<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
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)
Delaware 13-2526632
- ------------------------------ ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
1700 Lincoln Street, Denver, Colorado 80203
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
303-863-7414
----------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
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. [X] Yes [ ] No
There were 156,471,540 shares of common stock outstanding on November 12, 1997.
Exhibit index is on page 33.
There are 36 pages included in this report.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Statements of Consolidated Income
(In thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Sales and other income
Sales $ 383,832 $ 302,164
Dividends, interest and other 10,869 6,018
--------- ---------
394,701 308,182
--------- ---------
Costs and expenses
Costs applicable to sales 181,300 175,657
Depreciation, depletion and amortization 70,346 52,641
Exploration and research 19,923 23,029
General and administrative 16,188 17,538
Interest, net of capitalized interest
of $4,225 in 1997 and $3,841 in 1996 19,029 15,934
Other 4,377 1,742
--------- ---------
311,163 286,541
--------- ---------
Income before equity income (loss)
and income taxes 83,538 21,641
Equity in income (loss) of affiliated
companies (1,873) 13,009
--------- ---------
Pre-tax income 81,665 34,650
Income tax (expense) benefit (16,290) 5,476
Minority interest in income of subsidiaries (22,233) (2,509)
--------- ---------
Net income $ 43,142 $ 37,617
========= =========
Net income per common share $ 0.28 $ 0.24
========= =========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 156,454 156,323
========= =========
Cash dividends declared per Newmont Mining
Corporation common share $ 0.12 $ 0.12
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 3
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Statements of Consolidated Income
(In thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Sales and other income
Sales $1,160,646 $ 800,212
Dividends, interest and other 50,820 22,089
---------- ----------
1,211,466 822,301
---------- ----------
Costs and expenses
Costs applicable to sales 577,047 472,958
Depreciation, depletion and amortization 196,976 149,242
Exploration and research 68,319 59,607
General and administrative 50,546 50,350
Interest, net of capitalized interest
of $10,205 in 1997 and $12,897 in 1996 57,970 42,280
Merger and related asset write-offs 157,675 --
Other 12,507 8,795
---------- ----------
1,121,040 783,232
---------- ----------
Income before equity income (loss)
and income taxes 90,426 39,069
Equity in income (loss) of affiliated
companies (6,347) 35,586
---------- ----------
Pre-tax income 84,079 74,655
Income tax (expense) benefit (914) 7,537
Minority interest in income of
subsidiaries (53,418) (5,140)
---------- ----------
Net income $ 29,747 $ 77,052
========== ==========
Net income per common share $ 0.19 $ 0.49
========== ==========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 156,322 155,789
========== ==========
Cash dividends declared per Newmont
Mining Corporation common share $ 0.36 $ 0.36
========== ==========
Cash dividend declared per Santa Fe Pacific
Gold Corporation common share $ -- $ 0.05
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 108,171 $ 227,053
Short-term investments 13,635 12,724
Accounts receivable 45,943 29,663
Inventories 409,424 279,315
Other current assets 88,523 52,233
------------ ------------
Current assets 665,696 600,988
Property, plant and mine
development, net 2,564,728 2,391,872
Other long-term assets 281,362 289,270
------------ ------------
Total assets $ 3,511,786 $ 3,282,130
============ ============
Liabilities
Short-term debt $ 24,547 $ 45,981
Current portion of long-term debt 36,507 19,250
Accounts payable 64,723 72,135
Purchase price payable for Minera
Yanacocha 59,100 --
Other accrued liabilities 158,264 140,893
------------ ------------
Current liabilities 343,141 278,259
Long-term debt 1,152,249 1,039,875
Reclamation and remediation
liabilities 80,049 71,702
Deferred tax liability 52,133 91,508
Other long-term liabilities 157,958 133,825
------------ ------------
Total liabilities 1,785,530 1,615,169
------------ ------------
Minority interest 169,973 104,209
------------ ------------
Contingencies (Note 8)
Stockholders' Equity
Common stock 250,276 249,648
Capital in excess of par value 814,376 803,331
Retained earnings 491,631 509,773
------------ ------------
Total stockholders' equity 1,556,283 1,562,752
------------ ------------
Total liabilities and
stockholders' equity $ 3,511,786 $ 3,282,130
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Statements of Consolidated Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 29,747 $ 77,052
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 196,976 149,242
Deferred prestripping 54,590 --
Merger related asset write-offs 24,749 --
Deferred taxes (49,411) 1,819
Minority interest, net of dividends 9,471 2,334
Increase in operating assets:
Accounts receivable (16,443) (12,788)
Inventories (146,149) (72,255)
Other assets (1,274) (17,527)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (9,542) 4,584
Other liabilities 19,878 2,366
Other operating 4,172 (2,835)
---------- ----------
Net cash provided by operating activities 116,764 131,992
---------- ----------
Investing activities:
Cash acquired in Minera Yanacocha transaction 40,705 --
Additions to property, plant and mine
development (300,267) (420,589)
Advances to joint venture and affiliates (5,688) (7,944)
Other 291 61
---------- ----------
Net cash used in investing activities (264,959) (428,472)
---------- ----------
Financing activities:
Proceeds from short-term borrowings 6,406 13,375
Repayments of short-term borrowings (27,840) --
Proceeds from long-term borrowings 747,000 195,000
Repayments of long-term borrowings (655,541) (4,375)
Proceeds from issuance of common stock 11,556 266,980
Dividends paid on common stock (49,842) (43,303)
Other (2,426) (310)
---------- ----------
Net cash provided by financing activities 29,313 427,367
---------- ----------
Net (decrease) increase in cash and cash
equivalents (118,882) 130,887
Cash and cash equivalents at beginning
of period 227,053 94,994
---------- ----------
Cash and cash equivalents at end of period $ 108,171 $ 225,881
========== ==========
Supplemental information:
Interest paid, net of amounts capitalized
of $10,205 in 1997 and $12,897 in 1996 $ 66,705 $ 44,884
Income taxes paid $ 44,219 $ 3,000
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Preparation of Financial Statements
These unaudited interim consolidated financial statements of Newmont
Mining Corporation ("NMC") and its subsidiaries (collectively, the
"Corporation") have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission. Such rules and regulations allow the
omission of certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles as long as the statements are not misleading. As further discussed in
Note 2, the consolidated financial statements for periods prior to the merger
with Santa Fe Pacific Gold Corporation ("Santa Fe") have been restated to
reflect the merger as a pooling of interests.
In the opinion of management, these financial statements reflect all
adjustments which are necessary for a fair statement of the results for the
periods presented. All adjustments, other than those described in Note 2, were
of a normal recurring nature. These interim financial statements should be read
in conjunction with the financial statements of the Corporation restated to give
effect to the merger with Santa Fe included on Form 8-K, filed November 12,
1997.
NMC owns approximately 93.75% of the common stock of Newmont Gold
Company ("NGC"). All of NMC's operations are conducted through NGC.
In addition to adjustments made to conform the accounting policies of
the Corporation and Santa Fe as discussed in Note 2, certain prior year amounts
have been reclassified to conform to the current year presentation.
(2) Merger with Santa Fe Pacific Gold Corporation
On May 5, 1997, the merger between Santa Fe and a wholly-owned
subsidiary of NMC was completed, in which the outstanding shares of common stock
of Santa Fe were converted into approximately 56.5 million shares of NMC common
stock. NMC also reserved approximately 566,000 shares of its common stock for
issuance in connection with outstanding Santa Fe stock options that were assumed
by NMC in the merger. The merger qualified as a tax-free reorganization and was
accounted for as a pooling of interests. In conjunction with the merger, NGC
issued shares of common stock to NMC equal to the number of shares of NMC common
stock issued in the merger in exchange for all the outstanding shares of Santa
Fe. As a result, Santa Fe became a wholly-owned subsidiary of NGC. In addition,
NGC issued options to NMC to acquire additional shares of NGC common stock
having the same terms as the Santa Fe stock options assumed by NMC in the
merger. NMC's consolidated financial statements have been restated for all
periods prior to the merger to include the operations of Santa Fe, adjusted to
conform with NMC's accounting policies and presentation.
Both the Corporation and Santa Fe are engaged in the mining and
processing of gold ores and exploration and development of gold properties.
Separate pre-merger sales and net income of the Corporation and Santa Fe,
6
<PAGE> 7
through the date of the merger, merger adjustments and post-merger sales and net
income were as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
-------------- -------------
(In thousands)
<S> <C> <C>
Sales
Pre-Merger
Corporation $ -- $ 226,038
Santa Fe -- 76,126
Merger adjustments -- --
Post-merger 383,832 --
------------ ------------
Total $ 383,832 $ 302,164
============ ============
Net Income (loss)
Pre-Merger
Corporation $ -- $ 35,398
Santa Fe -- 3,502
Merger adjustments -- (1,283)
Post-merger 43,142 --
------------ ------------
Total $ 43,142 $ 37,617
============ ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ -------------
(In thousands)
<S> <C> <C>
Sales
Pre-Merger
Corporation $ 357,316 $ 561,959
Santa Fe 130,540 238,253
Merger adjustments -- --
Post-merger 672,790 --
------------ ------------
Total $ 1,160,646 $ 800,212
============ ============
Net Income
Pre-Merger
Corporation $ 31,608 $ 65,598
Santa Fe 31,702 15,574
Merger adjustments (105,374) (4,120)
Post-merger 71,811 --
------------ ------------
Total $ 29,747 $ 77,052
============ ============
</TABLE>
Merger adjustments reflect conforming accounting policy changes,
transaction fees, other one-time expenses associated with the merger and the tax
effect of such adjustments and the accounting for the minority interest in
income of NGC. Accounting policy changes were primarily related to the
accounting treatment for deferred mining costs. Santa Fe included certain
depreciation, depletion and amortization charges in deferred mining costs. To
the extent Santa Fe capitalized depreciation, depletion and amortization charges
as deferred mining costs or as inventory, restatement adjustments have been made
to reflect these charges against earnings in the appropriate period. In
addition, ore and in-process inventories were not maintained on the same basis
as NMC, which resulted in certain balance sheet reclassifications.
Merger expenses of $157.7 million ($109.2 million net of minority
interest and tax) consisted of $133.0 million of transaction costs and $24.7
million in asset write-
7
<PAGE> 8
downs. The transaction costs included a $65.2 million fee paid to Homestake
Mining Company to terminate a definitive merger agreement between Santa Fe and
Homestake Mining Company, investment advisory fees of $20.3 million, employee
benefit and severance costs of $18.0 million and professional fees of $16.7
million. With the exception of approximately $5.0 million, all merger expenses
had been disbursed as of September 30, 1997. The asset write-offs related to
certain Santa Fe assets that did not meet NMC's valuation criteria included a
write-down of the Elkhorn, Montana project and the write-off of duplicative
facilities, equipment and information systems costs.
(3) Inventories
<TABLE>
<CAPTION>
At September 30, At December 31,
1997 1996
---------------- ---------------
(In thousands)
<S> <C> <C>
Current:
Ore and in-process inventories $ 227,918 $ 161,806
Precious metals 93,318 35,259
Materials and supplies 86,206 80,544
Other 1,982 1,706
------------ ------------
$ 409,424 $ 279,315
============ ============
Non-current:
Ore in stockpiles (included
in other long-term assets) $ 112,990 $ 85,652
============ ============
</TABLE>
(4) Acquisition of 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"), and in September
1994, BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha, S.A. ("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 $59.1 million for its additional interest, together
with the additional shares, with a Peruvian bank pending the final resolution of
the case. NGC borrowed the $59.1 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 sheets. In September 1996, the trial court
determined 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. 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
8
<PAGE> 9
trial court. Therefore, as of February 1, 1997, the Corporation has consolidated
Minera Yanacocha in its financial statements to reflect the increase in its
ownership from 38% to 51.35%. The operations of Minera Yanacocha have been
consolidated with NGC's ownership interest at 38% for the month of January and
51.35% thereafter.
BRGM and other defendants filed a request for review of the resolution
of the Superior Court by the Supreme Court of Peru which was granted. The
Company has been advised that such review is likely to occur before the end of
1997. While the Corporation is unable to predict the outcome of the review, the
Corporation has been advised by its Peruvian counsel that the matters that are
subject to review are limited. Management believes that it is not probable that
the Superior Court's decision will be revised.
The following pro forma consolidated income statements assume the
acquisition of the additional interest in Minera Yanacocha occurred on January
1, 1996 and the pro forma condensed consolidated balance sheet assumes the
acquisition of the additional interest occurred on December 31, 1996. The pro
forma financial statements are presented for illustrative purposes only and are
not necessarily indicative of the consolidated results of operations and
financial position 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 results of operations or
financial position in the future. For the quarter and nine months ended
September 30, 1997, the differences between the pro forma results and reported
results are insignificant.
9
<PAGE> 10
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNAUDITED
(In thousands, except per share)
FOR THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Newmont Minera Pro Forma Pro Forma
Mining Yanacocha Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 302,164 $ 84,239 $ 386,403
Dividends, interest and
other 6,018 604 6,622
------------ ------------ ------------ ------------
308,182 84,843 393,025
------------ ------------ ------------ ------------
Costs and expenses
Costs applicable to sales 175,657 22,438 $ (604)(A)
(322)(B)
(117)(D) 197,052
Depreciation, depletion
and amortization 52,641 5,886 3,340 (C) 61,867
Exploration and research 23,029 4,089 27,118
General and administrative 17,538 -- 321 (B) 17,859
Interest, net 15,934 1,127 17,061
Other 1,742 527 2,269
------------ ------------ ------------ ------------
286,541 34,067 2,618 323,226
------------ ------------ ------------ ------------
Income before equity income
(loss) and income taxes 21,641 50,776 (2,618) 69,799
Equity in income (loss) of
affiliated companies 13,009 -- (13,368)(E)
(117)(D)
(604)(A) (1,080)
------------ ------------ ------------ ------------
Pre-tax income 34,650 50,776 (16,707) 68,719
Income tax (provision) benefit 5,476 (15,598) (169)(F) (10,291)
Minority interest in income of
subsidiaries (2,509) -- (17,114)(G)
(74)(H) (19,697)
------------ ------------ ------------ ------------
Net income $ 37,617 $ 35,178 $ (34,064) $ 38,731
============ ============ ============ ============
Income per common share $ 0.24 $ 0.25
============ ============
Weighted average number of
shares of common stock
and common stock equivalents
outstanding 156,323 156,323
============ ============
</TABLE>
(A) To eliminate royalties paid by Minera Yanacocha to a subsidiary 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 net
assets acquired.
(D) Reclassification of the Corporation'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 in income of NGC.
10
<PAGE> 11
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNAUDITED
(In thousands, except per share)
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Newmont Minera Pro Forma Pro Forma
Mining Yanacocha Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 800,212 $ 238,915 $ 1,039,127
Dividends, interest and
other 22,089 1,614 23,703
------------ ------------ ------------ ------------
822,301 240,529 1,062,830
------------ ------------ ------------ ------------
Costs and expenses
Costs applicable to sales 472,958 67,146 $ (1,746) (A)
(809) (B)
(415) (D) 537,134
Depreciation, depletion
and amortization 149,242 18,323 9,737 (C) 177,302
Exploration and research 59,607 12,222 71,829
General and administrative 50,350 -- 809 (B) 51,159
Interest, net 42,280 3,591 45,871
Other 8,795 979 9,774
------------ ------------ ------------ ------------
783,232 102,261 7,576 893,069
------------ ------------ ------------ ------------
Income before equity income
(loss) and income taxes 39,069 138,268 (7,576) 169,761
Equity in income (loss) of
affiliated companies 35,586 -- (36,483)(E)
(415)(D)
(1,746)(A) (3,058)
------------ ------------ ------------ ------------
Pre-tax income 74,655 138,268 (46,220) 166,703
Income tax (provision) benefit 7,537 (42,260) (461)(F) (35,184)
Minority interest in income of
subsidiaries (5,140) -- (46,708)(G)
(164)(H) (52,012)
------------ ------------ ------------ ------------
Net income $ 77,052 $ 96,008 $ (93,553) $ 79,507
============ ============ ============ ============
Income per common share $ 0.49 $ 0.51
============ ============
Weighted average number of
shares of common stock
and common stock equivalents
outstanding 155,789 155,789
============ ============
</TABLE>
(A) To eliminate royalties paid by Minera Yanacocha to a subsidiary 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 net
assets acquired.
(D) Reclassification of the Corporation'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 in income of NGC.
11
<PAGE> 12
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED
(In thousands)
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 $ 227,053 $ 40,705 $ 267,758
Inventories 279,315 15,661 294,976
Other 94,620 28,848 123,468
------------ ------------ ------------ ------------
Current assets 600,988 85,214 686,202
Property, plant and mine
development, net 2,391,872 106,308 $ 53,368(A)
(14,445)(B) 2,537,103
Other long-term assets 289,270 1,887 (41,115)(C)
(2,843)(A) 247,199
------------ ------------ ------------ ------------
Total assets $ 3,282,130 $ 193,409 $ (5,035) $ 3,470,504
============ ============ ============ ============
Liabilities
Short-term debt and current
portion of long-term debt $ 65,231 $ 14,256 $ 79,487
Other current liabilities 213,028 31,190 $ 50,525(A) 294,743
------------ ------------ ------------ ------------
Current liabilities 278,259 45,446 50,525 374,230
Long-term debt 1,039,875 24,244 1,064,119
Other long-term liabilities 297,035 15,520 312,555
------------ ------------ ------------ ------------
Total liabilities 1,615,169 85,210 50,525 1,750,904
------------ ------------ ------------ ------------
Minority interest in
subsidiaries 104,209 -- 52,639(D) 156,848
------------ ------------ ------------ ------------
Stockholders' equity 1,562,752 108,199 (14,445)(B)
(41,115)(C)
(52,639)(D) 1,562,752
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 3,282,130 $ 193,409 $ (5,035) $ 3,470,504
============ ============ ============ ============
</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.
12
<PAGE> 13
Prior to January 1, 1997, the carrying value of NGC's 38% equity
investment in Minera Yanacocha was included in Other long-term assets and NGC's
38% share of earnings was included in Equity in income (loss) of affiliated
companies.
Excluded from the statement of consolidated cash flows are the effects
of non-cash transactions. The following reflects the non-cash adjustments made
to the Corporation's consolidated balance sheet on January 1, 1997 for the
Minera Yanacocha transaction described above (in thousands):
<TABLE>
<S> <C>
Assets
Inventories $ 15,661
Other current assets 28,848
--------
Current assets 44,509
Property, plant and mine development, net 106,308
Other long-term assets 1,887
--------
Total assets $152,704
========
Liabilities
Current portion of long-term debt $ 14,256
Other current liabilities 31,190
--------
Current liabilities 45,446
Long-term debt 24,244
Other long-term liabilities 15,520
--------
Total liabilities $ 85,210
========
</TABLE>
In addition, in connection with the Minera Yanacocha acquisition
described above, the Corporation recorded $37.6 million in Property, plant and
mine development for the excess of the purchase price of the additional interest
over the net book value of such interest. The Corporation has recorded a $59.1
million liability for the purchase price of the additional interest.
(5) Batu Hijau Project
In July 1996, the Corporation and Sumitomo Corporation ("Sumitomo")
entered into a definitive partnership agreement to develop and operate the Batu
Hijau copper/gold deposit in Indonesia. The agreement was finalized in May 1997
upon the Indonesian government's approval of Sumitomo's participation in the
project. Under the terms of the agreement with Sumitomo, the Corporation
contributed its interest in the company that owns the project and Sumitomo will
contribute an agreed upon amount of cash, expected to be approximately $230.0
million of which $209.0 million has been contributed as of September 30, 1997.
Under this partnership agreement, the Corporation has retained an indirect 45%
interest in the company that owns the project and Sumitomo holds an indirect 35%
interest in such company. An unrelated Indonesian company owns the remaining
20%.
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. Financing agreements were
13
<PAGE> 14
signed in July 1997, which, subject to satisfaction of certain conditions, will
provide $1.0 billion in funds for the project, with the remaining $0.9 billion
to be provided by the Corporation and Sumitomo. The financing includes
commitments from three export credit agencies with participation of commercial
banks. The financing is guaranteed by the Corporation and Sumitomo, 56.25% and
43.75%, respectively, until project completion tests are met, and will be
non-recourse to the Corporation thereafter (except with respect to a $125
million contingent support facility that the Corporation and Sumitomo have
agreed to provide). Repayment of borrowings under the financing will be over a
13-year period beginning the earlier of six months after project completion or
June 15, 2001, and will bear interest at blended fixed and floating rates. Based
on current market rates the anticipated weighted average pre-completion interest
rate is approximately 6.71% and post-completion interest rate is approximately
7.33%.
As a result of the contemplated ownership structure, the Corporation
began accounting for its investment in Batu Hijau as an equity investment
effective July 1996. The Corporation's investment at September 30, 1997, which
is included in Other long-term assets, was $45.4 million.
(6) Earnings per Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"), which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997 and requires retroactive restatement of prior
period earnings per share. The statement replaces the "primary earnings per
share" calculation with a "basic earnings per share" and redefines the "dilutive
earnings per share" computation. Adoption of the statement is not expected to
have any effect on the Corporation's reported income per common share.
(7) Commodity Instruments
The Corporation has entered into gold loans and forward sales contracts
and has purchased put and written call options to protect the selling price for
certain anticipated gold production. 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. Included in Dividends, interest and
other income for the nine months ended September 30, 1997 was $23.6 million
relating to the close-out of put and call option contracts. Put and call
options, if exercisable at contract maturity date, were initially planned to be
converted into spot deferred forward contracts; however, due to the early
close-out of such contracts, the related income received was recognized as other
income in the period received.
In July 1997, the Corporation purchased approximately 1.1 million
ounces of gold at prices ranging from $329 per ounce to $343 per ounce, to
offset spot deferred forward contracts which provided for prices ranging from
$412 per ounce to $436 per ounce relating to production through September 1998.
The gain from this transaction will be recorded in sales as the related gold is
produced.
14
<PAGE> 15
(8) Contingencies
Environmental Obligations
Estimated future reclamation and remediation costs are based
principally on legal and regulatory requirements. At September 30, 1997 and
December 31, 1996, $47.2 million and $31.8 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, $42.8 million and $49.8
million were accrued for such obligations at September 30, 1997 and December 31,
1996, respectively. These amounts are included in Other accrued 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 September 30, 1997. 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.
Details about certain of the more significant sites involved are
discussed below.
Idarado Mining Company ("Idarado") - 80.1% owned by NGC
In July 1992, NMC 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 court have reserved 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.
Resurrection Mining Company ("Resurrection") - 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act
which involves 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
15
<PAGE> 16
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 selected portions of 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.
As part of its mill site closure plan, Dawn has received a license to
accept certain byproduct material as defined by the Atomic Energy Act. In March
1997, the Superior Court for Thurston County in the State of Washington upheld
the granting of this license. This ruling is now being appealed by opposing
parties. If Dawn is successful in receiving material under the
16
<PAGE> 17
license, the funds generated would be utilized to close and reclaim both the
mill and the mine.
Insurance Coverage
The Corporation carried insurance policies for which it filed claims
for the costs of certain of its remediation activities. Prior to 1993, three of
the insurance companies commenced actions against the Corporation seeking
judgments that they had no liability. In the fall of 1993, the Corporation
instituted a comprehensive lawsuit against its carriers. Since that time,
settlement has been reached with a majority of the carriers. Trial of the
remaining insurance litigation is scheduled for late 1997. Settlement
discussions continue with the remaining carriers. While it is possible that
amounts will be recovered, no such amounts have been accrued.
Advanced Royalty
In a 1993 asset exchange transaction, a wholly-owned subsidiary of
Santa Fe, transferred a coal lease with Chaco Energy Company ("Chaco") to Hanson
Natural Resources Company ("HNRC") with respect to which the subsidiary had
collected $484.0 million in advance royalty payments. The lease provides for
HNRC to collect another $390.0 million from 1994 through 2018 from Chaco. In the
event of a title failure as stated in the lease, this subsidiary has a primary
obligation to refund the advance royalty payments previously collected and has a
secondary obligation as assignor to HNRC to refund any of the $390.0 million
HNRC collects if HNRC fails to meet its refund obligation to Chaco. The
Corporation has no direct liability to Chaco under the coal lease. The
subsidiary has title insurance on the leased coal deposits in the amount of
$240.0 million covering the secondary obligation. The Corporation and the
subsidiary regard the circumstances entitling Chaco to a refund as remote. The
Corporation has agreed with Chaco to maintain the subsidiary's net worth at
$108.0 million until July 1, 2025.
17
<PAGE> 18
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The following discussion summarizes the results of operations of
Newmont Mining Corporation ("NMC") and its subsidiaries (collectively, the
"Corporation") for the quarters and nine months ended September 30, 1997 and
1996 and changes in its financial condition from December 31, 1996. NMC's
principal subsidiary is Newmont Gold Company ("NGC"), which holds all the
operating assets of the Corporation and is approximately 93.75% owned by NMC. As
further discussed in Note 2 of Item 1, the consolidated financial statements
have been restated for all periods presented to reflect the merger with Santa Fe
Pacific Gold Corporation ("Santa Fe") as a pooling of interests. This discussion
should be read in conjunction with the financial statements of the Corporation
restated to give effect to the merger with Santa Fe included on Form 8-K, filed
November 12, 1997 and Management's Discussion and Analysis included in the
Corporation's and Santa Fe's respective 1996 Annual Reports on Form 10-K.
RESULTS OF OPERATIONS
As discussed in Note 4 of Item 1, in February 1997, NGC's interest in
Minera Yanacocha S.A. ("Minera Yanacocha") increased from 38% to 51.35%.
Therefore, the operations of Minera Yanacocha have been consolidated in 1997. In
1996 Minera Yanacocha was accounted for under the equity method. The variances
that result from this change in treatment are included in the discussion below.
The Corporation recorded net income of $43.1 million, or $0.28 per
share, and $29.7 million, or $0.19 per share, in the quarter and nine months
ended September 30, 1997 compared with net income of $37.6 million, or $0.24 per
share and $77.1 million, or $0.49 per share, in the respective 1996 periods. The
increase in the quarter ended September 30, 1997 compared to the respective 1996
period, is primarily attributable to equity gold production increasing to
957,100 ounces in 1997 from 848,200 ounces in 1996 and a $39 decrease in cash
costs per equity ounce of gold sold. The nine months ended September 30, 1997
included $23.6 million ($14.3 million net of minority interest and tax) of
income on the close-out of put and call option contracts and $157.7 million
($109.2 million net of minority interest and tax) of expenses associated with
the Santa Fe merger and the write-off of certain Santa Fe assets that did not
meet the Corporation's valuation criteria. Excluding the income on the close-out
of option contracts and merger-related expenses, the Corporation earned $124.6
million, or $0.80 per share, in the nine months ended September 30, 1997. This
increase compared to 1996 was primarily attributable to equity gold production
increasing to 2,832,600 ounces in the nine months ended September 30, 1997 from
2,245,900 ounces in the respective 1996 period and a $30 decrease in cash costs
per equity ounce of gold sold.
Consolidated sales revenue was $383.8 million and $1,160.6 million for
the three and nine months ended September 30, 1997 compared to $302.2 million
and $800.2 million for the respective 1996 periods. Consolidated sales revenue
increased primarily from gold production of 1,095,300 ounces and 3,216,600
ounces in the quarter and nine months ended September 30, 1997, compared to
764,800 ounces and 2,007,900 ounces in the respective 1996 periods. Consolidated
sales revenue in 1997 included sales of 284,100 ounces ($92.3 million) for the
third quarter and 769,300 ounces ($259.5 million) for the first nine months from
Minera Yanacocha. Consolidated sales revenue in 1996 does not include Minera
Yanacocha since it was accounted for under the
18
<PAGE> 19
equity method. The average gold price received per ounce on NGC's consolidated
production was $350 and $361 in the quarter and nine months ended September 30,
1997 compared to an average gold price per ounce of $393 and $399 for the
respective 1996 periods. The average gold price realized for the quarter and
nine months ended September 30, 1997 was approximately $30 per ounce and $27 per
ounce higher than market prices due to gold price commodity instruments. In July
1997, the Corporation purchased approximately 1.1 million ounces of gold at
prices ranging from $329 per ounce to $343 per ounce to offset spot deferred
forward contracts which provided for prices ranging from $412 per ounce to $436
per ounce relating to production through September 1998. The gain on this
transaction will be recorded as the related gold is produced over the next
twelve months.
The effects of the changes in the average gold price received and the
consolidated production levels on sales revenue between the September 30, 1997
and 1996 periods are reflected in the following table (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Increase (decrease) in sales revenue due to:
<S> <C> <C>
Production $ 130.5 $ 482.3
Average gold price received (48.8) (121.9)
-------- --------
$ 81.7 $ 360.4
======== ========
</TABLE>
Dividends, interest and other income were $10.9 million and $50.8
million for the three and nine months ended September 30, 1997 compared with
$6.0 million and $22.1 million for the respective 1996 periods. Dividends,
interest and other income for the nine months ended September 30, 1997 included
$23.6 million from the close-out of put and call option contracts, $6.5 million
related to business interruption insurance for the refractory ore treatment
plant in Nevada, and $5.1 million from the disposition of a uranium property.
Put and call options contracts, if exercisable at contract maturity date, were
initially planned to be converted into spot deferred forward contracts; however,
due to the early close-out of such contracts, the related income received was
recognized as other income in the period received.
Costs applicable to sales were $181.3 million and $577.0 million for
the quarter and nine months ended September 30, 1997 compared to $175.7 million
and $473.0 million for the quarter and nine months ended September 30, 1996.
Higher costs for the third quarter of 1997 resulted from the consolidation of
Minera Yanacocha ($22.9 million), partially offset by lower costs from the
Nevada operations. The increase in costs applicable to sales in the 1997
nine-month period was primarily due to the consolidation of Minera Yanacocha
($73.5 million), as well as the costs associated with Minahasa, an Indonesian
project that commenced operations in April 1996, and increased production from
NGC's Nevada operations.
19
<PAGE> 20
NGC's costs applicable to sales per ounce of gold sold were as follows
for the quarters and nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
For Three Months Ended September 30,
--------------------------------------
Per Consolidated Per Equity
Ounce of Production Ounce of Production
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash operating costs $ 157 $ 217 $ 170 $ 204
Royalties 4 10 3 9
Other cash costs 1 1 2 1
------ ------ ------ ------
Total cash costs 162 228 175 214
Other 2 2 2 2
------ ------ ------ ------
Total costs applicable to sales $ 164 $ 230 $ 177 $ 216
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
For Nine Months Ended September 30,
--------------------------------------
Per Consolidated Per Equity
Ounce of Production Ounce of Production
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash operating costs $ 170 $ 219 $ 182 $ 206
Royalties 4 12 4 11
Other cash costs 1 1 2 1
------ ------ ------ ------
Total cash costs 175 232 188 218
Other 2 2 2 2
------ ------ ------ ------
Total costs applicable to sales $ 177 $ 234 $ 190 $ 220
====== ====== ====== ======
</TABLE>
The above 1996 consolidated amounts do not take into account NGC's
interest in Minera Yanacocha because it was accounted for on the equity basis.
The decrease in consolidated per ounce costs between years was the result of the
inclusion of Minera Yanacocha in the consolidated results as well as decreases
in costs incurred at the Nevada operations and the international operations. On
an equity basis, the decrease in per ounce costs was attributable to decreases
in costs at the Nevada operations, the impact of the additional interest in
Minera Yanacocha and certain one time adjustments related to leach pad inventory
at Mesquite and Minera Yanacocha.
Depreciation, depletion and amortization ("DD&A") was $70.3 million and
$197.0 million in the quarter and nine months ended September 30, 1997 compared
to $52.6 million and $149.2 million in the respective 1996 periods. The
increases of $17.7 million and $47.8 million, respectively, were primarily due
to the consolidation of Minera Yanacocha ($8.2 million and $24.7 million,
respectively), the commencement of operations at the Minahasa project in April
1996 and the start-up of new processing facilities at the Nevada operations.
Following are mine operation results from NGC's primary operating
areas.
20
<PAGE> 21
NEVADA
NGC's primary North American operations are located in the Carlin
Region, hereafter referred to as "Carlin" and in the Winnemucca Region,
hereafter referred to as "Winnemucca", collectively referred to as "Nevada".
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Nevada Operations:
(in millions, except ozs.)
Gold production (000 ozs.) 652.0 626.6 1,964.5 1,674.8
Sales $ 230.9 $ 244.9 $ 713.5 $ 663.4
Costs applicable to sales 129.1 143.5 406.4 396.6
Depreciation, depletion and
amortization 44.1 40.1 123.1 115.8
</TABLE>
Gold production increased in the third quarter and first nine months of
1997 compared to the same periods of 1996 as the result of higher grades of ore
processed and improved recovery rates from the Nevada operation's oxide mills
and leach pads and the start-up of an autoclave and flotation plant at
Winnemucca.
Sales decreased in the three months ended September 30, 1997 compared
to the corresponding period in 1996 primarily due to a decrease in the average
gold price realized of $39 per ounce, slightly offset by the increase in gold
production. Sales increased in the nine months ended September 30, 1997 compared
to the corresponding period in 1996 primarily due to the increase in production,
partially offset by a decrease in the average gold price realized of $33 per
ounce.
Costs applicable to sales decreased in the quarter ended September 30,
1997 compared to the corresponding period in 1996 primarily due to processing a
higher percentage of lower-cost oxide ore. In the nine month period ended
September 30, 1997 compared to the corresponding 1996 period costs applicable to
sales increased primarily due to the increase in production, partially offset by
a reduction in the amount of royalty-burdened ore produced.
DD&A increased in the quarter and nine months ended September 30, 1997
from the corresponding periods in 1996 primarily due to the start-up of new
processing facilities at Winnemucca and increased production, partially offset
by lengthening estimated useful lives of certain assets as a result of the
addition of refractory ore reserves.
21
<PAGE> 22
The following table reflects Nevada's costs applicable to sales per
ounce of gold sold for the respective periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Cash operating costs $190 $215 $197 $218
Royalties 5 13 7 16
Other cash costs 2 1 3 1
---- ---- ---- ----
Total cash costs 197 229 207 235
Other 2 2 2 2
---- ---- ---- ----
Total costs applicable
to sales $199 $231 $209 $237
==== ==== ==== ====
</TABLE>
Lower cash operating costs per ounce for the 1997 periods primarily
reflects increased production.
The roaster was shut down for approximately four weeks early in the
third quarter due to mechanical problems. During this shut-down period,
scheduled maintenance initially planned for September 1997 was also performed.
The roaster resumed production during August 1997 and has been running at or
above designed capacity. A claim for business interruption insurance has been
filed and is estimated at $6.5 million.
NGC is working with Barrick Goldstrike Mines Inc. in assessing the most
economical way to access high-grade ore, at the Betze Post pit, which has been
affected by a pit wall slide. No impact on 1997 costs or production is expected.
However, certain production previously scheduled for 1998 and 1999 will be
deferred.
CALIFORNIA
NGC operates a mine and heap leach operation at Mesquite in Imperial
County in southern California.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Mesquite mine:
(in millions, except ozs.)
Gold production (000 ozs.) 56.3 43.8 178.6 149.7
Sales $ 23.3 $ 18.1 $ 74.0 $ 61.5
Costs applicable to sales 10.4 11.0 38.6 36.6
Depreciation, depletion and
amortization 5.4 4.9 18.0 15.5
</TABLE>
Mesquite's gold production increased in the quarter and nine months
ended September 30, 1997 from the corresponding 1996 periods as a result of
significantly increased recoveries. The increase in sales was attributable to
the increase in ounces produced.
Costs applicable to sales decreased in the quarter ended and increased
in the nine months ended September 30, 1997, as compared to the corresponding
1996 periods. The decrease in the quarter ended is primarily due to an
22
<PAGE> 23
adjustment in the estimated ultimate recoveries on the leach pad, offset by an
increase in production. The increase in the nine months ended is primarily due
to the increase in production partially offset by the recovery adjustment.
Increased DD&A in the quarter and nine months ended September 30, 1997
from the corresponding 1996 periods was attributable to equipment purchased in
1996 and 1997.
The following table reflects Mesquite's costs applicable to sales per
ounce of gold sold for the respective periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash operating costs $ 181 $ 248 $ 214 $ 242
Other cash costs 0 0 0 0
------ ------ ------ ------
Total cash costs 181 248 214 242
Other 4 3 3 3
------ ------ ------ ------
Total costs applicable
to sales $ 185 $ 251 $ 217 $ 245
====== ====== ====== ======
</TABLE>
Lower cash operating costs per ounce in 1997 were attributable to the
increase in production and change in estimated recoveries.
ZARAFSHAN-NEWMONT
Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") is a 50% - 50%
joint venture between a subsidiary of NGC and two Uzbekistan governmental
entities which began production from existing stockpiles in September 1995. The
Corporation accounts for Zarafshan-Newmont on a proportional consolidation
basis.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Zarafshan-Newmont mine:
(in millions, except ozs.)
Gold production (000 equity ozs.) 50.5 45.2 164.0 113.0
Sales $ 16.3 $ 17.4 $ 55.0 $ 43.9
Costs applicable to sales 10.3 11.0 34.4 25.2
Depreciation, depletion and
amortization 3.0 2.7 9.0 8.2
</TABLE>
Zarafshan-Newmont's gold production increased in the quarter and nine
months ended September 30, 1997 from the corresponding 1996 periods due to
operational improvements that were made to the plant throughout 1996 and 1997.
During the first nine months of 1997, the plant operated at 95% design capacity
and during the third quarter of 1997 exceeded design capacity.
Sales decreased in the quarter and nine months ended September 30, 1997
from the corresponding 1996 periods due primarily to a decrease in the average
realized gold price of $62 per ounce and $52 per ounce, respectively. This
decrease was partially offset by the increase in production.
23
<PAGE> 24
Costs applicable to sales increased in the nine months ended September
30, 1997 from the corresponding 1996 period, primarily due to the increase in
production. Costs applicable to sales in the third quarter of 1996 included an
adjustment for a reduction in the estimated gold recovery rate.
The following table reflects Zarafshan-Newmont's costs applicable to
sales per ounce of gold sold:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash operating costs $ 203 $ 242 $ 209 $ 222
Other cash costs 0 0 0 0
------- ------- ------- -------
Total cash costs 203 242 209 222
Other 1 1 1 1
------- ------- ------- -------
Total costs applicable
to sales $ 204 $ 243 $ 210 $ 223
======= ======= ======= =======
</TABLE>
The decrease in cash operating costs per ounce is due to the increase
in production, lower operating costs and the negative impact in the 1996 periods
of an adjustment to record the reduction in the estimated gold recovery rate.
MINERA YANACOCHA
NGC operates a heap leach mining operation in northern Peru. The
operations of Minera Yanacocha have been consolidated in 1997. In 1996, Minera
Yanacocha was accounted for under the equity method with NGC's equity interest
in production reflected in Equity in income of affiliated companies.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minera Yanacocha Operations:
(in millions, except ozs.)
Gold production (000 ozs.) 284.1 219.5 769.3 611.3
Sales $ 92.3 $ 84.2 $ 259.5 $ 238.9
Costs applicable to sales 22.9 21.7 73.5 64.9
Depreciation, depletion and
amortization $ 8.2 $ 5.9 $ 24.7 $ 18.3
Equity gold production (000 ozs.) 145.9 83.4 385.3 232.3
</TABLE>
Minera Yanacocha's gold production increased in the quarter and nine
months ended September 30, 1997 from the corresponding 1996 periods as a result
of higher ore tons mined and placed, combined with increased recovery rates. The
Corporation expects Minera Yanacocha's production in 1997 to be approximately 1
million ounces.
Sales increased in the quarter and nine months ended September 30, 1997
from the corresponding 1996 periods primarily due to the increase in production,
partially offset by a decrease of $59 and $54, respectively, in the average
realized gold price per ounce.
24
<PAGE> 25
Costs applicable to sales increased in the quarter and nine months
ended September 30, 1997 from the corresponding 1996 periods, due primarily to
the increase in production. This increase was partially offset by an adjustment
in the estimated ultimate recoveries on the leach pads.
Increased Depreciation, depletion and amortization in the quarter and
nine months ended September 30, 1997 from the corresponding 1996 periods was
attributable to the depreciation of property, plant and equipment placed in
service in 1996 and 1997.
The following table reflects Minera Yanacocha's costs applicable to
sales per ounce of gold sold:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash operating costs $ 72 $ 88 $ 86 $ 95
Royalties 10 11 11 12
Other cash costs 0 0 0 0
------ ------ ------ ------
Total cash costs 82 99 97 107
Other 3 3 3 3
------ ------ ------ ------
Total costs applicable
to sales $ 85 $ 102 $ 100 $ 110
====== ====== ====== ======
</TABLE>
Lower cash operating costs per ounce in 1997 were attributable to the
increase in production and an adjustment to reflect a change in estimated
recoveries.
MINAHASA
NGC began commercial production at the Minahasa property in Indonesia
in April 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minahasa mine:
(in millions, except ozs.)
Gold production (000 ozs.) 52.4 49.2 140.2 76.1
Sales $ 21.0 $ 21.8 $ 58.6 $ 31.4
Costs applicable to sales 8.6 10.2 24.1 14.7
Depreciation, depletion and
amortization 5.6 3.1 12.8 5.3
</TABLE>
Minahasa gold production for the nine months ended September 30, 1996
includes 5,700 ounces that were produced before commercial operations commenced
and the revenue from these ounces was credited against the capitalized costs of
the project.
The increase in sales is attributable to the increase in production.
The increase in production for the nine months ended September 30, 1997 compared
to the corresponding 1996 period is due to a full nine months of operations in
1997. The average gold price realized for the quarter and nine months ended
September 30, 1997 was $401 per ounce and $418 per ounce, which
25
<PAGE> 26
were higher than market prices due to gold price hedging contracts for
approximately 10,400 ounces per month at an average price of $454 per ounce.
Costs applicable to sales decreased in the quarter ended, and increased
in the nine months ended, September 30, 1997 compared to the corresponding 1996
periods. The decrease in the quarter is primarily due to lower contract mining
costs. The increase in the nine months is primarily due to a full nine months of
operation in 1997.
The following table reflects Minahasa's costs applicable to sales per
ounce of gold sold:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash operating costs $169 $200 $177 $199
Royalties 4 8 4 8
Other cash costs 0 0 0 0
---- ---- ---- ----
Total cash costs 173 208 181 207
Other 2 2 2 2
---- ---- ---- ----
Total costs applicable
to sales $175 $210 $183 $209
==== ==== ==== ====
</TABLE>
The decreases in costs applicable to sales per ounce of gold sold
resulted from increased production.
OTHER
Following is a discussion of certain other consolidated expenses of the
Corporation.
Exploration and research expense was $19.9 million and $68.3 million in
the quarter and nine months ended September 30, 1997 compared to $23.0 million
and $59.6 million in the corresponding 1996 periods. The increase in the nine
months ended is primarily due to the consolidation in 1997 of Minera Yanacocha
($7.9 million) and increased activities in Central Asia (including Uzbekistan,
Kazakhstan and the Kyrgyz Republic).
Exploration and research expense by geographic location was as follows:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
----------------------------------------
1997 1996
------- -------
(in thousands)
<S> <C> <C>
United States $10,605 $12,382
South America 4,766 4,156
Southeast Asia 2,427 2,979
Central Asia 1,652 1,332
Other 473 2,180
------- -------
$19,923 $23,029
======= =======
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
------- -------
(in thousands)
<S> <C> <C>
United States $31,371 $31,099
South America 16,254 9,005
Southeast Asia 10,140 9,651
Central Asia 6,444 3,175
Other 4,110 6,677
------- -------
$68,319 $59,607
======= =======
</TABLE>
Interest expense, net of amounts capitalized, increased to $19.0
million and $58.0 million in the quarter and nine months ended September 30,
1997 from $15.9 million and $42.3 million in the corresponding 1996 periods,
respectively. The increase was primarily due to the consolidation of Minera
Yanacocha in 1997. In addition, the nine month period was impacted by the
cessation of interest capitalization on certain Winnemucca projects placed in
service during 1997.
Income tax expense of $16.3 million and $0.9 million were recorded for
the quarter and nine months ended September 30, 1997 compared to benefits of
$5.5 million and $7.5 million in the quarter and nine months ended September 30,
1996. The increase in tax expense for 1997 was primarily due to increased
pre-tax income and the consolidation of Minera Yanacocha (previously accounted
for on an equity basis).
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997 the Corporation's cash
outlays included $300.3 million for capital expenditures and $49.8 million for
dividend payments. Capital expenditures included approximately $196.0 million on
projects at the Nevada operations, which were primarily associated with
processing equipment, capitalized mining costs and underground development. In
addition, $74.4 million, $19.7 million and $4.9 million was spent on minesite
development at Minera Yanacocha, Minahasa and Zarafshan- Newmont, respectively.
These expenditures were funded from operating cash flows, existing cash
balances, net borrowings of $70.0 million, and proceeds of $11.6 million from
the sale of stock. The Corporation used $146.1 million during 1997 for inventory
increases, which principally resulted from stockpiling ore at the Nevada
operations.
Net borrowings during the nine months ended September 30, 1997 included
$270.0 million of drawdowns under a new $1.0 billion revolving credit facility
which replaced separate facilities held by NGC and Santa Fe. Minera Yanacocha
also completed a $100.0 million debt, financing which will be used to finance
capital expansion and operating needs at Minera Yanacocha.
Cash on hand, operating cash flow and short-term and long-term
borrowings will be used to fund the Corporation's capital expenditures and other
cash requirements for the remainder of 1997.
Other than the inventory increases previously discussed, the
significant changes in the balance sheet from December 31, 1996 to September 30,
1997 were primarily the result of the consolidation of Minera Yanacocha. See
Note 4 of Item 1 for a pro forma balance sheet of the Corporation consolidating
Minera Yanacocha as of December 31, 1996. As discussed in such note, Minera
27
<PAGE> 28
Yanacocha is consolidated in 1997 as the result of a favorable Peruvian Superior
Court ruling in February 1997, which held that NGC was entitled to increase its
interest in Minera Yanacocha from 38% to 51.35%. BRGM and other defendants have
filed a request for review of the resolution of the Superior Court by the
Supreme Court of Peru which was granted. The Corporation has been advised that
such review is likely to occur before the end of 1997. While the Corporation is
unable to predict the outcome of the review, the Corporation has been advised by
its Peruvian counsel that the matters that are subject to review are limited.
Management believes that it is not probable that the Superior Court's decision
will be revised.
The Corporation's profitability is significantly affected by changes
in the market price of gold. Gold prices fluctuate widely and are affected by
numerous factors, such as demand for precious metals, forward selling by
producers, central bank sales and purchases of gold, and production levels in
major gold-producing regions. During the latter half of 1997, the market price
of gold has dropped to the lowest level of the past 12 years. Several central
banks have recently sold a portion of their gold reserves and others have
discussed proposals to sell. The perception that central banks may further
reduce their gold reserve holdings as well as the belief that major world
economies can sustain a low-inflationary environment could continue to
adversely impact the market price of gold for an extended period of time.
Although the Corporation is one of the lowest cost producers in the industry, a
sustained period of low gold prices could have a material adverse affect on the
Corporation's financial position and results of operations.
BATU HIJAU
As discussed in Note 5 of Item 1, in July 1996, the Corporation 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. Financing agreements were signed in
July 1997, under which, subject to satisfaction of certain conditions, will
provide $1.0 billion in funds for the project, with the remaining $0.9 billion
to be provided by the Corporation and Sumitomo. The financing includes
commitments from three export credit agencies with participation of commercial
banks. The financing is guaranteed by the Corporation and Sumitomo, 56.25% and
43.75%, respectively, until project completion tests are met, and will be
non-recourse to the Corporation thereafter (except with respect to a $125
million contingent support facility that the Corporation and Sumitomo have
agreed to provide). Repayment of the borrowings under the financing will be over
a 13-year period beginning the earlier of six months after project completion or
June 15, 2001, and will bear interest at blended fixed and floating rates. Based
on current market rates, the anticipated pre-completion average interest rate is
approximately 6.71% and the post-completion rate is approximately 7.33%.
Under the terms of the agreement with Sumitomo, NGC contributed its
interest in the company that owns the project and Sumitomo will contribute an
agreed upon amount of cash, expected to be approximately $230 million, of which
$209 million has been contributed as of September 30, 1997. Under this
partnership agreement, NGC has retained an indirect 45% interest in the company
that owns the project and Sumitomo holds an indirect 35% interest in such
company. An unrelated Indonesian company owns the remaining 20%. The source of
the Corporation's future cash obligations 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
began accounting for its investment in Batu Hijau as an equity investment
effective July 1996. NGC's investment at September 30, 1997, which is included
in Other long-term assets, was $45.4 million.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis, as well as certain of the notes
to the consolidated financial statements, contain "forward-looking
28
<PAGE> 29
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, (ii) estimates of future
production costs for specific operations, (iii) expectations as to the funding
of future capital expenditures and other cash needs, (iv) statements as to the
projected development of certain ore deposits, including estimates of
development and other capital costs and financing plans with respect thereto,
(v) estimates of future costs and other liabilities for certain environmental
matters and (vi) statements as to the likelihood of the Peruvian Supreme Court
revising the Superior Court's decision. 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 or the results
projected or implied by 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 could be affected by a number of factors,
including, but not limited to, unanticipated geological configurations or other
geological or grade problems, metallurgical and other processing problems, the
occurrence of inclement or hazardous weather conditions or other unusual
operating conditions, the failure of equipment, processes or facilities to
operate in accordance with specifications or expectations, labor disputes,
accidents and changes in U.S. or foreign laws or regulations or the
interpretation, enforcement or implementation thereof.
The amount and timing of future capital expenditures could be
influenced by a number of factors, including the timing of receipt of necessary
permits and other governmental approvals, the failure of equipment, processes or
facilities to operate in accordance with specifications and expectations, labor
disputes and unanticipated changes in mine plans. The funding of such
expenditures and other cash needs will be affected by the level of cash flow
generated by the Corporation (which is affected by the price the Corporation
receives for gold sold) 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
under the relevant agreements or any termination of any such agreements,
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 or
implementation thereof and other factors beyond the control of the Corporation.
29
<PAGE> 30
The statements with respect to the outcome of the pending litigation in
Peru is subject to the risk that, notwithstanding the opinion of management, the
Peruvian Supreme Court could revise the decision of the Superior Court.
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 "Forward-Looking Statements" contained in Item 1 of the
Corporation's and Santa Fe's Annual Reports on Form 10-K for the fiscal year
ended December 31, 1996, as well as other filings made by the Corporation from
time to time with the Securities and Exchange Commission. Many of these factors
are beyond the Corporation's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. The
Corporation disclaims any intent or obligation to update publicly any
forward-looking statements set forth in this discussion, whether as a result of
new information, future events or otherwise.
30
<PAGE> 31
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 - Statement re Computation of Per Share Earnings.
27 - Financial Data Schedule.
(b) Reports filed on Form 8-K during the quarter ended September 30, 1997:
No reports were filed on Form 8-K during the quarter ended September 30,
1997.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWMONT MINING CORPORATION
(Registrant)
Date: November 13, 1997 /s/ WAYNE W. MURDY
-------------------------------
Wayne W. Murdy
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1997 /s/ LELAND W. KRUGERUD
-------------------------------
Leland W. Krugerud
Vice President, Accounting and
Information Systems
(Principal Accounting Officer)
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exhibit 11 - Statement re Computation of Per Share Earnings 34-35
Exhibit 27 - Financial Data Schedule 36
</TABLE>
33
<PAGE> 1
EXHIBIT 11
Page 1 of 2
NEWMONT MINING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
PRIMARY EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME DATA:
Net income applicable
to common shares $ 43,142 $ 37,617 $ 29,747 $ 77,052
======== ======== ======== ========
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 156,306 156,029 156,175 155,429
Equivalent common shares
from stock options 148 294 147 360
-------- -------- -------- --------
Common and common equivalent
shares 156,454 156,323 156,322 155,789
======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Net income per common and
common equivalent shares $ 0.28 $ 0.24 $ 0.19 $ 0.49
======== ======== ======== ========
</TABLE>
34
<PAGE> 2
EXHIBIT 11
Page 2 of 2
NEWMONT MINING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
FULLY DILUTED EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME DATA:
Net income applicable
to common shares $ 43,142 $ 37,617 $ 29,747 $ 77,052
======== ======== ======== ========
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 156,306 156,029 156,175 155,429
Equivalent common shares
from stock options 385 294 385 360
-------- -------- -------- --------
Common and common equivalent
shares 156,691 156,323 156,560 155,789
======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Net income per common and
common equivalent shares $ 0.28 $ 0.24 $ 0.19 $ 0.49
======== ======== ======== ========
</TABLE>
35
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 108,171
<SECURITIES> 13,635
<RECEIVABLES> 45,943
<ALLOWANCES> 0
<INVENTORY> 409,424
<CURRENT-ASSETS> 665,696
<PP&E> 3,843,078
<DEPRECIATION> 1,278,350
<TOTAL-ASSETS> 3,511,786
<CURRENT-LIABILITIES> 343,141
<BONDS> 1,152,249
0
0
<COMMON> 1,064,652
<OTHER-SE> 491,631
<TOTAL-LIABILITY-AND-EQUITY> 3,511,786
<SALES> 1,160,646
<TOTAL-REVENUES> 1,211,466
<CGS> 577,047
<TOTAL-COSTS> 1,121,039
<OTHER-EXPENSES> 289,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,970
<INCOME-PRETAX> 84,079
<INCOME-TAX> 914
<INCOME-CONTINUING> 29,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,747
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
