lower cost per
ounce production at Carlin and Zarafshan-Newmont and the consolidation of the
low-cost Minera Yanacocha operations. In total, costs applicable to sales will
increase in 1997 as a result of the consolidation of Minera Yanacocha.
Depreciation, depletion and amortization ("DD&A") was $124.8 million,
$106.8 million and $91.1 million in 1996, 1995 and 1994, respectively. The
increase in 1996 over 1995 is primarily due to additional assets placed in
service at Carlin, a full year of Zarafshan-Newmont operations and the startup
of Minahasa operations. The increase in 1995 over 1994 is primarily due to new
facilities and equipment at the Carlin operations, including the refractory ore
treatment plant. Including the consolidation of Minera Yanacocha, DD&A is
expected to increase to between $165 million and $175 million in 1997 due to a
full year of operation at Minahasa and the additional assets placed in service
in 1996 at all operations.
Exploration and research expenses were $58.7 million, $57.3 million and
$69.2 million in 1996, 1995 and 1994, respectively. The decrease in exploration
and research expenses in 1995 compared to the 1994 amount was due to the
Corporation's planned decrease in exploration spending and increased focus on
resource development, for which costs are capitalized. NGC intends to replace
and increase its reserve base primarily through exploration. At December 31,
1996, NGC's proven and probable gold reserves were 37.1 million equity ounces,
compared to 28.8 million equity ounces at December 31, 1995. Exploration and
research expenses in 1997 are expected to increase to between $70 million and
$75 million with the consolidation of Minera Yanacocha.
As discussed in Note 16 of Item 8 -- "Financial Statements and
Supplementary Data," in July 1996, the Corporation and Sumitomo Corporation
("Sumitomo") entered into an agreement to develop and operate the
4
<PAGE> 5
Batu Hijau project in Indonesia. As a result of the contemplated ownership
structure, the Corporation began accounting for NGC's investment in Batu Hijau
as an equity investment in July 1996. In 1995 and for the first six months of
1996, development costs for this large copper/gold porphyry deposit were
capitalized. The Corporation's cash expenditures totaled $15.1 million and $27.7
million for 1996 and 1995, respectively. In addition, in 1996 Sumitomo advanced
$20.2 million for project development. In 1994, the Corporation incurred $16.8
million of exploration and research expenses for this project.
General and administrative expense ("G&A") was $48.1 million, $43.2 million
and $38.5 million in 1996, 1995 and 1994, respectively. The increases are
primarily related to the additional staffing required for the increased
international focus of the Corporation's operations. The Corporation provides
extensive management oversight and technical expertise to its overseas
operations. G&A expenses are not expected to increase significantly in 1997 over
the 1996 levels.
Interest expense before capitalized interest was $49.4 million, $48.0
million and $29.5 million in 1996, 1995 and 1994, respectively. The increase in
1995 from 1994 is associated with higher debt balances, primarily due to the
sale-leaseback financing of the refractory ore treatment plant which was
completed in September 1994. Net interest expense will increase in 1997 with the
consolidation of Minera Yanacocha and its planned $100 million financing. See
"Liquidity and Capital Resources."
In 1995, the Corporation recorded write-offs of two exploration properties
totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over
the next three years, extensive drilling, environmental studies and mine models
were developed to determine the economics of extracting gold from the property.
A feasibility report was issued in June 1995 that reflected high levels of
environmental and mining costs that resulted in financial returns much lower
than the Corporation's threshold for development. Accordingly, the decision was
made not to develop the property and $18.8 million of capitalized costs
associated with the property were written off in June 1995. At that same time,
an additional charge of $4.6 million was taken as other expense for estimated
costs to reclaim areas disturbed by previous mining and exploration activity on
the property.
The Grassy Mountain property was purchased in September 1992. At the time
of the purchase, certain reliance was placed upon geological models prepared by
the seller. Work performed by the Corporation in 1993 demonstrated that the gold
was not distributed as modeled by the seller. In 1994, the Corporation created
new detailed models of the deposit based on its revised geologic interpretation.
These models resulted in fewer high grade ounces, which led to the
reclassification of 996,000 ounces of reserves to mineralized material at the
end of 1994. However, additional drilling and modeling was required to determine
whether there was an impairment of the asset based on the work performed through
that date. Based on economic information at that time and the use of
undiscounted cash flows, no write-down was considered necessary as of December
31, 1994. Throughout 1995, further refinement of geological and economic models
continued with open-pit, underground and price hedging scenarios all resulting
in deposit sizes and economic returns smaller than the Corporation's threshold
for development. Based on these results, capitalized costs of $33.8 million
relating to the Grassy Mountain property were written off in December 1995.
Other expenses were $13.9 million, $11.7 million and $46.0 million for
1996, 1995 and 1994, respectively. These amounts reflect charges of $6.6
million, $3.0 million and $36.1 million in 1996, 1995 and 1994, respectively,
related to environmental obligations associated with former mining activities
discussed in Note 16 to Item 8 -- "Financial Statements and Supplementary Data."
The additional charges related to environmental obligations in all periods
reflect revisions of estimates of future costs to be incurred. Included in the
1994 amount is a valuation allowance of $20 million that was made against
receivables from insurance companies for recoveries related to such
environmental obligations. The Corporation recorded the valuation allowance
after discussions with its then new lead counsel regarding its review of the
litigation with the insurance companies and due to the absence of expected
settlement discussions. After recording the valuation allowance there remained a
net receivable balance from insurance companies of approximately $16.7 million
at December 31, 1994. Settlement of certain of the insurance litigation was
reached in 1995 enabling the Corporation to realize the receivable. Trial of the
remaining litigation is scheduled for late 1997. The
5
<PAGE> 6
Corporation intends to vigorously pursue its claims with respect to the
remaining litigation and believes that it is reasonably possible that additional
amounts will be recovered, although no such amounts are accrued.
Since the actual cash payments for the environmental obligations associated
with the Corporation's former mining activities are expected to occur over a
number of years, such cash requirements are not expected to have a significant
negative impact on the Corporation's liquidity. The Corporation made such
payments of $14.8 million, $20.0 million and $14.5 million in 1996, 1995 and
1994, respectively. The Corporation expects to pay approximately $10.0 million
of such costs in 1997. Total estimated future costs related to these
environmental liabilities of $50.2 million were accrued at December 31, 1996.
Because of the uncertain nature of these liabilities, the Corporation estimates
that it is reasonably possible that the ultimate liability may be as much as
100% greater or 40% lower than the amount accrued at December 31, 1996. Absent
concurrent insurance recoveries, or revenue generating operations associated
with closure, on-going cash expenditures will be funded out of operating cash
flow and/or borrowings. The Corporation continuously monitors and reviews its
environmental obligations and, although the Corporation believes that it has
adequately accrued for such costs, as additional facts become known additional
provisions may be required.
Dividends, interest and other income was $26.5 million, $42.2 million and
$22.3 million for 1996, 1995 and 1994, respectively. The amounts include $3.1
million, $28.3 million and $9.2 million for 1996, 1995 and 1994, respectively,
for business interruption insurance recorded for certain problems associated
with the refractory ore treatment plant, as previously discussed. The remaining
variance between the years is due primarily to variances in interest income
which has increased over the three years due to higher cash balances. As
discussed in Note 8 of Item 8 -- "Financial Statements and Supplementary Data",
in January 1996, NMC issued 4.65 million shares of common stock resulting in
higher cash balances in 1996. Interest income is expected to be the primary
component of dividends, interest and other in 1997, and is expected to decrease
slightly from 1996.
Income tax benefit (provision) was $19.4 million, ($17.0) million and $29.3
million for 1996, 1995 and 1994, respectively. Included in the 1996 income tax
benefit are foreign tax credits associated with Minera Yanacocha, which were
substantially higher in 1996 than 1995, as well as $6.0 million of benefits
resulting from resolution of certain tax issues from prior years. In 1995, the
Corporation recognized taxes of $41.2 million related to the sale of its
investment in SPCC. This charge was partially offset by a tax benefit of $20
million related to the charges associated with the write-offs of the Ivanhoe and
Grassy Mountain properties. In 1994, the Corporation recognized an income tax
benefit of $16.2 million resulting from the resolution of certain tax issues
associated with prior years, as well as a tax benefit of $12.6 million
recognized in connection with the charge relating to environmental obligations.
Tax benefits from percentage depletion and foreign tax credits were realized in
all three years. At December 31, 1996, the Corporation had $63.4 million of net
deferred tax assets. Although it can give no assurances, the Corporation expects
that projected future operations will result in the utilization of these net
deferred tax assets.
General inflation over the past three years has not had a material effect
on the Corporation's cost of doing business and is not expected to have a
material effect in the foreseeable future. Changes in the price received for
gold will impact the Corporation's revenue stream, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Corporation's cash outlays included $231.2 million in
capital expenditures and $47.7 million in dividends. Of the capital
expenditures, approximately $154.0 million was spent on projects at the Carlin
operations which were primarily associated with capitalized mining costs,
underground development, mining and processing equipment, and refractory leach
pads. In addition, $27.4 million was spent by the Corporation on mine site
development for the Minahasa project, $15.1 million on the Batu Hijau project
before the agreement was reached with Sumitomo, and $11.6 million was spent on
the construction of a new technical facility in Denver, Colorado. The balance of
capital expenditures related to various other projects. These expenditures were
funded by proceeds from issuances of common stock of $265.4 million and cash
flow from operating activities of $135.4 million. In addition, $16.8 million was
borrowed under short-term credit facilities to finance environmental reclamation
and remediation activities.
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Including Minera Yanacocha, approximately $300 million is expected to be
spent on capital projects in 1997. Carlin expenditures of approximately $145
million will be for capitalized mining costs, mine equipment, refractory leach
pads and underground development. Funds for capital expenditures of
approximately $8 million and $26 million will also be required for the
Zarafshan-Newmont and Minahasa projects, respectively. Minera Yanacocha
expenditures of approximately $110 million will be primarily for the
construction of a second processing facility and the construction and expansion
of leach pads.
Of the Corporation's $231.2 million in capital expenditures in 1996, it is
estimated that approximately $12 million was required to comply with
environmental regulations. Including the effect of Minera Yanacocha, the
Corporation estimates that approximately $25 million of the capital expenditures
in 1997 will be required to comply with environmental regulations. The ongoing
costs to comply with environmental regulations are not a significant portion of
the Corporation's cash operating costs.
Also in 1997, the Corporation expects to spend approximately $20 million on
development of La Herradura, a 44% equity investment located in Mexico. The
property will be developed by Minera Penmont S.A. de C.V., which is owned
56%-44% between Industriales Penoles S.A. de C.V. ("Penoles") and a subsidiary
of NGC. The property is a low grade, open-pit deposit that is expected to begin
heap-leach production in mid-1998. Penoles, as managing partner, has the
responsibility for development and construction of this project. However, the
Corporation will continue to provide technical expertise on an ongoing basis.
Additionally in 1997, the acquisition of the incremental interest in Minera
Yanacocha is expected to require the payment of approximately $59.1 million plus
additional costs required to complete the acquisition.
As previously mentioned, in January 1996, NMC issued 4.65 million shares of
common stock for $51.87 per share under an existing "shelf" registration
statement with the Securities and Exchange Commission. Proceeds of the issue
netted $241.3 million and were used to purchase an equal number of shares of
common stock of NGC. NGC used these proceeds to fund its operations. This
transaction increased NMC's ownership of NGC to 90.5%. In addition, $24.2
million was received in 1996 from the exercise of employee stock options.
Cash on hand at December 31, 1996 of $185.7 million, operating cash flow
and short-term borrowings will be used to fund the Corporation's capital
expenditures and other cash requirements in 1997 (other than Minera Yanacocha).
The Corporation also has a $400 million unused revolving credit facility with a
consortium of banks. Additionally, in June 1994, NGC filed a "shelf"
registration statement with the Securities and Exchange Commission covering the
issuance of up to $150 million in non-convertible debt securities. There are no
present plans to use the revolving credit facility or issue any such securities.
In addition, Minera Yanacocha intends to raise $100 million of project financing
in 1997 to partially finance its 1997 capital spending program and for other
general corporate purposes.
As discussed in Note 16 of Item 8 -- "Financial Statements and
Supplementary Data," in July 1996, NGC and Sumitomo entered into an agreement to
develop and operate the Batu Hijau project in Indonesia. The estimated cost for
development of the open-pit mine, mill and infrastructure including employee
housing, a port, electrical generation facilities, interest during construction,
cost escalations and working capital is expected to approximate $1.9 billion.
Batu Hijau contains proven and probable reserves of 12.1 million ounces (5.4
million equity ounces to NGC) of gold and 10.6 billion pounds (4.8 billion
equity pounds to NGC) of copper. Production is expected to begin around the turn
of the century, with a projected mine life in excess of 20 years.
Under the partnership agreement between Sumitomo and NGC, NGC will, at the
outset, contribute to the partnership its interest in the company that owns the
project and retain a 45% interest. Sumitomo will contribute, at the outset,
approximately $165 million in cash and in the months immediately following the
date of the initial contributions, an estimated additional $70 million in cash
and receive a 35% interest. The remaining 20% interest in the project is held by
an Indonesian company that has no cash requirements. The parties' obligations to
make their initial contributions to the partnership are subject to certain
conditions, including receipt of certain approvals from the Indonesian
government. Until these conditions are satisfied, Sumitomo has agreed to fund up
to $100 million of project costs through non-interest bearing loans which NGC
has effectively guaranteed. Such funding will be credited against Sumitomo's
initial contribution. If the
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above conditions are not satisfied by March 31, 1997, either party has the right
to terminate the agreement and the loans would become due. As a result of the
contemplated ownership structure, the Corporation is accounting for its
investment in Batu Hijau as an equity investment effective July 1996. The
Corporation's investment at December 31, 1996, which is included in other
long-term assets, was $46.6 million. At December 31, 1996, Sumitomo had loaned
$20.2 million to the company that owns the project.
Project financing for the Batu Hijau project of approximately $1 billion is
being arranged. Such financing will be guaranteed until project completion by
NGC and Sumitomo, 56.25% and 43.75%, respectively. NGC and Sumitomo are also
expected to enter into certain support agreements related to such debt. The
Corporation expects NGC to fund its share of remaining project costs through
operating cash flow, bank credit lines or other third party financing as needed.
Depending on financing arrangements, it is possible that no cash requirements
will be necessary for NGC until 1998. Total project costs for 1997 are estimated
to be approximately $400 million.
Scheduled minimum long-term debt repayments are $19.3 million in 1997. The
Corporation expects to fund maturities of its debt through operating cash flow
and/or by refinancing the debt as it becomes due.
For active mines, the Corporation provides for future reclamation and
remediation costs on a unit-of-production basis. The annual accrual for costs
associated with current operations has not been significant. The Corporation
reviews the adequacy of its reclamation and remediation closure reserves in
light of current laws and regulations and makes provisions as necessary. In
addition, periodic internal environmental audits are conducted to evaluate
environmental compliance. Cash flow from the Corporation's operations and
salvage values are expected to provide funding for reclamation and remediation
closure costs. The Corporation believes that its current operations are in
compliance with applicable laws and regulations designed to protect the public
health and environment.
Current and non-current inventories (non-current inventories are included
in other long-term assets) increased from December 31, 1995 to December 31, 1996
by $14.4 and $32.5 million, respectively. Of these increases, $23.4 million
relates to Zarafshan-Newmont's commencement of operations and NGC acquiring ore
stockpiles from its partners in 1996 to allow them to fund their capital
contributions to the venture. In addition, $16.3 million is related to the
commencement of operations at Minahasa.
PROPOSED MERGER WITH SANTA FE PACIFIC GOLD CORPORATION
As discussed in Note 17 of Item 8 -- "Financial Statements and
Supplementary Data," NMC has entered into a merger agreement with Santa Fe
Pacific Gold Corporation ("Santa Fe") under which each share of Santa Fe common
stock will be exchanged for 0.43 of a share of NMC common stock. A condition of
the merger is that it be accounted for as a pooling of interests. The merger is
also subject to the approval of the shareholders of both companies and other
customary conditions. It is expected to be consummated during the second quarter
of 1997. If NMC is successful in acquiring Santa Fe, Santa Fe would become a
wholly-owned subsidiary of NGC. NGC would issue shares of common stock to NMC
equal to the number of shares NMC issues to acquire Santa Fe (estimated to be
approximately 56.5 million). Santa Fe reported 1996 sales of $337.2 million,
gold production of 851,600 ounces, total cash costs of $215 per ounce and net
income of $21.1 million. Santa Fe also reported as of December 31, 1996 total
assets of $1.3 billion, long-term debt of $454.9 million and net worth of $570.0
million. Costs associated with this transaction, estimated to be approximately
$125 million, will be funded by the operating cash flow of each company and/or
third party financing sources as required.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis, as well as certain of the notes to
the consolidated financial statements, contain "forward-looking statements"
within the meaning of Section 27A of the Securities Exchange Act of 1934, as
amended. Such statements include, but are not limited to, (i) estimates of
future gold production for specific operations and on a consolidated basis, (ii)
estimates of future production costs, exploration expenditures and other
expenses for specific operations and on a consolidated basis, (iii) estimates of
future capital expenditures and other cash needs for specific operations and on
a consolidated basis and
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expectations as to the funding thereof, (iv) statements as to the projected
development of certain ore deposits, including estimates of development and
other capital costs, financing plans with respect thereto and expected
production commencement dates, and (v) estimates of future costs and other
liabilities for certain environmental matters. These forward-looking statements
are subject to risks, uncertainties and other factors that could cause actual
results to differ materially from the forward-looking statements.
Future gold production could be affected by, among other things, the price
of gold, risks and hazards associated with mining operations, variances in ore
grade and metallurgical and other characteristics from assumptions contained in
mining plans, labor disputes and acts of God.
Future production costs, exploration expenditures and other expenses could
be affected by a number of factors, including, but not limited to, unanticipated
geological configurations or other geological or grade problems, metallurgical
and other processing problems, the occurrence of inclement or hazardous weather
conditions or other unusual operating conditions, the failure of equipment,
processes or facilities to operate in accordance with specifications or
expectations, labor disputes, accidents and changes in U.S. or foreign laws or
regulations or the interpretation, enforcement or implementation thereof.
The amount and timing of future capital expenditures could be influenced by
a number of factors, including the timing of receipt of necessary permits and
other governmental approvals, the failure of equipment, processes or facilities
to operate in accordance with specifications and expectations, labor disputes
and unanticipated changes in mine plans. The funding of such expenditures and
other cash needs will be affected by the level of cash flow generated by the
Corporation and the ability of the Corporation to otherwise finance such
expenditures, which in turn could be affected by general U.S. and international
economic and political conditions, political and economic conditions in the
country in which the expenditure is being made, as well as financial market
conditions.
The development of certain ore deposits could be affected by, among other
things, labor disputes, delays in the receipt of or failure to receive necessary
governmental permits or approvals, changes in U.S. or foreign laws or
regulations or the interpretation, enforcement or implementation thereof, the
failure of any of the Corporation's joint venture partners to perform as agreed,
unanticipated ground and water conditions, the failure of equipment, processes
or facilities to operate in accordance with specifications or expectations, or
delays in the receipt of or the ability to obtain any necessary financing.
Future environmental costs and liabilities could be impacted by changes in
U.S. or foreign laws or regulations or the interpretation, enforcement and
implementation thereof, unanticipated ground and water conditions, the failure
of equipment, processes or facilities to operate in accordance with
specifications or expectations, delays in receiving necessary permits and other
factors beyond the control of the Corporation.
For a more detailed discussion of the foregoing risks and uncertainties as
well as other risks and uncertainties affecting the Corporation and its
operations, see Item 1 of the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 to be filed with the Securities and Exchange
Commission. Many of these factors are beyond the Corporation's ability to
control or predict. Readers are cautioned not to put undue reliance on
forward-looking statements.
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