<PAGE> 1
PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1994
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: 1-9184
NEWMONT GOLD COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2526632
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1700 Lincoln Street, Denver, Colorado 80203
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
303-863-7414
----------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (X) Yes ( ) No
There were 96,327,626 shares of common stock outstanding on July 29, 1994.
Exhibit index is on page 22.
There are 25 pages included in this report.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEWMONT GOLD COMPANY AND SUBSIDIARIES
Statements of Consolidated Income
(In thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Sales and other income
Sales $ 139,337 $ 150,060
Interest from parent - 1,233
Dividends, interest and other 1,789 61
--------- ---------
141,126 151,354
--------- ---------
Costs and expenses
Costs applicable to sales (72,849) (81,686)
Depreciation, depletion and
amortization (21,186) (27,014)
Exploration (16,648) (3,534)
General and administrative (12,501) (2,398)
Interest, net of capitalized
interest of $5,531 in 1994 (433) -
Other (28,910) (337)
--------- ---------
(152,527) (114,969)
--------- ---------
Equity in income of affiliated
companies 3,641 -
--------- ---------
Income (loss) before income taxes (7,760) 36,385
Income tax (provision) benefit 26,697 (8,292)
--------- ---------
Net income 18,937 28,093
Preferred stock dividends (3,953) -
--------- ---------
Net income applicable to common
shares $ 14,984 $ 28,093
========= =========
Net income per common share $ 0.16 $ 0.27
========= =========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 96,439 104,875
Cash dividends declared per common share $ 0.12 $ -
</TABLE>
<PAGE> 3
PAGE 3
NEWMONT GOLD COMPANY AND SUBSIDIARIES
Statements of Consolidated Income
(In thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Sales and other income
Sales $ 289,106 $ 277,961
Interest from parent - 2,560
Dividends, interest and other 3,628 79
--------- ---------
292,734 280,600
--------- ---------
Costs and expenses
Costs applicable to sales (155,776) (156,725)
Depreciation, depletion and amortization (44,092) (54,489)
Exploration (28,203) (3,950)
General and administrative (21,397) (5,515)
Interest, net of capitalized interest
of $10,281 in 1994 (598) -
Other (30,845) (337)
--------- ---------
(280,911) (221,016)
--------- ---------
Equity in income of affiliated companies 5,101 -
--------- ---------
Income before income taxes and cumulative effect
of change in accounting principle 16,924 59,584
Income tax (provision) benefit 25,732 (12,096)
--------- ---------
Income before cumulative effect of change in
accounting principle 42,656 47,488
Cumulative effect of change in accounting
principle - 2,665
--------- ---------
Net income 42,656 50,153
Preferred stock dividends (7,906) -
--------- ---------
Net income applicable to common shares $ 34,750 $ 50,153
========= =========
Income per common share:
Income before cumulative effect of change
in accounting principle $ 0.36 $ 0.45
Cumulative effect of change in accounting
principle - 0.02
--------- ---------
Net income per common share $ 0.36 $ 0.47
========= =========
Weighted average number of shares of common
stock and common stock equivalents outstanding 96,471 104,875
Cash dividends declared per common share $ 0.24 $ -
</TABLE>
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NEWMONT GOLD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 31,045 $ 389
Short-term investments 14,315 -
Advances to parent - 159,573
Inventories 129,826 118,891
Other 35,455 15,948
---------- ----------
Current assets 210,641 294,801
Property, plant and mine development, net 961,390 695,460
Other 154,592 31,609
---------- ----------
Total assets $1,326,623 $1,021,870
========== ==========
Liabilities
Short-term debt $ 15,739 $ -
Accounts payable 20,914 15,062
Accrued income taxes 8,059 -
Other accrued liabilities 86,910 45,195
---------- ----------
Current liabilities 131,622 60,257
Long-term debt 314,500 -
Reclamation liabilities 71,537 15,142
Other long-term liabilities 72,320 22,453
---------- ----------
Total liabilities 589,979 97,852
---------- ----------
Contingencies
Stockholders' Equity
Preferred stock 14,375 -
Common stock 1,049 1,049
Capital in excess of par value 208,414 206,260
Retained earnings 588,118 716,709
Treasury stock (75,312) -
---------- ----------
Total stockholders' equity 736,644 924,018
---------- ----------
Total liabilities and stockholders'
equity $1,326,623 $1,021,870
========== ==========
</TABLE>
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NEWMONT GOLD COMPANY AND SUBSIDIARIES
Statements of Consolidated Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 42,656 $ 50,153
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 44,092 54,489
Undistributed earnings of affiliates (5,066) -
Deferred taxes (28,284) (6,359)
-------- --------
53,398 98,283
(Increase) decrease in operating assets:
Inventories (4,877) (25,993)
Other assets 22,361 (4,456)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (2,882) (7,001)
Accrued income taxes (9,904) -
Other liabilities 550 (246)
Other operating 74 1,275
--------- --------
Net cash provided by operating activities 58,720 61,862
--------- --------
Investing activities:
Net cash acquired from parent 70,331 -
Repayments from parent - 35,281
Additions to property, plant and mine development (198,225) (97,862)
Other 4,580 491
--------- --------
Net cash used in investing activities (123,314) (62,090)
--------- --------
Financing activities:
Proceeds from long-term borrowings 122,500 -
Proceeds from issuance of common stock 3,048 -
Dividends paid on common stock (23,094) -
Dividends paid on preferred stock (7,204) -
--------- --------
Net cash provided by financing activities 95,250 -
--------- --------
Net increase (decrease) in cash and cash
equivalents 30,656 (228)
Cash and cash equivalents at beginning of period 389 551
--------- --------
Cash and cash equivalents at end of period $ 31,045 $ 323
========= ========
Supplemental information:
Interest paid, net of amount capitalized of
$10,281 in 1994 $ (937) $ -
Income tax paid $ 12,057 $ 20,000
</TABLE>
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PAGE 6
NEWMONT GOLD COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Preparation of Financial Statements
These unaudited interim financial statements of Newmont Gold Company and
subsidiaries (collectively the "Company") have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission. Such
rules and regulations allow the omission of certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles, so long as the statements are
not misleading.
In the opinion of management, these financial statements reflect all
adjustments which are necessary to a fair statement of the results for the
periods presented. All adjustments were of a normal recurring nature except
for the following: (1) During the quarter and six months ended June 30, 1994,
a charge of $27.1 million related to environmental obligations associated with
former mining activities as discussed in Note 6 herein; (2) during the quarter
and six months ended June 30, 1994, an income tax benefit of $16.2 million
resulting from the resolution of certain tax issues associated with prior
years; and (3) in the six months ended June 30, 1993, a benefit to income of
$2.7 million for the cumulative effect of a change in accounting principle for
income taxes effective January 1, 1993 as discussed in Item 8, Note 5 of the
Company's Form 10-K for the year ended December 31, 1993. These interim
financial statements should be read in conjunction with those annual financial
statements.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(2) Acquisition of Newmont Mining Corporation's Operations
Effective January 1, 1994, the Company acquired all of the operations of
its parent, Newmont Mining Corporation ("NMC"). The tax-free transaction
included the following: (a) the transfer by NMC to the Company of 8,649,899
shares of the 94,500,000 shares of common stock of the Company held by NMC; (b)
the transfer by NMC of all of its other assets to the Company; (c) the
assumption by the Company of all the liabilities (contingent or otherwise) of
NMC (including the Company's $159.6 million of advances to NMC as of December
31, 1993), but not NMC's obligations with respect to its $5.50 convertible
preferred stock (the "NMC Preferred Stock"), (except for accrued and unpaid
dividends as of December 31, 1993) and its employee stock options exercisable
for NMC's common stock; (d) the issuance by the Company to NMC of 2,875,000
shares of $5.50 convertible preferred stock with a par value of $5.00 per
share, and having terms identical to the NMC Preferred Stock (except that upon
conversion, NMC will be entitled to receive shares of the Company's common
stock instead of NMC's common stock); and (e) the issuance by the Company to
NMC of 2,012,746 stock options exercisable for the Company's common stock
having terms identical to NMC's employee stock options (except upon exercise,
the Company's common stock is issued instead of NMC's common stock). As a
result of the transaction, NMC's only assets at June 30, 1994 were (i)
85,947,814 shares of common stock of the Company which approximates 89.2% of
the Company's common stock outstanding, (ii) 2,875,000 shares of the Company's
$5.50 convertible preferred stock and (iii) stock options to purchase 2,023,575
shares of the Company.
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PAGE 7
The Company accounted for the transaction as a transfer of assets and
liabilities between entities under common control. As a result, the
transferred assets and liabilities were recorded by the Company at NMC's
historical cost with the difference charged to retained earnings. The
8,649,899 shares of common stock transferred were recorded as treasury stock at
the book value of those shares on December 31, 1993. The Company's convertible
preferred stock was recorded at its par value.
The following reflects the adjustments made to the Company's balance sheet
effective as of January 1, 1994 for the transaction (in thousands):
<TABLE>
<S> <C>
Assets
Cash and cash equivalents $ 70,331
Short-term investments 18,709
Advances to parent (159,573)
Inventories 3,355
Other 2,311
---------
Current assets (64,867)
Property, plant and mine development, net 99,070
Other 131,307
---------
Total assets $ 165,510
=========
Liabilities
Short-term debt $ 15,739
Accounts payable 2,876
Accrued income taxes 2,143
Other accrued liabilities 29,019
---------
Current liabilities 49,777
Long-term debt 192,000
Reclamation liabilities 55,952
Other long-term liabilities 69,586
---------
Total liabilities 367,315
Stockholders' Equity
Preferred stock 14,375
Retained earnings (139,974)
Treasury stock (76,206)
---------
Total stockholders' equity (201,805)
---------
Total liabilities and stockholders' equity $ 165,510
=========
</TABLE>
The following pro forma condensed consolidated statement of income from
continuing operations for the three months and six months ended June 30, 1993
gives effect to the transaction as if it had occurred January 1, 1993. The
statement includes the historical amounts for the Company, adjusted to reflect
the historical amounts of NMC excluding its interest in the Company and the
elimination of intercompany interest amounts.
<PAGE> 8
PAGE 8
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1993
-----------------------------------------------
Historical Pro Forma Adjustments Pro Forma
---------- ---------------------- ---------
(A) (B),(C)
-------- -----------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 150,060 $ 6,226 $ 156,286
Interest from parent 1,233 $(1,233)(B) -
Dividends, interest and
other 61 3,412 3,473
Gain on sale of securities - 29,607 29,607
--------- -------- ------- ---------
151,354 39,245 (1,233) 189,366
--------- -------- ------- ---------
Costs and expenses
Costs applicable to sales (81,686) 3 (81,683)
Depreciation, depletion
and amortization (27,014) (764) (27,778)
Exploration (3,534) (8,628) (12,162)
General and administrative (2,398) (5,371) (7,769)
Interest expense, net - (3,588) (3,588)
Related party interest - (1,233) 1,233 (B) -
Other (337) (2,765) (3,102)
--------- -------- ------- ---------
(114,969) (22,346) 1,233 (136,082)
--------- -------- ------- ---------
Income before income
taxes 36,385 16,899 53,284
Income tax provision (8,292) (2,676) (10,968)
--------- -------- ------- ---------
Income from continuing
operations 28,093 14,223 42,316
Preferred stock dividends - (3,909) (3,909)
---------- -------- ------- ---------
Income from continuing
operations applicable
to common shares $ 28,093 $ 10,314 $ - $ 38,407
========== ========= ======= =========
Income per share from
continuing operations $ 0.27 $ 0.40
========== =========
Weighted average shares
outstanding 104,875 (8,359)(C) 96,516
========== ======= =========
</TABLE>
(A) Reflects the combined operations of NMC excluding its interest in the
Company, before the cumulative effect of a change in accounting principle.
(B) Eliminates intercompany interest between the Company and NMC.
(C) Reflects the 8,650 shares of the Company's common stock transferred to the
Company by NMC, adjusted for 291 common stock equivalent shares resulting
from the options exercisable for the Company's common stock.
<PAGE> 9
PAGE 9
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1993
-----------------------------------------------
Historical Pro Forma Adjustments Pro Forma
---------- ---------------------- ---------
(A) (B),(C)
-------- -----------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 277,961 $ 14,503 $ 292,464
Interest from parent 2,560 $(2,560)(B) -
Dividends, interest and
other 79 10,072 10,151
Gain on sale of securities - 29,607 29,607
--------- -------- ------- ---------
280,600 54,182 (2,560) 332,222
--------- -------- ------- ---------
Costs and expenses
Costs applicable to sales (156,725) (361) (157,086)
Depreciation, depletion
and amortization (54,489) (1,467) (55,956)
Exploration (3,950) (18,190) (22,140)
General and administrative (5,515) (11,099) (16,614)
Interest expense, net - (7,488) (7,488)
Related party interest - (2,560) 2,560 (B) -
Other (337) (3,201) (3,538)
--------- -------- ------- ---------
(221,016) (44,366) 2,560 (262,822)
--------- -------- ------- ---------
Income before income
taxes 59,584 9,816 69,400
Income tax provision (12,096) (251) (12,347)
--------- -------- ------- ---------
Income from continuing
operations 47,488 9,565 57,053
Preferred stock dividends - (7,960) (7,960)
---------- -------- ------- ---------
Income from continuing
operations applicable
to common shares $ 47,488 $ 1,605 $ - $ 49,093
========== ======== ======= =========
Income per share from
continuing operations $ 0.45 $ 0.51
========== =========
Weighted average shares
outstanding 104,875 (8,521)(C) 96,354
========== ======= =========
</TABLE>
(A) Reflects the combined operations of NMC excluding its interest in the
Company, before the cumulative effect of change in accounting principle.
(B) Eliminates intercompany interest between the Company and NMC.
(C) Reflects the 8,650 shares of the Company's common stock transferred to the
Company by NMC, adjusted for 129 common stock equivalent shares resulting
from the options exercisable for the Company's common stock.
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PAGE 10
(3) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
--------- -----------
(In thousands)
<S> <C> <C>
Current:
Ore and in-process $ 64,070 $ 55,761
Precious metals 36,815 37,486
Materials and supplies 26,567 25,644
Other 2,374 -
-------- --------
$129,826 $118,891
======== ========
Non-current:
Ore in stockpiles $ 37,503 $ 16,400
======== ========
</TABLE>
(4) Other Liabilities
Other liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
--------- -----------
(In thousands)
<S> <C> <C>
Current:
Plant and equipment $ 33,772 $ 20,340
Payroll and related
benefits 11,940 13,382
Interest 4,412 -
Royalties 2,637 5,170
Reclamation 7,910 -
Other 26,239 6,303
-------- --------
$ 86,910 $ 45,195
======== ========
Non-current:
Postretirement benefits $ 29,826 $ 10,868
Income taxes 20,988 7,229
Other 21,506 4,356
-------- --------
$ 72,320 $ 22,453
======== ========
</TABLE>
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(5) Debt
LONG-TERM DEBT
Long-term debt obligations of the Company were as follows (in thousands):
<TABLE>
<CAPTION>
Balance Outstanding
at June 30, 1994
-------------------
<S> <C>
8 5/8% notes $150,000
Medium-term notes 42,000
Project financing 47,500
Revolving credit facility 75,000
--------
$314,500
========
</TABLE>
No long-term debt was outstanding at December 31, 1993.
8-5/8% Notes
Unsecured notes with a principal amount of $150 million due April 1, 2002
and bearing an annual interest rate of 8-5/8% were outstanding at June 30,
1994. Interest is payable semi-annually in April and October and the notes are
not redeemable prior to maturity.
Medium-term Notes
Notes totalling $42 million with a weighted average interest rate of 7.7%
maturing on various dates ranging from mid-1999 to late 2004 were outstanding
as of June 30, 1994.
Project Financing Facility
The Company, through a wholly-owned subsidiary, is a 50% participant in a
joint venture in the Republic of Uzbekistan. The other 50% participants are
two entities of the Uzbekistan government. The joint venture was established
to construct and operate a leaching facility to produce gold from low-grade
ore.
The joint venture has secured $105 million of project financing from a
consortium of banks. The loan is payable out of the proceeds of the project,
beginning the earlier of the second quarterly interest payment date after
completion or July 20, 1996, in semi-annual installments over three years. The
average interest rate on the loan is 2.25 percentage points over the London
Interbank Borrowing Rate prior to completion of the project and 3.75 percentage
points over the London Interbank Borrowing Rate after completion of the
project. The joint venture had made draws of $95 million under the facility as
of June 30, 1994.
The Company has guaranteed one-half of the payment of any amounts due
under the loan until the requirements of a specified completion test have been
satisfied, at which time the loan will become non-recourse debt. Such
completion test must be satisfied no later than October 1996. The Company has
obtained political risk insurance coverage for its investment and loan
guarantee.
Revolving Credit Facility
The Company has a $400 million revolving credit facility with a consortium
of banks. The facility expires in April 1998. Amounts totalling $75 million
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were drawn down under the facility as of June 30, 1994. Interest rates are
variable and adjust subject to changes in the Company's long-term debt ratings
and to usage of the facility in terms of borrowings as a percentage of
commitments. Currently, the Company's interest rate is the lenders' base rate
plus 0.25%. The Company has the option to fix the rate for up to six months.
There is an annual facility fee which will also adjust subject to the Company's
debt ratings. This fee is presently 0.15% of the lenders' total commitment.
The revolving credit facility contains covenants limiting consolidated
indebtedness, as defined, to 67% of total capitalization and requiring a
minimum net worth. The minimum net worth requirement is $250 million in 1994
and increases $25 million annually through 1997.
SHORT-TERM DEBT
All short-term debt at June 30, 1994 consisted of bank debt which was
assumed in the transaction with NMC.
The Company currently has unsecured demand bank lines of credit
aggregating $16 million, of which $15.7 million was outstanding at June 30,
1994. These facilities bear interest at customary short-term rates for
borrowers with similar credit ratings.
(6) Contingencies
The Company is involved in several matters concerning environmental
obligations primarily associated with former mining activities. Based upon the
Company's best estimate of its liability for these matters, $66.3 million was
accrued at June 30, 1994, excluding $18.1 million also accrued for reclamation
costs relating to currently producing mineral properties. The amounts are
included in reclamation liabilities and other current liabilities. The $66.3
million at June 30, 1994 includes a charge of $7.1 million taken in the second
quarter of 1994 as a result of the Company revising its estimate of the costs
associated with these matters. Depending upon the ultimate resolution of these
matters, the Company believes that it is reasonably possible that the liability
for these matters could be as much as 65% greater or 15% lower than the amount
accrued at June 30, 1994.
The Company has recorded net long-term receivables from insurance
companies of approximately $17 million at June 30, 1994 for both a portion of
the costs previously expended and for estimated future costs associated with
environmental obligations covered by insurance policies associated with former
mining activities. This amount is substantially less than what the Company has
or will claim from the insurance carriers. All of the claims are contested by
the insurance carriers. The Company has had and continues to have discussions
with the insurance carriers regarding its claims. Certain of the insurance
carriers have commenced declaratory judgment actions seeking to avoid coverage
and the Company has commenced litigation seeking coverage from certain other
carriers. As a result of the Company's counsels' recent review of the actions
and the fact that settlement discussions with the insurance carriers have not
progressed as quickly as had previously been expected, the Company provided a
valuation allowance of $20 million in the second quarter of 1994. Although the
Company cannot predict the outcome of the legal actions or assure receipt of
the amounts recorded, the Company will continue to vigorously pursue recovery
under the insurance policies and believes that it is reasonably possible that
the ultimate amounts recovered will exceed the net receivable recorded as of
June 30, 1994. The net receivable recorded at June 30, 1994 represents the
probable amount the Company expects to receive based upon its evaluation of the
discussions with the insurance companies, its discussions with in-house
and outside counsel regarding the merits of the various claims made and
<PAGE> 13
PAGE 13
defenses raised, its interpretation of the insurance policies and its factual
investigation of the issues.
The following is a discussion of the environmental obligations associated
with former mining activities as of June 30, 1994.
Idarado Mining Company ("Idarado") - 80.1% owned
In July 1992, NMC and Idarado signed a consent decree with the State of
Colorado ("State") which was agreed to by the U.S. District Court of Colorado
to settle a lawsuit brought by the State under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"), generally referred to as
the "Superfund Act." Idarado paid $5.35 million pursuant to this consent
decree in August 1992 to settle natural resources damages, past and future
response costs and to provide habitat enhancement work. In addition, Idarado
agreed in the consent decree to undertake specified reclamation and remediation
work related to its former mining activities in the Telluride/Ouray area of
Colorado. The Company's best estimate of the cost of this work is included in
the gross liability, as previously discussed. If the reclamation and
remediation work does not meet certain measurement criteria specified in the
consent decree, the State and court reserve the right to require Idarado to
perform other reclamation and remediation work. Idarado and the Company have
obtained a $16.3 million letter of credit to secure their obligations under the
consent decree.
Resurrection Mining Company ("Resurrection") - 100% owned
In 1983, the State of Colorado ("State") filed a lawsuit under the
Superfund Act which involves a joint venture mining operation near Leadville,
Colorado in which Resurrection is a joint venturer. This action was
subsequently consolidated with a lawsuit filed by the United States
Environmental Protection Agency ("EPA") in 1986. The EPA is taking the lead
role on cleanup issues and the matters are now proceeding principally through
the administrative processes of CERCLA, rather than through the court action.
The proceedings seek to compel the defendants to remediate the impacts of
pre-existing mining activities which the government agencies claim are causing
substantial environmental problems in the area. The mining operations of the
joint venture are operated by ASARCO, the other joint venturer. The
governments have made NMC, Resurrection, the joint venture and ASARCO
defendants in the proceedings. They are also proceeding against other
companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses a
drainage and access tunnel owned by the joint venture - the Yak Tunnel. 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
NMC 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 monitoring and environmental maintenance activities.
In October 1993, Resurrection paid $4.4 million for its share of past
response costs through January 1991 for the United States and through January
1992 for the State.
The EPA has not yet completed work to define a remedy for Phase II and
thus has not published a current estimate of the costs of such remedial action.
Accordingly, the Company cannot yet determine the full extent or cost of
<PAGE> 14
PAGE 14
remedial action which will be required under Phase II. Moreover, in addition
to costs of remedial action, the government agencies will seek to recover past
and future response costs to be incurred at the site and may seek to recover
for damages to natural resources. 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 consent decree
has been lodged with the court but has not yet been entered by the court. The
consent decree will not be final and binding until entered by the court.
Although the ultimate amount of total costs and Resurrection's and the
Company's exposure for such costs for Phase I and Phase II cannot be presently
determined, the Company's best estimate of its potential exposure for these
costs is included in the gross liability for these matters, previously
discussed.
Dawn Mining Company ("Dawn") - 51% owned
Dawn leased a currently inactive open-pit uranium mine on the Spokane
Indian Reservation in the State of Washington ("State"). The mine is subject
to regulation by agencies of the United States 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 formally terminated. As a result, Dawn was
required to file a formal reclamation plan. Dawn does not have sufficient
funds to pay for such a reclamation plan or to pay for the closure of its mill.
Dawn proposed to the State a mill closure plan which could potentially generate
the necessary funds to reclaim the mine and the mill. The State notified Dawn
that the proposed plan was not the State's preferred alternative and was not
consistent with certain policy considerations of the State. Dawn has submitted
a revised mill closure plan to address the State's concerns. The State has not
yet acted on the revised proposed plan. The Company's best estimate for the
future costs related to these matters is included in the gross liability for
environmental matters, previously discussed.
The Department of Interior previously notified Dawn that when the lease
was terminated, it would seek to hold Dawn and NMC (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. The Company would vigorously contest any
such claims. The Company cannot reasonably predict the likelihood or outcome
of any future action against Dawn or the Company arising from this matter.
(7) Supplementary Data
The ratio of earnings to fixed charges for the six months ended June 30,
1994 was 1.2.
<PAGE> 15
PAGE 15
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
As discussed in Note 2 of Item 1, effective January 1, 1994, the Company
acquired essentially all of the assets and assumed essentially all of the
liabilities of its parent, Newmont Mining Corporation ("NMC"). The transaction
resulted in, among other things, the Company receiving 8,649,899 shares of its
common stock held by NMC and the Company issuing 2,875,000 shares of $5.50
convertible preferred stock to NMC with identical terms to NMC's outstanding
$5.50 convertible preferred stock, except that the Company's preferred stock is
convertible into shares of the Company instead of NMC. NMC retained
approximately 89% of the outstanding common stock of the Company. The transfer
of the assets and liabilities of the Company was accounted for at historical
cost due to the transaction being between entities under common control.
In that the Company held NMC's only significant gold mining operations,
the transaction had little impact on the results of gold mining operations in
the quarter and six months ended June 30, 1994. However, the Company's
acquisition of NMC's 8.2 million contained ounces of worldwide gold reserves
and worldwide exploration prospects did result in increased exploration and
general and administrative expense and increased debt levels in the 1994
periods compared to the similar periods in 1993.
The following discussion summarizes the Company's results of operations
for the quarters and six month periods ended June 30, 1994 and 1993 and changes
in financial condition from December 31, 1993 to June 30, 1994, as well as the
impacts of the transaction with NMC. This discussion should be read in
conjunction with the Management's Discussion and Analysis included in the
Company's 1993 annual report on Form 10-K.
RESULTS OF OPERATIONS
The Company earned $18.9 million, or $0.16 per share, and $42.7 million,
or $0.36 per share, in the quarter and six months ended June 30, 1994,
respectively, compared with $28.1 million, or $0.27 per share, and $50.2
million, or $0.47 per share, in the respective 1993 periods. The 1994 periods
include a tax benefit of $16.2 million resulting from the resolution of certain
tax issues associated with prior years and $27.1 million of charges ($17.6
million after-tax) associated with environmental obligations discussed in Note
6 of Item 1, which together net to a charge of $0.01 per share on an after-tax
basis. The six months ended June 30, 1993 included a benefit of $2.7 million,
or $0.02 per share, for the cumulative effect of a change in accounting
principle for income taxes. On a pro forma basis, giving effect to the
transaction with NMC as if it had occurred January 1, 1994 (see Note 2 in Item
1), income before the cumulative effect of a change in accounting principle for
the second quarter and first six months of 1993 was $42.3 million, or $0.40 per
share, and $57.1 million, or $0.51 per share, respectively. The pro forma
earnings include a gain of $29.6 million, or $19.3 million and $0.20 per share
after-tax, on the sale of an investment in Newcrest Mining Limited, a former
subsidiary of NMC. Earnings for the 1994 periods were impacted by anticipated
lower gold production and preferred stock dividends resulting from the $5.50
convertible preferred stock issued to NMC discussed above.
Sales revenue decreased $10.7 million, or 7%, for the second quarter of
1994 compared to the same quarter of 1993 and increased $11.1 million, or 4%,
for the first six months of 1994 compared to 1993. In comparison with 1993 pro
forma sales revenue, the 1994 second quarter was down by $17.0 million and the
1994 six month period was down by $3.4 million. The following table shows the
impact of price and quantity variances between the periods on sales revenues
(in millions):
<PAGE> 16
PAGE 16
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------- -----------------------
1994 vs. 1994 vs. 1994 vs. 1994 vs.
Historical Pro forma Historical Pro forma
1993 1993 1993 1993
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Changes in sales revenues
due to change in:
Average sales price $ 7.3 $ 2.0 $ 27.8 $ 15.5
Quantity sold (18.0) (19.0) (16.7) (18.9)
------ ------ ------ ------
Total increase
(decrease) $(10.7) $(17.0) $ 11.1 $ (3.4)
====== ====== ====== ======
</TABLE>
The following table reflects the gold ounces sold and average price for
the respective periods:
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------------------- -------------------------------
Historical Pro forma Historical Pro forma
1994 1993 1993 1994 1993 1993
------ ---------- ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ounces sold
(in thousands) 365.0 414.9 415.4 754.7 803.0 806.7
Average price per ounce $382 $362 $376 $383 $346 $362
</TABLE>
Production decreased in the 1994 periods as the Company began its
transition to ready itself to process large quantities of refractory ore at its
Carlin operations. In May 1994, the Company shut down its Mill No. 2 at Carlin
to facilitate the incorporation of parts of this mill into the Company's new
refractory ore treatment plant which will process high-grade refractory ore.
This plant is expected to become operational by the end of the third quarter of
1994. The Company expects its total annual production to be 1.6 million ounces
in 1994.
The decrease in 1994 production attributable to sales revenues is
partially offset by the Company's equity interest in Minera Yanacocha S.A.
("Yanacocha"), a 38% owned Peruvian corporation which commenced production in
August 1993. Yanacocha sold 69,200 ounces, or 26,300 ounces to the Company's
interest, and 114,800 ounces, or 43,600 ounces to the Company's interest, in
the second quarter and first six months of 1994, respectively. These ounces
were produced at an average operating cost, excluding depreciation, depletion
and amortization, of $126 per ounce and $135 per ounce in the second quarter
and first six months of 1994, respectively. The Company's equity income in the
1994 periods is a result of this investment.
The average price per ounce received reflects average market prices for
the 1994 and 1993 historical periods. Higher prices were realized on a pro
forma basis in the 1993 periods as a result of a hedging program NMC had in
place. No production is currently hedged.
<PAGE> 17
PAGE 17
As a result of lower production, the Company's costs applicable to sales
decreased in the aggregate in the 1994 periods, but increased on a per ounce of
gold sold basis in the 1994 periods from the 1993 periods. The following table
summarizes the significant components of these costs per ounce of gold sold:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Production costs $172 $162 $177 $160
Royalties 21 28 23 29
Other 6 7 6 6
---- ---- ---- ----
$199 $197 $206 $195
==== ==== ==== ====
</TABLE>
In the aggregate, production costs decreased approximately $4.1 million
for the second quarter of 1994 compared to the second quarter of 1993. The
decrease is due primarily to lower costs associated with mining and milling as
a result of lower tons mined and milled. In the aggregate, production costs
increased approximately $5.5 million for the six months ended June 30, 1994
compared to the same period of 1993. The increase is primarily the result of a
larger increase in ore inventory in the 1993 period relative to 1994 ($14.8
million) and a greater reduction of in-process inventory in the 1994 period
relative to 1993 ($2.1 million). These increases were partially offset by
lower mining and milling costs as a result of lower tons mined and milled. The
increased per ounce production costs are a result of processing higher cost
ores in the 1994 periods due to higher waste-to-ore ratios and slightly lower
grades.
For the 1994 second quarter and six month period, royalty costs on an
aggregate basis were $7.7 million and $17.2 million, respectively. This
compares to royalty costs in the 1993 second quarter and six month period of
$11.5 million and $23.6 million, respectively. Royalty costs on an aggregate
and per ounce basis were lower in 1994 periods than the same periods in 1993
due to less royalty-burdened ore being treated in the 1994 periods.
Depreciation, depletion and amortization decreased $5.8 million and $10.4
million in the 1994 second quarter and first six months, respectively, when
compared to the same periods of 1993. Approximately $2.7 million of the
decrease between quarters and $3.5 million of the decrease between the six
month periods is the result of facilities that became either fully depreciated
or placed on standby status and thus no comparable depreciation was taken in
1994 periods. Another $3.1 million and $4.6 million of the decrease in the
1994 quarter and six month period, respectively, was due to a change in
estimated useful lives of certain depreciable assets effective July 1, 1993.
In addition, $1.9 million of the decrease in the six month 1994 period is the
result of lower estimated future dewatering costs.
<PAGE> 18
PAGE 18
Exploration expense increased significantly during the 1994 second quarter
and six month period in comparison to the same periods of 1993. This was
directly attributable to the Company's acquisition of NMC's worldwide
exploration projects. Exploration expense in the 1994 periods is also up over
the comparable pro forma 1993 periods as had been anticipated due to increased
international exploration activity.
General and administrative expense ("G&A") also increased significantly as
a result of the Company's acquisition of NMC's operations. Previously, the
Company allocated a portion of G&A to NMC pursuant to a management services
agreement between the two entities. Compared to the 1993 pro forma amounts,
G&A increased by $4.7 million and $4.8 million in the second quarter and first
six months of 1994, respectively, primarily due to the Company's expanding
international activities.
As a result of the Company assuming NMC's indebtedness, it incurred
interest costs of $6.0 million and $10.9 million during the second quarter and
first six months of 1994. Almost all of this interest was capitalized as a
result of major construction projects at the Carlin operations, primarily the
refractory ore treatment plant, and the leaching operation in Uzbekistan, in
which the Company is a 50% participant. The refractory ore treatment plant is
expected to be operational by the end of the third quarter of 1994 and the
Uzbekistan project is expected to be completed in early 1995.
Other expense increased $28.6 million and $30.5 million for the second
quarter and first six months of 1994, respectively, over the same periods of
1993. In the 1994 second quarter, as discussed in Note 6 of Item 1, a
valuation allowance of $20.0 million was made against long-term receivables
from insurance companies for recoveries related to environmental obligations
associated with former mining activities and a provision of $7.1 million was
made for additional estimated environmental related costs associated with the
same former mining activities. The Company recorded the valuation allowance
after discussions with counsel reviewing the litigation with the insurance
companies and due to the cases not progressing as quickly as previously
expected. Nevertheless, the Company intends to vigorously pursue its claims
against the insurance companies and believes it is reasonably possible that it
will ultimately recover more than the approximate net $17 million receivable
recorded at June 30, 1994, although there can be no assurance that this amount
will be recovered. Due to the expectation that the actual cash payments for
the environmental obligations will occur over a number of years and the Company
cannot predict when it will receive insurance recoveries, the charge for the
valuation allowance as well as additional environmental obligations are not
expected to have any significant negative impact on the Company's liquidity.
The Company continuously monitors and reviews its environmental obligations,
and although the Company believes that it has adequately accrued for such
costs, as additional facts become known, additional provisions may be required.
In Oregon, a petition drive has placed an initiative on the ballot for the
fall election which would require the back-filling of open pit gold mines. The
Company's Grassy Mountain project is in Oregon and is expected to be an open
pit mine. If the initiative is passed, it would be uneconomic to use an open
pit to mine the current reserves.
During the second quarter of 1994, the Company recognized a $16.2 million
income tax benefit as a result of the resolution of certain tax issues
associated with prior years. This, combined with a deferred tax benefit of
approximately $9.5 million associated with the previously mentioned $27.1
million total charge associated with environmental obligations, resulted in the
tax benefit for the second quarter and first six months of 1994. In addition,
<PAGE> 19
PAGE 19
the benefits of percentage depletion result in a low effective tax rate for the
year.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1994, the Company's capital expenditures
were $198.2 million and cash flow from operating activities was $58.7 million.
Other significant sources of cash during the period were $75.0 million of
borrowings under the Company's revolving credit facility, $47.5 million of
project financing debt related to construction of the Uzbekistan leaching
project and approximately $70 million of cash acquired from NMC in the
transaction previously discussed. Of the capital expenditures, $100.9 million
was spent on the refractory ore treatment facility and $30.7 million was spent
on the Uzbekistan project. In addition, the Company capitalized $16.9 million
of mining costs associated with the Post Deposit in Nevada. Due to the diverse
waste-to-ore ratios of the deposit, costs are capitalized to the extent they do
not relate to current production.
As stated in the Management's Discussion and Analysis in the Company's
1993 annual report on Form 10-K, available cash balances and cash flow from
operating activities will not be sufficient to cover an expected $400 million
in capital expenditures in 1994. The Company has a $400 million revolving
credit facility, of which $75 million was outstanding at June 30, 1994. The
Company also expects to enter into a sale-leaseback transaction to finance the
Carlin refractory ore treatment facility. The Company expects to raise
approximately $340 million from this transaction and use a portion of the
proceeds to pay down outstanding balances under its revolving credit facility.
This transaction is expected to be consummated in the second half of 1994 and
will be reflected as a financing transaction for financial statement purposes.
The Company believes that this financing, in conjunction with its other sources
of funding described above, provides adequate liquidity to finance the
Company's capital investment programs. However, the Company continuously
monitors capital markets and may utilize alternative sources of funds available
to it. The Company expects to fund maturities of its debt through operating
cash flow or by refinancing the debt as it becomes due, or both.
For the first six months of 1994, the Company paid common stock dividends
of $0.24 per share, or $23.1 million. In addition, the Company paid $7.2
million of preferred stock dividends during the 1994 period on the preferred
stock issued to NMC in the transaction.
Significant changes in the Company's balance sheet accounts between
December 31, 1993 and June 30, 1994 are primarily attributable to the
acquisition of the NMC's assets and the assumption of NMC's liabilities as
discussed in Note 2 of Item 1. Primarily due to the historical cost of the
liabilities assumed being greater than the historical cost of the assets
acquired, the Company's retained earnings were reduced by a net of
approximately $140 million as a result of the transaction.
<PAGE> 20
PAGE 20
PART II - OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
Registrant's annual meeting of stockholders was held on May 12, 1994.
All eleven directors nominated to serve as directors of Registrant were
elected. The vote was as follows:
<TABLE>
<CAPTION>
Broker
Nominee For Withheld Abstentions Non-Votes
- -------------------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
R. I. J. Agnew 92,083,039 43,924 0 0
J. P. Bolduc 92,103,539 23,424 0 0
R. C. Cambre 92,106,939 20,024 0 0
J. P. Flannery 92,105,109 21,854 0 0
T. A. Holmes 92,106,609 20,354 0 0
G. R. Parker 92,107,039 19,924 0 0
T. P. Philip 92,106,960 20,003 0 0
R. A. Plumbridge 92,098,889 28,074 0 0
R. H. Quenon 92,088,289 38,674 0 0
J. V. Taranik 92,088,589 38,374 0 0
W. I. M. Turner, Jr. 92,103,189 23,774 0 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 - Statement re Computation of Per Share Earnings.
12 - Statement re Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K:
A report on Form 8-K dated April 5, 1994 was filed reporting the
acquisition of assets and assumption of liabilities by the Registrant from
Newmont Mining Corporation. This transaction was approved by stockholders of
the Registrant on March 18, 1994 and the related Bill of Sale and Assignment
and Assumption of Liabilities Agreement was executed on March 21, 1994.
Included in the filing were financial statements of Newmont Mining Corporation
and subsidiaries excluding Newmont Gold Company for the years ended December
31, 1993 and 1992 and pro forma financial statements of Newmont Gold Company
and subsidiary for 1993 (incorporated by reference to the Registrant's annual
report on Form 10-K for the year ended December 31, 1993).
<PAGE> 21
PAGE 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWMONT GOLD COMPANY
(Registrant)
Date: August 12, 1994 /s/ Wayne W. Murdy
Wayne W. Murdy
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Gary E. Farmar
Gary E. Farmar
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 22
PAGE 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exhibit 11 - Statement re Computation of Per Share Earnings 23-24
Exhibit 12 - Statement re Computation of Ratios of Earnings 25
to Fixed Charges
</TABLE>
<PAGE> 1
PAGE 23
EXHIBIT 11
Page 1 of 2
NEWMONT GOLD COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
PRIMARY EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1994 1993 1994 1993
-------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME DATA:
Income before cumulative
effect of change in
accounting principle $18,937 $28,093 $42,656 $47,488
Preferred stock dividends (3,953) - (7,906) -
------- ------- ------- -------
Income before cumulative
effect of change in
accounting principle
applicable to common shares 14,984 28,093 34,750 47,488
Cumulative effect of change
in accounting principle - - - 2,665
------- ------- ------- -------
Net income applicable to
common shares $14,984 $28,093 $34,750 $50,153
======= ======= ======= =======
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 96,310 104,875 96,274 104,875
Equivalent common shares
from stock options 129 - 197 -
------- ------- ------- -------
Common and common equivalent
shares 96,439 104,875 96,471 104,875
======= ======= ======= =======
EARNINGS PER COMMON SHARE:
Income before cumulative
effect of change in
accounting principle $ 0.16 $ 0.27 $ 0.36 $ 0.45
Cumulative effect of change
in accounting principle - - - 0.02
------- ------- ------- -------
Net income per common and
common equivalent shares $ 0.16 $ 0.27 $ 0.36 $ 0.47
======= ======= ======= =======
</TABLE>
<PAGE> 2
PAGE 24
EXHIBIT 11
Page 2 of 2
NEWMONT GOLD COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
FULLY DILUTED EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1994 1993 1994 1993
-------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME DATA:
Income before cumulative
effect of change in
accounting principle $18,937 $28,093 $42,656 $47,488
Cumulative effect of change
in accounting principle - - - 2,665
------- ------- ------- -------
Net income applicable to
common shares $18,937 $28,093 $42,656 $50,153
======== ======= ======= =======
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common shares 96,310 104,875 96,274 104,875
Equivalent common shares from
stock options 129 - 197 -
Equivalent common shares from
conversion of preferred stock 7,899 - 7,899 -
------- ------- ------- -------
Common and common equivalent
shares 104,338 104,875 104,370 104,875
======= ======= ======= =======
EARNINGS PER COMMON SHARE:
Income before cumulative
effect of change in
accounting principle $ 0.18 $ 0.27 $ 0.41 $ 0.45
Cumulative effect of change
in accounting principle - - - 0.02
------- ------- ------- -------
Net income per common and
common equivalent shares $ 0.18 $ 0.27 $ 0.41 $ 0.47
======= ======= ======= =======
</TABLE>
<PAGE> 1
PAGE 25
EXHIBIT 12
NEWMONT GOLD COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1994
-------------
<S> <C>
Earnings:
Income before income taxes $ 16,924
Adjustments:
Net interest expense (1) 598
Amortization of capitalized
interest 572
Portion of rental expense
representative of interest 385
Undistributed income of less
than 50% owned entities (5,066)
--------
$ 13,413
========
Fixed Charges:
Net interest expense (1) $ 598
Capitalized interest 10,281
Portion of rental expense
representative of interest 385
--------
$ 11,264
========
Ratio of earnings to fixed charges 1.2
========
</TABLE>
(1) Includes interest expense of majority-owned subsidiaries and
amortization of debt issuance costs.
