<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 MARCH 31, 1998
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 13-1806811
-------- ----------
(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 156,512,263 shares of common stock outstanding on May 11, 1998.
<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
March 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Sales and other income
Sales $ 378,067 $ 355,055
Dividends, interest and other 11,434 34,224
--------- ---------
389,501 389,279
--------- ---------
Costs and expenses
Costs applicable to sales 209,807 184,006
Depreciation, depletion and amortization 72,842 60,489
Exploration and research 16,112 23,572
General and administrative 14,472 16,635
Interest, net of capitalized interest of $2,876
and $2,140, respectively 20,492 19,289
Other 2,887 1,928
--------- ---------
336,612 305,919
--------- ---------
Pre-tax income 52,889 83,360
Income tax expense (7,842) (13,421)
Minority interest in income of Minera Yanacocha (12,233) (15,249)
Minority interest in income of Newmont Gold Company (2,049) (3,441)
--------- ---------
Net income $ 30,765 $ 51,249
========= =========
Net income per common share,
basic and diluted $ 0.20 $ 0.33
========= =========
Basic weighted average shares outstanding 156,480 156,073
--------- ---------
Cash dividends declared per Newmont Mining Corporation
common share $ 0.03 $ 0.12
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 3
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 64,482 $ 146,232
Short-term investments 9,090 12,790
Accounts receivable 43,204 52,410
Inventories 339,147 339,549
Other current assets 106,490 90,389
------------ ------------
Current assets 562,413 641,370
Property, plant and mine development, net 2,557,033 2,598,809
Other long-term assets 404,704 373,803
------------ ------------
Total assets $ 3,524,150 $ 3,613,982
============ ============
Liabilities
Short-term debt $ 26,597 $ 25,771
Current portion of long-term debt 46,132 43,301
Accounts payable 55,868 83,101
Other accrued liabilities 218,397 242,358
------------ ------------
Current liabilities 346,994 394,531
Long-term debt 1,134,861 1,179,410
Reclamation and remediation liabilities 89,931 88,651
Other long-term liabilities 181,640 192,033
------------ ------------
Total liabilities 1,753,426 1,854,625
------------ ------------
Minority interest in Minera Yanacocha 45,173 62,253
Minority interest in Newmont Gold Company 107,739 106,017
------------ ------------
Contingencies (Note 7)
Stockholders' equity
Common stock 250,403 250,350
Additional paid-in capital 817,879 817,040
Retained earnings 549,530 523,697
------------ ------------
Total stockholders' equity 1,617,812 1,591,087
------------ ------------
Total liabilities and stockholders' equity $ 3,524,150 $ 3,613,982
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
NEWMONT MINING CORPORATION AND SUBSIDIARIES
Statements of Consolidated Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 30,765 $ 51,249
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 72,842 60,489
Amortization of capitalized mining costs 12,099 --
Undistributed earnings of affiliates 5,705 --
Deferred taxes (9,343) (1,332)
Minority interest, net of dividends 1,792 (1,187)
Other (414) (3,119)
(Increase) decrease in operating assets:
Accounts receivable 9,494 (15,947)
Inventories 464 (64,161)
Other assets (2,971) (75,561)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (68,534) (20,999)
Other liabilities 2,889 2,926
----------- -----------
Net cash provided by (used in) operating activities 54,788 (67,642)
----------- -----------
Investing activities:
Additions to property, plant and mine development (56,032) (105,268)
Advances to joint venture and affiliates (44,284) (4,957)
Cash acquired in Minera Yanacocha transaction -- 40,705
Other 3,800 (3,135)
----------- -----------
Net cash used in investing activities (96,516) (72,655)
----------- -----------
Financing activities:
Repayments of long-term borrowings (35,923) (16,696)
Proceeds from long-term borrowings -- 102,009
Net increase (decrease) in short-term borrowings 826 (25,821)
Dividends paid on common stock (4,695) (11,943)
Other (230) 988
----------- -----------
Net cash provided by (used in) financing activities (40,022) 48,537
----------- -----------
Net decrease in cash and cash equivalents (81,750) (91,760)
Cash and cash equivalents at beginning of period 146,232 227,053
----------- -----------
Cash and cash equivalents at end of period $ 64,482 $ 135,293
=========== ===========
Supplemental information:
Interest paid, net of amounts capitalized of
$2,876 and $2,140, respectively $ 21,555 $ 20,566
Income taxes paid $ 1,450 $ 10,387
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
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.
In the opinion of management, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a normal
recurring nature. These interim financial statements should be read in
conjunction with the financial statements of the Corporation included in its
1997 Annual Report on Form 10-K.
NMC owns approximately 93.75% of the common stock of Newmont Gold
Company ("NGC"). All of NMC's operations are held through NGC. On May 5, 1997,
NMC completed a merger with Santa Fe Pacific Gold Corporation ("Santa Fe") which
qualified as a tax-free reorganization and was accounted for as a pooling of
interests.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(2) Earnings Per Common Share
The following table presents a reconciliation of basic and diluted
earnings per share calculations (in thousands, except per share):
<TABLE>
<CAPTION>
For Three Months Ended March 31,
1998 1997
---------------------------------- --------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income applicable to common
shares $ 30,765 156,480 $ 0.20 $ 51,249 156,073 $ 0.33
EFFECT OF DILUTIVE SECURITIES
Equivalent common shares from stock
options -- -- -- -- 95 --
-------- -------- -------- -------- -------- --------
DILUTED EARNINGS PER SHARE
Net income applicable to common
share $ 30,765 156,480 $ 0.20 $ 51,249 156,168 $ 0.33
======== ======== ======== ======== ======== ========
</TABLE>
(3) Inventories
<TABLE>
<CAPTION>
At March 31, At December 31,
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Current:
Ore and in-process inventories $ 166,515 $ 172,589
Precious metals 85,666 82,594
Materials and supplies 85,759 82,819
Other 1,207 1,547
---------- ----------
$ 339,147 $ 339,549
========== ==========
Non-current:
Ore in stockpiles (included
in other long-term assets) $ 172,819 $ 174,445
========== ==========
</TABLE>
5
<PAGE> 6
(4) Additional Interest in Minera Yanacocha
The Corporation has an interest in Minera Yanacocha, a gold mining
operation located in Peru, that began production in 1993. Prior to 1997, the
Corporation owned a 38.0% interest that was accounted for on an equity basis.
Beginning in 1997, Minera Yanacocha was consolidated into the Corporation's
financial statements following the acquisition of an additional 13.35% interest,
which acquisition is currently contested in the court proceedings described
below.
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 a third party. 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 their preemptive rights with respect
to the proposed BRGM transfer. In February 1995, after a preliminary favorable
appellate court ruling, both NGC and Buenaventura exercised their preemptive
rights. NGC deposited its share of the provisional $90 million purchase price
and the shares for its additional 13.35% interest with a Peruvian bank pending
final resolution of the case. NGC borrowed its purchase price amount 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, a trial court ruling provided that the preemptive rights were
triggered in November 1993, and that the value of the 24.7% interest was $109.3
million. The value of NGC's shares held in escrow were calculated as of such
date at $59.1 million and the additional amount was deposited with the Peruvian
bank.
An appeal to the Superior Court of Lima was filed by BRGM and other
defendants 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, NGC reflected
the increase in its ownership from 38.0% to 51.35% as of February 1997.
BRGM and other defendants filed a request for Peruvian Supreme Court
review of the Superior Court's resolution. The case was argued to a panel of
five Peruvian Supreme Court justices on December 17, 1997. In order to prevail
at the Supreme Court level, a party must obtain four votes in its favor. The
five-judge panel issued a split decision, with two in favor of the Corporation
and three in favor of BRGM. In May 1998, the sixth judge voted in favor of the
Corporation, resulting in a tie vote with three votes in favor of the
Corporation and three in favor of BRGM. A seventh justice has been appointed to
hear the case and the hearing has been scheduled for May 19, 1998. At this time,
the Corporation is unable to predict the outcome of the litigation. An
unfavorable decision would require reversion to equity accounting in 1997 and
1998 for NGC's 38.0% interest in Minera Yanacocha and the possibility of a
dividend refund attributable to the acquired interest. For the quarters ended
March 31, 1998 and 1997, the additional interest represented $0.02 and $0.01 of
the Corporation's net income per common share and 4% and 2% of total equity
production, respectively.
The effects of non-cash transactions are excluded from the statements
of consolidated cash flows. The following reflects the non-cash adjustments
recorded 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>
6
<PAGE> 7
In addition, in connection with the Minera Yanacocha acquisition
described above, the Corporation recorded $48.3 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) Comprehensive Income
The Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income" in the first quarter of 1998.
Under SFAS No. 130, the Corporation reports comprehensive income, which in
addition to net income, includes all changes in equity during a period except
those resulting from investments by and distributions to owners. In the first
quarters of 1998 and 1997, there were no material differences between net income
and comprehensive income.
(6) Commodity Instruments
At March 31, 1998, the Corporation had forward sales contracts made on
a spot deferred basis ("spot deferred contracts") for approximately 344,000
ounces of gold relating to production during the period April 1998 through
September 1998 at a weighted average price of $423 per ounce. In July 1997, the
Corporation purchased approximately 1.1 million ounces of gold at an average
price of $331 per ounce, to offset all spot deferred contracts held at that
date. The gain or loss from these contracts is recognized in sales revenue as
the related gold is delivered.
The Corporation also entered into forward sales contracts, that began
maturing in January 1996 and continue through December 2000, for production from
its Minahasa property, located in Indonesia. These contracts 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.
In 1997, the Corporation had purchased put options on 1.2 million
ounces at an exercise price of $375 per ounce and written call options on 0.4
million ounces at an exercise price of $464 per ounce. During the first quarter
of 1997, 300,000 ounces of put options were exercised with $6.7 million of cash
received and 100,000 ounces of call options expired unexercised. The remaining
option contracts were closed out in March 1997 with $17.0 million of cash
received. These amounts are reflected in Dividends, interest and other income.
(7) 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 March 31, 1998 and December 31, 1997,
$48.6 million and $45.6 million, respectively, were accrued for reclamation and
remediation costs relating to currently producing mineral properties.
Certain appeals have been filed with the Department of Interior Board of
Land Appeals in conjunction with the Twin Creeks Environmental Impact Statement
and the Lone Tree Mine Plan of Operations. These appeals seek to impose
mitigation and other conditions on the mine operations. The Corporation has
intervened and does not believe that such appeals have merit. An unfavorable
outcome of such appeals, however, could result in additional conditions on
operations which may have a material adverse effect on the Corporation's
financial position or results of operations.
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
7
<PAGE> 8
to meet general environmental standards. Based upon the Corporation's best
estimate of its liability for these matters, $50.6 million and $52.2 million
were accrued for such obligations at March 31, 1998 and December 31, 1997,
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 70% greater or 15% lower
than the amount accrued at March 31, 1998. 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, 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. Remediation work at this property was substantially complete by the
end of 1997. If the remediation does not achieve specific performance objectives
defined in the consent decree, the State may require Idarado to implement
supplemental activities at the site, also as defined in the consent decree.
Idarado and the Corporation have obtained a $9.6 million letter of credit to
secure their potential 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 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.
8
<PAGE> 9
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. Other government agencies also might
attempt to hold the Corporation liable for future reclamation or remediation
work at the mine or millsite. 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 could
generate funds to close and reclaim both the mine and the mill. The license is
being challenged by third parties.
(8) Supplementary Data
The ratio of earnings to fixed charges for the three months ended March
31, 1998 was 3.1. The Corporation guarantees certain third party debt which had
total interest obligations of $0.3 million for the three months ended March 31,
1998. The Corporation has not been required to pay any interest on these
obligations in the past, nor does the Corporation expect to have to pay any
amounts with respect to such debt in the future. Therefore, such amounts have
not been included in the ratio of earnings to fixed charges.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following provides information which management believes is
relevant to an assessment and understanding of Newmont Mining Corporation
("NMC") and its subsidiaries' (collectively, "Newmont") consolidated results of
operations and financial condition. The discussion should be read in conjunction
with the Management's Discussion and Analysis included in Newmont's Annual
Report on Form 10-K. NMC's principal subsidiary is Newmont Gold Company
("NGC"), which holds all operating assets of Newmont, and is approximately
93.75% owned by NMC.
SUMMARY
Newmont earned $30.8 million ($0.20 per share) in the first quarter of
1998 compared with $51.2 million ($0.33 per share) in the first quarter of 1997.
Newmont earned $36.8 million ($0.24 per share) in the 1997 quarter, excluding an
after-tax gain for NGC of $15.4 million ($0.09 per share) related to the
close-out of certain put and call option contracts.
Total equity gold production for the first quarter of 1998 was
1,032,800 ounces, up 22% from 847,200 ounces in the first quarter of 1997. Total
cash costs per ounce of equity production declined 7% to $184 in the first
quarter of 1998 from $198 in the first quarter of 1997. Realized prices per
equity ounce were $46 lower in the first three months of 1998 compared with
those of the same period in 1997, and $28 and $24 higher than the average market
gold price in the first quarters of 1998 and 1997, respectively, due to sales of
a portion of production under commodity instruments.
MARKET CONDITIONS AND RISKS
GOLD PRICE
Newmont's profitability is significantly affected by changes in the
market price of gold. Gold prices can fluctuate widely and are affected by
numerous factors, such as demand, forward selling by producers, central bank
sales and purchases, investor sentiment and production levels. During 1997 and
early 1998, the market gold price declined to its lowest level in 18 years,
recovering modestly through the first quarter of 1998. Continued uncertainty
about the level of central banks' holding and lending of gold reserves, the
perception of sustainable low-inflationary environments and other factors could
continue to adversely impact the market price of gold. Although Newmont is one
of the lowest cost gold producers, a sustained period of low gold prices could
have a material adverse affect on its financial position and results of
operations. At current estimates of 1998 production and expenses, a $10 change
in the gold price results in an annual increase or decrease of approximately $38
million in cash flow from operations and approximately $27 million ($0.17 per
share) in net income.
Newmont has utilized commodity instruments to protect the selling price
of certain anticipated gold production. Approximately 20 percent of production
in 1998 will be sold under such instruments. Newmont is also taking further
steps to optimize operations to preserve cash without impairing long-term growth
during the current low gold price environment. Cash outlays are being reduced
through a combination of lower capital spending, a refocused exploration
program, revised mine and production plans, decreased general and administrative
expenses and a reduction in dividends.
FOREIGN CURRENCY
In addition to the U.S., Newmont has operations in Peru, Uzbekistan and
Indonesia. Gold produced at these operations is sold in the international
markets for U.S. dollars. The cost and debt structures at these operations are
also primarily U.S. dollar denominated. To the extent that there are
fluctuations in local currency exchange rates against the U.S. dollar, the
devaluation of a local currency is generally economically neutral or beneficial
to the operation since local salaries and supply contracts will decrease against
the U.S. dollar revenue stream.
Over the past year, Indonesia has experienced a significant devaluation
of its currency, the rupiah. Newmont's functional currency for its Indonesian
projects is the U.S. dollar; however, certain receivables, primarily related to
refunds of Value Added Tax, are denominated in rupiah. During the three months
ended March 31, 1998, $1.3 million was charged to Other expense to reflect the
recent devaluation of these receivables.
10
<PAGE> 11
RESULTS OF OPERATIONS
PRODUCTION
Newmont increased production in the first quarter of 1998 compared with
the first quarter of 1997 by expanding its processing capabilities for
refractory ores in Nevada and increasing mining rates at Minera Yanacocha.
Production levels and per ounce cash costs are summarized below:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Equity production ozs. (000):
Nevada operations 728.1 589.5
Mesquite 42.0 56.5
Minera Yanacocha 154.4 107.5
Zarafshan-Newmont 49.9 54.7
Minahasa 58.4 39.0
---------- ----------
Total 1,032.8 847.2
========== ==========
Total cash costs per equity ounce:
Nevada operations $ 205 $ 214
Mesquite $ 197 $ 228
Minera Yanacocha $ 112 $ 112
Zarafshan-Newmont $ 181 $ 218
Minahasa $ 140 $ 192
---------- ----------
Weighted average $ 184 $ 198
</TABLE>
Total cash costs include charges for mining ore and waste associated
with current period gold production, processing ore through milling and leaching
facilities, production taxes, royalties and other cash costs. On a per ounce
basis, weighted average costs in the 1998 quarter were lower than those in the
1997 quarter as a result of increased production levels, processing higher-grade
ore with increased recovery rates in Nevada and continued cost containment
efforts.
U.S. OPERATIONS
Newmont's Nevada operations are along the Carlin Trend near Elko and in
the Winnemucca Region, where the Twin Creeks and the Lone Tree Complex mines are
located.
Production in the 1998 quarter increased 24% from the 1997 quarter
primarily due to (i) production in 1998 from the Twin Creeks autoclaves, the
Lone Tree flotation plant and the 50%-owned Rosebud mine (which commenced
operation after the first quarter of 1997); (ii) processing of higher-grade
oxide ore; and (iii) transportation of selected ore types to processing
facilities that maximized gold recovery and production in 1998. Total cash costs
per ounce declined 4% with higher production, fewer royalty burdened ounces and
cost containment efforts. Nevada production is expected to decrease slightly in
1998 from the 2.8 million ounces in 1997 with somewhat higher total cash costs
per ounce from $207 realized in 1997.
Production at the Mesquite mine, a heap-leach operation in southern
California, decreased 26% in the 1998 quarter from the same period in 1997.
Mesquite is reaching the end of its economic life; however, a prospective
property received in connection with a recent land exchange may lead to the
addition of new gold reserves and an extension of the mine life. In 1998, mining
rates have been reduced to allow production to continue while Newmont obtains
the required environmental permits and performs development work on the newly
acquired land. Total cash costs per ounce declined 14% in the 1998 first quarter
from the same period in 1997 as operational efficiencies increased and the
workforce was reduced by 40% in January 1998. Production is expected to decrease
to about 140,000 ounces in 1998, but with somewhat lower total cash costs per
ounce than those in 1997.
INTERNATIONAL OPERATIONS
Production at Minera Yanacocha in Peru increased 32% to 300,700 ounces
(154,400 equity ounces) in the first quarter of 1998 compared with production of
228,200 ounces (107,500 equity ounces) in the same period of 1997. Operation of
a fourth mine and start-up of a second Merrill-Crowe plant and third leach pad
in 1997 contributed to the additional operational capacity in 1998. Cash costs
remained consistent between the two periods at $112 per ounce. During the first
quarter of 1998, heavy rainfall from the effects of El Nino damaged access roads
and power lines resulting in disruption of fuel supply and delays in obtaining
some materials at Minera Yanacocha. An estimated $1.2
11
<PAGE> 12
million was spent in the first quarter of 1998 to maintain operations and
additional funds will be required to assist with road repairs during 1998.
Estimated gold production for 1998 is expected to surpass 1,200,000 ounces
(616,200 equity ounces) with cash costs increasing slightly from 1997.
As discussed in Note 3 of Item 1, an additional 13.35% interest in
Minera Yanacocha was treated as acquired in 1997, increasing Newmont's ownership
to 51.35%. This followed a decision of the Peruvian Superior Court that Newmont
had a preemptive right to acquire its proportionate share of a former partner's
interest. As a result, Minera Yanacocha was consolidated into Newmont's
financial statements beginning in 1997, with the increase in ownership reflected
as of February 1997. Previously, Minera Yanacocha was accounted for as an equity
interest in an affiliated company.
The acquisition of this additional interest continues to be contested
and at this time, Newmont is unable to predict the outcome of the litigation. A
favorable outcome would result in the payment of approximately $59 million for
the acquired interest. An unfavorable outcome would require reversion to equity
accounting in 1997 and 1998 for Newmont's 38% interest in Minera Yanacocha and
the possibility of a dividend refund attributable to the acquired interest. For
the quarters ended March 31, 1998 and 1997, the additional interest represented
$0.02 and $0.01 of Newmont's net income per common share and 4% and 2% of total
equity production, respectively.
The Zarafshan-Newmont Joint Venture, in the Central Asian Republic of
Uzbekistan, is a 50/50 joint venture between a subsidiary of Newmont and two
Uzbekistan governmental entities. Production decreased 9% in the 1998 quarter
compared with the same period in 1997 primarily as a result of slower recoveries
on the leach pad. Total cash costs per ounce declined 17% from the first quarter
of 1997 compared with the same period in 1998 primarily due to increased
operational efficiencies and cost reduction efforts. Production in 1998 is
expected to be comparable to 1997.
In Indonesia, Newmont's 80%-owned Minahasa property increased
production by 50% in the three months ended March 31, 1998 compared with the
same period in 1997 primarily due to higher throughput and ore grades and
increased efficiency in the roaster. Total cash costs per ounce also declined by
27% in the same periods due to improved productivity and efficiency in 1998 and
higher initial costs in the 1997 period for the roaster.
Production is expected to reach approximately 250,000 ounces in 1998.
FINANCIAL RESULTS
The increase in consolidated sales revenue in the quarter ended March
31, 1998 compared with the 1997 period related to increased production levels
partially offset by a decrease in the average gold price received as shown in
the following table:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Consolidated sales (in millions) $ 378.1 $ 355.1
Consolidated production ozs. (000) 1,179.1 967.9
Average price realized per consolidated ounce $ 321 $ 367
Average spot price received per ounce $ 296 $ 346
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 vs. 1997
-------------
<S> <C>
Increase in sales revenues due to (in millions):
Consolidated production $ 77.0
Average gold price received (54.0)
---------
Total $ 23.0
=========
</TABLE>
Costs applicable to sales include total cash costs and provisions for
estimated final reclamation expenses related to consolidated production. The
increase in costs applicable to sales was primarily due to increased production
levels at Nevada and Minera Yanacocha.
12
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Costs applicable to sales (in millions)
Nevada operations $ 150.6 $ 126.7
Mesquite 8.5 13.1
Minera Yanacocha 33.7 25.0
Zarafshan-Newmont 9.1 11.9
Minahasa 7.9 7.3
---------- ----------
Total $ 209.8 $ 184.0
========== ==========
</TABLE>
Depreciation, depletion and amortization increased 20% in the quarter
ended March 31, 1998 from the first quarter in 1997 as a result of the
completion of the Winnemucca Region mine and mill expansion projects, assets
placed in service at the foreign operations and higher production at Nevada,
Minera Yanacocha and Minahasa.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Depreciation, depletion and amortization (in millions):
Nevada operations $ 43.7 $ 37.2
Mesquite 4.8 6.4
Minera Yanacocha 13.4 8.2
Zarafshan-Newmont 3.2 3.0
Minahasa 5.5 3.5
Other 2.2 2.2
---------- ----------
Total $ 72.8 $ 60.5
========== ==========
</TABLE>
Exploration and research expenses decreased by $7.5 million and general
and administrative costs decreased by $2.2 million in the first quarter of 1998
compared with the same period in 1997 as a result of synergies from the merger
and cash conservation efforts.
Interest expense, net of capitalized interest was $20.5 million for the
three months ended March 31, 1998 and $19.3 million for the same period in 1997.
The 1998 increase was associated with higher debt balances following Minera
Yanacocha's $100 million financing obtained in the second quarter of 1997. Net
interest expense in 1998 is expected to be comparable to 1997.
Dividends, interest and other income for the 1998 quarter includes $8.3
million for business interruption insurance for problems associated with the
roaster in Nevada. The first quarter of 1997 includes gains of $23.7 million
related to the close-out of certain Santa Fe put and call option contracts and
$5.1 million related to the disposition of a Santa Fe uranium property. Other
expenses for the 1998 quarter included $1.3 million for the write-down of rupiah
denominated receivables.
In the three months ended March 31, 1998, Newmont recognized an income
tax provision of $7.8 million compared with a provision of $13.4 million in the
1997 quarter. The lower tax provision in the first quarter of 1998 resulted
primarily from lower pre-tax income.
Minority interest in income of Minera Yanacocha decreased by $3.0
million in the first quarter of 1998 compared with the 1997 period. A lower gold
price in the 1998 period and higher depreciation resulting from additional
assets placed in service in 1997 contributed to lower net income for Minera
Yanacocha between the two periods. Additionally, Minera Yanacocha was not
consolidated at 51.35% until February 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1998 existing cash balances and cash flow
from operations ($54.8 million) funded capital expenditures ($56.0 million), net
advances to joint ventures and affiliates ($44.3 million) and dividends ($4.7
million). In addition, during the first quarter of 1998 Newmont repaid $35.9
million of its long-term borrowings. Newmont expects to continue to use existing
cash balances and operating cash flows to fund 1998 capital expenditures and
dividends.
13
<PAGE> 14
INVESTING ACTIVITIES AND CAPITAL EXPENDITURES
Capital Expenditures
Capital expenditures for the quarters ended March 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Capital expenditures (in millions):
U.S. operations $ 35.8 $ 72.9
International operations 15.7 16.1
Other projects and capitalized interest 4.5 16.3
---------- ----------
Total $ 56.0 $ 105.3
========== ==========
</TABLE>
Expenditures in the U.S. during the first quarter of 1998 primarily
related to activities in Nevada, including leach pad expansion ($17.5 million),
capitalized mining costs ($9.1 million) and other ongoing capital requirements.
International capital expenditures included costs for leach pad expansion at
Minera Yanacocha ($12.1 million). Capital expenditures for 1997 included costs
related to the Twin Creeks autoclaves, Lone Tree flotation plant and other
processing equipment in Nevada.
A favorable decision in 1998 regarding the acquisition of the
additional 13.35% interest in Minera Yanacocha would require payment of
approximately $59 million plus any additional costs required to complete the
acquisition.
Batu Hijau
Newmont has a 45% interest in the Batu Hijau project in Indonesia,
accounted for on an equity basis. At March 31, 1998 and December 31, 1997,
Newmont's investment of $110.0 million and $76.8 million, respectively, was
included in Other long-term assets. Funding of $36.0 million in the first
quarter of 1998 is included in Advances to joint ventures and affiliates.
Receipts from Batu Hijau of $15.6 million for reimbursement of costs paid by
Newmont are included in the change in accounts receivable.
Batu Hijau contains proven and probable reserves of 10.6 billion pounds
of copper (4.8 billion equity pounds) and 12.1 million ounces of gold (5.4
million equity ounces). Production is expected to begin in late 1999, with a
projected mine life in excess of 20 years. The cost for development of the
open-pit mine, mill and infrastructure including employee housing, a port,
electrical generation facilities, interest during construction, cost escalation
and working capital is expected to approximate $1.9 billion.
Financing agreements for $1.0 billion were signed in July 1997 for
development of the project. The financing is guaranteed by Newmont and its
partner, Sumitomo Corporation ("Sumitomo"), 56.25% and 46.75%, respectively,
until project completion tests are met, and will be non-recourse thereafter
(except for a $125 million contingent support facility that Newmont and Sumitomo
have agreed to provide). Repayment of the borrowings will begin the earlier of
six months after project completion or June 15, 2001. Draws of $400 million from
the facility occurred in the first three months of 1998.
FINANCING ACTIVITIES
During the first quarter of 1998, Newmont repaid $26.3 million under
its $1.0 billion revolving credit facility and $9.6 million of project financing
at Zarafshan-Newmont.
OTHER
Cash used for accounts payable and accrued expenses of $68.5 million
for the first quarter of 1998 primarily related to the payment of interest,
severance and other benefit-related accruals.
SAFE HARBOR STATEMENT
The foregoing discussion and analysis, as well as certain information
contained elsewhere in this Quarterly Report, contain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. These statements concerning future operations or events are
subject to important risks, uncertainties and other factors that could cause
actual results to differ materially. Forward-looking statements involve certain
factors that are subject to change, including, but not limited to: the price of
gold; interest and currency exchange rates;
14
<PAGE> 15
geological and metallurgical assumptions; operating performance of equipment,
processes and facilities; labor relations; timing of receipt of necessary
governmental permits or approvals; weather and other acts of God; domestic and
foreign laws or regulations, particularly relating to the environment and
mining; domestic and international economic and political conditions; the
ability of joint venture partners to meet their obligations; the ability of
Newmont to obtain or maintain necessary financing; and other risks and hazards
associated with mining operations.
More detailed information regarding Newmont, its operations and factors
that could materially affect its financial position and results of operations
are included in Newmont's Annual Report on Form 10-K as well as other filings
with the Securities and Exchange Commission. Many of these factors are beyond
Newmont's ability to control or predict. Readers are cautioned not to put undue
reliance on forward-looking statements. Newmont disclaims any intent or
obligation to update publicly any forward-looking statements set forth herein,
whether as a result of new information, future events or otherwise.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12 - Statement re Computation of Ratio of Earnings to Fixed Charges.
27 - Financial Data Schedule.
(b) Reports filed on Form 8-K during the quarter ended March 31, 1998:
No reports were filed on Form 8-K during the quarter ended March 31,
1998.
16
<PAGE> 17
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: May 12, 1998 /s/ WAYNE W. MURDY
-------------------
Wayne W. Murdy
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1998 /s/ LINDA K. WHEELER
--------------------
Linda K. Wheeler
Controller
(Principal Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
Exhibit 12 - Statement re Computation of Ratio of Earnings Fixed Charges
Exhibit 27 - Financial Data Schedule
18
<PAGE> 1
EXHIBIT 12
NEWMONT MINING CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands except ratio)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
-----------------------
<S> <C>
Earnings:
Income before income taxes $ 38,607
Adjustments:
Net interest expense (1) 20,492
Amortization of capitalized interest 495
Portion of rental expense representative of interest 356
Minority interest 14,282
----------
$ 74,232
==========
Fixed Charges:
Net interest expense (1) $ 20,492
Capitalized interest 2,876
Portion of rental expense representative of interest 356
----------
$ 23,724
==========
Ratio of earnings to fixed charges 3.1
==========
</TABLE>
(1) Includes interest expense of majority-owned subsidiaries and amortization
of debt issuance costs.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 64,482
<SECURITIES> 9,090
<RECEIVABLES> 43,204
<ALLOWANCES> 0
<INVENTORY> 339,147
<CURRENT-ASSETS> 562,413
<PP&E> 3,956,930
<DEPRECIATION> 1,399,897
<TOTAL-ASSETS> 3,524,150
<CURRENT-LIABILITIES> 346,994
<BONDS> 1,134,861
0
0
<COMMON> 250,403
<OTHER-SE> 1,367,409
<TOTAL-LIABILITY-AND-EQUITY> 3,524,150
<SALES> 378,067
<TOTAL-REVENUES> 389,501
<CGS> 209,807
<TOTAL-COSTS> 282,649
<OTHER-EXPENSES> 33,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,492
<INCOME-PRETAX> 52,889
<INCOME-TAX> 7,842
<INCOME-CONTINUING> 30,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,765
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
