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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 13-1806811
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1700 LINCOLN STREET
DENVER, COLORADO 80203
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (303) 863-7414
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $1.60 PAR VALUE NEW YORK STOCK EXCHANGE
PARIS BOURSE
SWISS STOCK EXCHANGE
BRUSSELS STOCK EXCHANGE
LIMA STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT (BASED ON THE CLOSING SALE PRICE OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE) ON MARCH 5, 1998 WAS APPROXIMATELY $4,241,260,000.
THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING ON MARCH 5, 1998
WAS 156,472,056.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1997 (PART II).
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT TO
REGULATION 14A PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 7, 1998 (PART III).
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This document contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, which involve a degree of
risk and uncertainty due to various factors affecting Newmont Mining Corporation
and its subsidiaries. For a discussion thereof, see page 15.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
Newmont Mining Corporation ("Newmont") was incorporated in 1921 under the
laws of Delaware. Its principal asset is approximately 93.75% of the outstanding
shares of common stock of Newmont Gold Company, a Delaware corporation. Newmont
Gold Company is engaged, directly and through its subsidiaries and affiliates,
in the production of gold, the development of gold properties, the exploration
for gold and the acquisition of gold properties worldwide. Newmont Gold Company
produces gold from operations in Nevada and California, as well as in Peru,
Indonesia and the Central Asian Republic of Uzbekistan. Newmont Gold Company,
together with its subsidiaries (unless the context otherwise requires), is
referred to herein as "NGC." Newmont, together with NGC, is referred to herein
as the "Corporation."
On May 5, 1997, Newmont acquired pursuant to a merger (the "Merger") Santa
Fe Pacific Gold Corporation ("Santa Fe"). Each outstanding share of common stock
of Santa Fe was converted in the Merger into the right to receive 0.43 of a
share of common stock of Newmont. Upon consummation of the Merger, shares of
common stock of Santa Fe were contributed to NGC in exchange for (i) shares of
NGC common stock in an amount equal to the number of shares of Newmont common
stock issued in the Merger and (ii) options to acquire additional shares of NGC
common stock having the same terms as the Santa Fe stock options assumed by
Newmont pursuant to the Merger. As a result, Santa Fe became a wholly-owned
subsidiary of NGC, and the number of outstanding shares of Newmont common stock
continued to be equal to the number of shares of NGC common stock owned by
Newmont. The Merger qualified as a tax-free reorganization and was accounted
for as a pooling of interests. All information set forth in this Report with
respect to periods prior to 1997 has been restated to reflect the Merger.
Substantially all of the Corporation's consolidated sales and operating
profit in 1995 related to its U.S. gold mining activities. In 1996, 90% of NCG's
consolidated sales resulted from operations in the U.S. and 10% from its foreign
operations in Uzbekistan Indonesia. In 1997, the Corporation's consolidated
sales resulted from operations in the U.S., Peru, Uzbekistan and Indonesia. In
1997, 76% of NGC's equity production of gold related to its U.S. operations and
24% to its foreign operations. At December 31, 1997, approximately 20% of the
Corporation's consolidated assets related to its foreign operations.
NEWMONT GOLD COMPANY
OVERVIEW
NGC produces gold in Nevada and California. It also produces gold through a
51.35% owned company in Peru and a 50% owned venture in Uzbekistan which
commenced gold production in September 1995. NGC additionally has an 80%
interest in an Indonesian company which commenced gold production in March 1996
and an indirect 45% interest in a second Indonesian company that holds an
interest in a large copper/gold project which is currently in the construction
stage. NGC also has a 44% interest in a project in Mexico which is undergoing
development and is scheduled to commence production in mid-1998. In addition to
exploration activities conducted in connection with these operations and
projects, NGC continues to explore for gold and/or is conducting joint venture
activities in other parts of these countries as well as in North America, Latin
America, South America, Southeast Asia and Central Asia. NGC had 52.7 million
equity ounces of proven and probable gold reserves at December 31, 1997 and
55.2 million equity ounces of proven and probable gold reserves at December 31,
1996.
NEVADA
Production
NGC's Nevada operations include Carlin, located on the geological feature
known as the Carlin Trend which Newmont discovered in 1961, and operations
acquired in the Merger located in Nevada, referred to as the Winnemucca Region.
The Carlin Trend, located near Carlin, Nevada, is the largest gold district
discovered in North America in this century. The Winnemucca Region includes the
Twin Creeks mine near Winnemucca, Nevada, the Lone Tree Complex near Battle
Mountain, Nevada, and the 50% interest in The Rosebud Mining Company, L.L.C.
("Rosebud") west of Winnemucca, Nevada. Production began in 1965 at Carlin, in
1990 at Twin Creeks, in 1991 at the Lone Tree Complex and in 1997 at Rosebud.
See map description in Appendix I.
1
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Gold production in Nevada totaled 2,776,500 ounces in 1997 at a total cash
cost of $207 per ounce, 2,328,300 ounces in 1996 at a total cash cost of $234
per ounce and 2,297,100 ounces in 1995 at a total cash cost of $214 per ounce.
Production in 1998 is expected to decrease slightly as a result of plans to
conserve cash during the current low gold price environment. Such plans include
reduced mining rates at certain deposits, operating three mills on a scheduled
periodic basis and deferral of certain capital spending. To accommodate these
plans, the workforce in Nevada was reduced by 285 employees in January 1998.
In 1997, ore was mined from 17 open-pit deposits and from five underground
mines. The Post deposit at Carlin is mined by Barrick Goldstrike Mines Inc.
under a joint mining agreement. At the end of 1997, this ore body contained
approximately 1.75 million ounces of proven and probable reserves for NGC's
account. The parties share the cost of mining the ore body in proportion to
their interests in the contained gold. Production initially scheduled from 1998
mining activity at the Post deposit has been deferred due to a pit wall failure
that occurred in mid-1997. During 1998, waste removal will occur to accommodate
the revised mine plan. The 50%-owned Rosebud underground mine is operated by
Hecla Mining Company. All ore mined from Rosebud is transported to Twin Creeks
for processing at an agreed upon cost.
The following table presents Nevada operations mine production data:
<TABLE>
<CAPTION>
NEVADA MINE PRODUCTION
(DRY SHORT TONS 000)
MILL LEACH
ORE ORE WASTE TOTAL
----- ------ ------- -------
<S> <C> <C> <C> <C>
Open-Pit Mines
Carlin Trend
Carlin South 7,649 27,544 41,312 76,505
Carlin North-Post 4,721 7 47,914 52,642
Carlin North-
Genesis Complex 612 10,381 26,331 37,324
Carlin North-Other 1,860 3,668 20,843 26,371
Twin Creeks 4,418 11,191 99,942 115,551
Lone Tree Complex 2,874 7,104 50,267 60,245
------ ------ ------- -------
Total Open-Pit 22,134 59,895 286,609 368,638
------ ------ ------- -------
Nevada Underground
Carlin North 683 0 0 683
Carlin Rain 145 29 0 174
Rosebud (50%) 113 0 0 113
------ ------ ------- -------
Total Underground 941 29 0 970
------ ------ ------- -------
Total Nevada 23,075 59,924 286,609 369,608
====== ====== ======= =======
*Ounce per ton
</TABLE>
<TABLE>
<CAPTION>
MILL LEACH
ORE ORE WASTE TOTAL
----- ------ ------- -------
<S> <C> <C> <C> <C>
Open-Pit Mines
Carlin Trend
Carlin South 8,407 30,891 57,805 97,103
Carlin North-Post 1,037 136 78,180 79,353
Carlin North-
Genesis Complex 1,753 12,493 43,822 58,068
Carlin North-Other 661 1,289 4,969 6,919
Twin Creeks 3,136 18,238 106,845 128,219
Lone Tree Complex 1,910 4,736 41,645 48,291
------ ------ ------- -------
Total Open-Pit 16,904 67,783 333,266 417,953
------ ------ ------- -------
Nevada Underground
Carlin North 546 0 0 546
Carlin Rain 160 6 0 166
Rosebud (50%) 0 0 0 0
------ ------ ------- -------
Total Underground 706 6 0 712
------ ------ ------- -------
Total Nevada 17,610 67,789 333,266 418,665
====== ====== ======= =======
* Ounce per ton
</TABLE>
<TABLE>
<CAPTION>
MILL LEACH
ORE ORE WASTE TOTAL
----- ------ ------- -------
<S> <C> <C> <C> <C>
Open-Pit Mines
Carlin Trend
Carlin South 9,162 34,498 59,382 103,042
Carlin North-Post 2,084 752 63,024 65,860
Carlin North-
Genesis Complex 3,258 15,380 46,727 65,365
Carlin North-Other 13 65 2,461 2,539
Twin Creeks 3,216 17,013 109,446 129,675
Lone Tree Complex 1,523 2,827 35,786 40,136
------ ------ ------- -------
Total Open-Pit 19,256 70,535 316,826 406,617
------ ------ ------- -------
Nevada Underground
Carlin North 358 0 0 358
Carlin Rain 146 0 0 146
Rosebud (50%) 0 0 0 0
------ ------ ------- -------
Total Underground 504 0 0 504
------ ------ ------- -------
Total Nevada 19,760 70,535 316,826 407,121
====== ====== ======= =======
*Ounce per ton
</TABLE>
2
<PAGE> 4
Processing Facilities
Oxide ore is amenable to gold extraction through the use of size-reduction
processes, such as crushing and grinding, and the dissolution of the gold in
such ore using conventional cyanidation treatment techniques. Refractory ore
contains minerals which require pre-treatment, such as roasting,
pressure-oxidation, flotation or bio-oxidation, to optimize recovery of gold in
the cyanidation processes. Approximately 70% of NGC's 1997 year-end proven and
probable gold reserves in Nevada were refractory and the balance were oxide.
Nevada's production is increasingly coming from higher-cost refractory ores from
both deep open pits and underground mines as lower-cost, near-surface oxide ores
are depleted. Refractory ore treatment facilities are expected to generate
approximately 47% of NGC's Nevada gold production in 1998, compared with 35% in
1997 and 30% in 1996.
During 1997, NGC processed higher-grade oxide ores at six mills and
lower-grade oxide ores at heap-leaching facilities in both regions. Higher-grade
refractory ores are processed by a roaster at Carlin, and by autoclaves in the
Winnemucca Region. Lower-grade refractory ores are processed through a flotation
plant at Lone Tree or by bio-oxidation and heap-leaching at Carlin. Since the
Merger, selected ores and concentrates are transported to the facility that
maximizes gold recovery and production.
NGC's refractory ore treatment plant, or roaster, known as Mill No. 6, was
commissioned in late 1994 to treat high-grade refractory ores that contain
either sulfides or active carbon. Ore processed through the roaster yielded
approximately 700,900 ounces of gold in 1997, 540,000 ounces in 1996 and 354,400
ounces in 1995. A portion of the concentrates from the Lone Tree flotation plant
were processed through the roaster during the latter half of 1997. To finance
the roaster, it was sold to a third party and leased back to NGC in 1994
pursuant to a 21-year lease. For a discussion of the financing of the roaster,
see Note 8 to the financial statements in the 1997 Annual Report to Stockholders
at page 34 therein.
Refractory ores at Twin Creeks are processed through the Sage Mill, a
two-autoclave facility that utilizes a patented fine-grinding,
pressure-oxidation process which oxidizes ore by the action of heat, pressure
and elevated oxygen. The first autoclave was commissioned in May 1997 and the
second in October 1997. Refractory ores from certain deposits at the Lone Tree
Complex and a portion of the concentrates from the Lone Tree flotation plant
were also processed through the Sage Mill. Since the Merger, certain ores from
the Carlin North Area are transported to and processed through the Sage Mill.
During scheduled maintenance periods, oxide ore is processed through the Sage
mill, bypassing the autoclave circuits.
The Lone Tree Mill is a patented partial-oxidation autoclave circuit which
commenced operation in early 1994. Oxide ore is also processed through the mill,
bypassing the autoclave circuit, generally when the autoclave is undergoing
scheduled maintenance. Lower-grade refractory ores are treated at a flotation
plant which was commissioned in mid-1997. In the flotation process, sulfide
mineralization, with which gold is associated, is concentrated and separated
from other minerals present in the ore utilizing inert gas. The resulting
concentrates, containing higher percentages of gold in substantially smaller
volumes of material, are processed through either the Lone Tree autoclave, the
Sage Mill or Carlin's roaster.
During 1997, NGC completed a large-scale bio-leach demonstration facility
to process lower-grade refractory ores from Carlin's Gold Quarry deposit.
Approximately 13,800 ounces of gold were produced in 1997 from this facility.
This process utilizes bacterial oxidation and ammonium thiosulfate leaching
applications. An eight million ton commercial-scale refractory leach pad,
originally scheduled for completion in 1999, has been deferred as part of NGC's
plans to reduce capital spending during 1998.
The following table presents mill and leach production data for the Nevada
operations:
NEVADA MILL AND LEACH PRODUCTION
<TABLE>
<CAPTION>
1997
AVERAGE OUNCES
DRY SHORT TONS AVERAGE RECOVERY PRODUCED
(000) GRADE* RATE (%) (000)
-------------- ------- -------- --------
<S> <C> <C> <C> <C>
Oxide Mills:
Carlin Trend
Mill No. 3 0 0.000 0.0 0.0
Mill No. 4 2,104 0.125 76.6 207.7
Mill No. 5 6,170 0.087 81.5 443.7
Twin Creeks 3,633 0.096 86.2 286.4
Lone Tree Complex 680 0.138 83.0 71.0
------ -------
Total Oxide Mills 12,587 0.099 81.9 1,008.8
------ -------
Refractory Mills:
Carlin Roaster 2,330 0.336 87.3 700.9
Twin Creeks
Autoclaves 763 0.206 89.5 144.0
Lone Tree
Autoclave 1,382 0.106 85.8 114.2
------ -------
Total Refractory
Mills 4,475 0.242 87.4 959.1
------ -------
Total Mills 17,062 0.137 83.3 1,967.9
------ -------
Leach Production:
Carlin--Oxide 34,820 0.022 N/A 465.3
Carlin--Refractory 363 0.075 N/A 13.8
Twin Creeks--Oxide 11,187 0.018 N/A 202.0
Lone Tree--Oxide 6,926 0.026 N/A 127.5
------ -------
Total Leach 53,296 0.022 808.6
------ -------
Total Nevada 70,358 0.050 2,776.5
====== =======
* Ounce Per Ton
</TABLE>
<TABLE>
<CAPTION>
1996
AVERAGE OUNCES
DRY SHORT TONS AVERAGE RECOVERY PRODUCED
(000) GRADE* RATE (%) (000)
-------------- ------- -------- --------
<S> <C> <C> <C> <C>
Oxide Mills:
Carlin Trend
Mill No. 3 242 0.186 68.2 39.6
Mill No. 4 2,741 0.071 75.6 152.7
Mill No. 5 5,904 0.084 77.8 400.8
Twin Creeks 2,768 0.085 83.7 160.7
Lone Tree Complex 241 0.133 86.0 27.6
------ -------
Total Oxide Mills 11,896 0.084 79.1 781.4
------ -------
Refractory Mills:
Carlin Roaster 2,364 0.256 84.8 540.0
Twin Creeks
Autoclaves 0 0 0 0
Lone Tree
Autoclave 841 0.165 90.9 127.7
------ -------
Total Refractory
Mills 3,205 0.232 86.0 667.7
------ -------
Total Mills 15,101 0.115 80.6 1,449.1
------ -------
Leach Production:
Carlin--Oxide 38,658 0.022 N/A 547.3
Carlin--Refractory 352 0.107 N/A 19.7
Twin Creeks--Oxide 18,238 0.022 N/A 261.3
Lone Tree--Oxide 4,716 0.025 N/A 50.9
------ -------
Total Leach 61,964 0.023 879.2
------ -------
Total Nevada 77,065 0.041 2,328.3
====== =======
* Ounce Per Ton
</TABLE>
<TABLE>
<CAPTION>
1995
AVERAGE OUNCES
DRY SHORT TONS AVERAGE RECOVERY PRODUCED
(000) GRADE* RATE (%) (000)
-------------- ------- -------- --------
<S> <C> <C> <C> <C>
Oxide Mills:
Carlin Trend
Mill No. 3 105 0.211 87.6 19.9
Mill No. 4 2,713 0.063 80.6 139.6
Mill No. 5 6,172 0.091 82.8 473.5
Twin Creeks 2,401 0.087 88.6 198.3
Lone Tree Complex 312 0.147 89.0 40.8
------ -------
Total Oxide Mills 11,703 0.086 83.9 872.1
------ -------
Refractory Mills:
Carlin Roaster 1,383 0.281 91.0 354.4
Twin Creeks
Autoclaves 0 0 0 0
Lone Tree
Autoclave 714 0.157 90.8 99.3
------ -------
Total Refractory
Mills 2,097 0.239 87.4 453.7
------ -------
Total Mills 13,800 0.109 84.4 1,325.8
------ -------
Leach Production:
Carlin--Oxide 44,095 0.023 N/A 647.1
Carlin--Refractory 0 0 N/A 0
Twin Creeks--Oxide 17,022 0.020 N/A 239.1
Lone Tree--Oxide 2,833 0.040 N/A 85.1
------ -------
Total Leach 63,950 0.023 971.3
------ ----- -------
Total Nevada 77,750 0.038 2,297.1
====== ===== =======
* Ounce Per Ton
</TABLE>
3
<PAGE> 5
Other Facilities
Gold-bearing activated carbon from Carlin milling and leaching facilities
is processed on site at a central carbon processing plant and adjacent refinery.
Separate carbon processing facilities are located in the north and south areas
at Twin Creeks with one refinery in the north area. Lone Tree has two carbon
processing facilities and one refinery.
Analytical laboratories, maintenance facilities and administration offices
are located at Carlin, Twin Creeks and Lone Tree. NGC also has an advanced
metallurgical research laboratory in Denver, Colorado.
Electrical power and natural gas for NGC's Nevada operations are provided
by public utilities. Oxygen for the roaster is provided by Praxair Inc. on a
contract basis from an oxygen plant constructed by Praxair Inc. on land leased
from NGC which is currently the sole customer of the oxygen produced. Oxygen
plants used in conjunction with the autoclaves at Twin Creeks and Lone Tree are
owned by NGC and are operated and maintained by Air Products and Chemical, Inc.
Refining
NGC has refining agreements with three foreign refiners and one U.S.
refiner to further refine the dore bars produced by NGC to 0.995 pure gold or
better, recognized as marketable on world markets. Under the terms of the
agreements with these refiners, the dore bars are toll refined and the refined
gold and the separately recovered silver are returned to NGC's account for sale
to third parties. Management believes that because of the availability of
alternative refiners, each able to supply all services needed by NGC for its
Nevada operations, no adverse effect would result if NGC lost the services of
any of its refiners.
Exploration
NGC conducts extensive exploration in Carlin and the Winnemucca Region. NGC
owns or otherwise controls the mineral interests on approximately 1.9 million
acres of property in northern Nevada. During 1997, exploration efforts were
focused on high-grade refractory targets near existing deposits. Following the
Merger, a concerted effort began to evaluate the lands in Nevada acquired in the
Merger. This evaluation included geological mapping, an airborne geophysical
survey and re-logging of drill holes in order to develop target areas around the
Twin Creeks, Lone Tree and Rosebud mines. Drill testing of these targets
commenced in early 1998.
In 1997, approximately $35.4 million was spent by NGC on reserve
development and exploration in Nevada. For 1998, approximately $30 million is
expected to be spent on reserve development and exploration in Nevada.
Mineral Rights
With respect to Carlin, NGC owns in fee or controls through long-term
mining leases and unpatented mining claims all of the minerals and surface area
within the boundaries of the present mining areas of its Carlin Trend deposits.
Such long-term leases extend for at least the anticipated mine life of those
deposits. With respect to Gold Quarry, NGC owns a 10% undivided interest in the
minerals in a majority of the present and projected mining areas, and with
respect to the remaining 90% of such areas has agreed to pay a royalty on
production to third party lessors that is equivalent to 18% of production
therefrom.
In the Winnemucca Region, NGC owns in fee or controls through long-term
mining leases and unpatented mining claims all of the minerals and surface area
within the boundaries of the present mining areas of its Winnemucca Region
deposits. Such long-term leases extend for at least the anticipated mine life of
those deposits. With respect to certain smaller deposits in the Winnemucca
Region, NGC is obligated to pay a royalty on production to third parties that
varies from 4% to 7% of production therefrom.
For information regarding risks associated with unpatented mining claims,
see page 17.
[MAP: NEVADA OPERATING PROPERTIES AND PRINCIPAL AREA OF LAND HOLDINGS]
4
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CALIFORNIA
The Mesquite Mine, located in Imperial County in southern California, was
acquired by Santa Fe in an asset exchange in 1993 and has been producing since
1986. Mining at the Mesquite Mine is conducted in two open pits and ore is
processed by run-of-mine heap-leaching. Gold production totaled 227,900 ounces
in 1997, 191,600 ounces in 1996 and 189,200 ounces in 1995. Total cash costs per
ounce were $213, $245 and $211 for 1997, 1996 and 1995, respectively.
Gold-bearing activated carbon from leaching facilities is processed at an
on-site carbon processing plant and refinery. Maintenance facilities and
administration offices are also located at Mesquite. Electric power is supplied
by the Imperial Irrigation District.
With approximately 613,000 ounces of proven and probable reserves at
December 31, 1997, Mesquite is approaching the end of its mine life. Following a
recent land exchange between the Bureau of Land Management and the State of
California, NGC gained access to property located just north of an existing pit
through a lease with the State. NGC is in the process of obtaining environmental
permits required to commence drilling on this property. Beginning in 1998 the
mining rate at Mesquite was reduced to allow continuation of operations through
the period of time required to determine the development potential of this
property. As a result of such revised mine plan, the workforce was reduced by
approximately 125 employees in January 1998. Production in 1998 will be
approximately 38% less than 1997.
MESQUITE MINE AND LEACH PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Leach tons mined ....................... 16,463 15,528 13,902
Waste tons mined ....................... 29,142 25,891 23,558
Tons mined ............................. 45,605 41,419 37,460
Ore place on leach pads ................ 16,463 15,527 13,767
Average ore grade (ounce per ton)....... 0.016 0.023 0.022
Ounces of gold produced (000) .......... 227.9 191.6 189.2
</TABLE>
NGC owns in fee or controls through long-term mining leases and unpatented
mining claims all of the minerals and surface area within the boundaries of the
present mining areas of its Mesquite deposit. Such long-term leases extend for
at least the anticipated mine life of those deposits. For information regarding
risks associated with unpatented mining claims, see page 17.
PERU
Introduction
NGC produces gold through Minera Yanacocha S.A. ("Minera Yanacocha") in
Peru. In 1986, NGC discovered the Yanacocha gold deposit which has since become
the largest gold district in South America. Minera Yanacocha began production in
1993. Prior to 1997, NGC owned a 38% equity interest in Minera Yanacocha. In
1997, NGC and NMC consolidated Minera Yanacocha in their 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 another entity. NGC and Compania de Minas Buenaventura, S.A.
("Buenaventura"), then 38% and 32.3% owners of Minera Yanacocha, respectively,
filed suit in Peru to seek enforcement of a provision in the by-laws of Minera
Yanacocha, giving shareholders preemptive rights on the proposed sale or
transfer of any shareholder's interest. The caption of the suit is Compania
Minera Condesa et al. v. Bureau de Recherches Geologiques et Minieres, Case No.
944-94-A (300-96RC), Fifth Specialized Civil Court In and For Lima. In February
1995, an appellate court in Peru issued a preliminary ruling in favor of NGC and
Buenaventura, both of whom elected to exercise their preemptive rights to
acquire their proportionate share of the 24.7% interest. In accordance with the
court ruling, Minera Yanacocha canceled the BRGM shares and issued shares
representing interests in Minera Yanacocha of 13.35% to NGC and 11.35% to
Buenaventura.
5
<PAGE> 7
NGC deposited its share of the provisional $90 million purchase price and the
shares for its additional interest with a Peruvian bank pending the final
resolution of the case. The trial hearing in the case occurred in July 1996 and
a ruling in NGC's and Buenaventura's favor was issued in September 1996. The
trial court ruling provided that 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 was 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
Peruvian Superior Court upheld the decision of the trial court. Therefore, NGC
reflected the increase in its ownership for reporting purposes from 38.0% to
51.35% as of February 1997.
BRGM and other defendants in the suit filed a request for review of the
Superior Court decision by the Supreme Court of Peru. 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 NGC and three
voting in favor of BRGM. A sixth justice was then appointed to hear the case and
has not yet issued her vote. If the vote is in favor of NGC, a seventh judge
will be appointed to hear the case. At this time, NGC is unable to predict the
outcome of the litigation. An unfavorable decision would require reversion to
equity accounting in 1997 for the Corporation's 38% interest in Minera Yanacocha
and the possibility of a dividend refund attributable to the acquired interest.
The additional interest represented $0.07 of net income per share and 3% of
total equity production in 1997 and is expected to comprise 4% of 1998 equity
production.
Minera Yanacocha has mining rights with respect to a large land position,
which includes the Carachugo, Maqui Maqui, Yanacocha Norte, San Jose and Encajon
deposits as well as other prospects. Such mining rights were acquired through
assignments of concessions granted by the Peruvian government to a related
entity. The assignments have a term of 20 years, renewable at the option of
Minera Yanacocha for another 20 years. A wholly-owned subsidiary of NGC acts as
manager of Minera Yanacocha.
Minera Yanacocha has emphasized social development in the communities
surrounding its mining operations. Since 1994, Yanacocha has built or rebuilt
seven schools, developed social programs and built roads in such communities all
of which have contributed to the growth of the local economies. Minera Yanacocha
has an advisory role on the Ministry of Energy and Mines environmental affairs
group to provide technical assistance with the development of achievable
environmental strategies for Peru's mining industry.
Production
Four open-pit mines and three leach pads are in operation at Minera
Yanacocha. Production commenced in August 1993 at the Carachugo deposit, in
October 1994 at the Maqui Maqui deposit which is located three miles north of
Carachugo, in January 1996 at the San Jose deposit which is located one mile
southwest of Carachugo, and in December 1997 at the Yanacocha Norte deposit
which is located one mile northwest of Carachugo. In 1997, production was
1,052,800 ounces of gold (530,900 equity ounces at 51.35%, beginning February 1,
1997) at a total cash cost of $95 per ounce as compared to 1996 production of
811,400 ounces of gold (308,300 equity ounces at 38%) at a total cash cost of
$107 per ounce and 1995 production of 552,000 ounces of gold (209,800 equity
ounces at 38%) at a total cash cost of $119 per ounce. In 1998, production is
expected to increase approximately 14%.
Minera Yanacocha's operations are accessible by road and are located
approximately 375 miles north of Lima and 28 miles north of the city of
Cajamarca. As of October 1997, power for the project is provided pursuant to a
four year renewable contractual agreement with a local power company. Back up
power is provided by diesel generators owned by Minera Yanacocha. The ore is not
crushed, but transported directly to impermeable leach pads where the ore is
treated with a weak cyanide solution which penetrates the ore dissolving the
gold. The pregnant leach solution is collected and pumped through a
Merrill-Crowe plant to remove the gold from the solution. A second Merrill-Crowe
plant was placed in service in December 1997. After the gold is processed from
the zinc precipitate, it is smelted into dore which is transported from the
processing plant by a contractor and toll refined at refineries in Switzerland.
See Note 8 to the financial statements in the 1997 Annual Report to Stockholders
at page 34 therein for a discussion of Minera Yanacocha's outstanding debt.
Two new deposits were added to proven and probable gold reserves in 1997.
The Yanacocha Sur deposit which is located one mile northwest of Carachugo
contains 5.3 million ounces of gold (2.8 million equity ounces at 51.35%). La
Quinua, located two and one-half miles west of Carachugo, contains 3.0 million
ounces of gold (1.5 million equity ounces at 51.35%). Total proven and probable
gold reserves for Minera Yanacocha as of December 31, 1997 were 13.9 million
ounces (7.1 million equity ounces at 51.35%) and 6.1 million ounces (3.1 million
equity ounces at 51.35%) as of December 31, 1996.
6
<PAGE> 8
The following table presents Minera Yanacocha mine and leach production
data:
MINERA YANACOCHA MINE AND LEACH PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997
----------------------------
LEACH
ORE WASTE TOTAL
------ ------- -------
<S> <C> <C> <C>
Carachugo .......................... 10,658 7,509 18,167
Maqui Maqui......................... 14,909 7,379 22,288
San Jose ........................... 3,239 1,484 4,723
Yanacocha Norte .................... 601 831 1,432
------ ------ -------
Total............................... 29,407 17,203 46,610
====== ====== =======
Ore placed on leach pads............ 29,407
Average ore grade (ounce per ton)... 0.043
Ounces of gold produced (000)....... 1,052.8
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------
LEACH
ORE WASTE TOTAL
------ ------- -------
<S> <C> <C> <C>
Carachugo .......................... 2,491 1,380 3,871
Maqui Maqui ........................ 15,218 4,291 19,509
San Jose ........................... 6,026 1,145 7,171
Yanacocha Norte .................... 0 0 0
------ ------ -------
Total .............................. 23,735 6,816 30,551
====== ====== =======
Ore placed on leach pads............ 23,735
Average ore grade (ounce per ton)... 0.046
Ounces of gold produced (000)....... 811.4
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------
LEACH
ORE WASTE TOTAL
------ ------- -------
<S> <C> <C> <C>
Carachugo ......................... 9,238 4,647 13,885
Maqui Maqui ....................... 8,521 2,071 10,592
San Jose .......................... 0 0 0
Yanacocha Norte ................... 0 0 0
------ ------ -------
Total ............................. 17,759 6,718 24,477
====== ====== =======
Ore placed on leach pads .......... 17,759
Average ore grade (ounce per ton).. 0.045
Ounces of gold produced (000)...... 552.0
</TABLE>
Exploration
Exploration continues to be conducted at numerous prospects owned by Minera
Yanacocha. Approximately $24 million was spent by Minera Yanacocha on
exploration and mine geology in 1997. A $19 million exploration and mine geology
program is currently underway in 1998.
Exploration work on the Minas Conga joint venture, 40% owned by NGC, 40% by
Cedimin and 20% by Compania Minera Condesa S.A., a subsidiary of Buenaventura,
continued throughout 1997 with an aggressive drilling campaign. Encouraging
porphyry gold-copper mineralization has been identified on two separate targets
which will continue to be drill tested in 1998. A second Peruvian joint venture,
Minera Coshuro, is 65% owned by NGC and 35% by Buenaventura and holds claims on
257,000 acres of prospective ground along north and south extensions of the
volcanic belt hosting the Minera Yanacocha deposits. In addition, NGC and
Buenaventura are active in the southern part of Peru. Initial exploration work
is underway in these prospective areas and a number of targets have been
outlined.
UZBEKISTAN
Introduction
In Uzbekistan, NGC has a 50% interest in Zarafshan-Newmont, a joint venture
with the State Committee for Geology and Mineral Resources ("State Committee")
and Navoi Mining and Metallurgical Combine ("Navoi"), each a state entity of
Uzbekistan. The joint venture produces gold by crushing and leaching ore from
existing stockpiles of low-grade oxide ore from the nearby government-owned
Muruntau mine. The gold produced by Zarafshan-Newmont is sold in international
markets for U.S. dollars. A wholly-owned subsidiary of NGC provides technical
and managerial support to Zarafshan-Newmont. The State Committee and Navoi have
guaranteed to Zarafshan-Newmont 242 million tons of ore with an average grade of
0.036 ounces of gold per ton, containing approximately 8.6 million ounces of
gold. Such guaranteed amount of ore consists of approximately 66 million tons
of ore with an average grade of 0.046 ounces of gold per ton and
approximately 176 million tons of ore with an average grade of 0.032 ounces of
gold per ton.
Production
During 1997, approximately 14.6 million tons of ore were crushed and placed
on the leach pad as compared to 12.7 million tons in 1996. The project's
remaining 217 million tons of stockpiled ore and ore in process hold a reserve
of 7.5 million ounces (3.8 million equity ounces).
7
<PAGE> 9
Zarafshan-Newmont commenced production in the second half of 1995 and
produced 37,000 ounces of gold, or 18,500 ounces attributable to NGC, at a total
cash cost of $218 per ounce. In 1996, total production was 326,500 ounces of
gold or 163,200 ounces attributable to NGC, at a total cash cost of $225. In
1997, total production was 430,100 ounces of gold or 215,000 ounces attributable
to NGC, at a total cash cost of $204. Production in 1998 is expected to be
approximately 425,000 ounces of gold or 212,500 ounces attributable to NGC. The
project's facilities include 18 crushers in four stages. Crushed material is
transported to impermeable leach pads where the ore is treated with a weak
cyanide solution which penetrates the ore dissolving the gold. The pregnant
leach solution is collected and pumped through a Merrill-Crowe plant to remove
the gold from the solution. After the gold is processed from the zinc
precipitate, it is smelted into dore and transported to the nearby Muruntau gold
refinery operated by Navoi where, pursuant to a refining agreement, the dore is
refined for export. The project has access to air, rail and road transport.
There are no significant logistical difficulties for transportation of refined
gold. Power for the project is provided pursuant to a contractual arrangement
with Navoi which acquires such power from a plant in Navoi, Uzbekistan.
Zarafshan-Newmont obtained a $135 million project financing loan from a
consortium of banks to partially finance construction of the project. At
December 31, 1997, $87.8 million was outstanding under this financing. See also
Note 8 to the financial statements in the 1997 Annual Report to Stockholders at
page 34 therein. Although not contractually obligated to do so, NGC has made,
and may from time to time make, advances or contributions to Zarafshan-Newmont
to cover debt service requirements and other capital and operating costs.
The following table presents Zarafshan-Newmont leach production data:
ZARAFSHAN-NEWMONT LEACH PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995(1)
------ ------ -------
<S> <C> <C> <C>
Ore placed on leach pads ............. 14,618 12,737 4,321
Average ore grade (ounce per ton) .... 0.050 0.053 0.051
Ounces of gold produced (000) ........ 430.1 326.5 37.0
</TABLE>
- ---------
(1) Began operations in second half of 1995.
Exploration
NGC signed an agreement in September 1996 with the Uzbekistan government
and Mitsui & Co., Ltd. for the development of gold deposits (subject to
satisfaction of certain conditions) in the Angren region of Uzbekistan,
approximately 60 miles south of the city of Tashkent. NGC has a 40% interest in
the project. Pre-feasibility studies are planned for 1998.
INDONESIA
Introduction
NGC has two projects in Indonesia -- Minahasa which is in operation and
Batu Hijau which is under construction. The Minahasa project is 80% owned by NGC
and 20% owned by P.T. Tanjung Serapung, an Indonesian company. However, because
NGC funded 100% of the construction costs for Minahasa, NGC is entitled to 100%
of the gold production until it recovers the bulk of its investment, including
interest. NGC has an indirect 45% interest in the Batu Hijau project which it
owns through a partnership with an affiliate of Sumitomo Corporation
("Sumitomo"). Sumitomo holds an indirect 35% interest in the Batu Hijau project
through this partnership arrangement and the remaining 20% interest is a carried
interest held by P. T. Pukuafu Indah, an Indonesian company.
In Indonesia, rights are granted to private parties to explore for and to
develop the mineral resources within defined areas through Contracts of Work
entered into with the Indonesian government. In 1986, NGC entered into fourth
generation Contracts of Work with the Indonesian government covering the
Minahasa and Batu Hijau projects. Under the Contracts of Work, affiliates of NGC
were granted the exclusive right to explore the contract area, construct any
required facilities and extract and process the mineralized materials, and sell
and export the minerals produced subject to certain Indonesian government
approvals and payment of royalties to the Indonesian government. Once facilities
are constructed and mining operations commence, the private party has the right
to continue operating the project for 30 years, or longer if approved by the
Indonesian government. Under the Contracts of Work, beginning in the sixth year
after mining operations commence (and continuing through the tenth year) a
portion of each project not
8
<PAGE> 10
already owned by Indonesian nationals must be offered for sale to the Indonesian
government or to Indonesian nationals (collectively the "Indonesian Parties"),
thereby potentially reducing the non-Indonesian parties ownership in each
project to 49% by the end of the tenth year. The price at which such interest
would be offered for sale to the Indonesian Parties would be the highest of (i)
the then current replacement cost, (ii) the price at which shares of the project
company would be accepted for listing on the Jakarta Stock Exchange or (iii) the
fair market value of such interest as a going concern.
In mid-1997, NGC entered into a Contract of Work granting rights to NGC
to explore an area located near the Minahasa contract area through a new
company, P. T. Newmont Mongondow Mining ("Mongondow"). NGC has an 80% interest
and the remaining 20% interest is a carried interest held by P. T. Lebong
Tandai, an Indonesian company. This Contract of Work is a sixth generation
Contract of Work. The major differences between the fourth and sixth generation
Contracts of Work are a reduced income tax rate (from 35% to 30%), elimination
of the requirement to divest part of NGC's 80% interest and changes in the
method of royalty calculation.
Minahasa
Minahasa, a multi-deposit project discovered by NGC on the island of
Sulawesi, began production in March 1996. It is approximately 1,500 miles
northeast of Jakarta. Minahasa mines and processes ore from the Mesel deposit
and two smaller peripheral deposits (Leons and Nibong) which at the end of 1997
contained approximately 1.6 million ounces of proven and probable reserves (in
which NGC has an equity interest of approximately 1.3 million ounces). These
deposits contain both oxidized and refractory gold mineralization.
Minahasa produced 206,500 ounces of gold in 1997 at a total cash cost of
$167 per ounce as compared to 112,700 ounces of gold in 1996 at a total cash
cost of $224 per ounce. Production in 1998 is expected to reach approximately
250,000 ounces.
The project's facilities include a dry grinding mill, a fluidized bed
roaster facility and a conventional carbon-in-pulp gold recovery plant.
Infrastructure facilities include a deep-water port, electrical power plant,
water supply system and housing for workers. The ore's high mercury content
necessitated installation of a $8 million mercury scrubber in 1997. Total
capital costs were approximately $133 million. The Minahasa project is in close
proximity to the coast and does not have any significant logistical difficulties
for transportation of materials, equipment or its product.
The following table presents Minahasa mine and mill production data:
MINAHASA MINE AND MILL PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
------------------------------ -----------------------------
MILL ORE WASTE TOTAL MILL ORE WASTE TOTAL
-------- ------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Tons mined ......................... 1,269 10,032 11,301 1,048 9,062 10,110
======== ====== ====== ======== ===== ======
Tons milled ........................ 794 454
====== ======
Average ore grade (ounce per ton)... 0.289 0.279
Average recovery rate (%) .......... 91.4 90.3
Ounces of gold produced (000)....... 206.5 112.7(1)
</TABLE>
- ------------
(1) Includes 5,700 ounces produced before commercial operations commenced.
Batu Hijau
NGC's second project in Indonesia, Batu Hijau, is located on the island of
Sumbawa, approximately 950 miles east of Jakarta. Batu Hijau is a large porphyry
copper/gold deposit discovered by NGC in 1990. It is located seven miles from
the south coast and nine miles from the west coast of the island and has access
to a natural harbor which is being developed for transportation of materials,
equipment and, eventually, copper concentrate. Production is expected
to begin in late 1999. At the end of 1997, the deposit contained approximately
10.6 billion pounds of copper and 12.1 million ounces of gold in proven and
probable reserves in which NGC has an equity interest of 4.8 billion pounds of
copper and 5.4 million ounces of gold.
9
<PAGE> 11
NGC owned an 80% interest in Batu Hijau until it entered into a partnership
arrangement in July 1996 with Sumitomo to develop and operate the Batu Hijau
project. The partnership arrangement was approved by the Indonesian government
and is controlled by a partnership agreement executed between NGC and Sumitomo.
When the partnership was funded in mid-1997, NGC contributed its 80% equity
interest in the company that owns Batu Hijau to the partnership in exchange for
a 56.25% partnership interest and Sumitomo contributed funds totaling
approximately $239 million to obtain a 43.75% partnership interest. P. T.
Pukuafu Indah retained its 20% interest in Batu Hijau. The ownership of Batu
Hijau after formation of the partnership is NGC -- 45%, Sumitomo -- 35%, and
P. T. Pukuafu Indah -- 20%. As a result of this ownership structure, NGC is
accounting for its investment in Batu Hijau as an equity investment.
NGC completed a final feasibility study for Batu Hijau in 1996. Based on
the results of that study, and after obtaining the required approvals from the
government of Indonesia and entering into the partnership with Sumitomo,
development and construction activities began in 1997. The project is expected
to mine an average of 163 million tons per annum and the ore will be processed
at the concentrator at an average rate of 132 thousand tons per day. Other
facilities included in the project include a port, a coal-fired electrical
generating plant, a townsite for the workforce, and other ancillary facilities.
The total cost of the project is expected to be approximately $2 billion
including cost escalations, capitalized interest during construction and working
capital.
Long-term smelter contracts for approximately 65% of the project's average
annual concentrate production have been signed. Production over the 20-year mine
life is expected to average 270,000 tons of copper and 550,000 ounces of gold
per year at an expected average cash cost under $0.50 per pound of copper,
including gold credits, over the life of the project. NGC continues to assess
all projected capital costs and operating costs of the project in order to
maximize the project's economics.
In July 1997, $1 billion project financing agreements for the Batu Hijau
project were signed. The financing is guaranteed by NGC and Sumitomo, 56.25% and
43.75%, respectively, until project completion tests are met, and will be
non-recourse thereafter. NGC and Sumitomo also entered into support agreements
related to this debt. Initial funding in the amount of $160 million occurred
during January 1998.
Exploration
Exploration work continued through 1997 in areas surrounding Minahasa and
Batu Hijau. This work will continue in 1998 as part of NGC's ongoing exploration
program in Indonesia including a $2.7 million exploration program which will
focus on identifying extensions to the ore bodies surrounding the Mesel deposit,
as well as identifying new ore zones that are within trucking distance to the
existing processing facilities. An additional $2.3 million exploration program
is slated for Mongondow in 1998.
EXPLORATION
In 1997, exploration and research expense was $98.4 million compared with
$92.9 million in 1996. These figures exclude capitalized exploration costs
associated with mine development of $21.3 million in 1997 and $18.4 million in
1996. NGC expects to spend between $65 million and $70 million on exploration
and research expense in 1998.
In Mexico, NGC is involved in two projects -- La Herradura, a 45,000 acre
site just south of the U.S. border which is undergoing construction and
development and is scheduled to commence production in mid-1998, and Mezcala, a
12,000 acre exploration site in southern Mexico. NGC has a 44% interest in La
Herradura and is earning a 44% interest in Mezcala by investing $15.0 million
over four years of which $12.6 million has been invested through December 31,
1997. The balance of both projects is held by the Penoles group, a leading
Mexican mining company. The Penoles group will be the operator of La Herradura
and Mezcala.
Near Fairbanks, Alaska, NGC continued exploration in 1997 on the True North
property. Under the terms of a joint venture agreement signed with La Teko
Resources, Inc. ("La Teko") in 1995, NGC has the right to earn a 65% interest in
the property by making cash payments of $6 million to La Teko, funding $3
million in exploration, and then funding up to $18 million in additional
exploration and development costs. In 1996, NGC completed its payment
obligations to La Teko, and to date has spent approximately $10 million
exploring the property and has budgeted approximately $2 million for 1998
exploration. Drilling in 1997 has increased the indicated area of mineralization
significantly and in 1998, NGC will intensify its efforts at True North. Almost
all of this deposit is near the surface. Work is focused on extending a broader
zone of mineralization from the 10.2 million tons identified at December 31,
1997.
10
<PAGE> 12
In addition to the projects discussed above, NGC continues to pursue
exploration activities in other areas of North America, Latin America, South
America, Southeast Asia and Central Asia. During 1997, on-the-ground evaluations
were conducted in 15 countries and data was examined from 18 others.
NGC's exploration team has a staff of approximately 173 geologists,
geochemists and geophysicists. State-of-the-art technology, including airborne
geophysical data acquisition systems, satellite location devices and
field-portable imaging systems, also aids in the location of prospective
targets.
For information regarding risks associated with exploration and
development, see page 18.
MARKETING
NGC's gold sales generally are made at the monthly average market price
prevailing during the month in which the gold is delivered plus a "contango",
which is essentially an interest factor, from the beginning of the month until
the date of delivery. NGC entered into forward sales contracts beginning in
January 1996 which are effective through December 2000 with respect to
production from its Minahasa project in Indonesia. These transactions consist of
forward sales of 125,000 ounces per year at an average price of $454 per ounce
of gold, plus 40% of the amount by which the market price exceeds the forward
sales price. In addition, at the beginning of 1997, NGC had spot deferred
contracts for approximately 1.7 million ounces on production from former Santa
Fe mines through September 1998 (with approximately 614,000 ounces at an average
price of $423 per ounce remaining at December 31, 1997.) In July 1997, NGC
entered into forward purchase contracts offsetting the spot deferred contracts
held at that date at an average price of $331 per ounce. For information
regarding risks associated with price protection activities, see page 16.
See Note 14 to the financial statements in the 1997 Annual Report to
Stockholders at page 40 therein for information regarding major customers and
export sales.
Gold has two main categories of use -- product fabrication and bullion
investment. Fabricated gold has a wide variety of end uses, including jewelry
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions and official coins. Purchasers of official
coins and high-karat jewelry frequently are motivated by investment
considerations, so that net private bullion purchases alone do not necessarily
represent the total investment activity in gold.
MISCELLANEOUS
Other than operating licenses for mining, processing and refining
facilities built for, or acquired by NGC, there are no patents, licenses or
franchises material to NGC's business. In many foreign countries, NGC conducts
mining or exploration pursuant to concessions granted by or contracts with the
host government. These countries include, among others, Indonesia, Peru and
Mexico. In each case, NGC believes that such concessions or contracts are
sufficient in extent and duration to justify any proposed investment it might
make based on any such concessions or contracts. In general, such concessions or
contracts are subject to the usual political risks associated with foreign
operations.
Capital expenditures by NGC were approximately $415.1 million, $547.8
million and $520.9 million in 1997, 1996 and 1995, respectively. Management
believes that NGC's facilities are generally in a state of good repair. NGC has
a continuous program of capital investment that includes, as necessary or
advisable, the replacement, modernization or expansion of its equipment and
facilities. See "Liquidity and Capital Resources" discussion in Management's
Discussion and Analysis of Results of Operations and Financial Condition in the
1997 Annual Report to Stockholders commencing on page 18 therein.
There were 6,760 persons employed by NGC worldwide at December 31, 1997 and
6,450 persons employed by NGC worldwide at December 31, 1996. Newmont has no
employees.
PROVEN AND PROBABLE RESERVES
NGC's equity in proven and probable gold reserves was 52.7 million ounces
at December 31, 1997 and 55.2 million ounces at December 31, 1996. In addition,
NGC's equity in proven and probable copper reserves was 4.8 billion pounds at
December 31, 1997 and at December 31, 1996.
11
<PAGE> 13
NGC's estimate of its proven and probable reserves at December 31, 1997 and
1996 is set forth in the table below. Such reserves were determined by the use
of mapping, drilling, sampling, assaying and evaluation methods generally
applied in the mining industry. Calculations with respect to the estimates of
proven and probable gold reserves at December 31, 1997 and at December 31, 1996
were based on a gold price of $350 per ounce and $400 per ounce, respectively.
NGC's management believes that if such reserve estimates were based on a gold
price of $400 per ounce using current operating costs and other current economic
assumptions, 1997 year-end proven and probable gold reserves could increase by
approximately 8%. Conversely, if such estimates were based on a gold price of
$300 per ounce using current operating costs and other current economic
assumptions, 1997 year-end proven and probable gold reserves could decrease by
approximately 32%. The reduction in reserves would not have a material impact on
potential production rates for the first four years. After that time, assuming
no change in mining plans or NGC's cost structure, the impact would be
progressively greater. However, if NGC's gold reserves were actually calculated
at a gold price of $300 per ounce, such calculation would be based on new mine
plans and operating costs to minimize any adverse impact of any reduction in
gold reserves. NGC's proven and probable gold and copper reserves represent the
total quantity of ore to be extracted from the deposits or stockpiles allowing
for mining efficiencies and ore dilution. Ounces of gold or pounds of copper in
NGC's proven and probable gold and copper reserves are prior to any losses
during metallurgical treatment. For information regarding risks associated with
NGC's estimates of its proven and probable reserves, see page 16.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------------- --------------------------------------------
NGC Dry Contained Dry Contained
DEPOSITS WITH PROVEN AND Percent Short Tons Grade Ounces Equity Ozs. Short Tons Grade Ounces Equity Ozs.
PROBABLE RESERVES (1) Equity (000) (oz/ton) (000) (000) (000) (oz/ton) (000) (000)
------- ---------- -------- --------- ----------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOLD RESERVES
UNITED STATES
Nevada Open Pit
Carlin North - Post 100 9,680 0.180 1,747 1,747 25,626 0.190 4,875 4,875
Carlin North - Genesis
Complex 100 21,576 0.033 710 710 22,711 0.034 777 777
Carlin North - Other 100 25,839 0.051 1,323 1,323 33,832 0.046 1,571 1,571
Carlin South (includes
Gold Quarry) 100 135,946 0.048 6,470 6,470 174,790 0.046 8,031 8,031
Carlin Rain District 100 13,455 0.026 344 344 15,628 0.023 366 366
Twin Creeks 100 109,288 0.075 8,211 8,211 148,739 0.073 10,885 10,885
Lone Tree Complex 100 65,120 0.064 4,151 4,151 85,342 0.069 5,868 5,868
---------- --------- ----------- ---------- --------- -----------
Total Nevada Open Pit 380,904 0.060 22,956 22,956 506,668 0.064 32,373 32,373
---------- --------- ----------- ---------- --------- -----------
Nevada Underground
Carlin North 100 8,236 0.592 4,879 4,879 3,388 0.582 1,973 1,973
Carlin North JV 60 7,050 0.425 2,993 1,796 7,050 0.425 2,993 1,796
Carlin Rain District 100 374 0.270 101 101 331 0.226 75 75
Rosebud 50 943 0.420 396 198 1,276 0.392 500 250
---------- --------- ----------- ---------- --------- -----------
Total Nevada Underground 16,603 0.504 8,369 6,974 12,045 0.460 5,541 4,094
---------- --------- ----------- ---------- --------- -----------
Stockpiles and In-Process 100 71,139 0.053 3,803 3,803 57,594 0.051 2,961 2,961
---------- --------- ----------- ---------- --------- -----------
NEVADA TOTALS 468,646 0.075 35,128 33,733 576,307 0.071 40,875 39,428
Mesquite, California 100 29,041 0.021 613 613 46,051 0.018 832 832
---------- --------- ----------- ---------- --------- -----------
TOTAL UNITED STATES (2)(3) 497,687 0.072 35,741 34,346 622,358 0.067 41,707 40,260
---------- --------- ----------- ---------- --------- -----------
INTERNATIONAL
Minera Yanacocha, Peru
Carachugo 51 34,018 0.035 1,179 605 43,686 0.029 1,268 651
Maqui Maqui 51 20,632 0.042 875 449 32,164 0.047 1,519 780
San Jose 51 47,817 0.028 1,355 696 50,527 0.029 1,453 746
Yanacocha 51 245,596 0.029 7,167 3,680 71,664 0.026 1,866 958
La Quinua 51 120,943 0.025 3,002 1,542 0 0 0 0
Others 51 7,045 0.043 304 156 66 0.047 3 2
---------- --------- ----------- ---------- --------- -----------
Total Yanacocha (4) 476,051 0.029 13,882 7,128 198,107 0.031 6,109 3,137
La Herradura, Mexico (5) 44 54,408 0.031 1,683 740 54,408 0.031 1,683 740
Zarafshan - Newmont,
Uzbekistan (6) 50 216,907 0.035 7,510 3,755 231,669 0.035 8,211 4,105
Minahasa, Indonesia (7) 80 6,758 0.234 1,583 1,267 7,739 0.247 1,913 1,530
---------- --------- ----------- ---------- --------- -----------
TOTAL INTERNATIONAL 754,124 0.033 24,658 12,890 491,923 0.036 17,916 9,512
(EXCLUDING BATU HIJAU) ---------- --------- ----------- ---------- --------- -----------
Batu Hijau,
Indonesia (8) - Gold 45 1,006,593 0.012 12,096 5,443 1,006,593 0.012 12,096 5,443
---------- --------- ----------- ---------- --------- -----------
TOTAL GOLD RESERVES 72,495 52,679 71,719 55,215
========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Contained Contained
COPPER Contained Equity Contained Equity
Copper Pounds Pounds Copper Pounds Pounds
Grade(%) (Billions) (Billions) Grade(%) (Billions) (Billions)
-------- ------------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Batu Hijau,
Indonesia (8) - Copper 45 1,006,593 0.528 10.631 4.784 1,006,593 0.528 10.631 4.784
</TABLE>
Numbers may differ slightly from those reported previously as a result of
different deposit groupings yielding different rounding of totals.
12
<PAGE> 14
- ----------
(1) The term "reserve" means that part of a mineral deposit which can be
economically and legally extracted or produced at the time of the reserve
determination.
The term "economically," as used in the definition of reserve, implies that
profitable extraction or production has been established or analytically
demonstrated.
The term "legally," as used in the definition of reserve, does not imply
that all permits needed for mining and processing have been obtained or
that other legal issues have been completely resolved. However, for a
reserve to exist, there should be a reasonable certainty based on
applicable laws and regulations that issuance of permits or resolution of
legal issues can be accomplished in a timely manner.
The term "proven reserves" means reserves for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes; (b) grade and/or quality are computed from the result of detailed
sampling and (c) the sites for inspection, sampling and measurements are
spaced so closely and the geologic character is sufficiently defined that
size, shape, depth and mineral content of reserves are well established.
The term "probable reserves" means reserves for which quantity and grade
are computed from information similar to that used for proven reserves but
the sites for sampling are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of
observation.
(2) Proven and probable reserves in the U.S. were calculated using cut-off
grades as follows: oxide leach material not less than 0.006 ounce per ton;
oxide mill cutoffs varied; refractory leach materials not less than 0.030
ounce per ton at Gold Quarry (which contains 96% of the refractory leach
reserve ounces); refractory mill material not less than 0.065 ounce per
ton.
Proven and probable reserves were calculated using different recoveries
depending on each deposit's metallurgical properties and process. The
recoveries utilized in 1997 were as follows: oxide leach recoveries ranged
from 58% to 75% averaging 63%; oxide mill recoveries ranged from 69% to 96%
averaging 86%; refractory leach recoveries at Gold Quarry ranged from 55%
to 60%, averaging 58%; refractory mill recoveries ranged from 84% to 94%,
averaging 88%.
The term "cut-off grade" means the lowest grade of mineralized rock that
can be included in the reserve in a given deposit. Cut-off grades vary
between deposits depending upon prevailing economic conditions, mineability
of the deposit, amenability of the ore to gold extraction, and milling or
leaching facilities available.
(3) These reserves are approximately 69% refractory in nature which are not
amenable to the normal cyanidation recovery processes currently used for
oxide material. Such ore must be oxidized before it is subjected to the
normal recovery processes.
(4) Calculated using a cut-off grade not less than 0.010 ounce per ton. Assumed
leach recoveries is 62% to 82%, depending on each deposit's metallurgical
properties. All ore is oxidized.
(5) Based on a feasibility study completed in 1996, using a cut-off grade of
0.01 ounce per ton and a leach recovery of 72%. All ore is oxidized.
Construction began in 1997 and production is expected to begin in mid-1998.
(6) Material available to Zarafshan-Newmont for processing from designated
stockpiles or from other specified sources. All ore is oxidized. Tonnage
and gold content of material available to Zarafshan-Newmont for processing
from such designated stockpiles or from other specified sources are
guaranteed by state entities of Uzbekistan. Material is crushed and
leached. Ore reserves calculated using 55% to 60% leach recoveries,
depending on material type.
(7) Calculated using a cut-off grade of 0.058 ounce per ton and mill recoveries
of 88% to 91% depending on material type. Substantially all ore is
refractory and will be treated by roasting.
(8) Based on a feasibility study completed in 1996, construction began in 1997
and production is scheduled to begin in late 1999. Production will be in
the form of copper concentrate. Recoveries estimated at 93% for copper and
82% for gold. Cut-off grade varies depending on the gold and copper
content.
ENVIRONMENTAL MATTERS
General
NGC's gold mining and processing operations within the U.S. are subject to
extensive federal, state and local governmental regulations for the protection
of the environment, including those relating to the protection of air and water
quality, hazardous waste management and mine reclamation. NGC continues to
successfully permit all mine and processing operations and expansion activities
as specified under regulations promulgated by the U.S. and the States
13
<PAGE> 15
of Nevada and California. Management does not believe that ongoing compliance
with such regulations will have a material adverse effect on its competitive
position. At this time NGC does not expect any material impact on the future
recurring operating cost of compliance with currently enacted environmental
regulations. Ongoing costs to comply with environmental obligations have not
been significant to NGC's total operating costs. Since NGC is not able to pass
on any net increases in costs to its customers, any such increases could have an
adverse effect on future profitability of NGC. Amendments to current laws and
regulations governing operations and activities of mining companies or the
stringent implementation thereof could have a material adverse impact on NGC in
terms of increased capital and operating expenditures.
Nevada and California Operations
It is estimated that with respect to NGC's Nevada and California
operations, compliance with federal, state and local regulations relating to the
discharge of material into the environment, or otherwise relating to the
protection of the environment, required capital expenditures of approximately
$19 million in 1997. It is estimated that NGC will require approximately $16
million of capital expenditures for environmental compliance in 1998 and
annually thereafter.
NGC's Nevada and California gold mining and processing operations generate
solid waste which is subject to regulation under the federal Resource
Conservation and Recovery Act ("RCRA") and similar laws of the States of Nevada
and California. Solid waste that is considered "hazardous" is subject to
extensive regulation by the U.S. Environmental Protection Agency (the "EPA") and
the States of Nevada and California under Subtitle C of RCRA, while
non-hazardous solid waste is governed by a less stringent program under Subtitle
D of RCRA and solid waste management regulations of the States of Nevada and
California. The EPA is developing specific regulations with respect to
"extraction" and "beneficiation" wastes from mining operations under Subtitle D
of RCRA. NGC is participating in that process. Currently, there is not a
sufficient basis to predict the potential impact of such regulations on NGC.
Wastes from the "processing" of ores and minerals (including refining wastes) at
NGC's Nevada and California operations are subject to regulation under Subtitle
C of RCRA. NGC recycles substantially all of the potentially hazardous secondary
materials generated during refining operations in compliance with Subtitle C.
Such compliance has not had, and is not expected to have, any material impact on
NGC's operations.
NGC's Nevada and California operations are subject to stringent state
permitting regulations for protection of surface and ground water, as well as
wildlife. These regulations may require additional capital and operating
expenditures for expansion of current operations and development of new projects
and may increase closure and reclamation costs for pits, tailing impoundments
and leaching facilities.
Mining operations have the potential to produce fugitive dust emissions
which are subject to regulation under the laws of the States of Nevada and
California. The EPA's current regulations under the federal Clean Air Act
exclude fugitive dust from surface mines in determining whether new or expanded
sources need permits for construction under the regulations for prevention of
significant deterioration of air quality. Compliance with the federal Clean Air
Act could ultimately increase NGC's compliance costs for air pollution
permitting and/or control, but the impact on NGC's mining operations is so
dependent on future regulations and other contingencies that it cannot
reasonably be predicted at this time.
Foreign Operations
NGC's operations outside of the U.S. are also subject to governmental
regulations for the protection of the environment. Management believes that
these regulations have not had, and will not have, a material adverse effect on
NGC's operations or its competitive position. NGC has successfully permitted all
new mine and processing operations as specified under regulations promulgated by
the respective national governments in Peru, Uzbekistan and Indonesia. In
addition, NGC has mandated that all facilities constructed and operated outside
of the U.S. materially comply with a level of environmental protection that is
equivalent to that for its U.S. operations. Nevertheless, the adoption of new
laws or regulations, or amendments to current laws or regulations, regarding the
operations and activities of mining companies could have a material adverse
impact on NGC's capital and operating expenditures.
All NGC-managed international projects have adopted and implemented
environmental policies and procedures developed by NGC. NGC is committed to
successfully educating and training mine operations, exploration and
environmental personnel to meet the highest level environmental standards. NGC
maintains an international environmental compliance program which utilizes state
of the art compliance monitoring protocols and builds and maintains facilities
with high levels of environmental protection and monitoring equipment.
14
<PAGE> 16
Former Operations
NGC is involved in matters involving environmental cleanup obligations
arising from past mining activities (not in all cases conducted by the
Corporation) at four separate locations. Idarado Mining Company, an 80.1% owned
subsidiary of NGC, agreed by consent decree in 1992 with the State of Colorado
to undertake specific remediation work in the Telluride/Ouray area of Colorado.
Resurrection Mining Company, 100% owned by NGC, is a defendant in lawsuits
brought by the State of Colorado and the U.S. for environmental remediation in
the Leadville, Colorado area. Dawn Mining Company, a 51% owned subsidiary of
NGC, has filed reclamation proposals for an inactive uranium mine formerly
leased from the Spokane Indian Tribe in Washington State and a former mill site
located near Ford, Washington. Remediation activities were conducted at these
three sites in 1997. At Idarado, remediation work was substantially complete at
the end of 1997. If such remediation work does not achieve specific performance
objectives defined in the consent decree, the State of Colorado may require
Idarado to implement supplemental activities, also as specified in the consent
decree. The fourth matter involves reclamation of an inactive site mined by the
former owners on the Ivanhoe exploration property in Nevada. At December 31,
1997 the Corporation had an aggregate $52.2 million accrued for remediation of
these four sites and other sites, an increase from $49.8 million accrued at the
end of 1996, as a result of changes in estimated future remediation costs, net
of expenditures incurred in 1997. See also "Environmental and Other" discussion
in Management's Discussion and Analysis in the 1997 Annual Report to
Stockholders commencing on page 19 therein. See also Note 17 to the financial
statements in the 1997 Annual Report to Stockholders on page 42 therein.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained herein (including information incorporated by
reference) are "forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and are intended to be covered
by the safe harbor created thereby. Such forward-looking statements include,
without limitation, (i) estimates of future gold production for specific
operations and on a consolidated basis, (ii) estimates of future production
costs, exploration expenditures and other expenses for specific operations and
on a consolidated basis, (iii) estimates of future capital expenditures and
other cash needs for specific operations and on a consolidated basis and
expectations as to the funding thereof, (iv) statements as to the projected
development of certain ore deposits, including estimates of development and
other capital costs, financing plans with respect thereto and expected
production commencement dates, (v) estimates of future costs and other
liabilities for certain environmental matters, including expected date of
receipt of environmental permits and completion dates for environmental
remediation work, and (vi) estimates of reserves.
Where the Corporation expresses an expectation or belief as to future
events or results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis. However, such forward-looking statements
are subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Important factors that could cause actual results to
differ materially from such forward-looking statements ("cautionary statements")
are described below. See also "Safe Harbor Statement" discussion in Management's
Discussion and Analysis in the 1997 Annual Report to Stockholders on page 20
therein. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
All subsequent written and oral forward-looking statements attributable to
the Corporation or to persons acting on its behalf are expressly qualified in
their entirety by the cautionary statements. The Corporation disclaims any
intent or obligation to update publicly any forward-looking statements set forth
in this Report, or incorporated herein by reference, whether as a result of new
information, future events or otherwise.
GOLD PRICE VOLATILITY
The cash flows and profitability of NGC's operations is significantly
affected by changes in the market price of gold. Market gold prices can
fluctuate widely and are affected by numerous factors beyond NGC's control,
including industrial and jewelry demand, expectations with respect to the rate
of inflation, the strength of the U.S. dollar (the currency in which the price
of gold is generally quoted) and of other currencies, interest rates, gold sales
by central banks, forward sales by producers, global or regional political or
economic events, and production and cost levels in major gold-producing regions
such as South Africa. In addition, the price of gold sometimes is subject to
rapid short-term changes because of speculative activities. The current demand
for and supply of gold affect gold prices, but not necessarily in the same
manner as current supply and demand affect the prices of other commodities. The
supply of gold consists of a combination of new production from mining and
existing stocks of bullion and fabricated gold held by governments, public and
private financial institutions, industrial organizations and private
individuals.
15
<PAGE> 17
As the amounts produced in any single year constitute a very small portion of
the total potential supply of gold, normal variations in current production do
not necessarily have a significant impact on the supply of gold or on its price.
If revenue from gold sales falls for a substantial period below NGC's cost of
production at its operations, NGC could determine that it is not economically
feasible to continue commercial production at any or all of its operations or to
continue the development of some or all of its projects. NGC's weighted average
total cash cost of equity production for its worldwide operations was $187 per
ounce of gold sold in 1997, $218 in 1996 and $204 in 1995. See also "Gold
Price" discussion on page 15 in the 1997 Annual Report to Stockholders.
The gold market generally is characterized by volatile prices. The
volatility of gold prices is illustrated in the following table of annual high,
low and average afternoon fixing prices for gold per ounce on the London Bullion
Market:
<TABLE>
<CAPTION>
YEAR HIGH LOW AVERAGE
- ----- ---- ---- -------
<S> <C> <C> <C>
1988....................................... $484 $395 $437
1989....................................... $416 $356 $381
1990....................................... $424 $346 $383
1991....................................... $403 $344 $362
1992....................................... $360 $330 $344
1993....................................... $406 $326 $360
1994....................................... $396 $370 $384
1995....................................... $396 $372 $384
1996....................................... $415 $367 $388
1997....................................... $367 $283 $331
1998 (through March 5)..................... $305 $279 $293
</TABLE>
- ------------
Source of Data: Metals Week and Reuters.
On March 5, 1998, the afternoon fixing price for gold on the London Bullion
Market and the spot market price of gold per ounce on the New York Commodity
Exchange was $294.
IMPACT OF PRICE PROTECTION ACTIVITIES
NGC has utilized commodity instruments to protect the selling price of
certain anticipated gold production. Although the use of such instruments may
protect a company against low gold prices, it may also prevent full
participation in subsequent increases in the market price for gold with respect
to covered production.
PRODUCTION ESTIMATES
Estimates of future production for particular properties for NGC as a whole
are derived from annual mining plans prepared by NGC. Such plans have been
developed based on, among other things, mining experience, reserve estimates,
assumptions regarding ground conditions and physical characteristics of ores
(such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and cost of production. Actual production
may vary from estimates for a variety of reasons, including risks and hazards of
the types discussed, actual ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, pitwall failures or
cave-ins, strikes and other actions by labor at unionized locations,
restrictions imposed by government agencies and other factors. Estimates of
production from properties not yet in production or from operations that are to
be expanded are based on similar factors (including, in some instances,
feasibility reports prepared by company personnel and/or outside consultants)
but, as such estimates do not have the benefit of actual experience, there is a
greater likelihood that actual results will vary from the estimates.
ORE RESERVE ESTIMATES
The proven and probable reserve figures presented herein are estimates, and
no assurance can be given that the indicated levels of recovery of gold and
copper will be realized. Reserve estimates may require revision based on actual
production experience. Market price fluctuations of gold and copper, as well as
increased production costs or reduced recovery rates, could render NGC's proven
and probable gold and copper reserves containing relatively lower grades of
mineralization uneconomic to exploit and may ultimately result in a reduction of
reserves.
16
<PAGE> 18
REGULATION, ENVIRONMENTAL RISKS AND UNPATENTED MINING CLAIMS
Domestic and foreign mining operations and exploration activities are
subject to extensive laws and regulations governing prospecting, development,
production, exports, taxes, labor standards, occupational health, waste
disposal, protection and remediation of the environment, protection of
endangered and protected species, mine safety, toxic substances and other
matters. Mining is subject to potential risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as a
result of mineral exploration and production. NGC has been, and may in the
future be, subject to clean-up liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and comparable state laws which
establish clean-up liability for the release of hazardous substances. NGC has
interests in certain sites associated with former mining activities for which
clean-up liabilities exist. Although NGC believes it has made adequate
provisions in its financial statements for clean-up costs, it cannot guarantee
that such provisions will be adequate. In the context of environmental
permitting, including the approval of reclamation plans, NGC must comply with
standards, existing laws and regulations which may entail greater or lesser
costs and delays depending on the nature of the activity to be permitted and how
the regulations are implemented by the permitting authority. It is possible that
the costs and delays associated with the compliance with such laws, regulations
and permits could result in NGC not proceeding with the development of a project
or the operation or further development of a mine.
Amendments to current laws and regulations governing operations and
activities of mining companies are actively considered from time to time and
could have a material adverse impact on Newmont.
In recent years, the U.S. Congress has considered a number of proposed
amendments to the General Mining Law of 1872, as amended (the "General Mining
Law"), which governs mining claims and related activities on U.S. federal lands.
Although no such legislation has been adopted to date, there can be no
assurances that such legislation will not be adopted in the future. If ever
adopted, such legislation could, among other things, impose royalties on gold
production from currently unpatented mining claims located on U.S. federal
lands. If such legislation is ever adopted, it could reduce the amount of future
exploration and development activity conducted by NGC on such U.S. federal
lands. In addition, in 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on U.S. federal lands. In October 1994, a
moratorium on the processing of new patent applications was approved. While such
moratorium currently remains in effect, its future is unclear. As of December
31, 1997, approximately 12.2% of NGC's proven and probable reserves in the U.S.
are located on unpatented mining claims on U.S. federal lands, the remainder
being located on private land.
RISKS OF FOREIGN INVESTMENTS
Certain of NGC's activities are located in foreign countries. NGC's foreign
investments include operations and exploration projects in Peru, Indonesia and
Uzbekistan. NGC also has exploration and/or development projects in North
America, Latin America, South America, Southeast Asia and Central Asia.
Foreign mining investments are subject to the risks normally associated
with conducting business in foreign countries, which are less developed or have
an emerging economy, including uncertain political and economic environments, as
well as risks of war and civil disturbances or other risks which may limit or
disrupt a project, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property by nationalization or expropriation
without fair compensation, risk of adverse changes in laws or policies of
particular countries, increases in foreign taxation, delays in obtaining or the
inability to obtain necessary governmental permits, limitations on ownership and
on repatriation of earnings, and foreign exchange controls and currency
devaluations. Although NGC is not currently experiencing any significant
problems in foreign countries arising from such risks, there can be no assurance
that such problems will not arise in the future. While political risk insurance
has been obtained to cover portions of NGC's investments in Peru, Indonesia and
Uzbekistan against certain expropriation, war, civil unrest and political
violence risks, such insurance is limited by its terms to the particular risks
specified therein and is subject to certain exclusions. There can be no
assurance that claims would be paid under such insurance in connection with a
particular event in a foreign country. Foreign investments may also be adversely
affected by laws and policies of the U.S. affecting foreign trade, investment
and taxation. See also "Foreign Currency" discussion on page 15 in the 1997
Annual Report to Stockholders.
In certain of the countries other than the U.S. where NGC has operations or
conducts exploration activities, the mineral rights are owned by the relevant
governments. Such governments have entered into contracts with or granted
concessions that enable NGC and its subsidiaries to conduct operations or
exploration activities on such lands. Notwithstanding such arrangements, NGC's
ability to conduct its operations or exploration activities on such lands is
subject to changes in government policy over which NGC has no control. If such a
change were to occur that affected the right of NGC or any of its subsidiaries
to conduct operations or exploration activities, it could have a material
adverse affect on the results of operations of NGC.
17
<PAGE> 19
SPECULATIVE NATURE OF GOLD EXPLORATION AND UNCERTAINTY OF DEVELOPMENT PROJECTS
Gold exploration is highly speculative in nature, involves many risks and
frequently is nonproductive. There can be no assurance that NGC's gold
exploration efforts will be successful. Success in increasing reserves is the
result of a number of factors, including the quality of NGC's management, its
level of geological and technical expertise, the quality of land available for
exploration and other factors. Once gold mineralization is discovered, it may
take several years from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
Substantial expenditures are required to establish proven and probable reserves
through drilling to determine metallurgical processes to extract the metals from
the ore and, in the case of new properties, to construct mining and processing
facilities. As a result of these uncertainties, no assurance can be given that
NGC's exploration programs will result in the expansion or replacement of
current production with new proven and probable reserves.
Development projects have no operating history upon which to base estimates
of future cash operating costs. Particularly for development projects, estimates
of proven and probable reserves and cash operating costs are, to a large extent,
based upon the interpretation of geologic data obtained from drill holes and
other sampling techniques, and feasibility studies which derive estimates of
cash operating costs based upon anticipated tonnage and grades of ore to be
mined and processed, the configuration of the ore body, expected recovery rates
of the gold from the ore, comparable facility and equipment operating costs,
anticipated climatic conditions and other factors. As a result, it is possible
that actual cash operating costs and economic returns may differ significantly
from those currently estimated. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase. Delays often can occur
in the commencement of production.
MINING RISKS AND RISK OF NONAVAILABILITY OF INSURANCE
The business of gold mining is subject to a number of risks and hazards,
including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations or other geological or
grade problems, encountering unanticipated ground or water conditions, cave-ins,
pitwall failures, flooding, rock falls, periodic interruptions due to inclement
or hazardous weather conditions or other unfavorable operating conditions and
other acts of God and gold bullion losses. Such risks could result in damage to,
or destruction of, mineral properties or producing facilities, personal injury
or death, environmental damage, delays in mining, monetary losses and possible
legal liability.
NGC maintains insurance against risks that are typical in the operation of
its business and in amounts which it believes to be reasonable. Such insurance,
however, contains exclusions and limitations on coverage. There can be no
assurance that such insurance will continue to be available, will be available
at economically acceptable premiums or will be adequate to cover any resulting
liability.
PROPOSED REPEAL OF PERCENTAGE DEPLETION FOR NONFUEL MINERALS MINED ON CERTAIN
FEDERAL LANDS
NGC presently benefits from the percentage depletion allowance permitted
under current law. Subject to limitations, taxpayers may claim deductions for
the depletion of mineral resources. Such deductions may be based upon the
taxpayer's tax cost of the mineral resources ("cost depletion") or upon a
portion of the gross or net revenues from sales of the mineral resources
("percentage depletion"). The proposed 1998 U.S. federal budget would repeal the
present percentage depletion provisions for nonfuel minerals, including gold,
extracted from any land where title to the land or the right to extract minerals
from such land was originally obtained pursuant to the provisions of the General
Mining Law. The proposal is stated only in general terms and does not provide
specific details as to its potential operation, including the lands that will
ultimately be affected. It is uncertain whether the repeal of these provisions
will ultimately be adopted. If adopted, however, such repeal could have an
adverse effect on the results of operations of NGC. The magnitude of such effect
currently cannot be determined and will be affected by several factors,
including the specific landholdings of NGC that are actually impacted, the level
of future production from such landholdings and future gold prices.
18
<PAGE> 20
GLOSSARY OF CERTAIN MINING TERMS
Set forth below is a glossary of certain mining and related terms used in
this report:
AUTOCLAVE: A multi-compartment, mechanically-agitated pressure vessel
used to oxidize the sulfide minerals contained in gold ores. Gold ore slurry is
introduced into the autoclave under high pressure and temperature and
chemically reacts with oxygen being sparged into the vessel, thus oxidizing the
sulfide to sulfate and preparing the contained gold to be leached with cyanide
in subsequent steps. Autoclaves for gold processing typically operate at
pressures ranging form 230 to 450 pounds per square inch, and at temperatures
ranging from 180 degrees to 250 degrees C.
BIOLEACH TECHNOLOGY: A process whereby the sulfide minerals in an ore heap
are oxidized by percolation of an oxygen-bearing solution to liberate the
occluded gold particles, which are then recovered in a heap leaching step. The
oxidation is promoted by a bacterial action.
BIO-OXIDATION: Bacterially-promoted oxidation of sulfide minerals in an
ore. This can be carried out by solution percolation in a heap of run-of-mine
or crushed ore, or, in the case of finely-ground ore, in air-sparged stirred
tanks where the ore is mixed with water to form a slurry. The gold liberated by
bio-oxidation is recovered in further leaching stages.
CARBON-IN-LEACH: A process by which gold in a milled ore is leached into
solution by cyanide and oxygen, and the solubilized gold is simultaneously
recovered from the solution by adsorption on to activated carbon particles. The
gold-bearing carbon particles are recovered by screening from the mixture of
ore and solution. The process is carried out in a series of agitated tanks in
which the ore and solution move downstream form tank to tank, and the carbon is
moved upstream against the flow.
CARBON-IN-PULP: A process similar to carbon-in-leach except that leaching
with cyanide occurs prior to carbon absorption.
CARRIED INTEREST: A percentage ownership in a mining company or joint
venture which typically does not make cash contributions for the development of
the mine. Such contributions are made by a co-owner that usually recovers its
investment from mine production profits before any participation in such profits
by the carried interest owner.
CRUSHING PLANT: A plant in which run-of-mine ore is physically reduced in
size by mechanical crushing in order to improve the liberation of the gold
particles for downstream recovery.
DORE: Unrefined gold consisting of 60% to 70% gold which is further
refined to almost pure gold by a smelter or refinery.
DRY TONS: Ore tons measured on a moisture-free basis so that the mass of
any water in the ore is not counted as part of the weight.
EQUITY OUNCES: Ounces attributable to a company based upon its interest in
the subject property.
FLOTATION: A process by which valuable minerals selectively attach to air
bubbles in a chemical solution and are thus concentrated and separated from the
valueless rock or mineral material in the ore.
GOLD ROASTER: A reactor in which air or oxygen-enriched air is blown
through a burning bed of finely ground ore containing sulfides and, with certain
ores, organic carbon. The fuel value of the sulfides and organic carbon help to
sustain the combustion. Destruction of the sulfides and carbon by combustion
liberates the gold particles, thereby removing the refractory components in the
ore which would otherwise reduce gold recovery in subsequent cyanide extraction.
HEAP LEACHING: The process of stacking run-of-mine or crushed ore in a
heap, and percolating through the ore a solution containing oxygen and a
leaching agent such as cyanide or ammonium thiosulfate. The gold which leaches
from the ore into the solution is recovered from the solution by
<PAGE> 21
carbon absorption or precipitation. The solution, after topping up the leaching
agent, is then recycled to the heap to effect further leaching.
MERRILL-CROWE PLANT: A facility where dissolved gold and silver are
recovered from a sodium-cyanide leaching solution by precipitation with zinc
dust after the leaching solution is clarified and deoxygenated by vacuum
treatment.
MINE: An excavation made in the earth for the purpose of extracting
minerals. The excavation may be an open-pit on the surface or underground
workings.
MINING DEPLETION: During the process of excavating reserves, certain
material is mined and processed. The amount of reserves removed is known as
depletion.
ORE: A mixture of valuable and worthless minerals from which at least
one of the minerals can be mined and processed at an economic profit.
ORE GRADE: The average amount of gold, expressed in ounces, contained
in a dry short ton of gold-bearing ore.
OXIDE ORE: Gold ore that has been subjected to oxidation through
natural weathering and surface water percolation to the extent that the
minerals are readily treatable by standard processes.
REFRACTORY ORE: An ore which requires additional steps in the milling
process to oxidize the ore, usually involving heat and/or pressure, in order to
recover the gold contained in the ore.
RUN-OF-MINE: The process of blasting ore and placing it directly on
the leaching pad without any crushing activity.
<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS
In December 1983, the State of Colorado filed a lawsuit in the U.S.
District Court for the District of Colorado under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42
U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural
resources due to releases of hazardous substances into the environment. This
case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388),
was consolidated with another action, United States of America v. Apache Energy
& Minerals, et al. (Civil Action No. 86-C-1676), which was filed in August 1986.
Both cases involve allegations of environmental impairment in the vicinity of
Leadville, Colorado, including the area of the operations and property of the
Res-ASARCO Joint Venture, the Yak Tunnel, and adjacent property, and seek
remedial actions and damages from a number of defendants, including Newmont and
Resurrection Mining Company ("Resurrection") which is an equal partner with
ASARCO Incorporated in the Res-ASARCO Joint Venture. In August 1994, the Court
entered a Partial Consent Decree between and among the U.S., Newmont,
Resurrection and certain defendants. The Partial Consent Decree obligates
Resurrection to pay for and perform the cleanup of sources of contamination in
various areas, pursuant to the CERCLA administrative process. During 1995 and
1996, Resurrection implemented and completed remedial action at selected
locations, and development of feasibility studies were sent to the EPA for
approval in 1997. Additional remedial activities are planned for 1998. The
precise nature of the final remedial activities is subject to EPA and State of
Colorado review and selection and public comment. At this time, the precise
remedy and cost have not been fixed. The proposed settlement also requires
Resurrection to reimburse the EPA and the State of Colorado for their response
costs. Further, Resurrection's cleanup and reimbursement obligations are subject
to certain sharing percentages with at least one other defendant. The Partial
Consent Decree does not resolve certain other potential liabilities, including
liability for any natural resource damage and any groundwater or surface water
contamination. See also Note 17 to the financial statements in the 1997 Annual
Report to Stockholders on page 42 therein.
In September 1995, Southern Peru Copper Corporation ("SPCC"), previously
10% owned by NGC, was served with a lawsuit, which was filed in the state court
of Nueces County, Texas, naming as defendants SPCC, its present and former
stockholders including NGC, and certain other defendants. The lawsuit sought
unspecified compensatory and punitive damages for alleged personal injuries to
approximately 700 persons resident in Peru and property damages arising from
alleged releases into the environment from SPCC operations in Peru. In September
1995, the action was removed from Texas state court to the U.S. District Court
for the Southern District of Texas, Corpus Christi Division. In October 1995,
SPCC and other defendants filed a motion to dismiss the action on a number of
grounds, including that it would be unreasonable for a U.S. court to exercise
extraterritorial jurisdiction, lack of personal jurisdiction and forum non
conveniens. In January 1996, the Court entered an order dismissing the complaint
on the grounds that under U.S. and international law the subject matter of the
lawsuit should be adjudicated before Peruvian courts. In February 1996,
plaintiffs filed a notice of appeal from the order of the U.S. District Court
dismissing the complaint and from an earlier order of that Court denying
plaintiffs' motion to remand the case to the Texas state court. The U.S. Court
of Appeals for the Fifth Circuit heard argument on the appeal in December 1996
and affirmed the dismissal in May 1997. This matter is now closed with no
liability to the Corporation.
In December 1996, Santa Fe entered into a definitive merger agreement with
Homestake Mining Company ("Homestake") and a subsidiary of Homestake, subsequent
to discussions during November 1996 with both Homestake and Newmont regarding
potential business combinations. In January 1997, Newmont announced a proposal
for a business combination with Santa Fe. Santa Fe commenced discussions with
Newmont in January 1997 and in March 1997, the merger agreement between
Homestake and Santa Fe was terminated and Santa Fe entered into a merger
agreement with Newmont. In December 1996, six Santa Fe stockholders filed class
action complaints against Santa Fe and Santa Fe's Board of Directors
(collectively, "Defendants"). The complaints alleged, among other things, that
members of the Santa Fe Board of Directors breached their fiduciary
responsibilities to Santa Fe's stockholders by failing to consider fully the
Newmont proposal to acquire Santa Fe and the Santa Fe Board of Directors
approved the Homestake merger transaction to ensure that certain of the
defendants would retain their positions. Subsequent to the consummation of the
merger, the plaintiffs dismissed the complaints but have sought to have the
Delaware Court of Chancery retain jurisdiction for the purpose of determining
whether plaintiffs' counsel are entitled to an award of attorneys' fees.
Plaintiffs have not filed a petition for such an award. Any such award should
not have a material adverse effect on Newmont's financial position or results
of operations.
For a description of the litigation involving NGC's ownership interest in
Minera Yanacocha, see page 5.
19
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Newmont's executive officers as of March 5, 1998 were:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Ronald C. Cambre 59 Chairman, President and Chief Executive Officer
Wayne W. Murdy 53 Executive Vice President and Chief Financial Officer
John A. S. Dow 52 Senior Vice President, Exploration
David H. Francisco (1) 48 Senior Vice President, International Operations
Lawrence T. Kurlander 58 Senior Vice President, Chief Administrative Officer
W. James Mullin (1) 52 Senior Vice President, North American Operations
David A. Baker (1) 43 Vice President, Environmental Affairs
D. Scott Barr (1) 48 Vice President, Projects
George G. Byers (1) 51 Vice President, Government Relations
Steven A. Conte (1) 55 Vice President, Human Resources
Thomas M. Conway (1) 41 Vice President, Latin American Operations
Mary E. Donnelly (1) 46 Vice President, Government Relations
Thomas L. Enos (1) 46 Vice President, General Manager, Carlin
W. Durand Eppler (1) 44 Vice President, Business Development and Planning
Gary E. Farmar (1) 43 Vice President, Internal Audit
Patricia A. Flanagan 39 Vice President, Treasurer and Assistant Secretary
Eric Hamer (1) 55 Vice President and Senior Project Executive, Indonesia
Bruce D. Hansen (1) 40 Vice President, Project Development
Joy E. Hansen 52 Vice President and General Counsel
Jeffrey R. Huspeni (1) 42 Vice President, Mine Geology
Donald G. Karras 44 Vice President, Taxes
Leendert G. Krol (1) 58 Vice President, International Exploration
Leland W. Krugerud (1) 46 Vice President, Accounting and Information Systems
Jack H. Morris (1) 58 Vice President, Corporate Relations
Jean-Michel Rendu (1) 54 Vice President, Resources and Mine Planning
Timothy J. Schmitt 55 Vice President, Secretary and Assistant General Counsel
Linda K. Wheeler 44 Controller
</TABLE>
- --------
(1)Elected officer of NGC only.
There are no family relationships by blood, marriage or adoption among any
of the above executive officers of Newmont. All executive officers are elected
annually by the Boards of Directors of Newmont and NGC, as the case may be, to
serve for one year or until their respective successors are elected and qualify.
There is no arrangement or understanding between any of the above executive
officers and any other person pursuant to which he or she was selected as an
officer. Each executive officer of Newmont also serves as an executive officer
of NGC.
20
<PAGE> 24
Mr. Cambre was elected Chairman of Newmont in November 1994 (effective
January 1995), President in June 1994 and Chief Executive Officer in September
1993 (effective November 1993). He served as Vice Chairman of Newmont from
November 1993 through December 1994. Previously, he served as Vice President and
Senior Technical Advisor to the office of the Chairman of Freeport-McMoRan Inc.,
a natural resources company, from June 1988 to September 1993. He is also
Chairman, President and Chief Executive Officer of NGC.
Mr. Murdy was elected Executive Vice President of Newmont in July 1996 and
designated Chief Financial Officer effective in December 1992. He served as a
Senior Vice President of Newmont from December 1992 to July 1996. He is also
Executive Vice President and Chief Financial Officer of NGC.
Mr. Dow was elected Senior Vice President, Exploration of Newmont in July
1996. He served as Vice President, Exploration of Newmont from April 1992 to May
1994. Previously, he held various senior exploration positions with Newmont, NGC
and its subsidiaries for more than five years. He is also Senior Vice President,
Exploration of NGC.
Mr. Francisco was elected Senior Vice President, International Operations
of NGC in May 1997. Previously, he served as Vice President, International
Operations from July 1995 to May 1997. Previously, he served as Executive Vice
President and General Manager of P.T. Freeport Indonesia Co., a natural
resources company, from August 1992 to May 1995.
Mr. Kurlander was elected Senior Vice President, Chief Administrative
Officer of Newmont in May 1997; he served as Senior Vice President,
Administration from March 1994 to May 1997. Previously, he served as Senior Vice
President, Public Affairs and Government Affairs, for Nabisco International Inc.
of RJR Nabisco, Inc., a consumer products company, since 1992. He is also Senior
Vice President, Chief Administrative Officer of NGC.
Mr. Mullin was elected Senior Vice President, North American Operations of
NGC in May 1997. Previously, he served as Vice President and Regional Director,
Nevada Operations of NGC from May 1994 to May 1996, and prior thereto served as
Vice President and General Manager from December 1993 to May 1994. He also
served as Acting General Manager from January 1993 to December 1993. Prior
thereto he held various senior operating positions with NGC.
Mr. Baker was elected Vice President, Environmental Affairs of NGC in April
1991.
Mr. Barr was elected Vice President, Projects of NGC in May 1997.
Previously, he served as Director, Technical Services from October 1995 to May
1997. Previously, he served as Vice President, Planning of Independence Mining
Company, Inc., a natural resources company, from January 1985 to October 1995.
Mr. Byers was elected Vice President, Government Relations of NGC in May
1997. Previously, he served as Vice President, Government Affairs of Santa Fe
Pacific Gold Corporation, a natural resources company, from January 1990 to May
1997.
Mr. Conte was elected Vice President, Human Resources of NGC in April 1995.
Previously, he served as Vice President, Human Resources of Echo Bay Mines Ltd.,
a natural resources company, from January 1988 to April 1995.
Mr. Conway was designated Vice President, Latin America Operations of NGC
in December 1997. Previously, he served as Vice President, General Manager,
Yanacocha from May 1997 to December 1997 and held various senior positions with
NGC since 1986.
Ms. Donnelly was elected Vice President, Government Relations of NGC in
June 1990.
Mr. Enos was elected Vice President, General Manager, Carlin of NGC in May
1997. Previously, he served as General Manager of Carlin and held various senior
positions with NGC and its subsidiaries since 1971.
Mr. Eppler was elected Vice President, Business Development and Planning of
NGC in May 1995. Previously, he served as Managing Director of Chemical
Securities, Inc., an affiliate of Chemical Bank, for more than five years.
21
<PAGE> 25
Mr. Farmar was designated Vice President, Internal Audit of NGC in May
1997. Previously, he served as Vice President and Controller of NGC from
December 1992 to May 1997.
Ms. Flanagan was elected a Vice President of Newmont in March 1995 and
elected Treasurer in December 1992. Previously, she served as an Assistant
Treasurer. She was appointed Assistant Secretary in June 1992. She is also Vice
President, Treasurer and Assistant Secretary of NGC.
Mr. Hamer was elected Vice President and Senior Project Executive,
Indonesia of NGC in August 1997. From May 1996 to August 1997 he served as Vice
President, Senior Project Executive, Batu Hijau for NGC. Previously, he served
as Vice President, North American Operations of NGC from July 1995 to May 1996,
as Vice President, Indonesian Projects, from January 1994 to July 1995 and as
Vice President, Project Development from January 1993 through December 1993. He
also served as Vice President and General Manager of NGC's Carlin operations
from October 1991 to December 1992.
Mr. Hansen was elected Vice President, Project Development of NGC in May
1997. Previously, he served as Senior Vice President, Corporate Development of
Santa Fe Pacific Gold Corporation, a natural resource company, from April 1994
to May 1997 and Previously held various senior positions with Santa Fe since
1982.
Ms. Hansen was elected Vice President and General Counsel of Newmont in
September 1996. She was elected Vice President and Associate General Counsel of
NGC in March 1995 and designated General Counsel in July 1996. Previously,
she served as Associate General Counsel of NGC from March 1992 to July 1994.
Mr. Huspeni was elected Vice President, Mine Geology of NGC in May 1997.
Previously, he served as Director, Mine Geology of NGC and held various
senior positions with NGC since January 1982.
Mr. Karras was elected Vice President, Taxes of Newmont in November 1992.
He is also Vice President, Taxes of NGC.
Mr. Krol was designated Vice President, International Exploration of NGC in
October 1997. Previously, he served as Vice President, International
Exploration and Acquisitions of NGC from May 1997 to October 1997, and Vice
President, Exploration of NGC from September 1994 to May 1997. He served as
Director of Foreign Exploration from May 1992 to September 1994.
Mr. Krugerud was elected Vice President of Accounting and Information
Systems of NGC in May 1997. Previously, he served as Director, Internal Audit
of NGC and held various senior positions with NGC since September 1989.
Mr. Morris was elected Vice President, Corporate Relations of NGC in March
1994. Previously, he served as Director of Investor Relations and Corporate
Communications for Inland Steel Industries, a steel producer, from 1990 to 1993.
Mr. Rendu was designated Vice President, Resources and Mine Planning of NGC
in June 1997. Previously, he served as Vice President, Technical Services
from January 1995 to June 1997 and served as Vice President, Information Systems
of NGC from November 1991 to January 1995 and Vice President, Mine Engineering
of NGC from March 1991 to January 1995.
Mr. Schmitt was elected a Vice President of Newmont in December 1986 and
was elected Secretary in May 1988. He was designated Assistant General Counsel
in October 1991. He is also Vice President, Secretary and Assistant General
Counsel of NGC.
Ms. Wheeler was elected Controller of Newmont in May 1997. Previously, she
served as Controller of Santa Fe Pacific Gold Corporation, a natural resources
company, from May 1994 to May 1997, and held various management positions with
Santa Fe prior thereto. She is also Controller of NGC.
22
<PAGE> 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Stock Market Information" in
the 1997 Annual Report to Stockholders on page 46 therein is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In millions, except per share)
<S> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
Sales $1,572.8 $1,105.7 $ 981.6 $ 967.5 $ 830.3
Income from continuing
operations $ 68.4 $ 98.6 $ 147.7 $ 127.4 $ 115.6
Net income (1) $ 68.4 $ 98.6 $ 147.7 $ 127.4 $ 285.9
Income per common share:
Continuing operations $ 0.44 $ 0.63 $ 0.95 $ 0.80 $ 0.74
Net income (1) $ 0.44 $ 0.63 $ 0.95 $ 0.80 $ 2.02
Dividends declared per
common share (2) $ 0.39 $ 0.48 $ 0.48 $ 0.48 $ 0.48
At December 31,
- ---------------
Total assets $3,614.0 $3,282.1 $2,710.0 $2,429.0 $1,833.3
Long-term debt, including
current portion $1,222.7 $1,059.1 $ 808.5 $ 683.6 $ 349.3
Stockholders' equity $1,697.1 $1,667.0 $1,354.7 $1,256.4 $1,138.4
</TABLE>
(1) In 1993, includes income from discontinued operations of $131.8 million
($0.99 per share), net of tax, and a benefit of $38.5 million ($0.29 per share),
net of tax, for the cumulative effect of a change in accounting for income
taxes.
(2) In each of the years 1993 through 1996, NMC declared dividends of $0.48 per
share per NMC common share. Santa Fe declared dividends of $0.05 per Santa Fe
common share in 1996 and 1995. Prior to 1995, Santa paid dividends to another
company as its wholly-owned subsidiary.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis" in the 1997 Annual Report to Stockholders on pages 14 through 20
therein is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the caption "Market Conditions and Risks"
in the 1997 Annual Report to Stockholders on page 15 therein is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth in the 1997 Annual Report of Stockholders on
pages 21 through 46 therein is incorporated herein by reference.
ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no disagreements with Arthur Andersen LLP, Newmont's
independent public accountants, regarding any matter of accounting principles or
practices or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Newmont's directors will be contained in Newmont's
definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934 for the 1998 annual meeting of
stockholders and is incorporated herein by reference. Information concerning
Newmont's executive officers is set forth under Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be contained in Newmont's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 1998 annual meeting of stockholders and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in Newmont's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 1998 annual meeting of stockholders and
is incorporated herein by reference.
23
<PAGE> 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
The financial statements, together with the reports thereon of Arthur
Andersen LLP dated January 27, 1998, and Price Waterhouse LLP dated February 1,
1997, included as Exhibit 13, are incorporated by reference in this Form 10-K
Annual Report.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................... *
Statements of Consolidated Income ..................................... *
Consolidated Balance Sheets ........................................... *
Statements of Consolidated Changes in Stockholders'
Equity ............................................................... *
Statements of Consolidated Cash Flows ................................. *
Notes to Consolidated Financial Statements ............................ *
</TABLE>
* See Exhibit 13.
2. Financial Statement Schedules
All schedules have been omitted since they are either not required, are not
applicable, or the required information is shown in the financial statements or
related notes.
3. Exhibits
<TABLE>
<S> <C>
3(a). Restated Certificate of Incorporation dated as of July 13, 1987.
Incorporated by reference to Exhibit 3 to registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
3(b). By-Laws as amended through November 1, 1993 and adopted
November 1, 1993. Incorporated by reference to Exhibit 3(b) to
registrant's Annual Report on Form 10-K or the year ended
December 31, 1993.
3(c). Certificate of Designations, Preferences and Rights of $5.50
Convertible Preferred Stock, $5 par value, dated November 13,
1992. Incorporated by reference to Exhibit (3)c to registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
4(a). Rights Agreement dated August 30, 1990 between registrant and
Manufacturers Hanover Trust Company, as Rights Agent. Incorporated
by reference to Exhibit 1 to registrant's Registration Statement
on Form 8-A dated August 31, 1990.
4(b)/4(c). First Amendment dated November 27, 1990 and Second Amendment dated
December 7, 1990 to the aforementioned Rights Agreement dated
August 30, 1990. Incorporated by reference to Exhibits 2 and 3,
respectively, to registrant's Form 8 dated December 7, 1990.
4(d). Third Amendment dated February 26, 1992 to the aforementioned
Rights Agreement dated August 30, 1990. Incorporated by reference
to Exhibit 4 to registrant's Form 8 dated March 17, 1992.
4(e). Indenture dated March 23, 1992 between registrant and Bank of
Montreal Trust Company. Incorporated by reference to Exhibit 4 to
registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
10(a). 1982 Key Employees Stock Option Plan. Incorporated by reference
to Exhibit to registrant's Registration Statement on Form S-8
(No. 33-10141).
</TABLE>
24
<PAGE> 28
<TABLE>
<S> <C>
10(b). 1987 Key Employees Stock Option Plan as amended as of October 25,
1993. Incorporated by reference to Exhibit 10(e) to registrant's
Annual Report on Form 10-K for year ended December 31, 1993.
10(c). 1992 Key Employees Stock Plan as amended as of October 25, 1993.
Incorporated by reference to Exhibit 10(p) to registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
10(d). 1996 Employees Stock Plan. Incorporated by reference to Exhibit
10(d) to registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.
10(e). Agreement dated October 15, 1993, effective November 1, 1993,
among registrant, NGC and Ronald C. Cambre. Incorporated by
reference to Exhibit 10 to registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10(f). Amendment No. 1, dated June 24, 1997, to Agreement dated
October 15, 1993, effective November 1, 1993 among registrant, NGC
and Ronald C. Cambre. Incorporated by reference to Exhibit 10 to
registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
10(g). Letter Agreement dated December 15, 1993, between NGC and
registrant. Incorporated by reference to Exhibit A to NGC's Proxy
Statement dated February 16, 1994.
10(h). Tax Sharing Agreement dated as of January 1, 1994 between
registrant and NGC. Incorporated by reference to Exhibit 10(i)
to registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(i). Agreement and Plan of Merger dated as of March 10, 1997,
among registrant, Midtown Two Corp. and Santa Fe Pacific Gold
Corporation. Incorporated by reference to Exhibit 2.1 to
registrant's Registration Statement on Form S-4
(File No. 333-19335).
12. Statement re Computation of Ratio of Earnings to Fixed Charges.
13. Those portions of the 1997 Annual Report to Stockholders of NMC
that are incorporated herein by reference.
21. Subsidiaries of registrant.
23. Consent of Arthur Andersen LLP.
23.1 Consent of Price Waterhouse LLP.
24. Power of Attorney.
27. Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K:
November 10, 1997 filing on Form 8-K; Items 5 and 7, including restated
consolidated financial statements for the years ended December 31, 1996, 1995
and 1994, together with the report thereon of Arthur Andersen LLP independent
public accountants.
25
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEWMONT MINING CORPORATION
By /s/ TIMOTHY J. SCHMITT
Timothy J. Schmitt
Vice President, Secretary and
Assistant General Counsel
March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director
Rudolph I. J. Agnew
* Director
J. P. Bolduc
* Chairman, President and
Ronald C. Cambre Chief Executive Officer
and Director
* Director
Joseph P. Flannery
* Director
Donald W. Gentry
* Director
Leo I. Higdon, Jr.
* Director
Thomas A. Holmes
* Director
Patrick M. James
* Director
George B. Munroe
* Director
Robin A. Plumbridge
* Director March 26, 1998
Moeen A. Qureshi
* Director
Michael K. Reilly
* Director
William I. M. Turner, Jr.
* Executive Vice President
and Chief Financial Officer
Wayne W. Murdy (Principal Financial Officer)
* Controller
Linda K. Wheeler (Principal Accounting Officer)
</TABLE>
*By /s/ TIMOTHY J. SCHMITT
Timothy J. Schmitt
as Attorney-in-fact
26
<PAGE> 30
Appendix I
The following is a narrative description of the map in image form which
has been included in the paper version of the Form 10-K but has been excluded
from the EDGAR version of the Form 10-K.
Map of Nevada Operating Properties and Principal Area of Land Holdings
-- Page 4 of Form 10-K.
On Page 4 of the Form 10-K, the registrant has included a map of
Nevada with an enlargement of the geographical location of its
operations on the Carlin Trend, Lone Tree Complex, Twin Creeks Mine
and Rosebud Mine discussed on Pages 1 through 4 of the Form 10-K. The
map also includes the registrant's principal area of land holdings in
the gray shaded areas.
<PAGE> 31
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<TABLE>
<CAPTION>
<S> <C>
3(a). Restated Certificate of Incorporation dated as of July 13, 1987.
Incorporated by reference to Exhibit 3 to registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
3(b). By-Laws as amended through November 1, 1993 and adopted
November 1, 1993. Incorporated by reference to Exhibit 3(b) to
registrant's Annual Report on Form 10-K or the year ended
December 31, 1993.
3(c). Certificate of Designations, Preferences and Rights of $5.50
Convertible Preferred Stock, $5 par value, dated November 13,
1992. Incorporated by reference to Exhibit (3)c to registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
4(a). Rights Agreement dated August 30, 1990 between registrant and
Manufacturers Hanover Trust Company, as Rights Agent. Incorporated
by reference to Exhibit 1 to registrant's Registration Statement
on Form 8-A dated August 31, 1990.
4(b)/4(c). First Amendment dated November 27, 1990 and Second Amendment dated
December 7, 1990 to the aforementioned Rights Agreement dated
August 30, 1990. Incorporated by reference to Exhibits 2 and 3,
respectively, to registrant's Form 8 dated December 7, 1990.
4(d). Third Amendment dated February 26, 1992 to the aforementioned
Rights Agreement dated August 30, 1990. Incorporated by reference
to Exhibit 4 to registrant's Form 8 dated March 17, 1992.
4(e). Indenture dated March 23, 1992 between registrant and Bank of
Montreal Trust Company. Incorporated by reference to Exhibit 4 to
registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
10(a). 1982 Key Employees Stock Option Plan. Incorporated by reference
to Exhibit to registrant's Registration Statement on Form S-8
(No. 33-10141).
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10(b). 1987 Key Employees Stock Option Plan as amended as of October 25,
1993. Incorporated by reference to Exhibit 10(e) to registrant's
Annual Report on Form 10-K for year ended December 31, 1993.
10(c). 1992 Key Employees Stock Plan as amended as of October 25, 1993.
Incorporated by reference to Exhibit 10(p) to registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
10(d). 1996 Employees Stock Plan. Incorporated by reference to Exhibit
10(d) to registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.
10(e). Agreement dated October 15, 1993, effective November 1, 1993,
among registrant, NGC and Ronald C. Cambre. Incorporated by
reference to Exhibit 10 to registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10(f). Amendment No. 1, dated June 24, 1997, to Agreement dated
October 15, 1993, effective November 1, 1993 among registrant, NGC
and Ronald C. Cambre. Incorporated by reference to Exhibit 10 to
registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
10(g). Letter Agreement dated December 15, 1993, between NGC and
registrant. Incorporated by reference to Exhibit A to NGC's Proxy
Statement dated February 16, 1994.
10(h). Tax Sharing Agreement dated as of January 1, 1994 between
registrant and NGC. Incorporated by reference to Exhibit 10(i)
to registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(i). Agreement and Plan of Merger dated as of March 10, 1997,
among registrant, Midtown Two Corp. and Santa Fe Pacific Gold
Corporation. Incorporated by reference to Exhibit 2.1 to
registrant's Registration Statement on Form S-4
(File No. 333-19335).
12. Statement re Computation of Ratio of Earnings to Fixed Charges.
13. Those portions of the 1997 Annual Report to Stockholders of NMC
that are incorporated herein by reference.
21. Subsidiaries of registrant.
23. Consent of Arthur Andersen LLP.
23.1 Consent of Price Waterhouse LLP.
24. Power of Attorney.
27. Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative
effect of changes in accounting
principles.............................. $ 60,477 $ 82,652 $177,666 $115,755 $139,014
Adjustments:
Net interest expense(1)................. 77,067 58,619 47,099 18,588 24,147
Amortization of capitalized interest.... 3,221 2,359 2,594 2,299 2,344
Portion of rental expense representative
of interest........................... 2,714 3,428 2,834 1,581 1,300
Minority interest of majority-owned
subsidiaries that have fixed
charges............................... 71,438 6,584 9,864 8,298 16,751
Undistributed income of
less-than-50%-owned entities.......... -- (18,359) (7,027) (15,549) (3,526)
-------- -------- -------- -------- --------
$214,917 $135,283 $233,030 $130,972 $180,030
======== ======== ======== ======== ========
Fixed Charges:
Net interest expense(1).................... $ 77,067 $ 58,619 $ 47,099 $ 18,588 $ 24,147
Capitalized interest....................... 15,604 16,571 14,043 19,982 9,014
Portion of rental expense representative of
interest................................ 2,714 3,428 2,834 1,581 1,300
-------- -------- -------- -------- --------
$ 95,385 $ 78,618 $ 63,976 $ 40,151 $ 34,461
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges........... 2.3 1.7 3.6 3.3 5.2
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes interest expense of majority-owned subsidiaries and amortization of
debt issuance costs.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
consolidated financial statements and accompanying notes ("Notes"). NMC's
principal subsidiary is Newmont Gold Company ("NGC"), which holds all operating
assets of Newmont, and is approximately 93.75% owned by NMC. As described in
Note 1, Newmont acquired Santa Fe Pacific Gold Corporation ("Santa Fe") on May
5, 1997, through a tax-free exchange of stock. The consolidated financial
statements have been restated for periods prior to 1997 to reflect the merger
with Santa Fe as a pooling of interests.
Summary
Newmont earned $68.4 million ($0.44 per share) in 1997 including an after-tax
charge for NGC of $119.8 million ($0.72 per share) related to expenses and
write-offs associated with the Santa Fe merger and a gain of $15.4 million
($0.09 per share) related to the close-out of certain put and call option
contracts. Excluding these one-time items, Newmont earned $166.3 million ($1.07
per share). This compared with 1996 and 1995 earnings of $98.6 million ($0.63
per share) and $147.7 million ($0.95 per share), respectively. Earnings in 1995
included for NGC an after-tax gain of $72 million ($0.47 per share) from the
sale of Newmont's interest in Southern Peru Copper Corporation and an after-tax
charge of $37.1 million ($0.24 per share) from the write-off of two exploration
properties and a related reclamation provision. Significant factors
contributing to 1997 results were the merger with Santa Fe, the consolidation
of Minera Yanacocha and improved operating performance at each mine, partially
offset by a decline in the realized gold price.
Total equity gold production increased 27% in 1997 to 3,956,800 ounces from
3,104,100 ounces in 1996. Total cash costs per ounce of equity production
declined 14% to $187 in 1997 from $218 in 1996. Realized prices per equity
ounce were $41 lower in 1997 than in 1996, and $20 and $7 higher than the
average market gold price in 1997 and 1996, respectively, as approximately 30%
of equity production, mostly related to former Santa Fe properties, was sold
under commodity instruments at average prices of $412 an ounce. Production in
1998 is expected to be between 3.8 million and 4.0 million equity ounces at a
total cash cost under $200 per ounce.
At December 31, 1997, Newmont's proven and probable gold reserves totaled
52.7 million equity ounces, calculated at a gold price of $350 per ounce.
Reserves at the end of 1996 were 55.2 million ounces, calculated at a gold
price of $400 per ounce.
Additional Interest in Minera Yanacocha
As discussed in Note 3, an additional 13.35% interest in Minera Yanacocha was
treated as acquired in 1997, increasing the company'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 for Newmont's 38% interest in Minera Yanacocha and the
possibility of a dividend refund attributable to the acquired interest. The
additional interest represented $0.07 of net income per share and 3% of total
equity production in 1997 and is expected to comprise 4% of 1998 equity
production.
14
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. Several
central banks sold a portion of their gold reserves and others have discussed
proposals to sell. Producer hedging and short-selling by speculators, both of
which are sustained by central bank lending, were at record levels in 1997. The
perception that central banks may further reduce their gold reserves and the
belief that major world economies can sustain a low-inflationary environment
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.
Newmont has utilized commodity instruments to protect the selling price of
certain anticipated gold production. Approximately 739,000 ounces, or 20
percent of production in 1998, will be sold under such instruments. Forward
sales contracts at an average price of $454 per ounce are in place for 125,000
ounces per year from the Minahasa mine in Indonesia through December 2000. In
addition, spot deferred contracts for approximately 614,000 ounces of
production from former Santa Fe mines at an average price of $423 per ounce
expire in September 1998. In July 1997, Newmont entered into forward purchase
contracts at an average price of $331 per ounce offsetting the approximate 1.1
million ounces of Santa Fe production then covered by spot deferred contracts.
The gain or loss from these contracts is recognized in sales revenue as the
related gold is delivered. At current estimates of 1998 production and
expenses, a $10 change in the gold price results in an increase or decrease of
approximately $38 million in cash flow from operations and approximately $27
million ($0.17 per share) in net income.
During 1998, Newmont is 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. In January 1998, Newmont reduced its domestic workforce by
approximately 500 people, or 11%. The expected result of these measures is to
allow the company to fund capital expenditures and dividends from operating
cash flow without incurring additional debt, excluding project financing for
the development of the Batu Hijau project in Indonesia.
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.
Indonesia has recently 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 1997, $3.3 million was
charged to Other expenses to reflect the recent devaluation of these
receivables. Newmont's Minahasa operations and Batu Hijau project are in remote
locations and have been largely unaffected by the social problems brought about
by the recent economic situation in Indonesia.
Interest Rates
At December 31, 1997, Newmont's long-term debt included $383.7 million
variable-rate debt with an average interest rate of 6.4%, and fixed-rate debt
of $839.0 million with an average interest rate of 7.5% and an estimated fair
value of $863.2 million. In February 1998, Newmont's public debt was rated Baa3
by Moody's Investors Service and BBB by Standard & Poor's Ratings Services.
Results of Operations
Production
Newmont has increased production in recent years by expanding its processing
capabilities for refractory ores in Nevada and bringing new operations into
production overseas. In 1997, each of these operations reached record
production levels and reported lower per ounce costs as summarized below:
15
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Equity production ozs.(000):
<S> <C> <C> <C>
Nevada operations 2,776.5 2,328.3 2,297.1
Mesquite 227.9 191.6 189.2
Minera Yanacocha* 530.9 308.3 209.8
Zarafshan-Newmont 215.0 163.2 18.5
Minahasa 206.5 112.7 --
------- ------- -------
Total 3,956.8 3,104.1 2,714.6
======= ======= =======
*51.35% beginning February 1997, 38% in 1996 and 1995
1997 1996 1995
---- ---- ----
Total cash costs per equity oz.:
Nevada operations $ 207 $ 234 $ 214
Mesquite 213 245 211
Minera Yanacocha 95 107 119
Zarafshan-Newmont 204 225 218
Minahasa 167 224 --
Weighted average $ 187 $ 218 $ 204
======== ======= =======
</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, costs in 1997 were lower than 1996 as a result of increased production
levels, continued cost containment efforts, and processing higher-grade ore
with increased recovery rates in Nevada. Such costs were higher in 1996
compared with 1995 because of more underground mining in Nevada, higher
waste-to-ore ratios in open-pit mines at Nevada and Mesquite and processing a
higher percentage of refractory ore.
U.S. Operations
Newmont's Nevada operations are along the Carlin Trend near Elko and in the
Winnemucca Region, where former Santa Fe mines (Twin Creeks and the Lone Tree
Complex) are located. Production in 1997 came from 17 open-pit and five
underground mines. Oxide ores are processed by milling or heap-leaching,
depending upon the grade. Higher-grade refractory ores are processed by a
roaster at Carlin, and by autoclaves in the Winnemucca Region. Lower-grade
refractory ores are processed through a flotation plant in the Winnemucca
Region or by bio-oxidation and heap-leaching at Carlin.
Production in 1997 increased 19% from 1996 primarily due to (1) completion
of the Trenton Canyon and Mule Canyon projects in the Lone Tree Complex in late
1996, (2) initial production from the Sage Mill autoclaves, the Lone Tree
flotation plant and the 50%-owned Rosebud mine during 1997; (3) 30% higher
roaster production resulting from processing higher-grade ores; and, (4)
subsequent to the merger, transportation of selected ore types to the
processing facility that maximized gold recovery and production. Total cash
costs per ounce declined 12% primarily because of higher grades and improved
recovery rates at both oxide and refractory mills.
Nevada's production is increasingly coming from higher-cost refractory ores
from both deep open-pits and underground mines as lower-cost, near-surface
oxide ores are depleted. The refractory ore treatment facilities are expected
to account for approximately 47% of the Nevada operations' gold production in
1998, up from 35% in 1997 and 30% in 1996.
To preserve cash during the low gold price environment, Newmont is reducing
mining rates at pits with high strip ratios and deferring some capital
spending. In addition, one oxide mill in the Winnemucca Region and two mills at
Carlin will operate on a campaign basis. As a result, the Nevada workforce was
reduced by 285 in January 1998. In addition, production scheduled for 1998 from
the partner-operated Post deposit will be deferred due to a pit-wall slide that
occurred in mid-1997. With these changes, Nevada production is expected to
decrease slightly in 1998, with somewhat higher total cash costs per ounce.
Production at the Mesquite mine, a heap-leach operation in southern
California, increased 19% in 1997 from 1996 and total cash costs declined 13%
as a result of higher recoveries from ore placed on heap-leach pads. Mesquite
is reaching the end of its economic life; however, a prospective property
received in connection with a recent land exchange may lead to additional gold
reserves and extension of the mine life. Beginning in 1998, mining rates were
reduced to allow production to continue while Newmont obtains the required
environmental permits and performs development work on the newly acquired land.
To facilitate the new mine plan, the workforce was reduced by approximately
125, or 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.
International Operations
Minera Yanacocha in Peru achieved record production of 1,052,800 ounces
(530,900 equity ounces) in 1997, 30% higher than 1996 production of 811,400
ounces (308,300 equity ounces) due to higher tons mined and increased recovery
rates. With its increased ownership, Newmont's equity share of production grew
72% in 1997. Production in 1996 was 47% higher than in 1995, primarily due to
commencement of production at a third mine. Production in 1998 is expected to
reach 1.2 million ounces (600,000 equity ounces).
Total cash costs are comparatively low at Minera Yanacocha because of low
strip ratios and porous ore
16
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
that yields high gold recovery without crushing prior to heap-leaching. Total
cash costs per ounce were 11% lower in 1997 and 1996 compared with the
respective prior year due to higher production levels and recoveries. Costs are
expected to increase in 1998 with longer hauling distances as pits deepen,
increased strip ratios and declines in ore grades.
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. Zarafshan-Newmont, which began production in
September 1995, produces gold by crushing and heap-leaching low-grade oxide ore
from existing stockpiles at the government-owned Muruntau mine. Production
increased 32% in 1997 primarily as a result of processing 15% more tons of ore
and achieving plant design operating rates. With increased production, total
cash costs per ounce declined 9%. In 1998, production is expected to be
comparable to 1997.
In Indonesia, production began in 1996 at Newmont's 80%-owned Minahasa
property. NGC has an 80% interest in this project, but because it funded 100%
of the construction costs, Newmont is entitled to 100% of the gold production
until it recovers the bulk of its investment, including interest. Production
and total cash costs per ounce in 1997 reflected a full year of operation
compared with a partial year in 1996. Also, a roaster was commissioned early in
1997 for processing refractory ore. Production is expected to reach
approximately 250,000 ounces in 1998.
Financial Results
Increases in consolidated sales revenue were related to the 1997 consolidation
of Minera Yanacocha, changes in annual production levels and the average annual
gold price received as shown in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Consolidated sales (in millions) $1,572.8 $1,105.7 $ 981.6
Consolidated production ozs. (000) 4,478.7 2,790.1 2,504.8
Average price received per ounce $ 351 $ 396 $ 392
Average market price per ounce $ 331 $ 388 $ 384
-------- -------- --------
(In millions) 1997 vs. 1996 1996 vs. 1995
------------- -------------
Increase (decrease) in sales
revenues due to:
Consolidation of Minera
Yanacocha $ 344.3 $ --
Consolidated production* 251.1 114.1
Average gold price received (128.3) 10.0
------ ----
Total $ 467.1 $ 124.1
======== ========
</TABLE>
*excluding Minera Yanacocha in 1997
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 all operations.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Costs applicable to sales
(in millions):
Nevada operations $ 575.3 $ 544.1 $ 489.5
Mesquite 49.4 47.5 40.0
Minera Yanacocha 98.9 -- --
Zarafshan-Newmont 43.8 36.9 4.1
Minahasa 32.6 23.8 --
------- ------- -------
Total $ 800.0 $ 652.3 $ 533.6
======= ======= =======
</TABLE>
Certain mining costs associated with deposits that have diverse grade and
waste-to-ore ratios over the mine-life are capitalized. Such costs are charged
to operating expenses as the related gold is sold. In 1997, 1996 and 1995, such
costs were capitalized for certain deposits at the Nevada operations ($66.5
million, $130.4 million and $106.2 million, respectively) and at Minahasa ($8.4
million, $6.1 million and $1.2 million, respectively).
Capitalized mining costs were lower in 1997 compared with 1996 primarily
because of a significant decrease in mining activity from the Post deposit in
Nevada, following the pit wall failure. Capitalized mining costs are expected
to decrease in 1998, with reduced mining rates in Nevada.
Depreciation, depletion and amortization ("DD&A") increased 30% from 1996
and 9% from 1995. The consolidation of Minera Yanacocha, completion of
Winnemucca Region mine and mill expansion projects and a full year of
operations at Minahasa accounted for the increase in 1997. The increase in 1996
over 1995 related to additional assets placed in service in Nevada, a full year
of Zarafshan-Newmont operations and the startup of Minahasa operations. DD&A is
expected to be somewhat higher in 1998 reflecting a full year of operation of
the Sage Mill and flotation plant in Nevada and assets placed in service at
Minera Yanacocha.
Exploration and research expenses were $98.4 million, $92.9 million and
$91.7 million in 1997, 1996 and 1995, respectively. In 1998, exploration and
research expenses will be curtailed by approximately $30 million as this effort
is focused on nearer-term targets in order to conserve cash.
General and administrative expense ("G&A") increased slightly each year,
primarily resulting from additional staffing required for Newmont's growing
international operations. G&A expenses are expected to be reduced by
approximately $15 million in 1998, due to synergies related to the merger and
efforts to conserve cash.
17
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest expense, net of capitalized interest was $77.1 million, $58.6
million and $47.1 million in 1997, 1996 and 1995, respectively. The 1997
increase was associated with higher debt balances following the consolidation
of Minera Yanacocha's $100 million financing obtained during the year and
additional credit facility borrowings for expansion projects. Interest
associated with the Santa Fe debentures issued in mid-1996 accounted for the
increase in 1996 over 1995. Net interest expense in 1998 is expected to be
comparable to 1997.
Merger and related expenses for NGC of $162.7 million ($104.4 million net
of tax) consisted of $135.4 million of transactions costs and $27.3 million in
asset write-offs.
In 1995, Newmont wrote off two exploration properties totaling $52.5
million when it was determined that projected deposit sizes and economic
returns were lower than Newmont's threshold for development.
Other expenses for 1997 included $10.0 million for severance costs
associated with the January 1998 workforce reduction. In 1996, $8.7 million
related to Santa Fe asset write-offs and restructuring expenses. In 1997, 1996
and 1995, $5.0 million, $6.6 million and $3.0 million, respectively, related to
environmental obligations associated with former mining activities.
Dividends, interest and other income for 1997 included gains of $23.7
million (related to the close-out of certain put and call option contracts) and
$5.1 million (related to the disposition of a Santa Fe uranium property). In
1997, 1996 and 1995, $6.5 million, $3.1 million and $28.3 million,
respectively, were recorded for business interruption insurance for problems
associated with the roaster in Nevada. As discussed in Note 9, in January 1996,
Newmont issued 4.65 million shares of common stock resulting in higher cash
balances and interest income in 1996 compared with 1995. Interest income is
expected to be the primary component of Dividends, interest and other income in
1998.
In 1997, Newmont recognized an income tax benefit of $7.9 million compared
with a benefit of $15.9 million in 1996. The tax benefit in 1997 reflected the
consolidation of Minera Yanacocha offset by higher percentage depletion from
increased U.S.-based production, synergies from the merger and refunds from the
settlement of prior-year audits. The 1996 benefit included foreign tax credits
associated with Minera Yanacocha, which were substantially higher in 1996 than
1995, as well as benefits of $6.0 million from resolution of prior-year tax
issues. In 1995, tax expense of $30.0 million included $41.2 million related to
the sale of Newmont's investment in Southern Peru Copper, partially offset by a
tax benefit of $20 million resulting from the write-off of two exploration
properties.
Liquidity and Capital Resources
During 1997, existing cash balances, cash flow from operations ($283.8 million)
and net borrowings ($105.2 million) funded capital expenditures ($415.1
million), dividends ($54.5 million) and net advances to joint ventures and
affiliates ($50.8 million). Newmont plans to use cash "on hand at December 31,
1997 of $146.2 million and operating cash flow to fund 1998 capital
expenditures and dividends.
Investing Activities and Capital Expenditures
Batu Hijau
As discussed in Note 17 to the financial statements, Newmont has a 45% interest
in the Batu Hijau project in Indonesia, accounted for on an equity basis
effective July 1996. At December 31, 1997 and 1996, Newmont's investment of
$76.8 million and $46.6 million, respectively, was included in Other long-term
assets and cash flow activity was reflected in Advances to joint ventures and
affiliates.
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. Initial draws
of $160 million from the facility occurred in January 1998 and a total of
approximately $725 million is expected to be utilized during 1998.
Construction commenced in 1997 and at December 31, 1997, Newmont had spent
$131 million (including exploration expense) on the project, which was 22%
complete. Newmont expects to spend approximately $70 million on the project in
1998.
18
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Capital Expenditures
(In millions) 1997 1996 1995
- ------------- ---- ---- ----
<S> <C> <C> <C>
Nevada Operations $ 231.0 $ 450.8 $ 351.9
Minera Yanacocha 113.7 -- --
Minahasa 24.2 27.4 76.7
Mesquite 18.8 3.6 5.6
Zarafshan-Newmont 5.6 7.3 30.3
Batu Hijau -- 15.1 27.7
Other projects and
capitalized interest 21.8 43.6 28.7
------- ------- -------
Total $ 415.1 $ 547.8 $ 520.9
======= ======= =======
</TABLE>
1997 expenditures in Nevada related to completion of the Sage Mill and
other processing equipment ($90.3 million), capitalized mining costs ($66.5
million), mining and dewatering equipment ($22.9 million), deferred mine
development ($22.5 million), refractory leach pads ($10.9 million) and other
ongoing capital requirements. Minera Yanacocha expenditures included mine and
facility expansion ($78.4 million) and development drilling ($14.0 million).
During 1996, capital expenditures in Nevada included approximately $154.0
million for projects in the Carlin Region (capitalized mining costs,
underground development, mining and processing equipment, and refractory leach
pads) and $296.8 million for projects associated with former Santa Fe
operations (the Sage Mill and flotation plant, capitalized mining costs,
completion of the Trenton Canyon and Mule Canyon projects and other ongoing
capital requirements). Nevada's 1995 capital expenditures related to
capitalized mining, process facilities, mining equipment and other ongoing
requirements.
Estimated capital projects in 1998 total approximately $275 million. Nevada
expenditures of approximately $145 million will fund capitalized mining costs,
mine equipment, leach pads and mine development. Minera Yanacocha expenditures
of $85 million are planned for the construction of leach facilities,
development drilling and other support equipment and facilities. The remaining
capital expenditures include $11 million for Minahasa, $11 million for the La
Herradura project in Mexico, $6 million for Mesquite and $17 million for other
projects and capitalized interest.
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.
Financing Activities
In June 1997, Newmont obtained a $1.0 billion revolving credit facility with a
consortium of banks that expires in June 2002. This financing replaced two
separate facilities held by NGC and Santa Fe, each at $400 million (of which
$255 million was outstanding at December 31, 1996). At December 31, 1997, $316
million was outstanding under the facility. The interest rate is variable and
at December 31, 1997 was 5.8%.
In January 1996, NMC issued 4.65 million shares of common stock for $51.87
per share. Proceeds of the issue netted $241.3 million and were used to
purchase an equal number of shares of common stock of NGC. Such proceeds were
used by NGC to fund its operations. This transaction increased NMC's ownership
of NGC to 93.75%. In addition, $24.2 million was received in 1996 from the
exercise of employee stock options.
Scheduled minimum long-term debt repayments are $43.3 million in 1998.
Newmont expects to fund maturities of its debt through operating cash flow
and/or by refinancing the debt as it becomes due.
Environmental and Other
Of Newmont's $415.1 million in capital expenditures in 1997, it is estimated
that approximately $28 million was required to comply with environmental
regulations. Approximately $16 million of such expenditures will be required in
1998. The ongoing costs to comply with environmental regulations are not a
significant portion of Newmont's cash operating costs. Estimated future
reclamation and remediation costs relating to currently producing mines are
accrued over each mine-life and at December 31, 1997, $45.6 million had been
accrued.
Newmont spent $13.0 million, $14.8 million and $20.0 million in 1997, 1996
and 1995, respectively, for environmental obligations related to former mining
sites (discussed in Note 17), and expects to spend approximately $13 million in
1998. During 1997, settlement with several insurance companies regarding
coverage of remediation expenses at certain former mining sites resulted in
proceeds of approximately $10 million, net of related expenses. Such proceeds
were applied against the charges for changes in estimated future costs. At
December 31, 1997, $52.2 million was accrued for total estimated future costs
associated with such obligations. Because of the uncertain nature of these
liabilities, Newmont estimates that it is reasonably possible that the ultimate
liability may be as much as 70% greater or 15% lower than the amount accrued at
December 31, 1997. Newmont continuously monitors and reviews its environmental
obligations and, although it believes that its reserves are adequate, as
additional facts become known further provisions may be required.
Current inventories and non-current inventories (included in Other
long-term assets) increased $60.2 million and $88.8 million, respectively, from
December 31, 1996 to December 31, 1997. These increases primarily related to
the consolidation of Minera Yanacocha and stockpiles of refractory leach ore in
Nevada. In 1997, certain stockpiled ore inventory in Nevada was written
19
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
down to net realizable value, resulting in a $9.5 million charge to Costs
applicable to sales.
Year 2000
Newmont began a "Year 2000" compliance project in late 1996 to determine if its
automated processing software and equipment will function properly upon
reaching the year 2000. This project, conducted by a cross-functional employee
group and outside consultants, is expected to continue through mid-1999 (the
target for Year 2000 compliance) and addresses automated processes, plant
process control software, compliance of material suppliers and service
providers and other related issues. Work phases include conducting assessments;
devising, implementing and testing necessary renovation plans; and, receiving
certifications from material suppliers and service providers of their Year 2000
compliance. Based on the assessment phase work performed to date, no material
issues or costs have been identified. Subsequent phases of the project may lead
to discovery of material issues or costs.
Safe Harbor Statement
The foregoing discussion and analysis, as well as certain information contained
elsewhere in this Annual 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; 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.
20
<PAGE> 8
Report of
Independent Public Accountants
To Newmont Mining Corporation:
We have audited the accompanying consolidated balance sheets of Newmont Mining
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related statements of consolidated income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Santa Fe Pacific Gold Corporation in 1996 or 1995, a company
merged into the Corporation during 1997 in a transaction accounted for as a
pooling of interests, as discussed in Note 1. Such statements are included in
the consolidated financial statements of Newmont Mining Corporation and reflect
total assets and total revenues of 37% and 30% in 1996, respectively, and total
revenues of 31% in 1995, of the related consolidated totals, after restatement
to reflect certain adjustments as set forth in Note 1. The financial statements
of Santa Fe Pacific Gold Corporation prior to those adjustments were audited by
other auditors whose report has been furnished to us and our opinion, insofar as
it relates to the amounts included for Santa Fe Pacific Gold Corporation, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Newmont Mining Corporation and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 27, 1998.
To the Board of Directors and Shareholders of Santa Fe Pacific Gold Corporation
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of cash flows and of shareholders' equity of Santa Fe
Pacific Gold Corporation (not presented separately herein) present fairly, in
all material respects, the financial position of Santa Fe Pacific Gold
Corporation and its subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
February 1, 1997, except for the fifth paragraph of Note 1,
which is as of March 10, 1997
21
<PAGE> 9
NEWMONT MINING CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands, except per share) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales and other income
Sales $ 1,572,757 $ 1,105,666 $ 981,640
Dividends, interest and other 55,235 29,460 46,394
Gain on disposition of investment -- -- 113,188
------------ ------------ ------------
1,627,992 1,135,126 1,141,222
------------ ------------ ------------
Costs and expenses
Costs applicable to sales 800,045 652,305 533,631
Depreciation, depletion and amortization 265,765 204,081 186,785
Exploration and research 98,420 92,863 91,748
General and administrative 66,380 65,671 62,861
Interest, net of amounts capitalized 77,067 58,619 47,099
Merger and related expenses 162,674 -- --
Write-off of exploration properties -- -- 52,537
Other 25,726 22,521 11,681
------------ ------------ ------------
1,496,077 1,096,060 986,342
------------ ------------ ------------
Income before equity income and income tax 131,915 39,066 154,880
Equity income in Minera Yanacocha -- 50,170 32,650
------------ ------------ ------------
Income before income tax and minority interests 131,915 89,236 187,530
Income tax benefit (provision) 7,900 15,949 (29,982)
Minority interest in Minera Yanacocha (66,882) -- --
Minority interest in Newmont Gold Company (4,556) (6,584) (9,864)
------------ ------------ ------------
Net income 68,377 98,601 147,684
Preferred stock dividends -- -- 11,157
------------ ------------ ------------
Net income applicable to common shareholders $ 68,377 $ 98,601 $ 136,527
============ ============ ============
Net income per common share, basic and diluted $ 0.44 $ 0.63 $ 0.95
============ ============ ============
Basic weighted average shares outstanding 156,243 155,573 143,379
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 10
NEWMONT MINING CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At December 31,
(In thousands, except per share) 1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 146,232 $ 227,053
Short-term investments 12,790 12,724
Accounts receivable 52,410 29,663
Inventories 339,549 279,315
Other current assets 90,389 52,233
------------ ------------
Current assets 641,370 600,988
Property, plant and mine
development, net 2,598,809 2,391,872
Other long-term assets 373,803 289,270
------------ ------------
Total assets $ 3,613,982 $ 3,282,130
============ ============
Liabilities
Short-term debt $ 25,771 $ 45,981
Current portion of long-term debt 43,301 19,250
Accounts payable 83,101 72,135
Other accrued liabilities 242,358 140,893
------------ ------------
Current liabilities 394,531 278,259
Long-term debt 1,179,410 1,039,875
Reclamation and remediation liabilities 88,651 71,702
Other long-term liabilities 192,033 225,333
------------ ------------
Total liabilities 1,854,625 1,615,169
------------ ------------
Minority interest in Minera Yanacocha 62,253 --
Minority interest in Newmont Gold Company 106,017 104,209
------------ ------------
Commitments and contingencies (Notes 3 and 17)
Stockholders' equity
Common stock--$1.60 par value; 250 million shares
authorized; 156.8 million and 156.3 million
shares issued less 307 thousand treasury shares,
respectively 250,350 249,648
Additional paid-in capital 817,040 803,331
Retained earnings 523,697 509,773
------------ ------------
Total stockholders' equity 1,591,087 1,562,752
------------ ------------
Total liabilities and stockholders' equity $ 3,613,982 $ 3,282,130
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 11
NEWMONT MINING CORPORATION
STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Retained
(In thousands, except per share) Shares Amount Capital Earnings
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994* 142,582 $ 228,131 $ 540,012 $ 388,568
Stock options exercised 232 372 8,126 (280)
Preferred stock redemption and
conversion, net of costs 7,899 12,638 (2,360) 5,260
Net income -- -- -- 147,684
Common stock dividends -- -- -- (48,391)
Preferred stock dividends, $3.88
per share -- -- -- (11,157)
Other -- -- 475 (1,789)
---------- ---------- ---------- ----------
Balance at December 31, 1995 150,713 241,141 546,253 479,895
Common stock issuance 4,651 7,442 233,814 (13,765)
Stock options exercised 666 1,065 23,579 (1,190)
Net income -- -- -- 98,601
Common stock dividends -- -- -- (54,305)
Other -- -- (315) 537
---------- ---------- ---------- ----------
Balance at December 31, 1996 156,030 249,648 803,331 509,773
Stock options exercised 439 702 13,382 87
Net income -- -- -- 68,377
Common stock dividends -- -- -- (54,540)
Other -- -- 327 --
---------- ---------- ---------- ----------
Balance at December 31, 1997 156,469 $ 250,350 $ 817,040 $ 523,697
========== ========== ========== ==========
</TABLE>
* At December 31, 1994, 2.875 million shares of preferred stock were
outstanding which were called for redemption in 1995. (See Note 9 to the
Consolidated Financial Statements.) All balances presented have been
restated to reflect the conversion of Santa Fe shares into approximately
56.5 million shares of NMC stock. (See Note 1 to the Consolidated Financial
Statements.)
The accompanying notes are an integral part of these statements.
24
<PAGE> 12
NEWMONT MINING CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net income $ 68,377 $ 98,601 $ 147,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 265,765 204,081 186,785
Amortization of capitalized mining costs 55,254 -- --
Merger related asset write-offs 27,288 -- --
Undistributed earnings of affiliates -- (18,359) (7,027)
Minority interest, net of dividends 7,735 1,589 4,879
Deferred tax benefit (48,800) (16,607) (12,893)
Gain on sale of investments -- -- (113,188)
Write-off of exploration properties -- -- 52,591
Write-down of inventory 9,500 -- --
Other 8,374 3,585 11,783
(Increase) decrease in operating assets:
Accounts receivable (12,188) (4,245) 14,643
Inventories (149,296) (63,233) (70,965)
Other assets 8,414 (13,125) 5,114
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 41,983 11,891 58,786
Other liabilities 1,375 3,430 (14,696)
---------- ---------- ----------
Net cash provided by operating activities 283,781 207,608 263,496
---------- ---------- ----------
Investing Activities
Additions to property, plant and mine development (415,082) (547,757) (520,913)
Proceeds from sale of investment -- -- 119,799
Advances to joint ventures and affiliates (67,119) (3,684) (30,543)
Repayments from joint ventures and affiliates 16,356 -- --
Cash acquired in Minera Yanacocha transaction 40,705 -- --
Other 48 (2,335) (8,344)
---------- ---------- ----------
Net cash used in investing activities (425,092) (553,776) (440,001)
---------- ---------- ----------
Financing Activities
Proceeds from short-term debt 7,630 16,802 13,440
Repayments of short-term debt (27,840) -- --
Proceeds from long-term debt 828,000 255,000 254,856
Repayments of long-term debt (702,541) (4,375) (130,000)
Proceeds from issuance of common stock 12,580 265,449 8,034
Dividends paid on common stock (54,540) (54,305) (48,391)
Dividends paid on preferred stock -- -- (11,860)
Preferred stock redemption and conversion costs -- -- (4,442)
Other (2,799) (344) (4,934)
---------- ---------- ----------
Net cash provided by financing activities 60,490 478,227 76,703
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (80,821) 132,059 (99,802)
Cash and cash equivalents at beginning of year 227,053 94,994 194,796
---------- ---------- ----------
Cash and cash equivalents at end of year $ 146,232 $ 227,053 $ 94,994
========== ========== ==========
</TABLE>
See Note 15 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
25
<PAGE> 13
NEWMONT MINING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 The Corporation
- --------------------------------------------------------------------------------
Newmont Mining Corporation and its more-than-50% owned subsidiaries
(collectively, "NMC" or the Corporation) is a worldwide company engaged in gold
production, exploration for gold and acquisition of gold properties. The
Corporation owns approximately 93.75% of the common stock of Newmont Gold
Company ("NGC"). All of NMC's operations are conducted through NGC. The
Corporation's consolidated sales resulted from operations in the United States,
Peru, Uzbekistan and Indonesia. Operations commenced in Uzbekistan in September
1995 and in Indonesia in March 1996. The Corporation had an equity interest in a
mining operation in Peru that was consolidated beginning in 1997 as a result of
the acquisition of an additional interest described in Note 3.
Gold mining requires the use of specialized facilities and technology. The
Corporation relies heavily on such facilities to maintain its production levels.
Also, the cash flow and profitability of the Corporation's current operations
are significantly affected by the market price of gold. Gold prices can
fluctuate widely and are affected by numerous factors beyond the Corporation's
control.
On May 5, 1997, the Corporation completed a merger with Santa Fe Pacific
Gold Corporation ("Santa Fe") under which each outstanding share of Santa Fe
common stock was exchanged for 0.43 of a share of NMC common stock. Santa Fe is
engaged in gold production in the United States and exploration for gold
deposits worldwide. 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. NGC issued shares of common stock to NMC equal to
the number of shares of NMC common stock issued in conjunction with the merger
in exchange for all 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 periods prior to the merger to include the
operations of Santa Fe, adjusted to conform with NMC's accounting policies and
presentations.
Merger expenses of $162.7 million ($112.3 million net of minority interest
and tax) consisted of $135.4 million of transaction costs and $27.3 million in
asset write-downs. The more significant transaction costs included a $65.2
million fee paid to terminate an existing definitive merger agreement between
Santa Fe and another company, investment advisory fees of $20.5 million,
employee benefit and severance costs of $18.0 million and professional fees of
$18.4 million. 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
exploration project and the write-off of duplicative facilities, equipment and
information system costs.
The following table provides a reconciliation of sales and net income
reported by NMC to the consolidated amounts presented.
<TABLE>
<CAPTION>
For the Years Ended December 31,
(In thousands) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales
Pre-merger
NMC $ 357,316 $ 768,455 $ 636,219
Santa Fe 130,540 337,211 345,421
Post-merger 1,084,901 -- --
Merger adjustments -- -- --
----------- ----------- -----------
Consolidated $ 1,572,757 $ 1,105,666 $ 981,640
=========== =========== ===========
Net income applicable to common shares
Pre-merger
NMC $ 31,608 $ 85,076 $ 101,477
Santa Fe 31,702 21,068 39,812
Post-merger 110,441 -- --
Merger adjustments (105,374) (7,543) (4,762)
----------- ----------- -----------
Consolidated $ 68,377 $ 98,601 $ 136,527
=========== =========== ===========
</TABLE>
Merger adjustments reflect conforming accounting policy changes,
transaction fees, other one-time expenses associated with the merger, the tax
effect of such adjustments and the related change in minority interest in income
of NGC. Accounting policy changes were primarily related to the accounting
treatment for capitalized mining costs. Santa Fe included certain depreciation,
depletion and amortization charges in capitalized mining costs. To the extent
Santa Fe capitalized such charges as 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.
26
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Newmont Mining
Corporation and its more-than-50% owned subsidiaries. The Corporation also
includes its pro-rata share of assets, liabilities and operations for
unincorporated joint ventures in which it has an interest. All significant
intercompany balances and transactions have been eliminated. NMC's principal
subsidiary is NGC, which holds all of the operating assets of the Corporation
and is approximately 93.75% owned by NMC. The functional currency for all
subsidiaries is the U. S. dollar.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of the
short maturity of these investments, the carrying amounts approximate their fair
value. Cash and cash equivalents are primarily invested in United States
Treasury bills, with lesser amounts invested in high-quality commercial paper
and time deposits.
Investments
Short-term investments are carried at cost, which approximates market, and
include Eurodollar government and corporate obligations rated AA or higher. At
December 31, 1997 and 1996, $8.5 million and $8.7 million, respectively, of such
investments secured letters of credit.
Investments in companies in which NGC's ownership is 20% to 50% are
accounted for by the equity method and are included in Other long-term assets.
Income from such investments is included in Equity in income of affiliated
companies.
Inventories
Ore and in-process inventories and materials and supplies are stated at the
lower of average cost or net realizable value. Precious metals are stated at
market value.
Non-current inventories are stated at the lower of average cost or net
realizable value and represent ore-in-stockpiles from which no material is
expected to be processed for more than one year after the balance sheet date.
Property, Plant and Mine Development
Expenditures for new facilities or expenditures which extend the useful lives of
existing facilities are capitalized and depreciated using the straight-line
method at rates sufficient to depreciate such costs over the estimated
productive lives of such facilities. Productive lives range from 2 to 21 years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body and remove overburden to initially expose the ore body, are capitalized.
Such costs, and estimated future development costs, are amortized using a
unit-of-production method over the estimated life of the ore body. On-going
development expenditures to maintain production are generally charged to
operations as incurred.
Significant payments related to the acquisition of exploration interests
are capitalized. If a mineable ore body is discovered, such costs are amortized
using a unit-of-production method. If no mineable ore body is discovered, such
costs are expensed in the period in which it is determined the property has no
future economic value.
Interest expense allocable to the cost of developing mining properties and
to constructing new facilities is capitalized until operations commence.
Gains or losses from normal sales or retirements of assets are included in
other income or expense.
Asset Impairment
The Corporation evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amount may not be
recoverable. If the sum of estimated future cash flows on an undiscounted basis
is less than the carrying amount of the related asset, an asset impairment is
considered to exist. The related impairment loss is measured by comparing
estimated future cash flows on a discounted basis to the carrying amount of the
asset. Changes in significant assumptions underlying future cash flow estimates
may have a material effect on the Corporation's financial position and results
of operations. A low gold price market, if sustained for an extended period of
time, may result in future asset impairments. As of December 31, 1997, the
Corporation does not believe that an impairment has occurred.
Revenue Recognition
Gold sales are recognized when gold is produced.
Mining Costs
In general, mining costs are charged to operations as incurred. However, certain
of the Corporation's deposits have diverse grade and waste-to-ore ratios over
the mine's life. Mining costs for these deposits, to the extent they do not
relate to current gold production, are capitalized and then charged to
operations when the applicable gold is produced.
27
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclamation and Remediation Costs
Estimated future reclamation and remediation costs are based principally on
legal and regulatory requirements. Such costs related to active mines are
accrued and charged over the expected operating lives of the mines using a
unit-of-production method. Future reclamation and remediation costs for inactive
mines are accrued based on management's best estimate at the end of each period
of the undiscounted costs expected to be incurred at a site. Such cost estimates
include where applicable, ongoing care, maintenance and monitoring costs.
Changes in estimates are reflected in earnings in the period an estimate is
revised.
Income Taxes
The Corporation accounts for income taxes using the liability method,
recognizing certain temporary differences between the financial reporting basis
of the Corporation's liabilities and assets and the related income tax basis for
such liabilities and assets. This method generates a net deferred income tax
liability or net deferred income tax asset for the Corporation as of the end of
the year, as measured by the statutory tax rates in effect as enacted. The
Corporation derives its deferred income tax charge or benefit by recording the
change in the net deferred income tax liability or net deferred income tax asset
balance for the year.
The Corporation's deferred income tax assets include certain future tax
benefits. The Corporation records a valuation allowance against any portion of
those deferred income tax assets which it believes it will more likely than not
fail to realize.
Commodity Instruments
The Corporation has entered into gold loans and forward sales contracts to
protect the selling price for certain anticipated gold production. The
Corporation does not acquire, hold or issue commodity instruments for trading or
speculative purposes.
Proceeds from the sale of borrowed gold are recorded as gold loans at the
average price realized. As gold is delivered from production in repayment of the
borrowed gold, gold sales revenue is recognized at the average price realized
and the gold loan balance is reduced. If gold borrowings are repaid in advance
of the original repayment schedule, the resulting gain or loss is deferred and
recognized in gold sales revenue over the original repayment schedule.
Forward sales contracts enable the Corporation to deliver a specified
number of ounces of gold to a counterparty at a specified price and date. Gains
and losses realized on these contracts, as well as any cost or revenue
associated therewith, are recognized in sales when the related gold is
delivered.
Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share," which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 128 is effective for periods ended
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 replaces the "fully diluted
earnings per share" calculation with "diluted earnings per share." Adoption of
SFAS 128 did not have an effect on the Corporation's previously reported net
income per common share. The following table presents a reconciliation of
basic and diluted earnings per share calculations:
<TABLE>
<CAPTION>
For Years Ended December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
Per Share Per Share Per Share
(In thousands, except per share) Income Shares Amount Income Shares Amount Income Shares Amount
------- ------- --------- ------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income applicable to
common shares $68,377 156,243 $0.44 $98,601 155,573 $0.63 $136,527 143,379 $0.95
Effect of Dilutive Securities
Equivalent common shares
from stock options -- 104 -- -- 332 -- -- 165 --
------- ------- ----- ------- ------- ----- -------- ------- -----
Diluted Earnings Per Share
Net income applicable to
common shares $68,377 156,347 $0.44 $98,601 155,905 $0.63 $136,527 143,544 $0.95
======= ======= ===== ======= ======= ===== ======== ======= =====
</TABLE>
28
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
The FASB issued SFAS No. 130 "Reporting Comprehensive Income" in June 1997 which
established standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. In addition to
net income, comprehensive income includes all changes in equity during a period,
except those resulting from investments by and distributions to owners. The
Corporation will adopt SFAS 130, which is effective for fiscal years beginning
after December 15, 1997, in the first quarter of 1998.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" that establishes standards for reporting
information about operating segments in annual and interim financial statements.
SFAS 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS 131 is effective for fiscal
years beginning after December 15, 1997, and will be adopted in 1998. Reporting
and disclosures under SFAS 131 are not expected to be materially different than
present disclosures contained in Notes 14 and 16.
SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued in February 1998 and standardizes disclosure
requirements for pension and other postretirement benefit plans to the extent
practicable. Adoption of this standard for fiscal years beginning after December
15, 1997, and restatement of prior period comparative disclosures is required.
The Corporation will adopt SFAS 132 in 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from those
estimates.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the 1997
presentation.
Note 3 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 the 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.
29
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. A sixth justice was then appointed to hear the case, and has not
yet issued her vote. If the vote is in favor of Newmont, a seventh justice will
be appointed to hear the case. 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 for the Corporation's 38% interest in
Minera Yanacocha and the possibility of a dividend refund attributable to the
acquired interest. The additional interest represented $0.07 of net income per
share and 3% of total equity production in 1997 and is expected to comprise 4%
of 1998 equity production.
Summarized Minera Yanacocha financial information for the years in which it
was not consolidated follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
(In millions) 1996 1995
------ ------
<S> <C> <C>
Sales $313.9 $212.5
Costs applicable to sales and
depreciation, depletion and
amortization 113.8 82.4
Exploration 17.5 11.4
Other 3.1 3.3
------ ------
Net income, before Peruvian taxes 179.5 115.4
Peruvian taxes 54.8 34.6
------ ------
Net income $124.7 $ 80.8
====== ======
Dividends applicable to
NGC's 38% interest $ 29.6 $ 23.2
====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
1996
------
<S> <C>
Current assets $ 85.2
Noncurrent assets 108.2
------
Total assets $193.4
======
Current liabilities $ 45.4
Noncurrent liabilities 39.8
------
Total liabilities $ 85.2
======
Total equity $108.2
======
</TABLE>
30
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma income statement assumes the acquisition of the
additional interest occurred on January 1, 1996 and the pro forma balance sheet
assumes the acquisition occurred on December 31, 1996. The pro forma financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations which
would have been realized had the acquisition of the additional interest been
considered to occur as of the dates for which the pro forma financial statements
are presented. The pro forma financial statements also are not necessarily
indicative of the combined position or results of operations in the future.
Newmont Mining Corporation and Minera Yanacocha
Pro Forma Consolidated Income Statement-Unaudited
<TABLE>
<CAPTION>
(In thousands, except per share) Newmont Minera Pro Forma Pro Forma
For the Year Ended December 31, 1996 Mining* Yanacocha Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 1,105,666 $ 313,870 $ 1,419,536
Dividends, interest and other 29,460 2,336 31,796
----------- ----------- -----------
1,135,126 316,206 1,451,332
----------- ----------- -----------
Costs and expenses
Costs applicable to sales 652,305 89,206 $ (2,172)(A)
(1,624)(B) 737,715
Depreciation, depletion and amortization 204,081 24,595 12,289 (C) 240,965
Exploration and research 92,863 17,482 110,345
General and administrative 65,671 -- 1,624 (B)
(617)(D) 66,678
Interest, net 58,619 5,447 64,066
Other 22,521 -- 22,521
----------- ----------- ----------- -----------
1,096,060 136,730 9,500 1,242,290
Equity income of Minera Yanacocha 50,170 -- (47,381)(E)
(617)(D)
(2,172)(A) --
----------- ----------- ----------- -----------
Income before income tax and minority interests 89,236 179,476 (59,670) 209,042
Income tax benefit (provision) 15,949 (54,784) (599)(F) (39,434)
Minority interest in subsidiaries (6,584) -- (60,663)(G)
(235)(H) (67,482)
----------- ----------- ----------- -----------
Net income $ 98,601 $ 124,692 $ (121,167) $ 102,126
=========== =========== =========== ===========
Income per common share $ 0.63 $ 0.66
=========== ===========
Basic weighted average shares outstanding 155,573 155,573
=========== ===========
</TABLE>
* Reflects the pooling of interests described in Note 1.
(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 NGC's share (38%) of management fees charged to
Minera Yanacocha.
(E) Elimination of equity income recognized for Minera Yanacocha to
reflect consolidation.
(F) Additional taxes related to incremental earnings from additional
interest in Minera Yanacocha.
(G) Minority interest (48.65%) in income of Minera Yanacocha.
(H) Adjustment of minority interest in income of NGC.
31
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Newmont Mining Corporation and Minera Yanacocha
Pro Forma Consolidated Balance Sheet-Unaudited
<TABLE>
<CAPTION>
(In thousands) Newmont Minera Pro Forma Pro Forma
December 31, 1996 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>
* Reflects the pooling of interests described in Note 1.
(A) Represents adjusted net purchase price for additional interest acquired and
associated net liabilities owed.
(B) Eliminates net book value of 13.35% acquired interest.
(C) Elimination of NGC's investment in Minera Yanacocha to reflect
consolidation.
(D) To reflect minority interest in Minera Yanacocha.
<TABLE>
<CAPTION>
Note 4 Inventories
=============================================================
At December 31,
(In thousands) 1997 1996
-------- --------
<S> <C> <C>
Current:
Ore and in-process inventories $172,589 $161,806
Precious metals 82,594 35,259
Materials and supplies 82,819 80,544
Other 1,547 1,706
-------- --------
$339,549 $279,315
======== ========
Non-current:
Ore-in-stockpiles (included in
Other long-term assets) $174,445 $ 85,652
======== ========
</TABLE>
<TABLE>
<CAPTION>
Note 5 Property, Plant and Mine Development
================================================================
At December 31,
(In thousands) 1997 1996
----------- -----------
<S> <C> <C>
Land and mining claims $ 362,049 $ 360,845
Buildings and equipment 2,536,810 1,974,872
Mine development 537,819 433,477
Construction-in-progress 154,974 327,970
----------- -----------
3,591,652 3,097,164
Accumulated depreciation,
depletion and amortization (1,343,885) (1,063,695)
Capitalized mining costs 351,042 358,403
----------- -----------
$ 2,598,809 $ 2,391,872
=========== ===========
</TABLE>
32
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Note 6 Other Accrued Liabilities
===============================================================
At December 31,
(In thousands) 1997 1996
-------- --------
<S> <C> <C>
Interest $ 28,081 $ 27,600
Contingent dividends received
(see Note 3) -- 18,556
Purchase price payable (see Note 3) 59,100 --
Payroll and related benefits 53,349 28,188
Reclamation and remediation 9,157 10,000
Severance benefits 10,000 --
Other 82,671 56,549
-------- --------
$242,358 $140,893
======== ========
</TABLE>
Note 7 Income Taxes
===============================================================
The Corporation's (benefit) provision for income taxes
consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Domestic $(13,700) $ (3,347) $ 40,398
Foreign 54,600 4,005 2,477
-------- -------- --------
40,900 658 42,875
-------- -------- --------
Deferred:
Domestic (57,822) (18,232) (12,893)
Foreign 9,022 1,625 --
-------- -------- --------
(48,800) (16,607) (12,893)
-------- -------- --------
$ (7,900) $(15,949) $ 29,982
======== ======== ========
</TABLE>
The Corporation's resulting (benefits) provisions for income taxes differ
from the amounts computed by applying the United States corporate income tax
statutory rate for the following reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. corporate income tax
at statutory rate $ 46,170 $ 31,233 $ 65,635
Percentage depletion (37,755) (28,650) (30,960)
Resolution of tax issues
associated with prior years (12,885) (6,000) --
Foreign tax credits (4,377) (13,057) (8,658)
Foreign losses (earnings) (1,377) 339 3,129
State taxes -- (1,570) 1,173
Other 2,324 1,756 (337)
-------- -------- --------
$ (7,900) $(15,949) $ 29,982
======== ======== ========
</TABLE>
The Corporation's income before tax and minority interests consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Domestic $ (60,989) $ 42,677 $182,053
Foreign 192,904 46,559 5,477
--------- -------- --------
$ 131,915 $ 89,236 $187,530
========= ======== ========
</TABLE>
Components of the Corporation's consolidated deferred income tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
At December 31,
(In thousands) 1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Capitalized mining costs $ (83,049) $ (94,149)
Accelerated tax depreciation (65,261) (86,835)
Mine development costs (35,137) (34,576)
Capitalized interest (13,046) (10,220)
Depletion of the cost of land and
mining claims (64,599) (70,464)
Net undistributed earnings from
equity investment (16,913) (2,108)
Other (1,260) (6,013)
--------- ---------
Deferred tax liabilities (279,265) (304,365)
--------- ---------
Deferred tax assets:
Exploration costs 99,652 69,399
Remediation and reclamation costs 40,875 35,647
Alternative minimum tax credit
carry forward 46,684 51,164
Net operating loss carry forwards 27,670 22,457
Sale/leaseback transaction, net 10,029 12,512
Foreign tax credit carry forward -- 12,461
Retiree benefit costs 19,621 18,775
Capitalized inventory costs 4,915 10,241
Deferred gain on interest rate hedges 2,426 2,940
Relocation/reorganization costs 1,876 2,491
Other 7,480 7,170
--------- ---------
261,228 245,257
Valuation allowance for
deferred tax assets (15,400) (14,000)
--------- ---------
Net deferred tax assets 245,828 231,257
--------- ---------
Net deferred tax liabilities $ (33,437) $ (73,108)
========= =========
</TABLE>
Based primarily upon estimates of future operations, the Corporation
believes that it, more likely than not, will utilize $245.8 million of the
$261.2 million of deferred income tax assets at December 31, 1997. This estimate
reflects a valuation allowance of $15.4 million.
33
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Debt
===============================================================
Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
At December 31,
(In thousands) 1997 1996
----------- -----------
<S> <C> <C>
Sale-leaseback of refractory
ore treatment plant $ 349,134 $ 349,134
Credit facility 316,000 255,000
8 3/8% debentures, net 199,866 199,866
8 5/8% notes 150,000 150,000
Medium-term notes 42,000 42,000
Project financing 165,711 63,125
----------- -----------
1,222,711 1,059,125
Current maturities (43,301) (19,250)
----------- -----------
$ 1,179,410 $ 1,039,875
=========== ===========
</TABLE>
Scheduled minimum long-term debt repayments are $43.3 million in 1998,
$47.7 million in 1999, $25.7 million in 2000, $25.9 million in 2001, $495.7
million in 2002 and $584.4 million thereafter. Actual payments may be greater in
any one year due to actual operating cash flows realized.
Sale-Leaseback of the Refractory Ore Treatment Plant
In September 1994, NGC entered into a sale and leaseback agreement for its
refractory ore treatment plant located in Carlin, Nevada for $349.1 million. The
transaction was accounted for as debt for financial statement purposes, with the
cost of the refractory ore treatment plant recognized as an asset and
depreciated. The lease is for 21 years and the aggregate future minimum lease
payments, which include interest, as of December 31, 1997 and 1996 were $608.5
million and $638.2 million, respectively. Payments began in January 1996 and are
$29.7 million annually through 2000. Principal payments are included in these
amounts beginning in 1998. The lease has purchase options during and at the end
of the lease at predetermined prices. The interest rate on this sale-leaseback
transaction is 6.36%. Because of the uniqueness of this asset, the Corporation
determined that it is not practicable to estimate the fair value of this debt.
In connection with this transaction, the Corporation entered into certain
interest rate contracts to hedge the interest cost of the financing. These
contracts were settled for a gain of $11 million which is being recognized as a
reduction of interest expense over the term of the lease. As a result of this
gain, the effective interest rate on this sale and leaseback transaction is
6.15%.
Credit Facilities
On June 11, 1997, the Corporation entered into a $1.0 billion revolving credit
facility with a consortium of banks, replacing separate credit facilities held
by NGC and Santa Fe. As of December 31, 1997, $316 million was outstanding under
the credit facility, which expires in June 2002. Interest rates are variable,
can be fixed for up to six months at the option of the Corporation and are
adjusted upon changes in the Corporation's long-term debt ratings. At December
31, 1997, the interest rate was 5.8%. An annual facility fee, currently 0.18%,
is required based on the lenders' total commitment. The fair value of amounts
outstanding under the credit facility at December 31, 1997 approximated the
related carrying value.
The credit facility contains certain covenants, including limitations on
consolidated indebtedness to 60% of total capitalization, requirements for $1.0
billion of minimum consolidated tangible net worth and limitations on incurrence
of liens, fundamental business changes and transactions with affiliates.
NGC had a $400 million revolving credit facility with a consortium of banks
that was to expire in April 1998. No amounts were outstanding under the facility
as of December 31, 1996. Santa Fe had a $400 million credit facility, of which
$255 million was outstanding at December 31, 1996.
8 3/8% Debentures
Unsecured debentures in an aggregate principal amount of $200 million maturing
July 1, 2005 bearing an annual interest rate of 8.375% were outstanding at
December 31, 1997 and 1996. The debentures were issued by Santa Fe and
subsequent to the merger are guaranteed by NGC. The debentures were priced at
99.928% to yield 8.386% and are not redeemable prior to maturity. The costs
related to the issuance of the debentures were capitalized and are amortized to
interest expense over the term of the debentures. Using prevailing interest
rates on similar instruments, the fair value of these debentures was
approximately $213.3 million at December 31, 1997 and approximated carrying
value at December 31, 1996.
8 5/8% Notes
Unsecured notes with a principal amount of $150 million due April 1, 2002
bearing an annual interest rate of 8.625% were outstanding at December 31, 1997
and 1996. Interest is payable semi-annually in April and October and the notes
are not redeemable prior to maturity. Using interest rates prevailing on similar
instruments at December 31, 1997 and 1996, this debt was estimated to have a
fair value of $159.6 million and $165.7 million, respectively.
Medium-Term Notes
Unsecured notes totaling $42 million were outstanding as of December 31, 1997
and 1996, with a weighted average fixed interest rate of 7.7% and maturing on
various dates ranging from mid-1999 to late 2004. Interest is payable
semi-annually in March and September and the notes are not redeemable prior to
maturity. Using the interest rates
34
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
prevailing on similar instruments at December 31, 1997 and 1996, this debt was
estimated to have a fair value of $43.2 million and $44.4 million, respectively.
Project Financings
Minera Yanacocha
In May 1997, Minera Yanacocha issued debt through the sale of $100 million 8.4%
1997 Series A Trust Certificates ("Certificates") to various institutional
investors. At December 31, 1997, $98 million was outstanding under the
financing. Interest on the Certificates is a fixed annual rate of 8.4% and
repayments are required annually through 2004. The fair value of the
Certificates at December 31, 1997 approximated the related carrying amount.
Minera Yanacocha also had $23.8 million and $38.5 million outstanding under
loans with the International Finance Corporation ("IFC") and with Deutsche
Investitions und Entwicklungsgesellschaft mbH ("DEG") at December 31, 1997 and
1996, respectively. The IFC and DEG loans mature in 2000, and interest rates on
a portion of the loans are variable, ranging from 2.88% to 3.5% over LIBOR. A
portion of the IFC loan is subject to an interest rate premium (not to exceed
2.5%) when the average realized gold price exceeds $370 per ounce. Interest
rates on a portion of the DEG loan is fixed at 9.3%. Weighted average interest
rates on the IFC and DEG loans were 9.0% and 8.9% for 1997 and 1996,
respectively, and at December 31, 1997 and 1996 were 9.0% and 8.8%,
respectively.
All Minera Yanacocha debt, which is non-recourse to its shareholders, is
secured by certain restricted funds and substantially all of Minera Yanacocha's
property, plant and equipment.
Zarafshan-Newmont
NGC, through a wholly-owned subsidiary, is a 50% participant in
Zarafshan-Newmont joint venture in the Republic of Uzbekistan. The other 50%
participants are two entities of the Uzbekistan government.
As of December 31, 1997, Zarafshan-Newmont had $87.8 million outstanding
under a project financing loan secured by the assets of the project. The loan is
to be repaid in semi-annual installments until 2001. The average interest rate
is between 3.9 and 4.25 percentage points over the three-month LIBOR. The
weighted average interest rates for 1997 and 1996 were 9.6% and 8.2%,
respectively, and the interest rates at December 31, 1997 and 1996 were 9.7% and
9.4%, respectively. The carrying amount of the loan is estimated to approximate
its fair market value.
Until defined completion tests have been satisfied, the Corporation has
guaranteed the payment of certain amounts due under the loan which totaled $41.3
million at December 31, 1997. The 50% Uzbek partners have guaranteed the
repayment of the remaining amount due under the loan until such completion tests
have been satisfied. After satisfaction of the completion tests, the loan
becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed
to extend the date by which the completion tests must be met to April 2000.
Short-Term Debt
All short-term debt at December 31, 1997 and 1996 consisted of bank debt. The
Corporation had unsecured demand bank lines of credit aggregating $36.0 million
and $70.0 million at December 31, 1997 and 1996, respectively, of which $25.8
million and $46.0 million were outstanding at the same respective dates. These
facilities bear interest at customary short-term rates for borrowers with
similar credit ratings. The weighted average interest rates for 1997 and 1996
were 7.0% and 6.9%, respectively, and the interest rates at December 31, 1997
and 1996 were 7.2% and 8.25%, respectively. The carrying value of this debt is
assumed to approximate its fair value.
Capitalized Interest
Capitalized interest was $15.6 million, $16.6 million and $14.0 million in 1997,
1996 and 1995, respectively.
Note 9 Stockholders' Equity
================================================================================
Common Stock Offerings
In January 1996, NMC issued 4.65 million shares of common stock for $51.87 per
share under an existing "shelf" registration statement with the Securities and
Exchange Commission. Proceeds of the issue netted $241.3 million and were used
to purchase an equal number of shares of common stock of NGC. Such proceeds were
used by NGC to fund its operations. This transaction increased NMC's ownership
of NGC from 93.58% to 93.75%.
Dividends
The Corporation paid dividends of $0.39 per common share in 1997 and $0.48 per
share, respectively, in 1996 and 1995. Santa Fe paid dividends of $0.05 per
Santa Fe common share in 1996 and 1995.
Preferred Stock
NMC called all of the outstanding 2.875 million shares of $5.50 convertible
preferred stock, $5.00 par value, for redemption on December 14, 1995 at a
redemption price of $105.21 per share. Each share of preferred stock was
convertible at the option of the shareholder into shares of common stock at a
conversion price of $36.395 per share of common stock (equivalent to a
conversion rate of 2.7476 shares of common stock for each whole share
35
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of convertible preferred stock). Substantially all of the preferred stock was
converted prior to the redemption date. A total of 7.9 million common shares
were issued in the redemption.
Preferred Share Purchase Rights
In August 1990, the Board of Directors declared a dividend distribution of one
preferred share purchase right ("PSPR") on each share of common stock
outstanding on September 11, 1990. Each share issued subsequent to September 11,
1990 and prior to the time the rights become exercisable will be issued with a
PSPR. Each PSPR entitles the holder to purchase from NMC one five-hundredth of a
share of participating preferred stock of NMC for $150, subject to adjustment.
The PSPRs expire in September 2000 unless earlier redeemed. Until a PSPR is
exercised, the holder thereof has no rights as a stockholder of NMC.
The PSPRs become exercisable only if a person or group (with certain
exceptions) (an "Acquiring Person") has acquired 15% or more of the common stock
or commenced a tender or exchange offer that would result in a person or group
owning 15% or more of the common stock. Thereafter, if a person or group becomes
an Acquiring Person (with certain exceptions) each holder of a PSPR (other than
the Acquiring Person) will have the right to receive, upon exercise, common
stock having a value equal to two times the purchase price of the PSPR. In
addition, if there is an Acquiring Person and NMC consummates certain changes of
control transactions, each holder of a PSPR shall have the right to receive,
upon exercise, common stock of the acquiring company having a value equal to two
times the purchase price of the PSPR. NMC may redeem the PSPRs at a price of
$0.01 per PSPR prior to the time of an announcement that an Acquiring Person
exists.
Note 10 Employee Benefit Plans
================================================================================
Stock Options
Under the Corporation's stock option plans, options to purchase shares of NMC
are granted to key employees generally at the fair market value of such shares
on the date of grant. The options under these plans generally vest over a two-
year period (except for certain options granted to key executives which vest
over a four-year period) and are exercisable over a period not exceeding ten
years. At December 31, 1997, 1,252,990 shares were available for future grants
under the Corporation's plans. In conjunction with the merger with Santa Fe,
566,000 shares were authorized for issuance in connection with outstanding Santa
Fe stock options that were assumed by NMC.
In 1994, 1993 and 1992 certain key executives were granted NMC options
that, although the exercise price is generally equal to the fair market value on
the date of grant, cannot be exercised when otherwise vested unless the market
price of NMC's common stock is a defined amount above the NMC option exercise
price. In addition, the same executives were granted NMC options in 1994, 1993
and 1992 having exercise prices in excess of the fair market value on the date
of grant. Generally, these key executive NMC options vest over a period of one
to five years and are exercisable over a ten-year period. At December 31, 1997,
503,354 of these NMC options were outstanding.
36
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes annual total stock option activity for the
three years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,063,087 $43 2,719,682 $38 2,177,546 $39
Granted 1,602,802 $35 1,216,916 $49 906,213 $36
Exercised (439,363) $31 (666,164) $37 (232,109) $34
Forfeited (157,698) $47 (207,347) $38 (131,968) $41
--------- --- --------- --- --------- ---
Outstanding at end of year 4,068,828 $41 3,063,087 $43 2,719,682 $38
========= === ========= === ========= ===
Options exercisable at year end 1,944,027 $43 1,320,799 $40 1,287,688 $39
Weighted average fair value of options granted
during the year $14.31 $18.46 $13.90
====== ====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997 with exercise prices equal to the fair market value on the
date of grant and no restrictions on exercisability after vesting:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- --------------- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$27 to $35 936,088 8.9 years $32 310,308 $31
$35 to $43 1,722,716 8.3 years $39 850,619 $40
$43 to $52 537,195 8.3 years $50 331,709 $50
$52 to $59 369,475 8.3 years $58 184,677 $58
---------- --------- --------- --- --------- ---
$27 to $59 3,565,474 8.5 years $41 1,677,313 $42
========== ========= ========= === ========= ===
</TABLE>
Information about all other stock options outstanding at December 31, 1997
is summarized below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Type of Option Prices Outstanding Contractual Life Price Exercisable Price
- -------------- ------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Options with exercise prices in excess of the fair
market value on the date of the grant $40 to $56 266,714 5.5 years $50 266,714 $50
Options that cannot be exercised until the
market price of NMC's stock exceeds a
fixed amount above the exercise price $30 to $41 236,640 5.8 years $37 -- $--
---------- ------- --------- --- ------- ---
</TABLE>
The Corporation applies APB Opinion 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the options been
determined based upon their fair value at their grant dates in 1997, 1996 and
1995, consistent with the methodology prescribed by SFAS No. 123, the
Corporation's net income and earnings per share would have been the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C> <C>
Net income (000) As reported $68,377 $98,601 $136,527
Pro forma $57,540 $93,057 $135,260
Earnings per share, As reported $ 0.44 $ 0.63 $ 0.95
basic and diluted Pro forma $ 0.37 $ 0.60 $ 0.94
------- ------- --------
</TABLE>
For purposes of determining the pro forma amounts, the fair value of each
option grant was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following assumptions for 1997, 1996 and 1995,
respectively: weighted average risk-free interest rates of 5.8%, 6.1% and 5.8%,
dividend yield of 1% for all years, expected lives of five years for all
periods and volatility of 40%, 35% and 39%, respectively.
Compensation costs included in the pro forma amounts above only reflect
fair values associated with options granted after January 1, 1995. These amounts
may not be indicative of future amounts that will apply to all future
outstanding nonvested awards or future grants.
37
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Benefits
The Corporation has three qualified non-contributory defined benefit pension
plans which cover salaried employees of NMC, Santa Fe and substantially all
hourly employees. The Corporation also had two non-qualified supplemental
pension plans for salaried employees whose benefits under the qualified plan are
limited by federal legislation. The vesting period is five years of service for
each plan. The plans' benefit formulas are based on an employee's years of
credited service and either such employee's last five years average pay
(salaried plan) or a flat dollar amount adjusted by a service-weighted
multiplier (hourly plan).
In 1997, the Corporation also initiated a non-qualified cash balance
international plan for select employees who are not eligible to participate in
the U.S. based plans because of citizenship. The vesting period is five years of
service and the plan includes three cash balance accounts each of which is
credited with a percentage of annual pay. Pension costs are determined annually
by independent actuaries and pension contributions to the qualified plans are
made based on funding standards established under the Employee Retirement Income
Security Act of 1974 ("ERISA").
The components of pension expense for these plans, in the aggregate,
consist of:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Service cost $ 6,529 $ 5,590 $ 3,681
Interest cost on projected
benefit obligation 7,435 6,342 5,597
Return on assets (15,365) (11,876) (7,678)
Net amortization and deferral 7,691 5,051 1,077
-------- -------- -------
Pension expense $ 6,290 $ 5,107 $ 2,677
======== ======== =======
</TABLE>
The following tables set forth the funded status of the Corporation's
pension plans and the amounts recognized in the Corporation's consolidated
balance sheets at December 31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
(In thousands) At December 31, 1997
-----------------------------------------------------------------------
NGC Santa Fe NGC
Salary Salary International Hourly Supplemental
Pension Pension Pension Pension Salary
Plan Plan Plan Plan Pension Plans
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Actuarial PV of benefit obligation
Vested benefits $(66,356) $(13,026) $ (399) $ (9,856) $(3,719)
Non-vested benefits (3,326) (1,371) (405) (1,647) (200)
-------- -------- -------- -------- -------
(69,682) (14,397) (804) (11,503) (3,919)
Effect of future salary increases/service-
weighted benefit multiplier (13,516) (2,646) -- (834) (798)
-------- -------- -------- -------- -------
Projected benefit obligation (83,198) (17,043) (804) (12,337) (4,717)
Plan assets at fair value 83,255 15,357 -- 9,973 --
Plan assets greater (less) than projected
benefit obligation 57 (1,686) (804) (2,364) (4,717)
Unrecognized prior service cost (464) (402) 510 1,143 891
Unrecognized net (gain) loss 1,378 (507) (307) 234 4,544
Unrecognized net transition (asset) liability (1,284) (27) -- (60) 1,574
Adjustment required to recognize minimum liability -- -- -- -- (6,211)
-------- -------- -------- -------- -------
Net pension liability $ (313) $ (2,622) $ (601) $ (1,047) $(3,919)
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------------------------------------
NGC Santa Fe NGC
Salary Salary Hourly Supplemental
Pension Pension Pension Salary
Plan Plan Plan Pension Plans
-------- -------- ------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested benefits $(56,997) $ (9,211) $(7,737) $(2,074)
Non-vested benefits (2,420) (2,074) (1,293) (53)
-------- -------- ------- -------
(59,417) (11,285) (9,030) (2,127)
Effect of future salary increases (9,020) (3,369) (654) (696)
-------- -------- ------- -------
Projected benefit obligation (68,437) (14,654) (9,684) (2,823)
Plan assets at fair value 76,979 11,935 8,870 --
-------- -------- ------- -------
Plan assets greater (less) than projected benefit obligation 8,542 (2,719) (814) (2,823)
Unrecognized prior service cost (505) (306) 1,220 1,130
Unrecognized net (gain) loss (4,306) (593) (492) 4,230
Unrecognized net transition (asset) liability (1,750) (33) (66) 1,965
Adjustment required to recognize minimum liability -- -- -- (6,640)
-------- -------- ------- -------
Net pension asset (liability) $ 1,981 $ (3,651) $ (152) $(2,138)
======== ======== ======= =======
</TABLE>
38
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1996, an amendment was made to increase the benefit multiplier
of the benefits under the Hourly Pension Plan. The effect of this amendment was
to increase the accumulated benefit obligation by approximately $0.5 million,
the projected benefit obligation and prior service cost by $1.2 million and to
increase the annual pension cost by $0.3 million.
In accordance with the provisions of SFAS No. 87, an adjustment was
required to reflect a minimum liability for the supplemental pension plan in
1997, 1996 and 1995. Such adjustment resulted in recording an intangible asset
and, to the extent the minimum liability adjustment exceeded the unrecognized
net transition liability, a reduction of $2.2 million, $2.0 million and $2.0
million in stockholders' equity, which is net of related deferred income tax
benefits, at December 31, 1997, 1996 and 1995, respectively.
In measuring the projected benefit obligation for the plans, the following
actuarial assumptions were used:
<TABLE>
<CAPTION>
At December 31,
1997 1996
---- ----
<S> <C> <C>
Weighted average discount rate 7.0% 7.5%
Rate of increase in future compensation
(applicable only to salaried plans) 4.0% 4.0%
---- ----
</TABLE>
The weighted average expected long-term rate of return on plan assets was
assumed to be 9.0% for 1997, 8.75% for 1996 and 9.0% for 1995.
The Corporation maintains a trust for the purpose of funding the
supplemental pension plan as well as death benefits for officers of the
Corporation. This trust is funded at the discretion of the Corporation and had a
balance, which approximated market value, of $1.7 million at December 31, 1997
and $2.0 million at December 31, 1996. Although the trust's assets can be used
to pay benefits for the supplemental pension plan, they cannot be used in
determining the net pension liability for the supplemental pension plan. The
qualified plans' assets consist of stocks, bonds and cash.
Retiree Benefits Other Than Pensions
The Corporation provides defined medical benefits to qualified retirees who were
salaried employees and to their eligible dependents, and it provides defined
life insurance benefits to qualified retirees who were salaried employees. In
general, participants become eligible for these benefits upon retirement
directly from the Corporation if they are at least 55 years old and the
combination of their age and years of service with the Corporation equals 75 or
more.
The Corporation also provides a contributory medical plan and a
noncontributory life insurance plan for certain retired employees of one of its
subsidiaries. Covered employees become eligible for these benefits at retirement
if they have rendered at least ten years of service after attaining age 45.
The defined medical benefits cover most of the reasonable and customary
charges for hospital, surgical, diagnostic and physician services and
prescription drugs. Life insurance benefits are based on a percentage of final
base annual salary and decline over time after retirement commences.
Postretirement benefits other than pensions are accrued during an
employee's service to the Corporation.
The components of expense for Postretirement benefits other than pensions
for 1997, 1996 and 1995 are shown in the table below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost $ 2,908 $ 2,845 $ 2,189
Interest cost 2,317 2,017 2,165
Amortization of net gain (302) (299) (424)
Other (235) (119) --
------- ------- -------
Expense for postretirement
benefits other than pensions $ 4,688 $ 4,444 $ 3,930
======= ======= =======
</TABLE>
The following table sets forth the components of the liability for the
Corporation's plans for Postretirement benefits other than pensions recognized
in its balance sheet:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996
-------- -------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation ("APBO"):
Retirees and eligible dependents $ 14,037 $11,871
Other fully eligible plan participants 3,768 2,693
Other active plan participants 25,092 16,449
-------- -------
Total APBO 42,897 31,013
Unrecognized prior service (cost) credit (3,476) 1,458
Unrecognized net gain 2,707 6,587
-------- -------
Accrued liability for postretirement
benefits other than pensions $ 42,128 $39,058
======== =======
</TABLE>
At December 31, 1997 and 1996, $1.3 million and $2.0 million of assets,
respectively, with a market value of approximately the same amount, were
designated in a trust to pay Postretirement benefits other than pensions. Since
these assets could be used to pay other employee benefits, they cannot be used
for the Postretirement benefit calculations. The Corporation has no formal
policy for funding Postretirement benefit obligations.
Weighted average discount rates of 7.0% and 7.5% were used in calculating
the APBO at December 31, 1997 and 1996, respectively. The assumed health care
cost trend rates to measure the expected cost of benefits at December 31, 1997
start at a 7% annual increase for coverage before the age of 65 and a 6% annual
increase for coverage after the age of 64. The assumed health care cost trend
rates to measure the expected cost of benefits at December 31, 1996 start at an
8% annual increase for coverage before the age of 65 and a 7% annual increase
for coverage after the age of 64. These rates
39
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
were assumed to decrease one percentage point each year until a 5% annual rate
of increase was reached, at which point a 5% annual rate of increase was assumed
thereafter. The effect of a one percentage point annual increase in the assumed
cost trend rates would increase the aggregate of service and interest costs by
approximately 18% in 1997 and the APBO at December 31, 1997 by approximately
15%. The effect of a one percentage point annual increase in the assumed cost
trend rates would increase the aggregate of service and interest costs in 1996
by approximately 19% and the APBO at December 31, 1996 by approximately 15%.
Savings Plan
Prior to 1998, the Corporation had three qualified defined contribution savings
plans, one which covered salaried employees, one which covered substantially all
hourly employees and one which covered substantially all salary and hourly
employees of Santa Fe. In addition, the Corporation has a non-qualified
supplemental savings plan for salaried employees whose benefits under the
qualified plan are limited by federal regulations. Effective January 1, 1998,
the salaried employees plan and the Santa Fe plan were combined.
Upon the employee meeting eligibility requirements, the Corporation matches
100% of employee contributions of up to 6% and 4% of base salary for the
salaried and hourly plans, respectively. Employees covered by the Santa Fe plan
receive matching contributions up to 4% of base salary and eligible hourly
employees also receive an employer contribution equal to 2% of before-tax
eligible compensation.
The Corporation's matching contributions to such plans were $8.9 million,
$8.2 million and $6.8 million in 1997, 1996 and 1995, respectively.
Note 11 Write-Off of Exploration Properties
- --------------------------------------------------------------------------------
In 1995, the Corporation wrote off two exploration properties totaling $52.5
million. Work on these properties, purchased in 1992, continued until 1995 when
it was determined that projected deposit sizes and economic returns were smaller
than the Corporation's threshold for development.
Note 12 Gain on Sale of Investments
- --------------------------------------------------------------------------------
In May 1995, NGC sold its 10.7% interest in Southern Peru Copper Corporation for
$116.4 million, which resulted in a pre-tax gain of $113.2 million.
Note 13 Dividend, Interest and Other Income
- --------------------------------------------------------------------------------
Included in Dividends, interest and other income are $6.5 million, $3.1 million
and $28.3 million for 1997, 1996 and 1995, respectively for business
interruption insurance that was received for problems associated with the
refractory ore treatment plant at the Carlin, Nevada operations.
Note 14 Major Customers and Export Sales
- --------------------------------------------------------------------------------
The Corporation is not economically dependent on a limited number of customers
for the sale of its product because gold commodity markets are well-established
worldwide. In 1997, sales to one customer totaled $896.6 million or 57% of total
sales. In 1996, sales to one customer accounted for $213.3 million or 19% of
total sales. In 1995, sales to two such major customers accounted for $177.6
million and $137.3 million, or 32% of total sales.
Export sales were $1,566.8 million, $764.4 million and $636.2 million in
1997, 1996 and 1995, respectively.
40
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 Supplemental Cash Flow Information
- --------------------------------------------------------------------------------
Net cash provided by operating activities includes the following cash payments:
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands) 1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Income taxes, net of refunds $46,671 $ (9,708) $32,546
Interest, net of amounts capitalized $76,711 $ 55,644 $23,625
</TABLE>
The following reflects the non-cash adjustments recorded on January 1, 1997
for the Minera Yanacocha transaction described in Note 3 (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 connection with the Minera Yanacocha acquisition described above, the
Corporation recorded $48.3 million to property, plant and mine development for
the excess of the purchase price of the additional interest over the net book
value of such interest. Also, at December 31, 1997, the Corporation has recorded
a $59.1 million payable for the purchase price of the additional interest.
As described in Note 17, in July 1996, NGC began accounting for its 45%
interest in the Batu Hijau project as an equity investment. Related non-cash
adjustments were as follows:
<TABLE>
<CAPTION>
(In thousands) Increase (decrease)
-------------------
<S> <C>
Assets
Other current assets $ (849)
Property, plant and mine development, net (43,936)
Other long-term assets (3,607)
Liabilities
Accounts payable 182
--------
Total $(48,210)
========
</TABLE>
In 1996, the Corporation retired mostly fully depreciated property, plant
and mine development with an original cost of $77.0 million, which is not
reflected in the statements of consolidated cash flows.
In 1997 and 1996, the Corporation recognized income tax benefits of $12.9
million and $6.0 million, respectively, resulting from the resolution of certain
tax issues associated with prior years.
In 1996, as discussed in Note 9, NGC issued 4.65 million shares of common
stock which were purchased by NMC. This resulted in a $13.8 million decrease to
retained earnings to adjust for the increased value attributable to minority
interest shareholders of NGC.
In 1995, as discussed in Note 9, NMC called for redemption of all of the
outstanding 2.875 million shares of convertible preferred stock. Substantially
all of the convertible preferred stock was converted into common stock of NMC.
This transaction resulted in a non-cash decrease to preferred stock, a non-cash
increase to common stock and additional paid-in capital, and a non-cash increase
to retained earnings.
41
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 Geographic Information
- --------------------------------------------------------------------------------
The Corporation operates predominantly in a single industry as a worldwide
corporation engaged in gold production, exploration for gold and acquisition of
gold properties. The Corporation has consolidated operations in the United
States, Peru, Indonesia and Uzbekistan. In computing earnings from operations
for foreign subsidiaries, no allocations of general corporate expenses, interest
or income taxes have been made.
Identifiable assets by country represent those assets related to the
operations in those countries. Information by geographical location for the
years ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(In thousands) Year ended December 31, 1997
----------------------------------------------------------------------
United Indonesia
States Peru Uzbekistan and Other Consolidated
---------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales $1,075,138 $344,300 $ 70,177 $ 83,142 $1,572,757
Earnings from operations $ 255,882 $197,168* $ 6,106 $ 27,257 $ 486,413
Exploration and research $ 46,136 $ 17,203 $ 1,570 $ 33,511 $ 98,420
Identifiable assets $2,476,927 $358,080 $188,632 $188,363 $3,212,002
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1996
-------------------------------------------------------
United Indonesia
States Uzbekistan and Other Consolidated
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales $ 995,093 $ 62,609 $ 47,964 $1,105,666
Earnings from operations $ 228,434 $ 14,423 $ 14,231 $ 257,088
Exploration and research $ 46,453 $ 1,184 $ 45,226 $ 92,863
Identifiable assets $2,329,051 $226,721 $174,702 $2,730,474
</TABLE>
Prior to 1996, substantially all operations were in the United States.
*Not reduced for minority interest
The above 1996 geographic information does not include NGC's equity
investment in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996
revenues and earnings was $119.3 million and $76.9 million, respectively. NGC's
equity in Minera Yanacocha's total assets at December 31, 1996 was $73.5
million. See Note 3.
Note 17 Commitments and Contingencies
- --------------------------------------------------------------------------------
Environmental Obligations
The Corporation's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Corporation conducts its operations so
as to protect the public health and environment and believes its operations are
in compliance with all applicable laws and regulations. The Corporation has
made, and expects to make in the future, expenditures to comply with such laws
and regulations. The Corporation cannot predict such future expenditures.
Estimated future reclamation and remediation costs are based principally on
legal and regulatory requirements. At December 31, 1997 and 1996, $45.6 million
and $31.8 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 to meet general environmental standards. Based upon the Corporation's
best estimate of its liability for these matters, $52.2 million and $49.8
million were accrued for such obligations at December 31, 1997 and 1996,
respectively. These amounts are included in other current liabilities and
reclamation and remediation liabilities. Depending upon the ultimate resolution
of these matters, the Corporation believes that it is reasonably possible that
the liability for these matters could be as much as 70% greater or 15% lower
than the amount
42
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accrued at December 31, 1997. The amounts accrued for these matters are reviewed
periodically based upon facts and circumstances available at the time. In 1997,
1996 and 1995, charges related to environmental obligations associated with
former mining activities of $15.0 million, $6.6 million and $3.0 million,
respectively, were included in Other expenses.
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.
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.
43
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Insurance Recoveries
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 NMC seeking judgments that they
had no liability. In the fall of 1993, NMC instituted a comprehensive lawsuit
against its carriers. In the first quarter of 1995, settlement in certain of the
insurance litigation was reached enabling the Corporation to realize the
receivable of $16.7 million outstanding at December 31, 1994. Negotiations
continued on the remaining litigation until late 1997, when settlement resulted
in proceeds of $10 million, net of related expenses, which were applied against
charges taken for changes in estimated future remediation costs.
Batu Hijau
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. 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
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.
Under the terms of the agreement with Sumitomo, the Corporation contributed
its interest in the company that owns the project and Sumitomo contributed an
agreed upon amount of cash. NGC retained an indirect 45% interest in the Company
that owns the project and Sumitomo has an indirect 35% interest. The remaining
20% interest is held by an unrelated Indonesian company.
As a result of the ownership structure, the Corporation accounted for its
investment in Batu Hijau as an equity investment effective July 1996. The
Corporation's investment at December 31, 1997 and 1996, which was included in
Other long-term assets, was $76.8 million and $46.6 million, respectively.
In connection with the Batu Hijau project, the entity owning the project
has entered into a construction contract for approximately $1.0 billion.
Financing agreements were signed in July 1997 for $1.0 billion in funds for the
project and the Corporation and Sumitomo are funding $0.9 billion. 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 at
December 31, 1997, the average interest rates would be approximately 6.7% and
7.3% pre-completion and post-completion, respectively.
Guarantee of Third Party Indebtedness
The Corporation guaranteed a former subsidiary's $35.7 million Pollution Control
Revenue Bonds, due 2009. The former subsidiary is BHP Copper Inc., formerly
known as Magma Copper Company. It is expected that the Corporation will be
required to remain liable on this guarantee as long as the bonds remain
outstanding; however, the Company has not been required to pay any of these
amounts, nor does it expect to have to pay any in the future.
Commodity Instruments
At December 31, 1997, the Corporation had forward sales contracts made on a spot
deferred basis ("spot deferred contracts") for approximately 614,000 ounces of
gold relating to production during the period January 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 from this transaction is recognized in sales as the related gold
is delivered.
The Corporation also 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 January through March 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.
The Corporation 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.
44
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
subsidiary 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, 2005.
Other Commitments and Contingencies
Under a 1992 agreement with Barrick Goldstrike Mines Inc. ("Barrick"), Barrick
is mining NGC's Post deposit which extends beyond NGC's property boundaries onto
Barrick's property. NGC and Barrick share the costs so that each ounce of gold
mined bears the same mining cost. NGC is obligated to pay Barrick for such costs
as Barrick mines the deposit. In addition, the Corporation is obligated to share
dewatering costs which are associated with the deposit. NGC incurred $33.0
million, $63.7 million and $62.5 million of such mining and dewatering costs in
1997, 1996 and 1995, respectively, but does not expect to incur any such costs
in 1998.
The Corporation has minimum royalty obligations on one of its producing
mines for the life of the mine. The amount to be paid to meet the royalty
obligations is based upon a defined average market gold price. Any amounts paid
due to the minimum royalty obligation not being met in any year are recoverable
in future years when the minimum royalty obligation is exceeded. Although the
minimum royalty requirement may not be met in any certain year, the Corporation
expects the mine's gold production over its life will meet the minimum royalty
requirements.
At December 31, 1997, there were $80.3 million of outstanding letters of
credit that were primarily for bonding reclamation plans and electric supply and
reinsurance agreements. The Corporation has provided investment collateral for
$8.5 million of these letters of credit. The remaining $71.8 million represents
unsecured letters of credit. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees competitively
determined in the market place.
The Corporation is from time to time involved in various legal proceedings
of a character normally incident to its business. It does not believe that
adverse decisions in any pending or threatened proceedings or any amounts which
it may be required to pay by reason thereof will have a material adverse effect
on its financial condition or results of operations.
45
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 Unaudited Supplementary Data
- --------------------------------------------------------------------------------
Quarterly Data
The following is a summary of selected quarterly financial information:
<TABLE>
<CAPTION>
(In millions, except per share amounts)
1997
------------------------------------------------------------------------
Three Months Ended
--------------------------------------------------------- Year Ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 355.0 $ 421.8 $ 383.8 $ 412.2 $ 1572.8
Gross profit(1) $ 110.5 $ 143.9 $ 132.2 $ 120.4 $ 507.0
Net income(2) $ 51.2 $ (64.6) $ 43.1 $ 38.6 $ 68.4
Net income per common share, basic and diluted $ 0.32 $ (0.41) $ 0.28 $ 0.25 $ 0.44
Basic weighted average shares outstanding 156.1 156.1 156.3 156.5 156.2
Dividends declared per NMC common share $ 0.12 $ 0.12 $ 0.12 $ 0.03 $ 0.39
Closing price of NMC common stock $ 38.75 $ 39.00 $ 44.94 $ 29.375 $ 29.375
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------
Three Months Ended
--------------------------------------------------------- Year Ended
March 31, June 30, September 30, December 31, December 31,
---------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 236.6 $ 261.4 $ 302.2 $ 305.5 $ 1105.7
Gross profit(1) $ 48.4 $ 55.7 $ 73.9 $ 71.3 $ 249.3
Net income $ 15.3 $ 24.1 $ 37.6 $ 21.6 $ 98.6
Net income per common share, basic and diluted $ 0.10 $ 0.15 $ 0.24 $ 0.14 $ 0.63
Basic weighted average shares outstanding 154.6 156.0 156.0 156.0 155.6
Dividends declared per NMC common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Dividends declared per Santa Fe common share $ -- $ 0.05 $ -- $ -- $ 0.05
Closing price of NMC common stock $ 56.625 $ 49.375 $ 47.25 $ 44.75 $ 44.75
</TABLE>
(1) Sales less costs applicable to sales and depreciation, depletion and
amortization.
(2) Included an after-tax gain of $14.4 million from the close-out of put
and call option contracts in the quarter ended March 31 and an after-tax
charge of $109.2 million and $3.1 million for expenses and write-offs
associated with the Santa Fe merger (see Note 1) in the quarters ended
June 30 and December 31, respectively.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges was 2.3, 1.7, 3.6, 3.3 and 5.2 for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively. The
Corporation guarantees certain third party debt which had total interest
obligations of $1.2 million, $1.2 million, $1.4 million, $1.0 million and $0.8
million for the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. The Corporation has not been required to pay any of these amounts,
nor does it expect to have to pay any amounts; therefore, such amounts have not
been included in the ratio of earnings to fixed charges.
STOCK MARKET INFORMATION
Newmont's common stock is listed and principally traded on the New York
Stock Exchange (under the symbol "NEM") and is also listed on the Paris Bourse,
the Brussels Stock Exchange, the Swiss Stock Exchange and the Lima Stock
Exchange. The following table sets forth, for the periods indicated, the high
and low sales prices per share of Newmont's common stock as reported on the New
York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1997 1996
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter......................... $47.50 $38.25 $60.75 $45.63
Second quarter........................ $39.88 $33.50 $60.50 $48.75
Third quarter......................... $45.88 $35.25 $54.75 $46.00
Fourth quarter........................ $45.63 $26.56 $53.13 $43.88
</TABLE>
On March 5, 1998, there were approximately 29,000 stockholders of record of
Newmont's common stock.
In 1997, a dividend of $0.12 per share of common stock outstanding was
declared in the first three quarters and $0.03 per share in the fourth quarter,
or a total of $0.39 per share for such year. A dividend of $0.12 per share
of common stock outstanding was declared in each quarter of 1996, or a total
of $0.48 per share for such year. The determination of the amount of future
dividends, however, will be made by Newmont's Board of Directors from time
to time and will depend on Newmont's future earnings, capital requirements,
financial condition and other relevant factors.
46
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES OF NEWMONT MINING CORPORATION
<TABLE>
<CAPTION>
NAME OWNERSHIP PLACE OF INCORPORATION
<S> <C> <C>
Newmont Gold Company ("NGC") 93.75% Delaware
Santa Fe Pacific Gold Corporation 100% by NGC Delaware
Hospah Coal Company 100% by NGC Delaware
Minera Yanacocha, S.A. 51.35% by NGC Peru
PT Newmont Minahasa Raya 80% by NGC Indonesia
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into Newmont Mining Corporation's
previously filed S-8 Registration Statement No. 33-49872, S-8 Registration
Statement No. 33-53267, S-3 Registration Statement No. 33-54249, S-8
Registration Statement No. 33-62469, S-8 Registration Statement No. 333-04161,
S-4 Registration Statement No. 333-19335 and Post Effective Amendment No. 1 on
Form S-8 to Form S-4 No. 333-19335-01.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
March 26, 1998.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-54249) and
Form S-4 (333-19335) and the Registration Statements on Form S-8 (Nos.
33-49872; 33-53267; 33-62469; 333-04161 and 333-19335-01) of Newmont Mining
Corporation of our report dated February 1, 1997, except for the fifth paragraph
of Note 1, which is as of March 10, 1997, pertaining to the consolidated
financial statements of Santa Fe Pacific Gold Corporation and Subsidiaries
appearing in Newmont Mining Corporation's Annual Report on Form 10-K. It should
be noted, however, that such financial statements are not included in such
Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
Phoenix, Arizona
March 26, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy J. Schmitt his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, in
his name and on his behalf, to do any and all acts and things and to execute any
and all instruments which he may deem necessary or advisable to enable Newmont
Mining Corporation to comply with the Securities Exchange Act of 1934, as
amended (the "Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, including power and
authority to sign his name in any and all capacities (including his capacity as
a Director and/or Officer of Newmont Mining Corporation) to the Annual Report on
Form 10-K of Newmont Mining Corporation for the fiscal year ended December 31,
1997 and the undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as
of the 18th day of March, 1998.
SIGNATURES TITLE
---------- -----
/s/ Ruldolph I. J. Agnew
------------------------------ Director
Ruldolph I. J. Agnew
/s/ J. P. Bolduc
------------------------------ Director
J. P. Bolduc
/s/ Ronald C. Cambre
------------------------------ Chairman, President and Chief
Ronald C. Cambre Executive Officer and Director
(Principal Executive Officer)
/s/ Joseph P. Flannery
------------------------------ Director
Joseph P. Flannery
/s/ Donald W. Gentry
------------------------------ Director
Donald W. Gentry
/s/ Leo I. Higdon, Jr.
------------------------------ Director
Leo I. Higdon, Jr.
/s/ Thomas A. Holmes
------------------------------ Director
Thomas A. Holmes
/s/ Patrick M. James
------------------------------ Director
Patrick M. James
<PAGE> 2
/s/ George B. Munroe
------------------------------ Director
George B. Munroe
/s/ Robin A. Plumbridge
------------------------------ Director
Robin A. Plumbridge
/s/ Moeen A. Qureshi
------------------------------ Director
Moeen A. Qureshi
/s/ Michael K. Reilly
------------------------------ Director
Michael K. Reilly
/s/ William I. M. Turner, Jr.
------------------------------ Director
William I. M. Turner, Jr.
/s/ Wayne W. Murdy
------------------------------ Executive Vice President and
Wayne W. Murdy Chief Financial Officer
(Principal Financial Officer)
/s/ Linda K. Wheeler
------------------------------ Controller (Principal
Linda K. Wheeler Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5 FDS FOR 1997 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 146,232
<SECURITIES> 12,790
<RECEIVABLES> 52,410
<ALLOWANCES> 0
<INVENTORY> 339,549
<CURRENT-ASSETS> 641,370
<PP&E> 3,942,694
<DEPRECIATION> 1,343,885
<TOTAL-ASSETS> 3,613,982
<CURRENT-LIABILITIES> 394,531
<BONDS> 1,179,410
0
0
<COMMON> 250,350
<OTHER-SE> 1,340,737
<TOTAL-LIABILITY-AND-EQUITY> 3,613,982
<SALES> 1,572,757
<TOTAL-REVENUES> 1,627,992
<CGS> 800,045
<TOTAL-COSTS> 1,065,810
<OTHER-EXPENSES> 353,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,067
<INCOME-PRETAX> 131,915
<INCOME-TAX> (7,900)
<INCOME-CONTINUING> 68,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,377
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
