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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9184
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 80203
DENVER, COLORADO (Zip Code)
(Address of Principal Executive Offices)
</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
------------------- ---------------------
<S> <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 5, 1998 was approximately $289,650,000.
The number of shares of Registrant's common stock outstanding on March 5,
1998 was 166,897,966.
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 7, 1998 (Part III).
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<PAGE> 2
This document contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, which involve a degree of
risk and uncertainty due to various factors affecting Newmont Gold Company and
its subsidiaries. For a discussion thereof, see page 18.
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 the production of gold, the development of
gold properties, the exploration for gold and the acquisition of gold properties
worldwide, and produces gold from operations in Nevada and California, as well
as in Peru, Indonesia and the Central Asian Republic of Uzbekistan. Newmont Gold
Company, together with its subsidiaries (unless the context otherwise requires),
is referred to herein as "NGC". 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 Merger (discussed below), NMC now
owns approximately 93.75% of the common stock and options to purchase additional
shares of the common stock of NGC.
On May 5, 1997, NMC acquired pursuant to a merger (the "Merger") Santa Fe
Pacific Gold Corporation ("Santa Fe"). Each outstanding share of common stock of
Santa Fe was converted in the Merger into the right to receive 0.43 of a share
of common stock of NMC. Upon consummation of the Merger, shares of common stock
of Santa Fe were contributed to NGC in exchange for (i) shares of NGC common
stock in an amount equal to the number of shares of 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. As a result, Santa Fe became a wholly-owned subsidiary of NGC, and
the number of outstanding shares of NMC common stock continued to be equal to
the number of shares of NGC common stock owned by NMC. The Merger qualified as a
tax-free reorganization and was accounted for as a pooling of interests. All
information set forth in this Report with respect to periods prior to 1997 has
been restated to reflect the Merger.
Substantially all of NGC's consolidated sales and operating profit in 1995
related to its U.S. gold mining activities. In 1996, 90% of NGC's consolidated
sales resulted from operations in the U.S. and 10% from its foreign operations
in Uzbekistan and Indonesia. In 1997, NGC's consolidated sales resulted from
operations in the U.S., Peru, Uzbekistan and Indonesia. In 1997, 76% of NGC's
equity production of gold related to its U.S. operations and 24% to its foreign
operations. At December 31, 1997, approximately 20% of NGC's consolidated assets
related to its foreign operations.
NEWMONT GOLD COMPANY
Overview
NGC produces gold in Nevada and California. It also produces gold through a
51.35% owned company in Peru and a 50% owned venture in Uzbekistan which
commenced gold production in September 1995. NGC additionally has an 80%
interest in an Indonesian company which commenced gold production in March 1996
and an indirect 45% interest in a second Indonesian company that holds an
interest in a large copper/gold project which is currently in the construction
stage. NGC also has a 44% interest in a project in Mexico which is undergoing
development and is scheduled to commence production in mid-1998. In addition to
exploration activities conducted in connection with these operations and
projects, NGC continues to explore for gold and/or is conducting joint venture
activities in other parts of these countries as well as in North America, Latin
America, South America, Southeast Asia and Central Asia. NGC had 52.7 million
equity ounces of proven and probable gold reserves at December 31, 1997 and 55.2
million equity ounces of proven and probable gold reserves at December 31, 1996.
<PAGE> 3
NEVADA
Production
- -----------
NGC's Nevada operations include Carlin, located on the geological feature
known as the Carlin Trend which NMC discovered in 1961, and operations acquired
in the Merger located in Nevada, referred to as the Winnemucca Region. The
Carlin Trend, located near Carlin, Nevada, is the largest gold district
discovered in North America in this century. The Winnemucca Region includes the
Twin Creeks mine near Winnemucca, Nevada, the Lone Tree Complex near Battle
Mountain, Nevada, and the 50% interest in The Rosebud Mining Company, L.L.C.
("Rosebud") west of Winnemucca, Nevada. Production began in 1965 at Carlin, in
1990 at Twin Creeks, in 1991 at the Lone Tree Complex and in 1997 at Rosebud.
See map on page 6.
Gold production in Nevada totaled 2,776,500 ounces in 1997 at a total cash
cost of $207 per ounce, 2,328,300 ounces in 1996 at a total cash cost of $234
per ounce and 2,297,100 ounces in 1995 at a total cash cost of $214 per ounce.
Production in 1998 is expected to decrease slightly as a result of plans to
conserve cash during the current low gold price environment. Such plans include
reduced mining rates at certain deposits, operating three mills on a scheduled
periodic basis and deferral of certain capital spending. To accommodate these
plans, the workforce in Nevada was reduced by 285 employees in January 1998.
In 1997, ore was mined from 17 open-pit deposits and from five underground
mines. The Post deposit at Carlin is mined by Barrick Goldstrike Mines Inc.
under a joint mining agreement. At the end of 1997, this ore body contained
approximately 1.75 million ounces of proven and probable reserves for NGC's
account. The parties share the cost of mining the ore body in proportion to
their interests in the contained gold. Production initially scheduled from 1998
mining activity at the Post deposit has been deferred due to a pit wall failure
that occurred in mid-1997. During 1998, waste removal will occur to accommodate
the revised mine plan. The 50%-owned Rosebud underground mine is operated by
Hecla Mining Company. All ore mined from Rosebud is transported to Twin Creeks
for processing at an agreed upon cost.
The following table presents Nevada operations mine production data:
NEVADA MINE PRODUCTION
(DRY SHORT TONS 000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------- ----------------------------------- -------------------------
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 Mines
Carlin Trend
Carlin South......... 7,649 27,544 41,312 76,505 8,407 30,891 57,805 97,103 9,162 34,498 59,382
Carlin North-Post.... 4,721 7 47,914 52,642 1,037 136 78,180 79,353 2,084 752 63,024
Carlin North-Genesis
Complex............ 612 10,381 26,331 37,324 1,753 12,493 43,822 58,068 3,258 15,380 46,727
Carlin North-Other... 1,860 3,668 20,843 26,371 661 1,289 4,969 6,919 13 65 2,461
Twin Creeks............ 4,418 11,191 99,942 115,551 3,136 18,238 106,845 128,219 3,216 17,013 109,446
Lone Tree Complex...... 2,874 7,104 50,267 60,245 1,910 4,736 41,645 48,291 1,523 2,827 35,786
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total Open-Pit..... 22,134 59,895 286,609 368,638 16,904 67,783 333,266 417,953 19,256 70,535 316,826
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Nevada Underground
Carlin North......... 683 0 0 683 546 0 0 546 358 0 0
Carlin Rain.......... 145 29 0 174 160 6 0 166 146 0 0
Rosebud (50%)........ 113 0 0 113 0 0 0 0 0 0 0
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total
Underground...... 941 29 0 970 706 6 0 712 504 0 0
------ ------ ------- ------- ------ ------ ------- ------- ------ ------ -------
Total Nevada....... 23,075 59,924 286,609 369,608 17,610 67,789 333,266 418,665 19,760 70,535 316,826
====== ====== ======= ======= ====== ====== ======= ======= ====== ====== =======
<CAPTION>
1995
-------
TOTAL
-------
<S> <C>
Open-Pit Mines
Carlin Trend
Carlin South......... 103,042
Carlin North-Post.... 65,860
Carlin North-Genesis
Complex............ 65,365
Carlin North-Other... 2,539
Twin Creeks............ 129,675
Lone Tree Complex...... 40,136
-------
Total Open-Pit..... 406,617
-------
Nevada Underground
Carlin North......... 358
Carlin Rain.......... 146
Rosebud (50%)........ 0
-------
Total
Underground...... 504
-------
Total Nevada....... 407,121
=======
</TABLE>
2
<PAGE> 4
Processing Facilities
Oxide ore is amenable to gold extraction through the use of size-reduction
processes, such as crushing and grinding, and the dissolution of the gold in
such ore using conventional cyanidation treatment techniques. Refractory ore
contains minerals which require pre-treatment, such as roasting,
pressure-oxidation, flotation or bio-oxidation, to optimize recovery of gold in
the cyanidation processes. Approximately 70% of NGC's 1997 year-end proven and
probable gold reserves in Nevada were refractory and the balance were oxide.
Nevada's production is increasingly coming from higher-cost refractory ores from
both deep open pits and underground mines as lower-cost, near-surface oxide ores
are depleted. Refractory ore treatment facilities are expected to generate
approximately 47% of NGC's Nevada gold production in 1998, compared with 35% in
1997 and 30% in 1996.
During 1997, NGC processed higher-grade oxide ores at six mills and
lower-grade oxide ores at heap-leaching facilities in both regions. Higher-grade
refractory ores are processed by a roaster at Carlin, and by autoclaves in the
Winnemucca Region. Lower-grade refractory ores are processed through a flotation
plant at Lone Tree or by bio-oxidation and heap-leaching at Carlin. Since the
Merger, selected ores and concentrates are transported to the facility that
maximizes gold recovery and production.
NGC's refractory ore treatment plant, or roaster, known as Mill No. 6, was
commissioned in late 1994 to treat high-grade refractory ores that contain
either sulfides or active carbon. Ore processed through the roaster yielded
approximately 700,900 ounces of gold in 1997, 540,000 ounces in 1996 and 354,400
ounces in 1995. A portion of the concentrates from the Lone Tree flotation plant
were processed through the roaster during the latter half of 1997. To finance
the roaster, it was sold to a third party and leased back to NGC in 1994
pursuant to a 21-year lease. For a discussion of the financing of the roaster,
see page 56.
Refractory ores at Twin Creeks are processed through the Sage Mill, a
two-autoclave facility that utilizes a patented fine-grinding,
pressure-oxidation process which oxidizes ore by the action of heat, pressure
and elevated oxygen. The first autoclave was commissioned in May 1997 and the
second in October 1997. Refractory ores from certain deposits at the Lone Tree
Complex and a portion of the concentrates from the Lone Tree flotation plant
were also processed through the Sage Mill. Since the Merger, certain ores from
the Carlin North Area are transported to and processed through the Sage Mill.
During scheduled maintenance periods, oxide ore is processed through the Sage
mill, bypassing the autoclave circuits.
The Lone Tree Mill is a patented partial-oxidation autoclave circuit which
commenced operation in early 1994. Oxide ore is also processed through the mill,
bypassing the autoclave circuit, generally when the autoclave is undergoing
scheduled maintenance. Lower-grade refractory ores are treated at a flotation
plant which was commissioned in mid-1997. In the flotation process, sulfide
mineralization, with which gold is associated, is concentrated and separated
from other minerals present in the ore utilizing inert gas. The resulting
concentrates, containing higher percentages of gold in substantially smaller
volumes of material, are processed through either the Lone Tree autoclave, the
Sage Mill or Carlin's roaster.
During 1997, NGC completed a large-scale bio-leach demonstration facility
to process lower-grade refractory ores from Carlin's Gold Quarry deposit.
Approximately 13,800 ounces of gold were produced in 1997 from this facility.
This process utilizes bacterial oxidation and ammonium thiosulfate leaching
applications. An eight million ton commercial-scale refractory leach pad,
originally scheduled for completion in 1999, has been deferred as part of NGC's
plans to reduce capital spending during 1998.
3
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The following table presents mill and leach production data for the Nevada
operations:
NEVADA MILL AND LEACH PRODUCTION
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------- -------------------------------------- ----------------
DRY DRY DRY
SHORT AVERAGE OUNCES SHORT AVERAGE OUNCES SHORT
TONS AVERAGE RECOVERY PRODUCED TONS AVERAGE RECOVERY PRODUCED TONS AVERAGE
(000) GRADE* RATE(%) (000) (000) GRADE* RATE(%) (000) (000) GRADE*
------ ------- -------- -------- ------ ------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oxide Mills:
Carlin Trend
Mill No. 3................ 0 0.000 0.0 0.0 242 0.186 68.2 39.6 105 0.211
Mill No. 4................ 2,104 0.125 76.6 207.7 2,741 0.071 75.6 152.7 2,713 0.063
Mill No. 5................ 6,170 0.087 81.5 443.7 5,904 0.084 77.8 400.8 6,172 0.091
Twin Creeks................. 3,633 0.096 86.2 286.4 2,768 0.085 83.7 160.7 2,401 0.087
Lone Tree Complex........... 680 0.138 83.0 71.0 241 0.133 86.0 27.6 312 0.147
------ ------- ------ ------- ------
Total Oxide Mills....... 12,587 0.099 81.9 1,008.8 11,896 0.084 79.1 781.4 11,703 0.086
------ ------- ------ ------- ------
Refractory Mills:
Carlin Roaster............ 2,330 0.336 87.3 700.9 2,364 0.256 84.8 540.0 1,383 0.281
Twin Creeks Autoclaves.... 763 0.206 89.5 144.0 0 0 0 0 0 0
Lone Tree Autoclave....... 1,382 0.106 85.8 114.2 841 0.165 90.9 127.7 714 0.157
------ ------- ------ ------- ------
Total Refractory
Mills................. 4,475 0.242 87.4 959.1 3,205 0.232 86.0 667.7 2,097 0.239
------ ------- ------ ------- ------
Total Mills............. 17,062 0.137 83.3 1,967.9 15,101 0.115 80.6 1,449.1 13,800 0.109
------ ------- ------ ------- ------
Leach Production:
Carlin -- Oxide........... 34,820 0.022 N/A 465.3 38,658 0.022 N/A 547.3 44,095 0.023
Carlin -- Refractory...... 363 0.075 N/A 13.8 352 0.107 N/A 19.7 0 0
Twin Creeks -- Oxide...... 11,187 0.018 N/A 202.0 18,238 0.022 N/A 261.3 17,022 0.020
Lone Tree -- Oxide........ 6,926 0.026 N/A 127.5 4,716 0.025 N/A 50.9 2,833 0.040
------ ------- ------ ------- ------
Total Leach............. 53,296 0.022 808.6 61,964 0.023 879.2 63,950 0.023
------ ------- ------ ------- ------
Total Nevada............ 70,358 0.050 2,776.5 77,065 0.041 2,328.3 77,750 0.038
====== ======= ====== ======= ======
<CAPTION>
1995
-------------------
AVERAGE OUNCES
RECOVERY PRODUCED
RATE(%) (000)
-------- --------
<S> <C> <C>
Oxide Mills:
Carlin Trend
Mill No. 3................ 87.6 19.9
Mill No. 4................ 80.6 139.6
Mill No. 5................ 82.8 473.5
Twin Creeks................. 88.6 198.3
Lone Tree Complex........... 89.0 40.8
-------
Total Oxide Mills....... 83.9 872.1
-------
Refractory Mills:
Carlin Roaster............ 91.0 354.4
Twin Creeks Autoclaves.... 0 0
Lone Tree Autoclave....... 90.8 99.3
-------
Total Refractory
Mills................. 87.4 453.7
-------
Total Mills............. 84.4 1,325.8
-------
Leach Production:
Carlin -- Oxide........... N/A 647.1
Carlin -- Refractory...... N/A 0
Twin Creeks -- Oxide...... N/A 239.1
Lone Tree -- Oxide........ N/A 85.1
-------
Total Leach............. 971.3
-------
Total Nevada............ 2,297.1
=======
</TABLE>
- ---------------
* Ounce Per Ton
Other Facilities
Gold-bearing activated carbon from Carlin milling and leaching facilities
is processed on site at a central carbon processing plant and adjacent refinery.
Separate carbon processing facilities are located in the north and south areas
at Twin Creeks with one refinery in the north area. Lone Tree has two carbon
processing facilities and one refinery.
Analytical laboratories, maintenance facilities and administration offices
are located at Carlin, Twin Creeks and Lone Tree. NGC also has an advanced
metallurgical research laboratory in Denver, Colorado.
Electrical power and natural gas for NGC's Nevada operations are provided
by public utilities. Oxygen for the roaster is provided by Praxair Inc. on a
contract basis from an oxygen plant constructed by Praxair Inc. on land leased
from NGC which is currently the sole customer of the oxygen produced. Oxygen
plants used in conjunction with the autoclaves at Twin Creeks and Lone Tree are
owned by NGC and are operated and maintained by Air Products and Chemical, Inc.
Refining
NGC has refining agreements with three foreign refiners and one U.S.
refiner to further refine the dore bars produced by NGC to 0.995 pure gold or
better, recognized as marketable on world markets. Under the terms of the
agreements with these refiners, the dore bars are toll refined and the refined
gold and the separately recovered silver are returned to NGC's account for sale
to third parties. Management believes that
4
<PAGE> 6
because of the availability of alternative refiners, each able to supply all
services needed by NGC for its Nevada operations, no adverse effect would result
if NGC lost the services of any of its refiners.
Exploration
NGC conducts extensive exploration in Carlin and the Winnemucca Region. NGC
owns or otherwise controls the mineral interests on approximately 1.9 million
acres of property in northern Nevada. During 1997, exploration efforts were
focused on high-grade refractory targets near existing deposits. Following the
Merger, a concerted effort began to evaluate the lands in Nevada acquired in the
Merger. This evaluation included geological mapping, an airborne geophysical
survey and re-logging of drill holes in order to develop target areas around the
Twin Creeks, Lone Tree and Rosebud mines. Drill testing of these targets
commenced in early 1998.
In 1997, approximately $35.4 million was spent by NGC on reserve
development and exploration in Nevada. For 1998, approximately $30 million is
expected to be spent on reserve development and exploration in Nevada.
Mineral Rights
With respect to Carlin, NGC owns in fee or controls through long-term
mining leases and unpatented mining claims all of the minerals and surface area
within the boundaries of the present mining areas of its Carlin Trend deposits.
Such long-term leases extend for at least the anticipated mine life of those
deposits. With respect to Gold Quarry, NGC owns a 10% undivided interest in the
minerals in a majority of the present and projected mining areas, and with
respect to the remaining 90% of such areas has agreed to pay a royalty on
production to third party lessors that is equivalent to 18% of production
therefrom.
In the Winnemucca Region, NGC owns in fee or controls through long-term
mining leases and unpatented mining claims all of the minerals and surface area
within the boundaries of the present mining areas of its Winnemucca Region
deposits. Such long-term leases extend for at least the anticipated mine life of
those deposits. With respect to certain smaller deposits in the Winnemucca
Region, NGC is obligated to pay a royalty on production to third parties that
varies from 4% to 7% of production therefrom.
For information regarding risks associated with unpatented mining claims,
see page 20.
5
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Nevada Properties and Land Holdings
[MAP]
CALIFORNIA
The Mesquite Mine, located in Imperial County in southern California, was
acquired by Santa Fe in an asset exchange in 1993 and has been producing since
1986. Mining at the Mesquite Mine is conducted in two open pits and ore is
processed by run-of-mine heap-leaching. Gold production totaled 227,900 ounces
in 1997, 191,600 ounces in 1996 and 189,200 ounces in 1995. Total cash costs per
ounce were $213, $245 and $211 for 1997, 1996 and 1995, respectively.
Gold-bearing activated carbon from leaching facilities is processed at an
on-site carbon processing plant and refinery. Maintenance facilities and
administration offices are also located at Mesquite. Electric power is supplied
by the Imperial Irrigation District.
With approximately 613,000 ounces of proven and probable reserves at
December 31, 1997, Mesquite is approaching the end of its mine life. Following a
recent land exchange between the Bureau of Land Management and the State of
California, NGC gained access to property located just north of an existing pit
through a lease with the State. NGC is in the process of obtaining environmental
permits required to commence drilling on this property. Beginning in 1998 the
mining rate at Mesquite was reduced to allow continuation of operations through
the period of time required to determine the development potential of this
6
<PAGE> 8
property. As a result of such revised mine plan, the workforce was reduced by
approximately 125 employees in January 1998. Production in 1998 will be
approximately 38% less than 1997.
MESQUITE MINE AND LEACH PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Leach tons mined...................................... 16,463 15,528 13,902
Waste tons mined...................................... 29,142 25,891 23,558
Tons mined............................................ 45,605 41,419 37,460
Ore place on leach pads............................... 16,463 15,527 13,767
Average ore grade (ounce per ton)..................... 0.016 0.023 0.022
Ounces of gold produced (000)......................... 227.9 191.6 189.2
</TABLE>
NGC owns in fee or controls through long-term mining leases and unpatented
mining claims all of the minerals and surface area within the boundaries of the
present mining areas of its Mesquite deposit. Such long-term leases extend for
at least the anticipated mine life of those deposits. For information regarding
risks associated with unpatented mining claims, see page 20.
PERU
Introduction
NGC produces gold through Minera Yanacocha S.A. ("Minera Yanacocha") in
Peru. In 1986, NGC discovered the Yanacocha gold deposit which has since become
the largest gold district in South America. Minera Yanacocha began production in
1993. Prior to 1997, NGC owned a 38% equity interest in Minera Yanacocha. In
1997, NGC consolidated Minera Yanacocha in its financial statements following
the acquisition of an additional 13.35% interest, which acquisition is currently
contested in the court proceedings described below.
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the
geological and mining bureau of the French government ("BRGM"), and in September
1994 BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha to another entity. NGC and Compania de Minas Buenaventura, S.A.
("Buenaventura"), then 38% and 32.3% owners of Minera Yanacocha, respectively,
filed suit in Peru to seek enforcement of a provision in the by-laws of Minera
Yanacocha, giving shareholders preemptive rights on the proposed sale or
transfer of any shareholder's interest. The caption of the suit is Compania
Minera Condesa et al. v. Bureau de Recherches Geologiques et Minieres, Case No.
944-94-A (300-96RC), Fifth Specialized Civil Court In and For Lima. In February
1995, an appellate court in Peru issued a preliminary ruling in favor of NGC and
Buenaventura, both of whom elected to exercise their preemptive rights to
acquire their proportionate share of the 24.7% interest. In accordance with the
court ruling, Minera Yanacocha canceled the BRGM shares and issued shares
representing interests in Minera Yanacocha of 13.35% to NGC and 11.35% to
Buenaventura.
NGC deposited its share of the provisional $90 million purchase price and
the shares for its additional interest with a Peruvian bank pending the final
resolution of the case. The trial hearing in the case occurred in July 1996 and
a ruling in NGC's and Buenaventura's favor was issued in September 1996. The
trial court ruling provided that the preemptive rights were triggered in
November 1993, and that the value of the 24.7% interest was $109.3 million. The
value of NGC's shares held in escrow was calculated as of such date at $59.1
million and the additional amount was deposited with the Peruvian bank.
An appeal to the Superior Court of Lima was filed by BRGM and other
defendants challenging the court's determination that the preemptive rights were
triggered and the date and amount of the valuation. In February 1997, the
Peruvian Superior Court upheld the decision of the trial court. Therefore, NGC
reflected the increase in its ownership for reporting purposes from 38.0% to
51.35% as of February 1997.
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<PAGE> 9
BRGM and other defendants in the suit filed a request for review of the
Superior Court decision by the Supreme Court of Peru. The case was argued to a
panel of five Peruvian Supreme Court justices on December 17, 1997. In order to
prevail at the Supreme Court level, a party must obtain four votes in its favor.
The five-judge panel issued a split decision, with two in favor of NGC and three
voting in favor of BRGM. A sixth justice was then appointed to hear the case and
has not yet issued her vote. If the vote is in favor of NGC, a seventh judge
will be appointed to hear the case. At this time, NGC is unable to predict the
outcome of the litigation. An unfavorable decision would require reversion to
equity accounting in 1997 for NGC's 38% interest in Minera Yanacocha and the
possibility of a dividend refund attributable to the acquired interest. The
additional interest represented $0.07 of net income per share and 3% of total
equity production in 1997 and is expected to comprise 4% of 1998 equity
production.
Minera Yanacocha has mining rights with respect to a large land position,
which includes the Carachugo, Maqui Maqui, Yanacocha Norte, San Jose and Encajon
deposits as well as other prospects. Such mining rights were acquired through
assignments of concessions granted by the Peruvian government to a related
entity. The assignments have a term of 20 years, renewable at the option of
Minera Yanacocha for another 20 years. A wholly-owned subsidiary of NGC acts as
manager of Minera Yanacocha.
Minera Yanacocha has emphasized social development in the communities
surrounding its mining operations. Since 1994, Yanacocha has built or rebuilt
seven schools, developed social programs and built roads in such communities all
of which have contributed to the growth of the local economies. Minera Yanacocha
has an advisory role on the Ministry of Energy and Mines environmental affairs
group to provide technical assistance with the development of achievable
environmental strategies for Peru's mining industry.
Production
Four open-pit mines and three leach pads are in operation at Minera
Yanacocha. Production commenced in August 1993 at the Carachugo deposit, in
October 1994 at the Maqui Maqui deposit which is located three miles north of
Carachugo, in January 1996 at the San Jose deposit which is located one mile
southwest of Carachugo, and in December 1997 at the Yanacocha Norte deposit
which is located one mile northwest of Carachugo. In 1997, production was
1,052,800 ounces of gold (530,900 equity ounces at 51.35%, beginning February 1,
1997) at a total cash cost of $95 per ounce as compared to 1996 production of
811,400 ounces of gold (308,300 equity ounces at 38%) at a total cash cost of
$107 per ounce and 1995 production of 552,000 ounces of gold (209,800 equity
ounces at 38%) at a total cash cost of $119 per ounce. In 1998, production is
expected to increase approximately 14%.
Minera Yanacocha's operations are accessible by road and are located
approximately 375 miles north of Lima and 28 miles north of the city of
Cajamarca. As of October 1997, power for the project is provided pursuant to a
four year renewable contractual agreement with a local power company. Back up
power is provided by diesel generators owned by Minera Yanacocha. The ore is not
crushed, but transported directly to impermeable leach pads where the ore is
treated with a weak cyanide solution which penetrates the ore dissolving the
gold. The pregnant leach solution is collected and pumped through a
Merrill-Crowe plant to remove the gold from the solution. A second Merrill-Crowe
plant was placed in service in December 1997. After the gold is processed from
the zinc precipitate, it is smelted into dore which is transported from the
processing plant by a contractor and toll refined at refineries in Switzerland.
Two new deposits were added to proven and probable gold reserves in 1997.
The Yanacocha Sur deposit which is located one mile northwest of Carachugo
contains 5.3 million ounces of gold (2.8 million equity ounces at 51.35%). La
Quinua, located two and one-half miles west of Carachugo, contains 3.0 million
ounces of gold (1.5 million equity ounces at 51.35%). Total proven and probable
gold reserves for Minera Yanacocha as of December 31, 1997 were 13.9 million
ounces (7.1 million equity ounces at 51.35%) and 6.1 million ounces (3.1 million
equity ounces at 51.35%) as of December 31, 1996.
8
<PAGE> 10
The following table presents Minera Yanacocha mine and leach production
data:
MINERA YANACOCHA MINE AND LEACH PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ------------------------- --------------------------
LEACH LEACH LEACH
ORE WASTE TOTAL ORE WASTE TOTAL ORE WASTE TOTAL
------ ------ ------- ------ ----- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carachugo..................... 10,658 7,509 18,167 2,491 1,380 3,871 9,238 4,647 13,885
Maqui Maqui................... 14,909 7,379 22,288 15,218 4,291 19,509 8,521 2,071 10,592
San Jose...................... 3,239 1,484 4,723 6,026 1,145 7,171 0 0 0
Yanacocha Norte............... 601 831 1,432 0 0 0 0 0 0
------ ------ ------- ------ ----- ------ ------ ----- -------
Total..................... 29,407 17,203 46,610 23,735 6,816 30,551 17,759 6,718 24,477
====== ====== ======= ====== ===== ====== ====== ===== =======
Ore placed on leach pads...... 29,407 23,735 17,759
Average ore grade (ounce per
ton)........................ 0.043 0.046 0.045
Ounces of gold produced
(000)....................... 1,052.8 811.4 552.0
</TABLE>
Exploration
Exploration continues to be conducted at numerous prospects owned by Minera
Yanacocha. Approximately $24 million was spent by Minera Yanacocha on
exploration and mine geology in 1997. A $19 million exploration and mine geology
program is currently underway in 1998.
Exploration work on the Minas Conga joint venture, 40% owned by NGC, 40% by
Cedimin and 20% by Compania Minera Condesa S.A., a subsidiary of Buenaventura,
continued throughout 1997 with an aggressive drilling campaign. Encouraging
porphyry gold-copper mineralization has been identified on two separate targets
which will continue to be drill tested in 1998. A second Peruvian joint venture,
Minera Coshuro, is 65% owned by NGC and 35% by Buenaventura and holds claims on
257,000 acres of prospective ground along north and south extensions of the
volcanic belt hosting the Minera Yanacocha deposits. In addition, NGC and
Buenaventura are active in the southern part of Peru. Initial exploration work
is underway in these prospective areas and a number of targets have been
outlined.
UZBEKISTAN
Introduction
In Uzbekistan, NGC has a 50% interest in Zarafshan-Newmont, a joint venture
with the State Committee for Geology and Mineral Resources ("State Committee")
and Navoi Mining and Metallurgical Combine ("Navoi"), each a state entity of
Uzbekistan. The joint venture produces gold by crushing and leaching ore from
existing stockpiles of low-grade oxide ore from the nearby government-owned
Muruntau mine. The gold produced by Zarafshan-Newmont is sold in international
markets for U.S. dollars. A wholly-owned subsidiary of NGC provides technical
and managerial support to Zarafshan-Newmont. The State Committee and Navoi have
guaranteed to Zarafshan-Newmont 242 million tons of ore with an average grade of
0.036 ounces of gold per ton, containing approximately 8.6 million ounces of
gold. Such guaranteed amount of ore consists of approximately 66 million tons of
ore with an average grade of 0.046 ounces of gold per ton and approximately 176
million tons of ore with an average grade of 0.032 ounces of gold per ton.
Production
During 1997, approximately 14.6 million tons of ore were crushed and placed
on the leach pad as compared to 12.7 million tons in 1996. The project's
remaining 217 million tons of stockpiled ore and ore in process hold a reserve
of 7.5 million ounces (3.8 million equity ounces).
9
<PAGE> 11
Zarafshan-Newmont commenced production in the second half of 1995 and
produced 37,000 ounces of gold, or 18,500 ounces attributable to NGC, at a total
cash cost of $218 per ounce. In 1996, total production was 326,500 ounces of
gold or 163,200 ounces attributable to NGC, at a total cash cost of $225. In
1997, total production was 430,100 ounces of gold or 215,000 ounces attributable
to NGC, at a total cash cost of $204. Production in 1998 is expected to be
approximately 425,000 ounces of gold or 212,500 ounces attributable to NGC. The
project's facilities include 18 crushers in four stages. Crushed material is
transported to impermeable leach pads where the ore is treated with a weak
cyanide solution which penetrates the ore dissolving the gold. The pregnant
leach solution is collected and pumped through a Merrill-Crowe plant to remove
the gold from the solution. After the gold is processed from the zinc
precipitate, it is smelted into dore and transported to the nearby Muruntau gold
refinery operated by Navoi where, pursuant to a refining agreement, the dore is
refined for export. The project has access to air, rail and road transport.
There are no significant logistical difficulties for transportation of refined
gold. Power for the project is provided pursuant to a contractual arrangement
with Navoi which acquires such power from a plant in Navoi, Uzbekistan.
Zarafshan-Newmont obtained a $135 million project financing loan from a
consortium of banks to partially finance construction of the project. At
December 31, 1997, $87.8 million was outstanding under this financing. See page
58. Although not contractually obligated to do so, NGC has made, and may from
time to time make, advances or contributions to Zarafshan-Newmont to cover debt
service requirements and other capital and operating costs.
The following table presents Zarafshan-Newmont leach production data:
ZARAFSHAN-NEWMONT LEACH PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995(1)
------ ------ -------
<S> <C> <C> <C>
Ore placed on leach pads............................. 14,618 12,737 4,321
Average ore grade (ounce per ton).................... 0.050 0.053 0.051
Ounces of gold produced (000)........................ 430.1 326.5 37.0
</TABLE>
- ---------------
(1) Began operations in second half of 1995.
Exploration
NGC signed an agreement in September 1996 with the Uzbekistan government
and Mitsui & Co., Ltd. for the development of gold deposits (subject to
satisfaction of certain conditions) in the Angren region of Uzbekistan,
approximately 60 miles south of the city of Tashkent. NGC has a 40% interest in
the project. Pre-feasibility studies are planned for 1998.
INDONESIA
Introduction
NGC has two projects in Indonesia -- Minahasa which is in operation and
Batu Hijau which is under construction. The Minahasa project is 80% owned by NGC
and 20% owned by P.T. Tanjung Serapung, an Indonesian company. However, because
NGC funded 100% of the construction costs for Minahasa, NGC is entitled to 100%
of the gold production until it recovers the bulk of its investment, including
interest. NGC has an indirect 45% interest in the Batu Hijau project which it
owns through a partnership with an affiliate of Sumitomo Corporation
("Sumitomo"). Sumitomo holds an indirect 35% interest in the Batu Hijau project
through this partnership arrangement and the remaining 20% interest is a carried
interest held by P. T. Pukuafu Indah, an Indonesian company.
In Indonesia, rights are granted to private parties to explore for and to
develop the mineral resources within defined areas through Contracts of Work
entered into with the Indonesian government. In 1986, NGC
10
<PAGE> 12
entered into fourth generation Contracts of Work with the Indonesian government
covering the Minahasa and Batu Hijau projects. Under the Contracts of Work,
affiliates of NGC were granted the exclusive right to explore the contract area,
construct any required facilities and extract and process the mineralized
materials, and sell and export the minerals produced subject to certain
Indonesian government approvals and payment of royalties to the Indonesian
government. Once facilities are constructed and mining operations commence, the
private party has the right to continue operating the project for 30 years, or
longer if approved by the Indonesian government. Under the Contracts of Work,
beginning in the sixth year after mining operations commence (and continuing
through the tenth year) a portion of each project not already owned by
Indonesian nationals must be offered for sale to the Indonesian government or to
Indonesian nationals (collectively the "Indonesian Parties"), thereby
potentially reducing the non-Indonesian parties ownership in each project to 49%
by the end of the tenth year. The price at which such interest would be offered
for sale to the Indonesian Parties would be the highest of (i) the then current
replacement cost, (ii) the price at which shares of the project company would be
accepted for listing on the Jakarta Stock Exchange or (iii) the fair market
value of such interest as a going concern.
In mid-1997, NGC entered into a Contract of Work granting rights to NGC to
explore an area located near the Minahasa contract area through a new company,
P. T. Newmont Mongondow Mining ("Mongondow"). NGC has an 80% interest and the
remaining 20% interest is a carried interest held by P. T. Lebong Tandai, an
Indonesian company. This Contract of Work is a sixth generation Contract of
Work. The major differences between the fourth and sixth generation Contracts of
Work are a reduced income tax rate (from 35% to 30%), elimination of the
requirement to divest part of NGC's 80% interest and changes in the method of
royalty calculation.
MINAHASA
Minahasa, a multi-deposit project discovered by NGC on the island of
Sulawesi, began production in March 1996. It is approximately 1,500 miles
northeast of Jakarta. Minahasa mines and processes ore from the Mesel deposit
and two smaller peripheral deposits (Leons and Nibong) which at the end of 1997
contained approximately 1.6 million ounces of proven and probable reserves (in
which NGC has an equity interest of approximately 1.3 million ounces). These
deposits contain both oxidized and refractory gold mineralization.
Minahasa produced 206,500 ounces of gold in 1997 at a total cash cost of
$167 per ounce as compared to 112,700 ounces of gold in 1996 at a total cash
cost of $224 per ounce. Production in 1998 is expected to reach approximately
250,000 ounces.
The project's facilities include a dry grinding mill, a fluidized bed
roaster facility and a conventional carbon-in-pulp gold recovery plant.
Infrastructure facilities include a deep-water port, electrical power plant,
water supply system and housing for workers. The ore's high mercury content
necessitated installation of an $8 million mercury scrubber in 1997. Total
capital costs were approximately $133 million. The Minahasa project is in close
proximity to the coast and does not have any significant logistical difficulties
for transportation of materials, equipment or its product.
11
<PAGE> 13
\
The following table presents Minahasa mine and mill production data:
MINAHASA MINE AND MILL PRODUCTION
DRY SHORT TONS (000)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
MILL ORE WASTE TOTAL MILL ORE WASTE TOTAL
-------- ------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Tons mined............................. 1,269 10,032 11,301 1,048 9,062 10,110
===== ====== ====== ===== ===== ======
Tons milled............................ 794 454
====== ======
Average ore grade (ounce per ton)...... 0.289 0.279
Average recovery rate (%).............. 91.4 90.3
Ounces of gold produced (000).......... 206.5 112.7(1)
</TABLE>
- ---------------
(1) Includes 5,700 ounces produced before commercial operations commenced.
BATU HIJAU
NGC's second project in Indonesia, Batu Hijau, is located on the island of
Sumbawa, approximately 950 miles east of Jakarta. Batu Hijau is a large porphyry
copper/gold deposit discovered by NGC in 1990. It is located seven miles from
the south coast and nine miles from the west coast of the island and has access
to a natural harbor which is being developed for transportation of materials,
equipment and, eventually, copper concentrate. Production is expected to begin
in late 1999. At the end of 1997, the deposit contained approximately 10.6
billion pounds of copper and 12.1 million ounces of gold in proven and probable
reserves in which NGC has an equity interest of 4.8 billion pounds of copper and
5.4 million ounces of gold.
NGC owned an 80% interest in Batu Hijau until it entered into a partnership
arrangement in July 1996 with Sumitomo to develop and operate the Batu Hijau
project. The partnership arrangement was approved by the Indonesian government
and is controlled by a partnership agreement executed between NGC and Sumitomo.
When the partnership was funded in mid-1997, NGC contributed its 80% equity
interest in the company that owns Batu Hijau to the partnership in exchange for
a 56.25% partnership interest and Sumitomo contributed funds totaling
approximately $239 million to obtain a 43.75% partnership interest. P. T.
Pukuafu Indah retained its 20% interest in Batu Hijau. The ownership of Batu
Hijau after formation of the partnership is NGC -- 45%, Sumitomo -- 35%, and P.
T. Pukuafu Indah -- 20%. As a result of this ownership structure, NGC is
accounting for its investment in Batu Hijau as an equity investment.
NGC completed a final feasibility study for Batu Hijau in 1996. Based on
the results of that study, and after obtaining the required approvals from the
government of Indonesia and entering into the partnership with Sumitomo,
development and construction activities began in 1997. The project is expected
to mine an average of 163 million tons per annum and the ore will be processed
at the concentrator at an average rate of 132 thousand tons per day. Other
facilities included in the project include a port, a coal-fired electrical
generating plant, a townsite for the workforce, and other ancillary facilities.
The total cost of the project is expected to be approximately $2 billion
including cost escalations, capitalized interest during construction and working
capital.
Long-term smelter contracts for approximately 65% of the project's average
annual concentrate production have been signed. Production over the 20-year mine
life is expected to average 270,000 tons of copper and 550,000 ounces of gold
per year at an expected average cash cost under $0.50 per pound of copper,
including gold credits, over the life of the project. NGC continues to assess
all projected capital costs and operating costs of the project in order to
maximize the project's economics.
In July 1997, $1 billion project financing agreements for the Batu Hijau
project were signed. The financing is guaranteed by NGC and Sumitomo, 56.25% and
43.75%, respectively, until project completion tests are met, and will be
non-recourse thereafter. NGC and Sumitomo also entered into support agreements
related to this debt. Initial funding in the amount of $160 million occurred
during January 1998.
12
<PAGE> 14
Exploration
Exploration work continued through 1997 in areas surrounding Minahasa and
Batu Hijau. This work will continue in 1998 as part of NGC's ongoing exploration
program in Indonesia including a $2.7 million exploration program which will
focus on identifying extensions to the ore bodies surrounding the Mesel deposit,
as well as identifying new ore zones that are within trucking distance to the
existing processing facilities. An additional $2.3 million exploration program
is slated for Mongondow in 1998.
EXPLORATION
In 1997, exploration and research expense was $98.4 million compared with
$92.9 million in 1996. These figures exclude capitalized exploration costs
associated with mine development of $21.3 million in 1997 and $18.4 million in
1996. NGC expects to spend between $65 million and $70 million on exploration
and research expense in 1998.
In Mexico, NGC is involved in two projects -- La Herradura, a 45,000 acre
site just south of the U.S. border which is undergoing construction and
development and is scheduled to commence production in mid-1998, and Mezcala, a
12,000 acre exploration site in southern Mexico. NGC has a 44% interest in La
Herradura and is earning a 44% interest in Mezcala by investing $15.0 million
over four years of which $12.6 million has been invested through December 31,
1997. The balance of both projects is held by the Penoles group, a leading
Mexican mining company. The Penoles group will be the operator of La Herradura
and Mezcala.
Near Fairbanks, Alaska, NGC continued exploration in 1997 on the True North
property. Under the terms of a joint venture agreement signed with La Teko
Resources, Inc. ("La Teko") in 1995, NGC has the right to earn a 65% interest in
the property by making cash payments of $6 million to La Teko, funding $3
million in exploration, and then funding up to $18 million in additional
exploration and development costs. In 1996, NGC completed its payment
obligations to La Teko, and to date has spent approximately $10 million
exploring the property and has budgeted approximately $2 million for 1998
exploration. Drilling in 1997 has increased the indicated area of mineralization
significantly and in 1998, NGC will intensify its efforts at True North. Almost
all of this deposit is near the surface. Work is focused on extending a broader
zone of mineralization from the 10.2 million tons identified at December 31,
1997.
In addition to the projects discussed above, NGC continues to pursue
exploration activities in other areas of North America, Latin America, South
America, Southeast Asia and Central Asia. During 1997, on-the-ground evaluations
were conducted in 15 countries and data was examined from 18 others.
NGC's exploration team has a staff of approximately 173 geologists,
geochemists and geophysicists. State-of-the-art technology, including airborne
geophysical data acquisition systems, satellite location devices and
field-portable imaging systems, also aids in the location of prospective
targets.
For information regarding risks associated with exploration and
development, see page 21.
MARKETING
NGC's gold sales generally are made at the monthly average market price
prevailing during the month in which the gold is delivered plus a "contango",
which is essentially an interest factor, from the beginning of the month until
the date of delivery. NGC entered into forward sales contracts beginning in
January 1996 which are effective through December 2000 with respect to
production from its Minahasa project in Indonesia. These transactions consist of
forward sales of 125,000 ounces per year at an average price of $454 per ounce
of gold, plus 40% of the amount by which the market price exceeds the forward
sales price. In addition, at the beginning of 1997, NGC had spot deferred
contracts for approximately 1.7 million ounces on production from former Santa
Fe mines through September 1998 (with approximately 614,000 ounces at an average
price of $423 per ounce remaining at December 31, 1997.) In July 1997, NGC
entered into forward purchase contracts offsetting the spot deferred contracts
held at that date at an average price of $331 per ounce. For information
regarding risks associated with price protection activities, see page 19.
13
<PAGE> 15
See page 65 for information regarding major customers and export sales.
Gold has two main categories of use -- product fabrication and bullion
investment. Fabricated gold has a wide variety of end uses, including jewelry
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions and official coins. Purchasers of official
coins and high-karat jewelry frequently are motivated by investment
considerations, so that net private bullion purchases alone do not necessarily
represent the total investment activity in gold.
MISCELLANEOUS
Other than operating licenses for mining, processing and refining
facilities built for, or acquired by NGC, there are no patents, licenses or
franchises material to NGC's business. In many foreign countries, NGC conducts
mining or exploration pursuant to concessions granted by or contracts with the
host government. These countries include, among others, Indonesia, Peru and
Mexico. In each case, NGC believes that such concessions or contracts are
sufficient in extent and duration to justify any proposed investment it might
make based on any such concessions or contracts. In general, such concessions or
contracts are subject to the usual political risks associated with foreign
operations.
Capital expenditures by NGC were approximately $415.1 million, $547.8
million and $520.9 million in 1997, 1996 and 1995, respectively. Management
believes that NGC's facilities are generally in a state of good repair. NGC has
a continuous program of capital investment that includes, as necessary or
advisable, the replacement, modernization or expansion of its equipment and
facilities. See page 34.
There were 6,760 persons employed by NGC worldwide at December 31, 1997 and
6,450 persons employed by NGC worldwide at December 31, 1996.
PROVEN AND PROBABLE RESERVES
NGC's equity in proven and probable gold reserves was 52.7 million ounces
at December 31, 1997 and 55.2 million ounces at December 31, 1996. In addition,
NGC's equity in proven and probable copper reserves was 4.8 billion pounds at
December 31, 1997 and at December 31, 1996.
NGC's estimate of its proven and probable reserves at December 31, 1997 and
at December 31, 1996 is set forth in the table below. Such reserves were
determined by the use of mapping, drilling, sampling, assaying and evaluation
methods generally applied in the mining industry. Calculations with respect to
the estimates of proven and probable gold reserves at December 31, 1997 and at
December 31, 1996 were based on a gold price of $350 per ounce and $400 per
ounce, respectively. NGC's management believes that if such reserve estimates
were based on a gold price of $400 per ounce using current operating costs and
other current economic assumptions, 1997 year-end proven and probable gold
reserves could increase by approximately 8%. Conversely, if such estimates were
based on a gold price of $300 per ounce using current operating costs and other
current economic assumptions, 1997 year-end proven and probable gold reserves
could decrease by approximately 32%. The reduction in reserves would not have a
material impact on potential production rates for the first four years. After
that time, assuming no change in mining plans or NGC's cost structure, the
impact would be progressively greater. However, if NGC's gold reserves were
actually calculated at a gold price of $300 per ounce, such calculation would be
based on new mine plans and operating costs to minimize any adverse impact of
any reduction in gold reserves. NGC's proven and probable gold and copper
reserves represent the total quantity of ore to be extracted from the deposits
or stockpiles allowing for mining efficiencies and ore dilution. Ounces of gold
or pounds of copper in NGC's proven and probable gold and
14
<PAGE> 16
copper reserves are prior to any losses during metallurgical treatment. For
information regarding risks associated with NGC's estimates of its proven and
probable reserves, see page 20.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------- ---------------------
NGC DRY CONTAINED CONTAINED DRY
DEPOSITS WITH PROVEN AND PERCENT SHORT TONS GRADE OUNCES EQUITY OZS. SHORT TONS GRADE
PROBABLE RESERVES(1) EQUITY (000) (OZ/TON) (000) (000) (000) (OZ/TON)
------------------------ ------- ---------- -------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GOLD RESERVES
UNITED STATES
Nevada Open Pit
Carlin North -- Post.................... 100 9,680 0.180 1,747 1,747 25,626 0.190
Carlin North -- Genesis Complex......... 100 21,576 0.033 710 710 22,711 0.034
Carlin North -- Other................... 100 25,839 0.051 1,323 1,323 33,832 0.046
Carlin South (includes Gold Quarry)..... 100 135,946 0.048 6,470 6,470 174,790 0.046
Carlin Rain District.................... 100 13,455 0.026 344 344 15,628 0.023
Twin Creeks............................. 100 109,288 0.075 8,211 8,211 148,739 0.073
Lone Tree Complex....................... 100 65,120 0.064 4,151 4,151 85,342 0.069
--------- ------ ------ ---------
Total Nevada Open Pit............. 380,904 0.060 22,956 22,956 506,668 0.064
--------- ------ ------ ---------
Nevada Underground
Carlin North............................ 100 8,236 0.592 4,879 4,879 3,388 0.582
Carlin North JV......................... 60 7,050 0.425 2,993 1,796 7,050 0.425
Carlin Rain District.................... 100 374 0.270 101 101 331 0.226
Rosebud................................. 50 943 0.420 396 198 1,276 0.392
--------- ------ ------ ---------
Total Nevada Underground.......... 16,603 0.504 8,369 6,974 12,045 0.460
--------- ------ ------ ---------
Stockpiles and In-Process................ 100 71,139 0.053 3,803 3,803 57,594 0.051
--------- ------ ------ ---------
Nevada Totals............................ 468,646 0.075 35,128 33,733 576,307 0.071
Mesquite, California..................... 100 29,041 0.021 613 613 46,051 0.018
--------- ------ ------ ---------
Total United States(2)(3)......... 497,687 0.072 35,741 34,346 622,358 0.067
========= ====== ====== =========
INTERNATIONAL
Minera Yanacocha, Peru
Carachugo............................... 51 34,018 0.035 1,179 605 43,686 0.029
Maqui Maqui............................. 51 20,632 0.042 875 449 32,164 0.047
San Jose................................ 51 47,817 0.028 1,355 696 50,527 0.029
Yanacocha............................... 51 245,596 0.029 7,167 3,680 71,664 0.026
La Quinua............................... 51 120,943 0.025 3,002 1,542 0 0
Others.................................. 51 7,045 0.043 304 156 66 0.047
--------- ------ ------ ---------
Total Yanacocha(4)................ 476,051 0.029 13,882 7,128 198,107 0.031
La Herradura, Mexico(5).................. 44 54,408 0.031 1,683 740 54,408 0.031
Zarafshan -- Newmont, Uzbekistan(6)...... 50 216,907 0.035 7,510 3,755 231,669 0.035
Minahasa, Indonesia(7)................... 80 6,758 0.234 1,583 1,267 7,739 0.247
--------- ------ ------ ---------
Total International (Excluding
Batu Hijau)..................... 754,124 0.033 24,658 12,890 491,923 0.036
========= ====== ====== =========
Batu Hijau, Indonesia(8)................ 45 1,006,593 0.012 12,096 5,443 1,006,593 0.012
====== ======
TOTAL GOLD RESERVES............... 72,495 52,679
====== ======
<CAPTION>
DECEMBER 31, 1996
-----------------------
CONTAINED CONTAINED
DEPOSITS WITH PROVEN AND OUNCES EQUITY OZS.
PROBABLE RESERVES(1) (000) (000)
------------------------ --------- -----------
<S> <C> <C>
GOLD RESERVES
UNITED STATES
Nevada Open Pit
Carlin North -- Post.................... 4,875 4,875
Carlin North -- Genesis Complex......... 777 777
Carlin North -- Other................... 1,571 1,571
Carlin South (includes Gold Quarry)..... 8,031 8,031
Carlin Rain District.................... 366 366
Twin Creeks............................. 10,885 10,885
Lone Tree Complex....................... 5,868 5,868
------ ------
Total Nevada Open Pit............. 32,373 32,373
------ ------
Nevada Underground
Carlin North............................ 1,973 1,973
Carlin North JV......................... 2,993 1,796
Carlin Rain District.................... 75 75
Rosebud................................. 500 250
------ ------
Total Nevada Underground.......... 5,541 4,094
------ ------
Stockpiles and In-Process................ 2,961 2,961
------ ------
Nevada Totals............................ 40,875 39,428
Mesquite, California..................... 832 832
------ ------
Total United States(2)(3)......... 41,707 40,260
====== ======
INTERNATIONAL
Minera Yanacocha, Peru
Carachugo............................... 1,268 651
Maqui Maqui............................. 1,519 780
San Jose................................ 1,453 746
Yanacocha............................... 1,866 958
La Quinua............................... 0 0
Others.................................. 3 2
------ ------
Total Yanacocha(4)................ 6,109 3,137
La Herradura, Mexico(5).................. 1,683 740
Zarafshan -- Newmont, Uzbekistan(6)...... 8,211 4,105
Minahasa, Indonesia(7)................... 1,913 1,530
------ ------
Total International (Excluding
Batu Hijau)..................... 17,916 9,512
====== ======
Batu Hijau, Indonesia(8)................ 12,096 5,443
====== ======
TOTAL GOLD RESERVES............... 71,719 55,215
====== ======
</TABLE>
<TABLE>
<CAPTION>
CONTAINED
CONTAINED EQUITY
GRADE POUNDS POUNDS GRADE
(COPPER %) (BILLIONS) (BILLIONS) (COPPER %)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
COPPER RESERVES
Batu Hijau, Indonesia(8)............... 45 1,006,593 0.528 10.631 4.784 1,006,593 0.528
<CAPTION>
CONTAINED
COPPER EQUITY
POUNDS POUNDS
(BILLIONS) (BILLIONS)
---------- ----------
<S> <C> <C>
COPPER RESERVES
Batu Hijau, Indonesia(8)............... 10.631 4.784
</TABLE>
Numbers may differ slightly from those reported previously as a result of
different deposit groupings yielding different rounding of totals.
(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.
15
<PAGE> 17
The term "economically," as used in the definition of reserve, implies that
profitable extraction or production has been established or analytically
demonstrated.
The term "legally," as used in the definition of reserve, does not imply
that all permits needed for mining and processing have been obtained or that
other legal issues have been completely resolved. However, for a reserve to
exist, there should be a reasonable certainty based on applicable laws and
regulations that issuance of permits or resolution of legal issues can be
accomplished in a timely manner.
The term "proven reserves" means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes; (b)
grade and/or quality are computed from the result of detailed sampling and
(c) the sites for inspection, sampling and measurements are spaced so
closely and the geologic character is sufficiently defined that size, shape,
depth and mineral content of reserves are well established.
The term "probable reserves" means reserves for which quantity and grade are
computed from information similar to that used for proven reserves but the
sites for sampling are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
(2) Proven and probable reserves in the U.S. were calculated using cut-off
grades as follows: oxide leach material not less than 0.006 ounce per ton;
oxide mill cutoffs varied; refractory leach materials not less than 0.030
ounce per ton at Gold Quarry (which contains 96% of the refractory leach
reserve ounces); refractory mill material not less than 0.065 ounce per ton.
Proven and probable reserves were calculated using different recoveries
depending on each deposit's metallurgical properties and process. The
recoveries utilized in 1997 were as follows: oxide leach recoveries ranged
from 58% to 75% averaging 63%; oxide mill recoveries ranged from 69% to 96%
averaging 86%; refractory leach recoveries at Gold Quarry ranged from 55% to
60%, averaging 58%; refractory mill recoveries ranged from 84% to 94%,
averaging 88%.
The term "cut-off grade" means the lowest grade of mineralized rock that can
be included in the reserve in a given deposit. Cut-off grades vary between
deposits depending upon prevailing economic conditions, mineability of the
deposit, amenability of the ore to gold extraction, and milling or leaching
facilities available.
(3) These reserves are approximately 69% refractory in nature which are not
amenable to the normal cyanidation recovery processes currently used for
oxide material. Such ore must be oxidized before it is subjected to the
normal recovery processes.
(4) Calculated using a cut-off grade not less than 0.010 ounce per ton. Assumed
leach recoveries is 62% to 82%, depending on each deposit's metallurgical
properties. All ore is oxidized.
(5) Based on a feasibility study completed in 1996, using a cut-off grade of
0.01 ounce per ton and a leach recovery of 72%. All ore is oxidized.
Construction began in 1997 and production is expected to begin in mid-1998.
(6) Material available to Zarafshan-Newmont for processing from designated
stockpiles or from other specified sources. All ore is oxidized. Tonnage and
gold content of material available to Zarafshan-Newmont for processing from
such designated stockpiles or from other specified sources are guaranteed by
state entities of Uzbekistan. Material is crushed and leached. Ore reserves
calculated using 55% to 60% leach recoveries, depending on material type.
(7) Calculated using a cut-off grade of 0.058 ounce per ton and mill recoveries
of 88% to 91% depending on material type. Substantially all ore is
refractory and will be treated by roasting.
(8) Based on a feasibility study completed in 1996, construction began in 1997
and production is scheduled to begin in late 1999. Production will be in the
form of copper concentrate. Recoveries estimated at 93% for copper and 82%
for gold. Cut-off grade varies depending on the gold and copper content.
ENVIRONMENTAL MATTERS
General
NGC's gold mining and processing operations within the U.S. are subject to
extensive federal, state and local governmental regulations for the protection
of the environment, including those relating to the protection of air and water
quality, hazardous waste management and mine reclamation. NGC continues to
successfully permit all mine and processing operations and expansion activities
as specified under regulations promulgated by the U.S. and the States of Nevada
and California. Management does not believe that ongoing compliance with such
regulations will have a material adverse effect on its competitive position. At
this time NGC does not expect any material impact on the future recurring
operating cost of compliance with currently enacted environmental regulations.
Ongoing costs to comply with environmental obligations have not been significant
to NGC's total operating costs. Since NGC is not able to pass on any net
increases in costs to its customers, any such increases could have an adverse
effect on future profitability of NGC. Amendments to current laws and
regulations governing operations and activities of mining companies or the
stringent implementation
16
<PAGE> 18
thereof could have a material adverse impact on NGC in terms of increased
capital and operating expenditures.
Nevada and California Operations
It is estimated that with respect to NGC's Nevada and California
operations, compliance with federal, state and local regulations relating to the
discharge of material into the environment, or otherwise relating to the
protection of the environment, required capital expenditures of approximately
$19 million in 1997. It is estimated that NGC will require approximately $16
million of capital expenditures for environmental compliance in 1998 and
annually thereafter.
NGC's Nevada and California gold mining and processing operations generate
solid waste which is subject to regulation under the federal Resource
Conservation and Recovery Act ("RCRA") and similar laws of the States of Nevada
and California. Solid waste that is considered "hazardous" is subject to
extensive regulation by the U.S. Environmental Protection Agency (the "EPA") and
the States of Nevada and California under Subtitle C of RCRA, while
non-hazardous solid waste is governed by a less stringent program under Subtitle
D of RCRA and solid waste management regulations of the States of Nevada and
California. The EPA is developing specific regulations with respect to
"extraction" and "beneficiation" wastes from mining operations under Subtitle D
of RCRA. NGC is participating in that process. Currently, there is not a
sufficient basis to predict the potential impact of such regulations on NGC.
Wastes from the "processing" of ores and minerals (including refining wastes) at
NGC's Nevada and California operations are subject to regulation under Subtitle
C of RCRA. NGC recycles substantially all of the potentially hazardous secondary
materials generated during refining operations in compliance with Subtitle C.
Such compliance has not had, and is not expected to have, any material impact on
NGC's operations.
NGC's Nevada and California operations are subject to stringent state
permitting regulations for protection of surface and ground water, as well as
wildlife. These regulations may require additional capital and operating
expenditures for expansion of current operations and development of new projects
and may increase closure and reclamation costs for pits, tailing impoundments
and leaching facilities.
Mining operations have the potential to produce fugitive dust emissions
which are subject to regulation under the laws of the States of Nevada and
California. The EPA's current regulations under the federal Clean Air Act
exclude fugitive dust from surface mines in determining whether new or expanded
sources need permits for construction under the regulations for prevention of
significant deterioration of air quality. Compliance with the federal Clean Air
Act could ultimately increase NGC's compliance costs for air pollution
permitting and/or control, but the impact on NGC's mining operations is so
dependent on future regulations and other contingencies that it cannot
reasonably be predicted at this time.
Foreign Operations
NGC's operations outside of the U.S. are also subject to governmental
regulations for the protection of the environment. Management believes that
these regulations have not had, and will not have, a material adverse effect on
NGC's operations or its competitive position. NGC has successfully permitted all
new mine and processing operations as specified under regulations promulgated by
the respective national governments in Peru, Uzbekistan and Indonesia. In
addition, NGC has mandated that all facilities constructed and operated outside
of the U.S. materially comply with a level of environmental protection that is
equivalent to that for its U.S. operations. Nevertheless, the adoption of new
laws or regulations, or amendments to current laws or regulations, regarding the
operations and activities of mining companies could have a material adverse
impact on NGC's capital and operating expenditures.
All NGC-managed international projects have adopted and implemented
environmental policies and procedures developed by NGC. NGC is committed to
successfully educating and training mine operations, exploration and
environmental personnel to meet the highest level environmental standards. NGC
maintains an international environmental compliance program which utilizes state
of the art compliance monitoring protocols and builds and maintains facilities
with high levels of environmental protection and monitoring equipment.
17
<PAGE> 19
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. Idarado Mining Company, an 80.1% owned subsidiary of
NGC, agreed by consent decree in 1992 with the State of Colorado to undertake
specific remediation work in the Telluride/Ouray area of Colorado. Resurrection
Mining Company, 100% owned by NGC, is a defendant in lawsuits brought by the
State of Colorado and the U.S. for environmental remediation in the Leadville,
Colorado area. Dawn Mining Company, a 51% owned subsidiary of NGC, has filed
reclamation proposals for an inactive uranium mine formerly leased from the
Spokane Indian Tribe in Washington State and a former mill site located near
Ford, Washington. Remediation activities were conducted at these three sites in
1997. At Idarado, remediation work was substantially complete at the end of
1997. If such remediation work does not achieve specific performance objectives
defined in the consent decree, the State of Colorado may require Idarado to
implement supplemental activities, also as specified in the consent decree. The
fourth matter involves reclamation of an inactive site mined by the former
owners on the Ivanhoe exploration property in Nevada. At December 31, 1997 NGC
had an aggregate $52.2 million accrued for remediation of these four sites and
other sites, an increase from $49.8 million accrued at the end of 1996, as a
result of changes in estimated future remediation costs, net of expenditures
incurred in 1997. See page 67.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained herein (including information incorporated by
reference) are "forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and are intended to be covered
by the safe harbor created thereby. Such forward-looking statements include,
without limitation, (i) estimates of future gold production for specific
operations and on a consolidated basis, (ii) estimates of future production
costs, exploration expenditures and other expenses for specific operations and
on a consolidated basis, (iii) estimates of future capital expenditures and
other cash needs for specific operations and on a consolidated basis and
expectations as to the funding thereof, (iv) statements as to the projected
development of certain ore deposits, including estimates of development and
other capital costs, financing plans with respect thereto and expected
production commencement dates, (v) estimates of future costs and other
liabilities for certain environmental matters, including expected date of
receipt of environmental permits and completion dates for environmental
remediation work, and (vi) estimates of reserves.
Where 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. See also "Safe Harbor Statement" on page 36. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.
All subsequent written and oral forward-looking statements attributable to
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.
GOLD PRICE VOLATILITY
The cash flows and profitability of NGC's operations is significantly
affected by changes in the market price of gold. Market gold prices can
fluctuate widely and are affected by numerous factors beyond NGC's control,
including industrial and jewelry demand, expectations with respect to the rate
of inflation, the strength of the U.S. dollar (the currency in which the price
of gold is generally quoted) and of other currencies, interest rates, gold sales
by central banks, forward sales by producers, global or regional political or
economic events, and production and cost levels in major gold-producing regions
such as South Africa. In addition, the price of gold sometimes is subject to
rapid short-term changes because of speculative activities. The current demand
for and supply of gold affect gold prices, but not necessarily in the same
manner as current supply and demand
18
<PAGE> 20
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 $187 per ounce of
gold sold in 1997, $218 in 1996 and $204 in 1995. See also "Gold Price"
discussion on page 30.
The gold market generally is characterized by volatile prices. The
volatility of gold prices is illustrated in the following table of annual high,
low and average afternoon fixing prices for gold per ounce on the London Bullion
Market:
<TABLE>
<CAPTION>
YEAR HIGH LOW AVERAGE
---- ---- ---- -------
<S> <C> <C> <C>
1988........................................................ $484 $395 $437
1989........................................................ $416 $356 $381
1990........................................................ $424 $346 $383
1991........................................................ $403 $344 $362
1992........................................................ $360 $330 $344
1993........................................................ $406 $326 $360
1994........................................................ $396 $370 $384
1995........................................................ $396 $372 $384
1996........................................................ $415 $367 $388
1997........................................................ $367 $283 $331
1998 (through March 5)...................................... $305 $279 $293
</TABLE>
- ---------------
Source of Data: Metals Week and Reuters.
On March 5, 1998, the afternoon fixing price for gold on the London Bullion
Market and the spot market price of gold per ounce on the New York Commodity
Exchange was $294.
IMPACT OF PRICE PROTECTION ACTIVITIES
NGC has utilized commodity instruments to protect the selling price of
certain anticipated gold production. Although the use of such instruments may
protect a company against low gold prices, it may also prevent full
participation in subsequent increases in the market price for gold with respect
to covered production.
PRODUCTION ESTIMATES
Estimates of future production for particular properties for NGC as a whole
are derived from annual mining plans prepared by NGC. Such plans have been
developed based on, among other things, mining experience, reserve estimates,
assumptions regarding ground conditions and physical characteristics of ores
(such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and cost of production. Actual production
may vary from estimates for a variety of reasons, including risks and hazards of
the types discussed, actual ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, pitwall failures or
cave-ins, strikes and other actions by labor at unionized locations,
restrictions imposed by government agencies and other factors. Estimates of
production from properties not yet in production or from operations that are to
be expanded are based on similar factors (including, in some instances,
feasibility reports prepared by company personnel and/or outside consultants)
but, as such estimates do not have the benefit of actual experience, there is a
greater likelihood that actual results will vary from the estimates.
19
<PAGE> 21
ORE RESERVE ESTIMATES
The proven and probable reserve figures presented herein are estimates, and
no assurance can be given that the indicated levels of recovery of gold and
copper will be realized. Reserve estimates may require revision based on actual
production experience. Market price fluctuations of gold and copper, as well as
increased production costs or reduced recovery rates, could render NGC's proven
and probable gold and copper reserves containing relatively lower grades of
mineralization uneconomic to exploit and may ultimately result in a reduction of
reserves.
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, 1997, approximately 12.2% of NGC's proven and probable reserves in the U.S.
are located on unpatented mining claims on U.S. federal lands, the remainder
being located on private land.
RISKS OF FOREIGN INVESTMENTS
Certain of NGC's activities are located in foreign countries. NGC's foreign
investments include operations and exploration projects in Peru, Indonesia and
Uzbekistan. NGC also has exploration and/or development projects in North
America, Latin America, South America, Southeast Asia and Central Asia.
Foreign mining investments are subject to the risks normally associated
with conducting business in foreign countries, which are less developed or have
an emerging economy, including uncertain political and economic environments, as
well as risks of war and civil disturbances or other risks which may limit or
disrupt a project, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property by nationalization or expropriation
without fair compensation, risk of adverse changes in laws or policies of
particular countries, increases in foreign taxation, delays in obtaining or the
inability to obtain necessary
20
<PAGE> 22
governmental permits, limitations on ownership and on repatriation of earnings,
and foreign exchange controls and currency devaluations. Although NGC is not
currently experiencing any significant problems in foreign countries arising
from such risks, there can be no assurance that such problems will not arise in
the future. While political risk insurance has been obtained to cover portions
of NGC's investments in Peru, Indonesia and Uzbekistan against certain
expropriation, war, civil unrest and political violence risks, such insurance is
limited by its terms to the particular risks specified therein and is subject to
certain exclusions. There can be no assurance that claims would be paid under
such insurance in connection with a particular event in a foreign country.
Foreign investments may also be adversely affected by laws and policies of the
U.S. affecting foreign trade, investment and taxation. See also "Foreign
Currency" discussion on page 30.
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.
21
<PAGE> 23
There can be no assurance that such insurance will continue to be available,
will be available at economically acceptable premiums or will be adequate to
cover any resulting liability.
PROPOSED REPEAL OF PERCENTAGE DEPLETION FOR NONFUEL MINERALS MINED ON CERTAIN
FEDERAL LANDS
NGC presently benefits from the percentage depletion allowance permitted
under current law. Subject to limitations, taxpayers may claim deductions for
the depletion of mineral resources. Such deductions may be based upon the
taxpayer's tax cost of the mineral resources ("cost depletion") or upon a
portion of the gross or net revenues from sales of the mineral resources
("percentage depletion"). The proposed 1998 U.S. federal budget would repeal the
present percentage depletion provisions for nonfuel minerals, including gold,
extracted from any land where title to the land or the right to extract minerals
from such land was originally obtained pursuant to the provisions of the General
Mining Law. The proposal is stated only in general terms and does not provide
specific details as to its potential operation, including the lands that will
ultimately be affected. It is uncertain whether the repeal of these provisions
will ultimately be adopted. If adopted, however, such repeal could have an
adverse effect on the results of operations of NGC. The magnitude of such effect
currently cannot be determined and will be affected by several factors,
including the specific landholdings of NGC that are actually impacted, the level
of future production from such landholdings and future gold prices.
GLOSSARY OF CERTAIN MINING TERMS
Set forth below is a glossary of certain mining and related terms used in
this Report:
Autoclave: A multi-compartment, mechanically-agitated pressure vessel used
to oxidize the sulfide minerals contained in gold ores. Gold ore slurry is
introduced into the autoclave under high pressure and temperature and chemically
reacts with oxygen being sparged into the vessel, thus oxidizing the sulfide to
sulfate and preparing the contained gold to be leached with cyanide in
subsequent steps. Autoclaves for gold processing typically operate at pressures
ranging form 230 to 450 pounds per square inch, and at temperatures ranging from
180 degrees to 250 degrees C.
Bioleach Technology: A process whereby the sulfide minerals in an ore heap
are oxidized by percolation of an oxygen-bearing solution to liberate the
occluded gold particles, which are then recovered in a heap leaching step. The
oxidation is promoted by a bacterial action.
Bio-Oxidation: Bacterially-promoted oxidation of sulfide minerals in an
ore. This can be carried out by solution percolation in a heap of run-of-mine or
crushed ore, or, in the case of finely-ground ore, in air-sparged stirred tanks
where the ore is mixed with water to form a slurry. The gold liberated by
bio-oxidation is recovered in further leaching stages.
Carbon-in-Leach: A process by which gold in a milled ore is leached into
solution by cyanide and oxygen, and the solubilized gold is simultaneously
recovered from the solution by adsorption on to activated carbon particles. The
gold-bearing carbon particles are recovered by screening from the mixture of ore
and solution. The process is carried out in a series of agitated tanks in which
the ore and solution move downstream from tank to tank, and the carbon is moved
upstream against the flow.
Carbon-in-Pulp: A process similar to carbon-in-leach except that leaching
with cyanide occurs prior to carbon adsorption.
Carried Interest: A percentage ownership in a mining company or joint
venture which typically does not make cash contributions for the development of
the mine. Such contributions are made by a co-owner that usually recovers its
investment from mine production profits before any participation in such profits
by the carried interest owner.
Crushing Plant: A plant in which run-of-mine ore is physically reduced in
size by mechanical crushing in order to improve the liberation of the gold
particles for downstream recovery.
Dore: Unrefined gold consisting of 60% to 70% gold which is further refined
to almost pure gold by a smelter or refinery.
22
<PAGE> 24
Dry Tons: Ore tons measured on a moisture-free basis so that the mass of
any water in the ore is not counted as part of the weight.
Equity Ounces: Ounces attributable to a company based upon its interest in
the subject property.
Flotation: A process by which valuable minerals selectively attach to air
bubbles in a chemical solution and are thus concentrated and separated from the
valueless rock or mineral material in the ore.
Gold Roaster: A reactor in which air or oxygen-enriched air is blown
through a burning bed of finely ground ore containing sulfides and, with certain
ores, organic carbon. The fuel value of the sulfides and organic carbon help to
sustain the combustion. Destruction of the sulfides and carbon by combustion
liberates the gold particles, thereby removing the refractory components in the
ore which would otherwise reduce gold recovery in subsequent cyanide extraction.
Heap Leaching: The process of stacking run-of-mine or crushed ore in a
heap, and percolating through the ore a solution containing oxygen and a
leaching agent such as cyanide or ammonium thiosulfate. The gold which leaches
from the ore into the solution is recovered from the solution by carbon
absorption or precipitation. The solution, after topping up the leaching agent,
is then recycled to the heap to effect further leaching.
Merrill-Crowe Plant: A facility where dissolved gold and silver are
recovered from a sodium-cyanide leaching solution by precipitation with zinc
dust after the leaching solution is clarified and deoxygenated by vacuum
treatment.
Mine: An excavation made in the earth for the purpose of extracting
minerals. The excavation may be an open-pit on the surface or underground
workings.
Mining Depletion: During the process of excavating reserves, certain
material is mined and processed. The amount of reserves removed is known as
depletion.
Ore: A mixture of valuable and worthless minerals from which at least one
of the minerals can be mined and processed at an economic profit.
Ore Grade: The average amount of gold, expressed in ounces, contained in a
dry short ton of gold-bearing ore.
Oxide Ore: Gold ore that has been subjected to oxidation through natural
weathering and surface water percolation to the extent that the minerals are
readily treatable by standard processes.
Refractory Ore: An ore which requires additional steps in the milling
process to oxidize the ore, usually involving heat and/or pressure, in order to
recover the gold contained in the ore.
Run-of-Mine: The process of blasting ore and placing it directly on the
leaching pad without any crushing activity.
ITEM 3. LEGAL PROCEEDINGS
In December 1983, the State of Colorado filed a lawsuit in the U.S.
District Court for the District of Colorado under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42
U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural
resources due to releases of hazardous substances into the environment. This
case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388),
was consolidated with another action, United States of America v. Apache Energy
& Minerals, et al. (Civil Action No. 86-C-1676), which was filed in August 1986.
Both cases involve allegations of environmental impairment in the vicinity of
Leadville, Colorado, including the area of the operations and property of the
Res-ASARCO Joint Venture, the Yak Tunnel, and adjacent property, and seek
remedial actions and damages from a number of defendants, including 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
23
<PAGE> 25
pay for and perform the cleanup of sources of contamination in various areas,
pursuant to the CERCLA administrative process. During 1995 and 1996,
Resurrection implemented and completed remedial action at selected locations,
and development of feasibility studies were sent to the EPA for approval in
1997. Additional remedial activities are planned for 1998. The precise nature of
the final remedial activities is subject to EPA and State of Colorado review and
selection and public comment. At this time, the precise remedy and cost have not
been fixed. The proposed settlement also requires Resurrection to reimburse the
EPA and the State of Colorado for their response costs. Further, Resurrection's
cleanup and reimbursement obligations are subject to certain sharing percentages
with at least one other defendant. The Partial Consent Decree does not resolve
certain other potential liabilities, including liability for any natural
resource damage and any groundwater or surface water contamination. See also
Note 17 on page 67.
In September 1995, Southern Peru Copper Corporation ("SPCC"), previously
10% owned by NGC, was served with a lawsuit, which was filed in the state court
of Nueces County, Texas, naming as defendants SPCC, its present and former
stockholders including NGC, and certain other defendants. The lawsuit sought
unspecified compensatory and punitive damages for alleged personal injuries to
approximately 700 persons resident in Peru and property damages arising from
alleged releases into the environment from SPCC operations in Peru. In September
1995, the action was removed from Texas state court to the U.S. District Court
for the Southern District of Texas, Corpus Christi Division. In October 1995,
SPCC and other defendants filed a motion to dismiss the action on a number of
grounds, including that it would be unreasonable for a U.S. court to exercise
extraterritorial jurisdiction, lack of personal jurisdiction and forum non
conveniens. In January 1996, the Court entered an order dismissing the complaint
on the grounds that under U.S. and international law the subject matter of the
lawsuit should be adjudicated before Peruvian courts. In February 1996,
plaintiffs filed a notice of appeal from the order of the U.S. District Court
dismissing the complaint and from an earlier order of that Court denying
plaintiffs' motion to remand the case to the Texas state court. The U.S. Court
of Appeals for the Fifth Circuit heard argument on the appeal in December 1996
and affirmed the dismissal in May 1997. This matter is now closed with no
liability to NGC or NMC.
In December 1996, Santa Fe entered into a definitive merger agreement with
Homestake Mining Company ("Homestake") and a subsidiary of Homestake, subsequent
to discussions during November 1996 with both Homestake and NMC regarding
potential business combinations. In January 1997, NMC announced a proposal for a
business combination with Santa Fe. Santa Fe commenced discussions with NMC in
January 1997 and in March 1997, the merger agreement between Homestake and Santa
Fe was terminated and Santa Fe entered into a merger agreement with NMC. In
December 1996, six Santa Fe stockholders filed class action complaints against
Santa Fe and Santa Fe's Board of Directors (collectively, "Defendants"). The
complaints alleged, among other things, that members of the Santa Fe Board of
Directors breached their fiduciary responsibilities to Santa Fe's stockholders
by failing to consider fully the NMC proposal to acquire Santa Fe and the Santa
Fe Board of Directors approved the Homestake merger transaction to ensure that
certain of the defendants would retain their positions. Subsequent to the
consummation of the merger, the plaintiffs dismissed the complaints but have
sought to have the Delaware Court of Chancery retain jurisdiction for the
purpose of determining whether plaintiffs' counsel are entitled to an award of
attorneys' fees. Plaintiffs have not filed a petition for such an award. Any
such award should not have a material adverse effect on NGC's financial position
or results of operations.
For a description of the litigation involving NGC's ownership interest in
Minera Yanacocha, see page 7.
24
<PAGE> 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NGC's executive officers as of March 5, 1998 were:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Ronald C. Cambre............... 59 Chairman, President and Chief Executive Officer
Wayne W. Murdy................. 53 Executive Vice President and Chief Financial
Officer
John A. S. Dow................. 52 Senior Vice President, Exploration
David H. Francisco............. 48 Senior Vice President, International Operations
Lawrence T. Kurlander.......... 58 Senior Vice President, Chief Administrative Officer
W. James Mullin................ 52 Senior Vice President, North American Operations
David A. Baker................. 43 Vice President, Environmental Affairs
D. Scott Barr.................. 48 Vice President, Projects
George G. Byers................ 51 Vice President, Government Relations
Steven A. Conte................ 55 Vice President, Human Resources
Thomas M. Conway............... 41 Vice President, Latin American Operations
Mary E. Donnelly............... 46 Vice President, Government Relations
Thomas L. Enos................. 46 Vice President, General Manager, Carlin
W. Durand Eppler............... 44 Vice President, Business Development and Planning
Gary E. Farmar................. 43 Vice President, Internal Audit
Patricia A. Flanagan........... 39 Vice President, Treasurer and Assistant Secretary
Eric Hamer..................... 55 Vice President and Senior Project Executive,
Indonesia
Bruce D. Hansen................ 40 Vice President, Project Development
Joy E. Hansen.................. 52 Vice President and General Counsel
Jeffrey R. Huspeni............. 42 Vice President, Mine Geology
Donald G. Karras............... 44 Vice President, Taxes
Leendert G. Krol............... 58 Vice President, International Exploration
Leland W. Krugerud............. 46 Vice President, Accounting and Information Systems
Jack H. Morris................. 58 Vice President, Corporate Relations
Jean-Michel Rendu.............. 54 Vice President, Resources and Mine Planning
Timothy J. Schmitt............. 55 Vice President, Secretary and Assistant General
Counsel
Linda K. Wheeler............... 44 Controller
</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 Boards of Directors of NGC 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.
Mr. Cambre was elected Chairman of NGC in November 1994 (effective January
1995), President in June 1994 and Chief Executive Officer in September 1993
(effective November 1993). He served as Vice Chairman of NGC from November 1993
through December 1994. Previously, he served as Vice President and Senior
Technical Advisor to the office of the Chairman of Freeport-McMoRan Inc., a
natural resources company, from June 1988 to September 1993. He is also
Chairman, President and Chief Executive Officer of NMC.
Mr. Murdy was elected Executive Vice President of NGC in July 1996 and
designated Chief Financial Officer effective in December 1992. He served as a
Senior Vice President of NGC from December 1992 to July 1996. He is also
Executive Vice President and Chief Financial Officer of NMC.
25
<PAGE> 27
Mr. Dow was elected Senior Vice President, Exploration of NGC in July 1996.
He served as Vice President, Exploration of NGC from April 1992 to May 1994.
Previously, he held various senior exploration positions with NGC and its
subsidiaries for more than five years. He is also Senior Vice President,
Exploration of NMC.
Mr. Francisco was elected Senior Vice President, International Operations
of NGC in May 1997. Previously, he served as Vice President, International
Operations from July 1995 to May 1997. Previously, he served as Executive Vice
President and General Manager of P.T. Freeport Indonesia Co., a natural
resources company, from August 1992 to May 1995.
Mr. Kurlander was elected Senior Vice President, Chief Administrative
Officer of NGC in May 1997; he served as Senior Vice President, Administration
from March 1994 to May 1997. Previously, he served as Senior Vice President,
Public Affairs and Government Affairs, for Nabisco International Inc. of RJR
Nabisco, Inc., a consumer products company, since 1992. He is also Senior Vice
President, Chief Administrative Officer of NMC.
Mr. Mullin was elected Senior Vice President, North American Operations of
NGC in May 1997. Previously, he served as Vice President and Regional Director,
Nevada Operations of NGC from May 1994 to May 1996, and prior thereto served as
Vice President and General Manager from December 1993 to May 1994. He also
served as Acting General Manager from January 1993 to December 1993. Prior
thereto he held various senior operating positions with NGC.
Mr. Baker was elected Vice President, Environmental Affairs of NGC in April
1991.
Mr. Barr was elected Vice President, Projects of NGC in May 1997.
Previously, he served as Director, Technical Services from October 1995 to May
1997. Previously, he served as Vice President, Planning of Independence Mining
Company, Inc., a natural resources company, from January 1985 to October 1995.
Mr. Byers was elected Vice President, Government Relations of NGC in May
1997. Previously, he served as Vice President, Government Affairs of Santa Fe
Pacific Gold Corporation, a natural resources company, from January 1990 to May
1997.
Mr. Conte was elected Vice President, Human Resources of NGC in April 1995.
Previously, he served as Vice President, Human Resources of Echo Bay Mines Ltd.,
a natural resources company, from January 1988 to April 1995.
Mr. Conway was designated Vice President, Latin America Operations of NGC
in December 1997. Previously, he served as Vice President, General Manager,
Yanacocha from May 1997 to December 1997 and held various senior positions with
NGC since 1986.
Ms. Donnelly was elected Vice President, Government Relations of NGC in
June 1990.
Mr. Enos was elected Vice President, General Manager, Carlin of NGC in May
1997. Previously, he served as General Manager of Carlin and held various senior
positions with NGC and its subsidiaries since 1971.
Mr. Eppler was elected Vice President, Business Development and Planning of
NGC in May 1995. Previously, he served as Managing Director of Chemical
Securities, Inc., an affiliate of Chemical Bank, for more than five years.
Mr. Farmar was designated Vice President, Internal Audit of NGC in May
1997. Previously, he served as Vice President and Controller of NGC from
December 1992 to May 1997.
Ms. Flanagan was elected a Vice President of NGC in March 1995 and elected
Treasurer in December 1992. Previously, she served as an Assistant Treasurer.
She was appointed Assistant Secretary in June 1992. She is also Vice President,
Treasurer and Assistant Secretary of NMC.
Mr. Hamer was elected Vice President and Senior Project Executive,
Indonesia of NGC in August 1997. From May 1996 to August 1997 he served as Vice
President, Senior Project Executive, Batu Hijau for NGC. Previously, he served
as Vice President, North American Operations of NGC from July 1995 to May 1996,
as
26
<PAGE> 28
Vice President, Indonesian Projects, from January 1994 to July 1995 and as Vice
President, Project Development from January 1993 through December 1993. He also
served as Vice President and General Manager of NGC's Carlin operations from
October 1991 to December 1992.
Mr. Hansen was elected Vice President, Project Development of NGC in May
1997. Previously, he served as Senior Vice President, Corporate Development of
Santa Fe Pacific Gold Corporation, a natural resource company, from April 1994
to May 1997 and prior thereto, held various senior positions with Santa Fe since
1982.
Ms. Hansen was elected Vice President and General Counsel of Newmont in
September 1996. She was elected Vice President and Associate General Counsel of
NGC in March 1995 and designated General Counsel in July 1996. Previously, she
served as Associate General Counsel of NGC from March 1992 to July 1994.
Mr. Huspeni was elected Vice President, Mine Geology of NGC in May 1997.
Previously, he served as Director, Mine Geology of NGC and held various senior
positions with NGC since January 1982.
Mr. Karras was elected Vice President, Taxes of NGC in November 1992. He is
also Vice President, Taxes of NGC.
Mr. Krol was designated Vice President, International Exploration of NGC in
October 1997. Previously, he served as Vice President, International Exploration
and Acquisitions of NGC from May 1997 to October 1997, and Vice President,
Exploration of NGC from September 1994 to May 1997. He served as Director of
Foreign Exploration from May 1992 to September 1994.
Mr. Krugerud was elected Vice President of Accounting and Information
Systems of NGC in May 1997. Previously, he served as Director, Internal Audit of
NGC and held various senior positions with NGC for more than five years.
Mr. Morris was elected Vice President, Corporate Relations of NGC in March
1994. Previously, he served as Director of Investor Relations and Corporate
Communications for Inland Steel Industries, a steel producer, from 1990 to 1993.
Mr. Rendu was designated Vice President, Resources and Mine Planning of NGC
in June 1997. Previously, he served as Vice President, Technical Services from
January 1995 to June 1997 and served as Vice President, Information Systems of
NGC from November 1991 to January 1995 and Vice President, Mine Engineering of
NGC from March 1991 to January 1995.
Mr. Schmitt was elected a Vice President of NGC in December 1986 and was
elected Secretary in May 1988. He was designated Assistant General Counsel in
October 1991. He is also Vice President, Secretary and Assistant General Counsel
of NMC.
Ms. Wheeler was elected Controller of NGC in May 1997. Previously, she
served as Controller of Santa Fe Pacific Gold Corporation, a natural resources
company, from May 1994 to May 1997, and held various management positions with
Santa Fe prior thereto. She is also Controller of NMC.
27
<PAGE> 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NGC's common stock is listed and principally traded on the New York Stock
Exchange (under the symbol "NGC") and is also listed on the Paris Bourse. 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>
1997 1996
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter...................................... 49.00 38.38 $60.50 $43.75
Second quarter..................................... 40.88 34.63 $62.25 $50.25
Third quarter...................................... 47.00 36.81 $55.75 $46.88
Fourth quarter..................................... 47.50 26.38 $51.38 $43.38
</TABLE>
On March 5, 1998, there were 907 stockholders of record of NGC's common
stock.
In 1997, a dividend of $0.12 per share of common stock outstanding was
declared in the first three quarters and $0.03 per share in the fourth quarter,
or a total of $0.39 per share for such year. A dividend of $0.12 per share of
common stock outstanding was declared in each quarter of 1996, or a total of
$0.48 per share for such year. The determination of the amount of future
dividends, however, will be made by 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>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
Sales...................................... $1,572.8 $1,105.7 $ 981.6 $ 967.5 $ 830.3
Income from continuing operations.......... 72.9 105.2 157.5 135.7 134.5
Net income................................. $ 72.9 $ 105.2 $ 157.5 $ 135.7 $ 279.2
Income per common share:
Continuing operations.................... $ 0.44 $ 0.63 $ 0.95 $ 0.80 $ 0.88
Net income(1)............................ $ 0.44 $ 0.63 $ 0.95 $ 0.80 $ 1.82
Dividends declared per common share(2)..... $ 0.39 $ 0.48 $ 0.48 $ 0.48 $ 0.48
AT DECEMBER 31,
Total assets............................... $3,614.0 $3,282.1 $2,710.0 $2,429.0 $1,833.3
Long-term debt, including current
portion.................................. $1,222.7 $1,059.1 $ 808.5 $ 683.6 $ 349.3
Stockholders' equity....................... $1,697.1 $1,667.0 $1,354.7 $1,256.4 $1,138.4
</TABLE>
- ---------------
(1) In 1993, includes income from discontinued operations of $142.0 million
($0.92 per share), net of tax, and a benefit of $2.7 million ($0.02 per
share), net of tax, for the cumulative effect of a change in accounting for
income taxes.
(2) In the years 1993 through 1996, NGC declared dividends of $0.48 per NGC
common share. Santa Fe declared dividends of $0.05 per Santa Fe common share
in 1996 and 1995. Prior to 1995, Santa Fe paid dividends to another company
as its wholly-owned subsidiary.
28
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following provides information which management believes is relevant to
an assessment and understanding of Newmont Gold Company ("NGC") and its
subsidiaries' (collectively, "Newmont") consolidated results of operations and
financial condition. The discussion should be read in conjunction with the
consolidated financial statements and accompanying notes ("Notes"). NGC is
approximately 93.75% owned by Newmont Mining Corporation ("NMC"), and holds all
operating assets of NMC. As described in Note 1, Newmont acquired Santa Fe
Pacific Gold Corporation ("Santa Fe") on May 5, 1997, through a tax-free
exchange of stock. The consolidated financial statements have been restated for
periods prior to 1997 to reflect the merger with Santa Fe as a pooling of
interests.
SUMMARY
Newmont earned $72.9 million ($0.44 per share) in 1997 including an
after-tax charge of $119.8 million ($0.72 per share) related to expenses and
write-offs associated with the Santa Fe merger and a gain of $15.4 million
($0.09 per share) related to the close-out of certain put and call option
contracts. Excluding these one-time items, Newmont earned $177.3 million ($1.07
per share). This compared with 1996 and 1995 earnings of $105.2 million ($0.63
per share) and $157.5 million ($0.95 per share), respectively. Earnings in 1995
included an after-tax gain of $72 million ($0.47 per share) from the sale of
Newmont's interest in Southern Peru Copper Corporation and an after-tax charge
of $37.1 million ($0.24 per share) from the write-off of two exploration
properties and a related reclamation provision. Significant factors contributing
to 1997 results were the merger with Santa Fe, the consolidation of Minera
Yanacocha and improved operating performance at each mine, partially offset by a
decline in the realized gold price.
Total equity gold production increased 27% in 1997 to 3,956,800 ounces from
3,104,100 ounces in 1996. Total cash costs per ounce of equity production
declined 14% to $187 in 1997 from $218 in 1996. Realized prices per equity ounce
were $41 lower in 1997 than in 1996, and $20 and $7 higher than the average
market gold price in 1997 and 1996, respectively, as approximately 30% of equity
production, mostly related to former Santa Fe properties, was sold under
commodity instruments at average prices of $412 an ounce. Production in 1998 is
expected to be between 3.8 million and 4.0 million equity ounces at a total cash
cost under $200 per ounce.
At December 31, 1997, Newmont's proven and probable gold reserves totaled
52.7 million equity ounces, calculated at a gold price of $350 per ounce.
Reserves at the end of 1996 were 55.2 million ounces, calculated at a gold price
of $400 per ounce.
ADDITIONAL INTEREST IN MINERA YANACOCHA
As discussed in Note 3, an additional 13.35% interest in Minera Yanacocha
was treated as acquired in 1997, increasing the company's ownership to 51.35%.
This followed a decision of the Peruvian Superior Court that Newmont had a
preemptive right to acquire its proportionate share of a former partner's
interest. As a result, Minera Yanacocha was consolidated into Newmont's
financial statements beginning in 1997, with the increase in ownership reflected
as of February 1997. Previously, Minera Yanacocha was accounted for as an equity
interest in an affiliated company.
The acquisition of this additional interest continues to be contested and
at this time, Newmont is unable to predict the outcome of the litigation. A
favorable outcome would result in the payment of approximately $59 million for
the acquired interest. An unfavorable outcome would require reversion to equity
accounting in 1997 for Newmont's 38% interest in Minera Yanacocha and the
possibility of a dividend refund attributable to the acquired interest. The
additional interest represented $0.07 of net income per share and 3% of total
equity production in 1997 and is expected to comprise 4% of 1998 equity
production.
29
<PAGE> 31
MARKET CONDITIONS AND RISKS
GOLD PRICE
Newmont's profitability is significantly affected by changes in the market
price of gold. Gold prices can fluctuate widely and are affected by numerous
factors, such as demand, forward selling by producers, central bank sales and
purchases, investor sentiment and production levels. During 1997 and early 1998,
the market gold price declined to its lowest level in 18 years. Several central
banks sold a portion of their gold reserves and others have discussed proposals
to sell. Producer hedging and short-selling by speculators, both of which are
sustained by central bank lending, were at record levels in 1997. The perception
that central banks may further reduce their gold reserves and the belief that
major world economies can sustain a low-inflationary environment could continue
to adversely impact the market price of gold. Although Newmont is one of the
lowest cost gold producers, a sustained period of low gold prices could have a
material adverse affect on its financial position and results of operations.
Newmont has utilized commodity instruments to protect the selling price of
certain anticipated gold production. Approximately 739,000 ounces, or 20 percent
of production in 1998, will be sold under such instruments. Forward sales
contracts at an average price of $454 per ounce are in place for 125,000 ounces
per year from the Minahasa mine in Indonesia through December 2000. In addition,
spot deferred contracts for approximately 614,000 ounces of production from
former Santa Fe mines at an average price of $423 per ounce expire monthly
through September 1998. In July 1997, Newmont entered into forward purchase
contracts at an average price of $331 per ounce offsetting the approximate 1.1
million ounces of Santa Fe production then covered by spot deferred contracts.
The gain or loss from these contracts is recognized in sales revenue as the
related gold is delivered. At current estimates of 1998 production and expenses,
a $10 change in the gold price results in an increase or decrease of
approximately $38 million in cash flow from operations and approximately $27
million ($0.17 per share) in net income.
During 1998, Newmont is taking further steps to optimize operations to
preserve cash without impairing long-term growth during the current low gold
price environment. Cash outlays are being reduced through a combination of lower
capital spending, a refocused exploration program, revised mine and production
plans, decreased general and administrative expenses and a reduction in
dividends. In January 1998, Newmont reduced its domestic workforce by
approximately 500 people, or 11%. The expected result of these measures is to
allow the company to fund capital expenditures and dividends from operating cash
flow without incurring additional debt, excluding project financing for the
development of the Batu Hijau project in Indonesia.
FOREIGN CURRENCY
In addition to the U.S., Newmont has operations in Peru, Uzbekistan and
Indonesia. Gold produced at these operations is sold in the international
markets for U.S. dollars. The cost and debt structures at these operations are
also primarily U.S. dollar denominated. To the extent that there are
fluctuations in local currency exchange rates against the U.S. dollar, the
devaluation of a local currency is generally economically neutral or beneficial
to the operation since local salaries and supply contracts will decrease against
the U.S. dollar revenue stream.
Indonesia has recently experienced a significant devaluation of its
currency, the rupiah. Newmont's functional currency for its Indonesian projects
is the U.S. dollar; however, certain receivables, primarily related to refunds
of Value Added Tax, are denominated in rupiah. During 1997, $3.3 million was
charged to Other expenses to reflect the recent devaluation of these
receivables. Newmont's Minahasa operations and Batu Hijau project are in remote
locations and have been largely unaffected by the social problems brought about
by the recent economic situation in Indonesia.
INTEREST RATES
At December 31, 1997, Newmont's long-term debt included $383.7 million
variable-rate debt with an average interest rate of 6.4%, and fixed-rate debt of
$839.0 million with an average interest rate of 7.5% and an
30
<PAGE> 32
estimated fair value of $863.2 million. In February 1998, Newmont's public debt
was rated Baa3 by Moody's Investors Service and BBB by Standard & Poor's Ratings
Services.
RESULTS OF OPERATIONS
PRODUCTION
Newmont has increased production in recent years by expanding its
processing capabilities for refractory ores in Nevada and bringing new
operations into production overseas. In 1997, each of these operations reached
record production levels and reported lower per ounce costs as summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Equity production ozs.(000):
Nevada operations..................................... 2,776.5 2,328.3 2,297.1
Mesquite.............................................. 227.9 191.6 189.2
Minera Yanacocha*..................................... 530.9 308.3 209.8
Zarafshan-Newmont..................................... 215.0 163.2 18.5
Minahasa.............................................. 206.5 112.7 --
------- ------- -------
Total......................................... 3,956.8 3,104.1 2,714.6
======= ======= =======
</TABLE>
- ---------------
* 51.35% beginning February 1997, 38% in 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total cash costs per equity oz.:
Nevada operations......................................... $207 $234 $214
Mesquite.................................................. 213 245 211
Minera Yanacocha.......................................... 95 107 119
Zarafshan-Newmont......................................... 204 225 218
Minahasa.................................................. 167 224 --
Weighted average.................................. $187 $218 $204
</TABLE>
Total cash costs include charges for mining ore and waste associated with
current period gold production, processing ore through milling and leaching
facilities, production taxes, royalties and other cash costs. On a per ounce
basis, costs in 1997 were lower than 1996 as a result of increased production
levels, continued cost containment efforts, and processing higher-grade ore with
increased recovery rates in Nevada. Such costs were higher in 1996 compared with
1995 because of more underground mining in Nevada, higher waste-to-ore ratios in
open-pit mines at Nevada and Mesquite and processing a higher percentage of
refractory ore.
U.S. OPERATIONS
Newmont's Nevada operations are along the Carlin Trend near Elko and in the
Winnemucca Region, where former Santa Fe mines (Twin Creeks and the Lone Tree
Complex) are located. Production in 1997 came from 17 open-pit and 5 underground
mines. Oxide ores are processed by milling or heap-leaching, depending upon the
grade. Higher-grade refractory ores are processed by a roaster at Carlin, and by
autoclaves in the Winnemucca Region. Lower-grade refractory ores are processed
through a flotation plant in the Winnemucca Region or by bio-oxidation and
heap-leaching at Carlin.
Production in 1997 increased 19% from 1996 primarily due to (1)completion
of the Trenton Canyon and Mule Canyon projects in the Lone Tree Complex in late
1996, (2) initial production from the Sage Mill autoclaves, the Lone Tree
flotation plant and the 50%-owned Rosebud mine during 1997; (3) 30% higher
roaster production resulting from processing higher-grade ores; and,
(4)subsequent to the merger, transportation of selected ore types to the
processing facility that maximized gold recovery and production. Total cash
costs per ounce declined 12% primarily because of higher grades and improved
recovery rates at both oxide and refractory mills.
31
<PAGE> 33
Nevada's production is increasingly coming from higher-cost refractory ores
from both deep open-pits and underground mines as lower-cost, near-surface oxide
ores are depleted. The refractory ore treatment facilities are expected to
account for approximately 47% of the Nevada operations' gold production in 1998,
up from 35% in 1997 and 30% in 1996.
To preserve cash during the low gold price environment, Newmont is reducing
mining rates at pits with high strip ratios and deferring some capital spending.
In addition, one oxide mill in the Winnemucca Region and two mills at Carlin
will operate on a campaign basis. As a result, the Nevada workforce was reduced
by 285 in January 1998. In addition, production scheduled for 1998 from the
partner-operated Post deposit will be deferred due to a pit-wall slide that
occurred in mid-1997. With these changes, Nevada production is expected to
decrease slightly in 1998, with somewhat higher total cash costs per ounce.
Production at the Mesquite mine, a heap-leach operation in southern
California, increased 19% in 1997 from 1996 and total cash costs declined 13% as
a result of higher recoveries from ore placed on heap-leach pads. Mesquite is
reaching the end of its economic life; however, a prospective property received
in connection with a recent land exchange may lead to additional gold reserves
and extension of the mine life. Beginning in 1998, mining rates were reduced to
allow production to continue while Newmont obtains the required environmental
permits and performs development work on the newly acquired land. To facilitate
the new mine plan, the workforce was reduced by approximately 125, or 40%, in
January 1998. Production is expected to decrease to about 140,000 ounces in
1998, but with somewhat lower total cash costs per ounce.
INTERNATIONAL OPERATIONS
Minera Yanacocha in Peru achieved record production of 1,052,800 ounces
(530,900 equity ounces) in 1997, 30% higher than 1996 production of 811,400
ounces (308,300 equity ounces) due to higher tons mined and increased recovery
rates. With its increased ownership, Newmont's equity share of production
increased 72% in 1997. Production in 1996 was 47% higher than in 1995, primarily
due to commencement of production at a third mine. Production in 1998 is
expected to reach 1.2 million ounces (600,000 equity ounces).
Total cash costs are comparatively low at Minera Yanacocha because of low
strip ratios and porous ore that yields high gold recovery without crushing
prior to heap-leaching. Total cash costs per ounce were 11% lower in 1997 and
1996 compared with the respective prior year due to higher production levels and
recoveries. Costs are expected to increase in 1998 with longer hauling distances
as pits deepen, increased strip ratios and declines in ore grades.
The Zarafshan-Newmont Joint Venture, in the Central Asian Republic of
Uzbekistan, is a 50/50 joint venture between a subsidiary of Newmont and two
Uzbekistan governmental entities. Zarafshan-Newmont, which began production in
September 1995, produces gold by crushing and heap-leaching low-grade oxide ore
from existing stockpiles at the government-owned Muruntau mine. Production
increased 32% in 1997 primarily as a result of processing 15% more tons of ore
and achieving plant design operating rates. With increased production, total
cash costs per ounce declined 9%. In 1998, production is expected to be
comparable to 1997.
In Indonesia, production began in 1996 at Newmont's 80%-owned Minahasa
property. Newmont has an 80% interest in this project, but because it funded
100% of the construction costs, Newmont is entitled to 100% of the gold
production until it recovers the bulk of its investment, including interest.
Production and total cash costs per ounce in 1997 reflected a full year of
operation compared with a partial year in 1996. Also, a roaster was commissioned
early in 1997 for processing refractory ore. Production is expected to reach
approximately 250,000 ounces in 1998.
32
<PAGE> 34
FINANCIAL RESULTS
Increases in consolidated sales revenue were related to the 1997
consolidation of Minera Yanacocha, changes in annual production levels and the
average annual gold price received as shown in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Consolidated Sales (in millions)..................... $1,572.8 $1,105.7 $ 981.6
Consolidated production ozs. (000)................... 4,478.7 2,790.1 2,504.8
Average price received per ounce..................... $ 351 $ 396 $ 392
Average market price per ounce....................... $ 331 $ 388 $ 384
</TABLE>
<TABLE>
<CAPTION>
1997 VS. 1996 1996 VS. 1995
------------- -------------
<S> <C> <C>
Increase (decrease) in sales revenues due to (in millions):
Consolidation of Minera Yanacocha........................ $ 344.3 $ --
Consolidated production*................................. 251.1 114.1
Average gold price received.............................. (128.3) 10.0
------- ------
Total............................................ $ 467.1 $124.1
======= ======
</TABLE>
- ---------------
* excluding Minera Yanacocha in 1997
Costs applicable to sales include total cash costs and provisions for
estimated final reclamation expenses related to consolidated production. The
increase in costs applicable to sales was primarily due to increased production
levels at all operations.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Costs Applicable to Sales (in millions):
Nevada operations...................................... $575.3 $544.1 $489.5
Mesquite............................................... 49.4 47.5 40.0
Minera Yanacocha....................................... 98.9 -- --
Zarafshan-Newmont...................................... 43.8 36.9 4.1
Minahasa............................................... 32.6 23.8 --
------ ------ ------
Total.......................................... $800.0 $652.3 $533.6
====== ====== ======
</TABLE>
Certain mining costs associated with deposits that have diverse grade and
waste-to-ore ratios over the mine-life are capitalized. Such costs are charged
to operating expenses as the related gold is sold. In 1997, 1996 and 1995, such
costs were capitalized for certain deposits at the Nevada operations ($66.5
million, $130.4 million and $106.2 million, respectively) and at Minahasa ($8.4
million, $6.1 million and $1.2 million, respectively).
Capitalized mining costs were lower in 1997 compared with 1996 primarily
because of a significant decrease in mined ounces from the Post deposit in
Nevada, following the pit wall failure. Capitalized mining costs are expected to
decrease in 1998, with reduced mining rates in Nevada.
Depreciation, depletion and amortization ("DD&A") increased 30% from 1996
and 9% from 1995. The consolidation of Minera Yanacocha, completion of
Winnemucca Region mine and mill expansion projects and a full year of operations
at Minahasa accounted for the increase in 1997. The increase in 1996 over 1995
related to additional assets placed in service in Nevada, a full year of
Zarafshan-Newmont operations and the startup of Minahasa operations. DD&A is
expected to be somewhat higher in 1998 reflecting a full year of operation of
the Sage Mill and flotation plant in Nevada and assets placed in service at
Minera Yanacocha.
Exploration and research expenses were $98.4 million, $92.9 million and
$91.7 million in 1997, 1996 and 1995, respectively. In 1998, exploration and
research expenses will be curtailed by approximately $30 million as this effort
is focused on nearer-term targets in order to conserve cash.
33
<PAGE> 35
General and administrative expense ("G&A") increased slightly each year,
primarily resulting from additional staffing required for Newmont's growing
international operations. G&A expenses are expected to be reduced by
approximately $15 million in 1998, due to synergies related to the merger and
efforts to conserve cash.
Interest expense, net of capitalized interest was $77.1 million, $58.6
million and $47.1 million in 1997, 1996 and 1995, respectively. The 1997
increase was associated with higher debt balances following the consolidation of
Minera Yanacocha's $100 million financing obtained during the year and
additional credit facility borrowings for expansion projects. Interest
associated with the Santa Fe debentures issued in mid-1996 accounted for the
increase in 1996 over 1995. Net interest expense in 1998 is expected to be
comparable to 1997.
Merger and related expenses for Newmont of $162.7 million ($104.4 million
net of tax) consisted of $135.4 million of transactions costs and $27.3 million
in asset write-offs.
In 1995, Newmont wrote off two exploration properties totaling $52.5
million when it was determined that projected deposit sizes and economic returns
were lower than Newmont's threshold for development.
Other expenses for 1997 included $10.0 million for severance costs
associated with the January 1998 workforce reduction. In 1996, $8.7 million
related to Santa Fe asset write-offs and restructuring expenses. In 1997, 1996
and 1995, $5.0 million, $6.6 million and $3.0 million, respectively, related to
environmental obligations associated with former mining activities.
Dividends, interest and other income for 1997 included gains of $23.7
million (related to the close-out of certain put and call option contracts) and
$5.1 million (related to the disposition of a Santa Fe uranium property). In
1997, 1996 and 1995, $6.5 million, $3.1 million and $28.3 million, respectively,
were recorded for business interruption insurance for problems associated with
the roaster in Nevada. As discussed in Note 9, in January 1996, Newmont issued
4.65 million shares of common stock resulting in higher cash balances and
interest income in 1996 compared with 1995. Interest income is expected to be
the primary component of Dividends, interest and other income in 1998.
In 1997, Newmont recognized an income tax benefit of $7.9 million compared
with a benefit of $15.9 million in 1996. The tax benefit in 1997 reflected the
consolidation of Minera Yanacocha offset by higher percentage depletion from
increased U.S.-based production, synergies from the merger and refunds from the
settlement of prior-year audits. The 1996 benefit included foreign tax credits
associated with Minera Yanacocha, which were substantially higher in 1996 than
1995, as well as benefits of $6.0 million from resolution of prior-year tax
issues. In 1995, tax expense of $30.0 million included $41.2 million related to
the sale of Newmont's investment in Southern Peru Copper, partially offset by a
tax benefit of $20 million resulting from the write-off of two exploration
properties.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, existing cash balances, cash flow from operations ($287.4
million) and net borrowings ($105.2 million) funded capital expenditures ($415.1
million), dividends ($58.2 million) and net advances to joint ventures and
affiliates ($50.8 million). Newmont plans to use cash on hand at December 31,
1997 of $146.2 million and operating cash flow to fund 1998 capital expenditures
and dividends.
INVESTING ACTIVITIES AND CAPITAL EXPENDITURES
Batu Hijau
As discussed in Note 17 to the financial statements, Newmont has a 45%
interest in the Batu Hijau project in Indonesia, accounted for on an equity
basis effective July 1996. At December 31, 1997 and 1996, Newmont's investment
of $76.8 million and $46.6 million, respectively, was included in Other
long-term assets and cash flow activity was reflected in Advances to joint
ventures and affiliates.
Batu Hijau contains proven and probable reserves of 10.6 billion pounds of
copper (4.8 billion equity pounds) and 12.1 million ounces of gold (5.4 million
equity ounces). Production is expected to begin in late
34
<PAGE> 36
1999, with a projected mine life in excess of 20 years. The cost for development
of the open-pit mine, mill and infrastructure including employee housing, a
port, electrical generation facilities, interest during construction, cost
escalation and working capital is expected to approximate $1.9 billion.
Financing agreements for $1.0 billion were signed in July 1997 for
development of the project. The financing is guaranteed by Newmont and its
partner, Sumitomo Corporation ("Sumitomo"), 56.25% and 46.75%, respectively,
until project completion tests are met, and will be non-recourse thereafter
(except for a $125 million contingent support facility that Newmont and Sumitomo
have agreed to provide). Repayment of the borrowings will begin the earlier of
six months after project completion or June 15, 2001. Initial draws of $160
million from the facility occurred in January 1998 and a total of approximately
$725 million is expected to be utilized during 1998.
Construction commenced in 1997 and at December 31, 1997, Newmont had spent
$131 million (including exploration expense) on the project, which was 22%
complete. Newmont expects to spend approximately $70 million on the project in
1998.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Capital Expenditures (in millions):
Nevada operations......................................... $231.0 $450.8 $351.9
Minera Yanacocha.......................................... 113.7 -- --
Minahasa.................................................. 24.2 27.4 76.7
Mesquite.................................................. 18.8 3.6 5.6
Zarafshan-Newmont......................................... 5.6 7.3 30.3
Batu Hijau................................................ -- 15.1 27.7
Other projects and capitalized interest................... 21.8 43.6 28.7
------ ------ ------
Total............................................. $415.1 $547.8 $520.9
====== ====== ======
</TABLE>
1997 expenditures in Nevada related to completion of the Sage Mill and
other processing equipment ($90.3 million), capitalized mining costs ($66.5
million), mining and dewatering equipment ($22.9 million), deferred mine
development ($22.5 million), refractory leach pads ($10.9 million) and other
ongoing capital requirements. Minera Yanacocha expenditures included mine and
facility expansion ($78.4 million) and development drilling ($14.0 million).
During 1996, capital expenditures in Nevada included approximately $154.0
million for projects in the Carlin Region (capitalized mining costs, underground
development, mining and processing equipment, and refractory leach pads) and
$296.8 million for projects associated with former Santa Fe operations (the Sage
Mill and flotation plant, capitalized mining costs, completion of the Trenton
Canyon and Mule Canyon projects and other ongoing capital requirements).
Nevada's 1995 capital expenditures related to capitalized mining, processing
facilities, mining equipment and other ongoing requirements.
Estimated capital projects in 1998 total approximately $275 million. Nevada
expenditures of approximately $145 million will fund capitalized mining costs,
mine equipment, leach pads and mine development. Minera Yanacocha expenditures
of $85 million are planned for the construction of leach facilities, development
drilling and other support equipment and facilities. The remaining capital
expenditures include $11 million for Minahasa, $11 million for the La Herradura
project in Mexico, $6 million for Mesquite and $17 million for other projects
and capitalized interest.
A favorable decision in 1998 regarding the acquisition of the additional
13.35% interest in Minera Yanacocha would require payment of approximately $59
million plus any additional costs required to complete the acquisition.
FINANCING ACTIVITIES
In June 1997, Newmont obtained a $1.0 billion revolving credit facility
with a consortium of banks that expires in June 2002. This financing replaced
two separate facilities held by NGC and Santa Fe, each at
35
<PAGE> 37
$400 million (of which $255 million was outstanding at December 31, 1996). At
December 31, 1997, $316 million was outstanding under the facility. The interest
rate is variable and at December 31, 1997 was 5.8%.
In January 1996, NMC issued 4.65 million shares of common stock for $51.87
per share. Proceeds of the issue netted $241.3 million and were used to purchase
an equal number of shares of common stock of NGC. Such proceeds were used by NGC
to fund its operations. This transaction increased NMC's ownership of NGC to
93.75%. In addition, $24.2 million was received in 1996 from the exercise of
employee stock options.
Scheduled minimum long-term debt repayments are $43.3 million in 1998.
Newmont expects to fund maturities of its debt through operating cash flow
and/or by refinancing the debt as it becomes due.
ENVIRONMENTAL AND OTHER
Of Newmont's $415.1 million in capital expenditures in 1997, it is
estimated that approximately $28 million was required to comply with
environmental regulations. Approximately $16 million of such expenditures will
be required in 1998. The ongoing costs to comply with environmental regulations
are not a significant portion of Newmont's cash operating costs. Estimated
future reclamation and remediation costs relating to currently producing mines
are accrued over each mine-life and at December 31, 1997, $45.6 million had been
accrued.
Newmont spent $13.0 million, $14.8 million and $20.0 million in 1997, 1996
and 1995, respectively, for environmental obligations related to former mining
sites (discussed in Note 17), and expects to spend approximately $13 million in
1998. During 1997, settlement with several insurance companies regarding
coverage of remediation expenses at certain former mining sites resulted in
proceeds of approximately $10 million, net of related expenses. Such proceeds
were applied against the charges for changes in estimated future costs. At
December 31, 1997, $52.2 million was accrued for total estimated future costs
associated with such obligations. Because of the uncertain nature of these
liabilities, Newmont estimates that it is reasonably possible that the ultimate
liability may be as much as 70% greater or 15% lower than the amount accrued at
December 31, 1997. Newmont continuously monitors and reviews its environmental
obligations and, although it believes that its reserves are adequate, as
additional facts become known further provisions may be required.
Current inventories and non-current inventories (included in Other
long-term assets) increased $60.2 million and $88.8 million, respectively, from
December 31, 1996 to December 31, 1997. These increases primarily related to the
consolidation of Minera Yanacocha and stockpiles of refractory leach ore in
Nevada. In 1997, certain stockpiled ore inventory in Nevada was written down to
net realizable value, resulting in a $9.5 million charge to Costs applicable to
sales.
YEAR 2000
Newmont began a "Year 2000" compliance project in late 1996 to determine if
its automated processing software and equipment will function properly upon
reaching the year 2000. This project, conducted by a cross-functional employee
group and outside consultants, is expected to continue through mid-1999 (the
target for Year 2000 compliance) and addresses automated processes, plant
process control software, compliance of material suppliers and service providers
and other related issues. Work phases include conducting assessments; devising,
implementing and testing necessary renovation plans; and, receiving
certifications from material suppliers and service providers of their Year 2000
compliance. Based on the assessment phase work performed to date, no material
issues or costs have been identified. Subsequent phases of the project may lead
to discovery of material issues or costs.
SAFE HARBOR STATEMENT
The foregoing discussion and analysis, as well as certain information
contained elsewhere in this Annual Report, contain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. These statements concerning future operations or events are subject to
important risks, uncertainties and other factors that could cause actual results
to differ materially. Forward-looking statements involve certain factors that
are subject to change, including, but not limited to: the price of gold;
36
<PAGE> 38
interest and currency exchange rates; geological and metallurgical assumptions;
operating performance of equipment, processes and facilities; labor relations;
timing of receipt of necessary governmental permits or approvals; weather and
other acts of God; domestic and foreign laws or regulations, particularly
relating to the environment and mining; domestic and international economic and
political conditions; the ability of joint venture partners to meet their
obligations; the ability of Newmont to obtain or maintain necessary financing;
and other risks and hazards associated with mining operations.
More detailed information regarding Newmont, its operations and factors
that could materially affect its financial position and results of operations
are included in Newmont's Annual Report on Form 10-K as well as other filings
with the Securities and Exchange Commission. Many of these factors are beyond
Newmont's ability to control or predict. Readers are cautioned not to put undue
reliance on forward-looking statements. Newmont disclaims any intent or
obligation to update publicly any forward-looking statements set forth herein,
whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the caption "Market Conditions and Risks"
is included in Item 6.
37
<PAGE> 39
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, 1997
and 1996, and the related statements of consolidated income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Santa Fe Pacific Gold Corporation in 1996 or 1995, a company
merged into the Company during 1997 in a transaction accounted for as a pooling
of interests, as discussed in Note 1. Such statements are included in the
consolidated financial statements of Newmont Gold Company and reflect total
assets and total revenues of 37 percent and 30 percent in 1996, respectively,
and total revenues of 31 percent in 1995, of the related consolidated totals,
after restatement to reflect certain adjustments as set forth in Note 1. The
financial statements of Santa Fe Pacific Gold Corporation prior to those
adjustments were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for Santa Fe
Pacific Gold Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Newmont Gold Company and subsidiaries as of December
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 27, 1998.
38
<PAGE> 40
To the Board of Directors and Shareholders of Santa Fe Pacific Gold Corporation
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of cash flows and of shareholders' equity of Santa Fe
Pacific Gold Corporation (not presented separately herein) present fairly, in
all material respects, the financial position of Santa Fe Pacific Gold
Corporation and its subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
February 1, 1997, except for the fifth paragraph of Note 1,
which is as of March 10, 1997
39
<PAGE> 41
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales and other income
Sales................................................ $1,572,757 $1,105,666 $ 981,640
Dividends, interest and other........................ 55,235 29,460 46,394
Gain on disposition of investment.................... -- -- 113,188
---------- ---------- ----------
1,627,992 1,135,126 1,141,222
---------- ---------- ----------
Costs and expenses
Costs applicable to sales............................ 800,045 652,305 533,631
Depreciation, depletion and amortization............. 265,765 204,081 186,785
Exploration and research............................. 98,420 92,863 91,748
General and administrative........................... 66,380 65,671 62,861
Interest, net of amounts capitalized................. 77,067 58,619 47,099
Merger and related expenses.......................... 162,674 -- --
Write-off of exploration properties.................. -- -- 52,537
Other................................................ 25,726 22,521 11,681
---------- ---------- ----------
1,496,077 1,096,060 986,342
---------- ---------- ----------
Income before equity income and income tax............. 131,915 39,066 154,880
Equity income in Minera Yanacocha...................... -- 50,170 32,650
---------- ---------- ----------
Income before income tax and minority interest......... 131,915 89,236 187,530
Income tax benefit (provision)......................... 7,900 15,949 (29,982)
Minority interest in Minera Yanacocha.................. (66,882) -- --
---------- ---------- ----------
Net income............................................. 72,933 105,185 157,548
Preferred stock dividends.............................. -- -- 11,157
---------- ---------- ----------
Net income applicable to common shares................. $ 72,933 $ 105,185 $ 146,391
========== ========== ==========
Net income per common share, basic and diluted......... $ 0.44 $ 0.63 $ 0.95
========== ========== ==========
Basic weighted average shares outstanding.............. 166,665 165,978 153,772
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE> 42
NEWMONT GOLD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 146,232 $ 227,053
Short-term investments...................................... 12,790 12,724
Accounts receivable......................................... 52,410 29,663
Inventories................................................. 339,549 279,315
Other current assets........................................ 90,389 52,233
---------- ----------
Current assets............................................ 641,370 600,988
Property, plant and mine development, net................... 2,598,809 2,391,872
Other long-term assets...................................... 373,803 289,270
---------- ----------
Total assets...................................... $3,613,982 $3,282,130
========== ==========
LIABILITIES
Short-term debt............................................. $ 25,771 $ 45,981
Current portion of long-term debt........................... 43,301 19,250
Accounts payable............................................ 83,101 72,135
Other accrued liabilities................................... 242,358 140,893
---------- ----------
Current liabilities....................................... 394,531 278,259
Long-term debt.............................................. 1,179,410 1,039,875
Reclamation and remediation liabilities..................... 88,651 71,702
Other long-term liabilities................................. 192,033 225,333
---------- ----------
Total liabilities................................. 1,854,625 1,615,169
---------- ----------
Minority interest in Minera Yanacocha....................... 62,253 --
---------- ----------
Commitments and contingencies (See Notes 3 and 17)
STOCKHOLDERS' EQUITY
Common stock -- $0.01 par value; 250 million shares
authorized; 167.1 million and 166.7 million shares issued,
respectively.............................................. 1,671 1,667
Additional paid-in capital.................................. 768,626 753,635
Retained earnings........................................... 928,904 913,927
Treasury stock, at cost, 238 thousand and 257 thousand
shares, respectively...................................... (2,097) (2,268)
---------- ----------
Total stockholders' equity........................ 1,697,104 1,666,961
---------- ----------
Total liabilities and stockholders' equity........ $3,613,982 $3,282,130
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE> 43
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
TREASURY STOCK
COMMON STOCK ADDITIONAL AT COST
---------------- PAID-IN RETAINED -------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------- ------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994*.................... 161,377 $1,614 $539,948 $774,541 8,414 $(74,126)
Stock options exercised........................ -- -- 6,949 -- (247) 2,173
Preferred stock redemption and conversion, net
of costs.................................... -- -- (59,766) -- (7,899) 69,590
Net income..................................... -- -- -- 157,548 -- --
Common stock dividends......................... -- -- -- (53,376) -- --
Preferred stock dividends $3.88 per share...... -- -- -- (11,157)
Other.......................................... -- -- 476 331 -- --
------- ------ -------- -------- -------- --------
Balance at December 31, 1995..................... 161,377 1,614 487,607 867,887 268 (2,363)
Common stock issuance.......................... 4,651 47 241,209 -- -- --
Stock options exercised........................ 666 6 24,920 -- (13) 112
Net income..................................... -- -- -- 105,185 -- --
Common stock dividends......................... -- -- -- (59,300) -- --
Other.......................................... -- -- (101) 155 2 (17)
------- ------ -------- -------- -------- --------
Balance at December 31, 1996..................... 166,694 1,667 753,635 913,927 257 (2,268)
Stock options exercised........................ 439 4 14,080 -- -- --
Net income..................................... -- -- -- 72,933 -- --
Common stock dividends......................... -- -- -- (58,161) -- --
Other.......................................... -- -- 911 205 (19) 171
------- ------ -------- -------- -------- --------
Balance at December 31, 1997..................... 167,133 $1,671 $768,626 $928,904 238 $ (2,097)
======= ====== ======== ======== ======== ========
</TABLE>
- ---------------
* At December 31, 1994, 2.875 million shares of preferred stock were outstanding
which were called for redemption in 1995. (See Note 9 to the Consolidated
Financial Statements). All balances presented have been restated to reflect
the issuance of approximately 56.5 million shares in exchange for all
outstanding shares of Santa Fe. (See Note 1 to the Consolidated Financial
Statements).
The accompanying notes are an integral part of these statements.
42
<PAGE> 44
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income.............................................. $ 72,933 $ 105,185 $ 157,548
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............. 265,765 204,081 186,785
Amortization of capitalized mining costs............. 55,254 -- --
Merger related asset write-offs...................... 27,288 -- --
Undistributed earnings of affiliates................. -- (18,359) (7,027)
Minority interest, net of dividends.................. 6,800 -- --
Deferred tax benefit................................. (48,800) (16,607) (12,893)
Gain on sale of investments.......................... -- -- (113,188)
Write-off of exploration properties.................. -- -- 52,591
Write-down of inventory.............................. 9,500 -- --
Other................................................ 8,374 3,585 11,783
(Increase) decrease in operating assets:
Accounts receivable................................ (12,188) (4,245) 14,643
Inventories........................................ (149,296) (63,233) (70,965)
Other assets....................................... 8,414 (13,125) 5,114
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.............. 41,983 11,891 58,786
Other liabilities.................................. 1,375 3,430 (14,696)
--------- --------- ---------
Net cash provided by operating activities................. 287,402 212,603 268,481
--------- --------- ---------
Investing Activities
Additions to property, plant and mine development....... (415,082) (547,757) (520,913)
Proceeds from sale of investment........................ -- -- 119,799
Advances to joint ventures and affiliates............... (67,119) (3,684) (30,543)
Repayments from joint ventures and affiliates........... 16,356 -- --
Cash acquired from Minera Yanacocha transaction......... 40,705 -- --
Other................................................... 48 (2,335) (8,344)
--------- --------- ---------
Net cash used in investing activities..................... (425,092) (553,776) (440,001)
--------- --------- ---------
Financing Activities
Proceeds from short-term debt........................... 7,630 16,802 13,440
Repayments of short-term debt........................... (27,840) -- --
Proceeds from long-term debt............................ 828,000 255,000 254,856
Repayments of long-term debt............................ (702,541) (4,375) (130,000)
Proceeds from issuance of common stock.................. 12,580 265,449 8,034
Dividends paid on common stock.......................... (58,161) (59,300) (53,376)
Dividends paid on preferred stock....................... -- -- (11,860)
Preferred stock redemption and conversion costs......... -- -- (4,442)
Other................................................... (2,799) (344) (4,934)
--------- --------- ---------
Net cash provided by financing activities................. 56,869 473,232 71,718
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (80,821) 132,059 (99,802)
Cash and cash equivalents at beginning of year............ 227,053 94,994 194,796
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 146,232 $ 227,053 $ 94,994
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
43
<PAGE> 45
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Newmont Gold Company and its more-than-50% owned subsidiaries
(collectively, "NGC" or the Company) is a worldwide company engaged in gold
production, exploration for gold and acquisition of gold properties. Newmont
Mining Corporation ("NMC") owns approximately 93.75% of the common stock of NGC.
All of NMC's operations are conducted through NGC. The Company's consolidated
sales resulted from operations in the United States, Peru, Uzbekistan and
Indonesia. Operations commenced in Uzbekistan in September 1995 and in Indonesia
in March 1996. The Company had an equity interest in a mining operation in Peru
that was consolidated beginning in 1997 as a result of the acquisition of an
additional interest described in Note 3.
Gold mining requires the use of specialized facilities and technology. The
Company relies heavily on such facilities to maintain its production levels.
Also, the cash flow and profitability of the Company's current operations are
significantly affected by the market price of gold. Gold prices can fluctuate
widely and are affected by numerous factors beyond the Company's control.
On May 5, 1997, NMC completed a merger with Santa Fe Pacific Gold
Corporation ("Santa Fe") under which each outstanding share of Santa Fe common
stock was exchanged for 0.43 of a share of NMC common stock. Santa Fe is engaged
in gold production in the United States and exploration for gold deposits
worldwide. The outstanding shares of common stock of Santa Fe were converted
into approximately 56.5 million shares of NMC common stock. NMC also reserved
approximately 566,000 shares of its common stock for issuance in connection with
outstanding Santa Fe stock options that were assumed by NMC in the merger. The
merger qualified as a tax-free reorganization and was accounted for as a pooling
of interests. NGC issued shares of common stock to NMC equal to the number of
shares of NMC common stock issued in conjunction with the merger in exchange for
all outstanding shares of Santa Fe. As a result, Santa Fe became a wholly-owned
subsidiary of NGC. In addition, NGC issued options to NMC to acquire additional
shares of NGC common stock having the same terms as the Santa Fe stock options
assumed by NMC in the merger. NGC's consolidated financial statements have been
restated for periods prior to the merger to include the operations of Santa Fe,
adjusted to conform with NGC's accounting policies and presentations.
Merger expenses of $162.7 million ($119.8 million net of tax) consisted of
$135.4 million of transaction costs and $27.3 million in asset write-downs. The
more significant transaction costs included a $65.2 million fee paid to
terminate an existing definitive merger agreement between Santa Fe and another
company, investment advisory fees of $20.5 million, employee benefit and
severance costs of $18.0 million and professional fees of $18.4 million. The
asset write-offs, related to certain Santa Fe assets that did not meet the
Company's valuation criteria, included a write-down of the Elkhorn, Montana
exploration project and the write-off of duplicative facilities, equipment and
information system costs.
44
<PAGE> 46
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides a reconciliation of sales and net income
reported by NGC to the consolidated amounts presented (in thousands).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Sales
Pre-Merger
NGC................................................... $ 357,316 $ 768,455 $636,219
Santa Fe.............................................. 130,540 337,211 345,421
Post-merger.............................................. 1,084,901 -- --
Merger adjustments....................................... -- -- --
---------- ---------- --------
Consolidated..................................... $1,572,757 $1,105,666 $981,640
========== ========== ========
Net income applicable to common shares
Pre-Merger
NGC................................................... $ 33,718 $ 93,972 $113,715
Santa Fe.............................................. 31,702 21,068 39,812
Post-merger.............................................. 117,803 -- --
Merger adjustments....................................... (110,290) (9,855) (7,136)
---------- ---------- --------
Consolidated..................................... $ 72,933 $ 105,185 $146,391
========== ========== ========
</TABLE>
Merger adjustments reflect conforming accounting policy changes,
transaction fees, other one-time expenses associated with the merger and the tax
effect of such adjustments. Accounting policy changes were primarily related to
the accounting treatment for capitalized mining costs. Santa Fe included certain
depreciation, depletion and amortization charges in capitalized mining costs. To
the extent Santa Fe capitalized such charges as mining costs or as inventory,
restatement adjustments have been made to reflect these charges against earnings
in the appropriate period. In addition, ore and in-process inventories were not
maintained on the same basis as NGC, which resulted in certain balance sheet
reclassifications.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont Gold
Company and its more-than-50% owned subsidiaries. The Company also includes its
pro-rata share of assets, liabilities and operations for unincorporated joint
ventures in which it has an interest. All significant intercompany balances and
transactions have been eliminated. At December 31, 1997, NMC owned approximately
93.75% of the Company. The functional currency for all subsidiaries is the U. S.
dollar.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of the
short maturity of these investments, the carrying amounts approximate their fair
value. Cash and cash equivalents are primarily invested in United States
Treasury bills, with lesser amounts invested in high-quality commercial paper
and time deposits.
INVESTMENTS
Short-term investments are carried at cost, which approximates market, and
include Eurodollar government and corporate obligations rated AA or higher. At
December 31, 1997 and 1996, $8.5 million and $8.7 million, respectively, of such
investments secured letters of credit.
45
<PAGE> 47
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 and are included in Other long-term assets.
Income from such investments is included in Equity in income of affiliated
companies.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at the
lower of average cost or net realizable value. Precious metals are stated at
market value.
Non-current inventories are stated at the lower of average cost or net
realizable value and represent ore-in-stockpiles from which no material is
expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which extend the useful
lives of existing facilities are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives of such facilities. Productive lives range from 2 to
21 years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body and remove overburden to initially expose the ore body, are capitalized.
Such costs, and estimated future development costs, are amortized using a
unit-of-production method over the estimated life of the ore body. On-going
development expenditures to maintain production are generally charged to
operations as incurred.
Significant payments related to the acquisition of exploration interests
are capitalized. If a mineable ore body is discovered, such costs are amortized
using a unit-of-production method. If no mineable ore body is discovered, such
costs are expensed in the period in which it is determined the property has no
future economic value.
Interest expense allocable to the cost of developing mining properties and
to constructing new facilities is capitalized until operations commence.
Gains or losses from normal sales or retirements of assets are included in
other income or expense.
ASSET IMPAIRMENT
The Company evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amount may not be
recoverable. If the sum of estimated future cash flows on an undiscounted basis
is less than the carrying amount of the related asset, an asset impairment is
considered to exist. The related impairment loss is measured by comparing
estimated future cash flows on a discounted basis to the carrying amount of the
asset. Changes in significant assumptions underlying future cash flow estimates
may have a material effect on the Company's financial position and results of
operations. A low gold price market, if sustained for an extended period of
time, may result in future asset impairments. As of December 31, 1997, the
Company does not believe that an impairment has occurred.
REVENUE RECOGNITION
Gold sales are recognized when gold is produced.
46
<PAGE> 48
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 on management's best estimate at the end of each period
of the undiscounted costs expected to be incurred at a site. Such cost estimates
include where applicable, ongoing care, maintenance and monitoring costs.
Changes in estimates are reflected in earnings in the period an estimate is
revised.
INCOME TAXES
The Company accounts for income taxes using the liability method,
recognizing 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 method 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. The Company records a valuation allowance against any portion of those
deferred income tax assets which it believes it will more likely than not fail
to realize.
COMMODITY INSTRUMENTS
The Company has entered into gold loans and forward sales contracts to
protect the selling price for certain anticipated gold production. The Company
does not acquire, hold or issue commodity instruments for trading or speculative
purposes.
Proceeds from the sale of borrowed gold are recorded as gold loans at the
average price realized. As gold is delivered from production in repayment of the
borrowed gold, gold sales revenue is recognized at the average price realized
and the gold loan balance is reduced. If gold borrowings are repaid in advance
of the original repayment schedule, the resulting gain or loss is deferred and
recognized in gold sales revenue over the original repayment schedule.
Forward sales contracts enable the Company to deliver a specified number of
ounces of gold to a counterparty at a specified price and date. Gains and losses
realized on these contracts, as well as any cost or revenue associated
therewith, are recognized in sales when the related gold is delivered.
EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" which specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS 128 is effective for periods ended after December
15, 1997 and requires retroactive restatement of prior period earnings per
share. The statement replaces the "primary earnings per share" calculation with
a "basic earnings per share" and replaces the "fully diluted earnings per share"
calculation with "diluted earnings per share." Adoption of SFAS 128 did not have
47
<PAGE> 49
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an effect on the Company's previously reported net income per common share. The
following table presents a reconciliation of basic and diluted earnings per
share calculations (in thousands, except per share):
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- --------------------------- ---------------------------
PER PER PER
SHARE SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------- ------ -------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net income applicable to common
shares............................ $72,933 166,665 $0.44 $105,185 165,978 $0.63 $146,391 153,772 $0.95
EFFECT OF DILUTIVE SECURITIES
Equivalent common shares from stock
options........................... -- 125 -- -- 336 -- -- 122 --
------- ------- ----- -------- ------- ----- -------- ------- -----
DILUTED EARNINGS PER SHARE
Net income applicable to common
shares............................ $72,933 166,790 $0.44 $105,185 166,314 $0.63 $146,391 153,894 $0.95
======= ======= ===== ======== ======= ===== ======== ======= =====
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 130 "Reporting Comprehensive Income" in June 1997
which established standards for reporting and displaying comprehensive income
and its components in a full set of general purpose financial statements. In
addition to net income, comprehensive income includes all changes in equity
during a period, except those resulting from investments by and distributions to
owners. The Company will adopt SFAS 130, which is effective for fiscal years
beginning after December 15, 1997, in the first quarter of 1998.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" that establishes standards for reporting
information about operating segments in annual and interim financial statements.
SFAS 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS 131 is effective for fiscal
years beginning after December 15, 1997, and will be adopted in 1998. Reporting
and disclosures under SFAS 131 are not expected to be materially different than
present disclosures contained in Notes 14 and 16.
SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued in February 1998 and standardizes disclosure
requirements for pension and other postretirement benefit plans to the extent
practicable. Adoption of this standard for fiscal years beginning after December
15, 1997, and restatement of prior period comparative disclosures is required.
The Company will adopt SFAS 132 in 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
1997 presentation.
48
<PAGE> 50
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ADDITIONAL INTEREST IN MINERA YANACOCHA
The Company has an interest in Minera Yanacocha, a gold mining operation
located in Peru, that began production in 1993. Prior to 1997, the Company owned
a 38.0% interest that was accounted for on an equity basis. Beginning in 1997,
Minera Yanacocha was consolidated into the Company's financial statements
following the acquisition of an additional 13.35% interest, which acquisition is
currently contested in the court proceedings described below.
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the
geological and mining bureau of the French government ("BRGM") and in September
1994, BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha to a third party. NGC and Compania de Minas Buenaventura, S.A.
("Buenaventura"), then 38.0% and 32.3% owners of Minera Yanacocha, respectively,
filed suit in Peru to seek enforcement of their preemptive rights with respect
to the proposed BRGM transfer. In February 1995, after a preliminary favorable
appellate court ruling, both NGC and Buenaventura exercised their preemptive
rights. NGC deposited its share of the provisional $90 million purchase price
and the shares for its additional 13.35% interest with a Peruvian bank pending
final resolution of the case. NGC borrowed its purchase price amount from the
same Peruvian bank with the right of set off against the deposit, and
accordingly, these amounts have been netted in the accompanying balance sheets.
In September 1996, a trial court ruling provided that the preemptive rights were
triggered in November 1993, and that the value of the 24.7% interest was $109.3
million. The value of NGC's shares held in escrow were calculated as of such
date at $59.1 million and the additional amount was deposited with the Peruvian
bank.
An appeal to the Superior Court of Lima was filed by BRGM and other
defendants challenging the court's determination that the preemptive rights were
triggered and the date and amount of the valuation. In February 1997, the
Superior Court upheld the decision of the trial court. Therefore, NGC reflected
the increase in its ownership from 38.0% to 51.35% as of February 1997.
BRGM and other defendants filed a request for Peruvian Supreme Court review
of the Superior Court's resolution. The case was argued to a panel of five
Peruvian Supreme Court justices on December 17, 1997. In order to prevail at the
Supreme Court level, a party must obtain four votes in its favor. The five-judge
panel issued a split decision, with two in favor of the Company and three in
favor of BRGM. A sixth justice was then appointed to hear the case, and has not
yet issued her vote. If the vote is in favor of the Company, a seventh justice
will be appointed to hear the case. At this time, the Company is unable to
predict the outcome of the litigation. An unfavorable decision would require
reversion to equity accounting in 1997 for NGC's 38% interest in Minera
Yanacocha and the possibility of a dividend refund attributable to the acquired
interest. The additional interest represented $0.07 of net income per share and
3% of total equity production in 1997 and is expected to comprise 4% of 1998
equity production.
49
<PAGE> 51
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized Minera Yanacocha financial information for the years in which it
was not consolidated follows (in millions):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1996 1995
------ -----------
<S> <C> <C>
Sales....................................................... $313.9 $212.5
Costs applicable to sales and depreciation, depletion and
amortization.............................................. 113.8 82.4
Exploration................................................. 17.5 11.4
Other....................................................... 3.1 3.3
------ ------
Net income, before Peruvian taxes........................... 179.5 115.4
Peruvian taxes.............................................. 54.8 34.6
------ ------
Net income.................................................. $124.7 $ 80.8
====== ======
Dividends applicable to NGC's 38% interest.................. $ 29.6 $ 23.2
====== ======
</TABLE>
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1996
------------
<S> <C> <C>
Current assets...................................................... $ 85.2
Noncurrent assets................................................... 108.2
------
Total assets.............................................. $193.4
======
Current liabilities................................................. $ 45.4
Noncurrent liabilities.............................................. 39.8
------
Total liabilities......................................... $ 85.2
======
Total equity.............................................. $108.2
======
</TABLE>
50
<PAGE> 52
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma income statement assumes the acquisition of the
additional interest occurred on January 1, 1996 and the pro forma balance sheet
assumes the acquisition occurred on December 31, 1996. The pro forma financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations which
would have been realized had the acquisition of the additional interest been
considered to occur as of the dates for which the pro forma financial statements
are presented. The pro forma financial statements also are not necessarily
indicative of the combined position or results of operations in the future.
NEWMONT 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....................................... $1,105,666 $313,870 $1,419,536
Dividends, interest and other............... 29,460 2,336 31,796
---------- -------- --------- ----------
1,135,126 316,206 1,451,332
---------- -------- --------- ----------
Costs and expenses
Costs applicable to sales................... 652,305 89,206 $ (2,172)(A)
(1,624)(B) 737,715
Depreciation, depletion and amortization.... 204,081 24,595 12,289(C) 240,965
Exploration and research.................... 92,863 17,482 110,345
General and administrative.................. 65,671 -- 1,624(B)
(617)(D) 66,678
Interest, net............................... 58,619 5,447 64,066
Other....................................... 22,521 -- 22,521
---------- -------- --------- ----------
1,096,060 136,730 9,500 1,242,290
Equity income of Minera Yanacocha............. 50,170 -- (47,381)(E)
(617)(D)
(2,172)(A) --
---------- -------- --------- ----------
Income before income tax and minority
interests................................... 89,236 179,476 (59,670) 209,042
Income tax benefit (provision)................ 15,949 (54,784) (599)(F) (39,434)
Minority interest in subsidiaries............. -- -- (60,663)(G) (60,663)
---------- -------- --------- ----------
Net income.................................... $ 105,185 $124,692 $(121,167) $ 108,945
========== ======== ========= ==========
Income per common share....................... $ 0.63 $ 0.66
========== ==========
Basic weighted average shares outstanding... 165,978 165,978
========== ==========
</TABLE>
- ---------------
(*) Reflects the pooling of interests described in Note 1.
(A) To eliminate royalties paid by Minera Yanacocha to a subsidiary of NGC.
(B) To eliminate management fees paid by Minera Yanacocha to a subsidiary of
NGC.
(C) Estimated additional amortization of excess purchase price over net assets
acquired.
(D) Reclassification of NGC's share (38%) of management fees charged to Minera
Yanacocha.
(E) Elimination of equity income recognized for Minera Yanacocha to reflect
consolidation.
(F) Additional taxes related to incremental earnings from additional interest
in Minera Yanacocha.
(G) Minority interest (48.65%) in income of Minera Yanacocha.
51
<PAGE> 53
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEWMONT GOLD COMPANY AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED BALANCE SHEET -- UNAUDITED
(IN THOUSANDS)
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................... $ 227,053 $ 40,705 $ 267,758
Inventories................................. 279,315 15,661 294,976
Other....................................... 94,620 28,848 123,468
---------- -------- -------- ----------
Current assets........................... 600,988 85,214 686,202
Property, plant and mine development, net... 2,391,872 106,308 $ 53,368(A)
(14,445)(B) 2,537,103
Other long-term assets...................... 289,270 1,887 (41,115)(C)
(2,843)(A) 247,199
---------- -------- -------- ----------
Total assets........................ $3,282,130 $193,409 $ (5,035) $3,470,504
========== ======== ======== ==========
Liabilities
Short-term debt and current portion of
long-term debt........................... $ 65,231 $ 14,256 $ 79,487
Other current liabilities................... 213,028 31,190 $ 50,525(A) 294,743
---------- -------- -------- ----------
Current liabilities...................... 278,259 45,446 50,525 374,230
Long-term debt.............................. 1,039,875 24,244 1,064,119
Other long-term liabilities................. 297,035 15,520 312,555
---------- -------- -------- ----------
Total liabilities................... 1,615,169 85,210 50,525 1,750,904
---------- -------- -------- ----------
Minority interest in subsidiaries............. -- -- 52,639(D) 52,639
---------- -------- -------- ----------
Stockholders' equity.......................... 1,666,961 108,199 (14,445)(B)
(41,115)(C)
(52,639)(D) 1,666,961
---------- -------- -------- ----------
Total liabilities and stockholders'
equity............................ $3,282,130 $193,409 $ (5,035) $3,470,504
========== ======== ======== ==========
</TABLE>
- ---------------
* Reflects the pooling of interests described in Note 1.
(A) Represents adjusted net purchase price for additional interest acquired and
associated net liabilities owed.
(B) Eliminates net book value of 13.35% acquired interest.
(C) Elimination of NGC's investment in Minera Yanacocha to reflect
consolidation.
(D) To reflect minority interest in Minera Yanacocha.
52
<PAGE> 54
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current:
Ore and in-process inventories............................ $172,589 $161,806
Precious metals........................................... 82,594 35,259
Materials and supplies.................................... 82,819 80,544
Other..................................................... 1,547 1,706
-------- --------
$339,549 $279,315
======== ========
Non-current:
Ore-in-stockpiles (included in other long-term assets).... $174,445 $ 85,652
======== ========
</TABLE>
(5) PROPERTY, PLANT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land and mining claims...................................... $ 362,049 $ 360,845
Buildings and equipment..................................... 2,536,810 1,974,872
Mine development............................................ 537,819 433,477
Construction-in-progress.................................... 154,974 327,970
----------- -----------
3,591,652 3,097,164
Accumulated depreciation, depletion and amortization........ (1,343,885) (1,063,695)
Capitalized mining costs.................................... 351,042 358,403
----------- -----------
$ 2,598,809 $ 2,391,872
=========== ===========
</TABLE>
(6) OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest.................................................... $ 28,081 $ 27,600
Contingent dividends received (see Note 3).................. -- 18,556
Purchase price payable (see Note 3)......................... 59,100 --
Payroll and related benefits................................ 53,349 28,188
Reclamation and remediation................................. 9,157 10,000
Severance benefits.......................................... 10,000 --
Other....................................................... 82,671 56,549
-------- --------
$242,358 $140,893
======== ========
</TABLE>
53
<PAGE> 55
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
The Company's (benefit) provision for income taxes consists of (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Domestic........................................... $(13,700) $ (3,347) $ 40,398
Foreign............................................ 54,600 4,005 2,477
-------- -------- --------
40,900 658 42,875
-------- -------- --------
Deferred:
Domestic........................................... (57,822) (18,232) (12,893)
Foreign............................................ 9,022 1,625 --
-------- -------- --------
(48,800) (16,607) (12,893)
-------- -------- --------
$ (7,900) $(15,949) $ 29,982
======== ======== ========
</TABLE>
The Company's resulting (benefits) provisions for income taxes differ from
the amounts computed by applying the United States corporate income tax
statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. corporate income tax at statutory rate.......... $ 46,170 $ 31,233 $ 65,635
Percentage depletion................................. (37,755) (28,650) (30,960)
Resolution of tax issues associated with prior
years.............................................. (12,885) (6,000) --
Foreign tax credits.................................. (4,377) (13,057) (8,658)
Foreign losses (earnings)............................ (1,377) 339 3,129
State taxes.......................................... -- (1,570) 1,173
Other................................................ 2,324 1,756 (337)
-------- -------- --------
$ (7,900) $(15,949) $ 29,982
======== ======== ========
</TABLE>
The Company's income before tax and minority interests consists of (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Domestic............................................ $(60,989) $42,677 $182,053
Foreign............................................. 192,904 46,559 5,477
-------- ------- --------
$131,915 $89,236 $187,530
======== ======= ========
</TABLE>
54
<PAGE> 56
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the Company's consolidated deferred income tax liabilities
and assets are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Capitalized mining costs.................................. $ (83,049) (94,149)
Accelerated tax depreciation.............................. (65,261) (86,835)
Mine development costs.................................... (35,137) (34,576)
Capitalized interest...................................... (13,046) (10,220)
Depletion of the cost of land and mining claims........... (64,599) (70,464)
Net undistributed earnings from equity investment......... (16,913) (2,108)
Other..................................................... (1,260) (6,013)
--------- ---------
Deferred tax liabilities............................... (279,265) (304,365)
--------- ---------
Deferred tax assets:
Exploration costs......................................... 99,652 69,399
Remediation and reclamation costs......................... 40,875 35,647
Alternative minimum tax credit carry forward.............. 46,684 51,164
Net operating loss carry forwards......................... 27,670 22,457
Sale/leaseback transaction, net........................... 10,029 12,512
Foreign tax credit carry forward.......................... -- 12,461
Retiree benefit costs..................................... 19,621 18,775
Capitalized inventory costs............................... 4,915 10,241
Deferred gain on interest rate hedges..................... 2,426 2,940
Relocation/reorganization costs........................... 1,876 2,491
Other..................................................... 7.480 7,170
--------- ---------
261,228 245,257
Valuation allowance for deferred tax assets............... (15,400) (14,000)
--------- ---------
Net deferred tax assets................................ 245,828 231,257
--------- ---------
Net deferred tax liabilities.............................. $ (33,437) $ (73,108)
========= =========
</TABLE>
Based primarily upon estimates of future operations, the Company believes
that it, more likely than not, will utilize $245.8 million of the $261.2 million
of deferred income tax assets at December 31, 1997. This estimate reflects a
valuation allowance of $15.4 million.
55
<PAGE> 57
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEBT
LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Sale-leaseback of refractory ore treatment plant............ $ 349,134 $ 349,134
Credit facility............................................. 316,000 255,000
8 3/8% debentures, net...................................... 199,866 199,866
8 5/8% notes................................................ 150,000 150,000
Medium-term notes........................................... 42,000 42,000
Project financing........................................... 165,711 63,125
---------- ----------
1,222,711 1,059,125
Current maturities.......................................... (43,301) (19,250)
---------- ----------
$1,179,410 $1,039,875
========== ==========
</TABLE>
Scheduled minimum long-term debt repayments are $43.3 million in 1998,
$47.7 million in 1999, $25.7 million in 2000, $25.9 million in 2001, $495.7
million in 2002 and $584.4 million thereafter. Actual payments may be greater in
any one year due to actual operating cash flows realized.
Sale-Leaseback of the Refractory Ore Treatment Plant
In September 1994, 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, 1997 and 1996
were $608.5 million and $638.2 million, respectively. Payments began in January
1996 and are $29.7 million annually through 2000. Principal payments are
included in these amounts beginning in 1998. The lease has purchase options
during and at the end of the lease at predetermined prices. The interest rate on
this sale-leaseback transaction is 6.36%. Because of the uniqueness of this
asset, the 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%.
Credit Facilities
On June 11, 1997, the Company entered into a $1.0 billion revolving credit
facility with a consortium of banks, replacing separate credit facilities held
by NGC and Santa Fe. As of December 31, 1997, $316 million was outstanding under
the credit facility, which expires in June 2002. Interest rates are variable,
can be fixed for up to six months at the option of the Company and are adjusted
upon changes in the Company's long-term debt ratings. At December 31, 1997, the
interest rate was 5.8%. An annual facility fee, currently 0.18%, is required
based on the lenders' total commitment. The fair value of amounts outstanding
under the credit facility at December 31, 1997 approximated the related carrying
value.
56
<PAGE> 58
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The credit facility contains certain covenants, including limitations on
consolidated indebtedness to 60% of total capitalization, requirements for $1.0
billion of minimum consolidated tangible net worth and limitations on incurrence
of liens, fundamental business changes and transactions with affiliates.
NGC had a $400 million revolving credit facility with a consortium of banks
that was to expire in April 1998. No amounts were outstanding under the facility
as of December 31, 1996. Santa Fe had a $400 million credit facility, of which
$255 million was outstanding at December 31, 1996.
8 3/8% Debentures
Unsecured debentures in an aggregate principal amount of $200 million
maturing July 1, 2005 bearing an annual interest rate of 8.375% were outstanding
at December 31, 1997 and 1996. The debentures were issued by Santa Fe and
subsequent to the merger are guaranteed by NGC. The debentures were priced at
99.928% to yield 8.386% and are not redeemable prior to maturity. The costs
related to the issuance of the debentures were capitalized and are amortized to
interest expense over the term of the debentures. Using prevailing interest
rates on similar instruments, the fair value of these debentures was
approximately $213.3 million at December 31, 1997 and approximated carrying
value at December 31, 1996.
8 5/8% Notes
Unsecured notes with a principal amount of $150 million due April 1, 2002
bearing an annual interest rate of 8.625% were outstanding at December 31, 1997
and 1996. Interest is payable semi-annually in April and October and the notes
are not redeemable prior to maturity. Using interest rates prevailing on similar
instruments at December 31, 1997 and 1996, this debt was estimated to have a
fair value of $159.6 million and $165.7 million, respectively.
Medium-Term Notes
Unsecured notes totaling $42 million were outstanding as of December 31,
1997 and 1996, with a weighted average fixed interest rate of 7.7% and maturing
on various dates ranging from mid-1999 to late 2004. Interest is payable
semi-annually in March and September and the notes are not redeemable prior to
maturity. Using the interest rates prevailing on similar instruments at December
31, 1997 and 1996, this debt was estimated to have a fair value of $43.2 million
and $44.4 million, respectively.
Project Financings
Minera Yanacocha
In May 1997, Minera Yanacocha issued debt through the sale of $100 million
8.4% 1997 Series A Trust Certificates ("Certificates") to various institutional
investors. At December 31, 1997, $98 million was outstanding under the
financing. Interest on the Certificates is a fixed annual rate of 8.4% and
repayments are required annually through 2004. The fair value of the
Certificates at December 31, 1997 approximated the related carrying amount.
Minera Yanacocha also had $23.8 million and $38.5 million outstanding under
loans with the International Finance Corporation ("IFC") and with Deutsche
Investitions und Entwicklungsgesellschaft mbH ("DEG") at December 31, 1997 and
1996, respectively. The IFC and DEG loans mature in 2000, and interest rates on
a portion of the loans are variable, ranging from 2.88% to 3.5% over LIBOR. A
portion of the IFC loan is subject to an interest rate premium (not to exceed
2.5%) when the average realized gold price exceeds $370 per ounce. Interest
rates on a portion of the DEG loan is fixed at 9.3%. Weighted average interest
rates on the IFC and DEG loans were 9.0% and 8.9% for 1997 and 1996,
respectively, and at December 31, 1997 and 1996 were 9.0% and 8.8%,
respectively.
57
<PAGE> 59
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All Minera Yanacocha debt, which is non-recourse to its shareholders, is
secured by certain restricted funds and substantially all of Minera Yanacocha's
property, plant and equipment.
Zarafshan-Newmont
NGC, through a wholly-owned subsidiary, is a 50% participant in
Zarafshan-Newmont joint venture in the Republic of Uzbekistan. The other 50%
participants are two entities of the Uzbekistan government.
As of December 31, 1997, Zarafshan-Newmont had $87.8 million outstanding
under a project financing loan secured by the assets of the project. The loan is
to be repaid in semi-annual installments until 2001. The average interest rate
is between 3.9 and 4.25 percentage points over the three-month LIBOR. The
weighted average interest rates for 1997 and 1996 were 9.6% and 8.2%,
respectively, and the interest rates at December 31, 1997 and 1996 were 9.7% and
9.4%, respectively. The carrying amount of the loan is estimated to approximate
its fair market value.
Until defined completion tests have been satisfied, the Company has
guaranteed the payment of certain amounts due under the loan which totaled $41.3
million at December 31, 1997. The 50% Uzbek partners have guaranteed the
repayment of the remaining amount due under the loan until such completion tests
have been satisfied. After satisfaction of the completion tests, the loan
becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed
to extend the date by which the completion tests must be met to April 2000.
SHORT-TERM DEBT
All short-term debt at December 31, 1997 and 1996 consisted of bank debt.
The Company had unsecured demand bank lines of credit aggregating $36.0 million
and $70.0 million at December 31, 1997 and 1996, respectively, of which $25.8
million and $46.0 million were outstanding at the same respective dates. These
facilities bear interest at customary short-term rates for borrowers with
similar credit ratings. The weighted average interest rates for 1997 and 1996
were 7.0% and 6.9%, respectively, and the interest rates at December 31, 1997
and 1996 were 7.2% and 8.25%, respectively. The carrying value of this debt is
assumed to approximate its fair value.
CAPITALIZED INTEREST
Capitalized interest was $15.6 million, $16.6 million and $14.0 million in
1997, 1996 and 1995, respectively.
(9) STOCKHOLDERS' EQUITY
COMMON STOCK OFFERINGS
In January 1996, NMC issued 4.65 million shares of common stock for $51.87
per share under an existing "shelf" registration statement with the Securities
and Exchange Commission. Proceeds of the issue netted $241.3 million and were
used to purchase an equal number of shares of common stock of NGC. Such proceeds
were used by NGC to fund its operations. This transaction increased NMC's
ownership of NGC from 93.58% to 93.75%.
DIVIDENDS
The Company paid dividends of $0.39 per common share in 1997 and $0.48 per
share, respectively, in 1996 and 1995. Santa Fe paid dividends of $0.05 per
Santa Fe common share in 1996 and 1995.
58
<PAGE> 60
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
NGC has issued options to NMC to purchase shares of NGC's common stock in
the same number and with the same exercise prices as NMC's employee stock
options granted. Additional options will continue to be issued by NGC to NMC to
match the terms of additional NMC employee stock option grants to the extent the
corresponding NMC stock options are exercised.
Under NMC's stock option plans, options to purchase shares of NMC have been
granted to key employees generally at the fair market value of such shares on
the date of grant. The options under these plans generally vest over a two-year
period (except for certain options granted to key employees which vest over a
four-year period) and are exercisable over a period not exceeding ten years. At
December 31, 1997, 1,252,990 shares were available for future grants under the
Company's plans. In conjunction with the merger with Santa Fe, 566,000 shares
were authorized for issuance in connection with outstanding Santa Fe stock
options that were assumed by NMC.
In 1994, 1993 and 1992 certain key executives were granted NMC options
that, although the exercise price is generally equal to the fair market value on
the date of grant, cannot be exercised when otherwise vested unless the market
price of NMC's common stock is a defined amount above the NMC option exercise
price. In addition, the same executives were granted NMC options in 1994, 1993
and 1992 having exercise prices in excess of the fair market value on the date
of grant. Generally, these key executive NMC options vest over a period of one
to five years and are exercisable over a ten-year period. At December 31, 1997,
503,354 of these NMC options were outstanding.
The following table summarizes annual total stock option activity for the
three years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year.......................... 3,063,087 $43 2,719,682 $38 2,177,546 $39
Granted......................... 1,602,802 $35 1,216,916 $49 906,213 $36
Exercised....................... (439,363) $31 (666,164) $37 (232,109) $34
Forfeited....................... (157,698) $47 (207,347) $38 (131,968) $41
--------- --------- ---------
Outstanding at end of year...... 4,068,828 $41 3,063,087 $43 2,719,682 $38
========= ========= =========
Options exercisable at year
end........................... 1,944,027 $43 1,320,799 $40 1,287,688 $39
Weighted average fair value of
options granted during the
year.......................... $14.31 $18.46 $13.90
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997 with exercise prices equal to the fair market value on the
date of grant and no restrictions on exercisability after vesting:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$27 to $35 936,088 8.9 years $32 310,308 $31
$35 to $43 1,722,716 8.3 years $39 850,619 $40
$43 to $52 537,195 8.3 years $50 331,709 $50
$52 to $59 369,475 8.3 years $58 184,677 $58
--------- ---------
$27 to $59 3,565,474 8.5 years $41 1,677,313 $42
========= =========
</TABLE>
59
<PAGE> 61
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about all other stock options outstanding at December 31, 1997
is summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
TYPE OF OPTION PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ---------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options with exercise prices in
excess of the fair market value
on the date of the grant........ $40 to $56 266,714 5.5 years $50 266,714 $50
Options that cannot be exercised
until the market price of NMC's
stock exceeds a fixed amount
above the exercise price........ $30 to $41 236,640 5.8 years $37 -- $--
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the options been
determined based upon their fair value at their grant dates in 1997, 1996 and
1995, consistent with the methodology prescribed by SFAS No. 123, the Company's
net income and earnings per share would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- -------- --------
<S> <C> <C> <C> <C>
Net income (000)...................... As reported $72,933 $105,185 $157,548
Pro forma $61,373 $ 99,225 $156,195
Earnings per share, basic and
diluted............................. As reported $ 0.44 $ 0.63 $ 0.95
Pro forma $ 0.37 $ 0.60 $ 0.94
</TABLE>
For purposes of determining the pro forma amounts, the fair value of each
option grant was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following assumptions for 1997, 1996 and 1995,
respectively: weighted average risk-free interest rates of 5.8%, 6.1% and 5.8%,
dividend yield of 1% for all years, expected lives of five years for all periods
and volatility of 40%, 35% and 39%, respectively.
Compensation costs included in the pro forma amounts above only reflect
fair values associated with options granted after January 1, 1995. These amounts
may not be indicative of future amounts that will apply to all future
outstanding nonvested awards or future grants.
PREFERRED STOCK
NMC called all of the outstanding 2.875 million shares of $5.50 convertible
preferred stock, $5.00 par value, for redemption on December 14, 1995 at a
redemption price of $105.21 per share. 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 NMC's 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 and 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 common shares of NCG common stock were issued to NMC.
60
<PAGE> 62
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has three qualified non-contributory defined benefit pension
plans which cover salaried employees of NGC, Santa Fe and substantially all
hourly employees. The Company also had two non-qualified supplemental pension
plans for salaried employees whose benefits under the qualified plan are limited
by federal legislation. The vesting period is five years of service for each
plan. The plans' benefit formulas are based on an employee's years of credited
service and either such employee's last five years average pay (salaried plan)
or a flat dollar amount adjusted by a service-weighted multiplier (hourly plan).
In 1997, the Company also initiated a non-qualified cash balance
international plan for select employees who are not eligible to participate in
the U.S. based plans because of citizenship. The vesting period is five years of
service and the plan includes three cash balance accounts each of which is
credited with a percentage of annual pay.
Pension costs are determined annually by independent actuaries and pension
contributions to the qualified plans are made based on funding standards
established under the Employee Retirement Income Security Act of 1974 ("ERISA").
The components of pension expense for these plans, in the aggregate,
consist of (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Service cost.......................................... $ 6,529 $ 5,590 $ 3,681
Interest cost on projected benefit obligation......... 7,435 6,342 5,597
Return on assets...................................... (15,365) (11,876) (7,678)
Net amortization and deferral......................... 7,691 5,051 1,077
-------- -------- -------
Pension expense....................................... $ 6,290 $ 5,107 $ 2,677
======== ======== =======
</TABLE>
61
<PAGE> 63
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, 1997 and 1996, respectively (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------------------------------------------
NGC SANTA FE NGC
SALARY SALARY INTERNATIONAL HOURLY SUPPLEMENTAL
PENSION PENSION PENSION PENSION SALARY
PLAN PLAN PLAN PLAN PENSION PLANS
-------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Actuarial PV of benefit
obligation
Vested benefits............ $(66,356) $(13,026) $(399) $ (9,856) $(3,719)
Non-vested benefits........ (3,326) (1,371) (405) (1,647) (200)
-------- -------- ----- -------- -------
(69,682) (14,397) (804) (11,503) (3,919)
Effect of future salary
increases/
service -- weighted benefit
multiplier................. (13,516) (2,646) -- (834) (798)
-------- -------- ----- -------- -------
Projected benefit
obligation................. (83,198) (17,043) (804) (12,337) (4,717)
Plan assets at fair value.... 83,255 15,357 -- 9,973 --
-------- -------- ----- -------- -------
Plan assets greater (less)
than projected benefit
obligation................. 57 (1,686) (804) (2,364) (4,717)
Unrecognized prior service
cost....................... (464) (402) 510 1,143 891
Unrecognized net (gain)
loss....................... 1,378 (507) (307) 234 4,544
Unrecognized net transition
(asset) liability.......... (1,284) (27) -- (60) 1,574
Adjustment required to
recognize minimum
liability.................. -- -- -- -- (6,211)
-------- -------- ----- -------- -------
Net pension liability........ $ (313) $ (2,622) $(601) $ (1,047) $(3,919)
======== ======== ===== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------------------------
NGC SANTA FE NGC SUPPLEMENTAL
SALARY SALARY HOURLY SALARY
PENSION PENSION PENSION PENSION
PLAN PLAN PLAN PLANS
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation --
Vested benefits...................... $(56,997) $ (9,211) $(7,737) $(2,074)
Non-vested benefits.................. (2,420) (2,074) (1,293) (53)
-------- -------- ------- -------
(59,417) (11,285) (9,030) (2,127)
Effect of future salary increases......... (9,020) (3,369) (654) (696)
-------- -------- ------- -------
Projected benefit obligation.............. (68,437) (14,654) (9,684) (2,823)
Plan assets at fair value................. 76,979 11,935 8,870 --
-------- -------- ------- -------
Plan assets greater (less) than projected
benefit obligation...................... 8,542 (2,719) (814) (2,823)
Unrecognized prior service cost........... (505) (306) 1,220 1,130
Unrecognized net (gain) loss.............. (4,306) (593) (492) 4,230
Unrecognized net transition (asset)
liability............................... (1,750) (33) (66) 1,965
Adjustment required to recognize minimum
liability............................... -- -- -- (6,640)
-------- -------- ------- -------
Net pension asset (liability)............. $ 1,981 $ (3,651) $ (152) $(2,138)
======== ======== ======= =======
</TABLE>
62
<PAGE> 64
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1996, an amendment was made to increase the benefit multiplier
of the benefits under the Hourly Pension Plan. The effect of this amendment was
to increase the accumulated benefit obligation by approximately $0.5 million,
the projected benefit obligation and prior service cost by $1.2 million and to
increase the annual pension cost by $0.3 million.
In accordance with the provisions of SFAS No. 87, an adjustment was
required to reflect a minimum liability for the supplemental pension plan in
1997, 1996 and 1995. Such adjustment resulted in recording an intangible asset
and, to the extent the minimum liability adjustment exceeded the unrecognized
net transition liability, a reduction of $2.2 million, $2.0 million and $2.0
million in stockholders' equity, which is net of related deferred income tax
benefits, at December 31, 1997, 1996 and 1995, respectively.
In measuring the projected benefit obligation for the plans, the following
actuarial assumptions were used:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Weighted average discount rate.............................. 7.0% 7.5%
Rate of increase in future compensation (applicable only to
salaried plans)........................................... 4.0% 4.0%
</TABLE>
The weighted average expected long-term rate of return on plan assets was
assumed to be 9.0% for 1997, 8.75% for 1996 and 9.0% for 1995.
The 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 $1.7 million at December 31, 1997 and $2.0 million at December
31, 1996. Although the trust's assets can be used to pay benefits for the
supplemental pension plan, they cannot be used in determining the net pension
liability for the supplemental pension plan. The qualified plans' assets consist
of stocks, bonds and cash.
RETIREE BENEFITS OTHER THAN PENSIONS
The 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 Company also provides a contributory medical plan and a noncontributory
life insurance plan for certain retired employees of one of its subsidiaries.
Covered employees become eligible for these benefits at retirement if they have
rendered at least ten years of service after attaining age 45.
The defined medical benefits cover most of the reasonable and customary
charges for hospital, surgical, diagnostic and physician services and
prescription drugs. Life insurance benefits are based on a percentage of final
base annual salary and decline over time after retirement commences.
Postretirement benefits other than pensions are accrued during an
employee's service to the Company.
63
<PAGE> 65
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of expense for Postretirement benefits other than pensions
for 1997, 1996 and 1995 are shown in the table below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $2,908 $2,845 $2,189
Interest cost............................................ 2,317 2,017 2,165
Amortization of net gain................................. (302) (299) (424)
Other.................................................... (235) (119) --
------ ------ ------
Expense for post retirement benefits other than
pensions............................................... $4,688 $4,444 $3,930
====== ====== ======
</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>
YEARS ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
("APBO"):
Retirees and eligible dependents.......................... $14,037 $11,871
Other fully eligible plan participants.................... 3,768 2,693
Other active plan participants............................ 25,092 16,449
------- -------
Total APBO........................................ 42,897 31,013
Unrecognized prior service (cost) credit.................. (3,476) 1,458
Unrecognized net gain..................................... 2,707 6,587
------- -------
Accrued liability for post retirement benefits other than
pensions.................................................. $42,128 $39,058
======= =======
</TABLE>
At December 31, 1997 and 1996, $1.3 million and $2.0 million of assets,
respectively, with a market value of approximately the same amount, were
designated in a trust to pay Postretirement benefits other than pensions. Since
these assets could be used to pay other employee benefits, they cannot be used
for the Postretirement benefit calculations. The Company has no formal policy
for funding Postretirement benefit obligations.
Weighted average discount rates of 7.0% and 7.5% were used in calculating
the APBO at December 31, 1997 and 1996, respectively. The assumed health care
cost trend rates to measure the expected cost of benefits at December 31, 1997
start at a 7% annual increase for coverage before the age of 65 and a 6% annual
increase for coverage after the age of 64. The assumed health care cost trend
rates to measure the expected cost of benefits at December 31, 1996 start at an
8% annual increase for coverage before the age of 65 and a 7% annual increase
for coverage after the age of 64. These rates were assumed to decrease one
percentage point each year until a 5% annual rate of increase was reached, at
which point a 5% annual rate of increase was assumed thereafter. The effect of a
one percentage point annual increase in the assumed cost trend rates would
increase the aggregate of service and interest costs by approximately 18% in
1997 and the APBO at December 31, 1997 by approximately 15%. The effect of a one
percentage point annual increase in the assumed cost trend rates would increase
the aggregate of service and interest costs in 1996 by approximately 19% and the
APBO at December 31, 1996 by approximately 15%.
SAVINGS PLAN
Prior to 1998, the Company had three qualified defined contribution savings
plans, one which covered salaried employees, one which covered substantially all
hourly employees and one which covered substantially all salary and hourly
employees of Santa Fe. In addition, the Company has a non-qualified supplemental
64
<PAGE> 66
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
savings plan for salaried employees whose benefits under the qualified plan are
limited by federal regulations. Effective January 1, 1998, the salaried
employees plan and the Santa Fe plan were combined.
Upon the employee meeting eligibility requirements, the Company matches
100% of employee contributions of up to 6% and 4% of base salary for the
salaried and hourly plans, respectively. Employees covered by the Santa Fe plan
receive matching contributions up to 4% of base salary and eligible hourly
employees also receive an employer contribution equal to 2% of before-tax
eligible compensation.
The Company's matching contributions to such plans were $8.9 million, $8.2
million and $6.8 million in 1997, 1996 and 1995, respectively.
(11) WRITE-OFF OF EXPLORATION PROPERTIES
In 1995, the Company wrote off two exploration properties totaling $52.5
million. Work on these properties, purchased in 1992, continued until 1995 when
it was determined that projected deposit sizes and economic returns were smaller
than the Company's threshold for development.
(12) GAIN ON SALE OF INVESTMENTS
In May 1995, NGC sold its 10.7% interest in Southern Peru Copper
Corporation for $116.4 million, which resulted in a pre-tax gain of $113.2
million.
(13) DIVIDEND, INTEREST AND OTHER INCOME
Included in Dividends, interest and other income are $6.5 million, $3.1
million and $28.3 million for 1997, 1996 and 1995, respectively for business
interruption insurance that was received for problems associated with the
refractory ore treatment plant at the Carlin, Nevada operations.
(14) 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. In 1997, sales to one customer totaled $896.6 million or 57% of total
sales. In 1996, sales to one customer accounted for $213.3 million or 19% of
total sales. In 1995, sales to two such major customers accounted for $177.6
million and $137.3 million, or 32% of total sales.
Export sales were $1,566.8 million, $764.4 million and $636.2 million in
1997, 1996 and 1995, respectively.
(15) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income taxes, net of refunds.......................... $46,671 $(9,708) $32,546
Interest, net of amounts capitalized.................. $76,711 $55,644 $23,625
</TABLE>
65
<PAGE> 67
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following reflects the non-cash adjustments recorded on January 1 ,
1997 for the Minera Yanacocha transaction described in Note 3 (in thousands):
<TABLE>
<S> <C>
Assets
Inventories............................................... $ 15,661
Other current assets...................................... 28,848
--------
Current assets......................................... 44,509
Property, plant and mine development, net................. 106,308
Other long-term assets.................................... 1,887
--------
Total assets........................................... $152,704
========
Liabilities
Current portion of long-term debt......................... $ 14,256
Other current liabilities................................. 31,190
--------
Current liabilities.................................... 45,446
Long-term debt............................................ 24,244
Other long-term liabilities............................... 15,520
--------
Total liabilities...................................... $ 85,210
========
</TABLE>
In connection with the Minera Yanacocha acquisition described above, the
Company recorded $48.3 million to property, plant and mine development for the
excess of the purchase price of the additional interest over the net book value
of such interest. Also, at December 31, 1997, the Company has recorded a $59.1
million payable for the purchase price of the additional interest.
As described in Note 17, in July 1996, NGC began accounting for its 45%
interest in the Batu Hijau project as an equity investment. Related non-cash
adjustments were as follows (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.................................... (3,607)
Liabilities
Accounts payable.......................................... 182
--------
Total............................................. $(48,210)
========
</TABLE>
In 1996, the Company retired mostly fully depreciated property, plant and
mine development with an original cost of $77.0 million, which is not reflected
in the statements of consolidated cash flows.
In 1997 and 1996, the Company recognized income tax benefits of $12.9
million and $6.0 million, respectively, resulting from the resolution of certain
tax issues associated with prior years.
In 1995, as discussed in Note 9, NGC called for redemption of all of the
outstanding 2.875 million shares of convertible preferred stock. Substantially
all of the convertible preferred stock was converted into common stock of NGC.
This transaction resulted in a non-cash decrease to preferred stock, a non-cash
decrease to treasury stock and a non-cash increase to additional paid-in
capital.
(16) GEOGRAPHIC INFORMATION
The Company operates predominantly in a single industry as a worldwide
corporation engaged in gold production, exploration for gold and acquisition of
gold properties. The Company has consolidated operations
66
<PAGE> 68
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the United States, Peru, Indonesia and Uzbekistan. In computing earnings from
operations for foreign subsidiaries, no allocations of general corporate
expenses, interest or income taxes have been made.
Identifiable assets by country represent those assets related to the
operations in those countries. Information by geographical location for the
years ended December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED INDONESIA
YEAR ENDED DECEMBER 31, 1997 STATES PERU UZBEKISTAN AND OTHER CONSOLIDATED
- ---------------------------- ---------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales........................ $1,075,138 $344,300 $ 70,177 $ 83,142 $1,572,757
Earnings from Operations..... $ 255,882 $197,168* $ 6,106 $ 27,257 $ 486,413
Exploration and Research..... $ 46,136 $ 17,203 $ 1,570 $ 33,511 $ 98,420
Identifiable Assets.......... $2,476,927 $358,080 $188,632 $188,363 $3,212,002
</TABLE>
<TABLE>
<CAPTION>
UNITED INDONESIA
YEAR ENDED DECEMBER 31, 1996 STATES UZBEKISTAN AND OTHER CONSOLIDATED
---------------------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales.................................. $ 995,093 $ 62,609 $ 47,964 $1,105,666
Earnings from Operations............... $ 228,434 $ 14,423 $ 14,231 $ 257,088
Exploration and Research............... $ 46,453 $ 1,184 $ 45,226 $ 92,863
Identifiable Assets.................... $2,329,051 $226,721 $174,702 $2,730,474
</TABLE>
- ---------------
Prior to 1996, substantially all operations were in the United States.
* Not reduced for minority interest
The above 1996 geographic information does not include NGC's equity
investment in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996
revenues and earnings was $119.3 million and $76.9 million, respectively. NGC's
equity in Minera Yanacocha's total assets at December 31, 1996 was $73.5
million. See Note 3.
(17) 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, 1997 and 1996, $45.6 million
and $31.8 million, respectively, were accrued for reclamation and remediation
costs relating to currently producing mineral properties.
Certain appeals have been filed with the Department of Interior Board of
Land Appeals in conjunction with the Twin Creeks Environmental Impact Statement
and the Lone Tree Mine Plan of Operations. These appeals seek to impose
mitigation and other conditions on the mine operations. The Company has
intervened and does not believe that such appeals have merit. An unfavorable
outcome of such appeals, however, could result in additional conditions on
operations which may have a material adverse effect on the Company's financial
position or results of operations.
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
67
<PAGE> 69
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, $52.2 million and
$49.8 million were accrued for such obligations at December 31, 1997 and 1996,
respectively. These amounts are included in other current liabilities and
reclamation and remediation liabilities. Depending upon the ultimate resolution
of these matters, the Company believes that it is reasonably possible that the
liability for these matters could be as much as 70% greater or 15% lower than
the amount accrued at December 31, 1997. The amounts accrued for these matters
are reviewed periodically based upon facts and circumstances available at the
time. In 1997, 1996 and 1995, charges related to environmental obligations
associated with former mining activities of $15.0 million, $6.6 million and $3.0
million, respectively, were included in Other expenses.
Details about certain of the more significant sites involved are discussed
below.
Idarado Mining Company ("Idarado") -- 80.1% owned by NGC
In July 1992, the Company and Idarado signed a consent decree with the
State of Colorado ("State") which was agreed to by the U.S. District Court of
Colorado to settle a lawsuit brought by the State under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), generally
referred to as the "Superfund Act." Idarado settled natural resources damages
and past and future response costs and provided habitat enhancement work. In
addition, Idarado agreed in the consent decree to undertake specified
remediation work at its former mining site in the Telluride/Ouray area of
Colorado. Remediation work at this property was substantially complete by the
end of 1997. If the remediation does not achieve specific performance objectives
defined in the consent decree, the State may require Idarado to implement
supplemental activities at the site, also as defined in the consent decree.
Idarado and the Company have obtained a $9.6 million letter of credit to secure
their potential obligations under the consent decree.
Resurrection Mining Company ("Resurrection") -- 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act
which involves a Resurrection Mining Company and Asarco Incorporated ("Asarco")
joint venture mining operation near Leadville, Colorado. This action was
subsequently consolidated with a lawsuit filed by the U.S. Environmental
Protection Agency ("EPA") in 1986, with the EPA taking the lead role. The
proceedings seek to compel the defendants to remediate the impacts of
pre-existing, historic mining activities that date back to the mid-1800's which
the government agencies claim are causing substantial environmental problems in
the area. The lawsuits have named the Company, Resurrection, the joint venture
and Asarco as defendants in the proceedings. The EPA is also proceeding against
other companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses the
Yak Tunnel, a drainage and access tunnel owned by the joint venture. Phase II
addresses the remainder of the site.
In 1988 and 1989, the EPA issued administrative orders with respect to
Phase I work for the Yak Tunnel. The joint venture, Asarco, Resurrection and the
Company 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
68
<PAGE> 70
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of its share of the remedial action which will be required under Phase II. The
government agencies may also seek to recover for damages to natural resources.
Dawn Mining Company ("Dawn") -- 51% owned by NGC
Dawn leased a currently inactive open-pit uranium mine on the Spokane
Indian Reservation in the State of Washington. The mine is subject to regulation
by agencies of the U.S. Department of Interior, the Bureau of Indian Affairs and
the Bureau of Land Management, as well as the EPA. Dawn also owns a nearby
uranium millsite facility.
In 1991, Dawn's lease was terminated. As a result, Dawn was required to
file a formal mine closure and reclamation plan. The Department of Interior has
commenced an Environmental Impact Study to analyze Dawn's proposed plan and to
consider alternate closure and reclamation plans for the mine. Dawn cannot
predict at this time what type of mine reclamation plan may be selected by the
Department of Interior. Dawn does not have sufficient funds to pay for the
reclamation plan it proposed, for any alternate plan, or for the closure of its
mill.
The Department of Interior previously notified Dawn that when the lease was
terminated, it would seek to hold Dawn and the Company (as Dawn's then 51%
owner) liable for any costs incurred as a result of Dawn's failure to comply
with the lease and applicable regulations. Other government agencies also might
attempt to hold the Company liable for future reclamation or remediation work at
the mine or millsite. 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 could generate
funds to close and reclaim both the mine and the mill. The license is being
challenged by third parties.
Insurance Recoveries
The Company carried insurance policies for which it filed claims for the
costs of certain of its remediation activities. Prior to 1993, three of the
insurance companies commenced actions against the Company seeking judgments that
they had no liability. In the fall of 1993, the Company instituted a
comprehensive lawsuit against its carriers. In the first quarter of 1995,
settlement in certain of the insurance litigation was reached enabling the
Company to realize the receivable of $16.7 million outstanding at December 31,
1994. Negotiations continued on the remaining litigation until late 1997, when
settlement resulted in proceeds of $10 million, net of related expenses, which
were applied against charges taken for changes in estimated future remediation
costs.
BATU HIJAU
In July 1996, the Company and Sumitomo Corporation ("Sumitomo") entered
into a definitive partnership agreement to develop and operate the Batu Hijau
copper/gold deposit in Indonesia. Batu Hijau contains proven and probable
reserves of 10.6 billion pounds of copper (4.8 billion equity pounds) and 12.1
million ounces of gold (5.4 million equity ounces). Production is expected to
begin in late 1999, with a projected mine life in excess of 20 years. The
estimated cost for development of the open pit mine, mill, and infrastructure
including employee housing, a port, electrical generation facilities, interest
during construction, cost escalations and working capital is expected to
approximate $1.9 billion.
Under the terms of the agreement with Sumitomo, the Company contributed its
interest in the company that owns the project and Sumitomo contributed an agreed
upon amount of cash. NGC retained an indirect 45% interest in the company that
owns the project and Sumitomo has an indirect 35% interest. The remaining 20%
interest is held by an unrelated Indonesian company.
69
<PAGE> 71
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the ownership structure, the Company accounted for its
investment in Batu Hijau as an equity investment effective July 1996. The
Company's investment at December 31, 1997 and 1996, which was included in Other
long-term assets, was $76.8 million and $46.6 million, respectively.
In connection with the Batu Hijau project, the entity owning the project
has entered into a construction contract for approximately $1.0 billion.
Financing agreements were signed in July 1997 for $1.0 billion in funds for the
project and the Company and Sumitomo are funding $0.9 billion. The financing is
guaranteed by the Company and Sumitomo, 56.25% and 43.75%, respectively, until
project completion tests are met, and will be non-recourse to the Company
thereafter (except with respect to a $125 million contingent support facility
that the Company and Sumitomo have agreed to provide). Repayment of borrowings
under the financing will be over a 13-year period beginning the earlier of six
months after project completion or June 15, 2001, and will bear interest at
blended fixed and floating rates. Based on current market rates at December 31,
1997, the average interest rates would be approximately 6.7% and 7.3%
pre-completion and post-completion, respectively.
GUARANTEE OF THIRD PARTY INDEBTEDNESS
The Company guaranteed a former subsidiary's $35.7 million Pollution
Control Revenue Bonds, due 2009. The former subsidiary is BHP Copper Inc.,
formerly known as Magma Copper Company. It is expected that the 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.
COMMODITY INSTRUMENTS
At December 31, 1997, the Company had forward sales contracts made on a
spot deferred basis ("spot deferred contracts") for approximately 614,000 ounces
of gold relating to production during the period January 1998 through September
1998 at a weighted average price of $423 per ounce. In July 1997, the Company
purchased approximately 1.1 million ounces of gold at an average price of $331
per ounce, to offset all spot deferred contracts held at that date. The gain
from this transaction is recognized in sales as the related gold is delivered.
The Company also had purchased put options on 1.2 million ounces at an
exercise price of $375 per ounce and written call options on 0.4 million ounces
at an exercise price of $464 per ounce. During January through March 1997,
300,000 ounces of put options were exercised with $6.7 million of cash received
and 100,000 ounces of call options expired unexercised. The remaining option
contracts were closed out in March 1997 with $17.0 million of cash received.
These amounts are reflected in Dividends, interest and other income.
The Company entered into forward sales contracts, that began maturing in
January 1996 and continue through December 2000, for production from its
Minahasa property, located in Indonesia. These contracts consist of forward
sales of 125,000 ounces of gold per year at an average price of $454 an ounce,
plus 40% of the amount by which the market price exceeds the forward sales
price.
ADVANCED ROYALTY
In a 1993 asset exchange transaction, a wholly-owned subsidiary of Santa Fe
transferred a coal lease with Chaco Energy Company ("Chaco") to Hanson Natural
Resources Company ("HNRC") with respect to which the subsidiary had collected
$484.0 million in advance royalty payments. The lease provides for HNRC to
collect another $390.0 million from 1994 through 2018 from Chaco. In the event
of a title failure as stated in the lease, this subsidiary has a primary
obligation to refund the advance royalty payments previously collected and has a
secondary obligation as assignor to HNRC to refund any of the $390.0 million
HNRC
70
<PAGE> 72
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collects if HNRC fails to meet its refund obligation to Chaco. The subsidiary
has no direct liability to Chaco under the coal lease. The subsidiary has title
insurance on the leased coal deposits in the amount of $240.0 million covering
the secondary obligation. The Company and the subsidiary regard the
circumstances entitling Chaco to a refund as remote. The Company has agreed with
Chaco to maintain the subsidiary's net worth at $108.0 million until July 1,
2005.
OTHER COMMITMENTS AND CONTINGENCIES
Under a 1992 agreement with Barrick Goldstrike Mines Inc. ("Barrick"),
Barrick is mining NGC's Post deposit which extends beyond NGC's property
boundaries onto Barrick's property. NGC and Barrick share the costs so that each
ounce of gold mined bears the same mining cost. NGC is obligated to pay Barrick
for such costs as Barrick mines the deposit. In addition, NGC is obligated to
share dewatering costs which are associated with the deposit. NGC incurred $33.0
million, $63.7 million and $62.5 million of such mining and dewatering costs in
1997, 1996 and 1995, respectively, but does not expect to incur any such costs
in 1998.
The 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, 1997, there were $80.3 million of outstanding letters of
credit that were primarily for bonding reclamation plans and electric supply and
reinsurance agreements. The Company has provided investment collateral for $8.5
million of these letters of credit. The remaining $71.8 million represents
unsecured letters of credit. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees competitively
determined in the market place.
The 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.
(18) UNAUDITED SUPPLEMENTARY DATA
QUARTERLY DATA
The following is a summary of selected quarterly financial information (in
millions except per share amounts):
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................................... $ 355.0 $ 421.8 $ 383.8 $ 412.2 $1572.8
Gross profit(1)......................... $ 110.5 $ 143.9 $ 132.2 $ 120.4 $ 507.0
Net income(2)........................... $ 54.7 $ (69.0) $ 46.0 $ 41.2 $ 72.9
Net income per common share, basic and
diluted............................... $ 0.32 $ (0.41) $ 0.28 $ 0.25 $ 0.44
Basic weighted average shares
outstanding........................... 166.5 166.5 166.7 166.9 166.7
Dividends declared per NGC common
share................................. $ 0.12 $ 0.12 $ 0.12 $ 0.03 $ 0.39
Closing price of NGC common stock....... $40.125 $39.938 $46.125 $29.813 $29.813
</TABLE>
71
<PAGE> 73
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales................................... $ 236.6 $ 261.4 $ 302.2 $305.5 $1105.7
Gross profit(1)......................... $ 48.4 $ 55.7 $ 73.9 $ 71.3 $ 249.3
Net income.............................. $ 16.4 $ 25.7 $ 40.1 $ 23.0 $ 105.2
Net income per common share, basic and
diluted............................... $ 0.10 $ 0.15 $ 0.24 $ 0.14 $ 0.63
Basic weighted average shares
outstanding........................... 166.5 166.4 166.4 166.5 166.0
Dividends declared per NGC common
share................................. $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Dividends declared per Santa Fe common
share................................. $ -- $ 0.05 $ -- $ -- $ 0.05
Closing price of NGC common stock....... $56.125 $50.375 $47.375 $43.75 $ 43.75
</TABLE>
- ---------------------
(1) Sales less costs applicable to sales and depreciation, depletion and
amortization.
(2) Included an after-tax gain of $15.4 million from the close-out of put and
call option contracts in the quarter ended March 31 and an after-tax charge
of $116.5 million and $3.3 million for expenses and write-offs associated
with the Santa Fe merger (see Note 1) in the quarters ended June 30 and
December 31, respectively.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's capital structure is essentially the same as NMC's pursuant
to a transaction in 1994 whereby NGC acquired essentially of the assets of NMC.
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 year 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 it liabilities at the beginning of 1992. The Company
had no significant fixed charges in 1993.
The ratio of earnings to fixed charges was 2.3, 1.7, 3.6, and 3.3 for the
years ended December 31, 1997, 1996, 1995, and 1994, respectively. The ratio of
earnings to fixed charges for NMC was 5.2 for the year ended December 31, 1993.
The Company guarantees certain third party debt which had total interest
obligations of $1.2 million, $1.2 million, $1.4 million, $1.0 million and $0.8
million for the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. The Company has not been required to pay any of these amounts, nor
does it expect to have to pay any amounts; therefore, such amounts have not been
included in the ratio of earnings to fixed charges.
ITEM 9. CHANGES IN 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 1998 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.
72
<PAGE> 74
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 1998 annual meeting of stockholders and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in NGC's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 1998 annual meeting of stockholders and
is incorporated herein by reference.
ITEM 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 1998 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........................... 40
Consolidated Balance Sheets................................. 41
Statements of Consolidated Changes in Stockholders'
Equity.................................................... 42
Statements of Consolidated Cash Flows....................... 43
Notes to Consolidated Financial Statements.................. 44
</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.
3. Exhibits
<TABLE>
<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.
</TABLE>
73
<PAGE> 75
<TABLE>
<C> <S>
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, as amended and restated
effective November 19, 1997.
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, 1997).
</TABLE>
74
<PAGE> 76
<TABLE>
<C> <S>
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.
10(h). -- Intermediate Term Incentive Compensation Plan, effective
January 1, 1997
12. -- Statement re Computation of Ratio of Earnings to Fixed
Charges.
21. -- Subsidiaries of Registrant.
23. -- Consent of Arthur Andersen LLP.
23.1 -- Consent of Price Waterhouse LLP.
24. -- Power of Attorney.
27. -- Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K:
November 10, 1997 filing on Form 8-K; Items 5 and 7, including restated
consolidated financial statements for the years ended December 31, 1996, 1995
and 1994, together with the report thereon of Arthur Andersen LLP independent
public accountants.
75
<PAGE> 77
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 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
- -----------------------------------------------------
Rudolph I. J. Agnew
* Director
- -----------------------------------------------------
J. P. Bolduc
* Chairman, President and Chief
- ----------------------------------------------------- Executive Officer and Director
Ronald C. Cambre
* Director
- -----------------------------------------------------
Joseph P. Flannery
* Director
- -----------------------------------------------------
Donald W. Gentry
* Director March 26, 1998
- -----------------------------------------------------
Leo I. Higdon, Jr.
* Director
- -----------------------------------------------------
Thomas A. Holmes
* Director
- -----------------------------------------------------
Patrick M. James
* Director
- -----------------------------------------------------
George B. Munroe
* Director
- -----------------------------------------------------
Robin A. Plumbridge
* Director
- -----------------------------------------------------
Robert H. Quenon
</TABLE>
76
<PAGE> 78
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
- -----------------------------------------------------
Moeen A. Qureshi
* Director
- -----------------------------------------------------
Michael K. Reilly
* Director
- -----------------------------------------------------
James V. Taranik
* Director March 26, 1998
- -----------------------------------------------------
William I. M. Turner, Jr.
* Executive Vice President and Chief
- ----------------------------------------------------- Financial Officer (Principal
Wayne W. Murdy Financial Officer)
* Controller (Principal Accounting
- ----------------------------------------------------- Officer)
Linda K. Wheeler
* By /s/ TIMOTHY J. SCHMITT
------------------------------------------------
Timothy J. Schmitt
as Attorney-in-fact
</TABLE>
77
<PAGE> 79
Appendix I
The following is a narrative description of the map in image form which
has been included in the paper version of the Form 10-K but has been excluded
from the EDGAR version of the Form 10-K.
Map of Nevada Operating Properties and Principal Area of Land Holdings
-- Page 4 of Form 10-K.
On Page 4 of the Form 10-K, the registrant has included a map of
Nevada with an enlargement of the geographical location of its
operations on the Carlin Trend, Lone Tree Complex, Twin Creeks Mine
and Rosebud Mine discussed on Pages 1 through 4 of the Form 10-K. The
map also includes the registrant's principal area of land holdings in
the gray shaded areas.
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<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> 81
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10(a). -- Directors' Stock Award Plan, as amended and restated
effective November 19, 1997.
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, 1997).
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.
10(h). -- Intermediate Term Incentive Compensation Plan, effective
January 1, 1997
12. -- Statement re Computation of Ratio of Earnings to Fixed
Charges.
21. -- Subsidiaries of Registrant.
23. -- Consent of Arthur Andersen LLP.
23.1 -- Consent of Price Waterhouse LLP.
24. -- Power of Attorney.
27. -- Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 10(a)
NEWMONT GOLD COMPANY
DIRECTORS' STOCK AWARD PLAN
AMENDED AND RESTATED AS OF NOVEMBER 19, 1997
1. PURPOSE. The Directors' Stock Award Plan ("Plan") is
intended to (a) attract and retain highly qualified individuals to serve as
directors of Newmont Gold Company (the "Company"), (b) increase non-employee
directors' stock ownership in the Company and (c) align non-employee directors'
financial interests more closely with those of the stockholders of the Company.
2. PARTICIPANTS. Participants in the Plan shall consist
of directors of the Company who are not employees of the Company, Newmont
Mining Corporation or any of the Company's subsidiaries. The term "subsidiary"
means a corporation more than 50% of the voting stock of which is owned
directly or indirectly by the Company.
3. EFFECTIVENESS. The Plan shall become effective on
November 16, 1994 (the "Effective Date").
4. SHARE AWARDS. On the Effective Date, each
non-employee director of the Company shall receive 625 shares of Common Stock
of the Company (the "Common Stock") for service as a director of the Company
rendered and to be rendered in 1994. On the date of the Annual Meeting of
Stockholders of the Company in each year, commencing in 1995, each non-employee
director of the Company who is elected or re-elected at such Annual Meeting
shall receive 625 shares of Common Stock for service as a director of the
Company previously rendered and to be rendered during the year in which such
Annual Meeting is held. If a person who is not an employee of the Company is
elected a director of the Company (a) in 1994 but after the Effective Date or
(b) in any year subsequent to 1994 but after the Annual Meeting of Stockholders
of the Company held in such year, then, in either case, such person shall
receive 625 shares of Common Stock on the effective date of such person's
election as a director of the Company, for service as a director of the Company
to be rendered during 1994 or the relevant year, as the case may be. A
director may forego any award under the Plan for any year by giving irrevocable
written notice to such effect to the Secretary of the Company on or before
December 31 of the preceding year or, in the case of awards to be made on the
Effective Date, on or prior to the Effective Date. A director shall not be
required to make any payment for any shares of Common Stock issued under the
Plan. Subject to Section 7, a director participant in the Plan shall have full
beneficial ownership of, and rights and privileges of a shareholder as to,
awarded shares, including the right to vote and the right to receive dividends.
<PAGE> 2
5. ADJUSTMENTS. If the outstanding Common Stock shall
at any time be changed or exchanged by declaration of a stock dividend, stock
split, combination or exchanges of shares, recapitalization, merger,
consolidation or other corporate reorganization in which the Company is the
surviving corporation, the number and class of shares thereafter to be issued
under the Plan shall be appropriately and equitably adjusted.
6. SHARES ISSUED UNDER PLAN. Common Stock issued under
the Plan shall be shares held in treasury (i.e., shares previously issued and
outstanding which have been reacquired by the Company and have not been
cancelled).
7. TRANSFER RESTRICTIONS. The shares of Common Stock
received by a participant pursuant to the Plan may not be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of by such participant
until the earliest of (a) the expiration of five years after the date of the
receipt of such shares by such participant, (b) the date such participant
ceases to be a director of the Company by reason of death or disability, or (c)
the later of (x) the date such participant ceases to be a director of the
Company for any reason other than death or disability or (y) the expiration of
six months after the date of the receipt of such shares by such participant;
provided, however, a participant (i) may sell, transfer or assign shares of
Common Stock received by such participant pursuant to the Plan to members of
his or her immediate family (as defined below) sharing the same household
("Immediate Family Members"), or a trust, partnership, limited liability
company, corporation (including a personal holding company) or similar vehicle
established solely for the benefit of, or the partners, members or shareholders
of which are solely, the participant and/or any such Immediate Family Members
(an "Eligible Transferee") or (ii) may direct the Company, by written notice
delivered to the Secretary of the Company prior to the date of issuance of any
shares of Common Stock that such participant is entitled to receive pursuant to
the Plan, to issue such shares in the name of, and to deliver such shares to,
an Eligible Transferee of such participant, provided that, in the case of
clause (i) or (ii), the foregoing restrictions on transfer shall apply to such
Eligible Transferee. The term "immediate family" shall mean any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, and shall include adoptive relationships. Upon receiving an
award of shares of Common Stock pursuant to the Plan, a participant may be
required to represent in writing that such shares are being acquired for such
participant's account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof. In addition, the shares
of Common Stock received by a participant pursuant to the Plan may not be
sold, transferred, pledged, assigned or otherwise encumbered or disposed of
except pursuant to an available exemption from the registration requirements of
the Securities Act of 1933, as amended. Certificates for
-2-
<PAGE> 3
shares delivered under the Plan may include any legend which the Company deems
appropriate to reflect any or all of the foregoing restrictions on transfers.
8. GOVERNMENT AND OTHER REGULATIONS. The obligation of
the Company to deliver shares of Common Stock under the Plan shall be subject
to all applicable laws, rules and regulations and such approvals by any
governmental agencies or regulatory authorities as may be required or be deemed
necessary or appropriate by counsel for the Company.
9. NO RIGHT TO CONTINUE AS DIRECTOR. Nothing contained
in the Plan shall be deemed to confer upon any person any right to continue as
a director of or to be associated in any other way with the Company.
10. GOVERNING LAW; AMENDMENTS. The Plan shall be
construed in accordance with the law of the State of Delaware and may be
amended or terminated at any time by action of the Board of Directors of the
Company.
Approved by the Board of Directors of Newmont Gold Company on November 19,
1997.
-3-
<PAGE> 1
EXHIBIT 10(f)
NEWMONT GOLD COMPANY
ANNUAL INCENTIVE COMPENSATION PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 1997)
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, 1997 (the
"Effective Date"). The provisions of the Plan as in effect prior to January 1,
1997 shall continue to govern the payment of amounts pursuant to the provisions
of such Plan with respect to Plan Years prior to 1997 and the provisions of this
Plan document, as it may be amended from time to time, shall govern all payments
and other matters with respect to the Plan for the 1997 Plan Year, including but
not limited to payments with respect to 1997 that are made subsequent to
December 31, 1997, and subsequent Plan Years.
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 Cost Per Ounce" means, with respect to a
particular Unit, the cost of producing an ounce of 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.
<PAGE> 2
1.5 "Board" means the Board of Directors of the Company.
1.6 "Carlin Unit" means those Employees whose Area of Primary
Responsibility is the Company's Carlin operations.
1.7 "Change in Control" means the first to occur of the events
specified in (a), (b) or (c) below (but no event other than the specified
events), except as otherwise provided in (d) below:
(a) Any person becomes the beneficial owner, directly or
indirectly, of securities of the Company or Newmont Mining Corporation ("NMC")
representing twenty percent (20%) or more of the combined voting power of the
Company's or NMC's then outstanding voting securities, and a majority of the
applicable Incumbent Board (as defined below in Section 1.7(e)) has not approved
the acquisition before the acquisition occurs; or
(b) Three or more Directors of the Company or NMC, whose
election or nomination for election is not approved by a majority of the
applicable Incumbent Board, are elected within any single twelve (12) month
period to serve on the Board or the Board of Directors of NMC, respectively; or
(c) Members of the applicable Incumbent Board cease to
constitute a majority of the Board or the Board of Directors of NMC.
(d) Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because twenty percent (20%) or more of the
combined voting power of the Company's or NMC's then outstanding voting
securities is acquired by one or more employee benefit plans maintained by the
Company or NMC or an affiliate of the Company or NMC.
(e) For purposes of Section 1.7(a), the terms "person" and
"beneficial owner" shall have the meanings set forth in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, as amended, and in the regulations
promulgated thereunder. For purposes of this Section 1.7, "Incumbent Board"
means (i) members of the Board or the Board of Directors of NMC on January 1,
1997, to the extent that they continue to serve as members of the Board or the
Board of Directors of NMC, respectively, and (ii) any individual who becomes a
member of the Board or the Board of Directors of NMC, respectively, after
January 1, 1997, if such individual's election or nomination for election as a
Director was approved by a vote of at least seventy-five percent (75%) of the
then applicable Incumbent Board.
1.8 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
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.
2
<PAGE> 3
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
long-term disability plan of the Company or a Participating Employer.
1.12 "Employee" means a full-time, salaried employee of the Company
and/or a Participating Employer, excluding temporary or leased employees. For
purposes of this Plan, an employee is any individual who provides services to
the Company as a common law employee and whose remuneration is subject to the
withholding of federal income tax pursuant to section 3401 of the Code. An
Employee shall not include any individual (a) who provides services to the
Company and/or a Participating Employer under an agreement, contract, or any
other arrangement pursuant to which the individual is initially classified as an
independent contractor by the Company and/or a Participating Employer, or (b)
whose remuneration for services has not been treated initially as subject to the
withholding of federal income tax pursuant to section 3401 of the Code even if
the individual is subsequently reclassified as a common law employee as a result
of a final decree of a court of competent jurisdiction or the settlement of an
administrative or judicial proceeding.
1.13 "Exploration Team" means those Employees whose Area of Primary
Responsibility is associated with the generation of reserves and who are
designated by the Company as members of such a Team.
1.14 "Headquarters Unit" means those Employees whose Area of
Primary Responsibility is the corporate office of the Company.
1.15 "Impact Level" means the twelve categories into which
Employees fall, based on the Pay Grade classification of their designated
Position, as determined by the Company. If the Impact Level of an Employee
changes during a Plan Year, and if the Employee's Pay Grade changes as a result,
such change shall be reflected in a proration of the Employee's bonus in
accordance with the provisions of Section 6.4.
1.16 "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.
1.17 "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 the Company for the Plan Year in order for bonuses to be payable
under the Plan.
1.18 "North American Unit" means those Employees whose Area of
Primary Responsibility is the Company's North American operations including,
effective June 1, 1997, the Carlin Unit.
1.19 "Participating Employer" means the Company and any Affiliated
Entity that the Company determines shall participate in the Plan.
3
<PAGE> 4
1.20 "Pay Grade" means those jobs sharing a common Salary range, as
designated by the Company. If the Pay Grade of an Employee changes during a Plan
Year, the bonus payable to such Employee shall be calculated on a pro rata basis
in accordance with the provisions of Section 6.4. Notwithstanding the foregoing,
for purposes of this Plan the Pay Grade of an Employee whose compensation is
subject to the deduction limitation of Section 162(m) of the Code with respect
to a Plan Year shall be the Pay Grade applicable to such Employee as of the
first day of such Plan Year, or such lesser Pay Grade as may be assigned to the
Employee during such Plan Year.
1.21 "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.
1.22 "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 Development."
1.23 "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.
1.24 "Personal Performance Percentage" means the percentage
determined by the Company that shall apply to each Employee in accordance with
Table II in Section 4.1.
1.25 "Peruvian Unit" means those Employees whose Area of Primary
Responsibility is the Company's Minera Yanacocha operations.
1.26 "Plan Year" means the calendar year.
1.27 "Position" means the defined job held by an Employee during
the Plan Year.
1.28 "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.
1.29 "Retirement" means termination of employment with the Company
and/or all Participating Employers by an Employee who immediately begins to
receive benefits from a defined benefit plan of the Company or a Participating
Employer.
1.30 "Salary" means an Employee's actual gross W-2 base earnings
for the Plan Year. If an Employee is absent from work because of a work-related
injury, the Employee's "Salary" will be determined by his actual gross 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 actual gross W-2 base earnings,
including short-term disability pay received during the Plan Year, but excluding
pay from any other source. If an Employee dies during the Plan Year, the
"Salary" for
4
<PAGE> 5
such Terminated Eligible Employee will be determined by his actual gross W-2
base earnings. If an Employee is on active military duty during a Plan Year, the
"Salary" will be determined by his actual gross W-2 base earnings during the
Plan Year, exclusive of any military pay. If an Employee does not receive a W-2,
his Salary shall be determined on the basis of his actual gross base earnings
for the Plan Year, or portion thereof, as shown on the payroll records of the
Company or the Participating Employer. Notwithstanding the foregoing, the
"Salary" of an Employee whose compensation is subject to the deduction
limitation of Section 162(m) of the Code with respect to a Plan Year shall not
exceed the annualized base salary of the Employee as in effect on the first day
of such Plan Year.
1.31 "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 Company's Severance Pay Plan if the
Employee immediately begins receiving benefits under the terms of the Severance
Pay Plan.
1.32 "Southeast Asia Unit" means those Employees whose Area of
Primary Responsibility is the Company's Minahasa Raya operations.
1.33 "Targeted Defined Cost Per Ounce" means the targeted cash
cost of production of gold per ounce for the Plan Year, as recommended by the
Compensation Committee and approved by the Board.
1.34 "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.
1.35 "Team" means the designated group of Employees to which an
Employee is assigned for purposes of Article V. Each Employee shall be assigned
to a Team within 30 days of the date the Employee becomes eligible for
participation in the Plan.
1.36 "Team Performance Bonus" means the bonus payable to an
Employee designated as a member of an Exploration Team, a Project Engineering
Team, or any other Team designated by the Compensation Committee, based on the
performance of the Team of which the Employee is a member, as set forth in
Section 5.2.
1.37 "Team Performance Percentage" means the percentage to be
applied to determine the Team Performance Bonus in accordance with the
provisions of Article V, which percentage shall be determined by the appropriate
officer of the Company pursuant to Section 5.1.
1.38 "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 Company's Vice President of Human
Resources.
1.39 "Unit" means the unit of Employees to which an Employee is
assigned for purposes of Article III. Each Employee shall be assigned to a Unit
within 30 days of the date the
5
<PAGE> 6
Employee becomes eligible for participation in the Plan. Effective as of June 1,
1997, all North American operations shall be consolidated into the North
American Unit.
1.40 "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.
1.41 "Unit Performance Percentage" means the percentage used to
calculate an Employee's Unit Performance Bonus, as set forth in Section 3.2.
1.42 "Uzbekistan Unit" means those Employees whose Area of Primary
Responsibility is the Company's Zarafshan-Newmont operations in Uzbekistan.
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 Company's Vice President of Human Resources. 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). Notwithstanding the foregoing
provisions of this Article II, the Compensation Committee may, prior to the end
of any Plan Year, exclude from eligibility for participation under this Plan
with respect to such Plan Year any Employee or Employees, as the Compensation
Committee may determine in its sole discretion.
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 Cost Per Ounce - Actual Defined Cost Per Ounce)
-----------------------------------------------------------------
(Targeted Defined Cost Per Ounce)
= Unit Performance Percentage
6
<PAGE> 7
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 of a Unit is 85% or more, a Unit Performance Bonus will
be payable, with such Unit Performance Bonus determined by multiplying the
applicable Target Performance Level set forth in the Tables in Section 3.2 below
by the applicable percentage set forth in the following Schedule and multiplying
the Employee's Salary by the resulting percentage.
SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
UNIT PERFORMANCE UNIT PERFORMANCE BONUS
PERCENTAGE AS A PERCENT OF TARGET
- --------------------------------------------------------------------------------
<S> <C>
85 25%
90 50%
95 75%
100 (Target) 100%
105 125%
110 150%
115 175%
120 or more 200%
- --------------------------------------------------------------------------------
</TABLE>
If the Unit Performance Percentage of a Unit falls between the various Unit
Performance Percentages set forth in the foregoing Schedule, then the percentage
used to calculate the Unit Performance Bonus of each Employee of that Unit, as a
percentage of the Target Performance Level, shall be based upon the Unit
Performance Bonus as a Percent of Target percentages set forth in the foregoing
Schedule. All such Unit Performance Bonuses will be calculated so that such
percentage bears the same relationship to the Unit Performance Bonus as a
Percent of Target percentages for the two closest Unit Performance Percentages.
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, provided that no
such change shall result in any increase in the amount of the Unit Performance
Bonus payable to an Employee whose compensation is subject to the limitation on
the deductibility of compensation pursuant to Section 162(m) of the Code. The
maximum Unit Performance Bonus that may be paid with respect to any Plan Year to
an Employee whose compensation is subject to the deduction limitation of Section
162(m) of the Code shall be $3,000,000. Prior to the payment of any Unit
Performance Bonus to an Employee whose compensation is subject to the limitation
imposed by Section 162(m) of the Code, the Compensation Committee shall certify
in writing that the applicable Unit Performance Percentage has been attained and
shall take any other action required in order to qualify for the exemption from
the deduction limitation provided by Section 162(m) of the Code.
3.2 Determination of Unit Performance Bonus. Subject to Section
6.1, an Employee's Unit Performance Bonus is calculated as a percentage of the
Employee's Salary, by multiplying the Employee's Salary by the product of the
Unit Performance Bonus as a Percent of Target percentage from the foregoing
Schedule times the Target Performance Level for the Employee's
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<PAGE> 8
Impact Level pursuant to the following Table I (Table IA for Employees
designated as members of an Exploration Team, a Project Engineering Team, or
other Team):
TABLE I
Non-Team
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
IMPACT PAY TARGET UNIT
LEVEL GRADE PERFORMANCE LEVEL
- -----------------------------------------------------------------
<S> <C> <C>
I 203 67.000%
II 202 51.500%
III 200-201 42.000%
IV 113-114 32.000%
V 111-112 20.000%
VI 110 19.000%
VII 109 14.500%
VIII 107-108 15.000%
IX 105-106 10.000%
X 104 5.000%
XB 103 4.000%
XI 11-102 5.000%
- -----------------------------------------------------------------
</TABLE>
TABLE IA
Team
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
IMPACT PAY TARGET UNIT
LEVEL GRADE PERFORMANCE LEVEL
- -----------------------------------------------------------------
<S> <C> <C>
I-IV 113-203 N/A
V 111-112 7.500%
VI 110 7.000%
VII 109 5.750%
VIII 107-108 6.000%
IX 105-106 4.125%
X 104 2.500%
XB 103 2.000%
XI 11-102 2.500%
- -----------------------------------------------------------------
</TABLE>
3.3 Terminated Eligible Employees. Terminated Eligible Employees
shall be eligible to receive a Unit Performance Bonus based upon the actual Unit
Performance Percentage for the applicable Unit calculated through the end of the
calendar quarter during which the Employee's termination of employment with the
Company and/or all Participating Employers occurred.
8
<PAGE> 9
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 by
the Employee's supervisor in one of the Company's Performance Rating Categories.
In conjunction with these ratings, the Company will assign a Personal
Performance Percentage for the Employee in accordance with the following table.
The distribution of Personal Performance Ratings and Personal Performance
Percentages will be reviewed annually by an executive review committee for
internal equity and consistency.
TABLE II
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
PERSONAL PERFORMANCE PERCENTAGES
(PERCENTAGE OF TARGET
PERFORMANCE RATING CATEGORY PERFORMANCE BONUS PAYABLE)
- ---------------------------------------------------------------------------
<S> <C>
Exceptional 100%-200%
- ---------------------------------------------------------------------------
Exceeds Expectations 100%-150%
- ---------------------------------------------------------------------------
Meets Expectations 25%-100%
- ---------------------------------------------------------------------------
Needs Development 0%-25%
- ---------------------------------------------------------------------------
</TABLE>
The Company shall determine the percentage of the Target Personal Performance
Bonus that shall apply to each Employee from within the foregoing applicable
ranges. Except as set forth in Section 4.3, the percentages shown in the
applicable "Target Performance Level" category specified in the Tables set forth
in Section 4.2 shall be multiplied by the Personal Performance Percentage for
each Employee so determined by the Company to determine the applicable
percentage for calculating the Employee's Personal Performance Bonus.
4.2 Determination of Personal Performance Bonus. Subject to
Sections 4.3 and 6.1, an Employee's Personal 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 Personal Performance Percentage 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 other Team):
9
<PAGE> 10
TABLE III
Non-Team
<TABLE>
<CAPTION>
- ---------------------------------------------------
IMPACT PAY TARGET PERSONAL
LEVEL GRADE PERFORMANCE LEVEL
- ---------------------------------------------------
<S> <C> <C>
I 203 33.000%
II 202 25.500%
III 200-201 21.000%
IV 113-114 16.000%
V 111-112 10.000%
VI 110 9.000%
VII 109 8.500%
VIII 107-108 9.000%
IX 105-106 6.500%
X 104 4.000%
XB 103 2.000%
XI 11-102 N/A
- ---------------------------------------------------
</TABLE>
TABLE IIIA
Team
<TABLE>
<CAPTION>
- ---------------------------------------------------
IMPACT PAY TARGET PERSONAL
LEVEL GRADE PERFORMANCE LEVEL
- ---------------------------------------------------
<S> <C> <C>
I-IV 113-203 N/A
V 111-112 7.500%
VI 110 7.000%
VII 109 5.750%
VIII 107-108 6.000%
IX 105-106 4.125%
X 104 2.000%
XB 103 2.000%
XI 11-102 N/A
- ---------------------------------------------------
</TABLE>
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-XB
exceeds the amount that would be payable to all such Employees if each of their
Personal Performance Percentages 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 Percentage exceeds 100%.
10
<PAGE> 11
4.4 Terminated Eligible Employees. Terminated Eligible Employees
shall be eligible to receive a Personal Performance Bonus based upon an assumed
Personal Performance Percentage of 100%.
4.5 Ineligible Employees. Employees with an Impact Level of XI and
Employees whose Personal Performance Percentage (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 other 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 Company
officer 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, such Company
officer 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 such Company officer will assign a Team Performance Percentage for
their respective Teams in accordance with Table II in Section 4.1. If the Team
Performance Level of a Team is less than 25%, the Employees assigned to the Team
will not receive a Team Performance Bonus. 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 Percentage to determine
the applicable percentage for calculating the Team Performance Bonus of the
Employees from each Team.
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 Percentage determined pursuant to
Section 5.1, as set forth in the following Table IV:
11
<PAGE> 12
TABLE IV
<TABLE>
<CAPTION>
- ---------------------------------------------------
IMPACT PAY TARGET PERSONAL
LEVEL GRADE PERFORMANCE LEVEL
- ---------------------------------------------------
<S> <C> <C>
I-IV 113-203 N/A
V 111-112 15.000%
VI 110 14.000%
VII 109 11.500%
VIII 107-108 12.000%
IX 105-106 8.250%
X 104 4.500%
XB 103 2.000%
XI 11-102 2.500%
- ---------------------------------------------------
</TABLE>
5.3 Terminated Eligible Employees. Terminated Eligible Employees
shall be eligible to receive a Team Performance Bonus based upon the actual Team
Performance Percentage 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 Proration of Certain Team Performance Bonuses.
Notwithstanding any other provision in this Article V, except as approved by the
Compensation Committee prior to the payment of Team Performance Bonuses, or
subsequently thereto by ratification, if the amount of Team Performance Bonuses
payable to all Employees of the Company and all Participating Employers in
Impact Levels V-XI exceeds the amount that would be payable to all such
Employees if the Team Performance Percentages applicable to all such Employees
were determined to be 100%, the amount of such excess shall be deducted pro rata
from the Team Performance Bonus payable to each such Employee whose Team
Performance Percentage exceeds 100%.
ARTICLE VI
PAYMENT OF BONUS
6.1 Minimum Gold Price Requirement. 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 the Company for the
Plan Year is equal to or greater than the Minimum Gold Price.
6.2 Shareholder Approval Requirement. Notwithstanding any other
provision herein, no portion of the Unit Performance Bonus shall be paid to an
Employee whose compensation is subject to the deduction limitation of Section
162(m) of the Code to the extent that such payment would be non-deductible under
such provision unless and until the shareholders of the Company have approved
this Plan and the material terms of the performance goals established under this
12
<PAGE> 13
Plan with respect to Unit Performance Bonuses in conformity with the
requirements of Section 162(m) of the Code and the regulations thereunder.
6.3 Deferral of Certain Payments. Notwithstanding the foregoing
provisions of this Article VI, if an Employee would receive compensation with
respect to any Plan Year, including a Unit Performance Bonus under this Plan,
that would exceed the compensation deduction limitation of Section 162(m) of the
Code and therefore be non-deductible for federal income tax purposes, the amount
of the Employee's Unit Performance Bonus for such Plan Year may be reduced by
the Compensation Committee to the extent necessary to avoid such limitation and
any such reduction shall be paid to the Employee in a subsequent year in
accordance with the provisions of this Section. In the event of any such
deferral, the amount deferred, together with interest credited as set forth
below, shall be paid to the Employee in the first calendar year during which the
deduction of such amounts shall not be subject to the limitation of Section
162(m) of the Code. The amount of the Unit Performance Bonus deferred shall be
credited to a special deferred compensation account in the name of the Employee
and such account shall be credited with interest at a rate equal to the rate of
interest announced publicly by The Chase Manhattan Bank (National Association)
from time to time as its "prime rate", with the interest rate hereunder adjusted
at such time as such "prime rate" is adjusted, from the period beginning upon
the date on which such amount otherwise would have been paid under the
provisions of this Plan through the last day of the month immediately preceding
the date of payment. Notwithstanding the foregoing, in the event of a Change in
Control, all amounts deferred in accordance with the provisions of this Section,
together with interest credited with respect to such deferred amounts, shall be
paid to the appropriate Employees as soon as practicable following the date of
the Change in Control. Determinations with respect to the deferral of Unit
Performance Bonuses hereunder shall be made by the Compensation Committee in its
sole discretion.
6.4 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 accordance with the amount of time spent by such Employee in
each Impact Level during the Plan Year. Notwithstanding the foregoing, for
purposes of determining the Unit Performance Bonus payable to an Employee whose
compensation is subject to the deduction limitation of section 162(m) of the
Code with respect to a Plan Year, the Impact Level of such Employee shall not be
increased during such Plan Year if any portion of such Employee's compensation
would be non-deductible under such provision.
6.5 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.
6.6 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. Notwithstanding the foregoing, the Unit Performance Bonus
payable to an Employee whose compensation is subject to the deduction limitation
of section 162(m) of the Code with respect to a Plan Year and who is in more
than one Unit during the Plan Year shall not be greater than the Unit
Performance Bonus
13
<PAGE> 14
that would have been payable to such Employee if the Employee had remained in
the Unit to which the Employee was assigned on the first day of the Plan Year if
any portion of the compensation payable to such Employee would be non-deductible
under such provision.
6.7 Time of Payment. The aggregate of any and all bonuses payable
under the Plan shall be payable to each eligible Employee and Terminated
Eligible Employee in cash as soon as practicable following the close of the Plan
Year, provided, however, that the Company's Vice- President of Human Resources
may authorize earlier payments to Terminated Eligible Employees.
6.8 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
CHANGE IN CONTROL
7.1 In General. In the event of a Change in Control, each eligible
Employee (including Terminated Eligible Employees who terminate employment
during the Plan Year in which the Change in Control occurs) shall become
entitled to the payment of a Unit Performance Bonus, a Personal Performance
Bonus and a Team Performance Bonus in accordance with the provisions of this
Article.
7.2 Calculation of Bonuses. Upon a Change in Control, each
eligible Employee, together with each Terminated Eligible Employee, shall become
entitled to the payment of (a) a Unit Performance Bonus calculated on the basis
of a Unit Performance Percentage of 200%, (b) a Personal Performance Bonus
calculated on the basis of a personal performance percentage of 200%, and (c)
each such Employee and Terminated Eligible Employee who is a member of an
Exploration Team, Project Engineering Team or other Team shall be entitled to
the payment of a Team Performance Bonus based upon a Team Performance Percentage
of 200%. For purposes of calculating the bonuses payable under this Article VII,
the Salary of each eligible Employee and each Terminated Eligible Employee shall
be equal to such Employee's Salary, on an annualized basis, as of the date
immediately preceding the Change in Control.
7.3 Payment of Bonuses. The bonuses payable in accordance with the
provisions of this Article VII shall be calculated and paid as soon as
practicable following the date of the Change in Control, but in no event later
than the sixtieth day after the date of the Change in Control. Such payments
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. Upon the completion of such payments, Eligible Employees and
Terminated Eligible Employees shall have no further right to the payment of any
bonus hereunder (other than any bonus payable hereunder with respect to a
previous Plan Year that has not yet been paid) and this Plan shall terminate.
14
<PAGE> 15
ARTICLE VIII
GENERAL PROVISIONS
8.1 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.
8.2 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.
8.3 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.
8.4 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 the Company'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.
8.5 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.
8.6 Amendments, Termination, Etc. The Board, upon the
recommendation of the Compensation Committee, may at any time amend, modify,
suspend or terminate the Plan.
8.7 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.
15
<PAGE> 16
8.8 Section Headings. The Section headings are included herein
only for convenience, and they shall have no effect on the interpretation of the
Plan.
8.9 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.
8.10 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.
8.11 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.
8.12 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.
8.13 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, 1997.
NEWMONT GOLD COMPANY
By: /s/ T. J. Schmitt
---------------------------------------
16
<PAGE> 1
EXHIBIT 10(h)
NEWMONT GOLD COMPANY
INTERMEDIATE TERM INCENTIVE COMPENSATION PLAN
(EFFECTIVE AS OF JANUARY 1, 1997)
The board of directors of Newmont Gold Company, a Delaware Corporation
(the "Company" or "NGC"), hereby establishes the Newmont Gold Company
Intermediate Term Incentive Compensation Plan (the "Plan"), effective January 1,
1997 (the "Effective Date").
PURPOSE
The purpose of the Plan is to provide to selected key 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 "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.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Change in Control" means the first to occur of the events
specified in (a), (b) or (c) below (but no event other than the specified
events), except as otherwise provided in (d) below:
(a) Any person becomes the beneficial owner, directly or
indirectly, of securities of NGC or NMC representing twenty percent (20%) or
more of the combined voting power of NGC's or NMC's then outstanding voting
securities, and a majority of the applicable Incumbent Board (as defined below
in Section 1.3(e)) has not approved the acquisition before the acquisition
occurs; or
(b) Three or more Directors of NGC or NMC, whose election
or nomination for election is not approved by a majority of the applicable
Incumbent Board, are elected within
<PAGE> 2
any single twelve (12) month period to serve on the Board or the Board of
Directors of NMC, respectively; or
(c) Members of the applicable Incumbent Board cease to
constitute a majority of the Board or the Board of Directors of NMC.
(d) Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because twenty percent (20%) or more of the
combined voting power of NGC's or NMC's then outstanding voting securities is
acquired by one or more employee benefit plans maintained by NGC or NMC or an
affiliate of NGC or NMC.
(e) For purposes of Section 1.3(a), the terms "person" and
"beneficial owner" shall have the meanings set forth in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, as amended, and in the regulations
promulgated thereunder. For purposes of this Section 1.3, "Incumbent Board"
means (i) members of the Board or the Board of Directors of NMC on January 1,
1997, to the extent that they continue to serve as members of the Board or the
Board of Directors of NMC, respectively, and (ii) any individual who becomes a
member of the Board or the Board of Directors of NMC, respectively, after
January 1, 1997, if such individual's election or nomination for election as a
Director was approved by a vote of at least seventy-five percent (75%) of the
then applicable Incumbent Board.
1.4 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
1.5 "Common Stock" means the $1.60 par value common stock of
Newmont Mining Corporation, or the $.01 par value common stock of the Company,
as the case may be.
1.6 "Company" means NGC, and where the context requires, any
Affiliated Entity that has become a Participating Employer.
1.7 "Compensation Committee" means the Compensation Committee of
the Board.
1.8 "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
long-term disability plan of the Company or a Participating Employer.
1.9 "Earnings Factor" means the Performance Factor determined with
respect to NGC's Earnings Per Share for the relevant Performance Period.
1.10 "Earnings Per Share" means the earnings per share, before
extraordinary items, of NGC for the relevant Performance Period, as determined
by the Company.
1.11 "Employee" means a full time, salaried employee of the Company
and/or a Participating Employer, excluding temporary or leased employees. For
purposes of this Plan, an employee is any individual who provides services to
the Company as a common law employee
2
<PAGE> 3
and whose remuneration is subject to the withholding of federal income tax
pursuant to section 3401 of the Code. An Employee shall not include any
individual (a) who provides services to the Company and/or a Participating
Employer under an agreement, contract, or any other arrangement pursuant to
which the individual is initially classified as an independent contractor by the
Company and/or a Participating Employer, or (b) whose remuneration for services
has not been treated initially as subject to the withholding of federal income
tax pursuant to section 3401 of the Code even if the individual is subsequently
reclassified as a common law employee as a result of a final decree of a court
of competent jurisdiction or the settlement of an administrative or judicial
proceeding.
1.12 "Fair Market Value" means, with respect to a share of Common
Stock as of a given date, the average of the high and low sales prices for a
share of Common Stock as reported for New York Stock Exchange issues in The Wall
Street Journal for such date; provided, however, that if there is no sale of
shares of Common Stock reported in The Wall Street Journal on such date, such
fair market value shall be the average between the bid and asked prices for a
share of common stock reported in The Wall Street Journal at the close of
trading on such date; provided further, however, that if no such prices are
reported for such day, the most recent day for which such prices are available
shall be used. In the event that the method for determining the fair market
value of a share of Common Stock provided for in the previous sentence shall not
be practicable, then such fair market value shall be determined by such other
reasonable valuation method as the Compensation Committee shall, in its
discretion, select and apply in good faith as of the given date.
1.13 "Impact Level" means the twelve categories into which
Employees fall, based on the Pay Grade classification of their designated
Position, as determined by the Company. If the Impact Level of a Participant
changes during a Performance Period, and if the Participant's Pay Grade changes
as a result, such change shall be reflected in a proration of the Participant's
Targeted Payout Percentage in accordance with and subject to the limitations
contained in Section 1.30.
1.14 "ITIP Bonus" means the bonus payable to a Participant under
this Plan with respect to a Performance Period (or portion thereof as provided
in Section 3.2), which shall be determined by multiplying the Participant's
Salary for the last Plan Year of such Performance Period (or portion thereof) by
the following: 70% times (Targeted Payout Percentage times Management
Effectiveness Factor) plus 30% times (Targeted Payout Percentage times Earnings
Factor). In the event of a Change in Control, each Participant's Salary for
purposes of computing the applicable ITIP Bonus in accordance with the
provisions of Section 3.3 shall be equal to each such Participant's Salary, on
an annualized basis, as of the date immediately preceding the Change in Control.
1.15 "Management Effectiveness Factor" means, with respect to any
Performance Period, the sum of the Production Factor, the Total Cost Factor and
the Total Reserves Factor for such Performance Period divided by the number of
Plan Years in such Performance Period.
3
<PAGE> 4
1.16 "Measure of Performance" means Production Equity Ounces, Total
Cost Per Equity Ounce, Total Reserves Equity Ounces and Earnings Per Share, as
the case may be.
1.17 "NMC" means Newmont Mining Corporation, a Delaware
corporation.
1.18 "Participant" means an Employee who has satisfied the
eligibility requirements of Article II and who is, or may become, entitled to an
ITIP Bonus under the provisions of this Plan.
1.19 "Participating Employer" means the Company and any Affiliated
Entity that the Company determines shall participate in the Plan.
1.20 "Pay Grade" means those jobs sharing a common Salary range, as
designated by the Company. If the Pay Grade of a Participant changes during the
Performance Period, the Targeted Payout Percentage applicable to such
Participant shall be prorated in accordance with the provisions of Section 1.30.
Notwithstanding the foregoing, for purposes of this Plan the Pay Grade of an
Employee whose compensation is subject to the deduction limitation of section
162(m) of the Code with respect to a Plan Year shall be the Pay Grade applicable
to such Employee as of the first day of the applicable Performance Period, or
such lesser Pay Grade as may be assigned to the Employee during such Performance
Period.
1.21 "Performance Categories" means the following categories used
to determine the Performance Factors: "Outstanding," "Excellent," "Target,"
"Threshold" and "Unacceptable". The Compensation Committee shall approve the
level of performance for each Performance Category and for each Measure of
Performance with respect to each Performance Period. The approval of the level
of performance for each Performance Category and for each Measure of Performance
with respect to each Performance Period shall be conducted so as to comply with
the requirements for exemption from the limitations of Section 162(m) of the
Code. The Compensation Committee shall retain the discretion to change the
required levels of performance, and the underlying measurements of performance,
in order to reflect the acquisition or disposition of assets, or for other
reasons as determined by the Compensation Committee in its sole discretion,
provided, however, that any such change shall be in conformity with generally
accepted accounting principles and provided further that no such change shall
result in any increase in the amount of ITIP Bonus payable to a Participant
hereunder whose compensation is subject to the deduction limitation of section
162(m) of the Code and all such changes shall be consistent with the
requirements for exemption under Section 162(m) of the Code.
1.22 "Performance Factor" means the Production Factor, the Total
Cost Factor, the Total Reserves Factor or the Earnings Factor, as the case may
be, for the relevant Performance Period. The Performance Factor for each of the
foregoing Factors shall be determined based upon where each such Measure of
Performance falls with respect to the level of performance approved by the
Compensation Committee for each Performance Category. The Performance Factor for
the Outstanding Performance Category shall be three, the Performance Factor for
the Excellent Performance Category shall be two, the Performance Factor for the
Target Performance Category shall be one, the Performance Factor for the
Threshold Performance Category shall be zero, and the Performance Factor for the
Unacceptable Performance Category shall be minus one.
4
<PAGE> 5
The Performance Factor for each Measure of Performance will be determined by
interpolation, with rounding to the nearest 0.01, where the Measure of
Performance falls between the specified Performance Categories for such
Performance Period. If the Performance Factor with respect to any Measure of
Performance falls below the Threshold Performance Category, a negative
Performance Factor for that Measure of Performance will apply for the relevant
Performance Period and such negative Performance Factor must be offset by other
positive Performance Factors in order for there to be an ITIP Bonus. The
Compensation Committee shall certify in writing, prior to the payment of any
ITIP Bonus, that the Performance Factors used for the calculation of the ITIP
Bonus have been attained and take any other action required in order to qualify
for the exemption from the provisions of Section 162(m) of the Code.
1.23 "Performance Period" means the period of Plan Year(s) over
which the Measures of Performance shall be calculated for purposes of
determining the amount of an ITIP Bonus. The initial Performance Period shall be
the calendar year 1997, the second Performance Period shall be the period from
January 1, 1997 through December 31, 1998, and the next Performance Period shall
be the period from January 1, 1997 through December 31, 1999. Performance
Periods beginning on January 1, 1998 and future years shall be composed of three
Plan Years.
1.24 "Plan Year" means the calendar year.
1.25 "Position" means the defined job held by an Employee during
the Plan Year.
1.26 "Production Equity Ounces" means the total equity ounces
produced by the Company in the relevant Performance Period, as calculated by the
Company and approved by the Compensation Committee.
1.27 "Production Factor" means the Performance Factor attributable
to Production Equity Ounces with respect to the relevant Performance Period.
1.28 "Retirement" means termination of employment with the Company
and/or all Participating Employers by an Employee who immediately begins to
receive benefits from a defined benefit pension plan of the Company or a
Participating Employer.
1.29 "Salary" means an Employee's actual gross W-2 base earnings
for the Plan Year. If an Employee is absent from work because of a work-related
injury, the Employee's "Salary" will be determined by his actual gross 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 actual gross W-2 base earnings,
including short-term disability pay received during the Plan Year, but excluding
pay from any other source. If an Employee dies during the Plan Year, the
"Salary" for such Terminated Eligible Employee will be determined by his actual
gross W-2 base earnings. If an Employee is on active military duty during a Plan
Year, the "Salary" will be determined by his actual gross W-2 base earnings
during the Plan Year, exclusive of any military pay. If an Employee does not
receive a W-2, his Salary shall be determined on the basis of his actual gross
base earnings for the Plan Year, or portion thereof, as shown on the payroll
records of the Company or the Participating Employer. Notwithstanding the
foregoing, the "Salary" of an
5
<PAGE> 6
Employee whose compensation is subject to the deduction limitation of section
162(m) of the Code with respect to a Plan Year shall not exceed the annualized
base salary of the Employee as in effect on the first day of the applicable
Performance Period.
1.30 "Targeted Payout Percentage" means the percentage of a
Participant's Salary taken into account when calculating the ITIP Bonus with
respect to a Performance Period. The Targeted Payout Percentage for the Payout
Period beginning January 1, 1997 and ending December 31, 1997, the Performance
Period beginning January 1, 1997 and ending December 31, 1998 and the
Performance Period beginning January 1, 1997 and ending December 31, 1999 shall
be determined in accordance with the provisions of Schedule A attached hereto
and hereby made a part hereof. Targeted Payout Percentages for subsequent
Performance Periods shall be established by the Compensation Committee and
attached as additional Schedules to this Plan. If the Pay Grade of a Participant
changes during a Performance Period, the Targeted Payout Percentage applicable
to such Participant shall be prorated based upon the number of days spent in
each Pay Grade during the Performance Period, provided, however, that for
purposes of this Plan, the Pay Grade of an Employee whose compensation is
subject to the deduction limitation of section 162(m) of the Code with respect
to a Plan Year shall be the Pay Grade applicable to such Employee as of the
first day of the applicable Performance Period, or such lesser Pay Grade as may
be assigned to the Employee during such Performance Period.
1.31 "Total Cost Factor" means the Performance Factor determined
with respect to the Company's Total Cost Per Equity Ounce for the relevant
Performance Period.
1.32 "Total Cost Per Equity Ounce" means the Company's total cost
of producing an ounce of gold during the relevant Performance Period, which
shall be determined by dividing the total cost of producing an ounce of gold
during such Performance Period by the total Production Equity Ounces for such
Performance Period. The Total Cost Per Equity Ounce shall be calculated by the
Company and approved by the Compensation Committee.
1.33 "Total Reserves Equity Ounces" means the Company's total
equity ounces of gold in proven and probable gold reserves at the end of the
relevant Performance Period as calculated by the Company and approved by the
Compensation Committee.
1.34 "Total Reserves Factor" means the Performance Factor
determined with respect to the Total Reserves Equity Ounces for the relevant
Performance Period.
ARTICLE II
ELIGIBILITY
All Employees of the Company and/or a Participating Employer in Pay
Grades 109 and above are eligible to receive an ITIP Bonus 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 relevant Performance Period or (ii) they have
terminated employment with the Company and/or a Participating
6
<PAGE> 7
Employer during the Performance Period on account of death, Retirement,
Disability, 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). Notwithstanding the foregoing provisions of
this Article II, the Compensation Committee may, prior to the end of any
Performance Period, exclude from eligibility for participation under this Plan
with respect to such Performance Period any Employee or Employees, as the
Compensation Committee may determine in its sole discretion.
ARTICLE III
PAYMENT OF ITIP BONUS
3.1 Determination of ITIP Bonus. As soon as reasonably practicable
after the end of each Performance Period, when all of the necessary information
with respect to the Performance Factors for such Performance Period have been
determined, the Compensation Committee shall certify in writing the extent to
which the Measures of Performance satisfy the Performance Categories, the
Performance Factors achieved with respect to such Performance Period, and any
other material terms of this Plan that apply to the payment of the ITIP Bonus.
Following such certification, payment of the ITIP Bonus shall be made to the
eligible Participants in accordance with the provisions of this Article III as
soon as reasonably practicable.
3.2 Termination of Employment During Performance Period. If a
Participant terminates employment during a Performance Period on account of
death, Disability, Retirement or other termination approved by the Vice
President of Human Resources of the Company, the Participant shall be entitled
to a prorated ITIP Bonus calculated by using the ratio between the levels of
performance for each Measure of Performance and each Performance Category for
the full three year Performance Period during which termination of employment
occurs and the levels of performance for the Performance Categories and the
Measures of Performance achieved for the completed Plan Years during the
applicable Performance Period and applying the Performance Factors thus derived
in order to calculate the ITIP Bonus. If a Participant terminates employment
before the completion of one full Plan Year during a Performance Period no ITIP
Bonus shall be paid. Payment shall be made to a terminated Participant with
respect to a Performance Period at the same time that payments with respect to
such Performance Period are made to Participants in accordance with the
provisions of Section 3.1.
3.3 Change in Control. In the event of a Change in Control, each
Participant (including any Participant who has terminated employment with the
Company and/or a Participating Employer during the relevant Performance Period
under circumstances entitling such Participant to an ITIP Bonus) shall become
entitled to the payment of an ITIP Bonus based upon the applicable Targeted
Payout Percentage for the Performance Period during which such Change of Control
occurs and calculated as if the Performance Category with respect to each
Performance Factor was at the Outstanding level. If a Change in Control occurs
prior to
7
<PAGE> 8
January 1, 2000, the Targeted Payout Percentages set forth on Schedule A under
the column headed 1997-1999 shall be applied to determine the amount of the ITIP
Bonus payable in accordance with the provisions of this Section. Payment of the
ITIP Bonus under the foregoing circumstances shall be made as soon as
practicable following the date of the Change in Control. Upon the completion of
such payments, the Participants shall have no further right to the payment of
any ITIP Bonus hereunder (other than an ITIP Bonus previously earned but not yet
paid) and this Plan shall terminate.
3.4 Limitation on ITIP Bonus. The maximum ITIP Bonus payable to
any Participant under this Plan with respect to a Performance Period shall not
exceed 300% of the amount of such Bonus payable to the Participant if all
Performance Factors were at the Target Performance Category level, based upon
the Salary of such Participant for the last Plan Year in the Performance Period.
Notwithstanding the foregoing, the largest ITIP Bonus payable to any Participant
under this Plan with respect to any Performance Period shall not exceed $3
million.
3.5 Form of Payment. The amount of ITIP Bonuses payable under this
Plan shall be paid 50% in cash and 50% in shares of Common Stock, which shall be
subject to the restrictions set forth in Section 3.7 below. The number of shares
of Common Stock to be issued in payment of an ITIP Bonus shall be determined
based upon the Fair Market Value of the Common Stock on the date that the
Compensation Committee meets and certifies the satisfaction of the material
terms of this Plan with respect to the payment of the ITIP Bonus in accordance
with the provisions of Section 3.1. Notwithstanding the foregoing, the
Compensation Committee may, in its sole discretion, cause all or any portion of
any ITIP Bonus otherwise payable in shares of Common Stock to be paid in cash.
3.6 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. The Compensation Committee may, in its sole discretion, permit
any Participant to satisfy the applicable withholding by causing the Company to
withhold the appropriate number of shares of Common Stock from the ITIP Bonus
otherwise payable and to make the requisite withholding payments on behalf of
the Participant.
3.7 Restrictions on Common Stock. (a) Shares of Common Stock
issued as payment of a portion of an ITIP Bonus hereunder shall be restricted
and subject to forfeiture as follows: If a Participant terminates employment
prior to the January 1st occurring one year after the end of the Performance
Period with respect to which shares of Common Stock are issued as a part of the
ITIP Bonus, all such shares of Common Stock shall be forfeited. If a Participant
terminates employment more than one year after the end of a Performance Period
with respect to which shares of Common Stock were issued as a part of the ITIP
Bonus, but prior to the January 1st occurring two years after the end of such
Performance Period, the Participant shall forfeit 50% of the shares of Common
Stock awarded as a part of such ITIP Bonus. If a Participant terminates
employment on or after the January 1st occurring two years after the end of such
Performance Period, the shares of Common Stock shall not be subject to
forfeiture. Notwithstanding the foregoing, if a Participant terminates
employment during the two year period following the end of a Performance Period
on account of death, Disability, Retirement, Change in Control, or other
8
<PAGE> 9
termination approved by the Vice President of Human Resources of the Company in
writing, none of the shares of Common Stock shall be subject to forfeiture.
(b) Shares of Common Stock issued hereunder as a part of an
ITIP Bonus shall not be subject to transfer by the Participant for a period of
five years from the end of the Performance Period with respect to which such
shares of Common Stock were issued, provided, however, that such Common Stock
shall be transferable (i) upon the death, Disability or Retirement of the
Participant, (ii) in the event of a Change in Control, or (iii) to family trusts
or similar vehicles for personal estate planning purposes as approved by the
Vice President of Human Resources of the Company in writing.
(c) The Compensation Committee shall cause a legend to be
placed on the Common Stock certificates issued pursuant to this Plan referring
to the restrictions provided by this Section and, in addition, may in its sole
discretion require one or more of the following methods of enforcing the
restrictions: (i) requiring the Participant to keep the stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in effect;
or (ii) requiring that the stock certificates, duly endorsed, be held in the
custody of a third party while the restrictions remain in effect.
(d) Shares of Common Stock issued under this Plan may be
issued pursuant to the provisions of the Newmont Mining Corporation 1996
Employees Stock Plan, or otherwise, as determined in the sole discretion of the
Compensation Committee.
(e) The Compensation Committee may, in its sole discretion,
require the Participant to agree not to make an election pursuant to section
83(b) of the Code as a condition for the receipt of Common Stock hereunder.
3.8 Shareholder Approval Requirement. Notwithstanding the
foregoing provisions of this Article III, no ITIP Bonus shall be paid under this
Plan to a Participant to the extent that such payment would be non-deductible
under the provisions of Section 162(m) of the Code unless and until the
shareholders of the Company have approved this Plan and the material terms of
the performance goals established under this Plan in conformity with the
requirements of Section 162(m) of the Code and the Regulations thereunder.
3.9 Deferral of Certain Payments. Notwithstanding the foregoing
provisions of this Article III, if a Participant would receive compensation with
respect to any Plan Year, including ITIP Bonuses under this Plan, that would
exceed the $1,000,000 compensation deduction limitation of Section 162(m) of the
Code and therefore be non-deductible for federal income tax purposes, the amount
of the Participant's ITIP Bonus for such Plan Year may be reduced by the
Compensation Committee to the extent necessary to avoid such limitation and any
such reduction shall be paid to the Participant in a subsequent year in
accordance with the provisions of this Section. In the event of any such
deferral, the amount deferred, which shall consist of the cash portion of the
ITIP Bonus and the number of shares of Common Stock that would have otherwise
been issuable to the Participant, together with interest and dividends credited
as set forth below, shall be paid to the Participant in the first calendar year
during which the deduction of such
9
<PAGE> 10
amounts shall not be subject to the limitations of Section 162(m) of the Code.
The amount of the cash portion of the ITIP Bonus deferred shall be credited to a
special deferred compensation account in the name of the Participant and such
account shall be credited with interest at a rate equal to the rate of interest
announced publicly by The Chase Manhattan Bank (National Association) from time
to time as its "prime rate", with the interest rate hereunder adjusted at such
time as such "prime rate" is adjusted, from the period beginning upon the date
on which such amount otherwise would have been paid under the provisions of this
Plan through the last day of the month immediately preceding the date of
payment. Any dividends paid with respect to the shares of Common Stock that are
deferred in accordance with the provisions of this Section 3.8 shall be credited
to the special deferred compensation account as of the date such dividends would
otherwise have been paid and such amounts shall be credited with interest as
above provided. Notwithstanding the foregoing, in the event of a Change in
Control, all amounts deferred in accordance with the provisions of this Section,
together with interest and dividends credited with respect to such deferred
amounts, shall be paid to the appropriate Participants as soon as practicable
following the date of the Change in Control. Determinations with respect to the
deferral of ITIP Bonuses hereunder shall be made by the Compensation Committee
in its sole discretion.
ARTICLE IV
GENERAL PROVISIONS
4.1 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.
4.2 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.
4.3 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.
4.4 Amount Payable Upon Death of Employee. If a Participant 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 Participant to receive life insurance proceeds
under the Company's life insurance plan. In the absence of an effective
beneficiary designation under said plan, any amount payable hereunder following
the death of a Participant shall be paid to the Participant's estate.
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<PAGE> 11
4.5 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 Participant loans outstanding to the
Company or other debts of the Participant to the Company.
4.6 Amendments, Termination, Etc. The Board, upon the
recommendation of the Compensation Committee, may at any time amend, modify,
suspend or terminate the Plan.
4.7 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.
4.8 Section Headings. The Section headings are included herein
only for convenience, and they shall have no effect on the interpretation of the
Plan.
4.9 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.
4.10 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.
4.11 Transferability. Any ITIP Bonus payable hereunder is personal
to the Participant and may not be sold, exchanged, transferred, pledged,
assigned or otherwise disposed of except by will or by the laws of descent and
distribution.
4.12 Successors. This Plan shall be binding upon and inure to the
benefit of the Company, the Participating Employers and the Participants and
their respective heirs, representatives and successors.
11
<PAGE> 12
4.13 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, 1997.
NEWMONT GOLD COMPANY
By: /s/ T. J. Schmitt
-----------------------------------
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<PAGE> 13
SCHEDULE A
TARGETED PAYOUT PERCENTAGES
<TABLE>
<CAPTION>
Impact
Level Pay Grade 1997 1997-1998 1997-1999
------- --------- ---- --------- ---------
<S> <C> <C> <C> <C>
I 203 N/A N/A N/A
II 202 28% 56% 85%
III 200-201 25% 50% 75%
IV 113-114 17% 34% 50%
V 111-112 13% 26% 40%
VI 110 10% 20% 30%
VII 109 7% 14% 20%
</TABLE>
13
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands except ratios)
(Unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and
cumulative effect of changes
in accounting principles $ 65,033 $ 89,236 $ 187,530 $ 124,053 $ 139,014
Adjustments:
Net interest expense (1) 77,067 58,619 47,099 18,588 24,147
Amortization of capitalized
interest 3,221 2,359 2,594 2,299 2,344
Portion of rental expense
representative of interest 2,714 3,428 2,834 1,581 1,300
Minority interest of majority-
owned subsidiaries that have
fixed charges 66,882 -- -- -- 16,751
Undistributed income of less-
than-50%-owned entities -- (18,359) (7,027) (15,549) (3,526)
--------- --------- --------- --------- ---------
$ 214,917 $ 135,283 $ 233,030 $ 130,972 $ 180,030
========= ========= ========= ========= =========
Fixed Charges:
Net interest expense (1) $ 77,067 $ 58,619 $ 47,099 $ 18,588 $ 24,147
Capitalized interest 15,604 16,571 14,043 19,982 9,014
Portion of rental expense
representative of interest 2,714 3,428 2,834 1,581 1,300
--------- --------- --------- --------- ---------
$ 95,385 $ 78,618 $ 63,976 $ 40,151 $ 34,461
========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 2.3 1.7 3.6 3.3 5.2
========= ========= ========= ========= =========
</TABLE>
(1) The computation for the year ended December 31, 1993 is for Newmont
Mining Corporation ("NMC"), Newmont Gold Company's ("NGC") parent. The
computation for this period is 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 1993.
NGC was fully consolidated into NMC in all periods. NGC had no
significant fixed charges in 1993.
(2) Includes interest expense of majority-owned subsidiaries and
amortization of debt issuance costs.
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES OF NEWMONT GOLD COMPANY
<TABLE>
<CAPTION>
NAME OWNERSHIP PLACE OF INCORPORATION
<S> <C> <C>
Santa Fe Pacific Gold Corporation 100% by NGC Delaware
Hospah Coal Company 100% by NGC Delaware
Minera Yanacocha, S.A. 51.35% by NGC Peru
PT Newmont Minahasa Raya 80% by NGC Indonesia
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this on Form 10-K, into Newmont Gold Company's
previously filed S-8 Registration Statement No. 333-26591, S-8 Registration
Statement No. 333-10765, S-3 Registration Statement No. 33-54245 and S-8
Registration No. 33-62471.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 26, 1998.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-54245) and
the Registration Statements on Form S-8 (Nos. 333-26591; 333-10765; and
33-62471) of Newmont Gold Company of our report dated February 1, 1997, except
for the fifth paragraph of Note 1, which is as of March 10, 1997, pertaining to
the consolidated financial statements of Santa Fe Pacific Gold Corporation and
Subsidiaries appearing in Newmont Gold Company's Annual Report on Form 10-K. It
should be noted, however, that such financial statements are not included in
such Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
Phoenix, Arizona
March 26, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy J. Schmitt his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, in
his name and on his behalf, to do any and all acts and things and to execute any
and all instruments which he may deem necessary or advisable to enable Newmont
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, 1997 and the undersigned
hereby ratifies and confirms all that said attorney-in-fact and agent shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as of
the 18th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ Ruldolph I. J. Agnew Director
- -----------------------------------------------------
Ruldolph I. J. Agnew
/s/ J. P. Bolduc Director
- -----------------------------------------------------
J. P. Bolduc
/s/ Ronald C. Cambre Chairman, President and Chief Executive
- ----------------------------------------------------- Officer and Director (Principal Executive
Ronald C. Cambre Officer)
/s/ Joseph P. Flannery Director
- -----------------------------------------------------
Joseph P. Flannery
/s/ Donald W. Gentry Director
- -----------------------------------------------------
Donald W. Gentry
/s/ Leo I. Higdon, Jr. Director
- -----------------------------------------------------
Leo I. Higdon, Jr.
/s/ Thomas A. Holmes Director
- -----------------------------------------------------
Thomas A. Holmes
/s/ Patrick M. James Director
- -----------------------------------------------------
Patrick M. James
/s/ George B. Munroe Director
- -----------------------------------------------------
George B. Munroe
/s/ Robin A. Plumbridge Director
- -----------------------------------------------------
Robin A. Plumbridge
/s/ Robert H. Quenon Director
- -----------------------------------------------------
Robert H. Quenon
/s/ Moeen A. Qureshi Director
- -----------------------------------------------------
Moeen A. Qureshi
</TABLE>
2
<PAGE> 2
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ Michael K. Reilly Director
- -----------------------------------------------------
Michael K. Reilly
/s/ James V. Taranik Director
- -----------------------------------------------------
James V. Taranik
/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/ Linda K. Wheeler Controller (Principal Accounting Officer)
- -----------------------------------------------------
Linda K. Wheeler
</TABLE>
3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 146,232
<SECURITIES> 12,790
<RECEIVABLES> 52,410
<ALLOWANCES> 0
<INVENTORY> 339,549
<CURRENT-ASSETS> 641,370
<PP&E> 3,942,694
<DEPRECIATION> 1,343,885
<TOTAL-ASSETS> 3,613,982
<CURRENT-LIABILITIES> 394,531
<BONDS> 1,179,410
0
0
<COMMON> 1,671
<OTHER-SE> 1,695,433
<TOTAL-LIABILITY-AND-EQUITY> 3,613,982
<SALES> 1,572,757
<TOTAL-REVENUES> 1,627,992
<CGS> 800,045
<TOTAL-COSTS> 1,065,810
<OTHER-EXPENSES> 353,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,067
<INCOME-PRETAX> 131,915
<INCOME-TAX> (7,900)
<INCOME-CONTINUING> 72,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,933
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
