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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-1153
NEWMONT MINING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13-1806811
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1700 LINCOLN STREET
DENVER, COLORADO 80203
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (303) 863-7414
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <C>
COMMON STOCK, $1.60 PAR VALUE NEW YORK STOCK EXCHANGE
PARIS BOURSE
SWISS STOCK EXCHANGE
BRUSSELS STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X No__
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT (BASED ON THE CLOSING SALE PRICE OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE) ON MARCH 26, 1997 WAS APPROXIMATELY $4,115,500,000.
THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING ON MARCH 26, 1997
WAS 99,522,778.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT TO
REGULATION 14A PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 5, 1997 (PART III).
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The forward-looking statements, projections and estimates herein relate, in
all cases, to the properties and operations of Newmont Mining Corporation and
its subsidiaries at December 31, 1996. In the event the proposed merger with
Santa Fe Pacific Gold Corporation described under the heading "Recent
Developments" is consummated, certain of such forward-looking statements made
with reference to Newmont Mining Corporation and its subsidiaries on a
consolidated basis will be subject to material modification.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
Newmont Mining Corporation ("Newmont") was incorporated in 1921 under the
laws of Delaware. Its principal asset is approximately 91% of the outstanding
common stock of Newmont Gold Company, a Delaware corporation. Newmont Gold
Company is engaged, directly and through its subsidiaries and affiliates, in
gold production, exploration for gold and acquisition of gold properties
worldwide. Newmont Gold Company, together with its subsidiaries (unless the
context otherwise requires), is referred to herein as "NGC." Newmont, together
with NGC, is referred to herein as the "Corporation."
Effective January 1, 1994, NGC acquired all of the operations and assets of
Newmont, except for NGC's common stock retained by Newmont, and NGC assumed all
of Newmont's liabilities. The number of outstanding shares of Newmont common
stock equals the number of shares of common stock it owns of NGC so that
stockholders of both companies have identical per share interests in the
reserves, production, earnings and dividends of NGC. The income statements and
balance sheets for the two companies are virtually the same with the only
difference being the minority interest in NGC reflected in Newmont's income
statements and balance sheets.
Substantially all of the Corporation's consolidated sales and operating
profit in 1995 and 1994 related to its gold mining activities. In 1996, the
Corporation's consolidated sales resulted from operations in the United States,
Uzbekistan and Indonesia. In 1996, 74% of NGC's equity production of gold
related to its U.S. operations and 26% of such production related to its foreign
operations. At December 31, 1996, approximately 19% of the Corporation's
consolidated assets related to its foreign operations.
NEWMONT GOLD COMPANY
OVERVIEW
NGC produces gold from the Carlin Trend in Nevada. It also produces gold
through a 51.35% owned company in Peru which commenced gold production in August
1993 and a 50% owned venture in Uzbekistan which commenced gold production in
September 1995. NGC additionally has an 80% interest in an Indonesian company
which commenced gold production in March 1996 and an 80% interest in a second
Indonesian company that holds an interest in a large copper/gold project which
is currently in the pre-construction stage. NGC also has a 44% interest in a
project in Mexico which is undergoing development and is scheduled to commence
production in 1998. In addition to exploration activities conducted in
connection with these operations and projects, NGC continues to explore for gold
and/or is conducting joint venture activities in other parts of these countries
as well as Canada, Ecuador and certain countries in the Caribbean and Asia. NGC
had 37.1 million equity ounces of proven and probable gold reserves at December
31, 1996 and 28.8 million equity ounces of proven and probable gold reserves at
December 31, 1995.
CARLIN, NEVADA
Production
NGC's U.S. operations are located on the geological feature known as the
Carlin Trend which Newmont discovered in 1961. The Carlin Trend, which is
located near Carlin, Nevada, is the largest gold district discovered in North
America in this century. See map on page three. Since it began production in
1965,
<PAGE> 4
through the end of 1996, NGC has produced approximately 18.7 million ounces of
gold from the Carlin Trend.
From the Carlin Trend, NGC produced 1,700,000 ounces of gold in 1996,
1,634,500 ounces of gold in 1995 and 1,555,300 ounces of gold in 1994. Gold
production at NGC's Carlin operations in 1997 is expected to approach 1.8
million ounces.
In 1996, ore was mined from eleven open-pit deposits and from four
underground mines. The Tusc open-pit mine opened in May 1994. Two other open-pit
mines, Lantern and North Star opened in 1995. Four open-pit deposits opened in
1996 (Beast, Lantern, Bootstrap and Sold). The Carlin East and Rain underground
mines commenced production in late 1994. The Carlin Main and Deep Star
underground mines commenced production in early 1995.
The Post pit is mined by Barrick Goldstrike Mines Inc. under a joint mining
agreement. At the end of 1996, the lower and deep zones of this ore body
contained approximately 4.9 million ounces of proven and probable gold reserves
for NGC's account. The parties share the cost of mining the ore body in
proportion to their interests in the contained gold. See also page 32.
The following table presents Carlin Trend mine production data:
CARLIN TREND MINE PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------- ----------------------------------- -------------------------
MILL LEACH MILL LEACH MILL LEACH
ORE ORE WASTE TOTAL ORE ORE WASTE TOTAL ORE ORE WASTE
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Open-Pit:
Genesis................... 968 6,496 26,242 33,706 3,246 15,193 44,792 63,231 3,354 10,591 44,199
Bootstrap................. 310 872 2,193 3,375 -- -- -- -- -- -- --
Carlin.................... -- -- -- -- 13 65 2,460 2,538 86 954 1,853
Lantern................... 351 416 2,774 3,541 -- -- -- -- -- -- --
Post...................... 1,037 136 78,180 79,353 2,084 752 63,024 65,860 404 3,941 43,186
Gold Quarry............... 7,874 26,086 40,899 74,859 8,944 32,099 44,639 85,682 9,518 34,885 52,379
Tusc...................... 533 4,805 16,906 22,244 219 2,399 14,743 17,361 100 454 5,654
North Star................ 695 2,593 12,774 16,062 11 187 1,936 2,134 -- -- --
Rain...................... -- -- -- -- -- -- -- -- 270 1,230 930
Sold...................... -- 825 1,294 2,119 -- -- -- -- -- -- --
Beast..................... 89 2,579 3,514 6,182 -- -- -- -- -- -- --
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total Open-Pit.......... 11,857 44,808 184,776 241,441 14,517 50,695 171,594 236,806 13,732 52,055 148,201
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Underground:
Carlin East............... 278 -- -- 278 271 -- -- 271 31 7 --
Carlin Main............... 123 -- -- 123 72 -- -- 72 3 -- --
Deep Star................. 145 -- -- 145 15 -- -- 15 -- -- --
Rain...................... 160 6 -- 166 146 -- -- 146 48 3 --
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total Underground....... 706 6 -- 712 504 -- -- 504 82 10 --
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Grand Total............. 12,563 44,814 184,776 242,153 15,021 50,695 171,594 237,310 13,814 52,065 148,201
====== ====== ======= ======= ====== ====== ======= ======= ====== ====== =======
<CAPTION>
1994
-------
TOTAL
-------
<S> <C>
Open-Pit:
Genesis................... 58,144
Bootstrap................. --
Carlin.................... 2,893
Lantern................... --
Post...................... 47,531
Gold Quarry............... 96,782
Tusc...................... 6,208
North Star................ --
Rain...................... 2,430
Sold...................... --
Beast..................... --
-------
Total Open-Pit.......... 213,988
-------
Underground:
Carlin East............... 38
Carlin Main............... 3
Deep Star................. --
Rain...................... 51
-------
Total Underground....... 92
-------
Grand Total............. 214,080
=======
</TABLE>
NGC owns in fee or controls through long-term mining leases and unpatented
mining claims all of the minerals and surface area within the boundaries of the
present mining areas of its Carlin Trend deposits. Such long-term leases extend
for at least the anticipated mine life of those deposits. With respect to Gold
Quarry, NGC owns a 10% undivided interest in the minerals in a majority of the
present and projected mining areas, and with respect to the remaining 90% has
agreed to pay a royalty on production to third party lessors that is equivalent
to 18% of production therefrom. NGC's royalty commitments to other parties with
respect to other portions of the Gold Quarry property and certain of its other
properties are much less significant. See also page 32. For information
regarding risks associated with unpatented mining claims, see page 22.
2
<PAGE> 5
[INSERT NEVADA PROPERTY]
3
<PAGE> 6
Processing Facilities
Oxide ore is amenable to gold extraction through the use of size-reduction
processes, such as crushing and grinding, and the dissolution of the gold in
such ore using conventional cyanidation treatment techniques. Refractory ore at
Carlin contains minerals which require pre-treatment, such as roasting, to
optimize recovery of gold from high grade refractory ore using conventional
cyanidation processes. Approximately 73% of NGC's proven and probable gold
reserves on the Carlin Trend are refractory and the balance are oxide.
NGC currently has three operating oxide mills on the Carlin Trend (Mill No.
4, Mill No. 5 and Mill No. 3). Mill No. 3 is currently being operated on a batch
basis, having operated for four months in 1996 and being scheduled to operate
for two months in 1997.
Processing at NGC's oxide leaching operations includes crushing ore at two
plants and leaching ore at four heap leach facilities using cyanidation for gold
recovery.
In the fall of 1994, NGC completed construction of a refractory ore
treatment plant, or roaster, known as Mill No. 6, to treat high-grade refractory
ores that contain either sulfides or active carbon. Partial operation was
achieved in October 1994, but because of a mechanical problem and a fire in a
component of the Mill, final start-up was delayed until the end of December
1994. Ore processed through the plant yielded approximately 354,400 ounces of
gold in 1995 and approximately 540,000 ounces of gold in 1996. This plant is
expected to account for approximately 40% of NGC's Carlin gold production in
1997. To finance the facility, the plant was sold to a third party and leased
back to NGC in September 1994 pursuant to a 21-year lease. For a discussion of
the financing of the refractory ore treatment plant, see page 50.
In 1996, operation of NGC's large-scale bioleach demonstration facility for
processing low-grade refractory ores at Gold Quarry resulted in the production
of approximately 28,000 ounces of gold at a processing cost of $207 per ounce.
This demonstration facility will operate through 1997 to pretreat a third batch
of ore using NGC's patented bacterial oxidization process. After bio-oxidation,
these ores will be leached with either cyanide or ammonium thiosulfate.
Additionally, NGC is using a direct ammonium thiosulfate treatment without
bio-oxidation on some ore types.
A feasibility study completed in 1996 has resulted in a plan to commence
construction on an 8 million ton per year commercial refractory bioleach
facility near the Gold Quarry open-pit mine. Following receipt of environmental
permits which are expected in the fourth quarter of 1997, the leaching process
will commence in 1998 with full production anticipated in 1999. The facility is
expected to process in excess of 100 million tons of low-grade refractory ore
from the Gold Quarry deposit and to produce approximately 3 million ounces of
gold over the 13 year project life.
The following table presents Carlin Trend mill and leach production data:
CARLIN TREND MILL AND LEACH PRODUCTION
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------- -------------------------------------- ----------------
DRY GRADE DRY GRADE DRY GRADE
SHORT (OUNCES OUNCES AVERAGE SHORT (OUNCES OUNCES AVERAGE SHORT (OUNCES
TONS PER PRODUCED RECOVERY TONS PER PRODUCED RECOVERY TONS PER
(000S) TON) (000S) RATE(%) (000S) TON) (000S) RATE(%) (000S) TON)
------ ------- -------- -------- ------ ------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mill No. 1............ -- -- -- -- -- -- -- -- 188 0.135
Mill No. 2............ -- -- -- -- -- -- -- -- 1,034 0.081
Mill No. 3............ 242 0.186 39.6 84.9 105 0.211 19.9 87.6 859 0.079
Mill No. 4............ 2,741 0.071 152.7 75.8 2,713 0.063 139.6 80.6 2,736 0.129
Mill No. 5............ 5,904 0.084 400.8 77.8 6,172 0.091 473.5 82.8 6,264 0.077
Mill No. 6............ 2,364 0.257 540.0 86.1 1,383 0.281 354.4 91.0 701 0.081
------ ------- ------ ------- ------
Total............... 11,251 0.119 1,133.1 79.1 10,373 0.109 987.4 83.4 11,782 0.091
====== ====== ======
Leach Operations...... 41,909 0.023 566.9 --(1) 44,095 0.023 647.1 --(1) 52,381 0.021
====== ------- ====== ------- ======
Total Ounces Produced... 1,700.0 1,634.5
======= =======
<CAPTION>
1994
-------------------
OUNCES AVERAGE
PRODUCED RECOVERY
(000S) RATE(%)
-------- --------
<S> <C> <C>
Mill No. 1............ 24.3 87.7
Mill No. 2............ 85.1 82.7
Mill No. 3............ 59.1 80.9
Mill No. 4............ 292.3 80.7
Mill No. 5............ 396.1 79.5
Mill No. 6............ 44.6 85.5
-------
Total............... 901.5 80.7
Leach Operations...... 653.8 --(1)
-------
Total Ounces Produced. 1,555.3
=======
</TABLE>
- ---------------
(1) Leach recovery from tons placed on leach pads fluctuates from year-to-year
due to ore grade, differing solution application rates and cycle times, as
well as varying quantities of unleached material placed on pads.
4
<PAGE> 7
Other Facilities
The gold-bearing activated carbon from NGC's Carlin milling and leaching
facilities is processed at a central carbon processing plant with the recovered
gold produced into bars of dore at an adjacent refinery.
An analytical laboratory and administration office is located in the
vicinity of Mills No. 5 and 6. NGC also has an advanced metallurgical research
laboratory in Denver, Colorado.
Electrical power and natural gas for NGC's Nevada operations are provided
by public utilities. Oxygen for the refractory ore treatment plant is provided
by Praxair Inc. on a contract basis from an oxygen plant constructed by Praxair
Inc. on land leased from NGC which is currently the sole consumer of the oxygen
produced.
Refining
NGC has refining agreements with three foreign refiners and one U.S.
refiner to further refine the dore bars to 0.995 or better, recognized as
marketable on world markets. Under the terms of the agreements with these
refiners, the dore bars are toll refined and the refined gold and the separately
recovered silver are returned to NGC's account for sale to third parties.
Management believes that because of the availability of alternative refiners,
each able to supply all services needed by NGC for its Nevada operations, no
adverse effect would result if NGC lost the services of any of its current
refiners.
Exploration
NGC conducts extensive exploration along the Carlin Trend. NGC owns or
otherwise controls the mineral interests on approximately 628 square miles of
property along the Carlin Trend. In 1996, a total of 723 holes totaling 532,717
feet were drilled by NGC on the Carlin Trend in connection with reserve
development and exploration activities. This compares with approximately 715
holes totaling 496,606 feet drilled in 1995. Exploration by underground methods
continues to facilitate the definitive location of deeper deposits of gold ore.
In 1996, approximately $23 million was spent by NGC on reserve development
and exploration on the Carlin Trend. A similar amount is expected to be spent in
1997.
5
<PAGE> 8
PERU
Introduction
NGC produces gold through Minera Yanacocha S.A. ("Minera Yanacocha") in
Peru. In 1986, NGC discovered the Yanacocha gold deposit which has since become
the largest gold district in South America. Minera Yanacocha began production in
1993. Due to a favorable decision in February 1997 by the Peruvian Superior
Court in the litigation described below, NGC is considered to have acquired for
reporting purposes an additional 13.35% interest in Minera Yanacocha in 1997,
bringing NGC's ownership interest in Minera Yanacocha to 51.35%.
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"), and 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% and 32.3% owners of Minera Yanacocha, respectively,
filed suit in Peru to seek enforcement of a provision in the by-laws of Minera
Yanacocha, giving shareholders preemptive rights on the proposed sale or
transfer of any shareholder's interest. The caption of the suit is Compania
Minera Condesa et al. v. Bureau de Recherches Geologiques et Minieres, Case No.
944-94-A (300-96RC), Fifth Specialized Civil Court In and For Lima. 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. The trial hearing in the case occurred in July 1996 and a ruling in
NGC's and Buenaventura's favor was issued in September 1996. The trial court
ruling provided that NGC and Buenaventura have 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. In February 1997, the Peruvian Superior Court upheld
the decision of the trial court. As discussed above, as a result of the Superior
Court's decision, NGC is considered to have acquired for reporting purposes the
additional 13.35% interest in February 1997. Therefore, beginning in 1997, NGC
and Newmont will be consolidating Minera Yanacocha in their financial
statements. Previously, NGC and Newmont had accounted for the 38% interest in
Minera Yanacocha on an equity basis. BRGM and other defendants in the suit have
filed a request for review of the Superior Court decision by the Supreme Court
of Peru. Peruvian counsel has advised NGC that decisions of the Superior Court
can be modified by the Supreme Court only in very limited circumstances and that
it is not likely that further review will be granted. However, there can be no
assurances that such review will not be granted. In the event such review is
granted, there can be no assurance that the Peruvian Supreme Court will not
modify the decision of the Peruvian Superior Court in a way that could have a
material adverse effect on the results of operations of NGC.
Minera Yanacocha has mining rights with respect to a large land position,
which includes the Carachugo, Maqui Maqui, Yanacocha Norte, San Jose and Encajon
deposits as well as other prospects. Such mining rights were acquired through
assignments of concessions granted by the Peruvian government to a related
entity. The assignments have a term of 20 years, renewable at the option of
Minera Yanacocha for another 20 years. A wholly owned subsidiary of NGC acts as
general manager of Minera Yanacocha.
Minera Yanacocha has emphasized social development in the communities
surrounding its mining operations. Since 1994, Yanacocha has built or rebuilt
seven schools, developed social programs and built roads in such communities all
of which have contributed to the growth of the local economies. Minera Yanacocha
has an advisory role on the Ministry of Energy and Mines environmental affairs
group to provide technical assistance with the development of achievable
environmental strategies for Peru's mining industry.
Production
Three open-pit mines and two leach pads are in operation at Minera
Yanacocha. Production commenced in August 1993 at the Carachugo deposit, in
October 1994 at the Maqui Maqui deposit, which is located three miles north of
Carachugo, and in January 1996 at the San Jose deposit which is located one mile
southwest of
6
<PAGE> 9
Carachugo. In 1996, production was 811,426 ounces of gold (308,300 equity ounces
at 38%) at a total cash cost of $107 per ounce as compared to 1995 production of
552,000 ounces of gold (209,800 equity ounces at 38%) at a total cash cost of
$119 per ounce and 1994 production of 304,600 ounces of gold (115,700 equity
ounces at 38%) at a total cash cost of $135 per ounce. In 1997, production is
expected to increase at least 5%, including production from the Yanacocha Norte
open-pit mine and associated leach facility which is expected to commence
production in late 1997.
Minera Yanacocha's operations are accessible by road and are located
approximately 375 miles north of Lima and 28 miles north of the city of
Cajamarca. Power for the project is provided by diesel generators owned by
Minera Yanacocha. The ore is not crushed, but transported directly to
impermeable leach pads where the ore is treated with a weak cyanide solution
which penetrates the ore dissolving the gold. The pregnant leach solution is
collected and pumped through a Merrill-Crowe plant to remove the gold from the
solution. After the gold is processed from the zinc precipitate, it is smelted
into dore which is transported from the processing plant by a contractor and
toll refined at refineries in Switzerland.
Two new deposits were added to proven and probable gold reserves in 1996.
The Yanacocha Norte deposit which is located one mile northwest of Carachugo
contains 1.3 million ounces of gold (0.7 million equity ounces at 51.35%).
Encajon, located one mile west of Carachugo, contains 0.5 million ounces of gold
(0.3 million equity ounces at 51.35%). Total proven and probable gold reserves
for Minera Yanacocha as of December 31, 1996 were 6.1 million ounces (3.1
million equity ounces at 51.35%) and 4.9 million ounces (1.9 million equity
ounces at 38%) as of December 31, 1995.
The following table presents Minera Yanacocha mine and leach production
data:
MINERA YANACOCHA MINE AND LEACH PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- ----------------------
LEACH LEACH LEACH
ORE WASTE TOTAL ORE WASTE TOTAL ORE WASTE TOTAL
------ ----- ------ ------ ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carachugo................... 2,491 1,380 3,871 9,238 4,647 13,885 7,157 4,075 11,232
Maqui Maqui................. 15,218 4,291 19,509 8,521 2,071 10,592 1,996 372 2,368
San Jose.................... 6,026 1,145 7,171 -- -- -- -- -- --
------ ----- ------ ------ ----- ------ ----- ----- ------
Total....................... 23,735 6,816 30,551 17,759 6,718 24,477 9,153 4,447 13,600
====== ===== ====== ====== ===== ====== ===== ===== ======
Ore placed on leach pads.... 23,735 17,759 8,707
Average ore grade (ounce per
ton)...................... 0.046 0.045 0.054
Ounces of gold produced
(000s).................... 811.4 552.0 304.6
</TABLE>
Exploration
Exploration continues to be conducted at numerous prospects owned by Minera
Yanacocha. Approximately $23.2 million was spent by Minera Yanacocha on
exploration and mine geology in 1996. A $18.8 million exploration and mine
geology program is currently underway in 1997.
Exploration work on the Minas Conga joint venture, 40% owned by NGC, 40% by
Cedimin and 20% by Compania Minera Condesa S.A., a subsidiary of Buenaventura,
continued throughout 1996 with an aggressive drilling campaign. Encouraging
porphyry gold-copper mineralization has been identified on two separate targets
which will continue to be drill tested in 1997. A second Peruvian joint venture,
Minera Coshuro, is 65% owned by NGC and 35% by Buenaventura and holds claims on
257,000 acres of prospective ground along north and south extensions of the
volcanic belt hosting the Minera Yanacocha deposits. In addition, NGC and
Buenaventura are active in the southern part of Peru. Initial exploration work
is underway in these prospective areas and a number of targets have been
outlined.
7
<PAGE> 10
[INSERT MINERA YANACOCHA]
8
<PAGE> 11
UZBEKISTAN
Introduction
In Uzbekistan, NGC has a 50% interest in Zarafshan-Newmont, a joint venture
with the State Committee for Geology and Mineral Resources and Navoi Mining and
Metallurgical Combine ("Navoi"), each a state entity of Uzbekistan. The joint
venture produces gold by leaching ore from existing stockpiles of low-grade
oxide ore from the nearby government-owned Muruntau mine. The gold produced by
Zarafshan-Newmont is sold in international markets for U.S. dollars. A wholly
owned subsidiary of NGC provides technical and managerial support to
Zarafshan-Newmont. These state entities have guaranteed to ZarafshanNewmont 242
million tons of ore with an average grade of 0.036 ounces of gold per ton,
containing approximately 8.6 million ounces of gold.
Production
During 1996, approximately 12.7 million tons of ore were crushed and placed
on the leach pad as compared to 4.3 million tons in 1995. The project's
remaining 225 million tons of stockpiled ore and ore in process hold a reserve
of 8.2 million ounces (4.1 million equity ounces).
Zarafshan-Newmont commenced production in the second half of 1995 and
produced 37,000 ounces of gold, or 18,500 ounces attributable to NGC, at a total
cash cost of $218 per ounce. In 1996, total production was 326,500 ounces of
gold or 163,250 ounces attributable to NGC, at a total cash cost of $225.
Production in 1997 is expected to be approximately 400,000 ounces of gold or
200,000 ounces attributable to NGC. The project's facilities include 18 crushers
in four stages. Crushed material is transported to impermeable leach pads where
the ore is treated with a weak cyanide solution which penetrates the ore
dissolving the gold. The pregnant leach solution is collected and pumped through
a Merrill-Crowe plant to remove the gold from the solution. After the gold is
processed from the zinc precipitate, it is smelted into dore and transported to
the nearby Muruntau gold refinery operated by Navoi where, pursuant to a
refining agreement, the dore is refined for export. The project has access to
air, rail and road transport. There are no significant logistical difficulties
for transportation of refined gold. Power for the project is provided by a
contractual arrangement with Navoi which acquires such power from a plant in
Navoi, Uzbekistan.
Zarafshan-Newmont obtained a $135 million project financing loan from a
consortium of banks to partially finance construction of the project. See also
page 51. Although not contractually obligated to do so, NGC has made, and may
from time to time make, advances or contributions to Zarafshan-Newmont to cover
debt service requirements and other capital and operating costs.
The following table presents Zarafshan-Newmont leach production data:
ZARAFSHAN-NEWMONT LEACH PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995(1)
------ -------
<S> <C> <C>
Ore placed on leach pads.................................... 12,737 4,321
Average ore grade (ounce per ton)........................... 0.053 0.051
Ounces of gold produced (000s).............................. 326.5 37.0
</TABLE>
- ---------------
(1) Began operations in second half of 1995.
Exploration
NGC signed an agreement in September 1996 with the Uzbekistan government
and Mitsui & Co., Ltd. to develop gold deposits in the Angren region of
Uzbekistan, approximately 60 miles south of the city of Tashkent. NGC has a 40%
interest in the project. Pre-feasibility studies are underway.
9
<PAGE> 12
ZARAFSHAN MAP
10
<PAGE> 13
INDONESIA
Introduction
NGC has two projects in Indonesia -- Minahasa and Batu Hijau. The Minahasa
project is 80% owned by NGC and 20% owned by P.T. Tanjung Serapung, an
Indonesian company. However, NGC accounts for 100% of the production proceeds
and costs until its carried Indonesian partner's loan and interest thereon are
repaid. Currently, NGC has an 80% interest in the Batu Hijau project. The
remaining 20% carried interest is held by P.T. Pukuafu Indah, an Indonesian
company. Both Indonesian companies are owned and controlled by the same
Indonesian national. Under the terms of a partnership agreement between NGC and
Sumitomo Corporation ("Sumitomo") governing the Batu Hijau project, after
Indonesian government approval of the partnership arrangement is obtained and
required contributions are made by NGC and Sumitomo, Sumitomo will acquire a 35%
interest in Batu Hijau and NGC will retain a 45% interest.
In Indonesia, rights are granted to private parties to explore for and
develop the mineral resources within defined areas through Contracts of Work
entered into with the Indonesian government. In 1986, NGC entered into fourth
generation Contracts of Work with the Indonesian government covering the
Minahasa and Batu Hijau projects. Under the Contracts of Work, affiliates of NGC
are granted the exclusive rights to explore the contract area, construct any
required facilities and extract and process the mineralized materials and sell
and export the minerals produced subject to certain Indonesian government
approvals and payment of a royalty to the Indonesian government. Once mining
facilities are constructed and mining operations commence, NGC has the right to
continue operating the project for 30 years, or longer if approved by the
Indonesian government. Under the Contracts of Work, beginning in the sixth year
after mining operations commence (and continuing through the tenth year) NGC
will be required to offer part of its 80% interest in each project to the
Indonesian government or to Indonesian nationals (collectively the "Indonesian
Parties"), thereby potentially reducing its 80% interest in each project to 49%
by the end of the tenth year. The price at which such interest would be offered
for sale to the Indonesian Parties would be the highest of (i) the then current
replacement cost, (ii) the price at which shares of the project company would be
accepted for listing on the Jakarta Stock Exchange or (iii) the fair market
value of such interest as a going concern.
Minahasa
Minahasa, a multi-deposit project on the island of Sulawesi which NGC
discovered, began production in March 1996. It is approximately 1,500 miles
northeast of Jakarta. Minahasa mines and processes ore from the Mesel deposit
and two smaller peripheral deposits (Leons and Nibong) which at the end of 1996
contained approximately 1.9 million ounces of proven and probable reserves (in
which NGC has an equity interest of approximately 1.5 million ounces). These
deposits contain both oxidized and refractory gold mineralization.
Site preparation at Minahasa began in late 1994 and pre-production mining
was initiated in April 1995. Minahasa produced 107,000 ounces of gold in 1996 at
a total cash cost of $224 per ounce. In addition, 5,700 ounces of gold were
produced prior to the commencement of commercial operations. Production in 1997
is expected to reach approximately 150,000 ounces.
The project's facilities include a dry grinding mill, a fluidized bed
roaster facility and a conventional carbon-in-pulp gold recovery plant.
Infrastructure facilities include a deep-water port, electrical power plant,
water supply system and housing for workers. Total capital costs were
approximately $135 million. The Minahasa project is in close proximity to the
coast and does not present any significant logistical difficulties for
transportation of materials, equipment or its product.
11
<PAGE> 14
The following table presents Minahasa mine and mill production data:
MINAHASA MINE AND MILL PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996
---------------------------
MILL ORE WASTE TOTAL
-------- ----- ------
<S> <C> <C> <C>
Tons mined........................................ 1,048 9,062 10,110
===== ===== ======
Tons milled....................................... 454
======
Average ore grade (ounce per ton)................. 0.279
Average recovery rate (%)......................... 90.3
Ounces of gold produced (000s).................... 112.7(1)
</TABLE>
- ---------------
(1) Includes 5,700 ounces produced before commercial operations commenced.
Batu Hijau
NGC's second Indonesian project, Batu Hijau, is located on the island of
Sumbawa, 950 miles east of Jakarta. Batu Hijau is a large porphyry copper/gold
deposit that was discovered by NGC in 1990. It is located seven miles from the
south coast and nine miles from the west coast of the island and has access to a
natural harbor which will be developed for transportation of materials,
equipment and, eventually, its concentrate product. The project is awaiting
various Indonesian governmental approvals to commence the construction process.
Subject to obtaining these and other necessary governmental approvals, NGC
believes that commercial production of copper/gold concentrate could begin
around the turn of the century. At the end of 1996, the deposit contained
approximately 10.6 billion pounds of copper and 12.1 million ounces of gold in
proven and probable reserves in which NGC has an equity interest (assuming
consummation of the transaction with Sumitomo) of 4.8 billion equity pounds of
copper and 5.4 million equity ounces of gold. Long-term smelter contracts for
approximately 70% of the project's concentrate production are being negotiated.
Production over the 20-year mine life is expected to average 270,000 tons of
copper and 550,000 ounces of gold per year at an expected average cash cost
under $0.50 per pound of copper for the first 10 years of the project and under
$0.40 per pound of copper for the life of the project after credits for gold and
silver production.
A final feasibility study for Batu Hijau was completed in 1996. Based on
the results of that study, NGC decided to proceed with development. The project
is expected to mine approximately 193 million tons per annum utilizing a 132,000
tons per day milling/concentrating plant, a deep-sea port for transportation of
materials, equipment and concentrates, a coal fired electrical generation plant,
a townsite for the workforce and other ancillary facilities. The total capital
cost of the project is expected to be $1.6 billion. Total cost, including cost
escalations, capitalized interest during construction and working capital, is
expected to be approximately $1.9 billion.
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 held by
P.T. Pukuafu Indah has no cash funding obligations. 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 funds will be credited against Sumitomo's
initial contribution. If the 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
12
<PAGE> 15
for its investment in Batu Hijau as an equity investment effective July 1996. 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 AMDAL report, which is required under the Indonesian environmental
approval process, was completed and formal approval by the Ministry of Mines and
Energy was received in October 1996. Acquisition of private lands necessary for
the project was substantially complete by the end of 1996. In anticipation of
final approvals for the project from the Indonesian government, some preliminary
construction activities have commenced, including setup of a construction camp
and development of access to the eventual area of the port and the mine.
Exploration
Exploration work continued through 1996 in areas surrounding Minahasa and
Batu Hijau. Such work will continue in 1997 as part of NGC's ongoing exploration
program in Indonesia including a $6.7 million exploration program which will
focus on identifying extensions to the ore bodies surrounding Mesel, as well as
developing new ore zones that are within trucking distance to the existing
processing facilities.
MINAHASA MAP
13
<PAGE> 16
EXPLORATION
In 1996, exploration and research expense was $58.7 million compared with
$57.3 million in 1995. These figures exclude capitalized exploration costs
associated with mine development of $8.7 million in 1996 and $9.4 million in
1995. Including Minera Yanacocha, NGC expects to spend between $70 million and
$75 million on exploration and development in 1997.
In Mexico, NGC is involved in two projects -- La Herradura, a 45,000 acre
site just south of the U.S. border which is undergoing development and is
scheduled to commence production in 1998, and Mezcala, a 12,000 acre exploration
site in southern Mexico. NGC has a 44% interest in La Herradura and is earning a
44% interest in Mezcala by investing $8.5 million over four years. The balance
of both projects is held by the Penoles group, a leading Mexican mining company.
The Penoles group will be the operator of La Herradura and Mezcala.
Near Fairbanks, Alaska, NGC continued exploration on the True North
property. Under the terms of a joint venture agreement signed with La Teko
Resources, Inc. ("La Teko") in June 1995, NGC has the right to earn a 65%
interest in the property by making cash payments of $6 million to La Teko,
funding $3 million in exploration, and then funding up to $18 million in
additional exploration and development costs. In 1996, NGC completed its payment
obligations to La Teko, and to date has spent approximately $5.8 million
exploring the property and has budgeted approximately $2.1 million for 1997
exploration. Drilling in 1996 has increased the indicated area of mineralization
significantly and in 1997, NGC will intensify its efforts at True North. Almost
all of this deposit is near the surface. Work is focused on extending a broader
zone of mineralization from the 7.2 million tons already identified.
In Canada, exploration at the Fairchild Lake project in the Yukon Territory
was postponed until 1997. Pursuant to the terms of a joint venture agreement
with Westmin Resources Ltd., NGC has earned a 57% interest in the project by
expending C$6.6 million in exploration since 1993 and can earn up to a 65%
interest by expending an additional C$3.9 million on the property. In 1997, NGC
plans to spend $1.4 million for exploration on the property.
In addition to the projects discussed above, NGC continues to pursue
exploration activities in other areas of the U.S., Canada, Mexico, Ecuador and
in certain countries in the Caribbean and Asia. During 1996, on-the-ground
evaluations were conducted in 11 countries and acquisition opportunities were
monitored in others.
NGC's exploration team has a staff of approximately 200 geologists,
geochemists and geophysicists. State-of-the-art technology, including airborne
geophysical data acquisition systems, satellite location devices and
field-portable imaging systems, also aids in the location of prospective
targets.
For information regarding risks associated with exploration and
development, see page 23.
MARKETING
NGC's gold sales generally are made at the monthly average market price
prevailing during the month in which the gold is delivered plus a "contango",
which is essentially an interest factor, from the beginning of the month until
the date of delivery. NGC did not hedge any of its production in 1994 or 1995.
However, NGC entered into hedging transactions beginning in January 1996 which
are effective through December 2000 with respect to production from its Minahasa
project in Indonesia. These transactions consist of forward sales of 125,000
ounces per year at an average price of $454 per ounce of gold, plus 40% of the
amount by which the market price exceeds the forward sales price. In 1996, NGC
earned $8.3 million on this transaction. For information regarding risks
associated with hedging, see page 21. See also page 59 for information regarding
major customers and page 60 for information regarding export sales.
Gold has two main categories of use -- product fabrication and bullion
investment. Fabricated gold has a wide variety of end uses, including jewelry
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions and official coins. Purchasers of official
coins and high-karat jewelry frequently are motivated by investment
considerations, so that net private bullion purchases alone do not necessarily
represent the total investment activity in gold.
14
<PAGE> 17
MISCELLANEOUS
The successful application of bioleach technology, on which NGC holds
patents in the U.S. and in many foreign countries, has resulted in significant
increases in NGC's proven and probable gold reserves. Other than operating
licenses for mining, processing and refining facilities built for, or acquired
by NGC, there are no other patents, licenses or franchises material to NGC's
business. In many foreign countries, NGC conducts mining or exploration pursuant
to concessions granted by or contracts with the host government. These countries
include, among others, Indonesia, Peru and Mexico. In each case, NGC believes
that such concessions or contracts are sufficient in extent and duration to
justify any proposed investment it might make based on any such concessions or
contracts. In general, such concessions or contracts are subject to the usual
political risks associated with foreign operations.
Capital expenditures by NGC were approximately $231.2 million, $309.3
million and $402 million in 1996, 1995 and 1994, respectively. Management
believes that NGC's facilities are generally in a state of good repair. NGC has
a continuous program of capital investment that includes, as necessary or
advisable, the replacement, modernization or expansion of its equipment and
facilities. See also pages 34 and 35.
There were 4,400 persons employed by NGC worldwide at December 31, 1996 and
4,100 persons employed by NGC worldwide at December 31, 1995. Newmont has no
employees.
PROVEN AND PROBABLE RESERVES
NGC's equity in proven and probable gold reserves was 37.1 million ounces
at December 31, 1996 and 28.8 million ounces at December 31, 1995. In addition,
NGC's equity in proven and probable copper reserves was 4.8 billion pounds at
December 31, 1996. NGC did not have a copper reserve at the end of 1995.
NGC's estimate of its proven and probable reserves at December 31, 1996 and
1995 is set forth in the table below. Such reserves were determined by the use
of mapping, drilling, sampling, assaying and evaluation methods generally
applied in the mining industry. Calculations with respect to the estimates of
proven and probable gold reserves as of December 31, 1996 and 1995, are based on
a gold price of $400 per ounce. NGC's management believes that if such estimates
were based on a gold price of $300 per ounce with current operating costs, 1996
year-end proven and probable gold reserves would decrease by approximately 25%.
Conversely, if such reserve estimates were based on a gold price of $500 per
ounce with current operating costs, 1996 year-end proven and probable gold
reserves would increase by approximately 13%. NGC's proven and probable gold and
copper reserves represent the total quantity of ore to be extracted from the
deposits or stockpiles allowing for mining efficiencies and ore dilution. Ounces
of gold or pounds of copper in NGC's proven and probable gold and copper
reserves are prior to any losses during metallurgical treatment. For information
regarding risks association with NGC's estimates of its proven and probable
reserves, see page 21.
15
<PAGE> 18
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------------------- --------------------
NGC DRY SHORT GRADE CONTAINED EQUITY DRY SHORT GRADE
DEPOSITS WITH PROVEN PERCENT TONS (OUNCE OUNCES OUNCES TONS (OUNCE
AND PROBABLE RESERVES(1) EQUITY (000S) PER TON) (000S) (000S) (000S) PER TON)
------------------------ ------- --------- -------- --------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GOLD RESERVES
Carlin, Nevada
Open Pit
Gold Quarry/MAC/Tusc....... 100 174,790 0.046 8,031 8,031 209,670 0.045
Carlin/Pete/Lantern........ 100 13,653 0.046 633 633 14,818 0.031
Genesis/North Star......... 100 22,711 0.034 777 777 41,349 0.029
Post/Goldbug............... 100 25,626 0.190 4,875 4,875 25,622 0.191
Capstone/Bootstrap/Tara.... 100 20,179 0.046 938 938 19,851 0.046
Rain/Emigrant Springs...... 100 15,628 0.023 366 366 4,864 0.035
--------- ------ ------ -------
Total Open Pit............... 272,587 0.057 15,620 15,620 316,174 0.054
--------- ------ ------ -------
Underground
Carlin..................... 100 1,480 0.400 593 593 936 0.429
Deep Star.................. 100 1,394 0.876 1,221 1,221 847 0.930
Rain....................... 100 331 0.226 75 75 148 0.203
West Leeville JV........... 60 7,050 0.425 2,993 1,796 -- --
West Leeville.............. 100 514 0.311 160 160 -- --
--------- ------ ------ -------
Total Underground............ 10,769 0.468 5,042 3,845 1,931 0.632
--------- ------ ------ -------
Stockpiles and in
process.................. 100 53,767 0.050 2,673 2,673 47,730 0.053
--------- ------ ------ -------
Total Carlin(2)(3)........... 337,123 0.069 23,335 22,138 365,835 0.057
========= ====== ====== =======
Minera Yanacocha, Peru
Carachugo.................. 51 43,686 0.029 1,268 651 35,459 0.025
Maqui Maqui................ 51 32,164 0.047 1,519 780 47,652 0.047
San Jose................... 51 50,527 0.029 1,453 746 52,160 0.032
Yanacocha Norte............ 51 43,887 0.030 1,333 685 -- --
Encajon.................... 51 27,777 0.019 533 274 -- --
Stockpiles and in
process.................. 51 66 0.047 3 2 1,800 0.048
--------- ------ ------ -------
Total Yanacocha(4)........... 198,107 0.031 6,109 3,138 137,071 0.036
========= ====== ====== =======
Zarafshan-Newmont, Uzbekistan
Stockpiles................. 50 226,299 0.035 7,923 3,961 238,705 0.036
In process................. 50 5,370 0.054 288 144 3,089 0.051
--------- ------ ------ -------
Total Zarafshan-Newmont(5)... 50 231,669 0.035 8,211 4,105 241,794 0.036
========= ====== ====== =======
Minahasa, Indonesia
Mesel/Leons/Nibong......... 80 6,103 0.264 1,611 1,289 9,668 0.207
Other...................... 80 858 0.164 141 112 858 0.164
Stockpiles................. 80 778 0.207 161 129 -- --
--------- ------ ------ -------
Total Minahasa(6)............ 7,739 0.247 1,913 1,530 10,526 0.204
========= ====== ====== =======
La Herradura, Mexico(7)........ 44 54,408 0.031 1,683 740 -- --
========= ====== ====== =======
Batu Hijau, Indonesia(8)....... 45 1,006,593 0.012 12,096 5,443 -- --
========= ====== ====== =======
Total Gold Reserves.......... 53,347 37,094
====== ======
<CAPTION>
DECEMBER 31, 1995
----------------------
CONTAINED EQUITY
DEPOSITS WITH PROVEN OUNCES OUNCES
AND PROBABLE RESERVES(1) (000S) (000S)
------------------------ --------- ------
<S> <C> <C>
GOLD RESERVES
Carlin, Nevada
Open Pit
Gold Quarry/MAC/Tusc....... 9,519 9,519
Carlin/Pete/Lantern........ 456 456
Genesis/North Star......... 1,194 1,194
Post/Goldbug............... 4,890 4,890
Capstone/Bootstrap/Tara.... 915 915
Rain/Emigrant Springs...... 169 169
------ ------
Total Open Pit............... 17,143 17,143
------ ------
Underground
Carlin..................... 402 402
Deep Star.................. 788 788
Rain....................... 30 30
West Leeville JV........... -- --
West Leeville.............. -- --
------ ------
Total Underground............ 1,220 1,220
------ ------
Stockpiles and in
process.................. 2,521 2,521
------ ------
Total Carlin(2)(3)........... 20,884 20,884
====== ======
Minera Yanacocha, Peru
Carachugo.................. 896 340
Maqui Maqui................ 2,238 850
San Jose................... 1,690 642
Yanacocha Norte............ -- --
Encajon.................... -- --
Stockpiles and in
process.................. 87 33
------ ------
Total Yanacocha(4)........... 4,911 1,865
====== ======
Zarafshan-Newmont, Uzbekistan
Stockpiles................. 8,474 4,237
In process................. 158 79
------ ------
Total Zarafshan-Newmont(5)... 8,632 4,316
====== ======
Minahasa, Indonesia
Mesel/Leons/Nibong......... 2,006 1,605
Other...................... 141 112
Stockpiles................. -- --
------ ------
Total Minahasa(6)............ 2,147 1,717
====== ======
La Herradura, Mexico(7)........ -- --
====== ======
Batu Hijau, Indonesia(8)....... -- --
====== ======
Total Gold Reserves.......... 36,574 28,782
====== ======
</TABLE>
<TABLE>
<CAPTION>
GRADE CONTAINED EQUITY GRADE CONTAINED
(COPPER POUNDS POUNDS (COPPER POUNDS
PERCENT) (BILLIONS) (BILLIONS) PERCENT) (BILLIONS)
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COPPER RESERVES
Batu Hijau, Indonesia(8)....... 45 1,006,593 0.528 10.631 4.784 -- -- --
========= ====== ====== ===== ======
<CAPTION>
EQUITY
POUNDS
(BILLIONS)
----------
<S> <C>
COPPER RESERVES
Batu Hijau, Indonesia(8)....... --
======
</TABLE>
- ---------------
(1) The term "reserve" means that part of a mineral deposit which can be
economically and legally extracted or produced at the time of the reserve
determination.
The term "economically," as used in the definition of reserve, implies that
profitable extraction or production has been established or analytically
demonstrated.
The term "legally," as used in the definition of reserve, does not imply
that all permits needed for mining and processing have been obtained or that
other legal issues have been completely resolved. However, for a reserve to
exist, there should be a reasonable certainty based on applicable laws and
regulations that issuance of permits or resolution of legal issues can be
accomplished in a timely manner.
The term "proven reserves" means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes; (b)
grade and/or quality are computed from the result of detailed sampling and
(c) the sites for inspection,
16
<PAGE> 19
sampling and measurements are spaced so closely and the geologic character
is sufficiently defined that size, shape, depth and mineral content of
reserves are well established.
The term "probable reserves" means reserves for which quantity and grade are
computed from information similar to that used for proven reserves but the
sites for sampling are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
(2) Calculated using cut-off grades for 1996 and 1995 as follows: oxide leach
material not less than 0.006 ounce per ton; refractory leach material (for
the Gold Quarry deposit only) not less than 0.03 ounce per ton; refractory
mill material not less than 0.07 ounce per ton; oxide mill material varies.
Ore reserves were calculated using different recoveries depending on each
deposit's metallurgical properties and process. The average oxide mill
recoveries utilized were as follows (1995 values in parenthesis): Mill No.
3 -- 85% (85%); Mill No. 4 -- 79% (83%); Mill No. 5 -- 78% (82%). The
average refractory mill recoveries utilized were: Mill No. 6 -- 88% (88%).
The average leach recoveries utilized for oxide material were: North Area
Leach Facility -- 57% (63%); South Area Leach Facility -- 61% (60%); Rain
Area Leach Facility -- 55% (55%). The following average leach recovery was
utilized for refractory bioleach material in the Gold Quarry, MAC and Tusc
deposits: 55% (55%).
The term "cut-off grade" means the lowest grade of mineralized rock that can
be included in the reserve in a given deposit. Cut-off grades vary between
deposits depending upon prevailing economic conditions, mineability of the
deposit, amenability of the ore to gold extraction, and milling or leaching
facilities available.
(3) These reserves are approximately 73% refractory in nature which are not
amenable to the normal cyanidation recovery processes currently used for
oxide material. Such ore must be oxidized before it is subjected to the
normal recovery processes.
(4) Calculated using a cut-off grade not less than 0.010 ounce per ton. Assumed
leach recoveries is 60% to 83%, depending on each deposit's metallurgical
properties. All ore is oxidized. Equity ownership considered to be 51.35% at
December 31, 1996 as a result of a ruling by the Superior Court of Lima,
Peru in February 1997 (see page six for additional information) and 38% at
December 31, 1995.
(5) Material available to Zarafshan-Newmont for processing from designated
stockpiles or from other specified sources. All ore is oxidized. Tonnage and
gold content of material available to Zarafshan-Newmont for processing from
such designated stockpiles or from other specified sources are guaranteed by
state entities of Uzbekistan. Material is crushed and leached. Ore reserves
calculated using 50% to 65% leach recoveries, depending on material type.
(6) Calculated using a cut-off grade of 0.058 ounce per ton and mill recoveries
of 80% to 89% depending on material type. Substantially all ore is
refractory and will be treated by roasting.
(7) Based on a feasibility study completed in 1996, using a cut-off grade of
0.01 ounce per ton and a leach recovery of 72%. All ore is oxidized.
Construction is scheduled to begin in 1997.
(8) Based on a feasibility study completed in 1996. Construction is awaiting
permits from the Indonesian government. Production will be in the form of
copper concentrate. Recoveries estimated at 93% for copper and 82% for gold.
Cut-off grade varies depending on the gold and copper content.
ENVIRONMENTAL MATTERS
General
NGC's gold mining and processing operations within the U.S. are subject to
extensive federal, state and local governmental regulations for the protection
of the environment, including those relating to the protection of air and water
quality, hazardous waste management and mine reclamation. NGC continues to
successfully permit all mine and processing operations and expansion activities
as specified under regulations promulgated by the U.S. and the State of Nevada.
Management does not believe that ongoing compliance with such regulations will
have a material adverse effect on its competitive position. At this time NGC
does not expect any material impact on the future recurring operating cost of
compliance with currently enacted environmental regulations. Ongoing costs to
comply with environmental obligations have not been significant to NGC's total
operating costs. Since NGC is not able to pass on any net increases in costs to
its customers, any such increases could have an adverse effect on future
profitability of NGC. Amendments to current laws and regulations governing
operations and activities of mining companies or the stringent implementation
thereof could have a material adverse impact on NGC in terms of increased
capital and operating expenditures.
Carlin, Nevada Operations
It is estimated that with respect to NGC's Nevada operations, compliance
with federal, state and local regulations relating to the discharge of material
into the environment, or otherwise relating to the protection of the
environment, required capital expenditures of approximately $12 million in 1996.
It is estimated that NGC will require approximately $20 million of capital
expenditures for environmental compliance in 1997 and annually thereafter.
17
<PAGE> 20
NGC's Carlin gold mining and processing operations generate solid waste
which is subject to regulation under the federal Resource Conservation and
Recovery Act ("RCRA") and similar laws of the State of Nevada. Solid waste that
is considered "hazardous" is subject to extensive regulation by the U.S.
Environmental Protection Agency (the "EPA") and the State of Nevada under
Subtitle C of RCRA, while non-hazardous solid waste is governed by a less
stringent program under Subtitle D of RCRA and solid waste management
regulations of the State of Nevada. The EPA is developing specific regulations
with respect to "extraction" and "beneficiation" wastes from mining operations
under Subtitle D of RCRA. NGC is participating in that process. Currently, there
is not a sufficient basis to predict the potential impact of such regulations on
NGC. Wastes from the "processing" of ores and minerals (including refining
wastes) at NGC's Carlin operations are subject to regulation under Subtitle C of
RCRA. NGC recycles substantially all of the potentially hazardous secondary
materials generated during refining operations in compliance with Subtitle C.
Such compliance has not had, and is not expected to have, any material impact on
NGC's operations.
NGC's Carlin operations are subject to stringent state permitting
regulations for protection of surface and ground water, as well as wildlife.
These regulations may require additional capital and operating expenditures for
expansion of current operations and development of new projects and may increase
closure and reclamation costs for pits, tailing impoundments and leaching
facilities.
Mining operations have the potential to produce fugitive dust emissions
which are subject to regulation under the laws of the State of Nevada. The EPA's
current regulations under the federal Clean Air Act exclude fugitive dust from
surface mines in determining whether new or expanded sources need permits for
construction under the regulations for prevention of significant deterioration
of air quality. The 1990 amendments to the federal Clean Air Act could
ultimately increase NGC's compliance costs for air pollution permitting and/or
control, but the impact on NGC's mining operations is so dependent on future
regulations and other contingencies that it cannot reasonably be predicted at
this time.
Foreign Operations
NGC's operations outside of the U.S. are also subject to governmental
regulations for the protection of the environment. Management believes that
these regulations have not had, and will not have, a material adverse effect on
NGC's operations or its competitive position. NGC has successfully permitted all
new mine and processing operations as specified under regulations promulgated by
the respective national governments in Peru, Uzbekistan and Indonesia. In
addition, NGC has mandated that all facilities constructed and operated outside
of the U.S. materially comply with a level of environmental protection that is
equivalent to that for its U.S. operations. The adoption of new laws or
regulations, or amendments to current laws or regulations, regarding the
operations and activities of mining companies could have a material adverse
impact on NGC's capital and operating expenditures.
All NGC-managed international projects have adopted and implemented
environmental policies and procedures developed by NGC. NGC is committed to
successfully educating and training mine operations, exploration and
environmental personnel to meet the highest level environmental standards. NGC
maintains an international environmental compliance program which utilizes state
of the art compliance monitoring protocols and builds and maintains facilities
with high levels of environmental protection and monitoring equipment.
Former Operations
NGC is involved in matters involving environmental cleanup obligations
arising from past mining activities (not in all cases conducted by the
Corporation) at four separate locations within the U.S. Idarado Mining Company,
an 80.1% owned subsidiary of NGC, agreed by consent decree in 1992 with the
State of Colorado to undertake specific remediation work in the Telluride/Ouray
area of Colorado. Resurrection Mining Company, 100% owned by NGC, is a defendant
in lawsuits brought by the State of Colorado and the U.S. for environmental
remediation in the Leadville, Colorado area. Dawn Mining Company, a 51% owned
subsidiary of NGC, has filed remedial proposals for an inactive uranium mine
formerly leased from the Spokane Indian Tribe in Washington State and a former
mill site located near Ford, Washington.
18
<PAGE> 21
Remediation activities were conducted at these three sites in 1996. At Idarado,
remediation work is expected to be completed by the end of 1997. The fourth
matter involves reclamation of an inactive site mined by the former owners on
the Ivanhoe exploration property in Nevada. At December 31, 1996 the Corporation
had an aggregate $49.8 million accrued for remediation of these sites, a
reduction from $55.8 million accrued at the end of 1995, as a result of
expenditures incurred in 1996. See also pages 24, 33 and 61.
RECENT DEVELOPMENTS
On March 10, 1997, Santa Fe Pacific Gold Corporation ("Santa Fe"), Newmont
and Midtown Two Corp., a wholly-owned subsidiary of Newmont ("Midtown Two"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") which
provides, among other things, that Midtown Two will merge with and into Santa Fe
(the "Merger"), with Santa Fe being the surviving corporation (the "Surviving
Corporation"), and each outstanding share of common stock of Santa Fe will be
converted into the right to receive 0.43 of a share of common stock of Newmont,
subject to the terms and conditions of the Merger Agreement. Such conditions
include, among others, that the Merger be accounted for as a pooling of
interests and that the stockholders of both Newmont and Santa Fe approve the
Merger. Such stockholder approval will be sought at, in the case of Newmont, its
1997 annual meeting of stockholders, and, in the case of Santa Fe, a special
stockholders meeting, in each case scheduled for May 5, 1997. The Merger
Agreement is filed as an exhibit to Newmont's Current Report on Form 8-K dated
March 10, 1997 filed with the Securities and Exchange Commission.
Upon consummation of the Merger, shares of common stock of the Surviving
Corporation will be contributed to NGC in exchange for (i) shares of NGC common
stock in an amount equal to the number of shares of Newmont common stock issued
in the Merger and (ii) options to acquire additional shares of NGC common stock
having the same terms as the Santa Fe stock options assumed by Newmont pursuant
to the Merger Agreement. As a result, Santa Fe will become a wholly-owned
subsidiary of NGC, and the number of outstanding shares of Newmont common stock
will continue to be equal to the number of shares of NGC common stock owned by
Newmont.
The contribution of the shares of common stock of the Surviving Corporation
to NGC and the issuance to Newmont of shares of NGC common stock and NGC options
(collectively, the "Contribution Transaction") will be subject to approval by
the holders of a majority of the outstanding shares of NGC common stock, which
approval will be sought at the 1997 annual meeting of the stockholders of NGC,
scheduled for May 5, 1997. Because Newmont owns approximately 91% of the
outstanding NGC common stock, it has sufficient voting power to approve the
Contribution Transaction without the vote of any other stockholder of NGC.
Newmont intends to vote for the approval of the Contribution Transaction. After
consummation of the Contribution Transaction, Newmont will own approximately 94%
of the outstanding shares of common stock of NGC.
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. For an
analysis of the pro forma impact of the Merger and the Contribution Transaction
on the financial position and reserves of Newmont, see "Newmont Mining and Santa
Fe Pro Forma Combined Financial Information" and "Pro Forma Net Proven and
Probable Reserves" contained in the Joint Proxy Statement/Prospectus forming a
part of Newmont's Registration Statement on Form S-4 (No. 333-19335).
The Merger would involve the integration of companies that have previously
operated independently. No assurance can be given that NGC will integrate the
respective operations of NGC and Santa Fe without encountering difficulties or
experiencing the loss of important NGC or Santa Fe personnel or that the
benefits expected from such integration will be realized. In addition, there can
be no assurance that NGC will realize anticipated pre-tax cash cost savings of
synergies from the Merger.
19
<PAGE> 22
FORWARD-LOOKING STATEMENTS; RISK FACTORS
Certain statements contained herein are "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and are intended to be covered by the safe harbors created thereby. Such
forward-looking statements include, without limitation, (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 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, including expected date of
receipt of environmental permits and completion dates for environmental
remediation work.
The forward-looking statements, projections and estimates herein relate, in
all cases, to the properties and operations of the Corporation at December 31,
1996. In the event the proposed merger with Santa Fe described under the heading
"Recent Developments" is consummated, certain of such forward-looking statements
made with reference to the Corporation on a consolidated basis will be subject
to material modification.
Where the Corporation expresses an expectation or belief as to future
events or results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis. However, such forward-looking statements
are subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Important factors that could cause actual results to
differ materially from such forward-looking statements ("cautionary statements")
are described below and on page 36. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
GOLD PRICE VOLATILITY
The profitability of NGC's operations is significantly affected by changes
in the market price of gold. Market gold prices can fluctuate widely and are
affected by numerous factors beyond NGC's control, including industrial and
jewelry demand, expectations with respect to the rate of inflation, the strength
of the U.S. dollar (the currency in which the price of gold is generally quoted)
and of other currencies, interest rates, gold sales by central banks, forward
sales by producers, global or regional political or economic events, and
production and cost levels in major gold-producing regions such as South Africa.
In addition, the price of gold sometimes is subject to rapid short-term changes
because of speculative activities. The current demand for and supply of gold
affect gold prices, but not necessarily in the same manner as current supply and
demand affect the prices of other commodities. The supply of gold consists of a
combination of new production from mining and existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions,
industrial organizations and private individuals. As the amounts produced in any
single year constitute a very small portion of the total potential supply of
gold, normal variations in current production do not necessarily have a
significant impact on the supply of gold or on its price. If revenue from gold
sales falls for a substantial period below NGC's cost of production at its
operations, NGC could determine that it is not economically feasible to continue
commercial production at any or all of its operations or to continue the
development of some or all of its projects. NGC's weighted average total cash
cost of equity production for its worldwide operations was $220 per ounce of
gold sold in 1996, $210 in 1995 and $202 in 1994.
20
<PAGE> 23
The gold market generally is characterized by volatile prices. The
volatility of gold prices is illustrated in the following table of annual high,
low and average afternoon fixing prices for gold per ounce on the London Bullion
Market:
<TABLE>
<CAPTION>
YEAR HIGH LOW AVERAGE
- ---- ---- ---- -------
<S> <C> <C> <C>
1987........................................................ $500 $390 $446
1988........................................................ $484 $395 $437
1989........................................................ $416 $356 $381
1990........................................................ $424 $346 $383
1991........................................................ $403 $344 $362
1992........................................................ $360 $330 $344
1993........................................................ $406 $326 $360
1994........................................................ $396 $370 $384
1995........................................................ $396 $372 $384
1996........................................................ $415 $367 $388
1997 (through March 26)..................................... $367 $338 $351
</TABLE>
- ---------------
Source of Data: Metals Week and Reuters.
On March 26, 1997, the afternoon fixing price for gold on the London
Bullion Market and the spot market price of gold per ounce on the New York
Commodity Exchange was $351.
IMPACT OF HEDGING ACTIVITIES
Hedging activities are intended to minimize the effect of declines in gold
prices on results of operations for a period of time. Although hedging
activities may protect a company against low gold prices, it may also limit the
price that can be received on hedged ounces which are subject to forward sales
and call options, resulting in such company foregoing the realization of
revenues to the extent the market price of gold exceeds the gold price in a
forward sale or call option contract.
PRODUCTION ESTIMATES
Estimates of future production for particular properties for NGC as a whole
are derived from annual mining plans prepared by NGC. Such plans have been
developed based on, among other things, mining experience, reserve estimates,
assumptions regarding ground conditions and physical characteristics of ores
(such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and cost of production. Actual production
may vary from estimates for a variety of reasons, including risks and hazards of
the types discussed, actual ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, pitwall failures or
cave-ins, strikes and other actions by labor at unionized locations,
restrictions imposed by government agencies and other factors. Estimates of
production from properties not yet in production or from operations that are to
be expanded are based on similar factors (including, in some instances,
feasibility reports prepared by company personnel and/or outside consultants)
but, as such estimates do not have the benefit of actual experience, there is a
greater likelihood that actual results will vary from the estimates.
ORE RESERVE ESTIMATES
The proven and probable reserve figures presented herein are estimates, and
no assurance can be given that the indicated levels of recovery of gold and
copper will be realized. Reserve estimates may require revision based on actual
production experience. Market price fluctuations of gold and copper, as well as
increased production costs or reduced recovery rates, may render NGC's proven
and probable gold and copper reserves containing relatively lower grades of
mineralization uneconomic to exploit and may ultimately result in a restatement
of reserves.
21
<PAGE> 24
REGULATION, ENVIRONMENTAL RISKS AND UNPATENTED MINING CLAIMS
Domestic and foreign mining operations and exploration activities are
subject to extensive laws and regulations governing prospecting, development,
production, exports, taxes, labor standards, occupational health, waste
disposal, protection and remediation of the environment, protection of
endangered and protected species, mine safety, toxic substances and other
matters. Mining is subject to potential risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as a
result of mineral exploration and production. NGC has been, and may in the
future be, subject to clean-up liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and comparable state laws which
establish clean-up liability for the release of hazardous substances. NGC has
interests in certain sites associated with former mining activities for which
clean-up liabilities exist. Although NGC believes it has made adequate
provisions in its financial statements for clean-up costs, it cannot guarantee
that such provisions will be adequate. In the context of environmental
permitting, including the approval of reclamation plans, NGC must comply with
standards, existing laws and regulations which may entail greater or lesser
costs and delays depending on the nature of the activity to be permitted and how
the regulations are implemented by the permitting authority. It is possible that
the costs and delays associated with the compliance with such laws, regulations
and permits could result in NGC not proceeding with the development of a project
or the operation or further development of a mine.
Amendments to current laws and regulations governing operations and
activities of mining companies are actively considered from time to time and
could have a material adverse impact on Newmont.
In recent years, the U.S. Congress has considered a number of proposed
amendments to the General Mining Law of 1872, as amended (the "General Mining
Law"), which governs mining claims and related activities on U.S. federal lands.
Although no such legislation has been adopted to date, there can be no
assurances that such legislation will not be adopted in the future. If ever
adopted, such legislation could, among other things, impose royalties on gold
production from currently unpatented mining claims located on U.S. federal
lands. If such legislation is ever adopted, it could reduce the amount of future
exploration and development activity conducted by NGC on such U.S. federal
lands. In addition, in 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on U.S. federal lands. In October 1994, a
moratorium on the processing of new patent applications was approved. While such
moratorium currently remains in effect, its future is unclear. As of December
31, 1996, approximately 16% of NGC's proven and probable reserves in the U.S.
are located on unpatented mining claims on U.S. federal lands, the remainder
being located on private land.
RISKS OF FOREIGN INVESTMENTS
Certain of NGC's activities are located in foreign countries. NGC's foreign
investments include operations and exploration projects in Peru, Indonesia and
Uzbekistan. NGC also has exploration and/or development projects in Canada,
Mexico, Ecuador and certain countries in the Caribbean and Asia.
Foreign mining investments are subject to the risks normally associated
with conducting business in foreign countries, which are less developed or have
an emerging economy, including uncertain political and economic environments, as
well as risks of war and civil disturbances or other risks which may limit or
disrupt a project, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property by nationalization or expropriation
without fair compensation, risk of adverse changes in laws or policies of
particular countries, increases in foreign taxation, delays in obtaining or the
inability to obtain necessary governmental permits, limitations on ownership and
on repatriation of earnings, and foreign exchange controls and currency
devaluations. Although NGC is not currently experiencing any significant
problems in foreign countries arising from such risks, there can be no assurance
that such problems will not arise in the future. While political risk insurance
has been obtained to cover portions of NGC's investments in Peru, Indonesia and
Uzbekistan against certain expropriation, war civil unrest and political
violence risks, such insurance is limited by its terms to the particular risks
specified therein and is subject to certain exclusions. There can be no
assurance that claims would be paid under such insurance in connection with a
particular event in a foreign
22
<PAGE> 25
country. Foreign investments may also be adversely affected by laws and policies
of the U.S. affecting foreign trade, investment and taxation.
In certain of the countries other than the U.S. where NGC has operations or
conducts exploration activities, the mineral rights are owned by the relevant
governments. Such governments have entered into contracts with or granted
concessions that enable NGC and its subsidiaries to conduct operations or
exploration activities on such lands. Notwithstanding such arrangements, NGC's
ability to conduct its operations or exploration activities on such lands is
subject to changes in government policy over which NGC has no control. If such a
change were to occur that affected the right of NGC or any of its subsidiaries
to conduct operations or exploration activities, it could have a material
adverse affect on the results of operations of NGC.
SPECULATIVE NATURE OF GOLD EXPLORATION AND UNCERTAINTY OF DEVELOPMENT PROJECTS
Gold exploration is highly speculative in nature, involves many risks and
frequently is nonproductive. There can be no assurance that NGC's gold
exploration efforts will be successful. Success in increasing reserves is the
result of a number of factors, including the quality of NGC's management, its
level of geological and technical expertise, the quality of land available for
exploration and other factors. Once gold mineralization is discovered, it may
take several years from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
Substantial expenditures are required to establish proven and probable reserves
through drilling to determine metallurgical processes to extract the metals from
the ore and, in the case of new properties, to construct mining and processing
facilities. As a result of these uncertainties, no assurance can be given that
NGC's exploration programs will result in the expansion or replacement of
current production with new proven and probable reserves.
Development projects have no operating history upon which to base estimates
of future cash operating costs. Particularly for development projects, estimates
of proven and probable reserves and cash operating costs are, to a large extent,
based upon the interpretation of geologic data obtained from drill holes and
other sampling techniques, and feasibility studies which derive estimates of
cash operating costs based upon anticipated tonnage and grades of ore to be
mined and processed, the configuration of the ore body, expected recovery rates
of the gold from the ore, comparable facility and equipment operating costs,
anticipated climatic conditions and other factors. As a result, it is possible
that actual cash operating costs and economic returns may differ significantly
from those currently estimated. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase. Delays often can occur
in the commencement of production.
MINING RISKS AND RISK OF NONAVAILABILITY OF INSURANCE
The business of gold mining is subject to a number of risks and hazards,
including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations or other geological or
grade problems, encountering unanticipated ground or water conditions, cave-ins,
pitwall failures, flooding, rock falls, periodic interruptions due to inclement
or hazardous weather conditions or other unfavorable operating conditions and
other acts of God and gold bullion losses. Such risks could result in damage to,
or destruction of, mineral properties or producing facilities, personal injury
or death, environmental damage, delays in mining, monetary losses and possible
legal liability.
NGC maintains insurance against risks that are typical in the operation of
its business and in amounts which it believes to be reasonable. Such insurance,
however, contains exclusions and limitations on coverage. There can be no
assurance that such insurance will continue to be available, will be available
at economically acceptable premiums or will be adequate to cover any resulting
liability.
PROPOSED REPEAL OF PERCENTAGE DEPLETION FOR NONFUEL MINERALS MINED ON CERTAIN
FEDERAL LANDS
NGC currently benefits from the percentage depletion allowance permitted
under current law. Taxpayers may, subject to limitations, claim deductions for
the depletion of mineral resources. Such deductions may be based upon the
taxpayer's tax cost of the mineral resources ("cost depletion") or upon a
portion of the gross or
23
<PAGE> 26
net revenues from sales of the mineral resources ("percentage depletion"). The
proposed 1998 U.S. federal budget would repeal the current percentage depletion
provisions for nonfuel minerals, including gold, extracted from any land where
title to the land or the right to extract minerals from such land was originally
obtained pursuant to the provisions of the General Mining Law. The proposal is
stated only in general terms and does not provide specific details as to its
potential operation, including the lands that will ultimately be affected. It is
uncertain whether the repeal of these provisions will ultimately be adopted. If
adopted, however, such repeal could have an adverse effect on the results of
operations of NGC. The magnitude of such effect currently cannot be determined
and will be affected by several factors, including the specific landholdings of
NGC that are actually impacted, the level of future production from such
landholdings and future gold prices.
All subsequent written and oral forward-looking statements attributable to
the Corporation or to persons acting on its behalf are expressly qualified in
their entirety by the cautionary statements. The Corporation disclaims any
intent or obligation to update publicly any forward-looking statements set forth
in this Report, whether as a result of new information, future events or
otherwise.
ITEM 3. LEGAL PROCEEDINGS
In 1995, an Agency of the State of Nevada Department of Taxation filed an
assessment claiming sales taxes due relating to the sale-leaseback in 1994 of
NGC's refractory ore treatment plant. This assessment, including interest,
totaled approximately $30 million. NGC filed a Petition for Redetermination and
a hearing was held by the Agency that issued the assessment in October 1995. The
hearing officer reaffirmed the Agency's determination. NGC appealed this
determination to the State Tax Commission which found in favor of NGC. An appeal
by the State of Nevada to the Supreme Court of the State of Nevada was dismissed
in November 1996. This matter is now closed with no liability to NGC.
In December 1983, the State of Colorado filed a lawsuit in the U.S.
District Court for the District of Colorado under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42
U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural
resources due to releases of hazardous substances into the environment. This
case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388),
was consolidated with another action, United States of America v. Apache Energy
& Minerals, et al. (Civil Action No. 86-C-1676), which was filed in August 1986.
Both cases involve allegations of environmental impairment in the vicinity of
Leadville, Colorado, including the area of the operations and property of the
Res-ASARCO Joint Venture which owns the Black Cloud Mine, the Yak Tunnel, and
adjacent property, and seek remedial actions and damages from a number of
defendants, including Newmont and Resurrection Mining Company ("Resurrection")
which is an equal partner with ASARCO Incorporated in the Res-ASARCO Joint
Venture. In August 1994, the Court entered a Partial Consent Decree between and
among the U.S., Newmont, Resurrection and certain defendants. The Partial
Consent Decree obligates Resurrection to pay for and perform the cleanup of
sources of contamination in various areas, pursuant to the CERCLA administrative
process. During 1995 and 1996, Resurrection implemented and completed remedial
action at selected locations. Additional remedial activities are planned for
1997. The precise nature of the final remedial activities is subject to EPA and
State of Colorado review and selection and public comment. At this time, the
precise remedy and cost have not been fixed. The proposed settlement also
requires Resurrection to reimburse the EPA and the State of Colorado for their
response costs. Further, Resurrection's cleanup and reimbursement obligations
are subject to certain sharing percentages with at least one other defendant.
The Partial Consent Decree does not resolve certain other potential liabilities,
including liability for any natural resource damage and any groundwater or
surface water contamination. See also page 62.
In September 1995, Southern Peru Copper Corporation ("SPCC"), previously
10% owned by NGC, was served with a lawsuit, which was filed in the state court
of Nueces County, Texas, naming as defendants SPCC, its present and former
stockholders including NGC, and certain other defendants. The lawsuit seeks
unspecified compensatory and punitive damages for alleged personal injuries to
approximately 700 persons resident in Peru and property damages arising from
alleged releases into the environment from SPCC operations in Peru. In September
1995, the action was removed from Texas state court to the U.S. District Court
for the Southern District of Texas, Corpus Christi Division. In October 1995,
SPCC and other
24
<PAGE> 27
defendants filed a motion to dismiss the action on a number of grounds,
including that it would be unreasonable for a U.S. court to exercise
extraterritorial jurisdiction, lack of personal jurisdiction and forum non
conveniens. In January 1996 the Court entered an order dismissing the complaint
on the grounds that under U.S. and international law the subject matter of the
lawsuit should be adjudicated before Peruvian courts. In February 1996,
plaintiffs filed a notice of appeal from the order of the U.S. District Court
dismissing the complaint and from an earlier order of that Court denying
plaintiffs' motion to remand the case to the Texas state court. The U.S. Court
of Appeals for the Fifth Circuit heard argument on the appeal in December 1996.
A decision is expected in 1997.
For a description of the litigation involving NGC's ownership interest in
Minera Yancocha, see page six.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Newmont's executive officers as of March 26, 1997 were:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Ronald C. Cambre 58 Chairman, President and Chief Executive Officer
Wayne W. Murdy 52 Executive Vice President and Chief Financial Officer
John A. S. Dow 51 Senior Vice President, Exploration
Lawrence T. Kurlander 57 Senior Vice President, Administration
David A. Baker(1) 42 Vice President, Environmental Affairs
Steven A. Conte(1) 54 Vice President, Human Resources
Mary E. Donnelly(1) 45 Vice President, Government Relations
W. Durand Eppler(1) 43 Vice President, Business Development and Planning
Gary E. Farmar 43 Vice President and Controller
Patricia A. Flanagan 39 Vice President, Treasurer and Assistant Secretary
David H. Francisco(1) 47 Vice President, International Operations
Eric Hamer(1) 54 Vice President and Senior Project Executive, Batu Hijau
Joy E. Hansen 51 Vice President and General Counsel
Donald G. Karras 43 Vice President, Taxes
Leendert G. Krol(1) 57 Vice President, Exploration
Michael G. Moran(1) 55 Vice President, Engineering Services
Jack H. Morris(1) 57 Vice President, Corporate Relations
W. James Mullin(1) 51 Vice President, North American Operations
Jean-Michel Rendu(1) 53 Vice President, Technical Services
Timothy J. Schmitt 55 Vice President, Secretary and Assistant General Counsel
</TABLE>
- ---------------
(1) Elected officer of NGC only.
There are no family relationships by blood, marriage or adoption among any
of the above executive officers of Newmont. All executive officers are elected
annually by the Boards of Directors of Newmont and NGC, as the case may be, to
serve for one year or until their respective successors are elected and qualify.
There is no arrangement or understanding between any of the above executive
officers and any other person pursuant to which he or she was selected as an
officer. Each executive officer of Newmont also serves as an executive officer
of NGC.
25
<PAGE> 28
Mr. Cambre was elected Chairman of Newmont on November 16, 1994 (effective
January 1, 1995), President on June 1, 1994 and Chief Executive Officer on
September 23, 1993 (effective November 1, 1993). He served as Vice Chairman of
Newmont from November 1, 1993 through December 31, 1994. Previously, he served
as Vice President and Senior Technical Advisor to the office of the Chairman of
Freeport-McMoRan Inc., a natural resources company, from June 1988 to September
1993. He is also Chairman, President and Chief Executive Officer of NGC.
Mr. Murdy was elected Executive Vice President of Newmont on July 24, 1996
and designated Chief Financial Officer effective December 31, 1992. He served as
a Senior Vice President of Newmont from December 31, 1992 to July 23, 1996.
Previously, he served as Senior Vice President and Chief Financial Officer of
Apache Corporation, an oil and gas exploration and production company, since May
1991. He is also Executive Vice President and Chief Financial Officer of NGC.
Mr. Dow was elected Senior Vice President, Exploration of Newmont on July
24, 1996. He served as Vice President, Exploration of Newmont from April 29,
1992 to May 18, 1994. Previously, he held various senior exploration positions
with Newmont, NGC and its subsidiaries for more than five years. He is also
Senior Vice President, Exploration of NGC.
Mr. Kurlander was elected Senior Vice President, Administration of Newmont
on March 16, 1994 (effective April 1, 1994). Previously, he served as Senior
Vice President, Public Affairs and Government Affairs, for Nabisco International
Inc. of RJR Nabisco, Inc., a consumer products company, since 1992. Prior to
that he managed worldwide communications, state government affairs and worldwide
security functions for American Express Company, a financial services company.
He is also Senior Vice President, Administration of NGC.
Mr. Baker was elected Vice President, Environmental Affairs of NGC on April
24, 1991 (effective March 11, 1991). Previously, he served as Director,
Environmental Affairs for NGC and various other senior positions with NGC.
Mr. Conte was elected Vice President, Human Resources of NGC on April 3,
1995. Previously, he served as Vice President, Human Resources of Echo Bay Mines
Ltd., a natural resources company, since January 1988.
Ms. Donnelly was elected Vice President, Government Relations of NGC on
June 12, 1990.
Mr. Eppler was elected Vice President, Business Development and Planning of
NGC on May 17, 1995. Previously, he served as Managing Director of Chemical
Securities, Inc., an affiliate of Chemical Bank, for more than five years.
Mr. Farmar was elected a Vice President of Newmont on December 16, 1992 and
Controller on October 30, 1991. He is also Vice President and Controller of NGC.
Ms. Flanagan was elected a Vice President of Newmont on March 15, 1995 and
elected Treasurer on December 16, 1992. Previously, she served as an Assistant
Treasurer. She was appointed Assistant Secretary on June 24, 1992. She is also
Vice President, Treasurer and Assistant Secretary of NGC.
Mr. Francisco was elected Vice President, International Operations of NGC
on July 19, 1995 (effective July 10, 1995). Previously, he served as Executive
Vice President and General Manager of P.T. Freeport Indonesia Co., a natural
resources company, from August 1992 to May 1995 and as Senior Vice President and
Chief Administrative Officer from May 1991 to August 1992.
Mr. Hamer was elected Vice President and Senior Project Executive, Batu
Hijau of NGC on May 13, 1996. Previously he served as Vice President, North
American Operations of NGC from July 12, 1995 to May 12, 1996, as Vice
President, Indonesian Projects, from January 1, 1994 to July 11, 1995 and as
Vice President, Project Development from January 1, 1993 through December 31,
1993. He also served as Vice President and General Manager of NGC's Carlin
operations from October 30, 1991 to December 31, 1992.
26
<PAGE> 29
Ms. Hansen was elected Vice President and General Counsel of Newmont on
September 18, 1996 and was designated General Counsel of NGC on July 24, 1996.
She was elected Vice President of NGC on March 15, 1995. She served as Associate
General Counsel of NGC from March 1992 to July 23, 1994. Previously, she was a
partner in the law firm of Holland & Hart specializing in natural resources law.
She is also Vice President and General Counsel of NGC.
Mr. Karras has served as Vice President, Taxes of Newmont since November 9,
1992. Previously, he served as Director of Taxes of Kennecott Corporation, a
natural resources company, for four years. He is also Vice President, Taxes of
NGC.
Mr. Krol has served as Vice President, Exploration of NGC since September
14, 1994. Previously, he served as Director of Foreign Exploration since May
1992. Prior to that he served as Director of Metallurgical Services since 1990.
Mr. Moran was elected Vice President, Engineering Services of NGC on
December 15, 1993 (effective January 17, 1994). Previously, he was employed by
BHP Minerals International Inc., a natural resources company, for more than five
years where he was responsible for the development and management of major
construction projects.
Mr. Morris was elected Vice President, Corporate Relations of NGC on March
16, 1994 (effective April 1, 1994). Previously, he served as Director of
Investor Relations and Corporate Communications for Inland Steel Industries, a
steel producer, from 1990 to 1993.
Mr. Mullin was elected Vice President, North American Operations of NGC on
May 13, 1996. Previously, he served as Vice President and Regional Director,
Nevada Operations of NGC from May 14, 1994 to May 12, 1996, and prior thereto
served as Vice President and General Manager from December 15, 1993 to May 13,
1994. He also served as Acting General Manager from January 1, 1993 to December
14, 1993. Prior to that he held various senior operating positions with NGC.
Mr. Rendu was designated Vice President, Technical Services of NGC, on
January 19, 1995. Previously, he served as Vice President, Information Systems
of NGC since November 26, 1991 and Vice President, Mine Engineering of NGC since
March 11, 1991.
Mr. Schmitt was elected a Vice President of Newmont on December 17, 1986
and was elected Secretary on May 25, 1988. He was designated Assistant General
Counsel on October 30, 1991. He is also Vice President, Secretary and Assistant
General Counsel of NGC.
27
<PAGE> 30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Newmont's common stock is traded on the New York Stock Exchange (under the
symbol "NEM"). The following table sets forth, for the periods indicated, the
high and low sales prices per share of Newmont's common stock as reported on the
New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter................................... $60.75 $45.63 $43.88 $33.13
Second quarter.................................. $60.50 $48.75 $45.25 $38.25
Third quarter................................... $54.75 $46.00 $46.25 $41.63
Fourth quarter.................................. $53.13 $43.88 $46.00 $36.63
</TABLE>
On March 26, 1997, there were 5,036 stockholders of record of Newmont's
common stock.
A dividend of $0.12 per share of common stock outstanding was declared in
each quarter of 1996 and 1995, or a total of $0.48 per share in each such year.
The determination of the amount of future dividends, however, will be made by
Newmont's Board of Directors from time to time and will depend on Newmont's
future earnings, capital requirements, financial condition and other relevant
factors.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
Sales................................ $ 768,455 $ 636,219 $ 597,370 $ 628,809 $ 605,897
========== ========== ========== ========== ==========
Income before cumulative effects of
changes in accounting principles... $ 85,076 $ 112,634 $ 76,121 $ 94,669 $ 90,621
Cumulative effects of changes in
accounting principles after tax.... -- -- -- 38,470 (11,572)
---------- ---------- ---------- ---------- ----------
Net income........................... $ 85,076 $ 112,634 $ 76,121 $ 133,139 $ 79,049
========== ========== ========== ========== ==========
Income per common share:
Before cumulative effects of
changes in accounting
principles...................... $ 0.86 $ 1.17 $ 0.70 $ 0.92 $ 1.04
Cumulative effects of changes in
accounting principles........... -- -- -- 0.45 (0.14)
---------- ---------- ---------- ---------- ----------
Net income......................... $ 0.86 $ 1.17 $ 0.70 $ 1.37 $ 0.90
========== ========== ========== ========== ==========
Dividends declared per common
share.............................. $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48
========== ========== ========== ========== ==========
AT DECEMBER 31,
Total assets......................... $2,081,074 $1,773,770 $1,656,657 $1,186,410 $1,236,304
Long-term debt, including current
portion............................ $ 604,259 $ 608,634 $ 593,634 $ 192,000 $ 265,689
Stockholders' equity................. $1,024,887 $ 742,947 $ 673,465 $ 629,832 $ 538,565
</TABLE>
28
<PAGE> 31
ITEM 7. 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" herein.
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.
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>
29
<PAGE> 32
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.
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
30
<PAGE> 33
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.
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,
31
<PAGE> 34
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 a higher proportion of Post ore relative to waste material is
mined.
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 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
32
<PAGE> 35
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 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.
33
<PAGE> 36
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.
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
34
<PAGE> 37
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 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.
35
<PAGE> 38
For active mines, the Corporation provides for future reclamation and
remediation closure 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 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.
36
<PAGE> 39
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 Items 1 and 2 -- "Business and Properties." 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.
37
<PAGE> 40
ITEM 8. 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.
38
<PAGE> 41
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.
39
<PAGE> 42
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.
40
<PAGE> 43
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.
41
<PAGE> 44
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.
42
<PAGE> 45
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.
43
<PAGE> 46
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
44
<PAGE> 47
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.
45
<PAGE> 48
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>
46
<PAGE> 49
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>
47
<PAGE> 50
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.
48
<PAGE> 51
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>
49
<PAGE> 52
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
50
<PAGE> 53
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.
51
<PAGE> 54
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
52
<PAGE> 55
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.
53
<PAGE> 56
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
------------------------------------------------- ------------------------------
RANGE OF WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
TYPE OF OPTION PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Options with exercise $40 to $56 355,581 6.2 years $49 286,687 $47
prices in excess of
the fair market value
on the date of the
grant
Options that cannot be $30 to $41 250,408 6.7 years $37 181,510 $37
exercised until the
market price of NMC's
stock exceeds a fixed
amount above the
exercise price
</TABLE>
54
<PAGE> 57
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>
55
<PAGE> 58
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.
56
<PAGE> 59
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>
57
<PAGE> 60
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>
AT 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
58
<PAGE> 61
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>
59
<PAGE> 62
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>
UNITED INDONESIA
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.
60
<PAGE> 63
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.
61
<PAGE> 64
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
62
<PAGE> 65
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.
63
<PAGE> 66
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
64
<PAGE> 67
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.
65
<PAGE> 68
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.
66
<PAGE> 69
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.
67
<PAGE> 70
(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.
68
<PAGE> 71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with Arthur Andersen LLP, Newmont's
independent public accountants, regarding any matter of accounting principles or
practices or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Newmont's directors will be contained in Newmont's
definitive Joint Proxy Statement/Prospectus to be filed pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934 for the 1997 annual
meeting of stockholders and is incorporated herein by reference. Information
concerning Newmont's executive officers is set forth under Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be contained in Newmont's definitive
Joint Proxy Statement/ Prospectus to be filed pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 for the 1997 annual
meeting of stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in Newmont's definitive
Joint Proxy Statement/ Prospectus to be filed pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 for the 1997 annual
meeting of stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this item will be contained in Newmont's definitive
Joint Proxy Statement/ Prospectus to be filed pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 for the 1997 annual
meeting of stockholders and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
<TABLE>
<CAPTION>
10-K
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 38
Statements of Consolidated Income........................... 39
Consolidated Balance Sheets................................. 40
Statements of Consolidated Changes in Stockholders'
Equity.................................................... 41
Statements of Consolidated Cash Flows....................... 42
Notes to Consolidated Financial Statements.................. 43
Financial Statements of Minera Yanacocha S.A................ MY-1
</TABLE>
2. Financial Statement Schedules
All schedules have been omitted since they are either not required,
are not applicable, or the required information is shown in the financial
statements or related notes.
69
<PAGE> 72
3. Exhibits
<TABLE>
<S> <C>
3(a). Restated Certificate of Incorporation dated as of July 13,
1987. Incorporated by reference to Exhibit 3 to registrant's
Annual Report on Form 10-K for the year ended December 31,
1987.
3(b). By-Laws as amended through November 1, 1993 and adopted
November 1, 1993. Incorporated by reference to Exhibit 3(b)
to registrant's Annual Report on Form 10-K or the year ended
December 31, 1993.
3(c). Certificate of Designations, Preferences and Rights of $5.50
Convertible Preferred Stock, $5 par value, dated November
13, 1992. Incorporated by reference to Exhibit (3)c to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
4(a). Rights Agreement dated as of September 23, 1987 between
registrant and Manufacturers Hanover Trust Company as Equal
Value Agent relating to the Equal Value Rights. Incorporated
by reference to Exhibit 1 to registrant's Registration
Statement on Form 8-A dated September 25, 1987.
4(b). First Amendment dated as of October 1, 1987 amending the
Rights Agreement dated as of September 23, 1987 between
registrant and Manufacturers Hanover Trust Company, as
Rights Agent. Incorporated by reference to Exhibit (4)b to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
4(c). Second Amendment dated as of May 1, 1989 amending the Rights
Agreement dated as of September 23, 1987 between registrant
and Manufacturers Hanover Trust Company, as Rights Agent.
Incorporated by reference to Exhibit 1 to registrant's Form
8 dated June 7, 1989.
4(d). Rights Agreement dated August 30, 1990 between registrant
and Manufacturers Hanover Trust Company, as Rights Agent.
Incorporated by reference to Exhibit 1 to registrant's
Registration Statement on Form 8-A dated August 31, 1990.
4(e)/4(f). First Amendment dated November 27, 1990 and Second Amendment
dated December 7, 1990 to the aforementioned Rights
Agreement dated August 30, 1990. Incorporated by reference
to Exhibits 2 and 3, respectively, to registrant's Form 8
dated December 7, 1990.
4(g). Third Amendment dated February 26, 1992 to the
aforementioned Rights Agreement dated August 30, 1990.
Incorporated by reference to Exhibit 4 to registrant's Form
8 dated March 17, 1992.
4(h). Indenture dated March 23, 1992 between registrant and Bank
of Montreal Trust Company. Incorporated by reference to
Exhibit 4 to registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992.
10(a). 1982 Key Employees Stock Option Plan. Incorporated by
reference to Exhibit to registrant's Registration Statement
on Form S-8 (No. 33-10141).
10(b). 1987 Key Employees Stock Option Plan as amended as of
October 25, 1993. Incorporated by reference to Exhibit 10(e)
to registrant's Annual Report on Form 10-K for year ended
December 31, 1993.
10(c). 1992 Key Employees Stock Plan as amended as of October 25,
1993. Incorporated by reference to Exhibit 10(p) to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
10(d). 1996 Employees Stock Plan.
10(e). Agreement dated as of December 7, 1990 among registrant, SP
Gold Holdings Inc., Holdgold, Inc., Hornwood Investments
N.V., James M. Goldsmith, Jacob Rothschild, St. James Place
Capital, plc and RIT Capital Partners plc. Incorporated by
reference to Exhibit (28)(i) to registrant's Current Report
on Form 8-K dated December 7, 1990.
</TABLE>
70
<PAGE> 73
10(f). Amendment dated May 10, 1993 to the Agreement dated as of
December 7, 1990 among registrant, SP Gold Holdings Inc.,
Holdgold Inc., Hornwood Investments N.V., James M.
Goldsmith, Jacob Rothschild, St. James Place Capital, plc
and RIT Capital Partners plc. Incorporated by reference to
Exhibit 28(b) to registrant's Registration Statement on Form
S-3 (File No. 33-65274).
10(g). Agreement dated as of May 10, 1993 among registrant, George
Soros, Soros Fund Management, Stanley F. Druckenmiller,
Duquesne Capital Management, Inc., Quantum Fund N.V., Quasar
International Partners C.V. and Quota Fund N.V. Incorporated
by reference to Exhibit 28(c) to registrant's Registration
Statement on Form S-3 (File No. 33-65274).
10(h). Agreement dated October 15, 1993, effective November 1,
1993, among registrant, NGC and Ronald C. Cambre.
Incorporated by reference to Exhibit 10 to registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10(i). Letter Agreement dated December 15, 1993, between NGC and
registrant. Incorporated by reference to Exhibit A to NGC's
Proxy Statement dated February 16, 1994.
10(j). Tax Sharing Agreement dated as of January 1, 1994 between
registrant and NGC. Incorporated by reference to Exhibit
10(i) to registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10(k). Agreement and Plan of Merger dated as of March 10, 1997,
among registrant, Midtown Two Corp. and Santa Fe Pacific
Gold Corporation. Incorporated by reference to Exhibit 2.1
to registrant's Registration Statement on Form S-4 (File No.
333-19335).
11. Statement re Computation of Per Share Earnings.
12. Statement re Computation of Ratio of Earnings to Fixed
Charges.
21. Subsidiaries of registrant. Incorporated by reference to
Exhibit 21 to registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
23. Consent of Independent Public Accountants.
24. Power of Attorney.
27. Financial Data Schedules.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended December 31, 1996.
71
<PAGE> 74
(This page intentionally left blank)
<PAGE> 75
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Minera Yanacocha S. A.:
We have audited the accompanying balance sheets of Minera Yanacocha S. A.
(a Peruvian Corporation, "The Company") as of December 31, 1996 and 1995, and
the related statements of income, changes in shareholders' 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 Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Peru which are substantially equivalent to those applied in the
United States of America. 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 the Company's 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 Minera Yanacocha S. A. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles followed in the United States of
America.
Countersigned by:
/s/ Marco Antonio Zaldivar
------------------------------------
Marco Antonio Zaldivar
C.P.C. Register No. 12477
Lima, Peru
January 22, 1997.
MY-1
<PAGE> 76
MINERA YANACOCHA S. A.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales and other income
Sales.................................................... $313,870 $212,520 $116,607
Interest and other....................................... 2,336 2,426 663
-------- -------- --------
316,206 214,946 117,270
-------- -------- --------
Costs and expenses
Costs applicable to sales................................ 89,206 66,679 42,195
Exploration.............................................. 17,482 11,391 4,051
Depreciation and amortization............................ 24,595 15,725 6,820
Interest expense and other............................... 5,447 5,705 5,024
-------- -------- --------
136,730 99,500 58,090
-------- -------- --------
Income before income tax................................... 179,476 115,446 59,180
Income tax provision....................................... (54,784) (34,633) (17,949)
-------- -------- --------
Net income....................................... $124,692 $ 80,813 $ 41,231
======== ======== ========
Net income per common share...................... $ 27.11 $ 17.57 $ 8.96
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-2
<PAGE> 77
MINERA YANACOCHA S. A.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 40,705 $ 29,721
Restricted funds............................................ 8,927 8,647
Accounts receivable......................................... 13,460 15,699
Inventories................................................. 15,661 13,084
Prepaid taxes and expenses.................................. 6,461 4,553
-------- --------
Current assets............................................ 85,214 71,704
Property, plant, equipment and mine development, net........ 106,308 85,844
Other assets................................................ 1,887 2,270
-------- --------
Total assets...................................... $193,409 $159,818
======== ========
LIABILITIES
Income tax and profit sharing payable....................... $ 18,152 $ 25,170
Trade accounts payable...................................... 7,553 6,544
Other accrued liabilities................................... 5,485 5,120
Current portion of long-term debt........................... 14,256 13,142
-------- --------
Current liabilities....................................... 45,446 49,976
Long-term debt.............................................. 24,244 38,799
Deferred income tax liability............................... 11,210 7,660
Reclamation liability....................................... 4,310 1,876
-------- --------
Total liabilities................................. 85,210 98,311
-------- --------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Capital stock -- S/1.00 par value; 4,600,104 shares
authorized and issued..................................... 2,116 2,116
Additional paid-in capital.................................. 226 226
Legal reserve............................................... 470 470
Retained earnings........................................... 105,387 58,695
-------- --------
Total shareholders' equity........................ 108,199 61,507
-------- --------
Total liabilities and shareholders' equity...... $193,409 $159,818
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-3
<PAGE> 78
MINERA YANACOCHA S. A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL RETAINED TOTAL
OF COMMON CAPITAL PAID-IN LEGAL EARNINGS SHAREHOLDERS'
SHARES STOCK CAPITAL RESERVE (DEFICIT) EQUITY
--------- ------- ---------- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.............. 4,600,104 $2,116 $226 $ -- $ (1,879) $ 463
Net income............................ -- -- -- -- 41,231 41,231
Appropriation of legal reserve........ -- -- -- 470 (470) --
--------- ------ ---- ---- -------- --------
Balance at December 31, 1994............ 4,600,104 2,116 226 470 38,882 41,694
Net income............................ -- -- -- -- 80,813 80,813
Cash dividends........................ -- -- -- -- (61,000) (61,000)
--------- ------ ---- ---- -------- --------
Balance at December 31, 1995............ 4,600,104 2,116 226 470 58,695 61,507
Net income............................ -- -- -- -- 124,692 124,692
Cash dividends........................ -- -- -- -- (78,000) (78,000)
--------- ------ ---- ---- -------- --------
Balance at December 31, 1996............ 4,600,104 $2,116 $226 $470 $105,387 $108,199
========= ====== ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-4
<PAGE> 79
MINERA YANACOCHA S. A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................ $124,692 $ 80,813 $ 41,231
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization...... 24,595 15,725 6,820
Deferred income tax................ 3,550 1,121 7,242
Other.............................. (336) 431 --
(Increase) decrease in operating
assets:
Accounts receivable.............. 2,239 (7,128) (3,174)
Inventories...................... (2,577) 2,563 (11,229)
Prepaid taxes and expenses and
other assets.................. (1,525) 685 (380)
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
liabilities................... (5,644) 18,297 12,669
Reclamation liability............ 2,434 1,104 609
-------- -------- --------
Net cash provided by operating
activities............................ 147,428 113,611 53,788
-------- -------- --------
INVESTING ACTIVITIES
Additions to property, plant,
equipment and mine development..... (45,060) (35,244) (40,973)
-------- -------- --------
Net cash used in investing activities... (45,060) (35,244) (40,973)
-------- -------- --------
FINANCING ACTIVITIES
Repayments of long-term borrowings.... (13,104) (3,805) --
Restricted funds...................... (280) (6,147) (1,400)
Proceeds from long-term borrowings.... -- -- 24,079
Repayments of loans to shareholders... -- -- (20,478)
Cash dividends........................ (78,000) (61,000) --
-------- -------- --------
Net cash provided by (used in) financing
activities............................ (91,384) (70,952) 2,201
-------- -------- --------
Net increase in cash and cash
equivalents........................... 10,984 7,415 15,016
Cash and cash equivalents at beginning
of year............................... 29,721 22,306 7,290
-------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 40,705 $ 29,721 $ 22,306
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-5
<PAGE> 80
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS
(ALL MONETARY AMOUNTS ARE IN THOUSANDS OF U.S. DOLLARS)
1. BUSINESS ACTIVITY
Minera Yanacocha S. A. ("the Company") was established on January 14, 1992
and started production activities in August 1993. The Company is engaged in
exploration and exploitation of gold under the mining concessions owned by
S.M.R.L. Chaupiloma Dos de Cajamarca ("Chaupiloma"). The majority shareholders
or affiliates of the Company also own the majority interests in Chaupiloma.
In accordance with a mining lease amended effective January 1, 1994, the
Company pays Chaupiloma a 3 percent royalty on the monthly production at current
prices, after deducting refinery and transport costs. The royalty agreement
expires in the year 2012.
The Company's operation consists of three open pit mines, the Carachugo,
San Jose and Maqui Maqui mines located in the Cajamarca district of Peru, from
which gold-bearing ores are delivered to two separate leach pads for gold
recovery using conventional heap leaching cyanidation, followed by Merrill-Crowe
zinc precipitation and smelting to provide a final dore product. The dore is
then shipped offsite for further refining before being sold in the world gold
markets. A fourth mine, Yanacocha, is expected to go into production by the end
of 1997.
Gold mining requires the use of specialized facilities and technology. The
Company relies heavily on such facilities to maintain production levels. Also,
the profitability of the Company'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 Company's control.
2. BASIS OF PRESENTATION
Up to December 31, 1994, the Peruvian statutory accounting records were
kept in Peruvian nuevos soles. Effective January 1, 1995, the Company began
maintaining its accounting records in U.S. dollars, its functional currency, as
prescribed in the tax stability agreements signed with the Peruvian Government,
explained in Note 8. The accompanying financial statements were prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and
are stated in thousands of U.S. dollars.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies were used in preparing the accompanying
U.S. GAAP financial statements:
Cash and cash equivalents
Cash and cash equivalents consist of cash balances and highly liquid
investments with an original maturity of three months or less, carried at cost,
which approximates market value.
Inventories
Precious metals are stated at market value. Ore in process is determined
using the first-in, first-out method and is stated at the lower of cost or net
realizable value. Materials, supplies and spare parts inventories are stated at
average cost.
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method with the rates indicated in Note 6. Maintenance
and minor renewals are charged to expenses as incurred. Significant repairs and
modifications which extend the useful life of the existing facilities are
capitalized and depreciated.
MY-6
<PAGE> 81
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Exploration and mine development costs
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 the costs to further delineate the
ore body and remove overburden to initially expose the ore body, are
capitalized. Such costs are amortized using a units-of-production method over
the estimated life of the ore body. Until 1994 these costs were amortized using
the straight-line method with an annual rate of 20 percent. The cumulative
effect of the change is immaterial. On-going mine development expenditures to
maintain production are generally charged to operations as incurred.
Interest capitalization
Interest expense allocable to the costs of constructing new facilities is
capitalized until operations commence. Capitalized interest is expensed over the
depreciable lives of the assets for which it relates.
Reclamation and mine closure costs
Estimated future reclamation and mine closure costs are based principally
on legal and regulatory requirements and are accrued and charged to the
statements of income on a units-of-production basis.
Debt issuance costs
Debt issuance costs are deferred and amortized over the term of the related
debt.
Revenue recognition
Gold sales are recognized when dore bars are produced.
Income tax
The Company accounts for income taxes using the liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under the liability method of SFAS 109, the Company
recognizes certain temporary differences between the financial reporting basis
of the Company'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 Company as of the end of the year, as
measured by the statutory tax rate in effect as enacted. The Company 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.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles of the United States 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.
4. FOREIGN CURRENCY TRANSACTIONS
Monetary assets and liabilities are principally denominated in U.S.
dollars, the functional currency. No significant assets or liabilities are
denominated in Peruvian currency.
A loan from Deutsche Investitions-und Entwicklungsgesellschaft MBH-DEG
("DEG") denoted as the Carachugo loan as well as its related accrued interest
are denominated in Deutsche Marks. As of
MY-7
<PAGE> 82
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1995 the total amount outstanding was DM 6.3 million
($4,088) and the accrued interest DM 675 thousands (US $438) and DM 8.1 million
($5,641) and the accrued interest DM 825 thousands ($575), respectively (see
Note 9).
5. INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Precious metals............................................. $ 4,476 $ 4,332
Ore in process.............................................. 7,575 5,373
Materials, supplies and spare parts......................... 3,610 3,379
------- -------
$15,661 $13,084
======= =======
</TABLE>
6. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
DEPRECIATION OR --------------------
AMORTIZATION RATES 1996 1995
------------------- -------- --------
<S> <C> <C> <C>
Land..................................... -- $ 2,716 $ 933
Buildings and equipment.................. 10% and 20% 137,754 99,240
Mine development......................... Units-of-production 10,415 7,379
Construction-in-progress................. -- 4,863 3,136
-------- --------
155,748 110,688
Accumulated depreciation and
amortization........................... (49,440) (24,844)
-------- --------
$106,308 $ 85,844
======== ========
</TABLE>
Certain fixed assets secure loans from the International Finance
Corporation ("IFC") and DEG (see Note 9).
7. INCOME TAX AND PROFIT SHARING PAYABLE
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Income tax.................................................. $ 8,818 $19,575
Profit sharing.............................................. 9,334 5,595
------- -------
$18,152 $25,170
======= =======
</TABLE>
In accordance with the Peruvian legislation, the Company's employees are
entitled to receive a profit sharing of 8% of the taxable income. 50% of the
total profit sharing is distributed to each employee based on the number of days
that each of them worked during the preceding year and the remaining 50% is
distributed in proportion to their annual salary levels.
Effective January 1, 1997, the annual payment to each employee under the
profit sharing plan is limited to eighteen times such employee's monthly salary,
but the rate for the Company remains 8% of taxable income.
8. INCOME TAX
As explained in Note 3, income tax is accounted for under the provisions of
SFAS 109.
MY-8
<PAGE> 83
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Under SFAS 109, the Company accounts for deferred income tax liabilities
and deferred income tax assets when temporary differences arise between the
financial and the income tax reporting of its liabilities and assets. The
measurement of the deferred income tax liabilities and assets is based upon the
Peruvian tax rates and tax law provisions as enacted.
The provisions for income tax consist of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current............................................... $51,234 $33,512 $10,707
Deferred.............................................. 3,550 1,121 7,242
------- ------- -------
Total....................................... $54,784 $34,633 $17,949
======= ======= =======
</TABLE>
The total provision approximates the Peruvian statutory rate applied to the
taxable income for all years.
The components of the deferred income tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Deferred tax liabilities:
Mine development costs deducted for tax in excess of book
amortization........................................... $11,620 $7,289
Debt issuance costs deducted for tax in excess of book
amortization........................................... 386 544
Interest deducted for tax and capitalized as fixed assets
for book purposes...................................... 424 269
Start-up costs deducted for tax and capitalized for book
purposes............................................... 73 121
------- ------
Total deferred tax liabilities.................... 12,503 8,223
------- ------
Deferred tax asset:
Reclamation liability not deducted in tax return.......... (1,293) (563)
------- ------
Net deferred tax liability........................ $11,210 $7,660
======= ======
</TABLE>
The income tax returns of 1993 through 1994 prepared in Peruvian nuevos
soles, and 1995 through 1996 prepared in U.S. dollars, are pending review by the
tax authorities. Additional taxes and surcharges from future tax assessments, if
any, would be charged to expense in the years in which they are settled.
In May 1994 the Company signed two tax stabilization agreements with the
Peruvian Government which guarantee the Company the use of tax rulings of the
tax regimes in force at December 31, 1992 for Carachugo and at December 31, 1994
for Maqui Maqui for 15 years from the dates that the agreements become
effective. Under such agreements the Company is permitted to keep its accounting
records in U.S. dollars. The properties were under the then current tax regimes
until the agreements became effective. The Carachugo tax stabilization agreement
became effective January 1, 1995. The Company expects the Maqui Maqui tax
stabilization agreement to become effective in 1997.
MY-9
<PAGE> 84
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of loans from the IFC and DEG to finance the
Carachugo and Maqui Maqui projects. The maturities due pursuant to the financing
arrangements as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PAYMENT DATES TOTAL
------------- -------
<S> <C>
1997..................................................... $14,256
-------
1998..................................................... 14,256
1999..................................................... 8,204
2000..................................................... 1,784
-------
Long-term debt.............................................. 24,244
-------
Total debt........................................ $38,500
=======
</TABLE>
Of the outstanding loan balance at December 31, 1996, $4.1 million is
denominated in Deutsche Marks and translated to US dollars at the balance sheet
date. (See Note 4).
Interest on $26,012 of the debt outstanding at December 31, 1996 is
calculated at interest rates ranging from 3 1/8% to 3 1/2% over the London
Interbank Offering Rate ("LIBOR"). The weighted average interest rates for this
debt were 8.98%, 9.63% and 7.65% for 1996, 1995 and 1994, respectively. The
weighted average interest rates at December 31, 1996 and 1995 were 8.9% and
9.08%, respectively. Interest on $8,400 of debt outstanding at December 31, 1996
is calculated at 2 7/8% over LIBOR plus a rate (not to exceed 2 1/2%) applied on
the amount that the average price of gold per ounce is above $370. When the
prior six month average gold price is between $370 and $410 an ounce the
interest rate is 2 7/8% over LIBOR plus 1/8% for each $10 the gold price is
over $370 per ounce. When the six month average gold price is between $410 and
$490 per ounce the interest rate is 3 3/8% over LIBOR plus 1/4% for each $10
the gold price is over $410 per ounce. The weighted average interest rates for
this debt were 8.54%, 8.59% and 7.25% for 1996, 1995 and 1994, respectively. The
interest rates at December 31, 1996 and December 31, 1995 were 8.375% and
8.8125%, respectively. Interest on $4,088 of the outstanding loan balance at
December 31, 1996 is calculated at a fixed annual rate of 9.3%.
Interest rates prevailing on similar debts at the balance sheet dates were
essentially the same as the interest rates on these debts. Therefore, the fair
value of the debt approximates the reported value.
Substantially all of the Company's property, plant and equipment, as well
as restricted funds of $8,927 at December 31, 1996, secure the outstanding
loans.
The loan agreements contain certain covenants which limit indebtedness and
payment of dividends to shareholders. In addition, the Company must maintain
certain financial ratios as provided in the loan agreements. At December 31,
1996 and 1995 the Company was in compliance with the covenants.
The IFC loan requires the Company to maintain an escrow account
representing the next interest and principal installment due. Amounts totaling
$8,927 and $8,647 as of December 31, 1996 and 1995, respectively, reflect the
March 15, 1997 and 1996 interest and principal payments and, accordingly, have
been reported as restricted funds on the balance sheets.
10. SHAREHOLDERS' EQUITY
The capital stock is represented by 4,600,104 common shares with a par
value of one Peruvian nuevo sol each, fully subscribed and paid. This amount
includes 2,592,159 shares owned by non-Peruvian investors.
Under current Peruvian regulations, there is no restriction on remittance
of dividends or repatriation of foreign investment, except for a creation of a
legal reserve discussed in the next paragraph. Furthermore, under current
Peruvian regulations, dividend distribution is tax free beginning January 1,
1994. However, dividends
MY-10
<PAGE> 85
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
paid to a non-domiciled shareholder who had executed an Investment Agreement
with the Peruvian Government is still subject to a 10% withholding income tax on
dividends paid on capital stock issued pursuant to that agreement.
According to the Peruvian General Law on Corporations, when the net income
exceeds 7 percent of capital stock in the financial statements prepared
following Peruvian generally accepted accounting principles, the Company must
create a reserve ("the legal reserve") of at least 20% of its capital stock by
annual appropriations of at least 10% of net income. The legal reserve must be
used only to offset losses, and can not be distributed as dividends, except in
case of the closing of a business activity. The legal reserve was satisfied in
1994 and therefore no appropriations were necessary in 1995 or 1996.
At a shareholders' meeting held on January 22, 1997, a cash dividend of
$30,000 was approved.
11. RELATED PARTY TRANSACTIONS
In years prior to 1994, the Company had obtained loans from its
shareholders amounting to $46,478 to finance the construction of facilities.
These loans and the related accrued interest were repaid in 1994. Interest on
the loans was calculated at an annual rate of 10% and amounted to $1,838 in
1994.
Management, exploration, mine development, engineering and employment
services are provided pursuant to contracts with affiliated companies. The
corresponding charges amounted to $4,847 in 1996, $4,617 in 1995 and $3,065 in
1994, and the corresponding outstanding accounts payable amounts to $324 and
$1,313 at December 31, 1996 and 1995, respectively.
As mentioned in Note 1, the Company pays Chaupiloma a 3% royalty on the
monthly production at current prices, after deducting refinery and transport
costs. The royalty expense amounted to $9,524 in 1996, $6,233 in 1995 and $3,501
in 1994, and the outstanding accounts payable amounts to $2,493 and $2,132 at
December 31, 1996 and 1995, respectively.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Income tax............................................. $61,990 $22,113 $2,377
Interest, net of amounts capitalized................... $ 3,558 $ 4,740 $4,665
</TABLE>
13. MAJOR CUSTOMERS AND EXPORT SALES
The Company is not economically dependent on a limited number of customers
for the sale of its product because gold commodity markets are well-established
worldwide. During 1996, four customers accounted for $113 million, $85 million,
$40 million and $33 million of total sales, each of which represented more than
10% of total sales and together accounted for 86% of the annual sales. In 1995,
sales to three customers accounted for $75 million, $22 million and $21 million,
each of which represented more than 10% of total sales and together accounted
for 55% of total sales. In 1994, sales to one customer accounted for $102
million, or 87% of total sales.
All sales were made abroad.
MY-11
<PAGE> 86
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
Claim initiated by Compagnie Miniere International Or S.A.
In May 1996, Compagnie Miniere International Or S.A. (Mine Or) initiated a
claim against the Company because it did not remit the 1994 dividends, approved
by the General Extraordinary Shareholders' meeting held on February 1, 1995, to
Mine Or. The Company paid such dividends to Compania Minera Condesa S.A. and
Newmont Second Capital in compliance with a preliminary action dictated by the
Superior Court on February 23, 1995. This action suspended the rights of Mine Or
as a shareholder until the main claim initiated by Compania Minera Condesa S.A.
and Newmont Second Capital to exercise their preferential rights for buying the
Company's shares owned by Mine Or could be resolved.
The claim initiated by Mine Or amounts to approximately $2,145 at December
31, 1996 and is still pending to be resolved by the First Instance Court.
The Company's management and its outside legal counsels believe this claim
will be resolved in favor of the Company.
Environmental and natural resources code
The Company's mining and exploration activities are subject to Legislative
Decree 613 published on September 8, 1990 which is regulated by Supreme Decrees
No 016-93-EM and No 059-93-EM dated April 28 and December 10, 1993,
respectively. These legal rules govern the protection of the environment. The
Company conducts its operations so as to protect the public health and
environment and believes it operates in compliance with all applicable legal
rulings. The Company accrues for its expected future reclamation and closure
liabilities on a units-of-production basis and such liability amounted to $4,310
and $1,876 at December 31, 1996 and 1995, respectively.
Mining contract
The Company signed a contract with Zublin Chile Ingenieria y Construcciones
Ltda., Sucursal del Peru for the loading and hauling of mineral and waste of
Carachugo and Maqui Maqui.
The contract has a term of 5 years, effective January 1, 1996.
MY-12
<PAGE> 87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEWMONT MINING CORPORATION
By /s/ TIMOTHY J. SCHMITT
-----------------------------------
Timothy J. Schmitt
Vice President, Secretary and
Assistant General Counsel
March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
- -----------------------------------------------------
Rudolph I. J. Agnew
* Director
- -----------------------------------------------------
J. P. Bolduc
* Chairman, President and Chief
- ----------------------------------------------------- Executive Officer and
Ronald C. Cambre Director
* Director
- -----------------------------------------------------
Joseph P. Flannery
* Director
- -----------------------------------------------------
Leo I. Higdon, Jr.
* Director
- -----------------------------------------------------
Thomas A. Holmes
* Director March 31, 1997
- -----------------------------------------------------
Moeen A. Qureshi
* Director
- -----------------------------------------------------
Michael K. Reilly
* Director
- -----------------------------------------------------
William I. M. Turner, Jr.
* Executive Vice President and
- ----------------------------------------------------- Chief Financial Officer
Wayne W. Murdy (Principal Financial Officer)
* Vice President and Controller
- ----------------------------------------------------- (Principal Accounting
Gary E. Farmar Officer)
*By /s/ TIMOTHY J. SCHMITT
-------------------------------------------------
Timothy J. Schmitt
as Attorney-in-fact
</TABLE>
<PAGE> 88
Appendix I
The following is a narrative description of certain maps in image form
which have been included in the paper version of the Form 10-K but which have
been excluded from the EDGAR version of the Form 10-K.
1. Map of location of the Carlin Trend Operations in Nevada --
Page 3 of the Form 10-K.
On Page 3 of the Form 10-K, the registrant has
included a map of Nevada with an enlargement of the
geographical location of its operations on the Carlin Trend
discussed on Pages 1 through 5 of the Form 10-K. The
map also includes a chart indicating the location of various
deposits with proven and probable reserves.
2. Map of location of the Minera Yanacocha Operations in Peru --
Page 8 of the Form 10-K.
On Page 8 of the form 10-K, the registrant has
included a map of the country of Peru showing the geographical
location of the Minera Yanacocha Operations discussed on pages
6 and 7 of the Form 10-K. The map also includes a notation
that Minera Yanacocha S.A., is 51.35% owned by the registrant.
The map also shows the location of various deposits with
proven and probable reserves.
3. Map of location of the Zarafshan-Newmont joint venture in
Uzbekistan -- Page 10 of the Form 10-K.
On Page 10 of the Form 10-K, the registrant has
included a map of the Republic of Uzbekistan showing the
geographical location of the Zarafshan- Newmont joint venture
and the Angren project discussed on Page 9 of the form 10-K.
The map also includes notation that the Zarafshan-Newmont
joint venture, which owns the project, is 50% owned by the
Newmont Gold and the Angren joint venture is 40% owned by
Newmont Gold.
4. Map of locations of the Minahasa Project and the Batu Hijau
Project in Indonesia -- Page 13 of the Form 10-K.
On Page 13 of the Form 10-K, the registrant has
included a map of the Republic of Indonesia showing the
geographical location of the Minahasa project and the Batu
Hijau project, each of which is discussed on Pages 11, 12 and
13 of the Form 10-K. The map also includes a notation that
each of the Indonesian companies that own the Minahasa project
and the Batu Hijau project is 80% owned by the Newmont Gold.
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3(a). Restated Certificate of Incorporation dated as of July 13,
1987. Incorporated by reference to Exhibit 3 to registrant's
Annual Report on Form 10-K for the year ended December 31,
1987.
3(b). By-Laws as amended through November 1, 1993 and adopted
November 1, 1993. Incorporated by reference to Exhibit 3(b)
to registrant's Annual Report on Form 10-K or the year ended
December 31, 1993.
3(c). Certificate of Designations, Preferences and Rights of $5.50
Convertible Preferred Stock, $5 par value, dated November
13, 1992. Incorporated by reference to Exhibit (3)c to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
4(a). Rights Agreement dated as of September 23, 1987 between
registrant and Manufacturers Hanover Trust Company as Equal
Value Agent relating to the Equal Value Rights. Incorporated
by reference to Exhibit 1 to registrant's Registration
Statement on Form 8-A dated September 25, 1987.
4(b). First Amendment dated as of October 1, 1987 amending the
Rights Agreement dated as of September 23, 1987 between
registrant and Manufacturers Hanover Trust Company, as
Rights Agent. Incorporated by reference to Exhibit (4)b to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
4(c). Second Amendment dated as of May 1, 1989 amending the Rights
Agreement dated as of September 23, 1987 between registrant
and Manufacturers Hanover Trust Company, as Rights Agent.
Incorporated by reference to Exhibit 1 to registrant's Form
8 dated June 7, 1989.
4(d). Rights Agreement dated August 30, 1990 between registrant
and Manufacturers Hanover Trust Company, as Rights Agent.
Incorporated by reference to Exhibit 1 to registrant's
Registration Statement on Form 8-A dated August 31, 1990.
4(e)/4(f). First Amendment dated November 27, 1990 and Second Amendment
dated December 7, 1990 to the aforementioned Rights
Agreement dated August 30, 1990. Incorporated by reference
to Exhibits 2 and 3, respectively, to registrant's Form 8
dated December 7, 1990.
4(g). Third Amendment dated February 26, 1992 to the
aforementioned Rights Agreement dated August 30, 1990.
Incorporated by reference to Exhibit 4 to registrant's Form
8 dated March 17, 1992.
4(h). Indenture dated March 23, 1992 between registrant and Bank
of Montreal Trust Company. Incorporated by reference to
Exhibit 4 to registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992.
10(a). 1982 Key Employees Stock Option Plan. Incorporated by
reference to Exhibit to registrant's Registration Statement
on Form S-8 (No. 33-10141).
10(b). 1987 Key Employees Stock Option Plan as amended as of
October 25, 1993. Incorporated by reference to Exhibit 10(e)
to registrant's Annual Report on Form 10-K for year ended
December 31, 1993.
10(c). 1992 Key Employees Stock Plan as amended as of October 25,
1993. Incorporated by reference to Exhibit 10(p) to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
10(d). 1996 Employees Stock Plan.
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10(e). Agreement dated as of December 7, 1990 among registrant, SP
Gold Holdings Inc., Holdgold, Inc., Hornwood Investments
N.V., James M. Goldsmith, Jacob Rothschild, St. James Place
Capital, plc and RIT Capital Partners plc. Incorporated by
reference to Exhibit (28)(i) to registrant's Current Report
on Form 8-K dated December 7, 1990.
10(f). Amendment dated May 10, 1993 to the Agreement dated as of
December 7, 1990 among registrant, SP Gold Holdings Inc.,
Holdgold Inc., Hornwood Investments N.V., James M.
Goldsmith, Jacob Rothschild, St. James Place Capital, plc
and RIT Capital Partners plc. Incorporated by reference to
Exhibit 28(b) to registrant's Registration Statement on Form
S-3 (File No. 33-65274).
10(g). Agreement dated as of May 10, 1993 among registrant, George
Soros, Soros Fund Management, Stanley F. Druckenmiller,
Duquesne Capital Management, Inc., Quantum Fund N.V., Quasar
International Partners C.V. and Quota Fund N.V. Incorporated
by reference to Exhibit 28(c) to registrant's Registration
Statement on Form S-3 (File No. 33-65274).
10(h). Agreement dated October 15, 1993, effective November 1,
1993, among registrant, NGC and Ronald C. Cambre.
Incorporated by reference to Exhibit 10 to registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10(i). Letter Agreement dated December 15, 1993, between NGC and
registrant. Incorporated by reference to Exhibit A to NGC's
Proxy Statement dated February 16, 1994.
10(j). Tax Sharing Agreement dated as of January 1, 1994 between
registrant and NGC. Incorporated by reference to Exhibit
10(i) to registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10(k). Agreement and Plan of Merger dated as of March 10, 1997,
among registrant, Midtown Two Corp. and Santa Fe Pacific
Gold Corporation. Incorporated by reference to Exhibit 2.1
to registrant's Registration Statement on Form S-4 (File No.
333-19335).
11. Statement re Computation of Per Share Earnings.
12. Statement re Computation of Ratio of Earnings to Fixed
Charges.
21. Subsidiaries of registrant. Incorporated by reference to
Exhibit 21 to registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
23. Consent of Independent Public Accountants.
24. Power of Attorney.
27. Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 10(d)
NEWMONT MINING CORPORATION
1996 EMPLOYEES STOCK PLAN
1. Purposes. The purposes of the Newmont Mining Corporation 1996 Employees
Stock Plan are:
(a) To further the growth, development and success of the Company and
its Subsidiaries by enabling employees of the Company and its Subsidiaries to
acquire a continuing equity interest in the Company, thereby increasing their
personal interests in such growth, development and success and motivating such
employees to exert their best efforts on behalf of the Company and its
Subsidiaries; and
(b) To maintain the ability of the Company and its Subsidiaries to
attract and retain employees of outstanding ability by offering them an
opportunity to acquire a continuing equity interest in the Company and its
Subsidiaries which will reflect the growth, development and success of the
Company and its Subsidiaries.
Toward these objectives, the Committee may grant Options, Stock Appreciation
Rights, or Other Stock-Based Awards or award Restricted Stock to such employees
or pay such employees' bonuses (if any) or other compensation in Common Stock
or award or grant any combination thereof, all pursuant to the terms and
conditions of the Plan (each, an "Award").
2. Definitions. As used in the Plan, the following capitalized terms
shall have the meanings set forth below:
(a) "ADDITIONAL ANNUAL INCREMENT" - a number of shares of Common
Stock equal to one percent of the number of shares of Common Stock outstanding
on December 31 of the immediately preceding year.
(b) "AGREEMENT" - an option or award agreement evidencing an Award.
(c) "AWARD" - an Option, SAR, Other Stock-Based Award or Restricted
Stock granted or awarded, or bonus or other compensation of an employee paid in
Common Stock, pursuant to the terms and conditions of the Plan.
(d) "AWARD GAIN" - the gain represented by the product of the excess
of the Fair Market Value of the Common Stock on the date of exercise of an
Option or SAR over the exercise price of such Option or SAR multiplied by the
number of shares of Common Stock subject to such Option or SAR, or portion
thereof, exercised, without regard to any subsequent decrease or increase in
the Fair Market Value of the Common Stock.
(e) "AWARD LIMIT" - 500,000 shares of Common Stock (as adjusted in
accordance with Section 15).
(f) "BOARD" - the Board of Directors of the Company.
(g) "CEO" - the Chief Executive Officer of the Company.
<PAGE> 2
(h) "CODE" - the Internal Revenue Code of 1986, as it may be amended
from time to time, including regulations and rules thereunder and successor
provisions and regulations and rules thereto.
(i) "COMMITTEE" - the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan.
(j) "COMMON STOCK" - the $1.60 par value common stock of the Company.
(k) "COMPANY" - Newmont Mining Corporation, a Delaware corporation, or
any successor entity.
(l) "DIVIDEND EQUIVALENTS" - the equivalent value (in cash or Common
Stock) of dividends paid on Common Stock subject to Other Stock-Based Awards
granted under Section 9.
(m) "EXCHANGE ACT" - the Securities Exchange Act of 1934, as it may be
amended from time to time.
(n) "FAIR MARKET VALUE" of a share of Common Stock as of a given date
shall be the average of the high and low sales prices for a share of Common
Stock as reported for New York Stock Exchange issues in The Wall Street Journal
for such date; provided, however, that if there is no sale of shares of Common
Stock reported in The Wall Street Journal on such date, such fair market value
shall be the average between the bid and asked prices for a share of Common
Stock reported in The Wall Street Journal at the close of trading on such date;
provided further, however, that if no such prices are reported for such day,
the most recent day for which such prices are available shall be used. In the
event that the method for determining the fair market value of a share of
Common Stock provided for in the previous sentence shall not be practicable,
then such fair market value shall be determined by such other reasonable
valuation method as the Committee shall, in its discretion, select and apply in
good faith as of the given date; provided, however, that for purposes of
paragraph (a) of Section 6, such fair market value shall be determined subject
to Section 422(c)(7) of the Code.
(o) "ISO," OR "INCENTIVE STOCK OPTION" - an option to purchase Common
Stock granted to a Participant under the Plan in accordance with the terms and
conditions set forth in Section 6 and which conforms to the applicable
provisions of Section 422 of the Code.
(p) "NOTICE" - written notice actually received by the Company at its
offices on the day of such receipt, if received on or before 1:30 p.m., Denver
time, on a day when the Company's offices are open for business, or, if
received after such time, such notice shall be deemed received on the next such
day, which notice may be delivered in person to the Company's Payroll
Department or sent by facsimile to the Company, or sent by certified or
registered mail or overnight courier, prepaid, addressed to the Company at 1700
Lincoln Street, Denver, Colorado 80203, Attention: Payroll Department.
(q) "OPTION" - an option to purchase Common Stock granted to a
Participant under the Plan in accordance with the terms and conditions set
forth in Section 6. Options may be either ISOs or stock options other than
ISOs.
(r) "OPTIONEE" - a Participant who has been granted an Option under
the Plan in accordance with the terms and conditions set forth in Section 6.
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<PAGE> 3
(s) "OTHER STOCK-BASED AWARDS" - Awards granted to Participants under
the Plan in accordance with the terms and conditions set forth in Section 10.
(t) "PARTICIPANT" - any employee of the Company or its Subsidiaries
selected to participate in the Plan pursuant to Section 3.
(u) "PERFORMANCE CRITERIA" - earnings, increases in production,
reductions in costs of production and reserve replacement.
(v) "PLAN" - this Newmont Mining Corporation 1996 Employees Stock
Plan.
(w) "PREDECESSOR PLANS" - the Company's Amended and Restated 1992 Key
Employees Stock Plan and the Company's Amended and Restated 1987 Key Employees
Stock Option Plan.
(x) "RESTRICTED STOCK" - Common Stock awarded under the Plan in
accordance with the terms and conditions set forth in Section 8.
(y) "RESTRICTION PERIOD" - a time period, which may or may not be
based upon the achievement of particular performance goals and/or the
satisfaction of vesting or earnout provisions (which may be dependent on the
continued employment of the recipient) applicable to, and established or
specified by the Committee at the time of, each award of Restricted Stock.
(z) "RULE 16B-3" - Rule 16b-3 under the Exchange Act, as such rule may
be amended from time to time.
(aa) "SAR" - a stock appreciation right granted to a Participant under
the Plan and in accordance with the terms and conditions of Section 7.
(bb) "SEC" shall mean the Securities and Exchange Commission.
(cc) "SUBSIDIARY" shall mean (i) any present or future corporation
which is or would be a "subsidiary corporation" of the Company as the term is
defined in Section 424(f) of the Code and (ii) any unincorporated entity in
which the Company and/or one or more of its "subsidiary corporations" (as
defined in Section 424(f) of the Code) presently or in the future own an
aggregate profits interest of fifty percent (50%) or more, which the Committee
in its discretion determines will be a "Subsidiary" for purposes of the Plan.
3. Administration of the Plan. (a) The Committee shall have exclusive
authority to operate, manage and administer the Plan in accordance with its
terms and conditions. Notwithstanding the foregoing, in its absolute
discretion, the Board may at any time and from time to time exercise any and
all rights, duties and responsibilities of the Committee under the Plan,
including, but not limited to, establishing procedures to be followed by the
Committee, but excluding matters which under Rule 16b-3 or Section 162(m) of
the Code are required to be determined in the discretion of the Committee.
(b) The Committee shall be appointed from time to time by the Board,
and the Committee shall consist of not less than three members of the Board,
each of whom is an "outside director" within the meaning of Section 162(m) of
the Code and, to the extent necessary for the Plan and/or Awards thereunder to
satisfy the requirements and conditions of Rule 16b-3, a "disinterested
person," as defined by Rule 16b-3
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<PAGE> 4
(or a "non-employee director" under Rule 16b-3 as proposed to be amended by the
SEC, if such amendments are finally adopted by the SEC substantially as
proposed); provided, however, that if one or more of the members of the
Committee does not qualify as such an "outside director" or a "disinterested
person" (or a "non-employee director," if applicable) at the time any Award is
granted, such Award nevertheless shall be deemed to be properly authorized and
issued under the Plan and shall remain in full force and effect subject to the
other terms and conditions contained in the Plan and the relevant Agreement.
(c) Without limiting the generality of paragraph (a) of this Section
3, the Committee shall have the exclusive right and discretionary authority to:
(i) interpret the Plan and the Agreements; (ii) determine eligibility for
participation in the Plan and the amount of Awards payable under the Plan;
(iii) select, from time to time, from amongst those eligible, the employees to
whom Awards shall be granted under the Plan, which selection may be based upon
information furnished to the Committee by the Company's management; (iv)
determine whether an Award shall take the form of an ISO, Option other than an
ISO, SAR, Restricted Stock, bonuses or other compensation payable in Common
Stock, Other Stock-Based Award (and, if so, the form thereof) or any
combination thereof; (v) determine the number of shares of Common Stock to be
included in any Award or to which any Award shall otherwise relate and the
periods for which Awards will be outstanding; (vi) establish, amend, waive
and/or rescind rules and regulations and administrative guidelines for carrying
out the Plan; (vii) to the extent permitted under the Plan and the applicable
Agreement, accelerate the exercisability or the termination of any Restriction
Period with respect to any Award when such acceleration and/or termination
would be in the best interest of the Company; (viii) to the extent permitted
under the Plan and the applicable Agreement, grant waivers of Plan terms,
conditions, restrictions and limitations; (ix) correct any errors, supply any
omissions or reconcile any inconsistencies in the Plan and/or any Agreement or
any other instrument relating to any Award; (x) to the extent permitted by the
Plan, amend or adjust the terms and conditions of any outstanding Award and/or
adjust the number and/or class of shares of Common Stock subject to any
outstanding Award; (xi) in accordance with the Plan, establish and administer
any performance goals in connection with any Awards, including the Performance
Criteria to which such performance goals relate and the applicable measurement
periods, and certify whether, and to what extent, any such performance goals
have been met; (xii) at any time and from time to time after the granting of an
Award, specify such additional terms, conditions and restrictions with respect
to any ISO, Option other than an ISO, SAR, Other Stock-Based Award, Restricted
Stock and/or bonuses or other compensation payable in Common Stock as may be
deemed necessary or appropriate to ensure compliance with any and all
applicable laws, including, but not limited to, (A) terms, restrictions and
conditions for compliance with Federal and state securities laws, (B) methods
of withholding or providing for the payment of required taxes and (C)
restrictions regarding a Participant's ability to exercise Awards under a
"cashless exercise" program established by the Committee; and (xiii) take any
and all such other action it deems necessary or advisable for the proper
operation and/or administration of the Plan. The Committee shall have full
discretionary authority in all matters related to the discharge of its
responsibilities and the exercise of its authority under the Plan. Decisions
and actions by the Committee with respect to the Plan and any Agreement shall
be final, conclusive and binding on all persons having or claiming to have any
right or interest in or under the Plan and/or any Agreement. Awards, including
Awards under the same section of the Plan, need not be uniform as to all grants
and recipients thereof.
(d) Each Award shall be evidenced by an Agreement, which shall be
executed by the Company and the Participant to whom such Award has been
granted, unless the Agreement provides otherwise; however, two or more Awards
to a single Participant may be combined in a single Agreement. An Agreement
shall not be a precondition to the granting of an Award; however, no person
shall have any rights under any Award unless and until the Participant to whom
the Award shall have been granted (i) shall
4
<PAGE> 5
have executed and delivered to the Company an Agreement or other instrument
evidencing the Award, unless such Agreement provides otherwise, and (ii) has
otherwise complied with the applicable terms and conditions of the Award. The
Committee shall prescribe the form of all Agreements, and, subject to the terms
and conditions of the Plan, shall determine the content of all Agreements. Any
Agreement may be supplemented or amended in writing from time to time as
approved by the Committee; provided that the terms and conditions of any such
Agreement as supplemented or amended are not inconsistent with the provisions
of the Plan.
(e) A majority of the members of the entire Committee shall constitute
a quorum and the actions of a majority of the members of the Committee in
attendance at a meeting at which a quorum is present, or actions by a written
instrument signed by all members of the Committee, shall be the actions of the
Committee.
(f) The Committee may, in its discretion, delegate to the CEO, any
Senior Vice President of the Company or the Secretary of the Company the
"administration" of the Plan under this Section 3; provided, however, that no
such delegation by the Committee shall be made if such delegation would not be
permitted under applicable law or with respect to the administration of the
Plan as it affects the CEO or the President or Secretary of the Company or any
Senior Vice President of the Company, and, provided further, however, the
Committee may not delegate its authority to grant awards or correct errors,
omissions or inconsistencies in the Plan. All authority delegated by the
Committee under this paragraph (f) of this Section 3 shall be exercised in
accordance with the terms and conditions of the Plan and any rules, regulations
or administrative guidelines that may from time to time be established by the
Committee, and any delegee of such authority shall periodically report to the
Committee concerning the performance or discharge of the matters delegated to
such individual.
4. Shares of Stock Subject to the Plan. (a) The shares of stock subject
to Awards granted under the Plan shall be shares of Common Stock. Such shares
of Common Stock subject to the Plan may be either authorized and unissued
shares (which will not be subject to preemptive rights) or previously issued
shares acquired by the Company or any Subsidiary. The total number of shares
of Common Stock that may be delivered pursuant to any Awards under the Plan is
3,000,000 plus an additional number of shares on January 1 of each calendar
year (beginning with calendar year 1997) during the duration of the Plan equal
to the Additional Annual Increment, of which 600,000 shares of Common Stock
plus an additional amount of shares of Common Stock each calendar year equal to
twenty percent of the Additional Annual Increment with respect to such year may
be awarded as Restricted Stock and no more than 7,500,000 shares of Common
Stock may be awarded in the aggregate with respect to ISOs for the duration of
the Plan. The exercise of a SAR, whether paid in cash or Common Stock, shall
be deemed to be an issuance of Common Stock for purposes of determining the
number of shares delivered under the Plan.
(b) Notwithstanding any of the foregoing limitations set forth in this
Section 4, the numbers of shares of Common Stock specified in this Section 4
shall be adjusted as provided in Section 15.
(c) Any shares of Common Stock subject to an Option or SAR or Other
Stock-Based Award which for any reason expires or is terminated without having
been fully exercised and any Restricted Stock which is forfeited may again be
granted pursuant to an Award under the Plan, subject to the limitations of this
Section 4; provided, however, that forfeited shares of Common Stock shall not
be available for further Awards if the recipient thereof has realized any
benefits of ownership from such shares.
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<PAGE> 6
5. Eligibility. Employees of the Company and its Subsidiaries (but
excluding members of the Committee as well as non-employee directors) shall be
eligible to become Participants and receive Awards under the Plan.
6. Terms and Conditions of Stock Options. All Options to purchase Common
Stock granted under the Plan shall be either ISOs or Options other than ISOs.
Each Option shall be subject to all the applicable provisions of the Plan,
including the following terms and conditions, and to such other terms and
conditions not inconsistent therewith as the Committee shall determine and
which are set forth in the applicable Agreement.
(a) The option exercise price per share of shares of Common Stock
subject to each Option shall be determined by the Committee and stated in the
Agreement; provided, however, that, subject to paragraph (g)(C) of this Section
6, such price shall not be less than 100% of the Fair Market Value of a share
of Common Stock at the time that the Option is granted.
(b) Each Option shall be exercisable in whole or in such installments,
at such times and under such conditions as may be determined by the Committee
in its discretion and stated in the Agreement, and, in any event, over a period
of time ending not later than ten years from the date such Option was granted,
subject to paragraph (g)(C) of this Section 6.
(c) An Option shall not be exercisable with respect to a fractional
share of Common Stock or the lesser of fifty shares or the full number of
shares of Common Stock then subject to the Option. No fractional shares of
Common Stock shall be issued upon the exercise of an Option.
(d) Each Option may be exercised by giving Notice to the Company
specifying the number of shares of Common Stock to be purchased, which shall be
accompanied by payment in full including applicable taxes, if any, in
accordance with Section 14. Payment shall be in any manner permitted by
applicable law and prescribed by the Committee, in its discretion, and set
forth in the Agreement, including, in the Committee's discretion, payment in
accordance with a "cashless exercise" program established by the Committee.
(e) No Optionee or other person shall become the beneficial owner of
any shares of Common Stock subject to an Option, nor have any rights to
dividends or other rights of a shareholder with respect to any such shares
until he or she has exercised his or her Option in accordance with the
provisions of the Plan and the applicable Agreement.
(f) An Option may be exercised only if at all times during the period
beginning with the date of the granting of the Option and ending on the date of
such exercise, the Optionee was an employee of either the Company or of a
Subsidiary or of another corporation referred to in Section 421(a)(2) of the
Code. Notwithstanding the above, the Committee may determine in its discretion
that an Option may be exercised following termination of such continuous
employment, whether or not exercisable at such time, to the extent provided in
the applicable Agreement.
(g)(A) Each Agreement relating to an Option shall state whether such
Option will or will not be treated as an ISO. No ISO shall be granted unless
such Option, when granted, qualifies as an "incentive stock option" under
Section 422 of the Code. Any ISO granted under the Plan shall contain such
terms and conditions, consistent with the Plan, as the Committee may determine
to be
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<PAGE> 7
necessary to qualify such Option as an "incentive stock option" under Section
422 of the Code. Any ISO granted under the Plan may be modified by the
Committee to disqualify such Option from treatment as an "incentive stock
option" under Section 422 of the Code.
(B) Notwithstanding any intent to grant ISOs, an Option granted under
the Plan will not be considered an ISO to the extent that it, together with any
other "incentive stock options" (within the meaning of Section 422 of the Code,
but without regard to subsection (d) of such Section) under the Plan or any
other incentive stock option plans of the Company and any Subsidiary, are
exercisable for the first time by any Optionee during any calendar year with
respect to Common Stock having an aggregate Fair Market Value in excess of
$100,000 (or such other limit as may be required by the Code) as of the time
the Option with respect to such Common Stock is granted. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted.
(C) No ISO shall be granted to a Participant who owns (within the
meaning of Section 424(d) of the Code), at the time the Option is granted, more
than 10% of the total combined voting power of all classes of stock of the
Company or a Subsidiary. This restriction does not apply if at the time such
ISO is granted the Option exercise price per share of Common Stock subject to
the Option is at least 110% of the Fair Market Value of a share of Common Stock
on the date such ISO is granted, and the ISO by its terms is not exercisable
after the expiration of five years from such date of grant.
(h) Notwithstanding any other provision contained in the Plan to the
contrary, the maximum number of shares of Common Stock which may be subject to
Options granted under the Plan to any Participant in any twelve-month period
shall not exceed the Award Limit. To the extent required by Section 162(m) of
the Code, shares of Common Stock subject to Options which are cancelled shall
continue to be counted against the Award Limit and if, after the grant of an
Option, the price of shares subject to such Option is reduced and the
transaction is treated as a cancellation of the Option and a grant of a new
Option, both the Option deemed to be canceled and the Option deemed to be
granted shall be counted against the Award Limit.
7. Terms and Conditions of SARs. Any SAR granted by the Committee under
the Plan shall be granted in conjunction with all or part of an Option granted
under the Plan. Each SAR shall be subject to all the applicable provisions of
the Plan, including the following terms and conditions, and to such other terms
and conditions not inconsistent therewith as the Committee shall determine and
which are set forth in the applicable Agreement.
(a) The Committee may grant a SAR with respect to an Option which is
not an ISO, either at the time such Option is granted or at any subsequent time
during the term of such Option, or with respect to an ISO, only at the time
such ISO is granted. A SAR shall entitle the grantee thereof to elect, in the
manner described below and as set forth in the applicable Agreement, in lieu of
exercising his or her related Option, for all or a portion of the shares of
Common Stock covered by such Option, to surrender such Option with respect to
any or all of such shares and to receive from the Company a payment, such
payment shall have a value equal to the amount by which (A) the Fair Market
Value of a share of Common Stock on the date of such election, multiplied by
the number of shares of Common Stock as to which the grantee shall have made
such election, exceeds (B) the exercise price stated in such Option multiplied
by such number of shares. A SAR shall be
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<PAGE> 8
exercisable only to the extent and at the time the related Option is
exercisable. The SAR shall terminate and shall no longer be exercisable upon
the expiration or exercise of the related Option. An Option with respect to
which an Optionee has elected to exercise a SAR, as described above, shall, to
the extent of the shares covered by such exercise, be canceled automatically
and surrendered to the Company. Such Option shall thereafter remain
exercisable according to its terms only with respect to the number of shares of
Common Stock as to which it would otherwise be exercisable, less the number of
such shares with respect to which such SAR has been so-exercised.
(b) The Company may, in the discretion of the Committee, as set forth
in the Agreement, make payment on a properly exercised SAR; (i) in cash equal
to the excess of the amount described in clause (A) over the amount described
in clause (B) of paragraph 7(a) above; or (ii) in the nearest whole number of
shares of Common Stock having an aggregate Fair Market Value on the date of
exercise of the SAR which is not greater than the cash amount calculated in
clause 7(b)(i) above; or (iii) in a combination of the manners described in
clauses 7(b)(i) and (ii) above.
(c) An election to exercise SARs shall be deemed to have been made on
the date of Notice of such election to the Company.
(d) Notwithstanding any other provision contained in the Plan to the
contrary, the maximum number of shares of Common Stock for which SARs may be
granted under the Plan to any Participant in any twelve-month period shall not
exceed the Award Limit. To the extent required by Section 162(m) of the Code,
shares of Common Stock subject to SARs which are cancelled continue to be
counted against the Award Limit and if, after the grant of a SAR, the price of
shares subject to such SAR is reduced and the transaction is treated as a
cancellation of the SAR and a grant of a new SAR, both the SAR deemed to be
canceled and the SAR deemed to be granted shall be counted against the Award
Limit.
8. Terms and Conditions of Restricted Stock Awards. All awards of
Restricted Stock under the Plan shall be subject to all the applicable
provisions of the Plan, including the following terms and conditions, and to
such other terms and conditions not inconsistent therewith, as the Committee
shall determine and which are set forth in the applicable Agreement.
(a) Awards of Restricted Stock may be in addition to or in lieu of any
other types of Awards granted under the Plan.
(b)(i) During the Restriction Period stated in the Agreement, the
recipient shall not be permitted to sell, transfer, pledge, assign, encumber or
otherwise dispose of the shares of Restricted Stock. Any attempt by such
recipient to do so shall constitute the immediate and automatic forfeiture of
such Award.
(ii) An award of Restricted Stock with a Restriction Period based upon
the attainment of particular performance goals established by the Committee,
which performance goals are determined over a measurement period or periods
established by the Committee and relate to one or more Performance Criteria, as
determined by the Committee, in its discretion, is intended to qualify as
"other performance-based compensation," as used in Code Section 162(m)(4)(c).
The maximum number of shares of Restricted Stock intended to qualify as "other
performance-based
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<PAGE> 9
compensation," as used in Code Section 162(m)(4)(C), that may be awarded to a
Participant in any twelve-month period shall not exceed the Award Limit.
(c) Except as otherwise provided in this paragraph (c) of Section 8,
shares of Restricted Stock shall be forfeited and revert to the Company upon
termination for any reason of the recipient's employment with the Company or a
Subsidiary and/or the failure to meet any performance goals to the extent set
forth in the Agreement. Notwithstanding the foregoing, upon any such
termination of employment during the Restriction Period, shares of Restricted
Stock shall become free of all or part of the restrictions applicable thereto
to the extent that: the Agreement, as determined by the Committee in its
discretion on the award date, provides for lapse of such restrictions upon such
termination of employment or the Committee in its discretion determines to
waive forfeiture of such shares of Restricted Stock for whatever reason the
Committee considers to be in the interests of the Company; provided, however,
to the extent that subparagraph (b)(ii) of this Section 8 is intended to apply
to shares of Restricted Stock, in no event shall restrictions applicable
thereto be subject to lapse prior to the end of the Restriction Period for any
reason other than the death or disability of the recipient or change of control
or ownership of the Company.
(d) Each recipient of shares of Restricted Stock hereunder may, but
need not, be issued one or more stock certificates in respect of such shares of
Restricted Stock. Any such stock certificates for shares of Restricted Stock
shall be registered in the name of the recipient but shall either be
appropriately legended and returned to the Company by the recipient, together
with a stock power, endorsed in blank by the recipient, or delivered to and
held by the Secretary of the Company.
(e) The recipient of shares of Restricted Stock shall be entitled to
vote shares of Restricted Stock, and shall be entitled to all dividends paid
thereon, except that dividends paid in Common Stock or other property shall be
subject to the same restrictions. To the extent that the Committee so
determines, and sets forth in the Agreement, in the event of any adjustment as
provided in Section 15, any new or additional shares or securities received by
a recipient of Restricted Stock shall be subject to the same terms and
conditions as relate to the original shares of Restricted Stock.
(f) Restricted Stock shall become free of the foregoing restrictions
upon the expiration of the applicable Restriction Period and the Company shall,
subject to paragraph (c) of Section 15, then deliver Common Stock certificates
evidencing such stock to the Participant.
9. Terms and Conditions of Other Stock-Based Awards. The Committee
may grant to Participants Awards under the Plan that are valued in whole or in
part by reference to, or otherwise based on Common Stock ("Other Stock-Based
Awards"). The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient or each Award. The Committee, in its discretion, may
grant Other Stock-Based Awards as it deems appropriate, including, by way of
example and not in limitation, (i) to take advantage of the compensation
practices or tax laws or accounting rules applicable at the time of grant of
such an Award, even if such practices, laws and/or rules are different from
those in effect on the effective date of the Plan, (ii) to reflect the financial
situation of the Company from time to time or (iii) to conform to and comply
with tax, securities or other law or regulations in jurisdictions outside the
United States. Other Stock-Based Awards shall take such form as the Committee,
in its discretion, from time to time, determines, including, by way of example,
and not in limitation, deferred stock, performance shares, performance units and
convertible debentures. All Other Stock-Based Awards under the Plan shall be
subject to all the applicable provisions of the Plan, including the following
terms and conditions, and to such other terms,
9
<PAGE> 10
conditions, restrictions and/or limitations, if any, not inconsistent with the
Plan, as the Committee shall determine, in its discretion, and which are set
forth in the applicable Agreement.
(a) Unless the Committee determines otherwise, the recipient of an
Other Stock-Based Award shall be entitled to receive Dividend Equivalents based
on the dividends declared with respect to the number of shares of Common Stock
covered by such Award during the period between the date such Award is granted
and the date such Award is exercised, vests or expires, as determined by the
Committee. Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Committee.
(b) An Other Stock-Based Award, and any Common Stock covered by such
Award, may be forfeited to the extent determined by the Committee, in its
discretion, and as provided in the Agreement.
(c) All Other Stock-Based Awards, and any Common Stock covered
thereby, shall be forfeited upon termination of the recipient's employment with
the Company or a Subsidiary. Notwithstanding the foregoing, if any such
recipient's employment is terminated for any reason specified by the Committee
in its discretion and set forth in the Agreement, any or all remaining
limitations, restrictions or requirements imposed pursuant to the Plan or in
the Agreement with respect to such recipient's Other Stock-Based Award shall be
waived; provided, however, that, in the case of any Other Stock-Based Award to
which paragraph (d) of this Section 10 applies, no such waiver shall be
available other than in the case of death or disability of the recipient or a
change of control or ownership of the Company. The Committee may, in its
discretion, otherwise modify or accelerate the exercisability or other terms
and conditions of any Other Stock-Based Award, to the extent that any such
modification or acceleration is (i) permitted under, and not inconsistent with,
the Plan and (ii) in the best interests of the Company and, provided, that,
paragraph (d) of this Section 10 is not applicable to such Other Stock-Based
Award.
(d) An Other Stock-Based Award based in whole or in part upon the
attainment of particular performance goals established by the Committee is
intended to qualify as "other performance-based compensation," as used in Code
Section 162(m)(4)(C). Such performance goals shall be determined over a
measurement period or periods established by the Committee and shall relate to
one or more Performance Criteria, as determined by the Committee, in its
discretion. The maximum number of shares of Common Stock that may be awarded
to a Participant subject to an Other Stock-Based Award in any twelve-month
period shall not exceed the Award Limit.
10. Bonuses or Other Compensation Payable in Stock. In lieu of cash
bonuses or other compensation otherwise payable under the Company's or
applicable Subsidiary's compensation practices to employees who are eligible to
participate in the Plan, the Committee, in its discretion, may determine that
such bonuses or other compensation shall be payable in Common Stock, or partly
in Common Stock and partly in cash. Such bonuses or other compensation shall be
in consideration of services previously performed and as an incentive toward
future services and shall consist of shares of Common Stock subject to such
terms as the Committee may determine in its discretion.
11. Forfeiture. Notwithstanding any other provisions of the Plan to
the contrary:
10
<PAGE> 11
(a) To the extent provided in the Agreement, if a Participant shall
exercise an Option or a SAR, or any portion thereof, and leave the employment of
the Company or a Subsidiary within six months after such exercise for any reason
other than death, permanent disability, retirement under a retirement plan of
the Company and/or a Subsidiary or termination of employment with the written
consent of the Company or such Subsidiary (as applicable), then any Award Gain
realized by such Participant as the result of such exercise shall be paid by
such Participant to the Company; provided, however, that no Award Gain otherwise
payable by a Participant to the Company with respect to the exercise of an
Option pursuant to this paragraph (a) of Section 11 shall be so payable to the
extent that the Fair Market Value of the Common Stock, as of the date such
Participant's employment by the Company or the Subsidiary terminates, is less
than the Option exercise price previously paid by such Participant and such
Participant has not, on or before such date, sold or otherwise disposed of the
Common Stock received upon the exercise of such Option.
(b) To the extent provided in the Agreement, if at any time prior to
the latest to occur of: (x) the termination or exercise of an Option or a SAR
or an Other Stock-Based Award or the expiration of the Restriction Period
applicable to Restricted Stock granted to a Participant, (y) three years after
a Participant leaves employment with the Company or a Subsidiary for any reason
other than death or permanent disability, or (z) three years after a
Participant exercises an Option or a SAR, or any portion thereof, such
Participant engages directly or indirectly in any manner or capacity in any
activity in competition with the business conducted by the Company or a
Subsidiary (as determined by the Committee in its discretion) or inimical,
contrary or harmful to the interests of the Company or a Subsidiary (as
determined by the Committee in its discretion) then (1) any Option, SAR or
Other Stock-Based Award granted to such Participant shall terminate upon the
date on which such Participant enters into such activity to the extent that
such Option, SAR or Other Stock-Based Award was not previously exercised or
terminated in accordance with the other provisions of the Plan or the Agreement
as of such date, (2) any Award Gain realized by such Participant as the result
of an exercise referred to in clause (z) above shall be paid by such
Participant to the Company, (3) any Restricted Stock awarded to such
Participant with respect to which the Restriction Period has not expired as of
such date shall be forfeited and revert to the Company and (4) any unpaid
Dividend Equivalents as of such date, shall be forfeited and shall not be paid
to such Participant.
(c) A Participant shall satisfy any obligation he or she owes to the
Company under the foregoing paragraphs (a) and (b) of this Section 11 promptly
after the accrual thereof by payment in cash to the Company; however, in lieu
thereof, the Company may elect to deduct the unpaid amount of any such
obligation owed by such Participant to the Company from any payment of any kind
otherwise due to such Participant, including, but not limited to, wages or
other compensation, fringe benefits or vacation pay.
(d) The Committee may release a Participant from any or all
obligations that he or she owes to the Company pursuant to this Section 11,
and/or waive, in whole or in part, the application of this Section 11 to a
Participant if the Committee determines, in its discretion, that such action is
in the best interests of the Company.
12. Transfer, Leave of Absence. For purposes of the Plan, a transfer of an
employee from the Company to a Subsidiary or an affiliate of the Company,
whether or not incorporated, or vice versa, or from one Subsidiary or affiliate
of the Company to another, and a leave of absence, duly authorized in writing
by the Company or a Subsidiary or affiliate of the Company, shall not be deemed
a termination of employment of the employee.
11
<PAGE> 12
13. Rights of Employees and Other Persons. (a) No person shall have any
rights or claims under the Plan except in accordance with the provisions of the
Plan and the applicable Agreement.
(b) Nothing contained in the Plan or in any Agreement shall be deemed
to give any employee the right to be retained in the service of the Company or
its Subsidiaries nor restrict in any way the right of the Company or any
Subsidiary to terminate any employee's employment at any time with or without
cause.
(c) The adoption of the Plan shall not be deemed to give any employee
of the Company or any Subsidiary or any other person any right to be selected
as a Participant or to be granted an Award.
(d) Nothing contained in the Plan or in any Agreement shall be deemed
to give any employee the right to receive any bonus, whether payable in cash or
in Common Stock, or in any combination thereof, from the Company, nor be
construed as limiting in any way the right of the Company to determine, in its
sole discretion, whether or not it shall pay any employee bonuses, and, if so
paid, the amount thereof and the manner of such payment.
14. Tax Withholding Obligations. (a) The Company and/or any Subsidiary are
authorized to take whatever actions are necessary and proper to satisfy all
obligations of Participants for the payment of all Federal, state, local and
foreign taxes in connection with any Awards (including, but not limited to,
actions pursuant to the following paragraphs (b) and (c) of this Section 14).
(b) If any Participant properly elects, within the period permitted
under Section 83 of the Code after the date on which property subject to an
Award is transferred to such Participant to include in gross income for Federal
income tax purposes an amount equal to the Fair Market Value (on the date of
transfer) of the Common Stock subject to such Award, such Participant shall
pay, or make arrangements satisfactory to the Company, as determined in the
Committee's discretion, to pay to the Company, at the time of such election,
any Federal, state or local taxes required to be withheld with respect to such
Award. If any such Participant shall fail to make such tax payments as are
required, the Company and its Subsidiaries shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to such Participant.
(c) Any Participant who does not or cannot make the election described
in paragraph (a) of this Section 14 with respect to an Award shall (and in no
event shall Common Stock be delivered to such Participant with respect to such
Award until), no later than the date as of which the value of the Award first
becomes includible in the gross income of the Participant for income tax
purposes, pay to the Company in cash, or make arrangements satisfactory to the
Company, as determined in the Committee's discretion, regarding payment to the
Company of, any taxes of any kind required by law to be withheld with respect
to the Common Stock or other property subject to such Award, and the Company
and any Subsidiary shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to such
Participant. Notwithstanding the above, the Committee may, in its discretion
and pursuant to procedures approved by the Committee, permit the Participant to
(i) elect withholding by the Company of Common Stock otherwise deliverable to
such Participant pursuant to such Award (provided, however, that the amount of
any Common Stock so withheld shall not exceed the minimum required withholding
obligation taking into account the Participant's effective tax rate and all
applicable Federal, state, local and foreign taxes) and/or (ii) tender to the
Company Common Stock owned by such Participant (or by such Participant and his
or her spouse jointly) and acquired more than six months prior to such tender
in full or partial satisfaction of such tax obligations.
12
<PAGE> 13
15. Changes in Capital. (a) Upon changes in the outstanding Common
Stock by reason of a stock dividend, stock split, reverse split, subdivision,
recapitalization, merger, consolidation (whether or not the Company is a
surviving corporation), an extraordinary dividend payable in cash or property,
combination or exchange of shares, separation, reorganization or liquidation,
the aggregate number and class of shares available under the Plan as to which
Awards may be granted, the number and class of shares under (i) each Option and
the option price per share, (ii) each SAR and the exercise price thereof, (iii)
each Other Stock-Based Award and the exercise price (or equivalent, if
applicable) thereof and (iv) each award of Restricted Stock shall, in each case,
be correspondingly adjusted by the Committee. Such adjustments shall be made in
the case of any outstanding Options and/or SARs without change in the total
price applicable to such Options and SARs.
(b) Except as otherwise specifically provided in the Agreement, in the
event (i) of the approval by the shareholders of the Company of a merger,
consolidation, combination, reorganization or other transaction resulting in
less than fifty percent of the combined voting power of the surviving or
resulting entity being owned by the former shareholders of the Company, the
liquidation or dissolution of the Company or the sale or other disposition of
all or substantially all of the assets or business of the Company; (ii) that an
offer is made to the holders of Common Stock to sell or exchange such Common
Stock for cash, securities or stock of another corporation and such offer, if
accepted, would result in the offeror becoming the owner of (A) at least fifty
percent of the then outstanding Common Stock or (B) such lesser percentage of
the outstanding Common Stock which the Committee in its discretion determines
may materially adversely affect the market value of the Common Stock after such
transaction; (iii) any person or group of persons (within the meaning of
Sections 13(d) and 14(d) of the Exchange Act) directly or indirectly purchases
or otherwise becomes the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) or has the right to acquire such beneficial ownership
(whether or not such right is exercisable immediately, with the passage of
time, or subject to any condition), other than from the Company, of twenty
percent or more of the combined voting power of the Company's then outstanding
securities; or (iv) during any period of two consecutive years individuals who
at the beginning of such period constituted the Board cease for any reason to
constitute at least a majority thereof, unless the election, or nomination for
the election by the shareholders of the Company, of each new director was
approved by at least two-thirds of the directors then still in office who were
directors at the beginning of the period (other than, in the case of clauses
(i), (ii) and (iii) above, a sale or other disposition to or for the benefit
of, or any beneficial ownership or offer by or on behalf of the Company or a
Subsidiary or any employee benefit plan (or related trust) of the Company or a
Subsidiary, or any group comprised solely of such entities): (1) all
restrictions on Restricted Stock previously awarded to Participants under the
Plan shall (unless the Committee determines otherwise) be immediately cancelled
and the Restriction Periods applicable thereto shall immediately terminate,
without regard to any contrary provisions contained in the Plan or the
applicable Agreements, and (2) the time of exercise of Options, SARs and/or
Other Stock-Based Awards which are outstanding shall (unless the Committee
determines otherwise) be accelerated so that such Awards become immediately
exercisable in full without regard to any limitations of time or amount
otherwise contained in the Plan or the applicable Agreements, and (3) all such
Awards shall (unless the Committee determines otherwise) immediately become
fully vested and nonforfeitable. Upon the occurrence of any event described in
the preceding sentence, the Committee may, in its discretion, determine (A)
that Options, SARs and/or Other Stock-Based Awards shall be adjusted and make
such adjustments by substituting for Common Stock subject to such Options, SARs
and/or Other Stock-Based Awards stock or other securities of any successor
corporation to the Company or that may be issuable by another corporation that
is a party to the transaction if such stock or other securities are publicly
traded, in which event the aggregate exercise price (as applicable) shall
remain the same and the amount of shares or other securities subject to option
or other
13
<PAGE> 14
rights under an Award shall be the amount of shares or other securities which
could have been purchased on the closing date or expiration date of such
transaction with the proceeds which would have been received by the Participant
if the Option, SAR and/or Other Stock-Based Award had been exercised in full
prior to such transaction or expiration date and the Participant exchanged all
of such shares in the transaction, (B) to cancel or waive any payment owed by,
or forfeiture imposed on a Participant pursuant to Section 11, and/or (C) that
any outstanding Options, SARs and/or Other Stock-Based Awards shall, in each
case, be converted into a right to receive in cash, as soon as practicable
following the closing date or expiration date of the transaction or offer, an
amount equal to the greater of (x) the highest value of the consideration to be
received in connection with such transaction for one share of Common Stock and
(y) the highest market trading price of a share of the Common Stock reported in
The Wall Street Journal during the 30 consecutive trading days prior to the
closing date or expiration date of such transaction, less, in the case of an
Award prescribing an exercise price, the per share exercise price of such
Award, multiplied by the number of shares of Common Stock subject to such
Award. No Participant shall have any right to prevent the consummation of any
of the foregoing acts affecting the number of shares available to such
Participant. Any actions or determinations of the Committee under this
paragraph (b) of Section 15 need not be uniform as to all outstanding Awards,
nor treat all Participants identically. Notwithstanding the foregoing
adjustments, in no event may any Option be exercised after ten years from the
date it was originally granted and any changes to ISOs shall, unless the
Committee determines otherwise, only be effective to the extent such
adjustments or changes do not cause a "modification" (within the meaning of
Section 424(h)(3) of the Code) of such ISOs or adversely affect the tax status
of such ISOs.
16. Miscellaneous Provisions. (a) The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the issuance of shares or the payment of
cash upon exercise or payment of any Award. Proceeds from the sale of shares
of Common Stock pursuant to Options granted under the Plan shall constitute
general funds of the Company. The expenses of the Plan shall be borne by the
Company.
(b) Except as otherwise provided in this paragraph (b) of Section 16,
an Award by its terms shall be personal and may not be sold, transferred,
pledged, assigned, encumbered or otherwise alienated or hypothecated otherwise
than by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of a Participant only by him or her. The
foregoing to the contrary notwithstanding, at the Committee's discretion, an
Agreement may permit the receipt or exercise of a Participant's Award (or any
portion thereof) after his or her death by the beneficiary most recently named
by such Participant in a written designation thereof filed with the Company,
or, in lieu of any such surviving beneficiary, by the legal representatives of
such Participant's estate and/or an Award other than an ISO to be transferred
by a Participant during his or her lifetime to such Participant's alternate
payee pursuant to a qualified domestic relations order, as defined by the Code
or Title I of the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations thereunder. In the event any Award is exercised
by the executors, administrators, heirs or distributees of the estate of a
deceased Participant, or such a Participant's beneficiary, pursuant to the
terms and conditions of the Plan and the applicable Agreement, the Company
shall be under no obligation to issue Common Stock thereunder unless and until
the Company is satisfied, as determined in the discretion of the Committee,
that the person or persons exercising such Award are the duly appointed legal
representative of the deceased Participant's estate or the proper legatees or
distributees thereof or the named beneficiary of such Participant. Further
notwithstanding the foregoing to the contrary, at the Committee's discretion,
an Agreement may permit the transfer of an Award other than an ISO by the
recipient thereof, subject to such terms, conditions and limitations prescribed
by the Committee, and the
14
<PAGE> 15
applicable transferee of such Award shall be treated under the Plan and the
applicable Agreement as the Participant for purposes of any exercise of such
Award.
(c) It is understood that the Committee may, at any time and from time
to time after the granting of an Award, specify such additional terms,
conditions and restrictions with respect to such Award as may be deemed
necessary or appropriate to ensure compliance with any and all applicable laws,
including, but not limited to, (i) terms, restrictions and conditions for
compliance with Federal and state securities laws, (ii) methods of withholding
or providing for the payment of required taxes and (iii) restrictions regarding
a Participant's ability to exercise Awards under a "cashless exercise" program
established by the Committee.
(d) If at any time the Committee shall determine, in its discretion,
that the listing, registration and/or qualification of shares of Common Stock
upon any national securities exchange or under any state or Federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
shares of Common Stock hereunder, no Option, SAR or Other Stock-Based Award may
be exercised or Restricted Stock or bonus or other compensation payable in
Common Stock may be transferred in whole or in part unless and until such
listing, registration, qualification, consent and/or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Committee.
(e) The Committee may require each person receiving Common Stock in
connection with any Award under the Plan to represent and agree with the
Company in writing that such person is acquiring the shares for investment
without a view to the distribution thereof.
(f) By accepting any benefit under the Plan, each Participant and each
person claiming under or through such Participant shall be conclusively deemed
to have indicated their acceptance and ratification of, and consent to, all of
the terms and conditions of the Plan and any action taken under the Plan by the
Committee, the Company or the Board.
(g) Except with respect to "incentive stock options" (as defined in
Section 422 of the Code) granted under the Predecessor Plans and outstanding on
the effective date of the Plan, subject to approval of the Plan by the
Company's shareholders, in accordance with Section 20, the provisions of the
Plan shall apply to and govern existing and subsequent awards under the
Predecessor Plans and, unless otherwise determined by the Committee, existing
and subsequent awards under the Predecessor Plans shall be deemed to be amended
to provide any additional rights applicable to Awards hereunder, subject to the
right of any affected participant in either of the Predecessor Plans to refuse
to consent to such amendment pursuant to the terms and conditions of the
applicable Predecessor Plan and the applicable option or award agreement
between the Company and such participant.
(h) Neither the adoption of the Plan nor anything contained herein
shall affect any other compensation or incentive plans or arrangements of the
Company or any Subsidiary (other than the Predecessor Plans, as provided in
paragraph (g) of this Section 16), or prevent or limit the right of the Company
or any Subsidiary to establish any other forms of incentives or compensation
for their employees or consultants or directors, or grant or assume options or
other rights otherwise than under the Plan.
(i) The Plan shall be governed by and construed in accordance with the
laws of the State of Delaware, except as superseded by applicable Federal law.
15
<PAGE> 16
17. Limits of Liability. (a) Any liability of the Company or a Subsidiary
to any Participant with respect to any Award shall be based solely upon
contractual obligations created by the Plan and the Agreement.
(b) Neither the Company nor a Subsidiary nor any member of the
Committee or the Board, nor any other person participating in any determination
of any question under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability, in the absence of bad faith,
to any party for any action taken or not taken in connection with the Plan,
except as may expressly be provided by statute.
18. Limitations Applicable to Certain Awards Subject to Section 16 and
Code Section 162(m). Unless stated otherwise in the Agreement, notwithstanding
any other provision of the Plan, any Award granted to an executive or officer
of the Company who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including Rule 16b-3 as it may be
amended from time to time) that are requirements for the application of such
exemptive rule, and the Plan shall be deemed amended to the extent necessary to
conform to such limitations. Furthermore, unless stated otherwise in the
Agreement, notwithstanding any other provision of the Plan, any Award granted
to an officer or executive of the Company intended to qualify as "other
performance-based compensation" as described in Section 162(m)(4)(C) of the
Code shall be subject to any additional limitations set forth in Section 162(m)
of the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for
qualification as "other performance- based compensation" as described in
Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the
extent necessary to conform to such requirements.
19. Amendments and Termination. The Board may, at any time and with or
without prior notice, amend, alter, suspend, or terminate the Plan; provided,
however, no amendment, alteration, suspension, or termination shall be made
which would impair the previously accrued rights of any holder of an Award
theretofore granted without his or her written consent or which, without first
obtaining approval of the stockholders of the Company (where such approval is
necessary to satisfy (i) the then-applicable requirements of Rule 16b-3, (ii)
any requirements under the Code relating to ISOs or for exemption from Section
162(m) of the Code, or (iii) applicable state law), would:
(a) except as is provided in Sections 4(a) and 15, increase the
maximum number of shares of Common Stock which may be sold or awarded under the
Plan;
(b) except as is provided in Section 15, decrease the minimum option
exercise price requirements of Section 6(a);
(c) change the class of persons eligible to receive Awards under the
Plan; or
(d) extend the duration of the Plan or the period during which
Options may be exercised under Section 6(b).
The Committee may amend the terms of any Award theretofore granted,
including any Agreement, retroactively or prospectively, but no such amendment
shall impair the previously accrued rights of any Participant without his or
her written consent. Notwithstanding the foregoing, the Board may amend the
Plan and the Committee may amend any Award, including any Agreement, either
retroactively or
16
<PAGE> 17
prospectively, and without the consent of the applicable Participant, so as to
preserve or come within any exemptions from liability under Section 16(b) of
the Exchange Act, pursuant to the rules and releases promulgated by the SEC
(including Rule 16b-3) and/or so that any Award granted to an officer or
executive of the Company shall qualify as "other performance-based
compensation" as described in Section 162(m)(4)(C) of the Code.
20. Duration. The Plan shall become effective as of the date on which it
is approved by the holders of a majority of the Company's outstanding Common
Stock which is present and voted at a meeting, which approval must occur within
the period ending twelve months after the date the Plan is adopted by the
Board. The Plan shall terminate upon the earliest to occur of (a) the
effective date of a resolution adopted by the Board terminating the Plan or (b)
ten years from the date the Plan is approved by the Company's shareholders. No
Award may be granted under the Plan after the earliest of (a) and (b) of this
Section 20 to occur; however, Awards theretofore granted may extend beyond such
date.
No such termination of the Plan shall affect the rights of any
Participant hereunder and all Awards previously granted hereunder shall
continue in force and in operation after the termination of the Plan, except as
they may be otherwise terminated in accordance with the terms of the Plan or
the Agreement.
17
<PAGE> 1
Exhibit 11
NEWMONT MINING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
PRIMARY EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
INCOME DATA:
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
========= ======== ========
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 99,043 86,876 85,948
Equivalent common shares
from stock options 314 130 199
--------- -------- --------
Common and common
equivalent shares 99,357 87,006 86,147
========= ======== =======
EARNINGS PER COMMON SHARE:
Net income per common and
common equivalent
shares $ 0.86 $ 1.17 $ 0.70
========= ======== =======
</TABLE>
Page 1 of 2
<PAGE> 2
Exhibit 11
NEWMONT MINING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
FULLY DILUTED EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INCOME DATA:
Net income applicable to
common shares $ 85,076 $112,634 $ 76,121
======== ======== ========
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 99,043 86,876 85,948
Equivalent common shares
from stock options 314 267 199
Equivalent common shares
from conversion of
preferred stock - 5,583 7,899
-------- -------- --------
Common and common
equivalent shares 99,357 92,726 94,046
======== ======== ========
EARNINGS PER COMMON SHARE:
Net income per common
and common equivalent
shares $ 0.86 $ 1.21 $ 0.81
======== ======== ========
</TABLE>
Page 2 of 2
<PAGE> 1
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands except ratios)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and
cumulative effect of changes
in accounting principles $ 65,676 $129,626 $ 46,787 $113,234 $ 93,399
Adjustments:
Net interest expense (1) 43,987 36,415 9,823 12,393 14,555
Amortization of capitalized
interest 2,070 2,305 1,928 1,814 1,410
Portion of rental expense
representative of interest 2,198 1,604 825 800 1,088
Minority interest of majority-
owned subsidiaries that have
fixed charges 8,896 12,238 7,273 11,113 7,580
Undistributed income of less-
than-50%-owned entities (13,134) (3,603) (16,089) (3,526) -
-------- -------- -------- -------- --------
$109,693 $178,585 $ 50,547 $135,828 $118,032
======== ======== ======== ======== ========
Fixed Charges:
Net interest expense (1) $ 43,987 $ 36,415 $ 9,823 $ 12,393 $ 14,555
Capitalized interest 5,366 11,558 19,618 8,480 2,405
Portion of rental expense
representative of interest 2,198 1.604 825 800 1,088
-------- -------- -------- -------- --------
$ 51,551 $ 49,577 $ 30,266 $ 21,673 $ 18,048
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.1 3.6 1.7 6.3 6.5
=== === === === ====
</TABLE>
(1) Includes interest expense of majority-owned subsidiaries and
amortization of debt issuance costs.
Page 1 of 1
<PAGE> 1
EXHIBIT 23
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 Gold Company's previously filed S-8 Registration Statement
No. 333-10765, S-3 Registration Statement No. 33-54245 and S-8 Registration
Statement No. 33-62471.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Denver, Colorado
March 19, 1997.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy J. Schmitt his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, in
his name and on his behalf, to do any and all acts and things and to execute any
and all instruments which he may deem necessary or advisable to enable Newmont
Mining Corporation to comply with the Securities Exchange Act of 1934, as
amended (the "Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, including power and
authority to sign his name in any and all capacities (including his capacity as
a Director and/or Officer of Newmont Mining Corporation) to the Annual Report on
form 10-K of Newmont Mining Corporation for the fiscal year ended December 31,
1996 and the undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as of
the 19th day of March, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RUDOLPH I. J. AGNEW Director
- -----------------------------------------------------
Rudolph I. J. Agnew
/s/ J.P. BOLDUC Director
- -----------------------------------------------------
J.P. Bolduc
/s/ RONALD C. CAMBRE Chairman, President and Chief Executive
- ----------------------------------------------------- Officer and Director (Principal Executive
Ronald C. Cambre Officer)
/s/ JOSEPH P. FLANNERY Director
- -----------------------------------------------------
Joseph P. Flannery
/s/ LEO I. HIGDON, JR. Director
- -----------------------------------------------------
Leo I. Higdon, Jr.
/s/ THOMAS A. HOLMES Director
- -----------------------------------------------------
Thomas A. Holmes
/s/ MOEEN A. QURESHI Director
- -----------------------------------------------------
Moeen A. Qureshi
/s/ MICHAEL K. REILLY Director
- -----------------------------------------------------
Michael K. Reilly
/s/ WILLIAM I. M. TURNER, JR. Director
- -----------------------------------------------------
William I. M. Turner, Jr.
/s/ WAYNE W. MURDY Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial Officer)
Wayne W. Murdy
/s/ GARY E. FARMAR Vice President and Controller (Principal
- ----------------------------------------------------- Accounting Officer)
Gary E. Farmar
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 185,681
<SECURITIES> 12,724
<RECEIVABLES> 28,692
<ALLOWANCES> 0
<INVENTORY> 188,345
<CURRENT-ASSETS> 455,882
<PP&E> 2,049,272
<DEPRECIATION> 747,320
<TOTAL-ASSETS> 2,081,074
<CURRENT-LIABILITIES> 224,094
<BONDS> 585,009
0
0
<COMMON> 424,538
<OTHER-SE> 707,517
<TOTAL-LIABILITY-AND-EQUITY> 2,081,074
<SALES> 768,455
<TOTAL-REVENUES> 794,926
<CGS> 476,090
<TOTAL-COSTS> 600,931
<OTHER-EXPENSES> 120,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,987
<INCOME-PRETAX> 74,572
<INCOME-TAX> 19,400
<INCOME-CONTINUING> 93,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,972
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
