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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9184
NEWMONT GOLD COMPANY
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13-2526632
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1700 LINCOLN STREET
DENVER, COLORADO 80203
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (303) 863-7414
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <C>
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
PARIS BOURSE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X No__
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT (BASED ON THE CLOSING SALE PRICE OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE) ON MARCH 26, 1997 WAS APPROXIMATELY $443,400,000.
THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING ON MARCH 26, 1997
WAS 109,938,688.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT TO
REGULATION 14A PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 5, 1997 (PART III).
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The forward-looking statements, projections and estimates herein relate, in
all cases, to the properties and operations of Newmont Gold Company and its
subsidiaries at December 31, 1996. In the event the proposed acquisition of
Santa Fe Pacific Gold Corporation described under the heading "Recent
Developments" is consummated, certain of such forward-looking statements made
with reference to Newmont Gold Company and its subsidiaries on a consolidated
basis will be subject to material modification.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
Newmont Gold Company is a worldwide company engaged, directly or through
its subsidiaries and affiliates, in gold production, exploration for gold and
acquisition of gold properties worldwide. Newmont Gold Company, together with
its subsidiaries (unless the context otherwise requires), is referred to herein
as "NGC." NGC was incorporated in Delaware in 1965 under the name of Carlin Gold
Mining Company as a wholly owned subsidiary of Newmont Mining Corporation
("NMC"). Following two public offerings of NGC's shares (June 1986 and April
1987) and consummation of the transaction with NMC described below, NMC now owns
approximately 91% of the common stock and options to purchase additional shares
of the common stock of NGC.
Effective January 1, 1994, NGC acquired all of the operations and assets of
NMC, except for NGC's common stock retained by NMC, and NGC assumed all of NMC's
liabilities. The number of outstanding shares of NMC common stock equals the
number of shares of common stock it owns of NGC so that stockholders of both
companies have identical per share interests in the reserves, production,
earnings and dividends of NGC. The income statements and balance sheets for the
two companies are virtually the same with the only difference being the minority
interest in NGC reflected in NMC's income statements and balance sheets.
Substantially all of NGC's consolidated sales and operating profit in 1995
and 1994 related to its gold mining activities. In 1996, NGC's consolidated
sales resulted from operations in the United States, Uzbekistan and Indonesia.
In 1996, 74% of NGC's equity production of gold related to its U.S. operations
and 26% of such production related to its foreign operations. At December 31,
1996, approximately 19% of NGC's consolidated assets related to its foreign
operations.
OPERATION AND PRODUCTION
OVERVIEW
NGC produces gold from the Carlin Trend in Nevada. It also produces gold
through a 51.35% owned company in Peru which commenced gold production in August
1993 and a 50% owned venture in Uzbekistan which commenced gold production in
September 1995. NGC additionally has an 80% interest in an Indonesian company
which commenced gold production in March 1996 and an 80% interest in a second
Indonesian company that holds an interest in a large copper/gold project which
is currently in the pre-construction stage. NGC also has a 44% interest in a
project in Mexico which is undergoing development and is scheduled to commence
production in 1998. In addition to exploration activities conducted in
connection with these operations and projects, NGC continues to explore for gold
and/or is conducting joint venture activities in other parts of these countries
as well as Canada, Ecuador and certain countries in the Caribbean and Asia. NGC
had 37.1 million equity ounces of proven and probable gold reserves at December
31, 1996 and 28.8 million equity ounces of proven and probable gold reserves at
December 31, 1995.
CARLIN, NEVADA
Production
NGC's U.S. operations are located on the geological feature known as the
Carlin Trend which NMC discovered in 1961. The Carlin Trend, which is located
near Carlin, Nevada, is the largest gold district discovered in North America in
this century. See map on page three. Since it began production in 1965,
<PAGE> 4
through the end of 1996, NGC has produced approximately 18.7 million ounces of
gold from the Carlin Trend.
From the Carlin Trend, NGC produced 1,700,000 ounces of gold in 1996,
1,634,500 ounces of gold in 1995 and 1,555,300 ounces of gold in 1994. Gold
production at NGC's Carlin operations in 1997 is expected to approach 1.8
million ounces.
In 1996, ore was mined from eleven open-pit deposits and from four
underground mines. The Tusc open-pit mine opened in May 1994. Two other open-pit
mines, Lantern and North Star opened in 1995. Four open-pit deposits opened in
1996 (Beast, Lantern, Bootstrap and Sold). The Carlin East and Rain underground
mines commenced production in late 1994. The Carlin Main and Deep Star
underground mines commenced production in early 1995.
The Post pit is mined by Barrick Goldstrike Mines Inc. under a joint mining
agreement. At the end of 1996, the lower and deep zones of this ore body
contained approximately 4.9 million ounces of proven and probable gold reserves
for NGC's account. The parties share the cost of mining the ore body in
proportion to their interests in the contained gold. See also page 32.
The following table presents Carlin Trend mine production data:
CARLIN TREND MINE PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------- ----------------------------------- -------------------------
MILL LEACH MILL LEACH MILL LEACH
ORE ORE WASTE TOTAL ORE ORE WASTE TOTAL ORE ORE WASTE
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Open-Pit:
Genesis................... 968 6,496 26,242 33,706 3,246 15,193 44,792 63,231 3,354 10,591 44,199
Bootstrap................. 310 872 2,193 3,375 -- -- -- -- -- -- --
Carlin.................... -- -- -- -- 13 65 2,460 2,538 86 954 1,853
Lantern................... 351 416 2,774 3,541 -- -- -- -- -- -- --
Post...................... 1,037 136 78,180 79,353 2,084 752 63,024 65,860 404 3,941 43,186
Gold Quarry............... 7,874 26,086 40,899 74,859 8,944 32,099 44,639 85,682 9,518 34,885 52,379
Tusc...................... 533 4,805 16,906 22,244 219 2,399 14,743 17,361 100 454 5,654
North Star................ 695 2,593 12,774 16,062 11 187 1,936 2,134 -- -- --
Rain...................... -- -- -- -- -- -- -- -- 270 1,230 930
Sold...................... -- 825 1,294 2,119 -- -- -- -- -- -- --
Beast..................... 89 2,579 3,514 6,182 -- -- -- -- -- -- --
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total Open-Pit.......... 11,857 44,808 184,776 241,441 14,517 50,695 171,594 236,806 13,732 52,055 148,201
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Underground:
Carlin East............... 278 -- -- 278 271 -- -- 271 31 7 --
Carlin Main............... 123 -- -- 123 72 -- -- 72 3 -- --
Deep Star................. 145 -- -- 145 15 -- -- 15 -- -- --
Rain...................... 160 6 -- 166 146 -- -- 146 48 3 --
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total Underground....... 706 6 -- 712 504 -- -- 504 82 10 --
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Grand Total............. 12,563 44,814 184,776 242,153 15,021 50,695 171,594 237,310 13,814 52,065 148,201
====== ====== ======= ======= ====== ====== ======= ======= ====== ====== =======
<CAPTION>
1994
-------
TOTAL
-------
<S> <C>
Open-Pit:
Genesis................... 58,144
Bootstrap................. --
Carlin.................... 2,893
Lantern................... --
Post...................... 47,531
Gold Quarry............... 96,782
Tusc...................... 6,208
North Star................ --
Rain...................... 2,430
Sold...................... --
Beast..................... --
-------
Total Open-Pit.......... 213,988
-------
Underground:
Carlin East............... 38
Carlin Main............... 3
Deep Star................. --
Rain...................... 51
-------
Total Underground....... 92
-------
Grand Total............. 214,080
=======
</TABLE>
NGC owns in fee or controls through long-term mining leases and unpatented
mining claims all of the minerals and surface area within the boundaries of the
present mining areas of its Carlin Trend deposits. Such long-term leases extend
for at least the anticipated mine life of those deposits. With respect to Gold
Quarry, NGC owns a 10% undivided interest in the minerals in a majority of the
present and projected mining areas, and with respect to the remaining 90% has
agreed to pay a royalty on production to third party lessors that is equivalent
to 18% of production therefrom. NGC's royalty commitments to other parties with
respect to other portions of the Gold Quarry property and certain of its other
properties are much less significant. See also page 32. For information
regarding risks associated with unpatented mining claims, see page 22.
2
<PAGE> 5
[INSERT NEVADA PROPERTY]
3
<PAGE> 6
Processing Facilities
Oxide ore is amenable to gold extraction through the use of size-reduction
processes, such as crushing and grinding, and the dissolution of the gold in
such ore using conventional cyanidation treatment techniques. Refractory ore at
Carlin contains minerals which require pre-treatment, such as roasting, to
optimize recovery of gold from high grade refractory ore using conventional
cyanidation processes. Approximately 73% of NGC's proven and probable gold
reserves on the Carlin Trend are refractory and the balance are oxide.
NGC currently has three operating oxide mills on the Carlin Trend (Mill No.
4, Mill No. 5 and Mill No. 3). Mill No. 3 is currently being operated on a batch
basis, having operated for four months in 1996 and being scheduled to operate
for two months in 1997.
Processing at NGC's oxide leaching operations includes crushing ore at two
plants and leaching ore at four heap leach facilities using cyanidation for gold
recovery.
In the fall of 1994, NGC completed construction of a refractory ore
treatment plant, or roaster, known as Mill No. 6, to treat high-grade refractory
ores that contain either sulfides or active carbon. Partial operation was
achieved in October 1994, but because of a mechanical problem and a fire in a
component of the Mill, final start-up was delayed until the end of December
1994. Ore processed through the plant yielded approximately 354,400 ounces of
gold in 1995 and approximately 540,000 ounces of gold in 1996. This plant is
expected to account for approximately 40% of NGC's Carlin gold production in
1997. To finance the facility, the plant was sold to a third party and leased
back to NGC in September 1994 pursuant to a 21-year lease. For a discussion of
the financing of the refractory ore treatment plant, see page 50.
In 1996, operation of NGC's large-scale bioleach demonstration facility for
processing low-grade refractory ores at Gold Quarry resulted in the production
of approximately 28,000 ounces of gold at a processing cost of $207 per ounce.
This demonstration facility will operate through 1997 to pretreat a third batch
of ore using NGC's patented bacterial oxidization process. After bio-oxidation,
these ores will be leached with either cyanide or ammonium thiosulfate.
Additionally, NGC is using a direct ammonium thiosulfate treatment without
bio-oxidation on some ore types.
A feasibility study completed in 1996 has resulted in a plan to commence
construction on an 8 million ton per year commercial refractory bioleach
facility near the Gold Quarry open-pit mine. Following receipt of environmental
permits which are expected in the fourth quarter of 1997, the leaching process
will commence in 1998 with full production anticipated in 1999. The facility is
expected to process in excess of 100 million tons of low-grade refractory ore
from the Gold Quarry deposit and to produce approximately 3 million ounces of
gold over the 13 year project life.
The following table presents Carlin Trend mill and leach production data:
CARLIN TREND MILL AND LEACH PRODUCTION
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------- -------------------------------------- ----------------
DRY GRADE DRY GRADE DRY GRADE
SHORT (OUNCES OUNCES AVERAGE SHORT (OUNCES OUNCES AVERAGE SHORT (OUNCES
TONS PER PRODUCED RECOVERY TONS PER PRODUCED RECOVERY TONS PER
(000S) TON) (000S) RATE(%) (000S) TON) (000S) RATE(%) (000S) TON)
------ ------- -------- -------- ------ ------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mill No. 1............ -- -- -- -- -- -- -- -- 188 0.135
Mill No. 2............ -- -- -- -- -- -- -- -- 1,034 0.081
Mill No. 3............ 242 0.186 39.6 84.9 105 0.211 19.9 87.6 859 0.079
Mill No. 4............ 2,741 0.071 152.7 75.8 2,713 0.063 139.6 80.6 2,736 0.129
Mill No. 5............ 5,904 0.084 400.8 77.8 6,172 0.091 473.5 82.8 6,264 0.077
Mill No. 6............ 2,364 0.257 540.0 86.1 1,383 0.281 354.4 91.0 701 0.081
------ ------- ------ ------- ------
Total............... 11,251 0.119 1,133.1 79.1 10,373 0.109 987.4 83.4 11,782 0.091
====== ====== ======
Leach Operations...... 41,909 0.023 566.9 --(1) 44,095 0.023 647.1 --(1) 52,381 0.021
====== ------- ====== ------- ======
Total Ounces Produced... 1,700.0 1,634.5
======= =======
<CAPTION>
1994
-------------------
OUNCES AVERAGE
PRODUCED RECOVERY
(000S) RATE(%)
-------- --------
<S> <C> <C>
Mill No. 1............ 24.3 87.7
Mill No. 2............ 85.1 82.7
Mill No. 3............ 59.1 80.9
Mill No. 4............ 292.3 80.7
Mill No. 5............ 396.1 79.5
Mill No. 6............ 44.6 85.5
-------
Total............... 901.5 80.7
Leach Operations...... 653.8 --(1)
-------
Total Ounces Produced. 1,555.3
=======
</TABLE>
- ---------------
(1) Leach recovery from tons placed on leach pads fluctuates from year-to-year
due to ore grade, differing solution application rates and cycle times, as
well as varying quantities of unleached material placed on pads.
4
<PAGE> 7
Other Facilities
The gold-bearing activated carbon from NGC's Carlin milling and leaching
facilities is processed at a central carbon processing plant with the recovered
gold produced into bars of dore at an adjacent refinery.
An analytical laboratory and administration office is located in the
vicinity of Mills No. 5 and 6. NGC also has an advanced metallurgical research
laboratory in Denver, Colorado.
Electrical power and natural gas for NGC's Nevada operations are provided
by public utilities. Oxygen for the refractory ore treatment plant is provided
by Praxair Inc. on a contract basis from an oxygen plant constructed by Praxair
Inc. on land leased from NGC which is currently the sole consumer of the oxygen
produced.
Refining
NGC has refining agreements with three foreign refiners and one U.S.
refiner to further refine the dore bars to 0.995 or better, recognized as
marketable on world markets. Under the terms of the agreements with these
refiners, the dore bars are toll refined and the refined gold and the separately
recovered silver are returned to NGC's account for sale to third parties.
Management believes that because of the availability of alternative refiners,
each able to supply all services needed by NGC for its Nevada operations, no
adverse effect would result if NGC lost the services of any of its current
refiners.
Exploration
NGC conducts extensive exploration along the Carlin Trend. NGC owns or
otherwise controls the mineral interests on approximately 628 square miles of
property along the Carlin Trend. In 1996, a total of 723 holes totaling 532,717
feet were drilled by NGC on the Carlin Trend in connection with reserve
development and exploration activities. This compares with approximately 715
holes totaling 496,606 feet drilled in 1995. Exploration by underground methods
continues to facilitate the definitive location of deeper deposits of gold ore.
In 1996, approximately $23 million was spent by NGC on reserve development
and exploration on the Carlin Trend. A similar amount is expected to be spent in
1997.
5
<PAGE> 8
PERU
Introduction
NGC produces gold through Minera Yanacocha S.A. ("Minera Yanacocha") in
Peru. In 1986, NGC discovered the Yanacocha gold deposit which has since become
the largest gold district in South America. Minera Yanacocha began production in
1993. Due to a favorable decision in February 1997 by the Peruvian Superior
Court in the litigation described below, NGC is considered to have acquired for
reporting purposes an additional 13.35% interest in Minera Yanacocha in 1997,
bringing NGC's ownership interest in Minera Yanacocha to 51.35%.
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the
geological and mining bureau of the French government ("BRGM"), and in September
1994 BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha to another entity. NGC and Compania de Minas Buenaventura, S.A.
("Buenaventura"), then 38% and 32.3% owners of Minera Yanacocha, respectively,
filed suit in Peru to seek enforcement of a provision in the by-laws of Minera
Yanacocha, giving shareholders preemptive rights on the proposed sale or
transfer of any shareholder's interest. The caption of the suit is Compania
Minera Condesa et al. v. Bureau de Recherches Geologiques et Minieres, Case No.
944-94-A (300-96RC), Fifth Specialized Civil Court In and For Lima. In February
1995, an appellate court in Peru issued a preliminary ruling in favor of NGC and
Buenaventura, both of whom elected to exercise their preemptive rights to
acquire their proportionate share of the 24.7% interest. In accordance with the
court ruling, Minera Yanacocha canceled the BRGM shares and issued shares
representing interests in Minera Yanacocha of 13.35% to NGC and 11.35% to
Buenaventura. NGC deposited $48.6 million for its additional interest, together
with the additional shares, with a Peruvian bank pending the final resolution of
the case. The trial hearing in the case occurred in July 1996 and a ruling in
NGC's and Buenaventura's favor was issued in September 1996. The trial court
ruling provided that NGC and Buenaventura have the right to acquire the 24.7%
interest for a purchase price of $109.3 million, $59.1 million attributable to
the 13.35% interest of NGC. In February 1997, the Peruvian Superior Court upheld
the decision of the trial court. As discussed above, as a result of the Superior
Court's decision, NGC is considered to have acquired for reporting purposes the
additional 13.35% interest in February 1997. Therefore, beginning in 1997, NGC
will be consolidating Minera Yanacocha in its financial statements. Previously,
NGC had accounted for the 38% interest in Minera Yanacocha on an equity basis.
BRGM and other defendants in the suit have filed a request for review of the
Superior Court decision by the Supreme Court of Peru. Peruvian counsel has
advised NGC that decisions of the Superior Court can be modified by the Supreme
Court only in very limited circumstances and that it is not likely that further
review will be granted. However, there can be no assurances that such review
will not be granted. In the event such review is granted, there can be no
assurance that the Peruvian Supreme Court will not modify the decision of the
Peruvian Superior Court in a way that could have a material adverse effect on
the results of operations of NGC.
Minera Yanacocha has mining rights with respect to a large land position,
which includes the Carachugo, Maqui Maqui, Yanacocha Norte, San Jose and Encajon
deposits as well as other prospects. Such mining rights were acquired through
assignments of concessions granted by the Peruvian government to a related
entity. The assignments have a term of 20 years, renewable at the option of
Minera Yanacocha for another 20 years. A wholly owned subsidiary of NGC acts as
general manager of Minera Yanacocha.
Minera Yanacocha has emphasized social development in the communities
surrounding its mining operations. Since 1994, Yanacocha has built or rebuilt
seven schools, developed social programs and built roads in such communities all
of which have contributed to the growth of the local economies. Minera Yanacocha
has an advisory role on the Ministry of Energy and Mines environmental affairs
group to provide technical assistance with the development of achievable
environmental strategies for Peru's mining industry.
Production
Three open-pit mines and two leach pads are in operation at Minera
Yanacocha. Production commenced in August 1993 at the Carachugo deposit, in
October 1994 at the Maqui Maqui deposit, which is located three miles north of
Carachugo, and in January 1996 at the San Jose deposit which is located one mile
southwest of
6
<PAGE> 9
Carachugo. In 1996, production was 811,426 ounces of gold (308,300 equity ounces
at 38%) at a total cash cost of $107 per ounce as compared to 1995 production of
552,000 ounces of gold (209,800 equity ounces at 38%) at a total cash cost of
$119 per ounce and 1994 production of 304,600 ounces of gold (115,700 equity
ounces at 38%) at a total cash cost of $135 per ounce. In 1997, production is
expected to increase at least 5%, including production from the Yanacocha Norte
open-pit mine and associated leach facility which is expected to commence
production in late 1997.
Minera Yanacocha's operations are accessible by road and are located
approximately 375 miles north of Lima and 28 miles north of the city of
Cajamarca. Power for the project is provided by diesel generators owned by
Minera Yanacocha. The ore is not crushed, but transported directly to
impermeable leach pads where the ore is treated with a weak cyanide solution
which penetrates the ore dissolving the gold. The pregnant leach solution is
collected and pumped through a Merrill-Crowe plant to remove the gold from the
solution. After the gold is processed from the zinc precipitate, it is smelted
into dore which is transported from the processing plant by a contractor and
toll refined at refineries in Switzerland.
Two new deposits were added to proven and probable gold reserves in 1996.
The Yanacocha Norte deposit which is located one mile northwest of Carachugo
contains 1.3 million ounces of gold (0.7 million equity ounces at 51.35%).
Encajon, located one mile west of Carachugo, contains 0.5 million ounces of gold
(0.3 million equity ounces at 51.35%). Total proven and probable gold reserves
for Minera Yanacocha as of December 31, 1996 were 6.1 million ounces (3.1
million equity ounces at 51.35%) and 4.9 million ounces (1.9 million equity
ounces at 38%) as of December 31, 1995.
The following table presents Minera Yanacocha mine and leach production
data:
MINERA YANACOCHA MINE AND LEACH PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- ----------------------
LEACH LEACH LEACH
ORE WASTE TOTAL ORE WASTE TOTAL ORE WASTE TOTAL
------ ----- ------ ------ ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carachugo................... 2,491 1,380 3,871 9,238 4,647 13,885 7,157 4,075 11,232
Maqui Maqui................. 15,218 4,291 19,509 8,521 2,071 10,592 1,996 372 2,368
San Jose.................... 6,026 1,145 7,171 -- -- -- -- -- --
------ ----- ------ ------ ----- ------ ----- ----- ------
Total....................... 23,735 6,816 30,551 17,759 6,718 24,477 9,153 4,447 13,600
====== ===== ====== ====== ===== ====== ===== ===== ======
Ore placed on leach pads.... 23,735 17,759 8,707
Average ore grade (ounce per
ton)...................... 0.046 0.045 0.054
Ounces of gold produced
(000s).................... 811.4 552.0 304.6
</TABLE>
Exploration
Exploration continues to be conducted at numerous prospects owned by Minera
Yanacocha. Approximately $23.2 million was spent by Minera Yanacocha on
exploration and mine geology in 1996. A $18.8 million exploration and mine
geology program is currently underway in 1997.
Exploration work on the Minas Conga joint venture, 40% owned by NGC, 40% by
Cedimin and 20% by Compania Minera Condesa S.A., a subsidiary of Buenaventura,
continued throughout 1996 with an aggressive drilling campaign. Encouraging
porphyry gold-copper mineralization has been identified on two separate targets
which will continue to be drill tested in 1997. A second Peruvian joint venture,
Minera Coshuro, is 65% owned by NGC and 35% by Buenaventura and holds claims on
257,000 acres of prospective ground along north and south extensions of the
volcanic belt hosting the Minera Yanacocha deposits. In addition, NGC and
Buenaventura are active in the southern part of Peru. Initial exploration work
is underway in these prospective areas and a number of targets have been
outlined.
7
<PAGE> 10
[INSERT MINERA YANACOCHA]
8
<PAGE> 11
UZBEKISTAN
Introduction
In Uzbekistan, NGC has a 50% interest in Zarafshan-Newmont, a joint venture
with the State Committee for Geology and Mineral Resources and Navoi Mining and
Metallurgical Combine ("Navoi"), each a state entity of Uzbekistan. The joint
venture produces gold by leaching ore from existing stockpiles of low-grade
oxide ore from the nearby government-owned Muruntau mine. The gold produced by
Zarafshan-Newmont is sold in international markets for U.S. dollars. A wholly
owned subsidiary of NGC provides technical and managerial support to
Zarafshan-Newmont. These state entities have guaranteed to ZarafshanNewmont 242
million tons of ore with an average grade of 0.036 ounces of gold per ton,
containing approximately 8.6 million ounces of gold.
Production
During 1996, approximately 12.7 million tons of ore were crushed and placed
on the leach pad as compared to 4.3 million tons in 1995. The project's
remaining 225 million tons of stockpiled ore and ore in process hold a reserve
of 8.2 million ounces (4.1 million equity ounces).
Zarafshan-Newmont commenced production in the second half of 1995 and
produced 37,000 ounces of gold, or 18,500 ounces attributable to NGC, at a total
cash cost of $218 per ounce. In 1996, total production was 326,500 ounces of
gold or 163,250 ounces attributable to NGC, at a total cash cost of $225.
Production in 1997 is expected to be approximately 400,000 ounces of gold or
200,000 ounces attributable to NGC. The project's facilities include 18 crushers
in four stages. Crushed material is transported to impermeable leach pads where
the ore is treated with a weak cyanide solution which penetrates the ore
dissolving the gold. The pregnant leach solution is collected and pumped through
a Merrill-Crowe plant to remove the gold from the solution. After the gold is
processed from the zinc precipitate, it is smelted into dore and transported to
the nearby Muruntau gold refinery operated by Navoi where, pursuant to a
refining agreement, the dore is refined for export. The project has access to
air, rail and road transport. There are no significant logistical difficulties
for transportation of refined gold. Power for the project is provided by a
contractual arrangement with Navoi which acquires such power from a plant in
Navoi, Uzbekistan.
Zarafshan-Newmont obtained a $135 million project financing loan from a
consortium of banks to partially finance construction of the project. See also
page 51. Although not contractually obligated to do so, NGC has made, and may
from time to time make, advances or contributions to Zarafshan-Newmont to cover
debt service requirements and other capital and operating costs.
The following table presents Zarafshan-Newmont leach production data:
ZARAFSHAN-NEWMONT LEACH PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995(1)
------ -------
<S> <C> <C>
Ore placed on leach pads.................................... 12,737 4,321
Average ore grade (ounce per ton)........................... 0.053 0.051
Ounces of gold produced (000s).............................. 326.5 37.0
</TABLE>
- ---------------
(1) Began operations in second half of 1995.
Exploration
NGC signed an agreement in September 1996 with the Uzbekistan government
and Mitsui & Co., Ltd. to develop gold deposits in the Angren region of
Uzbekistan, approximately 60 miles south of the city of Tashkent. NGC has a 40%
interest in the project. Pre-feasibility studies are underway.
9
<PAGE> 12
ZARAFSHAN MAP
10
<PAGE> 13
INDONESIA
Introduction
NGC has two projects in Indonesia -- Minahasa and Batu Hijau. The Minahasa
project is 80% owned by NGC and 20% owned by P.T. Tanjung Serapung, an
Indonesian company. However, NGC accounts for 100% of the production proceeds
and costs until its carried Indonesian partner's loan and interest thereon are
repaid. Currently, NGC has an 80% interest in the Batu Hijau project. The
remaining 20% carried interest is held by P.T. Pukuafu Indah, an Indonesian
company. Both Indonesian companies are owned and controlled by the same
Indonesian national. Under the terms of a partnership agreement between NGC and
Sumitomo Corporation ("Sumitomo") governing the Batu Hijau project, after
Indonesian government approval of the partnership arrangement is obtained and
required contributions are made by NGC and Sumitomo, Sumitomo will acquire a 35%
interest in Batu Hijau and NGC will retain a 45% interest.
In Indonesia, rights are granted to private parties to explore for and
develop the mineral resources within defined areas through Contracts of Work
entered into with the Indonesian government. In 1986, NGC entered into fourth
generation Contracts of Work with the Indonesian government covering the
Minahasa and Batu Hijau projects. Under the Contracts of Work, affiliates of NGC
are granted the exclusive rights to explore the contract area, construct any
required facilities and extract and process the mineralized materials and sell
and export the minerals produced subject to certain Indonesian government
approvals and payment of a royalty to the Indonesian government. Once mining
facilities are constructed and mining operations commence, NGC has the right to
continue operating the project for 30 years, or longer if approved by the
Indonesian government. Under the Contracts of Work, beginning in the sixth year
after mining operations commence (and continuing through the tenth year) NGC
will be required to offer part of its 80% interest in each project to the
Indonesian government or to Indonesian nationals (collectively the "Indonesian
Parties"), thereby potentially reducing its 80% interest in each project to 49%
by the end of the tenth year. The price at which such interest would be offered
for sale to the Indonesian Parties would be the highest of (i) the then current
replacement cost, (ii) the price at which shares of the project company would be
accepted for listing on the Jakarta Stock Exchange or (iii) the fair market
value of such interest as a going concern.
Minahasa
Minahasa, a multi-deposit project on the island of Sulawesi which NGC
discovered, began production in March 1996. It is approximately 1,500 miles
northeast of Jakarta. Minahasa mines and processes ore from the Mesel deposit
and two smaller peripheral deposits (Leons and Nibong) which at the end of 1996
contained approximately 1.9 million ounces of proven and probable reserves (in
which NGC has an equity interest of approximately 1.5 million ounces). These
deposits contain both oxidized and refractory gold mineralization.
Site preparation at Minahasa began in late 1994 and pre-production mining
was initiated in April 1995. Minahasa produced 107,000 ounces of gold in 1996 at
a total cash cost of $224 per ounce. In addition, 5,700 ounces of gold were
produced prior to the commencement of commercial operations. Production in 1997
is expected to reach approximately 150,000 ounces.
The project's facilities include a dry grinding mill, a fluidized bed
roaster facility and a conventional carbon-in-pulp gold recovery plant.
Infrastructure facilities include a deep-water port, electrical power plant,
water supply system and housing for workers. Total capital costs were
approximately $135 million. The Minahasa project is in close proximity to the
coast and does not present any significant logistical difficulties for
transportation of materials, equipment or its product.
11
<PAGE> 14
The following table presents Minahasa mine and mill production data:
MINAHASA MINE AND MILL PRODUCTION
DRY SHORT TONS (000S)
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996
---------------------------
MILL ORE WASTE TOTAL
-------- ----- ------
<S> <C> <C> <C>
Tons mined........................................ 1,048 9,062 10,110
===== ===== ======
Tons milled....................................... 454
======
Average ore grade (ounce per ton)................. 0.279
Average recovery rate (%)......................... 90.3
Ounces of gold produced (000s).................... 112.7(1)
</TABLE>
- ---------------
(1) Includes 5,700 ounces produced before commercial operations commenced.
Batu Hijau
NGC's second Indonesian project, Batu Hijau, is located on the island of
Sumbawa, 950 miles east of Jakarta. Batu Hijau is a large porphyry copper/gold
deposit that was discovered by NGC in 1990. It is located seven miles from the
south coast and nine miles from the west coast of the island and has access to a
natural harbor which will be developed for transportation of materials,
equipment and, eventually, its concentrate product. The project is awaiting
various Indonesian governmental approvals to commence the construction process.
Subject to obtaining these and other necessary governmental approvals, NGC
believes that commercial production of copper/gold concentrate could begin
around the turn of the century. At the end of 1996, the deposit contained
approximately 10.6 billion pounds of copper and 12.1 million ounces of gold in
proven and probable reserves in which NGC has an equity interest (assuming
consummation of the transaction with Sumitomo) of 4.8 billion equity pounds of
copper and 5.4 million equity ounces of gold. Long-term smelter contracts for
approximately 70% of the project's concentrate production are being negotiated.
Production over the 20-year mine life is expected to average 270,000 tons of
copper and 550,000 ounces of gold per year at an expected average cash cost
under $0.50 per pound of copper for the first 10 years of the project and under
$0.40 per pound of copper for the life of the project after credits for gold and
silver production.
A final feasibility study for Batu Hijau was completed in 1996. Based on
the results of that study, NGC decided to proceed with development. The project
is expected to mine approximately 193 million tons per annum utilizing a 132,000
tons per day milling/concentrating plant, a deep-sea port for transportation of
materials, equipment and concentrates, a coal fired electrical generation plant,
a townsite for the workforce and other ancillary facilities. The total capital
cost of the project is expected to be $1.6 billion. Total cost, including cost
escalations, capitalized interest during construction and working capital, is
expected to be approximately $1.9 billion.
Under the partnership agreement between Sumitomo and NGC, NGC will, at the
outset, contribute to the partnership its interest in the company that owns the
project and retain a 45% interest. Sumitomo will contribute, at the outset,
approximately $165 million in cash and in the months immediately following the
date of the initial contributions, an estimated additional $70 million in cash
and receive a 35% interest. The remaining 20% interest in the project held by
P.T. Pukuafu Indah has no cash funding obligations. The parties' obligations to
make their initial contributions to the partnership are subject to certain
conditions, including receipt of certain approvals from the Indonesian
government. Until these conditions are satisfied, Sumitomo has agreed to fund up
to $100 million of project costs through non-interest bearing loans which NGC
has effectively guaranteed. Such funds will be credited against Sumitomo's
initial contribution. If the above conditions are not satisfied by March 31,
1997, either party has the right to terminate the agreement and the loans would
become due. As a result of the contemplated ownership structure, NGC is
accounting for its
12
<PAGE> 15
investment in Batu Hijau as an equity investment effective July 1996. At
December 31, 1996, Sumitomo had loaned $20.2 million to the company that owns
the project.
Project financing for the Batu Hijau project of approximately $1 billion is
being arranged. Such financing will be guaranteed until project completion by
NGC and Sumitomo, 56.25% and 43.75%, respectively. NGC and Sumitomo are also
expected to enter into certain support agreements related to such debt.
The AMDAL report, which is required under the Indonesian environmental
approval process, was completed and formal approval by the Ministry of Mines and
Energy was received in October 1996. Acquisition of private lands necessary for
the project was substantially complete by the end of 1996. In anticipation of
final approvals for the project from the Indonesian government, some preliminary
construction activities have commenced, including setup of a construction camp
and development of access to the eventual area of the port and the mine.
Exploration
Exploration work continued through 1996 in areas surrounding Minahasa and
Batu Hijau. Such work will continue in 1997 as part of NGC's ongoing exploration
program in Indonesia including a $6.7 million exploration program which will
focus on identifying extensions to the ore bodies surrounding Mesel, as well as
developing new ore zones that are within trucking distance to the existing
processing facilities.
MINAHASA MAP
13
<PAGE> 16
EXPLORATION
In 1996, exploration and research expense was $58.7 million compared with
$57.3 million in 1995. These figures exclude capitalized exploration costs
associated with mine development of $8.7 million in 1996 and $9.4 million in
1995. Including Minera Yanacocha, NGC expects to spend between $70 million and
$75 million on exploration and development in 1997.
In Mexico, NGC is involved in two projects -- La Herradura, a 45,000 acre
site just south of the U.S. border which is undergoing development and is
scheduled to commence production in 1998, and Mezcala, a 12,000 acre exploration
site in southern Mexico. NGC has a 44% interest in La Herradura and is earning a
44% interest in Mezcala by investing $8.5 million over four years. The balance
of both projects is held by the Penoles group, a leading Mexican mining company.
The Penoles group will be the operator of La Herradura and Mezcala.
Near Fairbanks, Alaska, NGC continued exploration on the True North
property. Under the terms of a joint venture agreement signed with La Teko
Resources, Inc. ("La Teko") in June 1995, NGC has the right to earn a 65%
interest in the property by making cash payments of $6 million to La Teko,
funding $3 million in exploration, and then funding up to $18 million in
additional exploration and development costs. In 1996, NGC completed its payment
obligations to La Teko, and to date has spent approximately $5.8 million
exploring the property and has budgeted approximately $2.1 million for 1997
exploration. Drilling in 1996 has increased the indicated area of mineralization
significantly and in 1997, NGC will intensify its efforts at True North. Almost
all of this deposit is near the surface. Work is focused on extending a broader
zone of mineralization from the 7.2 million tons already identified.
In Canada, exploration at the Fairchild Lake project in the Yukon Territory
was postponed until 1997. Pursuant to the terms of a joint venture agreement
with Westmin Resources Ltd., NGC has earned a 57% interest in the project by
expending C$6.6 million in exploration since 1993 and can earn up to a 65%
interest by expending an additional C$3.9 million on the property. In 1997, NGC
plans to spend $1.4 million for exploration on the property.
In addition to the projects discussed above, NGC continues to pursue
exploration activities in other areas of the U.S., Canada, Mexico, Ecuador and
in certain countries in the Caribbean and Asia. During 1996, on-the-ground
evaluations were conducted in 11 countries and acquisition opportunities were
monitored in others.
NGC's exploration team has a staff of approximately 200 geologists,
geochemists and geophysicists. State-of-the-art technology, including airborne
geophysical data acquisition systems, satellite location devices and
field-portable imaging systems, also aids in the location of prospective
targets.
For information regarding risks associated with exploration and
development, see page 23.
MARKETING
NGC's gold sales generally are made at the monthly average market price
prevailing during the month in which the gold is delivered plus a "contango",
which is essentially an interest factor, from the beginning of the month until
the date of delivery. NGC did not hedge any of its production in 1994 or 1995.
However, NGC entered into hedging transactions beginning in January 1996 which
are effective through December 2000 with respect to production from its Minahasa
project in Indonesia. These transactions consist of forward sales of 125,000
ounces per year at an average price of $454 per ounce of gold, plus 40% of the
amount by which the market price exceeds the forward sales price. In 1996, NGC
earned $8.3 million on this transaction. For information regarding risks
associated with hedging, see page 21. See also page 58 for information regarding
major customers and page 60 for information regarding export sales.
Gold has two main categories of use -- product fabrication and bullion
investment. Fabricated gold has a wide variety of end uses, including jewelry
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions and official coins. Purchasers of official
coins and high-karat jewelry frequently are motivated by investment
considerations, so that net private bullion purchases alone do not necessarily
represent the total investment activity in gold.
14
<PAGE> 17
MISCELLANEOUS
The successful application of bioleach technology, on which NGC holds
patents in the U.S. and in many foreign countries, has resulted in significant
increases in NGC's proven and probable gold reserves. Other than operating
licenses for mining, processing and refining facilities built for, or acquired
by NGC, there are no other patents, licenses or franchises material to NGC's
business. In many foreign countries, NGC conducts mining or exploration pursuant
to concessions granted by or contracts with the host government. These countries
include, among others, Indonesia, Peru and Mexico. In each case, NGC believes
that such concessions or contracts are sufficient in extent and duration to
justify any proposed investment it might make based on any such concessions or
contracts. In general, such concessions or contracts are subject to the usual
political risks associated with foreign operations.
Capital expenditures by NGC were approximately $231.2 million, $309.3
million and $402 million in 1996, 1995 and 1994, respectively. Management
believes that NGC's facilities are generally in a state of good repair. NGC has
a continuous program of capital investment that includes, as necessary or
advisable, the replacement, modernization or expansion of its equipment and
facilities. See also pages 34 and 35.
There were 4,400 persons employed by NGC worldwide at December 31, 1996 and
4,100 persons employed by NGC worldwide at December 31, 1995. NMC has no
employees.
PROVEN AND PROBABLE RESERVES
NGC's equity in proven and probable gold reserves was 37.1 million ounces
at December 31, 1996 and 28.8 million ounces at December 31, 1995. In addition,
NGC's equity in proven and probable copper reserves was 4.8 billion pounds at
December 31, 1996. NGC did not have a copper reserve at the end of 1995.
NGC's estimate of its proven and probable reserves at December 31, 1996 and
1995 is set forth in the table below. Such reserves were determined by the use
of mapping, drilling, sampling, assaying and evaluation methods generally
applied in the mining industry. Calculations with respect to the estimates of
proven and probable gold reserves as of December 31, 1996 and 1995, are based on
a gold price of $400 per ounce. NGC's management believes that if such estimates
were based on a gold price of $300 per ounce with current operating costs, 1996
year-end proven and probable gold reserves would decrease by approximately 25%.
Conversely, if such reserve estimates were based on a gold price of $500 per
ounce with current operating costs, 1996 year-end proven and probable gold
reserves would increase by approximately 13%. NGC's proven and probable gold and
copper reserves represent the total quantity of ore to be extracted from the
deposits or stockpiles allowing for mining efficiencies and ore dilution. Ounces
of gold or pounds of copper in NGC's proven and probable gold and copper
reserves are prior to any losses during metallurgical treatment. For information
regarding risks association with NGC's estimates of its proven and probable
reserves, see page 21.
15
<PAGE> 18
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------------------- --------------------
NGC DRY SHORT GRADE CONTAINED EQUITY DRY SHORT GRADE
DEPOSITS WITH PROVEN PERCENT TONS (OUNCE OUNCES OUNCES TONS (OUNCE
AND PROBABLE RESERVES(1) EQUITY (000S) PER TON) (000S) (000S) (000S) PER TON)
------------------------ ------- --------- -------- --------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GOLD RESERVES
Carlin, Nevada
Open Pit
Gold Quarry/MAC/Tusc....... 100 174,790 0.046 8,031 8,031 209,670 0.045
Carlin/Pete/Lantern........ 100 13,653 0.046 633 633 14,818 0.031
Genesis/North Star......... 100 22,711 0.034 777 777 41,349 0.029
Post/Goldbug............... 100 25,626 0.190 4,875 4,875 25,622 0.191
Capstone/Bootstrap/Tara.... 100 20,179 0.046 938 938 19,851 0.046
Rain/Emigrant Springs...... 100 15,628 0.023 366 366 4,864 0.035
--------- ------ ------ -------
Total Open Pit............... 272,587 0.057 15,620 15,620 316,174 0.054
--------- ------ ------ -------
Underground
Carlin..................... 100 1,480 0.400 593 593 936 0.429
Deep Star.................. 100 1,394 0.876 1,221 1,221 847 0.930
Rain....................... 100 331 0.226 75 75 148 0.203
West Leeville JV........... 60 7,050 0.425 2,993 1,796 -- --
West Leeville.............. 100 514 0.311 160 160 -- --
--------- ------ ------ -------
Total Underground............ 10,769 0.468 5,042 3,845 1,931 0.632
--------- ------ ------ -------
Stockpiles and in
process.................. 100 53,767 0.050 2,673 2,673 47,730 0.053
--------- ------ ------ -------
Total Carlin(2)(3)........... 337,123 0.069 23,335 22,138 365,835 0.057
========= ====== ====== =======
Minera Yanacocha, Peru
Carachugo.................. 51 43,686 0.029 1,268 651 35,459 0.025
Maqui Maqui................ 51 32,164 0.047 1,519 780 47,652 0.047
San Jose................... 51 50,527 0.029 1,453 746 52,160 0.032
Yanacocha Norte............ 51 43,887 0.030 1,333 685 -- --
Encajon.................... 51 27,777 0.019 533 274 -- --
Stockpiles and in
process.................. 51 66 0.047 3 2 1,800 0.048
--------- ------ ------ -------
Total Yanacocha(4)........... 198,107 0.031 6,109 3,138 137,071 0.036
========= ====== ====== =======
Zarafshan-Newmont, Uzbekistan
Stockpiles................. 50 226,299 0.035 7,923 3,961 238,705 0.036
In process................. 50 5,370 0.054 288 144 3,089 0.051
--------- ------ ------ -------
Total Zarafshan-Newmont(5)... 50 231,669 0.035 8,211 4,105 241,794 0.036
========= ====== ====== =======
Minahasa, Indonesia
Mesel/Leons/Nibong......... 80 6,103 0.264 1,611 1,289 9,668 0.207
Other...................... 80 858 0.164 141 112 858 0.164
Stockpiles................. 80 778 0.207 161 129 -- --
--------- ------ ------ -------
Total Minahasa(6)............ 7,739 0.247 1,913 1,530 10,526 0.204
========= ====== ====== =======
La Herradura, Mexico(7)........ 44 54,408 0.031 1,683 740 -- --
========= ====== ====== =======
Batu Hijau, Indonesia(8)....... 45 1,006,593 0.012 12,096 5,443 -- --
=== ===== ====== ======= =====
Total Gold Reserves.......... 53,347 37,094
====== ======
<CAPTION>
DECEMBER 31, 1995
----------------------
CONTAINED EQUITY
DEPOSITS WITH PROVEN OUNCES OUNCES
AND PROBABLE RESERVES(1) (000S) (000S)
------------------------ --------- ------
<S> <C> <C>
GOLD RESERVES
Carlin, Nevada
Open Pit
Gold Quarry/MAC/Tusc....... 9,519 9,519
Carlin/Pete/Lantern........ 456 456
Genesis/North Star......... 1,194 1,194
Post/Goldbug............... 4,890 4,890
Capstone/Bootstrap/Tara.... 915 915
Rain/Emigrant Springs...... 169 169
------ ------
Total Open Pit............... 17,143 17,143
------ ------
Underground
Carlin..................... 402 402
Deep Star.................. 788 788
Rain....................... 30 30
West Leeville JV........... -- --
West Leeville.............. -- --
------ ------
Total Underground............ 1,220 1,220
------ ------
Stockpiles and in
process.................. 2,521 2,521
------ ------
Total Carlin(2)(3)........... 20,884 20,884
====== ======
Minera Yanacocha, Peru
Carachugo.................. 896 340
Maqui Maqui................ 2,238 850
San Jose................... 1,690 642
Yanacocha Norte............ -- --
Encajon.................... -- --
Stockpiles and in
process.................. 87 33
------ ------
Total Yanacocha(4)........... 4,911 1,865
====== ======
Zarafshan-Newmont, Uzbekistan
Stockpiles................. 8,474 4,237
In process................. 158 79
------ ------
Total Zarafshan-Newmont(5)... 8,632 4,316
====== ======
Minahasa, Indonesia
Mesel/Leons/Nibong......... 2,006 1,605
Other...................... 141 112
Stockpiles................. -- --
------ ------
Total Minahasa(6)............ 2,147 1,717
====== ======
La Herradura, Mexico(7)........ -- --
====== ======
Batu Hijau, Indonesia(8)....... -- --
====== ======
Total Gold Reserves.......... 36,574 28,782
====== ======
</TABLE>
<TABLE>
<CAPTION>
GRADE CONTAINED EQUITY GRADE CONTAINED
(COPPER POUNDS POUNDS (COPPER POUNDS
PERCENT) (BILLIONS) (BILLIONS) PERCENT) (BILLIONS)
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COPPER RESERVES
Batu Hijau, Indonesia(8)....... 45 1,006,593 0.528 10.631 4.784 -- -- --
========= ====== ====== ===== ======
<CAPTION>
EQUITY
POUNDS
(BILLIONS)
----------
<S> <C>
COPPER RESERVES
Batu Hijau, Indonesia(8)....... --
======
</TABLE>
- ---------------
(1) The term "reserve" means that part of a mineral deposit which can be
economically and legally extracted or produced at the time of the reserve
determination.
The term "economically," as used in the definition of reserve, implies that
profitable extraction or production has been established or analytically
demonstrated.
The term "legally," as used in the definition of reserve, does not imply
that all permits needed for mining and processing have been obtained or that
other legal issues have been completely resolved. However, for a reserve to
exist, there should be a reasonable certainty based on applicable laws and
regulations that issuance of permits or resolution of legal issues can be
accomplished in a timely manner.
The term "proven reserves" means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes; (b)
grade and/or quality are computed from the result of detailed sampling and
(c) the sites for inspection,
16
<PAGE> 19
sampling and measurements are spaced so closely and the geologic character
is sufficiently defined that size, shape, depth and mineral content of
reserves are well established.
The term "probable reserves" means reserves for which quantity and grade are
computed from information similar to that used for proven reserves but the
sites for sampling are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
(2) Calculated using cut-off grades for 1996 and 1995 as follows: oxide leach
material not less than 0.006 ounce per ton; refractory leach material (for
the Gold Quarry deposit only) not less than 0.03 ounce per ton; refractory
mill material not less than 0.07 ounce per ton; oxide mill material varies.
Ore reserves were calculated using different recoveries depending on each
deposit's metallurgical properties and process. The average oxide mill
recoveries utilized were as follows (1995 values in parenthesis): Mill No.
3 -- 85% (85%); Mill No. 4 -- 79% (83%); Mill No. 5 -- 78% (82%). The
average refractory mill recoveries utilized were: Mill No. 6 -- 88% (88%).
The average leach recoveries utilized for oxide material were: North Area
Leach Facility -- 57% (63%); South Area Leach Facility -- 61% (60%); Rain
Area Leach Facility -- 55% (55%). The following average leach recovery was
utilized for refractory bioleach material in the Gold Quarry, MAC and Tusc
deposits: 55% (55%).
The term "cut-off grade" means the lowest grade of mineralized rock that can
be included in the reserve in a given deposit. Cut-off grades vary between
deposits depending upon prevailing economic conditions, mineability of the
deposit, amenability of the ore to gold extraction, and milling or leaching
facilities available.
(3) These reserves are approximately 73% refractory in nature which are not
amenable to the normal cyanidation recovery processes currently used for
oxide material. Such ore must be oxidized before it is subjected to the
normal recovery processes.
(4) Calculated using a cut-off grade not less than 0.010 ounce per ton. Assumed
leach recoveries is 60% to 83%, depending on each deposit's metallurgical
properties. All ore is oxidized. Equity ownership considered to be 51.35% at
December 31, 1996 as a result of a ruling by the Superior Court of Lima,
Peru in February 1997 (see page six for additional information) and 38% at
December 31, 1995.
(5) Material available to Zarafshan-Newmont for processing from designated
stockpiles or from other specified sources. All ore is oxidized. Tonnage and
gold content of material available to Zarafshan-Newmont for processing from
such designated stockpiles or from other specified sources are guaranteed by
state entities of Uzbekistan. Material is crushed and leached. Ore reserves
calculated using 50% to 65% leach recoveries, depending on material type.
(6) Calculated using a cut-off grade of 0.058 ounce per ton and mill recoveries
of 80% to 89% depending on material type. Substantially all ore is
refractory and will be treated by roasting.
(7) Based on a feasibility study completed in 1996, using a cut-off grade of
0.01 ounce per ton and a leach recovery of 72%. All ore is oxidized.
Construction is scheduled to begin in 1997.
(8) Based on a feasibility study completed in 1996. Construction is awaiting
permits from the Indonesian government. Production will be in the form of
copper concentrate. Recoveries estimated at 93% for copper and 82% for gold.
Cut-off grade varies depending on the gold and copper content.
Environmental Matters
General
NGC's gold mining and processing operations within the U.S. are subject to
extensive federal, state and local governmental regulations for the protection
of the environment, including those relating to the protection of air and water
quality, hazardous waste management and mine reclamation. NGC continues to
successfully permit all mine and processing operations and expansion activities
as specified under regulations promulgated by the U.S. and the State of Nevada.
Management does not believe that ongoing compliance with such regulations will
have a material adverse effect on its competitive position. At this time NGC
does not expect any material impact on the future recurring operating cost of
compliance with currently enacted environmental regulations. Ongoing costs to
comply with environmental obligations have not been significant to NGC's total
operating costs. Since NGC is not able to pass on any net increases in costs to
its customers, any such increases could have an adverse effect on future
profitability of NGC. Amendments to current laws and regulations governing
operations and activities of mining companies or the stringent implementation
thereof could have a material adverse impact on NGC in terms of increased
capital and operating expenditures.
Carlin, Nevada Operations
It is estimated that with respect to NGC's Nevada operations, compliance
with federal, state and local regulations relating to the discharge of material
into the environment, or otherwise relating to the protection of the
environment, required capital expenditures of approximately $12 million in 1996.
It is estimated that NGC will require approximately $20 million of capital
expenditures for environmental compliance in 1997 and annually thereafter.
17
<PAGE> 20
NGC's Carlin gold mining and processing operations generate solid waste
which is subject to regulation under the federal Resource Conservation and
Recovery Act ("RCRA") and similar laws of the State of Nevada. Solid waste that
is considered "hazardous" is subject to extensive regulation by the U.S.
Environmental Protection Agency (the "EPA") and the State of Nevada under
Subtitle C of RCRA, while non-hazardous solid waste is governed by a less
stringent program under Subtitle D of RCRA and solid waste management
regulations of the State of Nevada. The EPA is developing specific regulations
with respect to "extraction" and "beneficiation" wastes from mining operations
under Subtitle D of RCRA. NGC is participating in that process. Currently, there
is not a sufficient basis to predict the potential impact of such regulations on
NGC. Wastes from the "processing" of ores and minerals (including refining
wastes) at NGC's Carlin operations are subject to regulation under Subtitle C of
RCRA. NGC recycles substantially all of the potentially hazardous secondary
materials generated during refining operations in compliance with Subtitle C.
Such compliance has not had, and is not expected to have, any material impact on
NGC's operations.
NGC's Carlin operations are subject to stringent state permitting
regulations for protection of surface and ground water, as well as wildlife.
These regulations may require additional capital and operating expenditures for
expansion of current operations and development of new projects and may increase
closure and reclamation costs for pits, tailing impoundments and leaching
facilities.
Mining operations have the potential to produce fugitive dust emissions
which are subject to regulation under the laws of the State of Nevada. The EPA's
current regulations under the federal Clean Air Act exclude fugitive dust from
surface mines in determining whether new or expanded sources need permits for
construction under the regulations for prevention of significant deterioration
of air quality. The 1990 amendments to the federal Clean Air Act could
ultimately increase NGC's compliance costs for air pollution permitting and/or
control, but the impact on NGC's mining operations is so dependent on future
regulations and other contingencies that it cannot reasonably be predicted at
this time.
Foreign Operations
NGC's operations outside of the U.S. are also subject to governmental
regulations for the protection of the environment. Management believes that
these regulations have not had, and will not have, a material adverse effect on
NGC's operations or its competitive position. NGC has successfully permitted all
new mine and processing operations as specified under regulations promulgated by
the respective national governments in Peru, Uzbekistan and Indonesia. In
addition, NGC has mandated that all facilities constructed and operated outside
of the U.S. materially comply with a level of environmental protection that is
equivalent to that for its U.S. operations. The adoption of new laws or
regulations, or amendments to current laws or regulations, regarding the
operations and activities of mining companies could have a material adverse
impact on NGC's capital and operating expenditures.
All NGC-managed international projects have adopted and implemented
environmental policies and procedures developed by NGC. NGC is committed to
successfully educating and training mine operations, exploration and
environmental personnel to meet the highest level environmental standards. NGC
maintains an international environmental compliance program which utilizes state
of the art compliance monitoring protocols and builds and maintains facilities
with high levels of environmental protection and monitoring equipment.
Former Operations
NGC is involved in matters involving environmental cleanup obligations
arising from past mining activities (not in all cases conducted by NGC or NMC)
at four separate locations within the U.S. Idarado Mining Company, an 80.1%
owned subsidiary of NGC, agreed by consent decree in 1992 with the State of
Colorado to undertake specific remediation work in the Telluride/Ouray area of
Colorado. Resurrection Mining Company, 100% owned by NGC, is a defendant in
lawsuits brought by the State of Colorado and the U.S. for environmental
remediation in the Leadville, Colorado area. Dawn Mining Company, a 51% owned
subsidiary of NGC, has filed remedial proposals for an inactive uranium mine
formerly leased from the Spokane Indian Tribe in Washington State and a former
mill site located near Ford, Washington.
18
<PAGE> 21
Remediation activities were conducted at these three sites in 1996. At Idarado,
remediation work is expected to be completed by the end of 1997. The fourth
matter involves reclamation of an inactive site mined by the former owners on
the Ivanhoe exploration property in Nevada. At December 31, 1996 NGC had an
aggregate $49.8 million accrued for remediation of these sites, a reduction from
$55.8 million accrued at the end of 1995, as a result of expenditures incurred
in 1996. See also pages 24, 33 and 61.
RECENT DEVELOPMENTS
On March 10, 1997, Santa Fe Pacific Gold Corporation ("Santa Fe"), NMC and
Midtown Two Corp., a wholly-owned subsidiary of NMC ("Midtown Two"), entered
into an Agreement and Plan of Merger (the "Merger Agreement") which provides,
among other things, that Midtown Two will merge with and into Santa Fe (the
"Merger"), with Santa Fe being the surviving corporation (the "Surviving
Corporation"), and each outstanding share of common stock of Santa Fe will be
converted into the right to receive 0.43 of a share of common stock of NMC,
subject to the terms and conditions of the Merger Agreement. Such conditions
include, among others, that the Merger be accounted for as a pooling of
interests and that the stockholders of both NMC and Santa Fe approve the Merger.
Such stockholder approval will be sought at, in the case of NMC, its 1997 annual
meeting of stockholders, and, in the case of Santa Fe, a special stockholders
meeting, in each case scheduled for May 5, 1997. The Merger Agreement is
attached as an exhibit to this Report.
Upon consummation of the Merger, shares of common stock of the Surviving
Corporation will be contributed to NGC in exchange for (i) shares of NGC common
stock in an amount equal to the number of shares of NMC 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 NMC pursuant to
the Merger Agreement. As a result, Santa Fe will become a wholly-owned
subsidiary of NGC, and the number of outstanding shares of NMC common stock will
continue to be equal to the number of shares of NGC common stock owned by NMC.
The contribution of the shares of common stock of the Surviving Corporation
to NGC and the issuance to NMC of shares of NGC common stock and NGC options
(collectively, the "Contribution Transaction") will be subject to approval by
the holders of a majority of the outstanding shares of NGC common stock, which
approval will be sought at the 1997 annual meeting of the stockholders of NGC,
scheduled for May 5, 1997. Because NMC owns approximately 91% of the outstanding
NGC common stock, it has sufficient voting power to approve the Contribution
Transaction without the vote of any other stockholder of NGC. NMC has indicated
its intention to vote for the approval of the Contribution Transaction. After
consummation of the Contribution Transaction, NMC will own approximately 94% of
the outstanding shares of common stock of NGC.
Santa Fe reported 1996 sales of $337.2 million and net income of $21.1
million with total assets at December 31, 1996 of $1.3 billion, long-term debt
of $454.9 million and net worth of $570.0 million as of the same date. For an
analysis of the pro forma impact of the Merger and the Contribution Transaction
on the financial position and reserves of NGC, see "Newmont Gold and Santa Fe
Pro Forma Combined Financial Information" and "Pro Forma Net Proven and Probable
Reserves" contained in NGC's Proxy Statement relating to its annual meeting of
stockholders to be held May 5, 1997, to be filed with the Securities and
Exchange Commission.
The Merger would involve the integration of companies that have previously
operated independently. No assurance can be given that NGC will integrate the
respective operations of NGC and Santa Fe without encountering difficulties or
experiencing the loss of important NGC or Santa Fe personnel or that the
benefits expected from such integration will be realized. In addition, there can
be no assurance that NGC will realize anticipated pre-tax cash cost savings of
synergies from the Merger.
19
<PAGE> 22
FORWARD-LOOKING STATEMENTS; RISK FACTORS
Certain statements contained herein are "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and are intended to be covered by the safe harbors created thereby. Such
forward-looking statements include, without limitation, (i) estimates of future
gold production for specific operations and on a consolidated basis, (ii)
estimates of future production costs, exploration expenditures and other
expenses for specific operations and on a consolidated basis, (iii) estimates of
future capital expenditures and other cash needs for specific operations and on
a consolidated basis and expectations as to the funding thereof, (iv) statements
as to the projected development of certain ore deposits, including estimates of
development and other capital costs, financing plans with respect thereto and
expected production commencement dates, and (v) estimates of future costs and
other liabilities for certain environmental matters, including expected date of
receipt of environmental permits and completion dates for environmental
remediation work.
The forward-looking statements, projections and estimates herein relate, in
all cases, to the properties and operations of NGC at December 31, 1996. In the
event the Santa Fe Merger and Contribution Transaction described under the
heading "Recent Developments" is consummated, certain of such forward-looking
statements made with reference to NGC on a consolidated basis will be subject to
material modification.
Where NGC expresses an expectation or belief as to future events or
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis. However, such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. Important factors that could cause actual results to
differ materially from such forward-looking statements ("cautionary statements")
are described below and on page 36. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
GOLD PRICE VOLATILITY
The profitability of NGC's operations is significantly affected by changes
in the market price of gold. Market gold prices can fluctuate widely and are
affected by numerous factors beyond NGC's control, including industrial and
jewelry demand, expectations with respect to the rate of inflation, the strength
of the U.S. dollar (the currency in which the price of gold is generally quoted)
and of other currencies, interest rates, gold sales by central banks, forward
sales by producers, global or regional political or economic events, and
production and cost levels in major gold-producing regions such as South Africa.
In addition, the price of gold sometimes is subject to rapid short-term changes
because of speculative activities. The current demand for and supply of gold
affect gold prices, but not necessarily in the same manner as current supply and
demand affect the prices of other commodities. The supply of gold consists of a
combination of new production from mining and existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions,
industrial organizations and private individuals. As the amounts produced in any
single year constitute a very small portion of the total potential supply of
gold, normal variations in current production do not necessarily have a
significant impact on the supply of gold or on its price. If revenue from gold
sales falls for a substantial period below NGC's cost of production at its
operations, NGC could determine that it is not economically feasible to continue
commercial production at any or all of its operations or to continue the
development of some or all of its projects. NGC's weighted average total cash
cost of equity production for its worldwide operations was $220 per ounce of
gold sold in 1996, $210 in 1995 and $202 in 1994.
20
<PAGE> 23
The gold market generally is characterized by volatile prices. The
volatility of gold prices is illustrated in the following table of annual high,
low and average afternoon fixing prices for gold per ounce on the London Bullion
Market:
<TABLE>
<CAPTION>
YEAR HIGH LOW AVERAGE
---- ---- ---- -------
<S> <C> <C> <C>
1987........................................................ $500 $390 $446
1988........................................................ $484 $395 $437
1989........................................................ $416 $356 $381
1990........................................................ $424 $346 $383
1991........................................................ $403 $344 $362
1992........................................................ $360 $330 $344
1993........................................................ $406 $326 $360
1994........................................................ $396 $370 $384
1995........................................................ $396 $372 $384
1996........................................................ $415 $367 $388
1997 (through March 26)..................................... $367 $338 $351
</TABLE>
- ---------------
Source of Data: Metals Week and Reuters.
On March 26, 1997, the afternoon fixing price for gold on the London
Bullion Market and the spot market price of gold per ounce on the New York
Commodity Exchange was $351.
IMPACT OF HEDGING ACTIVITIES
Hedging activities are intended to minimize the effect of declines in gold
prices on results of operations for a period of time. Although hedging
activities may protect a company against low gold prices, it may also limit the
price that can be received on hedged ounces which are subject to forward sales
and call options, resulting in such company foregoing the realization of
revenues to the extent the market price of gold exceeds the gold price in a
forward sale or call option contract.
PRODUCTION ESTIMATES
Estimates of future production for particular properties for NGC as a whole
are derived from annual mining plans prepared by NGC. Such plans have been
developed based on, among other things, mining experience, reserve estimates,
assumptions regarding ground conditions and physical characteristics of ores
(such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and cost of production. Actual production
may vary from estimates for a variety of reasons, including risks and hazards of
the types discussed, actual ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, pitwall failures or
cave-ins, strikes and other actions by labor at unionized locations,
restrictions imposed by government agencies and other factors. Estimates of
production from properties not yet in production or from operations that are to
be expanded are based on similar factors (including, in some instances,
feasibility reports prepared by company personnel and/or outside consultants)
but, as such estimates do not have the benefit of actual experience, there is a
greater likelihood that actual results will vary from the estimates.
ORE RESERVE ESTIMATES
The proven and probable reserve figures presented herein are estimates, and
no assurance can be given that the indicated levels of recovery of gold and
copper will be realized. Reserve estimates may require revision based on actual
production experience. Market price fluctuations of gold and copper, as well as
increased production costs or reduced recovery rates, may render NGC's proven
and probable gold and copper reserves containing relatively lower grades of
mineralization uneconomic to exploit and may ultimately result in a restatement
of reserves.
21
<PAGE> 24
REGULATION, ENVIRONMENTAL RISKS AND UNPATENTED MINING CLAIMS
Domestic and foreign mining operations and exploration activities are
subject to extensive laws and regulations governing prospecting, development,
production, exports, taxes, labor standards, occupational health, waste
disposal, protection and remediation of the environment, protection of
endangered and protected species, mine safety, toxic substances and other
matters. Mining is subject to potential risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as a
result of mineral exploration and production. NGC has been, and may in the
future be, subject to clean-up liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and comparable state laws which
establish clean-up liability for the release of hazardous substances. NGC has
interests in certain sites associated with former mining activities for which
clean-up liabilities exist. Although NGC believes it has made adequate
provisions in its financial statements for clean-up costs, it cannot guarantee
that such provisions will be adequate. In the context of environmental
permitting, including the approval of reclamation plans, NGC must comply with
standards, existing laws and regulations which may entail greater or lesser
costs and delays depending on the nature of the activity to be permitted and how
the regulations are implemented by the permitting authority. It is possible that
the costs and delays associated with the compliance with such laws, regulations
and permits could result in NGC not proceeding with the development of a project
or the operation or further development of a mine.
Amendments to current laws and regulations governing operations and
activities of mining companies are actively considered from time to time and
could have a material adverse impact on NGC.
In recent years, the U.S. Congress has considered a number of proposed
amendments to the General Mining Law of 1872, as amended (the "General Mining
Law"), which governs mining claims and related activities on U.S. federal lands.
Although no such legislation has been adopted to date, there can be no
assurances that such legislation will not be adopted in the future. If ever
adopted, such legislation could, among other things, impose royalties on gold
production from currently unpatented mining claims located on U.S. federal
lands. If such legislation is ever adopted, it could reduce the amount of future
exploration and development activity conducted by NGC on such U.S. federal
lands. In addition, in 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on U.S. federal lands. In October 1994, a
moratorium on the processing of new patent applications was approved. While such
moratorium currently remains in effect, its future is unclear. As of December
31, 1996, approximately 16% of NGC's proven and probable reserves in the U.S.
are located on unpatented mining claims on U.S. federal lands, the remainder
being located on private land.
RISKS OF FOREIGN INVESTMENTS
Certain of NGC's activities are located in foreign countries. NGC's foreign
investments include operations and exploration projects in Peru, Indonesia and
Uzbekistan. NGC also has exploration and/or development projects in Canada,
Mexico, Ecuador and certain countries in the Caribbean and Asia.
Foreign mining investments are subject to the risks normally associated
with conducting business in foreign countries, which are less developed or have
an emerging economy, including uncertain political and economic environments, as
well as risks of war and civil disturbances or other risks which may limit or
disrupt a project, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property by nationalization or expropriation
without fair compensation, risk of adverse changes in laws or policies of
particular countries, increases in foreign taxation, delays in obtaining or the
inability to obtain necessary governmental permits, limitations on ownership and
on repatriation of earnings, and foreign exchange controls and currency
devaluations. Although NGC is not currently experiencing any significant
problems in foreign countries arising from such risks, there can be no assurance
that such problems will not arise in the future. While political risk insurance
has been obtained to cover portions of NGC's investments in Peru, Indonesia and
Uzbekistan against certain expropriation, war civil unrest and political
violence risks, such insurance is limited by its terms to the particular risks
specified therein and is subject to certain exclusions. There can be no
assurance that claims would be paid under such insurance in connection with a
particular event in a foreign
22
<PAGE> 25
country. Foreign investments may also be adversely affected by laws and policies
of the U.S. affecting foreign trade, investment and taxation.
In certain of the countries other than the U.S. where NGC has operations or
conducts exploration activities, the mineral rights are owned by the relevant
governments. Such governments have entered into contracts with or granted
concessions that enable NGC and its subsidiaries to conduct operations or
exploration activities on such lands. Notwithstanding such arrangements, NGC's
ability to conduct its operations or exploration activities on such lands is
subject to changes in government policy over which NGC has no control. If such a
change were to occur that affected the right of NGC or any of its subsidiaries
to conduct operations or exploration activities, it could have a material
adverse affect on the results of operations of NGC.
SPECULATIVE NATURE OF GOLD EXPLORATION AND UNCERTAINTY OF DEVELOPMENT PROJECTS
Gold exploration is highly speculative in nature, involves many risks and
frequently is nonproductive. There can be no assurance that NGC's gold
exploration efforts will be successful. Success in increasing reserves is the
result of a number of factors, including the quality of NGC's management, its
level of geological and technical expertise, the quality of land available for
exploration and other factors. Once gold mineralization is discovered, it may
take several years from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
Substantial expenditures are required to establish proven and probable reserves
through drilling to determine metallurgical processes to extract the metals from
the ore and, in the case of new properties, to construct mining and processing
facilities. As a result of these uncertainties, no assurance can be given that
NGC's exploration programs will result in the expansion or replacement of
current production with new proven and probable reserves.
Development projects have no operating history upon which to base estimates
of future cash operating costs. Particularly for development projects, estimates
of proven and probable reserves and cash operating costs are, to a large extent,
based upon the interpretation of geologic data obtained from drill holes and
other sampling techniques, and feasibility studies which derive estimates of
cash operating costs based upon anticipated tonnage and grades of ore to be
mined and processed, the configuration of the ore body, expected recovery rates
of the gold from the ore, comparable facility and equipment operating costs,
anticipated climatic conditions and other factors. As a result, it is possible
that actual cash operating costs and economic returns may differ significantly
from those currently estimated. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase. Delays often can occur
in the commencement of production.
MINING RISKS AND RISK OF NONAVAILABILITY OF INSURANCE
The business of gold mining is subject to a number of risks and hazards,
including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations or other geological or
grade problems, encountering unanticipated ground or water conditions, cave-ins,
pitwall failures, flooding, rock falls, periodic interruptions due to inclement
or hazardous weather conditions or other unfavorable operating conditions and
other acts of God and gold bullion losses. Such risks could result in damage to,
or destruction of, mineral properties or producing facilities, personal injury
or death, environmental damage, delays in mining, monetary losses and possible
legal liability.
NGC maintains insurance against risks that are typical in the operation of
its business and in amounts which it believes to be reasonable. Such insurance,
however, contains exclusions and limitations on coverage. There can be no
assurance that such insurance will continue to be available, will be available
at economically acceptable premiums or will be adequate to cover any resulting
liability.
PROPOSED REPEAL OF PERCENTAGE DEPLETION FOR NONFUEL MINERALS MINED ON CERTAIN
FEDERAL LANDS
NGC currently benefits from the percentage depletion allowance permitted
under current law. Taxpayers may, subject to limitations, claim deductions for
the depletion of mineral resources. Such deductions may be based upon the
taxpayer's tax cost of the mineral resources ("cost depletion") or upon a
portion of the gross or
23
<PAGE> 26
net revenues from sales of the mineral resources ("percentage depletion"). The
proposed 1998 U.S. federal budget would repeal the current percentage depletion
provisions for nonfuel minerals, including gold, extracted from any land where
title to the land or the right to extract minerals from such land was originally
obtained pursuant to the provisions of the General Mining Law. The proposal is
stated only in general terms and does not provide specific details as to its
potential operation, including the lands that will ultimately be affected. It is
uncertain whether the repeal of these provisions will ultimately be adopted. If
adopted, however, such repeal could have an adverse effect on the results of
operations of NGC. The magnitude of such effect currently cannot be determined
and will be affected by several factors, including the specific landholdings of
NGC that are actually impacted, the level of future production from such
landholdings and future gold prices.
All subsequent written and oral forward-looking statements attributable to
NGC or to persons acting on its behalf are expressly qualified in their entirety
by the cautionary statements. NGC disclaims any intent or obligation to update
publicly any forward-looking statements set forth in this Report, whether as a
result of new information, future events or otherwise.
ITEM 3. LEGAL PROCEEDINGS
In 1995, an Agency of the State of Nevada Department of Taxation filed an
assessment claiming sales taxes due relating to the sale-leaseback in 1994 of
NGC's refractory ore treatment plant. This assessment, including interest,
totaled approximately $30 million. NGC filed a Petition for Redetermination and
a hearing was held by the Agency that issued the assessment in October 1995. The
hearing officer reaffirmed the Agency's determination. NGC appealed this
determination to the State Tax Commission which found in favor of NGC. An appeal
by the State of Nevada to the Supreme Court of the State of Nevada was dismissed
in November 1996. This matter is now closed with no liability to NGC.
In December 1983, the State of Colorado filed a lawsuit in the U.S.
District Court for the District of Colorado under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42
U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural
resources due to releases of hazardous substances into the environment. This
case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388),
was consolidated with another action, United States of America v. Apache Energy
& Minerals, et al. (Civil Action No. 86-C-1676), which was filed in August 1986.
Both cases involve allegations of environmental impairment in the vicinity of
Leadville, Colorado, including the area of the operations and property of the
Res-ASARCO Joint Venture which owns the Black Cloud Mine, the Yak Tunnel, and
adjacent property, and seek remedial actions and damages from a number of
defendants, including NMC 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., NMC, Resurrection and certain defendants. The Partial Consent Decree
obligates Resurrection to pay for and perform the cleanup of sources of
contamination in various areas, pursuant to the CERCLA administrative process.
During 1995 and 1996, Resurrection implemented and completed remedial action at
selected locations. Additional remedial activities are planned for 1997. The
precise nature of the final remedial activities is subject to EPA and State of
Colorado review and selection and public comment. At this time, the precise
remedy and cost have not been fixed. The proposed settlement also requires
Resurrection to reimburse the EPA and the State of Colorado for their response
costs. Further, Resurrection's cleanup and reimbursement obligations are subject
to certain sharing percentages with at least one other defendant. The Partial
Consent Decree does not resolve certain other potential liabilities, including
liability for any natural resource damage and any groundwater or surface water
contamination. See also page 62.
In September 1995, Southern Peru Copper Corporation ("SPCC"), previously
10% owned by NGC, was served with a lawsuit, which was filed in the state court
of Nueces County, Texas, naming as defendants SPCC, its present and former
stockholders including NGC, and certain other defendants. The lawsuit seeks
unspecified compensatory and punitive damages for alleged personal injuries to
approximately 700 persons resident in Peru and property damages arising from
alleged releases into the environment from SPCC operations in Peru. In September
1995, the action was removed from Texas state court to the U.S. District Court
for the Southern District of Texas, Corpus Christi Division. In October 1995,
SPCC and other
24
<PAGE> 27
defendants filed a motion to dismiss the action on a number of grounds,
including that it would be unreasonable for a U.S. court to exercise
extraterritorial jurisdiction, lack of personal jurisdiction and forum non
conveniens. In January 1996 the Court entered an order dismissing the complaint
on the grounds that under U.S. and international law the subject matter of the
lawsuit should be adjudicated before Peruvian courts. In February 1996,
plaintiffs filed a notice of appeal from the order of the U.S. District Court
dismissing the complaint and from an earlier order of that Court denying
plaintiffs' motion to remand the case to the Texas state court. The U.S. Court
of Appeals for the Fifth Circuit heard argument on the appeal in December 1996.
A decision is expected in 1997.
For a description of the litigation involving NGC's ownership interest in
Minera Yanacocha, see page six.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NGC's executive officers as of March 26, 1997 were:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Ronald C. Cambre 58 Chairman, President and Chief Executive Officer
Wayne W. Murdy 52 Executive Vice President and Chief Financial Officer
John A. S. Dow 51 Senior Vice President, Exploration
Lawrence T. Kurlander 57 Senior Vice President, Administration
David A. Baker 42 Vice President, Environmental Affairs
Steven A. Conte 54 Vice President, Human Resources
Mary E. Donnelly 45 Vice President, Government Relations
W. Durand Eppler 43 Vice President, Business Development and Planning
Gary E. Farmar 43 Vice President and Controller
Patricia A. Flanagan 39 Vice President, Treasurer and Assistant Secretary
David H. Francisco 47 Vice President, International Operations
Eric Hamer 54 Vice President and Senior Project Executive, Batu Hijau
Joy E. Hansen 51 Vice President and General Counsel
Donald G. Karras 43 Vice President, Taxes
Leendert G. Krol 57 Vice President, Exploration
Michael G. Moran 55 Vice President, Engineering Services
Jack H. Morris 57 Vice President, Corporate Relations
W. James Mullin 51 Vice President, North American Operations
Jean-Michel Rendu 53 Vice President, Technical Services
Timothy J. Schmitt 55 Vice President, Secretary and Assistant General Counsel
</TABLE>
There are no family relationships by blood, marriage or adoption among any
of the above executive officers of NGC. All executive officers are elected
annually by the Board of Directors of NCG 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.
25
<PAGE> 28
Mr. Cambre was elected Chairman of NCG on November 16, 1994 (effective
January 1, 1995), President on June 1, 1994 and Chief Executive Officer on
September 23, 1993 (effective November 1, 1993). He served as Vice Chairman of
NCG from November 1, 1993 through December 31, 1994. Previously, he served as
Vice President and Senior Technical Advisor to the office of the Chairman of
Freeport-McMoRan Inc., a natural resources company, from June 1988 to September
1993. He is also Chairman, President and Chief Executive Officer of NMC.
Mr. Murdy was elected Executive Vice President of NGC on July 24, 1996 and
designated Chief Financial Officer effective December 31, 1992. He served as a
Senior Vice President of NGC from December 31, 1992 to July 23, 1996.
Previously, he served as Senior Vice President and Chief Financial Officer of
Apache Corporation, an oil and gas exploration and production company, since May
1991. He is also Executive Vice President and Chief Financial Officer of NMC.
Mr. Dow was elected Senior Vice President, Exploration of NGC on July 24,
1996. He served as Vice President of NGC from May 18, 1994 to May 16, 1995 and
served as Vice President and Regional Director, Indonesia and Southeast Asia
from May 17, 1995 to July 23, 1996. Previously he held various senior
exploration positions with NGC, NMC and its subsidiaries for more than five
years. He is also Senior Vice President, Exploration of NMC.
Mr. Kurlander was elected Senior Vice President, Administration of NGC on
March 16, 1994 (effective April 1, 1994). Previously, he served as Senior Vice
President, Public Affairs and Government Affairs, for Nabisco International Inc.
of RJR Nabisco, Inc., a consumer products company, since 1992. Prior to that he
managed worldwide communications, state government affairs and worldwide
security functions for American Express Company, a financial services company.
He is also Senior Vice President, Administration of NMC.
Mr. Baker was elected Vice President, Environmental Affairs of NGC on April
24, 1991 (effective March 11, 1991). Previously, he served as Director,
Environmental Affairs for NGC and various other senior positions with NGC.
Mr. Conte was elected Vice President, Human Resources of NGC on April 3,
1995. Previously, he served as Vice President, Human Resources of Echo Bay Mines
Ltd., a natural resources company, since January 1988.
Ms. Donnelly was elected Vice President, Government Relations of NGC on
June 12, 1990.
Mr. Eppler was elected Vice President, Business Development and Planning of
NGC on May 17, 1995. Previously, he served as Managing Director of Chemical
Securities, Inc., an affiliate of Chemical Bank, for more than five years.
Mr. Farmar was elected a Vice President of NGC on December 16, 1992 and
Controller on October 30, 1991. He is also Vice President and Controller of NMC.
Ms. Flanagan was elected a Vice President of NGC on March 15, 1995 and
elected Treasurer on December 16, 1992. Previously, she served as an Assistant
Treasurer. She was appointed Assistant Secretary on June 24, 1992. She is also
Vice President, Treasurer and Assistant Secretary of NMC.
Mr. Francisco was elected Vice President, International Operations of NGC
on July 19, 1995 (effective July 10, 1995). Previously, he served as Executive
Vice President and General Manager of P.T. Freeport Indonesia Co., a natural
resources company, from August 1992 to May 1995 and as Senior Vice President and
Chief Administrative Officer from May 1991 to August 1992.
Mr. Hamer was elected Vice President and Senior Project Executive, Batu
Hijau of NGC on May 13, 1996. Previously he served as Vice President, North
American Operations of NGC from July 12, 1995 to May 12, 1996, as Vice
President, Indonesian Projects, from January 1, 1994 to July 11, 1995 and as
Vice President, Project Development from January 1, 1993 through December 31,
1993. He also served as Vice President and General Manager of NGC's Carlin
operations from October 30, 1991 to December 31, 1992.
26
<PAGE> 29
Ms. Hansen was elected a Vice President of NGC on March 15, 1995 and was
designated General Counsel of NGC on July 24, 1996. She served as Associate
General Counsel of NGC from March 1992 to July 23, 1994. Previously, she was a
partner in the law firm of Holland & Hart specializing in natural resources law.
She is also Vice President and General Counsel of NMC.
Mr. Karras has served as Vice President, Taxes of NGC since November 9,
1992. Previously, he served as Director of Taxes of Kennecott Corporation, a
natural resources company, for four years. He is also Vice President, Taxes of
NMC.
Mr. Krol has served as Vice President, Exploration of NGC since September
14, 1994. Previously, he served as Director of Foreign Exploration since May
1992. Prior to that he served as Director of Metallurgical Services since 1990.
Mr. Moran was elected Vice President, Engineering Services of NGC on
December 15, 1993 (effective January 17, 1994). Previously, he was employed by
BHP Minerals International Inc., a natural resources company, for more than five
years where he was responsible for the development and management of major
construction projects.
Mr. Morris was elected Vice President, Corporate Relations of NGC on March
16, 1994 (effective April 1, 1994). Previously, he served as Director of
Investor Relations and Corporate Communications for Inland Steel Industries, a
steel producer, from 1990 to 1993.
Mr. Mullin was elected Vice President, North American Operations of NGC on
May 13, 1996. Previously, he served as Vice President and Regional Director,
Nevada Operations of NGC from May 14, 1994 to May 12, 1996, and prior thereto
served as Vice President and General Manager from December 15, 1993 to May 13,
1994. He also served as Acting General Manager from January 1, 1993 to December
14, 1993. Prior to that he held various senior operating positions with NGC.
Mr. Rendu was designated Vice President, Technical Services of NGC on
January 19, 1995. Previously, he served as Vice President, Information Systems
of NGC since November 26, 1991 and Vice President, Mine Engineering of NGC since
March 11, 1991.
Mr. Schmitt was elected a Vice President of NGC on December 17, 1986 and
was elected Secretary on May 25, 1988. He was designated Assistant General
Counsel on October 30, 1991. He is also Vice President, Secretary and Assistant
General Counsel of NMC.
27
<PAGE> 30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NGC's common stock is traded on the New York Stock Exchange (under the
symbol "NGC"). The following table sets forth, for the periods indicated, the
high and low sales prices per share of NGC's common stock as reported on the New
York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter................................... $60.50 $43.75 $43.88 $33.13
Second quarter.................................. $62.25 $50.25 $45.25 $38.25
Third quarter................................... $55.75 $46.88 $46.25 $41.13
Fourth quarter.................................. $51.38 $43.38 $44.25 $35.00
</TABLE>
On March 26, 1997, there were 945 stockholders of record of NGC's common
stock.
A dividend of $0.12 per share of common stock outstanding was declared in
each quarter of 1996 and 1995, or a total of $0.48 per share in each such year.
The determination of the amount of future dividends, however, will be made by
NGC's Board of Directors from time to time and will depend on NGC's future
earnings, capital requirements, financial condition and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
Sales............................... $ 768,455 $ 636,219 $ 597,370 $ 601,601 $546,432
========== ========== ========== ========== ========
Income before cumulative effects of
changes in accounting
principles........................ $ 93,972 $ 124,872 $ 83,394 $ 113,116 $ 87,414
Cumulative effects of changes in
accounting principles after tax... -- -- -- 2,665 (6,356)
---------- ---------- ---------- ---------- --------
Net income.......................... $ 93,972 $ 124,872 $ 83,394 $ 115,781 $ 81,058
========== ========== ========== ========== ========
Earnings per share:
Income before cumulative effects
of changes in accounting
principles..................... $ 0.86 $ 1.17 $ 0.70 $ 1.08 $ 0.83
Cumulative effects of changes in
accounting principles.......... -- -- -- 0.02 (0.06)
---------- ---------- ---------- ---------- --------
Net income.......................... $ 0.86 $ 1.17 $ 0.70 $ 1.10 $ 0.77
========== ========== ========== ========== ========
Dividends declared per common
share............................. $ 0.48 $ 0.48 $ 0.48 $ 0.05 $ 0.05
========== ========== ========== ========== ========
AT DECEMBER 31,
Total assets........................ $2,081,074 $1,773,770 $1,656,657(1) $1,021,870 $905,331
Long-term debt, including current
portion........................... $ 604,259 $ 608,634 $ 593,634(1) $ -- $ --
Stockholders' equity $1,132,055 $ 824,928 $ 752,951(1) $ 924,018 $810,447
</TABLE>
- ---------------
(1) As discussed in Note 2 of Item 8 -- "Financial Statements and Supplementary
Data," effective January 1, 1994, Newmont Gold Company acquired essentially
all of the assets and liabilities of its parent, Newmont Mining Corporation.
This transaction contributed to the increase in total assets and long-term
debt and decrease in stockholders' equity at December 31, 1994 compared to
December 31, 1993.
28
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of Newmont Gold Company
("NGC") and its subsidiaries' (collectively, the "Company") consolidated results
of operations and financial condition. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto.
Newmont Mining Corporation ("NMC") owns approximately 91% of NGC's common stock.
All of NMC's operations are held through NGC.
The discussion and analysis, as well as the notes to such financial
statements, contain "forward-looking statements" within the meaning of Section
27A of the Securities Exchange Act of 1934, as amended. Such forward looking
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially, as discussed in "Forward-Looking
Statements" below.
SUMMARY
Over the past two years, the Company's earnings per share, on a comparable
basis, have increased on average approximately 10% annually. The Company earned
$94.0 million ($0.86 per share) in 1996, compared with $90.0 million ($0.81 per
share) in 1995, before considering certain gains and charges, and $83.4 million
($0.70 per share) in 1994. Additionally in 1995, there was a gain on the sale of
an investment and the write-off of two exploration properties. The Company sold
its 10.7% interest in Southern Peru Copper Corporation ("SPCC") for $116.4
million, resulting in a pre-tax gain of $113.2 million, or $72 million after-tax
($0.74 per share). The write-off of the Grassy Mountain and Ivanhoe exploration
properties resulted in a pre-tax charge of $57.1 million, or $37.1 million
after-tax ($0.38 per share). Including these items, net income in 1995 was
$124.9 million ($1.17 per share).
The Company's total equity gold production increased 23% in 1996 to
2,284,200 ounces from 1,862,800 ounces in 1995. Equity production in 1995
increased 11% from 1994's equity production of 1,671,000 ounces. Weighted
average total cash costs per ounce of equity production were $220, $210 and $202
for 1996, 1995 and 1994, respectively.
RESULTS OF OPERATIONS
Consolidated sales revenues have increased primarily from gold production
of 1,970,200 ounces, 1,653,000 ounces and 1,555,300 ounces in 1996, 1995 and
1994, respectively. (Such production does not include the Company's share of
gold production from Minera Yanacocha S.A. ("Minera Yanacocha") which was
accounted for on the equity method during these periods but commencing in 1997
will be consolidated in the Company's financial statements as discussed below.)
The average annual gold price per ounce received on such production was $390,
$385 and $384 in 1996, 1995 and 1994, respectively.
The profitability of the Company's operations is significantly affected by
the market price of gold. Gold prices can fluctuate widely and are affected by
numerous factors beyond the Company's control. During the beginning of 1997, the
market price of gold declined from 1996 levels. The Company has forward sales
contracts that began in January 1996 and continue through December 2000 for
production from its Minahasa property, located in Indonesia. These contracts
provide for forward sales of 125,000 ounces per year at an average price of $454
an ounce, plus 40% of the amount by which the market price exceeds the forward
sales price. No production was hedged in 1995 or 1994.
29
<PAGE> 32
The effects of the changes in the average annual gold price received and
annual consolidated production levels on sales revenues between years are
reflected in the following table (in thousands):
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
------------- -------------
<S> <C> <C>
Increase in sales revenues due to:
Gold price............................ $ 10,154 $ 1,339
Production............................ 122,082 37,510
-------- -------
Total......................... $132,236 $38,849
======== =======
</TABLE>
The Company's North American operations are located on the geological
feature known as the Carlin Trend, hereafter, referred to as "Carlin." Carlin
gold production has increased approximately 5% in each of the last two years,
from 1,555,300 ounces in 1994 to 1,634,500 in 1995 to 1,700,000 ounces in 1996.
Improved operating rates at the refractory ore treatment plant in conjunction
with increased amounts of high grade underground ore processed were the primary
reasons for the increase in gold production between 1995 and 1996. The
refractory ore treatment plant, which began operations in mid-1994, operated at
reduced rates in 1994 and 1995 due primarily to a crack in a weld of a riding
ring in the double rotator mill in August 1994 and a fire in an electrostatic
precipitator in November 1994. As the plant operated at steadily increasing
rates during 1995 and production from high grade underground ores increased,
production also increased from 1994 to 1995.
Carlin's ore production is shifting from open-pit oxide ore to refractory
ore coming from both open-pits and underground operations. The refractory ore
treatment plant, which processes most of the refractory ore, is expected to
account for approximately 40% of Carlin's gold production in 1997, up from
approximately 30% in 1996 and 20% in 1995. Carlin's production is expected to
continue to increase approximately 5% annually in 1997 and 1998 with the mining
of higher grade ores from the Post deposit. This deposit is mined by Barrick
Goldstrike Mines, Inc. ("Barrick") under a joint mining agreement, as discussed
below.
The Company's international operations include the Zarafshan-Newmont Joint
Venture ("Zarafshan-Newmont"), a 50%-50% joint venture between a subsidiary of
the Company and two Uzbekistan governmental entities. Zarafshan-Newmont, which
began production in September 1995, produces gold by crushing and leaching low
grade oxide ore from existing stockpiles at the government owned Muruntau mine
in Uzbekistan. Production was 326,500 ounces (163,200 equity ounces) for 1996
and 37,000 ounces (18,500 equity ounces) for 1995. Although problems were
encountered in the startup of the leach facility in 1995, gradual improvements
were made throughout 1996. In 1997, production is expected to be approximately
400,000 ounces with 50% attributable to the Company's interest.
In Indonesia, the Company began production in 1996 at NGC's 80% owned
Minahasa ("Minahasa") property. Revenue production was 107,000 ounces. In
addition, 5,700 ounces were produced before commercial operations commenced, and
the revenue from these ounces was credited against the capitalized costs of the
project. Although the Company has an 80% interest in this project, it is
entitled to 100% of the gold production until its investment has been recovered,
since it funded 100% of the construction costs. Production is expected to reach
approximately 150,000 ounces in 1997, with higher levels expected in future
years.
The Company has also had a 38% interest in Minera Yanacocha, a Peruvian
entity which is managed by a subsidiary of the Company. Minera Yanacocha has
increased its production 166% over the past two years. Production totaled
811,400 ounces (308,300 equity ounces), 552,000 ounces (209,800 equity ounces)
and 304,600 ounces (115,700 equity ounces) in 1996, 1995 and 1994, respectively,
at total cash costs of $107, $119, and $135 per ounce produced, respectively.
The increased production in 1996 was primarily due to production beginning at a
third mine. In 1995, production began at a second mine, resulting in increased
production levels over 1994. Production is expected to increase at least 5% in
1997 and future production levels are expected to be consistent with those of
1997. Total cash costs are expected to increase slightly in 1997 and 1998, due
primarily to higher mining costs.
As discussed in Note 17 of Item 8 -- "Financial Statements and
Supplementary Data," in February 1997 the Peruvian Superior Court upheld the
decision of a Peruvian trial court which ruled that NGC had the right
30
<PAGE> 33
to exercise its preemptive right increasing its interest in Minera Yanacocha
from 38% to 51.35% at a purchase price of $59.1 million. The court ruled that
the preemptive right was triggered in November 1993. Due to the dispute over the
exercise of the preemptive right, the Company had continued to account for the
interest in Minera Yanacocha on an equity basis at 38%. As a result of the
Superior Court's decision, the additional 13.35% interest will be accounted for
as having been acquired in 1997 and the 51.35% interest will be consolidated in
the Company's financial results, net of the amortization of the purchase price
of the incremental interest over its net book value. BRGM and other defendants
have filed a request for review of the Superior Court decision by the Supreme
Court of Peru. Peruvian counsel have advised the Company that decisions of the
Superior Court can be modified by the Supreme Court only in very limited
circumstances and that it is not likely that further review will be granted. See
the previously mentioned Note 17 in Item 8 for pro forma statements reflecting
the additional interest.
The Company has targeted total equity gold production of approximately 2.6
million ounces for 1997.
Costs applicable to sales were $476.1 million, $370.6 million and $326.4
million in 1996, 1995 and 1994, respectively. In 1996, $415.3 million relates to
the Carlin operations, $36.9 million relates to the Company's share of costs at
Zarafshan-Newmont and $23.9 million relates to Minahasa. Of the 1995 amount,
$4.1 million of the costs relate to the Company's share of costs attributable to
Zarafshan-Newmont. All other costs applicable to sales for 1995 and 1994 were
attributable to the Carlin operations.
The Company's costs applicable to consolidated sales on a per ounce of gold
sold basis were as follows for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
ZARAFSHAN-
CARLIN NEWMONT MINAHASA CONSOLIDATED
-------------------- ------------ -------- --------------------
1996 1995 1994 1996 1995 1996 1996 1995 1994
---- ---- ---- ---- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash operating costs.................... $222 $189 $178 $225 $218 $217 $222 $189 $178
Royalties............................... 20 31 25 0 0 7 17 31 25
Other cash costs........................ 1 3 5 0 0 0 1 3 5
---- ---- ---- ---- ---- ---- ---- ---- ----
Total cash costs................ 243 223 208 225 218 224 240 223 208
Other................................... 1 1 2 1 1 2 1 1 2
---- ---- ---- ---- ---- ---- ---- ---- ----
Total costs applicable to
sales......................... $244 $224 $210 $226 $219 $226 $241 $224 $210
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
The above consolidated amounts do not take into account NGC's interest in
Minera Yanacocha because it was accounted for on the equity basis. If NGC's
equity interest in Minera Yanacocha were included with the consolidated amounts,
the weighted-average total cash costs per ounce of equity production would have
been $220, $210 and $202 in 1996, 1995 and 1994, respectively.
Cash operating costs consist principally of charges for mining ore and
waste associated with current period gold production and processing ore through
milling and leaching facilities. Total Carlin cash operating costs were $376.8
million in 1996, $308.4 million in 1995, and $277.3 million in 1994. The
increases in aggregate and per ounce costs between 1996 and 1995 were primarily
attributable to higher mining and milling costs. Approximately half of the
increase is attributable to increased mining costs which resulted from more
underground mining and higher waste-to-ore ratios at the open-pit mines in 1996.
Another quarter of the increase was due to higher milling costs primarily
associated with the refractory ore treatment plant. High maintenance costs were
incurred at the plant in 1996 as certain components corroded more quickly than
anticipated. In 1997, it is planned that these components will be replaced using
materials which are expected to significantly increase their operating lives.
The remainder of the 1996 increase was attributable to various other factors.
The increases in costs between 1995 and 1994 were primarily attributable to
increased milling costs associated with the refractory ore treatment plant
during its first full year of operation and increased underground mining costs.
Per ounce cash operating costs at Carlin are expected to decrease in 1997 and
1998 when the production of higher grade ore from the Post deposit enters the
production stream.
The Company's share of cash operating costs at Zarafshan-Newmont increased
to $36.9 million from $4.1 million in 1995 due to a full year of operation in
1996. Per ounce cash costs increased slightly from 1995
31
<PAGE> 34
to 1996 primarily due to a reduction in the estimated ultimate gold recovery
rate in 1996. Per ounce cash operating costs are expected to slightly decrease
in 1997 as greater efficiencies and higher production levels are achieved, but
may increase in 1998 as lower ore grades are expected to be encountered.
Per ounce cash operating costs at Minahasa in 1997 are expected to be
approximately the same as those in 1996. In the years thereafter, per ounce
costs are expected to decline as higher grade ores enter the production stream.
In addition to the cash operating costs expensed, the Company is
capitalizing a portion of mining costs associated with tons mined from deposits
having diverse grade and waste-to-ore ratios over a mine's life. In 1996 and
1995, such costs were capitalized for certain deposits at Carlin ($63.7 million
and $56.2 million, respectively) and at Minahasa ($6.1 million and $1.2 million,
respectively), whereas in 1994, these costs only related to the Carlin
operations ($33.2 million). The Carlin costs substantially relate to the Post
deposit. As previously mentioned, this deposit is being mined by Barrick under a
1992 joint mining agreement. Under such agreement, Barrick, which has a separate
and distinct interest in the same ore body, mines the deposit and charges the
Company on a basis that will result in both companies ultimately bearing the
same cost per contained ounce of gold mined. Some of the Company's contained
ounces in this deep deposit are expected to be processed in 1997, at which time
such mining costs will be matched against the revenues from the ounces that are
produced.
Capitalized mining costs increased in 1996 and 1995 due to elevated mining
rates for the Post deposit, as well as commencement of production at Minahasa in
1996. Such capitalized mining costs are expected to decrease in 1997 from the
1996 amount as a higher proportion of Post ore relative to waste material is
mined.
Royalty costs, which are a function of the amount of royalty ore processed,
were $34.4 million, $51.6 million and $38.7 million in 1996, 1995 and 1994,
respectively. In 1995, greater amounts of royalty-burdened ore were processed
than in 1996 and 1994. Including the effect of royalties at Minera Yanacocha,
royalty costs are expected to decrease from 1996 to 1997 by approximately 35%
due to a significant reduction in the amount of royalty-burdened ore processed
from open-pit mines at Carlin.
On a consolidated basis, the Company's costs applicable to sales per ounce
are expected to significantly decrease in 1997 with the lower cost per ounce
production at Carlin and Zarafshan-Newmont and the consolidation of the low-cost
Minera Yanacocha operations. In total, costs applicable to sales will increase
in 1997 as a result of the consolidation of Minera Yanacocha.
Depreciation, depletion and amortization ("DD&A") was $124.8 million,
$106.8 million and $91.1 million in 1996, 1995 and 1994, respectively. The
increase in 1996 over 1995 is primarily due to additional assets placed in
service at Carlin, a full year of Zarafshan-Newmont operations and the startup
of Minahasa operations. The increase in 1995 over 1994 is primarily due to new
facilities and equipment at the Carlin operations, including the refractory ore
treatment plant. Including the consolidation of Minera Yanacocha, DD&A is
expected to increase to between $165 million and $175 million in 1997 due to a
full year of operation at Minahasa and the additional assets placed in service
in 1996 at all operations.
Exploration and research expenses were $58.7 million, $57.3 million and
$69.2 million in 1996, 1995 and 1994, respectively. The decrease in exploration
and research expenses in 1995 compared to the 1994 amount was due to the
Company's planned decrease in exploration spending and increased focus on
resource development, for which costs are capitalized. The Company intends to
replace and increase its reserve base primarily through exploration. At December
31, 1996, the Company's proven and probable gold reserves were 37.1 million
equity ounces, compared to 28.8 million equity ounces at December 31, 1995.
Exploration and research expenses in 1997 are expected to increase to between
$70 million and $75 million with the consolidation of Minera Yanacocha.
As discussed in Note 16 of Item 8 -- "Financial Statements and
Supplementary Data", in July 1996, the Company and Sumitomo Corporation
("Sumitomo") entered into an agreement to develop and operate the Batu Hijau
project in Indonesia. As a result of the contemplated ownership structure, the
Company began accounting for its investment in Batu Hijau as an equity
investment in July 1996. In 1995 and for the first six months of 1996,
development costs for this large copper/gold porphyry deposit were capitalized.
The
32
<PAGE> 35
Company's cash expenditures totaled $15.1 million and $27.7 million for 1996 and
1995, respectively. In addition, in 1996 Sumitomo advanced $20.2 million for
project development. In 1994, the Company incurred $16.8 million of exploration
and research expenses for this project.
General and administrative expense ("G&A") was $48.1 million, $43.2 million
and $38.5 million in 1996, 1995 and 1994, respectively. The increases are
primarily related to the additional staffing required for the increased
international focus of the Company's operations. The Company provides extensive
management oversight and technical expertise to its overseas operations. G&A
expenses are not expected to increase significantly in 1997 over the 1996
levels.
Interest expense before capitalized interest was $49.4 million, $48.0
million and $29.5 million in 1996, 1995 and 1994, respectively. The increase in
1995 from 1994 is associated with higher debt balances, primarily due to the
sale-leaseback financing of the refractory ore treatment plant which was
completed in September 1994. Net interest expense will increase in 1997 with the
consolidation of Minera Yanacocha and its planned $100 million financing. See
"Liquidity and Capital Resources."
In 1995, the Company recorded write-offs of two exploration properties
totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over
the next three years, extensive drilling, environmental studies and mine models
were developed to determine the economics of extracting gold from the property.
A feasibility report was issued in June 1995 that reflected high levels of
environmental and mining costs that resulted in financial returns much lower
than the Company's threshold for development. Accordingly, the decision was made
not to develop the property and $18.8 million of capitalized costs associated
with the property were written off in June 1995. At that same time, an
additional charge of $4.6 million was taken as other expense for estimated costs
to reclaim areas disturbed by previous mining and exploration activity on the
property.
The Grassy Mountain property was purchased in September 1992. At the time
of the purchase, certain reliance was placed upon geological models prepared by
the seller. Work performed by the Company in 1993 demonstrated that the gold was
not distributed as modeled by the seller. In 1994, the Company created new
detailed models of the deposit based on its revised geologic interpretation.
These models resulted in fewer high grade ounces, which led to the
reclassification of 996,000 ounces of reserves to mineralized material at the
end of 1994. However, additional drilling and modeling was required to determine
whether there was an impairment of the asset based on the work performed through
that date. Based on economic information at that time and the use of
undiscounted cash flows, no write-down was considered necessary as of December
31, 1994. Throughout 1995, further refinement of geological and economic models
continued with open-pit, underground and price hedging scenarios all resulting
in deposit sizes and economic returns smaller than the Company's threshold for
development. Based on these results, capitalized costs of $33.8 million relating
to the Grassy Mountain property were written off in December 1995.
Other expenses were $13.9 million, $11.7 million and $46.0 million for
1996, 1995 and 1994, respectively. These amounts reflect charges of $6.6
million, $3.0 million and $36.1 million in 1996, 1995 and 1994, respectively,
related to environmental obligations associated with former mining activities
discussed in Note 16 to Item 8 -- "Financial Statements and Supplementary Data."
The additional charges related to environmental obligations in all periods
reflect revisions of estimates of future costs to be incurred. Included in the
1994 amount is a valuation allowance of $20 million that was made against
receivables from insurance companies for recoveries related to such
environmental obligations. The Company recorded the valuation allowance after
discussions with its then new lead counsel regarding its review of the
litigation with the insurance companies and due to the absence of expected
settlement discussions. After recording the valuation allowance there remained a
net receivable balance from insurance companies of approximately $16.7 million
at December 31, 1994. Settlement of certain of the insurance litigation was
reached in 1995 enabling the Company to realize the receivable. Trial of the
remaining litigation is scheduled for late 1997. The Company intends to
vigorously pursue its claims with respect to the remaining litigation and
believes that it is reasonably possible that additional amounts will be
recovered, although no such amounts are accrued.
Since the actual cash payments for the environmental obligations associated
with the Company's former mining activities are expected to occur over a number
of years, such cash requirements are not expected to
33
<PAGE> 36
have a significant negative impact on the Company's liquidity. The Company made
such payments of $14.8 million, $20.0 million and $14.5 million in 1996, 1995
and 1994, respectively. The Company expects to pay approximately $10.0 million
of such costs in 1997. Total estimated future costs related to these
environmental liabilities of $50.2 million were accrued at December 31, 1996.
Because of the uncertain nature of these liabilities, the Company estimates that
it is reasonably possible that the ultimate liability may be as much as 100%
greater or 40% lower than the amount accrued at December 31, 1996. Absent
concurrent insurance recoveries, or revenue generating operations associated
with closure, on-going cash expenditures will be funded out of operating cash
flow and/or borrowings. The 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.
Dividends, interest and other income was $26.5 million, $42.2 million and
$22.3 million for 1996, 1995 and 1994, respectively. The amounts include $3.1
million, $28.3 million and $9.2 million for 1996, 1995 and 1994, respectively,
for business interruption insurance recorded for certain problems associated
with the refractory ore treatment plant, as previously discussed. The remaining
variance between the years is due primarily to variances in interest income
which has increased over the three years due to higher cash balances. As
discussed in Note 8 of Item 8 -- "Financial Statements and Supplementary Data",
in January 1996, NMC issued 4.65 million shares of common stock resulting in
higher cash balances in 1996. Interest income is expected to be the primary
component of dividends, interest and other in 1997, and is expected to decrease
slightly from 1996.
Income tax benefit (provision) was $19.4 million, ($17.0) million and $29.3
million for 1996, 1995 and 1994, respectively. Included in the 1996 income tax
benefit are foreign tax credits associated with Minera Yanacocha, which were
substantially higher in 1996 than 1995, as well as $6.0 million of benefits
resulting from resolution of certain tax issues from prior years. In 1995, the
Company recognized taxes of $41.2 million related to the sale of its investment
in SPCC. This charge was partially offset by a tax benefit of $20 million
related to the charges associated with the write-offs of the Ivanhoe and Grassy
Mountain properties. In 1994, the Company recognized an income tax benefit of
$16.2 million resulting from the resolution of certain tax issues associated
with prior years, as well as a tax benefit of $12.6 million recognized in
connection with the charge relating to environmental obligations. Tax benefits
from percentage depletion and foreign tax credits were realized in all three
years. At December 31, 1996, the Company had $63.4 million of net deferred tax
assets. Although it can give no assurances, the Company expects that projected
future operations will result in the utilization of these net deferred tax
assets.
General inflation over the past three years has not had a material effect
on the Company's cost of doing business and is not expected to have a material
effect in the foreseeable future. Changes in the price received for gold will
impact the Company's revenue stream, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company's cash outlays included $231.2 million in capital
expenditures and $52.7 million in dividends. Of the capital expenditures,
approximately $154.0 million was spent on projects at the Carlin operations
which were primarily associated with capitalized mining costs, underground
development, mining and processing equipment, and refractory leach pads. In
addition, $27.4 million was spent by the Company on mine site development for
the Minahasa project, $15.1 million on the Batu Hijau project before the
agreement was reached with Sumitomo, and $11.6 million was spent on the
construction of a new technical facility in Denver, Colorado. The balance of
capital expenditures related to various other projects. These expenditures were
funded by proceeds from issuances of common stock of $265.4 million and cash
flow from operating activities of $140.4 million. In addition, $16.8 million was
borrowed under short-term credit facilities to finance environmental reclamation
and remediation activities.
Including Minera Yanacocha, approximately $300 million is expected to be
spent on capital projects in 1997. Carlin expenditures of approximately $145
million will be for capitalized mining costs, mine equipment, refractory leach
pads and underground development. Funds for capital expenditures of
approximately $8 million and $26 million will also be required for the
Zarafshan-Newmont and Minahasa projects,
34
<PAGE> 37
respectively. Minera Yanacocha expenditures of approximately $110 million will
be primarily for the construction of a second processing facility and the
construction and expansion of leach pads.
Of the Company's $231.2 million in capital expenditures in 1996, it is
estimated that approximately $12 million was required to comply with
environmental regulations. Including the effect of Minera Yanacocha, the Company
estimates that approximately $25 million of the capital expenditures in 1997
will be required to comply with environmental regulations. The ongoing costs to
comply with environmental regulations are not a significant portion of the
Company's cash operating costs.
Also in 1997, the Company expects to spend approximately $20 million on
development of La Herradura, a 44% equity investment located in Mexico. The
property will be developed by Minera Penmont S.A. de C.V., which is owned
56%-44% between Industriales Penoles S.A. de C.V. ("Penoles") and a subsidiary
of the Company. The property is a low grade, open-pit deposit that is expected
to begin heap-leach production in mid-1998. Penoles, as managing partner, has
the responsibility for development and construction of this project. However,
the Company will continue to provide technical expertise on an ongoing basis.
Additionally in 1997, the acquisition of the incremental interest in Minera
Yanacocha is expected to require the payment of approximately $59.1 million plus
additional costs required to complete the acquisition.
As previously mentioned, in January 1996, NMC issued 4.65 million shares of
common stock for $51.87 per share under an existing "shelf" registration
statement with the Securities and Exchange Commission. Proceeds of the issue
netted $241.3 million and were used to purchase an equal number of shares of
common stock of NGC. This transaction increased NMC's ownership of NGC to 90.5%.
In addition, $24.2 million was received by NMC in 1996 from the exercise of NMC
employee stock options, which proceeds were in turn used by NMC to exercise
options of NGC.
Cash on hand at December 31, 1996 of $185.7 million, operating cash flow
and short-term borrowings will be used to fund the Company's capital
expenditures and other cash requirements in 1997 (other than Minera Yanacocha).
The Company also has a $400 million unused revolving credit facility with a
consortium of banks. Additionally, in June 1994, NGC filed a "shelf"
registration statement with the Securities and Exchange Commission covering the
issuance of up to $150 million in non-convertible debt securities. There are no
present plans to use the revolving credit facility or issue any such securities.
In addition, Minera Yanacocha intends to raise $100 million of project financing
in 1997, to partially finance its 1997 capital spending program and for other
general corporate purposes.
As discussed in Note 16 of Item 8 -- "Financial Statements and
Supplementary Data," in July 1996, the Company and Sumitomo entered into an
agreement to develop and operate the Batu Hijau project in Indonesia. The
estimated cost for development of the open-pit mine, mill and infrastructure
including employee housing, a port, electrical generation facilities, interest
during construction, cost escalations and working capital is expected to
approximate $1.9 billion. Batu Hijau contains proven and probable reserves of
12.1 million ounces (5.4 million equity ounces to the Company) of gold and 10.6
billion pounds (4.8 billion equity pounds to the Company) of copper. Production
is expected to begin around the turn of the century, with a projected mine life
in excess of 20 years.
Under the partnership agreement between Sumitomo and the Company, the
Company will, at the outset, contribute to the partnership its interest in the
company that owns the project and retain a 45% interest. Sumitomo will
contribute, at the outset, approximately $165 million in cash and in the months
immediately following the date of the initial contributions, an estimated
additional $70 million in cash and receive a 35% interest. The remaining 20%
interest in the project is held by an Indonesian company that has no cash
requirements. The parties' obligations to make their initial contributions to
the partnership are subject to certain conditions, including receipt of certain
approvals from the Indonesian government. Until these conditions are satisfied,
Sumitomo has agreed to fund up to $100 million of project costs through
non-interest bearing loans which the Company has effectively guaranteed. Such
funding will be credited against Sumitomo's initial contribution. If the above
conditions are not satisfied by March 31, 1997, either party has the right to
terminate the agreement and the loans would become due. As a result of the
contemplated ownership structure, the Company is accounting for its investment
in Batu Hijau as an equity investment effective July 1996. The Company's
investment at December 31, 1996, which is included in other long-term
35
<PAGE> 38
assets, was $46.6 million. At December 31, 1996, Sumitomo had loaned $20.2
million to the company that owns the project.
Project financing for the Batu Hijau project of approximately $1 billion is
being arranged. Such financing will be guaranteed until project completion by
the Company and Sumitomo, 56.25% and 43.75%, respectively. The Company and
Sumitomo are also expected to enter into certain support agreements related to
such debt. The Company expects to fund its share of remaining project costs
through operating cash flow, bank credit lines or other third party financing as
needed. Depending on financing arrangements, it is possible that no cash
requirements will be necessary from the Company until 1998. Total project costs
for 1997 are estimated to be approximately $400 million.
Scheduled minimum long-term debt repayments are $19.3 million in 1997. The
Company expects to fund maturities of its debt through operating cash flow
and/or by refinancing the debt as it becomes due.
For active mines, the Company provides for future reclamation and
remediation closure costs on a unit-of-production basis. The annual accrual for
costs associated with current operations has not been significant. The Company
reviews the adequacy of its reclamation and remediation closure reserves in
light of current laws and regulations and makes provisions as necessary. In
addition, periodic internal environmental audits are conducted to evaluate
environmental compliance. Cash flow from the Company's operations and salvage
values are expected to provide funding for reclamation and remediation closure
costs. The Company believes that its current operations are in compliance with
applicable laws and regulations designed to protect the public health and
environment.
Current and non-current inventories (non-current inventories are included
in other long-term assets) increased from December 31, 1995 to December 31, 1996
by $14.4 and $32.5 million, respectively. Of these increases, $23.4 million
relates to Zarafshan-Newmont's commencement of operations and the Company
acquiring ore stockpiles from its partners in 1996 to allow them to fund their
capital contributions to the venture. In addition, $16.3 million is related to
the commencement of operations at Minahasa.
PROPOSED MERGER WITH SANTA FE PACIFIC GOLD CORPORATION
As discussed in Note 17 of Item 8 -- "Financial Statements and
Supplementary Data," NMC has entered into a merger agreement with Santa Fe
Pacific Gold Corporation ("Santa Fe") under which each share of Santa Fe common
stock will be exchanged for 0.43 of a share of NMC common stock. A condition of
the merger is that it be accounted for as a pooling of interests by NMC. The
merger is also subject to the approval of the shareholders of both companies and
other customary conditions. It is expected to be consummated during the second
quarter of 1997. If NMC is successful in acquiring Santa Fe, Santa Fe would
become a wholly-owned subsidiary of NGC. NGC would issue shares of common stock
to NMC equal to the number of shares NMC issues to acquire Santa Fe (estimated
to be approximately 56.5 million). Santa Fe reported 1996 sales of $337.2
million, gold production of 851,600 ounces, total cash costs of $215 per ounce
and net income of $21.1 million. Santa Fe also reported as of December 31, 1996
total assets of $1.3 billion, long-term debt of $454.9 million and net worth of
$570.0 million. Costs associated with this transaction, estimated to be
approximately $125 million, will be funded by the operating cash flow of each
company and/or third party financing sources as required.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis, as well as certain of the notes to
the consolidated financial statements, contain "forward-looking statements"
within the meaning of Section 27A of the Securities Exchange Act of 1934, as
amended. Such statements include, but are not limited to, (i) estimates of
future gold production for specific operations and on a consolidated basis, (ii)
estimates of future production costs, exploration expenditures and other
expenses for specific operations and on a consolidated basis, (iii) estimates of
future capital expenditures and other cash needs for specific operations and on
a consolidated basis and expectations as to the funding thereof, (iv) statements
as to the projected development of certain ore deposits, including estimates of
development and other capital costs, financing plans with respect thereto and
expected production commencement dates, and (v) estimates of future costs and
other liabilities for certain
36
<PAGE> 39
environmental matters. These forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from the forward-looking statements.
Future gold production could be affected by, among other things, the price
of gold, risks and hazards associated with mining operations, variances in ore
grade and metallurgical and other characteristics from assumptions contained in
mining plans, labor disputes and acts of God.
Future production costs, exploration expenditures and other expenses could
be affected by a number of factors, including, but not limited to, unanticipated
geological configurations or other geological or grade problems, metallurgical
and other processing problems, the occurrence of inclement or hazardous weather
conditions or other unusual operating conditions, the failure of equipment,
processes or facilities to operate in accordance with specifications or
expectations, labor disputes, accidents and changes in U.S. or foreign laws or
regulations or the interpretation, enforcement or implementation thereof.
The amount and timing of future capital expenditures could be influenced by
a number of factors, including the timing of receipt of necessary permits and
other governmental approvals, the failure of equipment, processes or facilities
to operate in accordance with specifications and expectations, labor disputes
and unanticipated changes in mine plans. The funding of such expenditures and
other cash needs will be affected by the level of cash flow generated by the
Company and the ability of the Company to otherwise finance such expenditures,
which in turn could be affected by general U.S. and international economic and
political conditions, political and economic conditions in the country in which
the expenditure is being made, as well as financial market conditions.
The development of certain ore deposits could be affected by, among other
things, labor disputes, delays in the receipt of or failure to receive necessary
governmental permits or approvals, changes in U.S. or foreign laws or
regulations or the interpretation, enforcement or implementation thereof, the
failure of any of the Company's joint venture partners to perform as agreed,
unanticipated ground and water conditions, the failure of equipment, processes
or facilities to operate in accordance with specifications or expectations, or
delays in the receipt of or the ability to obtain any necessary financing.
Future environmental costs and liabilities could be impacted by changes in
U.S. or foreign laws or regulations or the interpretation, enforcement or
implementation thereof unanticipated ground and water conditions, the failure of
equipment, processes or facilities to operate in accordance with specifications
or expectations, delays in receiving necessary permits and other factors beyond
the control of the Company.
For a more detailed discussion of the foregoing risks and uncertainties as
well as other risks and uncertainties affecting the Company and its operations,
see Items 1 and 2 -- "Business and Properties." Many of these factors are beyond
the Company's ability to control or predict. Readers are cautioned not to put
undue reliance on forward-looking statements.
37
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newmont Gold Company:
We have audited the accompanying consolidated balance sheets of Newmont
Gold Company (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related statements of consolidated income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newmont Gold Company and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 28, 1997,
except for Note 17
as to which the date is
March 10, 1997.
38
<PAGE> 41
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales and other income
Sales.................................................... $768,455 $636,219 $597,370
Dividends, interest and other............................ 26,471 42,157 22,316
Gain on disposition of investment........................ -- 113,188 --
-------- -------- --------
794,926 791,564 619,686
-------- -------- --------
Costs and expenses
Costs applicable to sales................................ 476,090 370,617 326,385
Depreciation, depletion and amortization................. 124,841 106,835 91,115
Exploration and research................................. 58,709 57,291 69,151
General and administrative............................... 48,093 43,219 38,518
Interest, net of amounts capitalized..................... 43,987 36,415 9,823
Write-off of exploration properties...................... -- 52,537 --
Other.................................................... 13,855 11,681 46,029
-------- -------- --------
765,575 678,595 581,021
-------- -------- --------
Income before equity income and income taxes............... 29,351 112,969 38,665
Equity in income of affiliated companies................... 45,221 28,895 15,395
-------- -------- --------
Pre-tax income............................................. 74,572 141,864 54,060
Income tax benefit (provision)............................. 19,400 (16,992) 29,334
-------- -------- --------
Net income................................................. 93,972 124,872 83,394
Preferred stock dividends.................................. -- 11,157 15,813
-------- -------- --------
Net income applicable to common shares..................... $ 93,972 $113,715 $ 67,581
======== ======== ========
Net income per common share................................ $ 0.86 $ 1.17 $ 0.70
======== ======== ========
Average shares outstanding................................. 109,766 97,375 96,472
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
39
<PAGE> 42
NEWMONT GOLD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 185,681 $ 59,142
Short-term investments...................................... 12,724 11,820
Accounts receivable......................................... 28,692 24,458
Inventories................................................. 188,345 173,984
Other current assets........................................ 40,440 20,128
---------- ----------
Current assets............................................ 455,882 289,532
Property, plant and mine development, net................... 1,301,952 1,255,278
Other long-term assets...................................... 323,240 228,960
---------- ----------
Total assets...................................... $2,081,074 $1,773,770
========== ==========
LIABILITIES
Short-term debt............................................. $ 45,981 $ 29,179
Current portion of long-term debt........................... 19,250 4,375
Accounts payable............................................ 48,099 38,570
Other accrued liabilities................................... 110,764 122,312
---------- ----------
Current liabilities....................................... 224,094 194,436
Long-term debt.............................................. 585,009 604,259
Reclamation and remediation liabilities..................... 60,672 64,795
Other long-term liabilities................................. 79,244 85,352
---------- ----------
Total liabilities................................. 949,019 948,842
---------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock -- $0.01 par value; 250,000 shares authorized;
110,186 and 104,875 shares issued, respectively........... 1,102 1,049
Capital in excess of par value.............................. 425,704 160,081
Retained earnings........................................... 707,517 666,161
Treasury stock, at cost; 257 and 268 shares, respectively... (2,268) (2,363)
---------- ----------
Total stockholders' equity........................ 1,132,055 824,928
---------- ----------
Total liabilities and stockholders' equity........ $2,081,074 $1,773,770
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE> 43
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
CAPITAL IN TREASURY STOCK
PREFERRED STOCK COMMON STOCK EXCESS OF AT COST
----------------- ---------------- PAR RETAINED -----------------
SHARES AMOUNT SHARES AMOUNT VALUE EARNINGS SHARES AMOUNT
------ -------- ------- ------ ---------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. -- $ -- 104,875 $1,049 $206,260 $ 716,709 -- $ --
Transaction with parent (Note 2)............ 2,875 14,375 -- -- -- (140,944) 8,650 (76,206)
Common stock issued from treasury for stock
options exercised......................... -- -- -- -- 6,638 -- (236) 2,080
Net income.................................. -- -- -- -- -- 83,394 -- --
Common stock dividends -- $0.48 per share... -- -- -- -- -- (46,225) -- --
Preferred stock dividends -- $5.50 per
share..................................... -- -- -- -- -- (15,813) -- --
Other....................................... -- -- -- -- -- 1,634 -- --
------ -------- ------- ------ -------- --------- ------ --------
Balance at December 31, 1994.................. 2,875 14,375 104,875 1,049 212,898 598,755 8,414 (74,126)
Common stock issued from treasury primarily
for stock options exercised............... -- -- -- -- 6,949 -- (247) 2,173
Preferred stock redemption and conversion,
net of costs.............................. (2,875) (14,375) -- -- (59,766) -- (7,899) 69,590
Net income.................................. -- -- -- -- -- 124,872 -- --
Common stock dividends -- $0.48 per share... -- -- -- -- -- (46,808) -- --
Preferred stock dividends -- $3.88 per
share..................................... -- -- -- -- -- (11,157) -- --
Other....................................... -- -- -- -- -- 499 -- --
------ -------- ------- ------ -------- --------- ------ --------
Balance at December 31, 1995.................. -- -- 104,875 1,049 160,081 666,161 268 (2,363)
Common stock issuance....................... -- -- 4,651 47 241,209 -- -- --
Common stock issued primarily for stock
options exercised......................... -- -- 660 6 24,919 -- (13) 112
Net income.................................. -- -- -- -- -- 93,972 -- --
Common stock dividends -- $0.48 per share... -- -- -- -- -- (52,727) -- --
Other....................................... -- -- -- -- (505) 111 2 (17)
------ -------- ------- ------ -------- --------- ------ --------
Balance at December 31, 1996.................. -- $ -- 110,186 $1,102 $425,704 $ 707,517 257 $ (2,268)
====== ======== ======= ====== ======== ========= ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE> 44
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income............................................ $ 93,972 $ 124,872 $ 83,394
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization........... 124,841 106,835 91,115
Undistributed earnings of affiliates............... (13,134) (3,603) (14,553)
Deferred taxes..................................... (15,840) (16,300) (28,052)
Gain on sale of investment......................... -- (113,188) --
Write-off of exploration properties................ -- 52,591 --
Other.............................................. 1,644 1,128 (1,950)
(Increase) decrease in operating assets:
Accounts receivable.............................. (4,113) 13,815 9,970
Inventories...................................... (45,960) (55,669) (13,336)
Other assets..................................... (15,202) 8,816 1,609
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses............ 14,412 43,552 24,868
Other liabilities................................ (246) (5,683) (3,378)
--------- --------- ---------
Net cash provided by operating activities............... 140,374 157,166 149,687
--------- --------- ---------
Investing Activities
Additions to property, plant and mine development..... (231,174) (309,269) (402,030)
Proceeds from sale of investment...................... -- 116,357 --
Net cash acquired from parent......................... -- -- 69,361
Advances to joint venture............................. (3,684) (30,543) (14,675)
Other................................................. (4,126) (8,345) 16,503
--------- --------- ---------
Net cash used in investing activities................... (238,984) (231,800) (330,841)
--------- --------- ---------
Financing Activities
Short-term borrowings................................. 16,802 13,440 --
Proceeds from long-term borrowings.................... -- 15,000 528,634
Repayments of long-term borrowings.................... (4,375) -- (127,000)
Proceeds from issuance of common stock................ 265,449 8,034 8,718
Dividends paid on common stock........................ (52,727) (46,808) (46,225)
Dividends paid on preferred stock..................... -- (11,860) (15,110)
Preferred stock redemption and conversion costs....... -- (4,442) --
Debt issuance costs................................... -- (225) (6,641)
Other................................................. -- -- (974)
--------- --------- ---------
Net cash provided by (used in) financing activities..... 225,149 (26,861) 341,402
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 126,539 (101,495) 160,248
Cash and cash equivalents at beginning of year.......... 59,142 160,637 389
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 185,681 $ 59,142 $ 160,637
========= ========= =========
</TABLE>
See Note 14 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
42
<PAGE> 45
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont Gold
Company ("NGC") and its more-than-50% owned subsidiaries (collectively, the
"Company"). The Company also includes its pro-rata share of assets, liabilities
and operations for joint ventures in which it has an interest. All significant
intercompany balances and transactions have been eliminated. At December 31,
1996, Newmont Mining Corporation ("NMC") owned approximately 91% of the Company.
The functional currency for all subsidiaries is the U.S. dollar.
NATURE OF OPERATIONS
The Company is a worldwide company engaged in gold production, exploration
for gold and acquisition of gold properties. Substantially all of the Company's
consolidated sales and operating profit in 1995 and 1994 related to its gold
mining activities in the United States. In 1996, the Company's consolidated
sales resulted from operations in the United States, Uzbekistan and Indonesia.
See geographic information in Note 15. Although most of the Company's
consolidated identifiable assets relate to domestic activities, 19% of its
assets as of December 31, 1996 related to foreign operations. The Minahasa
project in Indonesia began production in early 1996, operations commenced in
Uzbekistan in 1995 and the Company has a nonconsolidated equity interest in a
property in Peru that went into production in 1993. The Company carries
political risk insurance on its investments in all three countries. The Company
also conducts exploration for gold deposits worldwide.
Gold mining requires the use of specialized facilities and technology. The
Company relies heavily on such facilities to maintain its production levels.
Also, the profitability of the Company's current operations is
significantly affected by the market price of gold. Market gold prices can
fluctuate widely and are affected by numerous factors beyond the Company's
control.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of the
short maturity of these investments, the carrying amounts approximate their fair
value. Excess cash balances are primarily invested in United States Treasury
bills, with lesser amounts invested in high-quality commercial paper and time
deposits.
INVESTMENTS
Short-term investments are carried at cost, which approximates market, and
include Eurodollar government and corporate obligations rated AA or higher. At
December 31, 1996 and 1995, $8.7 million and $7.9 million, respectively, of such
investments secured letters of credit.
43
<PAGE> 46
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in companies in which the Company's ownership is 20% to 50% are
accounted for by the equity method of accounting and are included in other
long-term assets. Included in such investments is the Company's 38% equity
investment in Minera Yanacocha S.A. (See Note 17). Summarized financial
information for Minera Yanacocha S.A. follows (in millions):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales.................................................... $313.9 $212.5 $116.6
Costs applicable to sales and depreciation, depletion and
amortization........................................... $ 89.2 $ 66.7 $ 42.2
Exploration.............................................. $ 17.5 $ 11.4 $ 4.1
Other, including Peruvian income tax provision........... $ 82.5 $ 53.6 $ 29.1
Net income............................................... $124.7 $ 80.8 $ 41.2
Dividends applicable to NGC's 38% interest............... $ 29.6 $ 23.2 --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Current assets.............................................. $ 85.2 $ 71.7
Noncurrent assets........................................... 108.2 88.1
------ ------
Total assets...................................... $193.4 $159.8
====== ======
Current liabilities......................................... $ 45.4 $ 50.0
Noncurrent liabilities...................................... 39.8 48.3
------ ------
Total liabilities................................. $ 85.2 $ 98.3
====== ======
Total equity...................................... $108.2 $ 61.5
====== ======
</TABLE>
As a result of the contemplated ownership structure discussed in Note 16,
the Batu Hijau project in Indonesia is being accounted for as an equity
investment effective July 1996. The Company's investment at December 31, 1996
was $46.6 million.
Investments in companies owned less than 20% are recorded at the lower of
cost or net realizable value. Income from such investments is recorded when
dividends are paid. The Company held no such investments at December 31, 1996 or
1995.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at the
lower of average cost or net realizable value. Precious metals are stated at
market value.
Non-current inventories are stated at the lower of average cost or net
realizable value and represent ore-in-stockpiles from which no material is
expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which extend the useful
lives of existing facilities are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives of such facilities. Productive lives range from 2 to
21 years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body and remove overburden to initially expose the ore body, are capitalized.
Such costs, and
44
<PAGE> 47
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated future development costs, are amortized using a unit-of-production
method over the estimated life of the ore body. On-going development
expenditures to maintain production are generally charged to operations as
incurred.
Significant payments related to the acquisition of exploration interests
are capitalized. If a mineable ore body is discovered, such costs are amortized
using a unit-of-production method. If no mineable ore body is discovered, such
costs are expensed in the period in which it is determined the property has no
future economic value.
Interest expense allocable to the cost of developing mining properties and
to constructing new facilities is capitalized until operations commence.
Gains or losses from normal sales or retirements of assets are included in
other income or expense.
REVENUE RECOGNITION
Gold sales are recognized when gold is produced.
MINING COSTS
In general, mining costs are charged to operations as incurred. However,
certain of the Company's deposits have diverse grade and waste-to-ore ratios
over the mine's life. Mining costs for these deposits, to the extent they do not
relate to current gold production, are capitalized and then charged to
operations when the applicable gold is produced.
RECLAMATION AND REMEDIATION COSTS
Estimated future reclamation and remediation costs are based principally on
legal and regulatory requirements. Such costs related to active mines are
accrued and charged over the expected operating lives of the mines using a
unit-of-production method. Future reclamation and remediation costs for inactive
mines are accrued based upon management's best estimate at the end of each
period of the undiscounted costs expected to be incurred at a site. Such cost
estimates include where applicable, ongoing care, maintenance and monitoring
costs. Changes in estimates are charged to earnings in the period an estimate is
revised.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the liability method of SFAS 109, the Company recognizes certain temporary
differences between the financial reporting basis of the Company's liabilities
and assets and the related income tax basis for such liabilities and assets.
This generates a net deferred income tax liability or net deferred income tax
asset for the Company as of the end of the year, as measured by the statutory
tax rates in effect as enacted. The Company derives its deferred income tax
charge or benefit by recording the change in the net deferred income tax
liability or net deferred income tax asset balance for the year.
The Company's deferred income tax assets include certain future tax
benefits such as net operating losses or tax credit carryforwards. The Company
must record a valuation allowance against any portion of those deferred income
tax assets which it believes it will more likely than not fail to realize.
GOLD HEDGING ACTIVITIES
The Company may enter into gold loans, options contracts and forward sales
contracts to hedge the effect of price changes on the gold it produces. Gains
and losses realized on such instruments, as well as any cost or revenue
associated therewith, are recognized in sales when the related gold is produced.
45
<PAGE> 48
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
The treasury stock method is used in computing earnings per common and
common equivalent share. Earnings per common and common equivalent share are
based on the sum of the weighted average number of common shares outstanding
during each period and the assumed exercise of stock options having exercise
prices less than the average market prices of the common stock. The convertible
preferred shares outstanding until conversion, as discussed in Note 8, were not
common stock equivalents as they were anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
1996 presentation.
(2) ACQUISITION OF NMC'S OPERATIONS
Effective January 1, 1994, NGC acquired all of the operations of NMC. The
transaction included the following: (i) the transfer by NMC to NGC of 8,649,899
shares of the 94,500,000 shares of common stock of NGC then held by NMC; (ii)
the transfer by NMC of all of its other assets to NGC; (iii) the assumption by
NGC of all the liabilities (contingent or otherwise) of NMC (including NGC's
$159.6 million of advances to NMC as of December 31, 1993), but not NMC's
obligations with respect to its then $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; (iv)
the issuance by NGC 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 was entitled to receive shares
of NGC's common stock instead of NMC's common stock); and (v) the issuance by
NGC to NMC of stock options exercisable for shares of NGC's common stock having
terms identical to NMC's employee stock options (except upon exercise, NGC's
common stock is issued instead of NMC's common stock).
NGC 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 NGC at NMC's historical cost with the difference
charged to retained earnings. The 8,649,899 shares of common stock of NGC
transferred by NMC to NGC were recorded as treasury stock at the book value of
those shares on December 31, 1993. NGC's convertible preferred stock was
recorded at its par value.
The terms of the transaction intended that the preferred stock and stock
options issued by NGC to NMC be exercised to the extent NMC preferred stock and
outstanding NMC stock options are exercised and NGC grants to NMC additional
stock options to the extent additional stock options are granted by NMC. As a
result of the transaction and giving effect to the subsequent conversion of
preferred stock and issuance of common stock (see Note 8), stock option
exercises by NMC and additional stock option grants by NGC, NMC's only assets at
December 31, 1996 are (i) 99,522,308 shares of common stock of NGC which
approximates 90.5% of the NGC's common stock outstanding and (ii) stock options
to purchase 2,450,351 shares of NGC.
46
<PAGE> 49
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current:
Ore and in-process inventories............................ $ 95,922 $101,684
Precious metals........................................... 33,304 29,691
Materials and supplies.................................... 57,413 40,651
Other..................................................... 1,706 1,958
-------- --------
$188,345 $173,984
-------- --------
Non-current:
Ore-in-stockpiles (included in other long-term assets).... $ 85,652 $ 53,167
======== ========
</TABLE>
(4) PROPERTY, PLANT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and mining claims...................................... $ 71,432 $ 56,846
Buildings and equipment..................................... 1,472,090 1,387,586
Mine development............................................ 254,297 246,043
Construction-in-progress.................................... 58,829 137,436
---------- ----------
1,856,648 1,827,911
Accumulated depreciation, depletion and amortization........ (747,320) (695,501)
Capitalized mining costs.................................... 192,624 122,868
---------- ----------
$1,301,952 $1,255,278
========== ==========
</TABLE>
(5) OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest.................................................... $ 26,927 $ 33,696
Contingent dividends received (see Note 17)................. 18,556 8,143
Payroll and related benefits................................ 17,497 18,443
Reclamation and remediation................................. 10,000 10,000
Plant and equipment......................................... 4,981 17,926
Other....................................................... 32,803 34,104
-------- --------
$110,764 $122,312
======== ========
</TABLE>
47
<PAGE> 50
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
Components of the Company's consolidated deferred income tax liabilities
and assets are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Accelerated tax depreciation.............................. $(60,016) $(63,219)
Capitalized mining costs.................................. (24,719) (3,843)
Capitalized interest...................................... (8,951) (8,158)
Depletion of the cost of land and mining claims........... (2,474) (2,872)
Net undistributed earnings from equity investment......... (2,108) (1,357)
Other..................................................... (487) (923)
-------- --------
Deferred tax liabilities............................... (98,755) (80,372)
-------- --------
Deferred tax assets:
Exploration costs......................................... 61,405 69,746
Remediation and reclamation costs......................... 33,391 31,842
Alternative minimum tax credit carryforward............... 23,166 7,769
Sale/leaseback transaction, net........................... 12,512 9,638
Foreign tax credit carryforward........................... 12,461 1,262
Retiree benefit costs..................................... 11,277 9,933
Capitalized inventory costs............................... 9,937 10,622
Deferred gain on interest rate hedges..................... 2,940 3,240
Mine development costs.................................... 2,759 199
Relocation/reorganization costs........................... 2,491 2,610
Other..................................................... 3,857 2,911
-------- --------
Deferred tax assets.................................... 176,196 149,772
-------- --------
Valuation allowance for deferred tax assets............... (14,000) (9,800)
-------- --------
Net deferred tax assets................................... $ 63,441 $ 59,600
======== ========
</TABLE>
As of December 31, 1996, the Company had approximately $23.2 million of
nonexpiring alternative minimum tax credit carryforwards and approximately $12.5
million of foreign tax credit carryforwards. Of these foreign tax credit
carryforwards, $1.3 million expire in 2000 and $11.2 million expire in 2001.
Based primarily upon estimates of future operations, the Company, more
likely than not, will utilize $162.2 million of the $176.2 million of deferred
income tax assets at December 31, 1996. This estimate reflects a valuation
allowance of $14.0 million, which is an increase of $4.2 million from December
31, 1995's valuation allowance.
The Company, however, gives no assurance that it will generate sufficient
taxable income to fully realize the $162.2 million of deferred income tax assets
at December 31, 1996. The Company's future levels of taxable income will depend,
in part, upon gold prices, general economic conditions and other factors beyond
the Company's control.
48
<PAGE> 51
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's pre-tax financial statement income (loss) consists of (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Domestic............................................ $28,013 $136,387 $ 68,880
Foreign............................................. 46,559 5,477 (14,820)
------- -------- --------
$74,572 $141,864 $ 54,060
======= ======== ========
</TABLE>
The Company's benefit (provision) for income taxes consists of (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Current:
Domestic........................................... $ 7,565 $(30,815) $(3,660)
Foreign............................................ (4,005) (2,477) (586)
------- -------- -------
3,560 (33,292) (4,246)
------- -------- -------
Deferred:
Domestic........................................... 17,465 16,300 33,580
Foreign............................................ (1,625) -- --
------- -------- -------
15,840 16,300 33,580
------- -------- -------
$19,400 $(16,992) $29,334
======= ======== =======
</TABLE>
The Company's resulting benefit (provision) for income taxes differ from
the amounts computed by applying the United States corporate income tax
statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. corporate income tax at statutory rate........ $(26,100) $(49,652) $(18,921)
Percentage depletion............................... 24,933 26,999 27,437
Resolution of tax issues associated with prior
years............................................ 6,000 -- 16,250
Foreign tax credits................................ 13,057 8,658 4,421
Foreign losses (earnings).......................... 1,705 (1,715) --
State taxes........................................ -- (1,300) (500)
Non-taxable portion of dividends received from
domestic corporations............................ -- 700 564
Other.............................................. (195) (682) 83
-------- -------- --------
$ 19,400 $(16,992) $ 29,334
======== ======== ========
</TABLE>
49
<PAGE> 52
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) DEBT
LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Sale-leaseback of refractory ore treatment plant............ $349,134 $349,134
8 5/8% notes................................................ 150,000 150,000
Medium-term notes........................................... 42,000 42,000
Project financing........................................... 63,125 67,500
-------- --------
604,259 608,634
Current maturities.......................................... (19,250) (4,375)
-------- --------
$585,009 $604,259
======== ========
</TABLE>
Scheduled minimum long-term debt repayments are $19.3 million in 1997,
$25.0 million in 1998, $33.5 million in 1999, $14.4 million in 2000, $11.9
million in 2001 and $500.2 million thereafter. Actual payments may be greater in
any one year due to actual operating cash flows realized. The Company is in
compliance with all covenants associated with its debt.
Sale-Leaseback of the Refractory Ore Treatment Plant
In September 1994, the Company entered into a sale and leaseback agreement
for its refractory ore treatment plant located in Carlin, Nevada for $349.1
million. The transaction was accounted for as debt for financial statement
purposes, with the cost of the refractory ore treatment plant recognized as an
asset and depreciated. The lease is for 21 years and the aggregate future
minimum lease payments, which include interest, as of December 31, 1996 and 1995
were $638.2 million and $667.9 million, respectively. Payments began in January
1996 and are $29.7 million annually through 2000. Principal payments are
included in these amounts beginning in 1998. The lease has purchase options
during and at the end of the lease at predetermined prices. The interest rate on
this sale-leaseback transaction is 6.36%. Because of the uniqueness of this
transaction, the Company determined that it is not practicable to estimate the
fair value of this debt.
In connection with this transaction, the Company entered into certain
interest rate contracts to hedge the interest cost of the financing. These
contracts were settled for a gain of $11 million which is being recognized as a
reduction of interest expense over the term of the lease. As a result of this
gain, the effective interest rate on this sale and leaseback transaction is
6.15%.
8 5/8% Notes
Unsecured notes with a principal amount of $150 million due April 1, 2002
bearing an annual interest rate of 8 5/8% were outstanding at December 31, 1996
and 1995. Interest is payable semi-annually in April and October and the notes
are not redeemable prior to maturity. Using interest rates prevailing on similar
instruments at December 31, 1996 and 1995, this debt was estimated to have a
fair value of $165.7 million and $169.5 million, respectively.
Medium-Term Notes
Notes 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 December 31, 1996 and 1995. Interest is payable semi-annually in March and
September and the notes are not redeemable prior to maturity. Using the interest
50
<PAGE> 53
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rates prevailing on similar instruments at December 31, 1996 and 1995, this debt
was estimated to have a fair value of $44.4 million and $44.9 million,
respectively.
Project Financing Facility
The Company, through a wholly-owned subsidiary, is a 50% participant in
Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") in the Republic of
Uzbekistan. The other 50% participants are two entities of the Uzbekistan
government.
As of December 31, 1996, Zarafshan-Newmont had $126.25 million outstanding
on a project financing loan secured by the assets of the project. The loan is to
be repaid in semi-annual installments until 2001. Starting in 1997, the average
interest rate is between 3.9 and 4.25 percentage points over the three-month
London Interbank Offered Rate. The carrying amount of the loan is estimated to
approximate its fair market value. The weighted average interest rates for 1996
and 1995 were 8.2% and 8.4%, respectively, and the interest rates at December
31, 1996 and 1995 were 9.4% and 8.2%, respectively.
Until defined completion tests have been satisfied, the Company has
guaranteed the payment of certain amounts due under the loan which totaled
$58.75 million at December 31, 1996. The 50% Uzbek partner has guaranteed the
repayment of the remaining amount due under the loan until such completion tests
have been satisfied. After satisfaction of the completion tests, the loan
becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed
to extend the date by which the completion tests must be met to October 1998.
Revolving Credit Facility
The Company has a $400 million revolving credit facility with a consortium
of banks that expires in April 1998. No amounts were outstanding under the
facility as of December 31, 1996 and 1995. Interest rates are variable and
adjust subject to changes in the 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 currently 0.15% of the lenders' total commitment.
The credit agreement contains covenants that limit consolidated
indebtedness, as defined, to 67% of total capitalization; require minimum net
worth, as defined, of $300 million and $275 million in 1996 and 1995,
respectively, which then increases to $325 million in 1997; and require an
interest coverage ratio, as defined, of not less than 2.5 to 1.
SHORT-TERM DEBT
All short-term debt at December 31, 1996 and 1995 consisted of bank debt.
The Company had unsecured demand bank lines of credit aggregating $70 million
and $39 million at December 31, 1996 and 1995, respectively, of which $46.0
million and $29.2 million were outstanding at the same respective periods. These
facilities bear interest at customary short-term rates for borrowers with
similar credit ratings. The carrying value of this debt is assumed to
approximate its fair value. The weighted average interest rates for 1996 and
1995 were 6.9% and 8.8%, respectively, and the interest rates at December 31,
1996 and 1995 were 8.25% and 8.5%, respectively.
CAPITALIZED INTEREST
Capitalized interest was $5.4 million, $11.6 million and $19.7 million in
1996, 1995 and 1994, respectively.
51
<PAGE> 54
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCKHOLDERS' EQUITY
COMMON STOCK OFFERING
In January 1996, NMC issued 4.65 million shares of common stock for $51.87
per share under an existing "shelf" registration statement with the Securities
and Exchange Commission. Proceeds of the issue netted $241.3 million and were
used to purchase an equal number of shares of common stock of NGC. Such proceeds
were used by NGC to fund its operations. This transaction increased NMC's
ownership of NGC to 90.5%.
STOCK OPTIONS
As part of the transaction with NMC discussed in Note 2, NGC issued options
to NMC to purchase shares of NGC's common stock. NGC issued options in the same
number and with the same exercise prices as all of the NMC employee stock
options then outstanding. Additional options have been and will continue to be
issued by NGC to NMC to match the terms of additional NMC employee stock options
granted. NMC has exercised and will continue to exercise the stock options
issued to it by NGC to the extent the corresponding NMC stock options have been
or will be exercised.
Substantially all of the NMC options have been granted to participants
under NMC's 1982 Key Employees Stock Option Plan, 1987 Key Employees Stock
Option Plan, 1992 Key Employees Stock Plan and 1996 Employees Stock Plan
(collectively, the "plans"). NMC continues to grant NMC options to eligible
participants under its 1987 Key Employees Stock Option Plan, 1992 Key Employees
Stock Plan and 1996 Employees Stock Plan.
Under NMC'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. NMC options under these plans generally vest over a two year
period and are exercisable over a period not exceeding ten years. At December
31, 1996, 2,831,003 shares were available for future grants under NMC's plans.
In 1994, 1993 and 1992 certain key executives were granted NMC options
that, although the exercise price is generally equal to the fair market value on
the date of grant, cannot be exercised when otherwise vested unless the market
price of NMC's common stock is a defined amount above the NMC option exercise
price. In addition, the same executives were granted NMC options in 1994, 1993
and 1992 having exercise prices in excess of the fair market value on the date
of grant. Generally, these key executive NMC options vest over a period of one
to five years and are exercisable over a ten year period. At December 31, 1996,
605,989 of these NMC options were outstanding.
The following table summarizes annual total stock option activity for each
of the three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 2,350,587 $40 2,177,546 $39 -- $--
Granted........................... 869,909 $55 534,035 $41 2,486,117 $41
Exercised......................... (660,136) $37 (232,109) $34 (229,831) $31
Forfeited......................... (110,009) $46 (128,885) $41 (78,740) $41
--------- --------- ---------
Outstanding at end of year........ 2,450,351 $46 2,350,587 $40 2,177,546 $39
========= ========= =========
Options exercisable at year end... 1,205,399 1,287,688 1,007,998
Weighted-average fair value of
options granted during the
year............................ $ 20.83 $ 16.14 Not calculated
</TABLE>
52
<PAGE> 55
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996 with exercise prices equal to the fair market value on the
date of grant and no restrictions on exercisability after vesting:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
$27 to $35 91,553 4.3 years $31 91,553 $31
$35 to $43 817,699 7.9 years $40 555,298 $40
$43 to $51 533,790 9.4 years $51 90,351 $46
$51 to $59 401,320 9.3 years $58 -- $--
--------- -------
$27 to $59 1,844,362 8.5 years $47 737,202 $40
========= =======
</TABLE>
Information about all other stock options outstanding at December 31, 1996
is summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
TYPE OF OPTION PRICES OUTSTANDING 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 $56 355,581 6.2 years $49 286,687 $47
Options that cannot be exercised until
the market price of NMC's stock
exceeds a fixed amount above the
exercise price........................ $30 to $41 250,408 6.7 years $37 181,510 $37
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the options been
determined based upon their fair value at their grant dates in 1995 and 1996,
consistent with the methodology prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," the Company's net
income (in thousands) and earnings per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1996 1995
------- --------
<S> <C> <C> <C>
As
Net income.............................. reported... $93,972 $124,872
Pro forma $89,570 $124,000
Earnings per share...................... As reported $ 0.86 $ 1.17
Pro forma $ 0.82 $ 1.16
</TABLE>
For purposes of determining the pro forma amounts, the fair value of each
option grant was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following assumptions for 1996 and 1995,
respectively: weighted-average risk-free interest rates of 6.1% and 5.8%,
dividend yield of 1% for both years, expected lives of 5 years for both periods
and volatility of 35% and 39%, respectively.
Compensation costs included in the pro forma amounts above only reflect
fair values associated with options granted after January 1, 1995. These amounts
may not be indicative of future amounts that will apply to all future
outstanding nonvested awards or future grants.
53
<PAGE> 56
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
Effective January 1, 1994, as a result of the transaction discussed in Note
2, NGC issued to NMC 2.875 million shares of $5.00 par value convertible
preferred stock at a value of $100 per share. As discussed in Note 2, the terms
of the preferred stock mirrored the terms of the NMC preferred stock (except
that upon conversion, NMC was entitled to receive shares of NGC's common stock
instead of NMC's common stock). Through NGC's preferred stock, NGC facilitated
NMC's compliance of its continuing obligations on the NMC preferred stock.
Dividends paid by the Company to NMC for the NGC preferred stock were in turn
paid by NMC to the holders of the NMC preferred stock. The NGC annual preferred
stock dividend was $5.50 per share which was cumulative from January 1, 1994 and
was payable quarterly.
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. NGC, exercising its redemption right
under its preferred stock, called all of its 2.875 million shares of $5.00 par
value convertible preferred stock for redemption on the same date and at the
same price. For both companies, each share of preferred stock was convertible at
the option of the shareholder into shares of common stock at a conversion price
of $36.395 per share of common stock (equivalent to a conversion rate of 2.7476
shares of common stock for each whole share of convertible preferred stock).
Essentially all of the NMC preferred stock was converted prior to the redemption
date. As a result, NMC converted the same number of NGC preferred shares as
those of converted NMC preferred shares. This ensured that NMC's holding of
outstanding shares of NGC's common stock was equal to the outstanding shares of
NMC stock. In total, 7.9 million shares of NGC common stock were issued to NMC.
(9) EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has two qualified non-contributory defined benefit pension
plans, one which covers salaried employees and the other which covers
substantially all hourly employees. The Company also has a non-qualified
supplemental pension plan for salaried employees whose benefits under the
qualified plan are limited by federal legislation. The vesting period is five
years of service for each plan. The plans' benefit formulas are based on an
employee's years of credited service and either such employee's last five years
average pay (salaried plans) or a flat dollar amount adjusted by a
service-weighted multiplier (hourly plan).
Pension costs are determined annually by independent actuaries and pension
contributions to the qualified plans are made based on funding standards
established under the Employee Retirement Income Security Act of 1974 ("ERISA").
The components of pension expense for these three plans, in the aggregate,
consist of (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service cost............................ $ 4,351 $ 2,651 $ 3,070
Interest cost on projected benefit
obligation............................ 5,317 4,755 4,633
Return on assets........................ (10,754) (5,938) (5,370)
Net amortization and deferral........... 4,812 176 211
-------- ------- -------
Pension expense......................... $ 3,726 $ 1,644 $ 2,544
======== ======= =======
</TABLE>
54
<PAGE> 57
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the funded status of the Company's pension
plans and the amounts recognized in the Company's consolidated balance sheets at
December 31, 1996 and 1995, respectively (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------
SALARY HOURLY SUPPLEMENTAL
PENSION PENSION SALARY
PLAN PLAN PENSION PLAN
-------- ------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation-
Vested benefits.................... $(56,997) $(7,737) $ (590)
Non-vested benefits................ (2,420) (1,293) (53)
-------- ------- -------
(59,417) (9,030) (643)
Effect of future salary
increases/service-weighted benefit
multiplier......................... (9,020) (654) (157)
-------- ------- -------
Projected benefit obligation............ (68,437) (9,684) (800)
Plan assets at fair value............... 76,979 8,870 --
-------- ------- -------
Plan assets greater (less) than
projected benefit obligation.......... 8,542 (814) (800)
Unrecognized prior service cost......... (505) 1,220 523
Unrecognized net (gain) loss............ (4,306) (492) 3,493
Unrecognized net transition (asset)
liability............................. (1,750) (66) 1,939
Adjustment required to recognize minimum
liability............................. -- -- (5,798)
-------- ------- -------
Net pension asset (liability)........... $ 1,981 $ (152) $ (643)
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-----------------------------------
SALARY HOURLY SUPPLEMENTAL
PENSION PENSION SALARY
PLAN PLAN PENSION PLAN
-------- ------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation --
Vested benefits.................... $(56,420) $(6,637) $ (430)
Non-vested benefits................ (2,102) (1,381) (20)
-------- ------- -------
(58,522) (8,018) (450)
Effect of future salary increases..... (7,631) -- (43)
-------- ------- -------
Projected benefit obligation............ (66,153) (8,018) (493)
Plan assets at fair value............... 68,331 6,918 --
-------- ------- -------
Plan assets greater (less) than
projected benefit obligation.......... 2,178 (1,100) (493)
Unrecognized prior service cost......... (548) 130 567
Unrecognized net loss................... 2,752 871 3,549
Unrecognized net transition (asset)
liability............................. (2,215) (72) 2,327
Adjustment required to recognize minimum
liability............................. -- -- (6,400)
-------- ------- -------
Net pension asset (liability)........... $ 2,167 $ (171) $ (450)
======== ======= =======
</TABLE>
In October 1996, an amendment was made to increase the benefit multiplier
of the benefits under the Hourly Pension Plan. The effect of this amendment was
to increase the accumulated benefit obligation by
55
<PAGE> 58
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," an adjustment was
required to reflect a minimum liability for the supplemental pension plan in
1996, 1995 and 1994. Such adjustment resulted in recording an intangible asset
and, to the extent the minimum liability adjustment exceeded the unrecognized
net transition liability, a reduction of $2.2 million, $2.3 million and $2.8
million in stockholders' equity, which is net of related deferred income tax
benefits, for 1996, 1995 and 1994, respectively.
In measuring the projected benefit obligation for the plans, the following
actuarial assumptions were used:
<TABLE>
<CAPTION>
AT
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Weighted average discount rate.............................. 7.5% 7.0%
Rate of increase in future compensation (applicable only to
salaried plans)........................................... 4.0% 4.0%
</TABLE>
The weighted average expected long-term rate of return on plan assets was
assumed to be 8.75% for 1996, 9.00% for 1995 and 8.25% for 1994.
The Company maintains a trust for the purpose of funding the supplemental
pension plan as well as death benefits for officers of the Company. This trust
is funded at the discretion of the Company and had a balance, which approximated
market value, of $2 million, at both December 31, 1996 and December 31, 1995.
Although the trust's assets can be used to pay benefits for the supplemental
pension plan, they cannot be used in determining the net pension liability for
the supplemental pension plan. The qualified plans' assets consist of stocks,
bonds and cash.
RETIREE BENEFITS OTHER THAN PENSIONS
The Company 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 Company if they are at least 55 years old and the
combination of their age and years of service with the Company equals 75 or
more.
The defined medical benefits cover most of the reasonable and customary
charges for hospital, surgical, diagnostic and physician services and
prescription drugs. Life insurance benefits are based on a percentage of final
base annual salary and decline over time after retirement commences.
The Company accounts for these postretirement benefits other than pensions
under Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). The
statement requires that postretirement benefits other than pensions be accrued
during an employee's service to the Company.
56
<PAGE> 59
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of expense for postretirement benefits other than pensions
are shown in the table below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $2,199 $1,570 $1,846
Interest cost............................................ 1,747 1,904 1,642
Amortization of net gain................................. (64) (80) --
------ ------ ------
Expense for postretirement benefits other than
pensions............................................... $3,882 $3,394 $3,488
====== ====== ======
</TABLE>
The following table sets forth the components of the liability for the
Company's plans for postretirement benefits other than pensions recognized in
its balance sheet (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
("APBO"):
Retirees and eligible dependents.......................... $11,290 $12,510
Other fully eligible plan participants.................... 1,874 1,974
Other active plan participants............................ 13,541 13,076
------- -------
Total APBO........................................ 26,705 27,560
Unrecognized net gain..................................... 4,776 820
------- -------
Accrued liability for postretirement benefits other than
pensions.................................................. $31,481 $28,380
======= =======
</TABLE>
At December 31, 1996 and 1995, $2.6 million of assets, with a market value
of approximately the same amount, was designated in a trust to pay
postretirement benefits other than pensions. Since these assets could be used to
pay other employee benefits, they cannot be used for the postretirement benefit
calculations. The Company has no formal policy for funding postretirement
benefit obligations.
Weighted average discount rates of 7.5% and 7.0% were used in calculating
the APBO at December 31, 1996 and 1995, respectively. The assumed health care
cost trend rates to measure the expected cost of benefits at December 31, 1996
start at an 8% annual increase for coverage before the age of 65 and a 7% annual
increase for coverage after the age of 64. The assumed health care cost trend
rates to measure the expected cost of benefits at December 31, 1995 start at a
9% annual increase for coverage before the age of 65 and an 8% annual increase
for coverage after the age of 64. These rates were assumed to decrease one
percentage point each year until a 5% annual rate of increase was reached, at
which point a 5% annual rate of increase was assumed thereafter. The effect of a
one percentage point annual increase in the assumed cost trend rates would
increase the aggregate of service and interest costs by approximately 19% in
1996 and the APBO at December 31, 1996 by approximately 15%. The effect of a one
percentage point annual increase in the assumed cost trend rates would increase
the aggregate of service and interest costs in 1995 by approximately 23% and the
APBO at December 31, 1995 by approximately 19%.
SAVINGS PLAN
The Company has two qualified defined contribution savings plans, one which
covers salaried employees and the other which covers substantially all hourly
employees. In addition, the Company has a non-qualified supplemental savings
plan for salaried employees whose benefits under the qualified plan are limited
by federal regulations.
57
<PAGE> 60
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon the employee meeting eligibility requirements, the Company matches
100% of employee contributions of up to 6% and 4% of base salary for the
salaried and hourly plans, respectively.
The Company's matching contributions to such plans were $4.6 million, $3.7
million and $3.3 million in 1996, 1995 and 1994, respectively.
(10) WRITE-OFF OF EXPLORATION PROPERTIES
In 1995, the Company recorded write-offs of two exploration properties
totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over
the next three years, extensive drilling, environmental studies and mine models
were developed to determine the economics of extracting gold from the property.
A feasibility report was issued in June 1995 that reflected high levels of
environmental and mining costs that resulted in financial returns much lower
than the Company's threshold for development. Accordingly, the decision was made
not to develop the property and $18.8 million of capitalized costs associated
with the property were written off in June 1995. An additional charge of $4.6
million was taken as other expense for estimated costs to reclaim areas
disturbed by previous mining and exploration activity on the property.
The Grassy Mountain property was purchased in September 1992. At the time
of the purchase, certain reliance was placed upon geological models prepared by
the seller. Work performed by the Company in 1993 demonstrated that the gold was
not distributed as modeled by the seller. In 1994, the Company created new
detailed models of the deposit based on its revised geologic interpretation.
These models resulted in fewer high grade ounces, which led to the
reclassification of 996,000 ounces of reserves to mineralized material at the
end of 1994. However, additional drilling and modeling was required to determine
whether there was an impairment of the asset based on the work performed through
that date. Based on economic information at that time and the use of
undiscounted cash flows, no write-down was considered necessary as of December
31, 1994. Throughout 1995, further refinement of geological and economic models
continued with open-pit, underground and price hedging scenarios all resulting
in deposit sizes and economic returns smaller than the Company's threshold for
development. Based on these results, capitalized costs of $33.8 million relating
to the Grassy Mountain property were written off in December 1995.
(11) GAIN ON SALE OF INVESTMENTS
In May 1995, the Company sold its 10.7% interest in Southern Peru Copper
Corporation for $116.4 million, which resulted in a gain of $113.2 million.
(12) DIVIDEND, INTEREST AND OTHER INCOME
Included in dividends, interest and other income are $3.1 million, $28.3
million and $9.2 million for 1996, 1995 and 1994, respectively, for business
interruption insurance that was received for problems associated with the
refractory ore treatment plant at the Carlin, Nevada operations.
(13) MAJOR CUSTOMERS
The Company is not economically dependent on a limited number of customers
for the sale of its product because gold commodity markets are well-established
worldwide. In 1996, sales to three customers accounted for $213.3 million,
$108.5 million and $107.2 million of total sales, each of which represented more
than 10% of total sales and together accounted for 56% of the annual sales.
During 1995, four such customers accounted for $109 million, $85.7 million,
$82.2 million and $73.1 million of total sales, or 55% of the annual sales. In
1994, sales to three such major customers accounted for $125.2 million, $99.6
million and $88.5 million, or 52% of total sales.
58
<PAGE> 61
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income taxes, net of refunds.......................... $(4,477) $18,992 $21,375
Interest, net of amounts capitalized.................. $43,021 $12,197 $ 6,975
</TABLE>
Excluded from the statements of consolidated cash flows are the effects of
certain non-cash transactions. In July 1996, NGC began accounting for the Batu
Hijau project as an equity investment (See Note 16). The adjustments that were
made to the Company's balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------
<S> <C>
Assets
Other current assets...................................... $ (849)
Property, plant and mine development, net................. (43,936)
Other long-term assets.................................... 44,603
--------
Total assets...................................... $ (182)
========
Liabilities
Accounts payable.......................................... $ (182)
--------
Total liabilities................................. $ (182)
========
</TABLE>
In 1996, the Company retired mostly fully depreciated property, plant and
equipment with an original cost of $77.0 million, which is not reflected in the
statements of consolidated cash flows.
In 1996 and 1994, the Company recognized income tax benefits of $6.0
million and $16.2 million, respectively, resulting from the resolution of
certain tax issues associated with prior years.
In 1995, as discussed in Note 8, NGC called for redemption of all of its
2.875 million shares of convertible preferred stock. Substantially all of the
convertible preferred stock was converted into common stock of NGC. This
transaction resulted in a non-cash decrease to preferred stock offset by a
non-cash decrease to treasury stock and a non-cash increase to capital in excess
of par value.
59
<PAGE> 62
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following reflects the non-cash adjustments made to the Company's
balance sheet effective as of January 1, 1994 for the transaction with NMC
discussed in Note 2 (in thousands):
<TABLE>
<S> <C>
Assets
Cash and cash equivalents................................. $ 69,361
Short-term investments.................................... 18,709
Advances to parent........................................ (159,573)
Inventories............................................... 3,355
Other current assets...................................... 2,311
---------
Current assets......................................... (65,837)
Property, plant and mine development, net................. 99,070
Other long-term assets.................................... 131,307
---------
Total assets........................................... $ 164,540
=========
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......................................... (140,944)
Treasury stock............................................ (76,206)
---------
Total stockholders' equity............................. (202,775)
---------
Total liabilities and stockholders' equity............. $ 164,540
=========
</TABLE>
(15) GEOGRAPHIC INFORMATION
The Company operates predominantly in a single industry as a worldwide
company engaged in gold production, exploration for gold and acquisition of gold
properties. The Company has consolidated operations in the United States,
Indonesia and Uzbekistan. In computing earnings from operations, no allocations
of general corporate expenses, exploration and research, interest or income
taxes have been made.
Identifiable assets by country represent those assets related to the
operations in those countries. Information by geographic location for the year
ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
INDONESIA
UNITED STATES UZBEKISTAN AND OTHER CONSOLIDATED
------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales..................................... $ 657,882 $ 62,609 $ 47,964 $ 768,455
Earnings from Operations.................. $ 144,134 $ 14,423 $ 14,231 $ 172,788
Exploration and Research.................. $ 35,238 $ 1,184 $ 22,287 $ 58,709
Identifiable Assets....................... $1,221,552 $226,721 $172,035 $1,620,308
</TABLE>
Included in the United States sales are $647.2 million of export sales. In
1995 and 1994, export sales from the United States were $629.1 million and
$497.2 million, respectively.
60
<PAGE> 63
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to 1996, substantially all operations were in the United States.
The above geographic information does not include NGC's equity investment
in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996 sales,
earnings from operations and exploration was $119.3 million, $76.9 million and
$6.6 million, respectively. NGC's equity in Minera Yanacocha's total assets at
December 31, 1996 was $73.5 million. See Notes 1 and 17.
(16) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Company'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 Company 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 Company has made, and
expects to make in the future, expenditures to comply with such laws and
regulations. The Company cannot predict such future expenditures.
Estimated future reclamation and remediation costs are based principally on
legal and regulatory requirements. At December 31, 1996 and 1995, $20.8 million
and $19.0 million, respectively, were accrued for reclamation and remediation
costs relating to currently producing mineral properties.
In addition, the Company 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 Company 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 Company's best
estimate of its liability for these matters, $49.8 million and $55.8 million
were accrued for such obligations at December 31, 1996 and 1995, respectively.
These amounts are included in other current liabilities and reclamation and
remediation liabilities. Depending upon the ultimate resolution of these
matters, the Company believes that it is reasonably possible that the liability
for these matters could be as much as 100% greater or 40% lower than the amount
accrued at December 31, 1996. The amounts accrued for these matters are reviewed
periodically based upon facts and circumstances available at the time. Changes
in estimates are charged to other expense in the period estimates are revised.
Charges related to these matters were $6.6 million, $3.0 million and $16.1
million in the years ended December 31, 1996, 1995 and 1994, respectively.
Details about certain of the more significant sites involved are discussed
below.
Idarado Mining Company ("Idarado") -- 80.1% owned by NGC
In July 1992, NMC and Idarado signed a consent decree with the State of
Colorado ("State") which was agreed to by the U.S. District Court of Colorado to
settle a lawsuit brought by the State under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), generally referred to as
the "Superfund Act." Idarado settled natural resources damages and past and
future response costs and provided habitat enhancement work. In addition,
Idarado agreed in the consent decree to undertake specified remediation work at
its former mining site in the Telluride/Ouray area of Colorado. The Company
expects to complete the remediation work at this property by the end of 1997. If
the remediation work does not meet specific technical criteria specified in the
consent decree, the State and the court reserve the right to require Idarado to
perform other remediation work. Idarado and the Company have obtained a $16.3
million letter of credit to secure their obligations under the consent decree.
61
<PAGE> 64
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Resurrection Mining Company ("Resurrection") -- 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act
which involves a Resurrection Mining Company and Asarco Incorporated ("Asarco")
joint venture mining operation near Leadville, Colorado. This action was
subsequently consolidated with a lawsuit filed by the U.S. Environmental
Protection Agency ("EPA") in 1986, with the EPA taking the lead role. The
proceedings seek to compel the defendants to remediate the impacts of
pre-existing, historic mining activities that date back to the mid-1800's which
the government agencies claim are causing substantial environmental problems in
the area. The lawsuits have named NMC, 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 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 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 Company
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 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. If asserted, the Company will 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.
Dawn has received a license for a mill closure plan which would generate
funds to close and reclaim both the mine and the mill. The license is being
challenged by third parties.
Insurance Receivables
The Company carried insurance policies for which it filed claims for the
costs of certain of its remediation activities. The Company recorded receivables
for claims under such policies when management believed the
62
<PAGE> 65
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
likelihood of recovery was probable. Prior to 1993, three of the insurance
companies commenced actions against NMC seeking judgments that they had no
liability. In the fall of 1993, NMC instituted a comprehensive lawsuit against
its carriers.
Based on the views of prior lead counsel, the Company had believed that
significant progress in certain settlement discussions would have been achieved
by mid-summer 1994, but that expectation was not realized. The absence of such
anticipated progress in settlement discussions, as well as the Company's
discussions with new lead counsel for the insurance recovery actions regarding
its review of such actions, caused the Company in the second quarter of 1994 to
provide a $20.0 million valuation allowance on its insurance receivables, which
was recorded as other expense, resulting in a net balance of $16.7 million
outstanding at December 31, 1994.
In the first quarter of 1995, settlement in certain of the insurance
litigation was reached enabling the Company to realize the receivable
outstanding at December 31, 1994. Settlement discussions continue with respect
to additional insurance litigation. Trial of this litigation has been scheduled
for late 1997. The Company intends to vigorously pursue its claims with respect
to the remaining litigation and believes that it is reasonably possible that
additional amounts will be recovered, although no such amounts are accrued.
BATU HIJAU
In July 1996, the Company and Sumitomo Corporation ("Sumitomo") entered
into a definitive partnership agreement to develop and operate the Batu Hijau
copper/gold deposit in Indonesia. The estimated cost for development of the open
pit mine, mill, and infrastructure including employee housing, a port,
electrical generation facilities, interest during construction, cost escalations
and working capital is expected to approximate $1.9 billion. Batu Hijau contains
proven and probable reserves of 12.1 million ounces (5.4 million equity ounces)
of gold and 10.6 billion pounds (4.8 billion equity pounds) of copper.
Production is expected to begin around the turn of the century, with a projected
mine life in excess of 20 years.
Under the terms of the agreement with Sumitomo, the Company will contribute
its interest in the company that owns the project and Sumitomo will contribute
an agreed upon amount of cash, expected to be approximately $235 million. After
the contributions are made, the Company will retain a 45% interest in the
company that owns the project and Sumitomo will have a 35% interest. The
remaining 20% will be held by an unrelated Indonesian company. The parties'
obligations to make their contributions to the partnership are subject to the
receipt of certain approvals from the Indonesian government. Until such
approvals are received, Sumitomo has agreed to fund up to $100 million of costs
through non-interest bearing loans ($20.2 million of which were outstanding at
December 31, 1996), which the Company has effectively guaranteed. Effectively,
any amounts outstanding under such loans will go towards meeting Sumitomo's cash
contribution of the previously mentioned $235 million. If such approvals are not
received by March 31, 1997, either party has the right to terminate the
agreement and the loans would become due. After the Sumitomo contributions are
made, additional contributions required by the parties will be contributed
56.25% by the Company and 43.75% by Sumitomo. Project financing for development
of the property is expected to be approximately $1 billion and will be
guaranteed by the Company and Sumitomo, 56.25% and 43.75%, respectively, until
project completion tests are met. The source of the Company's future
contributions will be operating cash flow, bank credit lines or other third
party financing as needed.
As a result of the contemplated ownership structure, the Company is
accounting for its investment in Batu Hijau as an equity investment effective
July 1996. The Company's investment at December 31, 1996, which is included in
other long-term assets, was $46.6 million.
In anticipation of Indonesian government approvals related to the Batu
Hijau project, the entity owning the project has entered into a construction
contract for approximately $1 billion.
63
<PAGE> 66
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GUARANTEE OF THIRD PARTY INDEBTEDNESS
The Company guaranteed a former NMC subsidiary's $35.7 million Pollution
Control Revenue Bonds, due 2009. NMC's former subsidiary is BHP Copper Inc.,
formerly known as Magma Copper Company. It is expected that the Company 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.
GOLD PRICE HEDGING CONTRACTS
The Company has entered into hedging transactions, that began maturing in
January 1996 and continue through December 2000, for production from its
Minahasa property, located in Indonesia. These transactions consist of forward
sales of 125,000 ounces of gold per year at an average price of $454 an ounce,
plus 40% of the amount by which the market price exceeds the forward sales
price. No production was hedged in 1995 or 1994.
OTHER COMMITMENTS AND CONTINGENCIES
Under a 1992 agreement with Barrick Goldstrike Mines, Inc. ("Barrick"),
Barrick is mining the Company's Carlin, Nevada Post deposit which extends beyond
the Company's property boundaries onto Barrick's property. The Company and
Barrick share the costs so that each ounce of gold mined bears the same mining
cost. The Company is obligated to pay Barrick for such costs as Barrick mines
the deposit. In addition, the Company is obligated to share dewatering costs
which are associated with the deposit. The Company incurred $63.7 million, $62.5
million and $39.0 million of such mining and dewatering costs in 1996, 1995 and
1994, respectively, and NGC expects to incur approximately $15 million of such
costs in 1997.
The Company 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 Company expects the
mine's gold production over its life will meet the minimum royalty requirements.
At December 31, 1996, there were $100.2 million of outstanding letters of
credit that were primarily for bonding reclamation plans and electric supply and
reinsurance agreements. The Company has provided investment collateral for $8.7
million of these letters of credit. The remaining $91.5 million represents
unsecured letters of credit. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees competitively
determined in the market place.
The Company is from time to time involved in various legal proceedings of a
character normally incident to its business. It does not believe that adverse
decisions in any pending or threatened proceedings or any amounts which it may
be required to pay by reason thereof will have a material adverse effect on its
financial condition or results of operations.
(17) SUBSEQUENT EVENTS
PROPOSED MERGER WITH SANTA FE PACIFIC GOLD CORPORATION
In March 1997, NMC announced it had entered into a merger agreement with
Santa Fe Pacific Gold Corporation ("Santa Fe") under which each outstanding
share of Santa Fe common stock would be exchanged for 0.43 of a share of NMC
common stock. A condition of the merger is that it would be accounted for as a
pooling of interests by NMC. The merger is also subject to the approval of the
shareholders of both companies and other customary conditions. It is expected to
be consummated during the second quarter of
64
<PAGE> 67
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997. If NMC is successful in acquiring Santa Fe, Santa Fe would become a
wholly-owned subsidiary of NGC. NGC would issue shares of common stock to NMC
equal to the number of common shares NMC issues to acquire Santa Fe (estimated
to be approximately 56.5 million). Santa Fe reported 1996 sales of $337.2
million and net income of $21.1 million with total assets at December 31, 1996
of $1.3 billion, long-term debt of $454.9 million and net worth of $570.0
million as of the same date.
ADDITIONAL INTEREST IN MINERA YANACOCHA
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the
geological and mining bureau of the French government ("BRGM"). In September
1994, BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha to another entity. The Company and Compania de Minas Buenaventura,
S.A. ("Buenaventura"), then 38.0% and 32.3% owners of Minera Yanacocha,
respectively, filed suit in Peru to seek enforcement of a provision in the
bylaws of Minera Yanacocha giving shareholders preemptive rights on the proposed
sale or transfer of any shareholder's interest. In February 1995, an appellate
court in Peru issued a preliminary ruling in favor of the Company 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 the Company and 11.35%
to Buenaventura. The Company deposited $48.6 million for its additional
interest, together with the additional shares, with a Peruvian bank pending the
final resolution of the case. The Company borrowed the $48.6 million from the
same Peruvian bank with the right of set off against the deposit, and
accordingly, these amounts have been netted in the accompanying balance sheet.
Through December 31, 1996, the Company had received $18.6 million of dividends
on the additional shares. In September 1996, a court ruling provided that the
Company and Buenaventura had the right to acquire the 24.7% interest for a
purchase price of $109.3 million, $59.1 million attributable to the 13.35%
interest of the Company. As established by such ruling, the preemptive rights
were triggered in November 1993 and thus the valuation of the shares held in
escrow were calculated as of such date. BRGM and other defendants filed an
appeal to the Superior Court of Lima challenging the court's determination that
the preemptive rights were triggered and the date and amount of the valuation.
In February 1997, the Superior Court upheld the decision of the trial court.
Therefore, beginning in 1997, the Company will consider the additional interest
to have been acquired and will consolidate Minera Yanacocha in its financial
statements to reflect the increase in its ownership from 38% to 51.35%. BRGM and
other defendants have filed a request for review of the resolution by the
Superior Court of Peru. Peruvian counsel has advised the Company that decisions
of the Superior Court can be modified by the Supreme Court only in very limited
instances and that it is not likely that any further review will be granted.
The following pro forma income statement assumes the acquisition of the
additional interest occurred on January 1, 1996 and the pro forma balance sheet
assumes the acquisition occurred on December 31, 1996. The pro forma financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the consolidated financial position or results of operations which
would have been realized had the acquisition of the additional interest been
considered to occur as of the dates for which the pro forma financial statements
are presented. The pro forma financial statements also are not necessarily
indicative of the consolidated position or results of operations in the future.
65
<PAGE> 68
NEWMONT GOLD COMPANY AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED INCOME STATEMENT -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEWMONT MINERA PRO FORMA PRO FORMA
GOLD YANACOCHA ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Sales and other income
Sales................................... $768,455 $313,870 $1,082,325
Dividends, interest and other........... 26,471 2,336 28,807
-------- -------- --------- ----------
794,926 316,206 1,111,132
-------- -------- --------- ----------
Costs and expenses
Costs applicable to sales............... 476,090 89,206 $ (2,172)(A)
(1,624)(B) 561,500
Depreciation, depletion and
amortization......................... 124,841 24,595 12,289(C) 161,725
Exploration and research................ 58,709 17,482 76,191
General and administrative.............. 48,093 -- 1,624(B)
(617)(D) 49,100
Interest, net........................... 43,987 5,447 49,434
Other................................... 13,855 -- 13,855
-------- -------- --------- ----------
765,575 136,730 9,500 911,805
Equity in income of affiliated
companies............................... 45,221 -- (47,381)(E)
(617)(D)
(2,172)(A) (4,949)
-------- -------- --------- ----------
Pretax income............................. 74,572 179,476 (59,670) 194,378
Income tax (provision) benefit............ 19,400 (54,784) (599)(F) (35,983)
Minority interest in income of Minera
Yanacocha............................... -- -- (60,663)(G) (60,663)
-------- -------- --------- ----------
Net income................................ $ 93,972 $124,692 $(120,932) $ 97,732
======== ======== ========= ==========
Income per common share................... $ 0.86 $ 0.89
======== ==========
Weighted average number of shares of
common stock and common stock
equivalents outstanding................. 109,766 109,766
======== ==========
</TABLE>
- ---------------
(A) To eliminate royalties paid by Minera Yanacocha to an equity affiliate of
the Company.
(B) To eliminate management fees paid by Minera Yanacocha to a subsidiary of the
Company.
(C) Estimated additional amortization of excess purchase price over book value
of net assets acquired.
(D) Reclassification of the Company's share (38%) of management fees charged to
Minera Yanacocha.
(E) Elimination of equity income recognized for Minera Yanacocha to reflect
consolidation.
(F) Additional adjustment to taxes required for consolidation of Minera
Yanacocha.
(G) Minority interest (48.65%) in income of Minera Yanacocha.
66
<PAGE> 69
NEWMONT GOLD COMPANY AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED BALANCE SHEET -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEWMONT MINERA PRO FORMA PRO FORMA
GOLD YANACOCHA ADJUSTMENTS CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents.............. $ 185,681 $ 40,705 $ 226,386
Inventories............................ 188,345 15,661 204,006
Other.................................. 81,856 28,848 110,704
---------- -------- -------- ----------
Current assets...................... 455,882 85,214 541,096
Property, plant and mine development,
net................................. 1,301,952 106,308 $ 53,368(A)
(14,445)(B) 1,447,183
Other long-term assets................. 323,240 1,887 (41,115)(C)
(2,843)(A) 281,169
---------- -------- -------- ----------
Total assets........................ $2,081,074 $193,409 $ (5,035) $2,269,448
========== ======== ======== ==========
Liabilities
Short-term debt and current portion of
long-term debt...................... $ 65,231 $ 14,256 $ 79,487
Other current liabilities.............. 158,863 31,190 $ 50,525(A) 240,578
---------- -------- -------- ----------
Current liabilities................. 224,094 45,446 50,525 320,065
Long-term debt......................... 585,009 24,244 609,253
Other long-term liabilities............ 139,916 15,520 155,436
---------- -------- -------- ----------
Total liabilities................... 949,019 85,210 50,525 1,084,754
---------- -------- -------- ----------
Minority interest in Minera Yanacocha.... -- -- 52,639(D) 52,639
---------- -------- -------- ----------
Stockholders' Equity..................... 1,132,055 108,199 (14,445)(B)
(41,115)(C)
(52,639)(D) 1,132,055
---------- -------- -------- ----------
Total liabilities and stockholders'
equity............................ $2,081,074 $193,409 $ (5,035) $2,269,448
========== ======== ======== ==========
</TABLE>
- ---------------
(A) To record acquisition of additional 13.35% interest.
(B) Elimination of 13.35% of Minera Yanacocha's net book value.
(C) Elimination of the Company's investment in Minera Yanacocha to reflect
consolidation.
(D) To reflect minority interest in Minera Yanacocha.
67
<PAGE> 70
(18) UNAUDITED SUPPLEMENTARY DATA
QUARTERLY DATA
The following is a summary of selected quarterly financial information
(amounts in millions except per share amounts):
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales.................................. $ 154.7 $ 181.2 $ 226.0 $206.6 $768.5
Gross profit(1)........................ $ 28.1 $ 38.2 $ 58.5 $ 42.7 $167.5
Net income............................. $ 11.8 $ 21.6 $ 39.1 $ 21.5 $ 94.0
Net income per common share............ $ 0.11 $ 0.20 $ 0.35 $ 0.20 $ 0.86
Weighted average shares
outstanding(2)....................... 108.8 110.3 110.2 110.1 109.8
Dividends declared per common share.... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Closing price of common stock.......... $56.125 $50.375 $47.375 $43.75 $43.75
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales.................................. $ 134.5 $ 145.1 $ 172.3 $184.4 $636.2
Gross profit(1)........................ $ 26.6 $ 31.6 $ 52.1 $ 48.6 $158.8
Net income............................. $ 17.0 $ 75.5(3) $ 27.9 $ 4.6(4) $124.9(3,4)
Preferred stock dividends.............. $ 4.0 $ 4.0 $ 4.0 $ (0.7)(5) $ 11.2(5)
Net income applicable to common
stock................................ $ 13.0 $ 71.5(3) $ 23.9 $ 5.3(4) $113.7(3,4)
Net income per common share............ $ 0.14 $ 0.74(3) $ 0.25 $ 0.05(4) $ 1.17(3,4)
Weighted average shares outstanding.... 96.5 96.7 96.8 99.6(5) 97.4(5)
Dividends declared per common share.... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Closing price of common stock.......... $41.375 $ 40.25 $ 40.50 $43.75 $43.75
</TABLE>
- ---------------------
(1) Sales less costs applicable to sales and depreciation, depletion and
amortization.
(2) In January 1996, 4.65 million shares of common stock were issued to NMC
coincident with NMC's offering a like amount of shares under an existing
shelf registration statement (see Note 8).
(3) Includes an after-tax gain of $72 million, or $0.75 per share for the
quarter and $0.74 per share for the year, from the sale of the Company's
interest in Southern Peru Copper Corporation and an after-tax charge of
$15.1 million, or $0.16 per share, for the write-off of the investment and
additional reclamation provision of the Ivanhoe exploration property (see
Notes 10 and 11).
(4) Includes an after-tax charge of $22 million, or $0.22 per share, for the
quarter and $0.23 per share for the year, for the write-off of the
investment in the Grassy Mountain property (see Note 10).
(5) Substantially all of the convertible preferred stock was converted into
common stock in December 1995 (see Note 8).
RATIO OF EARNINGS TO FIXED CHARGES
As a result of the transaction with NMC discussed in Note 2, the Company's
capital structure became essentially the same as NMC's. In that the Company's
financial results had been fully consolidated into NMC's and the Company's
capital structure became essentially that of NMC's, management believes that
NMC's historical consolidated ratio of earnings to fixed charges for the two
years ended December 31, 1993 is more relevant than the Company's. They
represent essentially what the Company's ratios would have been had it acquired
NMC's assets and assumed its liabilities at the beginning of 1992. The Company
had no significant fixed charges in 1992 or 1993.
The ratio of earnings to fixed charges for the Company was 2.1, 3.6 and 1.7
for the years ended December 31, 1996, 1995 and 1994, respectively. The ratio of
earnings to fixed charges for NMC was 6.3 and 6.5 for the years ended December
31, 1993 and 1992, respectively.
68
<PAGE> 71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with Arthur Andersen LLP, NGC'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 NGC's directors will be contained in NGC's
definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934 for the 1997 annual meeting of
stockholders and is incorporated herein by reference. Information concerning
NGC's executive officers is set forth under Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be contained in NGC's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 1997 annual meeting of stockholders and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in NGC's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 1997 annual meeting of stockholders and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this item will be contained in NGC's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 1997 annual meeting of stockholders and
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
<TABLE>
<CAPTION>
10-K
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 38
Statements of Consolidated Income........................... 39
Consolidated Balance Sheets................................. 40
Statements of Consolidated Changes in Stockholders'
Equity.................................................... 41
Statements of Consolidated Cash Flows....................... 42
Notes to Consolidated Financial Statements.................. 43
Financial Statements of Minera Yanacocha S.A................ MY-1
</TABLE>
2. Financial Statement Schedules
All schedules have been omitted since they are either not required, are not
applicable, or the required information is shown in the financial statements or
related notes.
69
<PAGE> 72
3. Exhibits
<TABLE>
<CAPTION>
<C> <S>
3(a). Restated Certificate of Incorporation dated May 2, 1986.
Incorporated by reference to Exhibit 3 to registrant's
Registration Statement on Form S-1, Amendment No. 2 (No.
33-5565).
3(b). Certificate of Amendment of Certificate of Incorporation
dated April 15, 1987. Incorporated by reference to Exhibit
3(b) to registrant's Registration Statement on Form S-1,
Amendment No. 1 (33-12686).
3(c). Certificate of Amendment of Certificate of Incorporation
dated March 18, 1994. Incorporated by reference to Exhibit
3(c) to registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.
3(d). Certificate of Correction of Certificate of Amendment dated
June 22, 1994 to insert page 4 of the Certificate of
Amendment filed with the Secretary of State of Delaware on
March 21, 1994. Incorporated by reference to Exhibit 3(d) to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1995.
3(d). By-Laws as amended through May 8, 1986. Incorporated by
reference to Exhibit 3 to registrant's Registration
Statement on Form S-1, Amendment No. 2 (No. 33-5565).
4(a). Pass Through Trust Agreement dated as of July 15, 1994
between registrant and The First National Bank of Chicago
relating to the Pass Through Certificates, Series 1994-A1.
(The front cover of this Exhibit indicates the material
differences between such Exhibit and the substantially
similar (except for price-related information) Pass-Through
Agreement between registrant and The First National Bank of
Chicago relating to the Pass-Through Certificates, Series
1994-A2.) Incorporated by reference to Exhibit 4.1 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
4(b). Lease dated as of September 30, 1994 between registrant and
Shawmut Bank Connecticut, National Association relating to
Trust No. 1 and a 75% undivided interest in registrant's
refractory gold ore treatment facility. (The front cover of
this Exhibit indicates the material differences between such
Exhibit and a substantially similar agreement (except for
price-related information) entered into on the same date
relating to the remaining 25% undivided interest in the
facility.) Incorporated by reference to Exhibit 4.2 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
4(c). Trust Indenture and Security Agreement dated as of July 15,
1994 between Shawmut Bank Connecticut, National Association
and The First National Bank of Chicago relating to Trust No.
1 and a 75% undivided interest in registrant's refractory
gold ore treatment facility. (The front cover of this
Exhibit indicates the material differences between such
Exhibit and a substantially similar agreement (except for
price-related information) entered into on the same date
relating to the remaining 25% undivided interest in the
facility.) Incorporated by reference to Exhibit 4.3 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
4(d). In reliance upon Item 601(b)(4)(iii) of Regulation S-K,
various instruments defining the rights of holders of
long-term debt of the Company are not being filed herewith
because the total of securities authorized under each such
instrument does not exceed 10% of the total assets of
registrant. Registrant hereby agrees to furnish a copy of
any such instrument to the Commission upon request.
10(a). Directors' Stock Award Plan. Incorporated by reference to
Exhibit 10(a) to registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
</TABLE>
70
<PAGE> 73
<TABLE>
<CAPTION>
<C> <S>
10(b). Tax Sharing Agreement dated as of January 1, 1994 between
registrant and NMC. Incorporated by reference to Exhibit
10(b) to registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10(c). Letter Agreement dated December 15, 1993, between registrant
and NMC. Incorporated by reference to Exhibit A to
registrant's Proxy Statement dated February 16, 1994.
10(d). Agreement dated October 15, 1993, effective November 1,
1993, among registrant, NMC 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(e). Letter Agreement dated May 6, 1993 between registrant and
Wayne W. Murdy. Incorporated by reference to Exhibit 10 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993.
10(f). Annual Incentive Compensation Plan (amended and restated as
of January 1, 1996).
10(g). Agreement and Plan of Merger dated March 10, 1997, among
NMC, Midtown Two Corp. and Santa Fe Pacific Gold
Corporation. Incorporated by reference to Exhibit 2.1 to
NMC's Current Report on Form 8-K dated March 10, 1997.
11. Statement re Computation of Per Share Earnings.
12. Statement re Computation of Ratio of Earnings to Fixed
Charges.
23. Consent of Independent Public Accountants.
24. Power of Attorney.
27. Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended December 31, 1996.
71
<PAGE> 74
(This page intentionally left blank)
<PAGE> 75
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Minera Yanacocha S. A.:
We have audited the accompanying balance sheets of Minera Yanacocha S. A.
(a Peruvian Corporation, "The Company") as of December 31, 1996 and 1995, and
the related statements of income, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Peru which are substantially equivalent to those applied in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Company's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Minera Yanacocha S. A. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles followed in the United States of
America.
Countersigned by:
/s/ Marco Antonio Zaldivar
------------------------------------
Marco Antonio Zaldivar
C.P.C. Register No. 12477
Lima, Peru
January 22, 1997.
MY-1
<PAGE> 76
MINERA YANACOCHA S. A.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales and other income
Sales.................................................... $313,870 $212,520 $116,607
Interest and other....................................... 2,336 2,426 663
-------- -------- --------
316,206 214,946 117,270
-------- -------- --------
Costs and expenses
Costs applicable to sales................................ 89,206 66,679 42,195
Exploration.............................................. 17,482 11,391 4,051
Depreciation and amortization............................ 24,595 15,725 6,820
Interest expense and other............................... 5,447 5,705 5,024
-------- -------- --------
136,730 99,500 58,090
-------- -------- --------
Income before income tax................................... 179,476 115,446 59,180
Income tax provision....................................... (54,784) (34,633) (17,949)
-------- -------- --------
Net income....................................... $124,692 $ 80,813 $ 41,231
======== ======== ========
Net income per common share...................... $ 27.11 $ 17.57 $ 8.96
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-2
<PAGE> 77
MINERA YANACOCHA S. A.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 40,705 $ 29,721
Restricted funds............................................ 8,927 8,647
Accounts receivable......................................... 13,460 15,699
Inventories................................................. 15,661 13,084
Prepaid taxes and expenses.................................. 6,461 4,553
-------- --------
Current assets............................................ 85,214 71,704
Property, plant, equipment and mine development, net........ 106,308 85,844
Other assets................................................ 1,887 2,270
-------- --------
Total assets...................................... $193,409 $159,818
======== ========
LIABILITIES
Income tax and profit sharing payable....................... $ 18,152 $ 25,170
Trade accounts payable...................................... 7,553 6,544
Other accrued liabilities................................... 5,485 5,120
Current portion of long-term debt........................... 14,256 13,142
-------- --------
Current liabilities....................................... 45,446 49,976
Long-term debt.............................................. 24,244 38,799
Deferred income tax liability............................... 11,210 7,660
Reclamation liability....................................... 4,310 1,876
-------- --------
Total liabilities................................. 85,210 98,311
-------- --------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Capital stock -- S/1.00 par value; 4,600,104 shares
authorized and issued..................................... 2,116 2,116
Additional paid-in capital.................................. 226 226
Legal reserve............................................... 470 470
Retained earnings........................................... 105,387 58,695
-------- --------
Total shareholders' equity........................ 108,199 61,507
-------- --------
Total liabilities and shareholders' equity........ $193,409 $159,818
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-3
<PAGE> 78
MINERA YANACOCHA S. A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL RETAINED TOTAL
OF COMMON CAPITAL PAID-IN LEGAL EARNINGS SHAREHOLDERS'
SHARES STOCK CAPITAL RESERVE (DEFICIT) EQUITY
--------- ------- ---------- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.............. 4,600,104 $2,116 $226 $ -- $ (1,879) $ 463
Net income............................ -- -- -- -- 41,231 41,231
Appropriation of legal reserve........ -- -- -- 470 (470) --
--------- ------ ---- ---- -------- --------
Balance at December 31, 1994............ 4,600,104 2,116 226 470 38,882 41,694
Net income............................ -- -- -- -- 80,813 80,813
Cash dividends........................ -- -- -- -- (61,000) (61,000)
--------- ------ ---- ---- -------- --------
Balance at December 31, 1995............ 4,600,104 2,116 226 470 58,695 61,507
Net income............................ -- -- -- -- 124,692 124,692
Cash dividends........................ -- -- -- -- (78,000) (78,000)
--------- ------ ---- ---- -------- --------
Balance at December 31, 1996............ 4,600,104 $2,116 $226 $470 $105,387 $108,199
========= ====== ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-4
<PAGE> 79
MINERA YANACOCHA S. A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................ $124,692 $ 80,813 $ 41,231
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization...... 24,595 15,725 6,820
Deferred income tax................ 3,550 1,121 7,242
Other.............................. (336) 431 --
(Increase) decrease in operating
assets:
Accounts receivable.............. 2,239 (7,128) (3,174)
Inventories...................... (2,577) 2,563 (11,229)
Prepaid taxes and expenses and
other assets.................. (1,525) 685 (380)
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
liabilities................... (5,644) 18,297 12,669
Reclamation liability............ 2,434 1,104 609
-------- -------- --------
Net cash provided by operating
activities............................ 147,428 113,611 53,788
-------- -------- --------
INVESTING ACTIVITIES
Additions to property, plant,
equipment and mine development..... (45,060) (35,244) (40,973)
-------- -------- --------
Net cash used in investing activities... (45,060) (35,244) (40,973)
-------- -------- --------
FINANCING ACTIVITIES
Repayments of long-term borrowings.... (13,104) (3,805) --
Restricted funds...................... (280) (6,147) (1,400)
Proceeds from long-term borrowings.... -- -- 24,079
Repayments of loans to shareholders... -- -- (20,478)
Cash dividends........................ (78,000) (61,000) --
-------- -------- --------
Net cash provided by (used in) financing
activities............................ (91,384) (70,952) 2,201
-------- -------- --------
Net increase in cash and cash
equivalents........................... 10,984 7,415 15,016
Cash and cash equivalents at beginning
of year............................... 29,721 22,306 7,290
-------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 40,705 $ 29,721 $ 22,306
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MY-5
<PAGE> 80
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS
(ALL MONETARY AMOUNTS ARE IN THOUSANDS OF U.S. DOLLARS)
1. BUSINESS ACTIVITY
Minera Yanacocha S. A. ("the Company") was established on January 14, 1992
and started production activities in August 1993. The Company is engaged in
exploration and exploitation of gold under the mining concessions owned by
S.M.R.L. Chaupiloma Dos de Cajamarca ("Chaupiloma"). The majority shareholders
or affiliates of the Company also own the majority interests in Chaupiloma.
In accordance with a mining lease amended effective January 1, 1994, the
Company pays Chaupiloma a 3 percent royalty on the monthly production at current
prices, after deducting refinery and transport costs. The royalty agreement
expires in the year 2012.
The Company's operation consists of three open pit mines, the Carachugo,
San Jose and Maqui Maqui mines located in the Cajamarca district of Peru, from
which gold-bearing ores are delivered to two separate leach pads for gold
recovery using conventional heap leaching cyanidation, followed by Merrill-Crowe
zinc precipitation and smelting to provide a final dore product. The dore is
then shipped offsite for further refining before being sold in the world gold
markets. A fourth mine, Yanacocha, is expected to go into production by the end
of 1997.
Gold mining requires the use of specialized facilities and technology. The
Company relies heavily on such facilities to maintain production levels. Also,
the profitability of the Company's current operations is significantly affected
by the market price of gold. Market gold prices can fluctuate widely and are
affected by numerous factors beyond the Company's control.
2. BASIS OF PRESENTATION
Up to December 31, 1994, the Peruvian statutory accounting records were
kept in Peruvian nuevos soles. Effective January 1, 1995, the Company began
maintaining its accounting records in U.S. dollars, its functional currency, as
prescribed in the tax stability agreements signed with the Peruvian Government,
explained in Note 8. The accompanying financial statements were prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and
are stated in thousands of U.S. dollars.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies were used in preparing the accompanying
U.S. GAAP financial statements:
Cash and cash equivalents
Cash and cash equivalents consist of cash balances and highly liquid
investments with an original maturity of three months or less, carried at cost,
which approximates market value.
Inventories
Precious metals are stated at market value. Ore in process is determined
using the first-in, first-out method and is stated at the lower of cost or net
realizable value. Materials, supplies and spare parts inventories are stated at
average cost.
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method with the rates indicated in Note 6. Maintenance
and minor renewals are charged to expenses as incurred. Significant repairs and
modifications which extend the useful life of the existing facilities are
capitalized and depreciated.
MY-6
<PAGE> 81
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Exploration and mine development costs
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including the costs to further delineate the
ore body and remove overburden to initially expose the ore body, are
capitalized. Such costs are amortized using a units-of-production method over
the estimated life of the ore body. Until 1994 these costs were amortized using
the straight-line method with an annual rate of 20 percent. The cumulative
effect of the change is immaterial. On-going mine development expenditures to
maintain production are generally charged to operations as incurred.
Interest capitalization
Interest expense allocable to the costs of constructing new facilities is
capitalized until operations commence. Capitalized interest is expensed over the
depreciable lives of the assets for which it relates.
Reclamation and mine closure costs
Estimated future reclamation and mine closure costs are based principally
on legal and regulatory requirements and are accrued and charged to the
statements of income on a units-of-production basis.
Debt issuance costs
Debt issuance costs are deferred and amortized over the term of the related
debt.
Revenue recognition
Gold sales are recognized when dore bars are produced.
Income tax
The Company accounts for income taxes using the liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under the liability method of SFAS 109, the Company
recognizes certain temporary differences between the financial reporting basis
of the Company's liabilities and assets and the related income tax basis for
such liabilities and assets. This generates a net deferred income tax liability
or net deferred income tax asset for the Company as of the end of the year, as
measured by the statutory tax rate in effect as enacted. The Company derives its
deferred income tax charge or benefit by recording the change in the net
deferred income tax liability or net deferred income tax asset balance for the
year.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles of the United States requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
4. FOREIGN CURRENCY TRANSACTIONS
Monetary assets and liabilities are principally denominated in U.S.
dollars, the functional currency. No significant assets or liabilities are
denominated in Peruvian currency.
A loan from Deutsche Investitions-und Entwicklungsgesellschaft MBH-DEG
("DEG") denoted as the Carachugo loan as well as its related accrued interest
are denominated in Deutsche Marks. As of
MY-7
<PAGE> 82
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1995 the total amount outstanding was DM 6.3 million
($4,088) and the accrued interest DM 675 thousands (US $438) and DM 8.1 million
($5,641) and the accrued interest DM 825 thousands ($575), respectively (see
Note 9).
5. INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Precious metals............................................. $ 4,476 $ 4,332
Ore in process.............................................. 7,575 5,373
Materials, supplies and spare parts......................... 3,610 3,379
------- -------
$15,661 $13,084
======= =======
</TABLE>
6. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
DEPRECIATION OR --------------------
AMORTIZATION RATES 1996 1995
------------------- -------- --------
<S> <C> <C> <C>
Land..................................... -- $ 2,716 $ 933
Buildings and equipment.................. 10% and 20% 137,754 99,240
Mine development......................... Units-of-production 10,415 7,379
Construction-in-progress................. -- 4,863 3,136
-------- --------
155,748 110,688
Accumulated depreciation and
amortization........................... (49,440) (24,844)
-------- --------
$106,308 $ 85,844
======== ========
</TABLE>
Certain fixed assets secure loans from the International Finance
Corporation ("IFC") and DEG (see Note 9).
7. INCOME TAX AND PROFIT SHARING PAYABLE
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Income tax.................................................. $ 8,818 $19,575
Profit sharing.............................................. 9,334 5,595
------- -------
$18,152 $25,170
======= =======
</TABLE>
In accordance with the Peruvian legislation, the Company's employees are
entitled to receive a profit sharing of 8% of the taxable income. 50% of the
total profit sharing is distributed to each employee based on the number of days
that each of them worked during the preceding year and the remaining 50% is
distributed in proportion to their annual salary levels.
Effective January 1, 1997, the annual payment to each employee under the
profit sharing plan is limited to eighteen times such employee's monthly salary,
but the rate for the Company remains 8% of taxable income.
8. INCOME TAX
As explained in Note 3, income tax is accounted for under the provisions of
SFAS 109.
MY-8
<PAGE> 83
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Under SFAS 109, the Company accounts for deferred income tax liabilities
and deferred income tax assets when temporary differences arise between the
financial and the income tax reporting of its liabilities and assets. The
measurement of the deferred income tax liabilities and assets is based upon the
Peruvian tax rates and tax law provisions as enacted.
The provisions for income tax consist of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current............................................... $51,234 $33,512 $10,707
Deferred.............................................. 3,550 1,121 7,242
------- ------- -------
Total....................................... $54,784 $34,633 $17,949
======= ======= =======
</TABLE>
The total provision approximates the Peruvian statutory rate applied to the
taxable income for all years.
The components of the deferred income tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Deferred tax liabilities:
Mine development costs deducted for tax in excess of book
amortization........................................... $11,620 $7,289
Debt issuance costs deducted for tax in excess of book
amortization........................................... 386 544
Interest deducted for tax and capitalized as fixed assets
for book purposes...................................... 424 269
Start-up costs deducted for tax and capitalized for book
purposes............................................... 73 121
------- ------
Total deferred tax liabilities.................... 12,503 8,223
------- ------
Deferred tax asset:
Reclamation liability not deducted in tax return.......... (1,293) (563)
------- ------
Net deferred tax liability........................ $11,210 $7,660
======= ======
</TABLE>
The income tax returns of 1993 through 1994 prepared in Peruvian nuevos
soles, and 1995 through 1996 prepared in U.S. dollars, are pending review by the
tax authorities. Additional taxes and surcharges from future tax assessments, if
any, would be charged to expense in the years in which they are settled.
In May 1994 the Company signed two tax stabilization agreements with the
Peruvian Government which guarantee the Company the use of tax rulings of the
tax regimes in force at December 31, 1992 for Carachugo and at December 31, 1994
for Maqui Maqui for 15 years from the dates that the agreements become
effective. Under such agreements the Company is permitted to keep its accounting
records in U.S. dollars. The properties were under the then current tax regimes
until the agreements became effective. The Carachugo tax stabilization agreement
became effective January 1, 1995. The Company expects the Maqui Maqui tax
stabilization agreement to become effective in 1997.
MY-9
<PAGE> 84
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of loans from the IFC and DEG to finance the
Carachugo and Maqui Maqui projects. The maturities due pursuant to the financing
arrangements as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PAYMENT DATES TOTAL
------------- -------
<S> <C>
1997..................................................... $14,256
-------
1998..................................................... 14,256
1999..................................................... 8,204
2000..................................................... 1,784
-------
Long-term debt.............................................. 24,244
-------
Total debt........................................ $38,500
=======
</TABLE>
Of the outstanding loan balance at December 31, 1996, $4.1 million is
denominated in Deutsche Marks and translated to US dollars at the balance sheet
date. (See Note 4).
Interest on $26,012 of the debt outstanding at December 31, 1996 is
calculated at interest rates ranging from 3 1/8% to 3 1/2% over the London
Interbank Offering Rate ("LIBOR"). The weighted average interest rates for this
debt were 8.98%, 9.63% and 7.65% for 1996, 1995 and 1994, respectively. The
weighted average interest rates at December 31, 1996 and 1995 were 8.9% and
9.08%, respectively. Interest on $8,400 of debt outstanding at December 31, 1996
is calculated at 2 7/8% over LIBOR plus a rate (not to exceed 2 1/2%) applied on
the amount that the average price of gold per ounce is above $370. When the
prior six month average gold price is between $370 and $410 an ounce the
interest rate is 2 7/8% over LIBOR plus 1/8% for each $10 the gold price is
over $370 per ounce. When the six month average gold price is between $410 and
$490 per ounce the interest rate is 3 3/8% over LIBOR plus 1/4% for each $10
the gold price is over $410 per ounce. The weighted average interest rates for
this debt were 8.54%, 8.59% and 7.25% for 1996, 1995 and 1994, respectively. The
interest rates at December 31, 1996 and December 31, 1995 were 8.375% and
8.8125%, respectively. Interest on $4,088 of the outstanding loan balance at
December 31, 1996 is calculated at a fixed annual rate of 9.3%.
Interest rates prevailing on similar debts at the balance sheet dates were
essentially the same as the interest rates on these debts. Therefore, the fair
value of the debt approximates the reported value.
Substantially all of the Company's property, plant and equipment, as well
as restricted funds of $8,927 at December 31, 1996, secure the outstanding
loans.
The loan agreements contain certain covenants which limit indebtedness and
payment of dividends to shareholders. In addition, the Company must maintain
certain financial ratios as provided in the loan agreements. At December 31,
1996 and 1995 the Company was in compliance with the covenants.
The IFC loan requires the Company to maintain an escrow account
representing the next interest and principal installment due. Amounts totaling
$8,927 and $8,647 as of December 31, 1996 and 1995, respectively, reflect the
March 15, 1997 and 1996 interest and principal payments and, accordingly, have
been reported as restricted funds on the balance sheets.
10. SHAREHOLDERS' EQUITY
The capital stock is represented by 4,600,104 common shares with a par
value of one Peruvian nuevo sol each, fully subscribed and paid. This amount
includes 2,592,159 shares owned by non-Peruvian investors.
Under current Peruvian regulations, there is no restriction on remittance
of dividends or repatriation of foreign investment, except for a creation of a
legal reserve discussed in the next paragraph. Furthermore, under current
Peruvian regulations, dividend distribution is tax free beginning January 1,
1994. However, dividends
MY-10
<PAGE> 85
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
paid to a non-domiciled shareholder who had executed an Investment Agreement
with the Peruvian Government is still subject to a 10% withholding income tax on
dividends paid on capital stock issued pursuant to that agreement.
According to the Peruvian General Law on Corporations, when the net income
exceeds 7 percent of capital stock in the financial statements prepared
following Peruvian generally accepted accounting principles, the Company must
create a reserve ("the legal reserve") of at least 20% of its capital stock by
annual appropriations of at least 10% of net income. The legal reserve must be
used only to offset losses, and can not be distributed as dividends, except in
case of the closing of a business activity. The legal reserve was satisfied in
1994 and therefore no appropriations were necessary in 1995 or 1996.
At a shareholders' meeting held on January 22, 1997, a cash dividend of
$30,000 was approved.
11. RELATED PARTY TRANSACTIONS
In years prior to 1994, the Company had obtained loans from its
shareholders amounting to $46,478 to finance the construction of facilities.
These loans and the related accrued interest were repaid in 1994. Interest on
the loans was calculated at an annual rate of 10% and amounted to $1,838 in
1994.
Management, exploration, mine development, engineering and employment
services are provided pursuant to contracts with affiliated companies. The
corresponding charges amounted to $4,847 in 1996, $4,617 in 1995 and $3,065 in
1994, and the corresponding outstanding accounts payable amounts to $324 and
$1,313 at December 31, 1996 and 1995, respectively.
As mentioned in Note 1, the Company pays Chaupiloma a 3% royalty on the
monthly production at current prices, after deducting refinery and transport
costs. The royalty expense amounted to $9,524 in 1996, $6,233 in 1995 and $3,501
in 1994, and the outstanding accounts payable amounts to $2,493 and $2,132 at
December 31, 1996 and 1995, respectively.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Income tax............................................. $61,990 $22,113 $2,377
Interest, net of amounts capitalized................... $ 3,558 $ 4,740 $4,665
</TABLE>
13. MAJOR CUSTOMERS AND EXPORT SALES
The Company is not economically dependent on a limited number of customers
for the sale of its product because gold commodity markets are well-established
worldwide. During 1996, four customers accounted for $113 million, $85 million,
$40 million and $33 million of total sales, each of which represented more than
10% of total sales and together accounted for 86% of the annual sales. In 1995,
sales to three customers accounted for $75 million, $22 million and $21 million,
each of which represented more than 10% of total sales and together accounted
for 55% of total sales. In 1994, sales to one customer accounted for $102
million, or 87% of total sales.
All sales were made abroad.
MY-11
<PAGE> 86
MINERA YANACOCHA S. A.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
Claim initiated by Compagnie Miniere International Or S.A.
In May 1996, Compagnie Miniere International Or S.A. (Mine Or) initiated a
claim against the Company because it did not remit the 1994 dividends, approved
by the General Extraordinary Shareholders' meeting held on February 1, 1995, to
Mine Or. The Company paid such dividends to Compania Minera Condesa S.A. and
Newmont Second Capital in compliance with a preliminary action dictated by the
Superior Court on February 23, 1995. This action suspended the rights of Mine Or
as a shareholder until the main claim initiated by Compania Minera Condesa S.A.
and Newmont Second Capital to exercise their preferential rights for buying the
Company's shares owned by Mine Or could be resolved.
The claim initiated by Mine Or amounts to approximately $2,145 at December
31, 1996 and is still pending to be resolved by the First Instance Court.
The Company's management and its outside legal counsels believe this claim
will be resolved in favor of the Company.
Environmental and natural resources code
The Company's mining and exploration activities are subject to Legislative
Decree 613 published on September 8, 1990 which is regulated by Supreme Decrees
No 016-93-EM and No 059-93-EM dated April 28 and December 10, 1993,
respectively. These legal rules govern the protection of the environment. The
Company conducts its operations so as to protect the public health and
environment and believes it operates in compliance with all applicable legal
rulings. The Company accrues for its expected future reclamation and closure
liabilities on a units-of-production basis and such liability amounted to $4,310
and $1,876 at December 31, 1996 and 1995, respectively.
Mining contract
The Company signed a contract with Zublin Chile Ingenieria y Construcciones
Ltda., Sucursal del Peru for the loading and hauling of mineral and waste of
Carachugo and Maqui Maqui.
The contract has a term of 5 years, effective January 1, 1996.
MY-12
<PAGE> 87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEWMONT GOLD COMPANY
By /s/ TIMOTHY J. SCHMITT
-----------------------------------
Timothy J. Schmitt
Vice President, Secretary and
Assistant General Counsel
March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
- -----------------------------------------------------
Rudolph I. J. Agnew
* Director
- -----------------------------------------------------
J. P. Bolduc
* Chairman, President and Chief
- ----------------------------------------------------- Executive Officer and
Ronald C. Cambre Director
* Director
- -----------------------------------------------------
Joseph P. Flannery
* Director
- -----------------------------------------------------
Leo I. Higdon, Jr.
* Director
- -----------------------------------------------------
Thomas A. Holmes
* Director March 31, 1997
- -----------------------------------------------------
Robert H. Quenon
* Director
- -----------------------------------------------------
Moeen A. Qureshi
* Director
- -----------------------------------------------------
Michael K. Reilly
* Director
- -----------------------------------------------------
William I. M. Turner, Jr.
* Executive Vice President and
- ----------------------------------------------------- Chief Financial Officer
Wayne W. Murdy (Principal Financial Officer)
* Vice President and Controller
- ----------------------------------------------------- (Principal Accounting
Gary E. Farmar Officer)
*By /s/ TIMOTHY J. SCHMITT
-------------------------------------------------
Timothy J. Schmitt
as Attorney-in-fact
</TABLE>
<PAGE> 88
Appendix I
The following is a narrative description of certain maps in image form
which have been included in the paper version of the Form 10-K but which have
been excluded from the EDGAR version of the Form 10-K.
1. Map of location of the Carlin Trend Operations in Nevada --
Page 3 of the Form 10-K.
On Page 3 of the Form 10-K, the registrant has
included a map of Nevada with an enlargement of the
geographical location of its operations on the Carlin Trend
discussed on Pages 1 through 5 of the Form 10-K. The
map also includes a chart indicating the location of various
deposits with proven and probable reserves.
2. Map of location of the Minera Yanacocha Operations in Peru --
Page 8 of the Form 10-K.
On Page 8 of the form 10-K, the registrant has
included a map of the country of Peru showing the geographical
location of the Minera Yanacocha Operations discussed on pages
6 and 7 of the Form 10-K. The map also includes a notation
that Minera Yanacocha S.A., is 51.35% owned by the registrant.
The map also shows the location of various deposits with
proven and probable reserves.
3. Map of location of the Zarafshan-Newmont joint venture in
Uzbekistan -- Page 10 of the Form 10-K.
On Page 10 of the Form 10-K, the registrant has
included a map of the Republic of Uzbekistan showing the
geographical location of the Zarafshan- Newmont joint venture
and the Angren project discussed on Page 9 of the form 10-K.
The map also includes notation that the Zarafshan-Newmont
joint venture, which owns the project, is 50% owned by the
Newmont Gold and the Angren joint venture is 40% owned by
Newmont Gold.
4. Map of locations of the Minahasa Project and the Batu Hijau
Project in Indonesia -- Page 13 of the Form 10-K.
On Page 13 of the Form 10-K, the registrant has
included a map of the Republic of Indonesia showing the
geographical location of the Minahasa project and the Batu
Hijau project, each of which is discussed on Pages 11, 12 and
13 of the Form 10-K. The map also includes a notation that
each of the Indonesian companies that own the Minahasa project
and the Batu Hijau project is 80% owned by the Newmont Gold.
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3(a). -- Restated Certificate of Incorporation dated May 2, 1986.
Incorporated by reference to Exhibit 3 to registrant's
Registration Statement on Form S-1, Amendment No. 2 (No.
33-5565).
3(b). -- Certificate of Amendment of Certificate of Incorporation
dated April 15, 1987. Incorporated by reference to
Exhibit 3(b) to registrant's Registration Statement on
Form S-1, Amendment No. 1 (33-12686).
3(c). -- Certificate of Amendment of Certificate of Incorporation
dated March 18, 1994. Incorporated by reference to
Exhibit 3(c) to registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
3(d). -- Certificate of Correction of Certificate of Amendment
dated June 22, 1994 to insert page 4 of the Certificate
of Amendment filed with the Secretary of State of
Delaware on March 21, 1994. Incorporated by reference to
Exhibit 10(f) to registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
3(d). -- By-Laws as amended through May 8, 1986. Incorporated by
reference to Exhibit 3 to registrant's Registration
Statement on Form S-1, Amendment No. 2 (No. 33-5565).
4(a). -- Pass Through Trust Agreement dated as of July 15, 1994
between registrant and The First National Bank of Chicago
relating to the Pass Through Certificates, Series
1994-A1. (The front cover of this Exhibit indicates the
material differences between such Exhibit and the
substantially similar (except for price-related
information) Pass-Through Agreement between registrant
and The First National Bank of Chicago relating to the
Pass-Through Certificates, Series 1994-A2.) Incorporated
by reference to Exhibit 4.1 to registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994.
4(b). -- Lease dated as of September 30, 1994 between registrant
and Shawmut Bank Connecticut, National Association
relating to Trust No. 1 and a 75% undivided interest in
registrant's refractory gold ore treatment facility. (The
front cover of this Exhibit indicates the material
differences between such Exhibit and a substantially
similar agreement (except for price-related information)
entered into on the same date relating to the remaining
25% undivided interest in the facility.) Incorporated by
reference to Exhibit 4.2 to registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994.
4(c). -- Trust Indenture and Security Agreement dated as of July
15, 1994 between Shawmut Bank Connecticut, National
Association and The First National Bank of Chicago
relating to Trust No. 1 and a 75% undivided interest in
registrant's refractory gold ore treatment facility. (The
front cover of this Exhibit indicates the material
differences between such Exhibit and a substantially
similar agreement (except for price-related information)
entered into on the same date relating to the remaining
25% undivided interest in the facility.) Incorporated by
reference to Exhibit 4.3 to registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994.
4(d). -- In reliance upon Item 601(b)(4)(iii) of Regulation S-K,
various instruments defining the rights of holders of
long-term debt of the Company are not being filed
herewith because the total of securities authorized under
each such instrument does not exceed 10% of the total
assets of registrant. Registrant hereby agrees to furnish
a copy of any such instrument to the Commission upon
request.
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10(a). -- Directors' Stock Award Plan. Incorporated by reference to
Exhibit 10(a) to registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
10(b). -- Tax Sharing Agreement dated as of January 1, 1994 between
registrant and NMC. Incorporated by reference to Exhibit
10(b) to registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10(c). -- Letter Agreement dated December 15, 1993, between
registrant and NMC. Incorporated by reference to Exhibit
A to registrant's Proxy Statement dated February 16,
1994.
10(d). -- Agreement dated October 15, 1993, effective November 1,
1993, among registrant, NMC 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(e). -- Letter Agreement dated May 6, 1993 between registrant and
Wayne W. Murdy. Incorporated by reference to Exhibit 10
to registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
10(f). -- Annual Incentive Compensation Plan (amended and restated
as of January 1, 1996).
10(g). -- Agreement and Plan of Merger dated March 10, 1997, among
NMC, Midtown Two Corp. and Santa Fe Pacific Gold
Corporation. Incorporated by reference to Exhibit 2.1 to
NMC's Current Report on Form 8-K dated March 10, 1997.
11. -- Statement re Computation of Per Share Earnings.
12. -- Statement re Computation of Ratio of Earnings to Fixed
Charges.
23. -- Consent of Independent Public Accountants.
24. -- Power of Attorney.
27. -- Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 10(f)
NEWMONT GOLD COMPANY
ANNUAL INCENTIVE COMPENSATION PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 1996)
The board of directors of Newmont Gold Company, a Delaware Corporation
(the "Company"), hereby amends and restates the Newmont Gold Company Annual
Incentive Compensation Plan (the "Plan"), effective January 1, 1996 (the
"Effective Date").
PURPOSE
The purpose of the Plan is to provide to employees of the Company and
its Affiliated Entities (defined herein) that participate in the Plan a more
direct interest in the success of the operations of the Company by rewarding
their successful efforts to maximize production, minimize production costs,
expand reserves, and develop new capital projects in an optimal manner.
Employees of the Company and participating Affiliated Entities will be rewarded
in accordance with the terms and conditions described below.
ARTICLE I
DEFINITIONS
1.1 "Actual Defined Costs" means, with respect to a particular
Unit, the cost of producing gold during the Plan Year, as calculated by the
Company and approved by the Compensation Committee.
1.2 "Actual Production" means, with respect to a particular Unit,
the number of ounces of gold produced during the Plan Year, as calculated by
the Company and approved by the Compensation Committee.
1.3 "Affiliated Entity(ies)" means any corporation or other
entity, now or hereafter formed, that is or shall become affiliated with the
Company, either directly or indirectly, through stock ownership, control or
otherwise, as determined by the Company.
1.4 "Area of Primary Responsibility" means the Unit to which an
Employee has been assigned by the Company for purposes of calculating the
Employee's Unit Performance Bonus.
1.5 "Batu Hijau Team" means those Employees whose Area of Primary
Responsibility is the Batu Hijau project, including those Employees of NEL
dedicated to the Batu Hijau project.
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<PAGE> 2
1.6 "Board" means the Board of Directors of Newmont Gold Company.
1.7 "Carlin Unit" means those Employees whose Area of Primary
Responsibility is the Carlin site, including those Employees of NEL dedicated
to the Carlin operation.
1.8 "Common Stock" means the $0.01 par value common stock of
Newmont Gold Company.
1.9 "Company" means Newmont Gold Company, and where the context
requires, any Affiliated Entity that has become a Participating Employer.
1.10 "Compensation Committee" means the Compensation Committee of
the Board.
1.11 "Disability" means a condition such that the Employee has
terminated employment with the Company and/or all Participating Employers with
a qualifying disability and has immediately begun receiving benefits from a
Newmont Long-Term Disability Plan.
1.12 "Employee" means a full time, salaried employee of the Company
and/or a Participating Employer, excluding temporary or leased employees.
1.13 "Exploration Team" means those Employees whose Area of Primary
Responsibility is associated with the generation of reserves.
1.14 "Fair Market Value" means, with respect to a share of Common
Stock, the closing price of the stock on the New York Stock Exchange as
reported on the composite tape on a particular date. If there are no Common
Stock transactions on such date, the Fair Market Value shall be determined as
of the immediately preceding date on which there were stock transactions. If
the price of the Common Stock is not reported on the New York Stock Exchange,
the Fair Market Value of the stock on a particular date shall be as determined
by the Compensation Committee.
1.15 "Headquarters Unit" means those Employees whose Area of
Primary Responsibility is the corporate office of NGC and Employees of NEL
whose Area of Primary Responsibility is not the Carlin Unit, the Peruvian Unit,
the Southeast Asia Unit or the Uzbekistan Unit.
1.16 "Impact Level" means the nine categories into which Employees
fall, based on the Pay Grade classification of their designated position, as
determined by the Company.
1.17 "Key Objectives" means the three to six key results expected
by the end of the review period for an Employee, as established and documented
through the Company's performance management system.
2
<PAGE> 3
1.18 "Minimum Gold Price" means the minimum average price of gold
as recommended by the Compensation Committee and approved by the Board that
must be realized by NGC for the Plan Year in order for bonuses to be payable
under the Plan.
1.19 "NEL" means Newmont Exploration Limited, a Delaware
corporation.
1.20 "NIL" means Newmont Indonesia Limited, a Delaware corporation.
1.21 "NGC" means Newmont Gold Company, a Delaware corporation.
1.22 "NMC" means Newmont Mining Corporation, a Delaware
corporation.
1.23 "Participating Employer" means Newmont Gold Company, Newmont
Exploration Company and any other Affiliated Entity that the Company determines
shall participate in the Plan.
1.24 "Pay Grade" means those jobs sharing a common Salary range, as
designated by the Company.
1.25 "Performance Distribution Guidelines" means the percent of all
salaried Employees classified in each of the Company's designated performance
categories as assigned by the Company.
1.26 "Performance Rating Category" means one of the following
categories used to classify the performance of Employees and Teams in
accordance with the Company's performance management system: "Exceptional,"
"Exceeds Expectations," "Meets Expectations," and "Needs Improvement."
1.27 "Personal Performance Bonus" means the bonus payable to an
Employee based on the individual performance of such Employee, as set forth in
Section 4.2.
1.28 "Personal Performance Level" means the level of personal
achievement of an Employee as determined by the Employee's supervisor pursuant
to Section 4.1.
1.29 "Peruvian Unit" means those Employees whose Area of Primary
Responsibility is the Minera Yanacocha project, including those Employees of
NEL dedicated to the Minera Yanacocha project.
1.30 "Plan Year" means the calendar year.
1.31 "Position" means the defined job held by an Employee during
the Plan Year.
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<PAGE> 4
1.32 "Project Engineering Team" means those Employees whose Area of
Primary Responsibility is the engineering and development of the Company's
capital projects and who are designated by the Company as members of such a
Team.
1.33 "Retirement" means termination of employment with the Company
and/or all Participating Employers by an Employee who immediately begins to
receive benefits from a Newmont Pension Plan.
1.34 "Salary" means an Employee's actual gross base earnings for
the Plan Year, in the case of an Employee who is actively at work at the end of
such Plan Year. In the case of an Employee receiving short-term disability
benefits on December 31 of the Plan Year, "Salary" will be determined by the
Employee's base earnings rate in effect on December 31, if he was treated as an
active employee for the full Plan Year. If an Employee receiving short-term
disability benefits exhausts those benefits before the end of the Plan Year, or
if he was employed for less than the full Plan Year, the "Salary" will be
determined by the Employee's W-2 base earnings during the Plan Year, including
pay for periods of short-term disability. If an Employee is absent from work
because of a work-related injury, the Employee's "Salary" will be determined by
his W-2 base earnings during the Plan Year. In the case of a Terminated
Eligible Employee who is Disabled, "Salary" will be determined by his W-2 base
earnings, including short-term disability pay received during the Plan Year,
but excluding pay from any other source. In the case of a Terminated Eligible
Employee whose employment terminates as a result of Retirement, "Salary" will
be determined by his actual gross base earnings to the date of Retirement. If
an Employee dies during the Plan Year, the "Salary" for such Terminated
Eligible Employee will be determined by his W-2 base earnings. If an Employee
is on active military duty during a Plan Year, the "Salary" will be determined
by his W-2 base earnings during the Plan Year, exclusive of any military pay.
1.35 "Severance" means the termination of employment with the
Company and/or all Participating Employers because of an event entitling the
Employee to benefits under the terms of the Severance Pay Plan of Newmont Gold
Company if the Employee immediately begins receiving benefits under the terms
of the Severance Pay Plan.
1.36 "Southeast Asia Unit" means those Employees whose Area of
Primary Responsibility is the Minahasa Raya project, including those Employees
of NEL dedicated to the Minahasa Raya project.
1.37 "Targeted Defined Costs" means the targeted cash cost of
production of gold for the Plan Year, as recommended by the Compensation
Committee and approved by the Board.
1.38 "Targeted Production" means the targeted amount of gold to be
produced for the Plan Year, as recommended by the Compensation Committee and
approved by the Board.
1.39 "Team" means the designated group of Employees to which an
Employee is assigned for purposes of Article V.
4
<PAGE> 5
1.40 "Team Performance Bonus" means the bonus payable to an
Employee designated as a member of an Exploration Team, a Project Engineering
Team, or the Batu Hijau Team based on the performance of the Team of which the
Employee is a member, as set forth in Section 5.2.
1.41 "Team Performance Level" means the level of achievement of a
Team, as determined by the respective Vice President pursuant to Section 5.1.
1.42 "Terminated Eligible Employee" means an Employee who
terminates employment with the Company and/or a Participating Employer during
the Plan Year on account of death, Retirement, Disability, Severance or such
other circumstances as may be approved by the Vice President of Human
Resources.
1.43 "Unit" means the unit of Employees to which an Employee is
assigned for purposes of Article III.
1.44 "Unit Performance Bonus" means, with respect to each Unit, the
bonus payable to an Employee based on the performance of such Employee's Unit,
as set forth in Section 3.2.
1.45 "Unit Performance Percentage" means the percentage used to
calculate an Employee's Unit Performance Bonus, as set forth in Section 3.2.
1.46 "Uzbekistan Unit" means those Employees whose Area of Primary
Responsibility is the Company's project in Uzbekistan, including those
Employees of NEL dedicated to the Uzbekistan project.
ARTICLE II
ELIGIBILITY
All Employees of the Company and/or a Participating Employer are
potentially eligible to receive a bonus payment under the Plan, provided (i)
they are on the payroll of the Company and/or a Participating Employer as of
the last day of the Plan Year, or (ii) they have terminated employment with the
Company and/or a Participating Employer during the Plan Year on account of
death, Retirement, Disability, Severance or such other circumstances as may be
approved by the Vice President of Human Resources of the Company. Employees
who are on short-term disability under the Company's short-term disability
policy or off work because of a work-related injury as of the last day of the
Plan Year shall be eligible to receive a bonus under clause (i).
5
<PAGE> 6
ARTICLE III
UNIT PERFORMANCE BONUS
3.1 Unit Performance Percentage. The Unit Performance Percentage
for each Unit will be determined on the last day of the Plan Year pursuant to
the following formula:
1 + (Actual Production - Targeted Production)
-----------------------------------------------
(Targeted Production)
x 1 + (Targeted Defined Costs - Actual Defined Costs)
-----------------------------------------------
(Targeted Defined Costs)
-----------------------------------------------
= Unit Performance Percentage
If the Unit Performance Percentage of a Unit is less than 85%, no Unit
Performance Bonus will be payable to any Employee of the Unit. If the Unit
Performance Percentage is 85%, the "Minimum Performance Level" category in
Section 3.2 shall apply. If the Unit Performance Percentage is 100%, the
"Target Performance Level" category in Section 3.2 shall apply. If the Unit
Performance Percentage is 120% or more, the "Maximum Performance Level"
category in Section 3.2 shall apply. If the Unit Performance Percentage of a
Unit falls between 85% and 100%, or between 100% and 120%, then the percentage
used to calculate the Unit Performance Bonus of each Employee of the Unit shall
be based upon the percentages in the Tables below, interpolated so that such
percentage bears the same relationship to the percentage shown in the following
Tables that the Unit Performance Percentage of the Unit bears to the Unit
Performance Percentages applicable to the two closest Performance Levels. For
example, if an Employee's Unit achieves a Unit Performance Percentage of 95%,
and if the Employee is in Impact Level I, then the Employee's Unit Performance
Bonus shall be equal to 26.17% of the Employee's Salary. The Compensation
Committee may, in its sole discretion, adjust the Unit Performance Percentage
of any Unit to reflect changed circumstances or such other matters as the
Compensation Committee deems appropriate.
3.2 Determination of Unit Performance Bonus. Subject to Sections
3.4 and 6.1, an Employee's Unit Performance Bonus is calculated as a percentage
of the Employee's Salary, and is based on the Unit Performance Percentage of
the Employee's Unit and the Employee's Impact Level pursuant to the following
Table I (Table IA for Employees designated as members of an Exploration Team, a
Project Engineering Team, or the Batu Hijau Team):
6
<PAGE> 7
TABLE I
<TABLE>
<CAPTION>
Impact Pay Minimum Target Maximum
Level Grade Performance Level Performance Level Performance Level
------- ----- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
I 203 12.50% 33% 67%
II 202 11.75% 30% 60%
III 200-201 9.38% 27% 55%
IV 113-114 6.25% 25% 50%
V 110-112 5.00% 20% 40%
VI 107-109 3.75% 15% 30%
VII 105-106 2.50% 10% 20%
VIII 104 1.25% 5% 10%
IX 11-103 1.25% 5% 10%
</TABLE>
TABLE IA
<TABLE>
<CAPTION>
Impact Pay Minimum Target Maximum
Level Grade Performance Level Performance Level Performance Level
-------- ----- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
I-IV 113-203 N/A N/A N/A
V 110-112 1.875% 7.500% 15.00%
VI 107-109 1.500% 6.000% 12.00%
VII 105-106 1.031% 4.125% 8.25%
VIII 104 0.625% 2.500% 5.00%
IX 11-103 0.625% 2.500% 5.00%
</TABLE>
3.3 Terminated Eligible Employees. Terminated Eligible Employees
shall be eligible to receive a Unit Performance Base Bonus based upon the
actual Unit Performance Percentage for the applicable Unit calculated through
the end of the month during which the Employee's termination of employment with
the Company and/or all Participating Employers occurred.
3.4 Ineligible Employees. Employees whose Personal Performance
Level (determined pursuant to section 4.1) is less than 25% shall not be
eligible to receive a Corporate Performance Bonus.
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<PAGE> 8
ARTICLE IV
PERSONAL PERFORMANCE BONUS
4.1 Personal Performance Level. At the end of the Plan Year, each
Employee's supervisor will evaluate the Employee and rate the Employee's
Personal Performance Level. The Personal Performance Bonus for the Company's
Chief Executive Officer shall be determined by the Compensation Committee. In
accordance with the Company's performance management system, the supervisor
will rate the degree to which the Employee met the Key Objectives that were set
and documented for the Employee during the Plan Year. Each Employee will be
rated in one of the Company's Performance Rating Categories. In conjunction
with these ratings, each Employee's supervisor will assign a Personal
Performance Level for the Employee in accordance with the following table. The
distribution of Personal Performance Ratings will be reviewed annually by an
executive review committee for internal equity and consistency.
TABLE II
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PERFORMANCE RATING CATEGORY PERFORMANCE LEVEL RANGE
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Exceptional 151%-200%
- -------------------------------------------------------------------------------------------------------------
Exceeds Expectations 101%-150%
- -------------------------------------------------------------------------------------------------------------
Meets Expectations 26%-100%
- -------------------------------------------------------------------------------------------------------------
Needs Improvement 0% or 25%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A 100% or higher Personal Performance Level will be awarded to an Employee who
has realized full compliance with challenging personal achievement standards.
A 200% Personal Performance Level will be awarded to an Employee who has
demonstrated exceptional personal achievement. If an Employee's Personal
Performance Level is 25%, the Employee's Personal Performance Level is in the
"Minimum Performance Level" category specified in Section 4.2. If an
Employee's Personal Performance Level is 100%, the Employee's Personal
Performance Level is in the "Target Performance Level" category specified in
Section 4.2. If an Employee's Personal Performance Level is 200%, the
Employee's Personal Performance Level is in the "Maximum Performance Level"
category specified in Section 4.2. However, these Personal Performance Rating
percentages will not directly reflect the percentage of Key Objectives that
were achieved by an Employee during the Plan Year. If an Employee's Personal
Performance Level is less than 25%, no Personal Performance Bonus shall be
payable. Except as set forth below, the percentages shown in the "Target
Performance Level" category specified in the Tables set forth in Section 4.2
shall be multiplied by the Employee's Personal Performance Level to determine
the applicable percentage for calculating the Employee's Personal Performance
Bonus. For example, if an Employee's Personal Performance Level is 90% and if
the Employee is in Impact Level I, the applicable percentage for calculating
the Employee's Personal Performance Bonus shall be 60.3%. Notwithstanding the
foregoing two sentences, if an Employee's Personal Performance Level is between
100% and 200% and the Employee is in Impact Levels I-IV, the
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<PAGE> 9
percentage used under Table III to calculate the Personal Performance Bonus
shall be based upon the percentages in Table III below interpolated so that
such percentage bears the same relationship to the percentage show in Table III
that the Personal Performance Level of the Employee bears to the Personal
Performance Levels applicable to the Target Performance Level and the Maximum
Performance Level. For example, if an Employee's Personal Performance Level is
120% and if the Employee is in Impact Level I, the applicable percentage for
calculating the Employee's Personal Performance Bonus shall be 70.36.
4.2 Determination of Personal Performance Bonus. Subject to
Sections 4.4 and 6.1, an Employee's Personal Performance Bonus is calculated as
a percentage of the Employee's Gross Base Salary. The applicable percentage is
a function of the Employee's Impact Level and Personal Performance Level
category determined pursuant to Section 4.1, as set forth in the following
Table III (Table IIIA for Employees designated as members of an Exploration
Team, a Project Engineering Team, or the Batu Hijau Team):
TABLE III
<TABLE>
<CAPTION>
Impact Pay Minimum Target Maximum
Level Grade Performance Level Performance Level Performance Level
------ ----- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
I 203 16.750% 67.0% 83.8%
II 202 13.750% 55.0% 68.8%
III 200-201 10.625% 42.5% 53.1%
IV 113-114 6.875% 27.5% 34.4%
V 110-112 2.500% 10.0% 20.0%
VI 107-109 2.250% 9.0% 18.0%
VII 105-106 1.625% 6.5% 13.0%
VIII 104 1.000% 4.0% 8.0%
IX 11-103 N/A N/A N/A
</TABLE>
TABLE IIIA
<TABLE>
<CAPTION>
Impact Pay Minimum Target Maximum
Level Grade Performance Level Performance Level Performance Level
-------- ----- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
I-IV 113-203 N/A N/A N/A
V 110-112 1.875% 7.500% 15.00%
VI 107-109 1.500% 6.000% 12.00%
VII 105-106 1.031% 4.125% 8.25%
VIII 104 0.500% 2.000% 4.00%
IX 11-103 N/A N/A N/A
</TABLE>
9
<PAGE> 10
4.3 Proration of Certain Bonuses. Notwithstanding any other
provision in this ARTICLE IV, except as approved by the Compensation Committee
prior to the payment of Personal Performance Bonuses, or subsequently thereto
by ratification, if the amount of the Personal Performance Bonuses payable to
all Employees of the Company and all Participating Employers in Impact Levels
V-VIII exceeds the amount that would be payable to all such Employees if each
of their Personal Performance Levels were determined to be 100%, the amount of
such excess shall be deducted pro rata from the Personal Performance Bonus
payable to each such Employee whose Personal Performance Level exceeds 100%.
4.4 Terminated Eligible Employees. Terminated Eligible Employees
shall be eligible to receive a Personal Performance Bonus based upon an assumed
Personal Performance Level of 100%.
4.5 Ineligible Employees. Employees with an Impact Level of IX
and Employees whose Personal Performance Level (determined pursuant to Section
4.1) is less than 25% shall not be eligible to receive a Personal Performance
Bonus.
ARTICLE V
TEAM PERFORMANCE BONUS
5.1 Team Performance Level. This ARTICLE V shall be applicable
only to Employees designated as members of an Exploration Team, a Project
Engineering Team, or the Batu Hijau Team. At the end of the Plan Year, the
Vice Presidents responsible for each Team will make an assessment of the
performance of their respective Teams. The overall Team Performance Ratings
for each Vice President responsible for one or more Teams will be determined by
the appropriate Senior Vice President or the Chief Executive Officer of the
Company. In accordance with the Company's performance management system, the
Vice President will rate the degree to which the Team met the Key Objectives
that were set and documented for the Team during the Plan Year. Each Team will
be rated in one of the Company's Performance Rating Categories. In conjunction
with these ratings, each Vice President will assign a Team Performance Level
for their respective Teams in accordance with Table II in Section 4.1. A 100%
or higher Team Performance Level will be awarded to Teams that realize full
compliance with challenging achievement standards. A 200% Team Performance
Level will be awarded to Teams that demonstrate exceptional achievement. If
the Team's Team Performance Level is less than 25%, the Employees assigned to
the Team will not receive a Team Performance Bonus. If the Team's Team
Performance Level is 25%, the Team's Team Performance Level is in the "Minimum
Performance Level" category. If the Team's Team Performance Level is 100%, the
Team's Team Performance Level is in the "Target Performance Level" category.
If the Team's Team Performance Level is 200%, the Team's Team Performance Level
is in the "Maximum Performance Level" category. The percentages shown in the
"Target Performance Level" category specified in the Table set forth below in
Section 5.2 shall be multiplied by the Team's Team Performance Level to
determine the applicable percentage for
10
<PAGE> 11
calculating the Team's Team Performance Bonus. For example, if a Team's Team
Performance Level is 90%, and if an Employee assigned to that Team is in Impact
Level V, the Employee's Team Performance Bonus shall be calculated using a
percentage of 13.5%.
5.2 Determination of Team Performance Bonus. Subject to Sections
5.4 and 6.1, an Employee's Team Performance Bonus is calculated as a percentage
of the Employee's Salary. The applicable percentage is a function of the
Employee's Impact Level and Team Performance Level category determined pursuant
to Section 5.1, as set forth in the following Table IV:
TABLE IV
<TABLE>
<CAPTION>
Impact Pay Minimum Target Maximum
Level Grade Performance Level Performance Level Performance Level
------ ----- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
I-IV 113-203 N/A N/A N/A
V 110-112 3.750% 15.0% 30.0%
VI 107-109 3.000% 12.0% 24.0%
VII 105-106 2.060% 8.25% 16.5%
VIII 104 1.125% 4.50% 9.0%
IX 11-103 0.625% 2.50% 5.0%
</TABLE>
5.3 Terminated Eligible Employees. Terminated Eligible Employees
shall be eligible to receive a Team Performance Bonus based upon the actual
Team Performance Level for the applicable Team calculated through the end of
the month during which the Employee's termination of employment with the
Company and/or all Participating Employers occurred.
5.4 Ineligible Employees. Employees whose Personal Performance
Level (determined pursuant to Section 4.1) is less than 25% and Employees whose
Impact Levels range from I-IV shall not be eligible to receive a Team
Performance Bonus.
ARTICLE VI
PAYMENT OF BONUS
6.1 Minimum Gold Price. Notwithstanding any other provision
herein, no bonus will be payable to any Employee pursuant to the terms of this
Plan unless the average price of gold realized by NGC for the Plan Year is
equal to or greater than the Minimum Gold Price. For 1996, the Minimum Gold
Price has been set at $350.
6.2 Multiple Impact Levels. The bonus payable to an eligible
Employee who was in more than one Impact Level during the Plan Year shall be
calculated on a pro-rata basis in
11
<PAGE> 12
accordance with the amount of time spent by such Employee in each Impact Level
during the Plan Year.
6.3 Multiple Teams. The bonus payable to an eligible Employee who
was in more than one Team during the Plan Year shall be calculated on a
pro-rata basis in accordance with the amount of time spent by such Employee in
each Team during the Plan Year.
6.4 Multiple Units. The bonus payable to an eligible Employee who
was in more than one Unit during the Plan Year shall be calculated on a
pro-rata basis in accordance with the amount of time spent by such Employee in
each Unit during the Plan Year.
6.5 Form of Payment. The aggregate of any and all bonuses payable
under the Plan shall be payable to each Employee in cash as soon as practicable
following the close of the Plan Year, provided, however, that bonuses payable
to Terminated Eligible Employees will be paid within 90 days after the last day
of the month of termination of employment. However, in its sole discretion,
the Compensation Committee may determine to award a portion of the Personal
Performance bonus of each Employee with an Impact Level ranging from I-IV in
shares of Common Stock, valued at Fair Market Value on the date the bonuses are
awarded, provided, however, that the portion of an Employee's bonus payable in
shares of Common Stock shall not exceed 50% of the total amount of the bonus.
Any bonus payable in Common Stock shall be subject to such vesting and earn-out
provisions, if any, as may be established by the Compensation Committee on the
date the bonuses are awarded.
6.6 Withholding Taxes. All bonuses payable hereunder shall be
subject to the withholding of such amounts as the Company may determine is
required to be withheld pursuant to any applicable federal, state or local law
or regulation.
ARTICLE VII
GENERAL PROVISIONS
7.1 Administration. The Plan will be administered by the
Compensation Committee or its delegees. The Compensation Committee shall
interpret the provisions of the Plan in its full and absolute discretion. The
determinations of the Compensation Committee with respect to the Plan shall be
conclusive. All expenses of the Company in administering the Plan shall be
borne by the Company.
7.2 Plan Unfunded. The plan shall be unfunded and no trust or
other funding mechanism shall be established for the Plan. All benefits to be
paid pursuant to the Plan shall be paid by the Company from its general assets
and an Employee (or his heir or devisee) shall not have any greater rights than
a general, unsecured creditor against the Company for any benefit hereunder.
12
<PAGE> 13
7.3 Participation in Plan by Affiliates. Any Affiliated Entity
shall become a party to this Plan and become a Participating Employer upon
designation by the Company as a Participating Employer.
7.4 Amount Payable Upon Death of Employee. If an Employee who is
entitled to payment hereunder dies before receiving full payment of the amount
due, such amount shall be paid, in a cash lump sum, to the beneficiary or
beneficiaries designated by the Employee to receive life insurance proceeds
under NGC's life insurance plan. In the absence of an effective beneficiary
designation under said plan, any amount payable hereunder following the death
of an Employee shall be paid to the Employee's estate.
7.5 Right of Offset. To the extent permitted by applicable law,
the Company may, in its sole discretion, apply any bonus payments otherwise due
and payable under this Plan against any Employee loans outstanding to the
Company or other debts of the Employee to the Company.
7.6 Amendments, Termination, Etc. The Board, upon the
recommendation of the Compensation Committee, may at any time amend, modify,
suspend or terminate the Plan.
7.7 Payments Due Minors or Incapacitated Persons. If any person
entitled to a payment under the Plan is a minor, or if the Compensation
Committee determines that any such person is incapacitated by reason of
physical or mental disability, whether or not legally adjudicated as an
incompetent, the Compensation Committee shall have the power to cause the
payment becoming due to such person to be made to another for his benefit,
without responsibility of the Compensation Committee, the Company, or any other
person or entity to see to the application of such payment. Payments made
pursuant to such power shall operate as a complete discharge of the
Compensation Committee, the Plan and the Company.
7.8 Section Headings. The Section headings are included herein
only for convenience, and they shall have no effect on the interpretation of
the Plan.
7.9 Severability. If any article, section, subsection or specific
provision is found to be illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and the Plan
shall be construed and enforced as if such illegal and invalid provision had
never been set forth in the Plan.
7.10 No Right to Employment. The establishment of this Plan shall
not be deemed to confer upon any person any legal right to be employed by, or
to be retained in the employ of, the Company or any Affiliated Entity, or to
give any Employee or any person any right to receive any payment whatsoever,
except as provided under this Plan. All Employees shall remain subject to
discharge from employment to the same extent as if this Plan had never been
adopted.
13
<PAGE> 14
7.11 Transferability. Any bonus payable hereunder is personal to
the Employee and may not be sold, exchanged, transferred, pledged, assigned or
otherwise disposed of except by will or by the laws of descent and
distribution.
7.12 Successors. This Plan shall be binding upon and inure to the
benefit of the Company, the Participating Employers and the Employees and their
respective heirs, representatives and successors.
7.13 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado,
unless superseded by federal law.
Adopted as of January 1, 1996.
NEWMONT GOLD COMPANY
By: /s/ Timothy J. Schmitt
-------------------------------------
Timothy J. Schmitt
14
<PAGE> 1
Exhibit 11
NEWMONT GOLD COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
PRIMARY EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
INCOME DATA:
Net income $ 93,972 $124,872 $ 83,394
Preferred stock dividends - (11,157) (15,813)
--------- -------- --------
Net income applicable to
common shares $ 93,972 $113,715 $ 67,581
========= ======== ========
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 109,448 97,268 96,331
Equivalent common shares
from stock options 318 107 141
--------- -------- --------
Common and common
equivalent shares 109,766 97,375 96,472
========= ======== =======
EARNINGS PER COMMON SHARE:
Net income per common and
common equivalent
shares $ 0.86 $ 1.17 $ 0.70
========= ======== =======
</TABLE>
Page 1 of 2
<PAGE> 2
Exhibit 11
NEWMONT GOLD COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share)
FULLY DILUTED EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INCOME DATA:
Net income applicable to
common shares $ 93,972 $124,872 $ 83,394
======== ======== ========
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common
shares 109,448 97,268 96,331
Equivalent common shares
from stock options 318 107 141
Equivalent common shares
from conversion of
preferred stock - 5,583 7,899
-------- -------- --------
Common and common
equivalent shares 109,766 102,958 104,371
======== ======== ========
EARNINGS PER COMMON SHARE:
Net income per common
and common equivalent
shares $ 0.86 $ 1.21 $ 0.80
======== ======== ========
</TABLE>
Page 2 of 2
<PAGE> 1
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands except ratios)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and
cumulative effect of changes
in accounting principles $ 74,572 $141,864 $ 54,060 $113,234 $ 93,399
Adjustments:
Net interest expense (2) 43,987 36,415 9,823 12,393 14,555
Amortization of capitalized
interest 2,070 2,305 1,928 1,814 1,410
Portion of rental expense
representative of interest 2,198 1,604 825 800 1,088
Minority interest of majority-
owned subsidiaries that have
fixed charges - - - 11,113 7,580
Undistributed income of less-
than-50%-owned entities (13,134) (3,603) (16,089) (3,526) -
-------- -------- -------- -------- --------
$109,693 $178,585 $ 50,547 $135,828 $118,032
======== ======== ======== ======== ========
Fixed Charges:
Net interest expense (2) $ 43,987 $ 36,415 $ 9,823 $ 12,393 $ 14,555
Capitalized interest 5,366 11,558 19,618 8,480 2,405
Portion of rental expense
representative of interest 2,198 1.604 825 800 1,088
-------- -------- -------- -------- --------
$ 51,551 $ 49,577 $ 30,266 $ 21,673 $ 18,048
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.1 3.6 1.7 6.3 6.5
=== === === === ====
</TABLE>
(1) The computations for the years ended December 31, 1993 and 1992 are for
Newmont Mining Corporation ("NMC"), Newmont Gold Company's ("NGC")
parent. Computations for these periods are presented for NMC because
management believes they are more relevant than NGC's historical
computations for the same periods due to the fact that effective January 1,
1994 NGC acquired essentially all of NMC's assets and assumed essentially
all of NMC's liabilities. The computations are reflective of what they
would have been for NGC had this transaction occurred at the beginning of
1992. NGC was fully consolidated into NMC in all periods. NGC had no
significant fixed charges in 1992 or 1993.
(2) Includes interest expense of majority-owned subsidiaries and amortization
of debt issuance costs.
Page 1 of 1
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Current Report on Form 8-K dated March 19, 1997
into Newmont Gold Company's previously filed S-8 Registration Statement
No. 333-10765, S-3 Registration Statement No. 33-54245 and S-8 Registration
Statement No. 33-62471.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Denver, Colorado
March 19, 1997.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy J. Schmitt his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, in
his name and on his behalf, to do any and all acts and things and to execute any
and all instruments which he may deem necessary or advisable to enable Newmont
Gold Company 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 Gold Company) to the Annual Report on form 10-K of Newmont
Gold Company for the fiscal year ended December 31, 1996 and the undersigned
hereby ratifies and confirms all that said attorney-in-fact and agent shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as of
the 19th day of March, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RUDOLPH I. J. AGNEW Director
- -----------------------------------------------------
Rudolph I. J. Agnew
/s/ J.P. BOLDUC Director
- -----------------------------------------------------
J.P. Bolduc
/s/ RONALD C. CAMBRE Chairman, President and Chief Executive
- ----------------------------------------------------- Officer and Director (Principal Executive
Ronald C. Cambre Officer)
/s/ JOSEPH P. FLANNERY Director
- -----------------------------------------------------
Joseph P. Flannery
/s/ LEO I. HIGDON, JR. Director
- -----------------------------------------------------
Leo I. Higdon, Jr.
/s/ THOMAS A. HOLMES Director
- -----------------------------------------------------
Thomas A. Holmes
/s/ ROBERT H. QUENON Director
- -----------------------------------------------------
Robert H. Quenon
/s/ MOEEN A. QURESHI Director
- -----------------------------------------------------
Moeen A. Qureshi
/s/ MICHAEL K. REILLY Director
- -----------------------------------------------------
Michael K. Reilly
/s/ WILLIAM I. M. TURNER, JR. Director
- -----------------------------------------------------
William I. M. Turner, Jr.
/s/ WAYNE W. MURDY Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial Officer)
Wayne W. Murdy
/s/ GARY E. FARMAR Vice President and Controller (Principal
- ----------------------------------------------------- Accounting Officer)
Gary E. Farmar
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 185,681
<SECURITIES> 12,724
<RECEIVABLES> 28,692
<ALLOWANCES> 0
<INVENTORY> 188,345
<CURRENT-ASSETS> 455,882
<PP&E> 2,049,272
<DEPRECIATION> 747,320
<TOTAL-ASSETS> 2,081,074
<CURRENT-LIABILITIES> 224,094
<BONDS> 585,009
0
0
<COMMON> 424,538
<OTHER-SE> 707,517
<TOTAL-LIABILITY-AND-EQUITY> 2,081,074
<SALES> 768,455
<TOTAL-REVENUES> 794,926
<CGS> 476,090
<TOTAL-COSTS> 600,931
<OTHER-EXPENSES> 120,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,987
<INCOME-PRETAX> 74,572
<INCOME-TAX> 19,400
<INCOME-CONTINUING> 93,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,972
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
