10-Q 1 d431562d10q.htm FORM 10-Q FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

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: 001-31240

 

 

 

LOGO

NEWMONT MINING CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   84-1611629

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

6363 South Fiddler’s Green Circle

Greenwood Village, Colorado

  80111
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code (303) 863-7414

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act.

(Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company.)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act).    ¨  Yes    x  No

There were 491,536,089 shares of common stock outstanding on October 25, 2012 (and 4,898,042 exchangeable shares).

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
PART I   

ITEM 1.

 

FINANCIAL STATEMENTS

     1   
 

Condensed Consolidated Statements of Income

     1   
 

Condensed Consolidated Statements of Comprehensive Income

     2   
 

Condensed Consolidated Statements of Cash Flows

     3   
 

Condensed Consolidated Balance Sheets

     4   
 

Notes to Condensed Consolidated Financial Statements

     5   

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     44   
 

Overview

     44   
 

Selected Financial and Operating Results

     46   
 

Consolidated Financial Results

     47   
 

Results of Consolidated Operations

     53   
 

Liquidity and Capital Resources

     58   
 

Environmental

     61   
 

Accounting Developments

     61   
 

Non-GAAP Financial Measures

     62   
 

Safe Harbor Statement

     65   

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     65   

ITEM 4.

 

CONTROLS AND PROCEDURES

     68   
PART II   

ITEM 1.

 

LEGAL PROCEEDINGS

     69   

ITEM 1A.

 

RISK FACTORS

     69   

ITEM 2.

 

ISSUER PURCHASES OF EQUITY SECURITIES

     69   

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

     69   

ITEM 4.

 

MINE SAFETY DISCLOSURES

     69   

ITEM 5.

 

OTHER INFORMATION

     70   

ITEM 6.

 

EXHIBITS

     70   

SIGNATURES

     71   

EXHIBIT INDEX

     72   


Table of Contents

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in millions except per share)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Sales (Note 3)

   $ 2,480     $ 2,744     $ 7,392     $ 7,593  

Costs and expenses

        

Costs applicable to sales (1) (Note 3)

     1,088       1,008       3,107       2,865  

Amortization

     272       270       751       776  

Reclamation and remediation (Note 4)

     17       6       49       63  

Exploration 

     115       104       309       255  

Advanced projects, research and development

     74       93       258       247  

General and administrative 

     51       50       162       145  

Other expense, net (Note 5)

     131       36       377       196  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,748       1,567       5,013       4,547  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Other income, net (Note 6)

     52       (76     121       3  

Interest expense, net 

     (67     (65     (190     (193
  

 

 

   

 

 

   

 

 

   

 

 

 
     (15     (141     (69     (190
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income and mining tax and other items

     717       1,036       2,310       2,856  

Income and mining tax expense (Note 9)

     (228     (371     (746     (863

Equity income (loss) of affiliates 

     (9     10       (39     12  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations 

     480       675       1,525       2,005  

Loss from discontinued operations (Note 10)

     (33     —          (104     (136
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income 

     447       675       1,421       1,869  

Net income attributable to noncontrolling interests (Note 11)

     (80     (182     (285     (475
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Newmont stockholders 

   $ 367     $ 493     $ 1,136     $ 1,394  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Newmont stockholders:

        

Continuing operations 

   $ 400     $ 493     $ 1,240     $ 1,530  

Discontinued operations 

     (33     —          (104     (136
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 367     $ 493     $ 1,136     $ 1,394  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income per common share (Note 12)

        

Basic:

        

Continuing operations 

   $ 0.81     $ 1.00     $ 2.50     $ 3.10  

Discontinued operations 

     (0.07     —          (0.21     (0.28
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 0.74     $ 1.00     $ 2.29     $ 2.82  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Continuing operations 

   $ 0.81     $ 0.98     $ 2.48     $ 3.05  

Discontinued operations 

     (0.07     —          (0.21     (0.27
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 0.74     $ 0.98     $ 2.27     $ 2.78  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share 

   $ 0.35     $ 0.30     $ 1.05     $ 0.65  

  

 

(1)

Excludes Amortization and Reclamation and remediation.

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

1


Table of Contents

NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Net income

   $ 447     $ 675     $ 1,421     $ 1,869  

Other comprehensive income (loss):

        

Unrealized gain (loss) on marketable securities, net of $(62), $(6), $(67) and $74 tax benefit and (expense), respectively

     184       (270     (129     (345

Foreign currency translation adjustments

     16       (163     16       (36

Change in pension and other post-retirement benefits, net of $3, $2, $7 and $5 tax expense, respectively

     4       3       12       11  

Change in fair value of cash flow hedge instruments, net of $(16), $70, $(34) and $222 tax benefit and (expense), respectively

        

Net change from periodic revaluations

     55       (389     128       (172

Net amount reclassified to income

     (24     (32     (83     (104
  

 

 

   

 

 

   

 

 

   

 

 

 

Net unrecognized gain (loss) on derivatives

     31       (421     45       (276
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     235       (851     (56     (646
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 682     $ (176   $ 1,365     $ 1,223  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to:

        

Newmont stockholders

   $ 601     $ (355   $ 1,079     $ 748  

Noncontrolling interests

     81       179       286       475  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 682     $ (176   $ 1,365     $ 1,223  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Operating activities:

    

Net income

   $ 1,421     $ 1,869  

Adjustments:

    

Amortization

     751       776  

Loss from discontinued operations

     104       136  

Reclamation and remediation

     49       63  

Deferred income taxes

     25       (106

Stock based compensation and other non-cash benefits

     55       62  

Impairment of marketable securities

     39       175  

Gain on asset sales, net

     (12     (68

Other operating adjustments and write-downs

     149       102  

Net change in operating assets and liabilities (Note 23)

     (1,039     (343
  

 

 

   

 

 

 

Net cash provided from continuing operations

     1,542       2,666  

Net cash used in discontinued operations

     (12     (4
  

 

 

   

 

 

 

Net cash provided from operations

     1,530       2,662  
  

 

 

   

 

 

 

Investing activities:

    

Additions to property, plant and mine development

     (2,394     (1,781

Sale of marketable securities

     209       74  

Purchases of marketable securities

     (209     (17

Acquisitions, net

     (22     (2,301

Proceeds from sale of other assets

     13       6  

Other

     (48     (9
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,451     (4,028
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from debt, net

     3,343       1,798  

Repayment of debt

     (1,956     (2,086

Payment of conversion premium on debt

     (172     —     

Dividends paid to common stockholders

     (521     (321

Dividends paid to noncontrolling interests

     (3     (17

Proceeds from stock issuance, net

     20       35  

Other

     (2     3  
  

 

 

   

 

 

 

Net cash provided from (used in) financing activities

     709       (588
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     1       33  
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (211     (1,921

Cash and cash equivalents at beginning of period

     1,760       4,056  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,549     $ 2,135  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions)

 

     At September 30,
2012
     At December 31,
2011
 
ASSETS      

Cash and cash equivalents

   $ 1,549      $ 1,760  

Trade receivables

     314        300  

Accounts receivable

     470        320  

Investments (Note 17)

     89        94  

Inventories (Note 18)

     842        714  

Stockpiles and ore on leach pads (Note 19)

     720        671  

Deferred income tax assets

     251        396  

Other current assets (Note 20)

     1,089        1,133  
  

 

 

    

 

 

 

Current assets

     5,324        5,388  

Property, plant and mine development, net

     17,472        15,881  

Investments (Note 17)

     1,397        1,472  

Stockpiles and ore on leach pads (Note 19)

     2,775        2,271  

Deferred income tax assets

     1,659        1,605  

Other long-term assets (Note 20)

     896        857  
  

 

 

    

 

 

 

Total assets

   $ 29,523      $ 27,474  
  

 

 

    

 

 

 
LIABILITIES      

Debt (Note 21)

   $ 25      $ 689  

Accounts payable

     612        561  

Employee-related benefits

     320        307  

Income and mining taxes

     87        250  

Other current liabilities (Note 22)

     1,527        2,133  
  

 

 

    

 

 

 

Current liabilities

     2,571        3,940  

Debt (Note 21)

     6,099        3,624  

Reclamation and remediation liabilities (Note 4)

     1,276        1,169  

Deferred income tax liabilities

     2,186        2,147  

Employee-related benefits

     479        459  

Other long-term liabilities (Note 22)

     396        364  
  

 

 

    

 

 

 

Total liabilities

     13,007        11,703  
  

 

 

    

 

 

 

Commitments and contingencies (Note 26)

     
EQUITY      

Common stock

     786        784  

Additional paid-in capital

     8,307        8,408  

Accumulated other comprehensive income

     595        652  

Retained earnings

     3,667        3,052  
  

 

 

    

 

 

 

Newmont stockholders’ equity

     13,355        12,896  

Noncontrolling interests

     3,161        2,875  
  

 

 

    

 

 

 

Total equity

     16,516        15,771  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 29,523      $ 27,474  
  

 

 

    

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in millions, except per share, per ounce and per pound amounts)

NOTE 1    BASIS OF PRESENTATION

The interim Condensed Consolidated Financial Statements (“interim statements”) of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont” or the “Company”) are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with Newmont’s Consolidated Financial Statements for the year ended December 31, 2011 filed February 24, 2012 on Form 10-K. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by United States generally accepted accounting principles (“GAAP”) have been condensed or omitted. References to “A$” refer to Australian currency, “NZ$” to New Zealand currency and “$” to United States currency.

NOTE 2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

Goodwill Impairment

In September 2011, ASC guidance was issued related to goodwill impairment. Under the updated guidance, an entity will have the option to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If the Company believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The update does not change how the Company performs the two-step impairment test under previous guidance. The Company’s January 1, 2012 adoption of the guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

Fair Value Accounting

In May 2011, ASC guidance was issued related to disclosures around fair value accounting. The updated guidance clarifies different components of fair value accounting including the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and disclosing quantitative information about the unobservable inputs used in fair value measurements that are categorized in Level 3 of the fair value hierarchy. The Company’s January 1, 2012 adoption of the updated guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

 

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NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 3    SEGMENT INFORMATION

 

      Sales     Costs
Applicable
to Sales
    Amortization     Advanced
Projects and
Exploration
    Pre-Tax
Income (Loss)
 

Three Months Ended September 30, 2012

          

Nevada

   $ 734      $ 292      $ 61      $ 47      $ 330   

La Herradura

     88        31        5        11        39   

Other North America

     —          —          —          1        (24 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     822        323        66        59        345   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     585        185        83        14        254   

Conga

     —          —          —          9        (12 )  

Other South America

     —          —          —          15        (10 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     585        185        83        38        232   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

          

Gold

     281        155        37        NA        NA   

Copper

     60        39        7        NA        NA   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     341        194        44        2        98   

Batu Hijau:

          

Gold

     24        17        2        NA        NA   

Copper

     146        99        21        NA        NA   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     170        116        23        8        10   

Other Australia/New Zealand

     358        201        34        18        98   

Other Asia Pacific

     —          —          —          5        (16 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     869        511        101        33        190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     204        69        18        20        98   

Akyem

     —          —          —          6        (6 )  

Other Africa

     —          —          —          3        (4 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     204        69        18        29        88   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          4        30        (138
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 2,480      $ 1,088      $ 272      $ 189      $ 717   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

      Sales     Costs
Applicable
to Sales
    Amortization     Advanced
Projects and
Exploration
    Pre-Tax
Income (Loss)
 

Three Months Ended September 30, 2011

          

Nevada

   $ 712      $ 267      $ 69      $ 39      $ 333   

La Herradura

     92        31        6        5        54   

Other North America

     —          —          3        52        (56 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     804        298        78        96        331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     544        194        67        8        280   

Conga

     —          —          —          11        (10 )  

Other South America

     —          —          —          11        (11 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     544        194        67        30        259   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

          

Gold

     245        112        28        N/A        N/A   

Copper

     40        28        6        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     285        140        34        3        124   

Batu Hijau:

          

Gold

     198        58        14        N/A        N/A   

Copper

     233        73        16        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     431        131        30        2        258   

Other Australia/New Zealand

     437        174        36        14        218   

Other Asia Pacific

     —          —          1        5        3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     1,153        445        101        24        603   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     243        71        19        11        134   

Akyem

     —          —          —          2        (3 )  

Other Africa

     —          —          —          2        (3 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     243        71        19        15        128   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          5        32        (285 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 2,744      $ 1,008      $ 270      $ 197      $ 1,036   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

      Sales     Costs
Applicable
to Sales
    Amortization     Advanced
Projects and
Exploration
    Pre-Tax
Income
(Loss)
    Total
Assets
    Capital
Expenditures(1)
 

Nine Months Ended September 30, 2012

              

Nevada

   $ 2,028      $ 817      $ 161      $ 124      $ 916      $ 7,420      $ 520   

La Herradura

     274        96        16        28        130        388        41   

Other North America

     —          —          —          2        (130 )       204        9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     2,302        913        177        154        916        8,012        570   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     1,793        523        195        49        936        2,812        392   

Conga

     —          —          —          48        (51 )       1,617        467   

Other South America

     —          —          —          59        (54 )       30        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     1,793        523        195        156        831        4,459        859   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

              

Gold

     843        449        118        N/A        N/A        N/A        N/A   

Copper

     163        107        25        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,006        556        143        7        278        4,678        77   

Batu Hijau:

              

Gold

     76        47        8        N/A        N/A        N/A        N/A   

Copper

     406        254        51        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     482        301        59        22        42        3,662        98   

Other Australia/New Zealand

     1,116        573        103        51        378        1,390        214   

Other Asia Pacific

     —          —          3        15        (20 )       827        12   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     2,604        1,430        308        95        678        10,557        401   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     693        241        58        42        348        1,350        176   

Akyem

     —          —          —          15        (16 )       888        305   

Other Africa

     —          —          —          8        (8 )       6        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     693        241        58        65        324        2,244        481   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          13        97        (439 )       4,251        76   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 7,392      $ 3,107      $ 751      $ 567      $ 2,310      $ 29,523      $ 2,387   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes a decrease in accrued capital expenditures of $7; consolidated capital expenditures on a cash basis were $2,394.

 

8


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

      Sales     Costs
Applicable
to Sales
    Amortization     Advanced
Projects and
Exploration
    Pre-Tax
Income
(Loss)
    Total
Assets
    Capital
Expenditures(1)
 

Nine Months Ended September 30, 2011

              

Nevada

   $ 1,823      $ 763      $ 197      $ 94      $ 744      $ 6,820      $ 380   

La Herradura

     238        76        15        14        134        308        55   

Other North America

     —          —          10        149        (114 )       2,226        74   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     2,061        839        222        257        764        9,354        509   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     1,430        537        186        25        661        2,683        244   

Conga

     —          —          —          21        (21 )       776        448   

Other South America

     —          —          —          25        (26 )       36        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     1,430        537        186        71        614        3,495        692   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

              

Gold

     746        329        87        N/A        N/A        N/A        N/A   

Copper

     147        83        20        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     893        412        107        6        368        4,439        122   

Batu Hijau:

              

Gold

     430        122        28        N/A        N/A        N/A        N/A   

Copper

     844        241        54        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,274        363        82        3        767        3,690        149   

Other Australia/New Zealand

     1,227        498        102        36        583        1,169        212   

Other Asia Pacific

     —          —          2        11        (31 )       415        8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     3,394        1,273        293        56        1,687        9,713        491   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     708        216        61        26        389        1,103        71   

Akyem

     —          —          —          4        (5 )       420        127   

Other Africa

     —          —          —          5        (9 )       4        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     708        216        61        35        375        1,527        198   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          14        83        (584 )       5,050        23   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 7,593      $ 2,865      $ 776      $ 502      $ 2,856      $ 29,139      $ 1,913   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes an increase in accrued capital expenditures of $132; consolidated capital expenditures on a cash basis were $1,781.

 

9


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 4    RECLAMATION AND REMEDIATION

At September 30, 2012 and December 31, 2011, $1,149 and $1,070, respectively, were accrued for reclamation obligations relating to mineral properties. In addition, the Company is involved in several matters concerning environmental obligations associated with former, primarily historic, mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. At September 30, 2012 and December 31, 2011, $189 and $170, respectively, were accrued for such obligations. These amounts are also included in Reclamation and remediation liabilities.

The following is a reconciliation of Reclamation and remediation liabilities:

 

     Nine Months  Ended
September 30,
 
     2012     2011  

Balance at beginning of period

   $ 1,240     $ 1,048  

Additions, changes in estimates and other

     106       20  

Liabilities settled

     (57     (24

Accretion expense

     49       44  
  

 

 

   

 

 

 

Balance at end of period

   $ 1,338     $ 1,088  
  

 

 

   

 

 

 

The current portion of Reclamation and remediation liabilities of $62 and $71 at September 30, 2012 and December 31, 2011, respectively, are included in Other current liabilities (see Note 22).

The Company’s reclamation and remediation expenses consisted of:

 

      Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
      2012      2011     2012      2011  

Reclamation

   $ —         $ (9   $ —         $ 19  

Accretion - operating 

     14        13       41        38  

Accretion - non-operating

     3        2       8        6  
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 17      $ 6     $ 49      $ 63  
  

 

 

    

 

 

   

 

 

    

 

 

 

NOTE 5    OTHER EXPENSE, NET

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Hope Bay care and maintenance

   $ 27      $ —         $ 129      $ —     

Regional administration

     22        18        72        55  

Community development

     18        6        69        46  

Restructuring and other

     48        —           48        —     

Western Australia power plant

     5        3        13        12  

Acquisition costs

     —           1        12        22  

Indonesian value added tax settlement

     —           —           —           21  

Other

     11        8        34        40  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 131      $ 36      $ 377      $ 196  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 6    OTHER INCOME, NET

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Development projects, net

   $ 16     $ 16     $ 49     $ 36  

Canadian Oil Sands dividends

     11       9       31       25  

Refinery income, net

     20       24       27       30  

Reduction of allowance for loan receivable

     —          —          21       —     

Gain on asset sales, net

     2       1       12       4  

Interest

     2       2       9       8  

Gain on sale of investments, net

     —          14       —          64  

Foreign currency exchange, net

     (1     39       (4     10  

Impairment of marketable securities

     (7     (174     (39     (175

Other 

     9       (7     15       1  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 52     $ (76   $ 121     $ 3  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 7    EMPLOYEE PENSION AND OTHER BENEFIT PLANS

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Pension benefit costs, net

        

Service cost

   $ 7     $ 7     $ 22     $ 19  

Interest cost

     10       9       31       29  

Expected return on plan assets

     (11     (10     (33     (31

Amortization, net

     6       5       20       17  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 12     $ 11     $ 40     $ 34  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Other benefit costs, net

        

Service cost

   $ 1     $ 1     $ 2     $ 2  

Interest cost

     1       2       4       4  

Amortization, net

     —          (1     —          (1
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2     $ 2     $ 6     $ 5  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 8    STOCK BASED COMPENSATION

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Stock options

   $ 4      $ 5      $ 11      $ 15  

Restricted stock units

     8        4        19        24  

Performance leveraged stock units

     2        3        8        7  

Strategic stock units

     1        —           2        —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 15      $ 12      $ 40      $ 46  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 9    INCOME AND MINING TAXES

During the third quarter of 2012, the Company recorded estimated income and mining tax expense of $228, resulting in an effective tax rate of 32%. Estimated income and mining tax expense during the third quarter of 2011 was $371 for an effective tax rate of 36%. The lower effective tax rate in the third quarter of 2012 is a result of the following: (i) composition of income earned in 2012 is more heavily weighted to those jurisdictions for which the Company claims percentage depletion, (2) lower pretax book income in the current year is resulting in a larger favorable tax rate impact from the benefit of percentage depletion, and (iii) a small decrease in the valuation allowance recorded during the current quarter on the Company’s Canadian deferred tax assets generated in 2012 due to care and maintenance expenditures at Hope Bay compared to the prior quarter valuation allowance resulting from the impairment of certain marketable equity securities.

During the first nine months of 2012, estimated income and mining tax expense was $746, resulting in an effective tax rate of 32%. Estimated income and mining tax expense during the first nine months of 2011 was $863 for an effective tax rate of 31%. The slightly higher effective tax rate in the first nine months of 2012 is primarily due to the change in valuation allowances recorded on the Company’s deferred tax assets.

The Company operates in numerous countries around the world and accordingly it is subject to, and pays annual income taxes under, the various income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual agreements with the local government, and others are defined by the general corporate income tax laws of the country. The Company has historically filed, and continues to file, all required income tax returns and pay the income taxes reasonably determined to be due. The tax rules and regulations in many countries are highly complex and subject to interpretation. From time to time the Company is subject to a review of its historic income tax filings and in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain rules to the Company’s business conducted within the country involved.

At September 30, 2012, the Company’s total unrecognized tax benefit was $237 for uncertain income tax positions taken or expected to be taken on income tax returns. Of this, $19 represents the amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate.

As a result of the statute of limitations that expire in the next 12 months in various jurisdictions, and possible settlements of audit-related issues with taxing authorities in various jurisdictions with respect to which none of the issues are individually significant, the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax benefits will decrease by approximately $10 to $15 in the next 12 months.

 

12


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

The Company’s income and mining tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Income before income and mining tax and other items

     $ 717       $ 1,036       $ 2,310       $ 2,856  
    

 

 

     

 

 

     

 

 

     

 

 

 

Tax at statutory rate

     35   $ 251       35   $ 363       35   $ 809       35   $ 1,000  

Reconciling items:

                

Tax benefit generated on change in form of a non-U.S. subsidiary

     —          —          —          —          —          —          (2 )%      (65

Percentage depletion

     (7 )%      (53     (4 )%      (45     (7 )%      (161     (5 )%      (156

Change in valuation allowance on deferred tax assets

     3     19       4     38       3     65       1     38  

Other

     1     11       1     15       1     33       2     46  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income and mining tax expense

     32   $ 228       36   $ 371       32   $ 746       31   $ 863  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 10    DISCONTINUED OPERATIONS

Discontinued operations include Holloway Mining Company, which owned the Holt-McDermott property (“Holt property”) and was sold to St. Andrew Goldfields Ltd. (“St. Andrew”) in 2006. In 2009, the Superior Court issued a decision finding Newmont Canada Corporation (“Newmont Canada”) liable for a sliding scale royalty on production from the Holt property, which was upheld in 2011 by the Ontario Court of Appeal. During the third quarter of 2012, the Company recorded an additional $33 charge, net of tax benefits of $2, to reflect higher gold prices offset by a decrease in future expected production at the Holt property due to new resource estimates. The total charges for the first nine months of 2012 are $104, net of tax benefits of $6.

Net operating cash used in discontinued operations of $12 and $4 in the first nine months of 2012 and 2011, respectively, relate to payments on the Holt property royalty.

NOTE 11    NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Yanacocha

   $ 73      $ 94      $ 268      $ 226  

Batu Hijau

     3        85        11        251  

Other

     4        3        6        (2
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 80      $ 182      $ 285      $ 475  
  

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2012 and for all periods presented, Newmont had a 48.5% effective economic interest in PT Newmont Nusa Tenggara (“PTNNT”). PTNNT operates the Batu Hijau copper and gold mine in Indonesia. Based on ASC guidance for variable interest entities, Newmont consolidates PTNNT in its Condensed Consolidated Financial Statements.

Newmont has a 51.35% ownership interest in Minera Yanacocha S.R.L. (“Yanacocha”), with the remaining interests held by Compañia de Minas Buenaventura, S.A.A. (43.65%) and the International Finance Corporation (5%).

 

13


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 12    INCOME PER COMMON SHARE

Basic income per common share is computed by dividing income available to Newmont common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is computed similarly except that weighted average common shares is increased to reflect all dilutive instruments.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012     2011      2012     2011  

Net income attributable to Newmont stockholders

         

Continuing operations

   $ 400     $ 493      $ 1,240     $ 1,530  

Discontinued operations

     (33     —           (104     (136
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ 367     $ 493      $ 1,136     $ 1,394  
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average common shares:

         

Basic

     496       494        496       494  

Effect of employee stock-based awards

     1       2        1       1  

Effect of convertible notes

     2       8        3       7  
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

     499       504        500       502  
  

 

 

   

 

 

    

 

 

   

 

 

 

Income per common share

         

Basic:

         

Continuing operations

   $ 0.81     $ 1.00      $ 2.50     $ 3.10  

Discontinued operations

     (0.07     —           (0.21     (0.28
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ 0.74     $ 1.00      $ 2.29     $ 2.82  
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted:

         

Continuing operations

   $ 0.81     $ 0.98      $ 2.48     $ 3.05  

Discontinued operations

     (0.07     —           (0.21     (0.27
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ 0.74     $ 0.98      $ 2.27     $ 2.78  
  

 

 

   

 

 

    

 

 

   

 

 

 

Options to purchase 2 and 3 million shares of common stock at average exercise prices of $57 and $57 were outstanding at September 30, 2012 and 2011, respectively, but were not included in the computation of diluted weighted average common shares because their effect would have been anti-dilutive.

Under its convertible note indentures, Newmont is required to settle the principal amount of its 2014 and 2017 Convertible Senior Notes in cash and may elect to settle the remaining conversion premium (average share price in excess of the conversion price), if any, in cash, shares or a combination thereof. The effect of contingently convertible instruments on diluted earnings per share is calculated under the net share settlement method in accordance with ASC guidance. The average price of the Company’s common stock exceeded the conversion prices for all periods presented, resulting in additional shares included in the computation of diluted weighted average common shares.

In February 2012, the holders of the Company’s 2012 Convertible Senior Notes exercised their election to convert the notes. The Company elected to pay the $172 conversion premium with cash, and as a result no common shares were issued.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 13    CHANGES IN EQUITY

 

     Nine Months Ended
September 30,
 
     2012     2011  

Common stock:

    

At beginning of period

   $ 784     $ 778  

Stock based awards

     2       3  
  

 

 

   

 

 

 

At end of period

     786       781  
  

 

 

   

 

 

 

Additional paid-in capital:

    

At beginning of period

     8,408       8,279  

Conversion premium on convertible notes

     (172     —     

Stock based awards

     71       86  

Shares issued in exchange for exchangeable shares

     —          (1
  

 

 

   

 

 

 

At end of period

     8,307       8,364  
  

 

 

   

 

 

 

Accumulated other comprehensive income:

    

At beginning of period

     652       1,108  

Other comprehensive income

     (57     (646
  

 

 

   

 

 

 

At end of period

     595       462  
  

 

 

   

 

 

 

Retained earnings:

    

At beginning of period

     3,052       3,180  

Net income attributable to Newmont stockholders

     1,136       1,394  

Dividends paid

     (521     (321
  

 

 

   

 

 

 

At end of period

     3,667       4,253  
  

 

 

   

 

 

 

Noncontrolling interests:

    

At beginning of period

     2,875       2,371  

Net income attributable to noncontrolling interests

     285       475  

Dividends paid

     —          (2

Other comprehensive income

     1       —     
  

 

 

   

 

 

 

At end of period

     3,161       2,844  
  

 

 

   

 

 

 

Total equity

   $ 16,516     $ 16,704  
  

 

 

   

 

 

 

 

15


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 14    ACQUISITIONS

On April 6, 2011, Newmont completed the acquisition of Fronteer Gold, Inc. (“Fronteer”). Under the Arrangement, shareholders of Fronteer received C$14.00 in cash and one-fourth of a common share in Pilot Gold, which retained certain exploration assets of Fronteer, for each common share of Fronteer. In connection with the acquisition, Newmont incurred transaction costs of $22, which were recorded in Other Expense, net in the first nine months of 2011.

NOTE 15    FAIR VALUE ACCOUNTING

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1    Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2    Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3    Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

The following table sets forth the Company’s assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

     Fair Value at September 30, 2012  
     Total      Level 1      Level 2      Level 3  

Assets:

           

Cash equivalents

   $ 274      $ 274      $ —         $ —     

Marketable equity securities:

           

Extractive industries

     1,364        1,364        —           —     

Other

     8        8        —           —     

Marketable debt securities:

           

Asset backed commercial paper

     20        —           —           20  

Corporate

     8        —           8        —     

Auction rate securities

     5        —           —           5  

Trade receivable from provisional copper and gold concentrate sales, net

     237        237        —           —     

Derivative instruments, net:

           

Foreign exchange forward contracts

     256        —           256        —     

Diesel forward contracts

     5        —           5        —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,177      $ 1,883      $ 269      $ 25  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Boddington contingent consideration

     44        —           —           44  

Holt property royalty

     274        —           —           274  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 318      $ —         $ —         $ 318  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s cash equivalent instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash equivalent instruments that are valued based on quoted market prices in active markets are primarily money market securities and U.S. Treasury securities.

The Company’s marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The securities are segregated based on industry. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

The Company’s corporate marketable debt securities are valued using quoted market prices in non-active markets and as such are classified within Level 2 of the fair value hierarchy. The Company’s marketable debt securities include investments in auction rate securities and asset backed commercial paper. The Company reviews the fair value for auction rate securities and asset backed commercial paper on a quarterly basis. The auction rate securities are traded in markets that are not active, trade infrequently and have little price transparency. The Company estimated the fair value of the auction rate securities based on weighted average risk calculations using cash flow assumptions discounted approximately 42%, which reflects an estimated discount for lack of marketability. The Company estimated the fair value of its asset backed commercial paper using a probability of return ranging from 13%-74% for each class of notes, which is reflective of information reviewed regarding the separate classes of securities. As a result of utilizing the unobservable inputs noted above in its fair value estimation of the Company’s auction rate securities and asset backed commercial paper, both fair value estimates are classified within Level 3 of the fair value hierarchy.

The Company’s net trade receivable from provisional copper and gold concentrate sales, subject to final pricing, is valued using quoted market prices based on forward curves and, as such, is classified within Level 1 of the fair value hierarchy.

The Company’s derivative instruments are valued using pricing models and the Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility, and correlations of such inputs. The Company’s derivatives trade in liquid markets, and as such, model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

The estimated value of the Boddington contingent royalty was determined using a Monte Carlo valuation model which simulates future gold and copper prices and costs applicable to sales. This contingent royalty is capped at $100, and at June 30,2012, the Company increased the accrual to the maximum of $100 using the following long-term price assumptions: 1) $1,500 per ounce gold price, 2) $3.50 per pound copper price, 3) $90 per barrel of oil, and 4) a $1.00 A$/US$ exchange rate. The Company used an approximate 4% discount rate in the model. The contingent royalty liability is classified within Level 3 of the fair value hierarchy.

The estimated fair value of the Holt sliding scale royalty was determined using a Monte Carlo valuation model to simulate future gold prices utilizing a long-term gold price assumption of $1,500 per ounce, various gold production scenarios based on publicly available reserve and resource information for the Holt property and an approximate 3% weighted average discount rate. The sliding scale royalty liability is classified within Level 3 of the fair value hierarchy.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial assets and liabilities for the nine months ended September 30, 2012:

 

     Auction Rate
Securities
     Asset Backed
Commercial
Paper
     Total Assets      Boddington
Contingent
Royalty
    Holt Property
Royalty
    Total
Liabilities
 

Balance at beginning of period

   $ 5      $ 19      $ 24      $ 54     $ 176     $ 230  

Settlements

     —           —           —           (22     (12     (34

Revaluation

     —           1        1        12       110       122  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 5      $ 20      $ 25      $ 44     $ 274     $ 318  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

At September 30, 2012, assets and liabilities classified within Level 3 of the fair value hierarchy represent 1% and 100%, respectively, of total assets and liabilities measured at fair value.

NOTE 16    DERIVATIVE INSTRUMENTS

The Company’s strategy is to provide shareholders with leverage to changes in gold and copper prices by selling its production at spot market prices. Consequently, the Company does not hedge its gold and copper sales. The Company continues to manage certain risks associated with commodity input costs, interest rates and foreign currencies using the derivative market. All of the derivative instruments described below were transacted for risk management purposes and qualify as cash flow or fair value hedges.

Cash Flow Hedges

The foreign currency, diesel and forward starting swap contracts are designated as cash flow hedges, and as such, the effective portion of unrealized changes in market value have been recorded in Accumulated other comprehensive income and are reclassified to earnings during the period in which the hedged transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings.

Foreign Currency Contracts

Newmont utilizes foreign currency contracts to reduce the variability of the US dollar amount of forecasted foreign currency expenditures caused by changes in exchange rates. Newmont hedges a portion of the Company’s A$ and NZ$ denominated operating expenditures which results in a blended rate realized each period. The hedging instruments are fixed forward contracts with expiration dates ranging up to five years from the date of issue. The principal hedging objective is reduction in the volatility of realized period-on-period $/A$ and $/NZ$ rates, respectively.

In June 2011, Newmont began hedging a portion of the Company’s A$ denominated capital expenditures related to the Akyem project in Africa utilizing fixed forward contracts with expiration dates up to two years.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

In July 2011, Newmont began hedging a portion of the Company’s A$ denominated capital expenditures related to the planned construction of a mine shaft at Tanami in Australia utilizing foreign currency contracts. The hedging instruments are fixed forward contracts with expiration dates up to three years.

Newmont had the following foreign currency derivative contracts outstanding at September 30, 2012:

 

     Expected Maturity Date  
     2012     2013     2014     2015     2016     2017     Total/
Average
 

A$ Operating Fixed Forward Contracts:

              

A$ notional (millions)

     332       1,130       833       534       298       62       3,189  

Average rate ($/A$)

     0.93       0.93       0.91       0.89       0.90       0.90       0.92  

Expected hedge ratio

     84     73     53     35     19     5  

A$ Capital Fixed Forward Contracts:

              

A$ notional (millions)

     12       14       59       —          —          —          85  

Average rate ($/A$)

     0.99       0.98       0.96       —          —          —          0.97  

Expected hedge ratio

     49     87     91     —          —          —       

NZ$ Operating Fixed Forward Contracts:

              

NZ$ notional (millions)

     22       50       16       —          —          —          88  

Average rate ($/NZ$)

     0.78       0.78       0.78       —          —          —          0.78  

Expected hedge ratio

     67     41     18     —          —          —       

Diesel Fixed Forward Contracts

Newmont hedges a portion of its operating cost exposure related to diesel consumed at its Nevada operations to reduce the variability in realized diesel prices. The hedging instruments consist of a series of financially settled fixed forward contracts with expiration dates up to three years.

Newmont had the following diesel derivative contracts outstanding at September 30, 2012:

 

     Expected Maturity Date  
     2012     2013     2014     2015     Total/
Average
 

Diesel Fixed Forward Contracts:

          

Diesel gallons (millions)

     8       24       11       2       45  

Average rate ($/gallon)

     2.94       2.93       2.89       2.85       2.92  

Expected hedge ratio

     69     54     27     8  

Forward Starting Swap Contracts

During 2011, Newmont entered into forward starting interest rate swap contracts with a total notional value of $2,000. These contracts hedged movements in treasury rates related to a debt issuance that occurred in the first quarter of 2012. On March 8, 2012, Newmont closed its sale of $2,500 senior notes consisting of 3.5% senior notes due 2022 in the principal amount of $1,500 (10-year notes), and 4.875% senior notes due 2042 in the principal amount of $1,000 (30-year notes). As a result, the forward-starting interest rate swaps were settled for $362, of which $349 represented the effective portion of the hedging instrument included in Accumulated other comprehensive income. The net proceeds from the debt issuance were adjusted by the settlement amount of the swap contracts and included as a financing activity in the Condensed Consolidated Statements of Cash Flow.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

Fair Value Hedges

Interest Rate Swap Contracts

Newmont had $222 fixed to floating swap contracts designated as a hedge against 8 5/8% debentures which matured in May 2011.

Derivative Instrument Fair Values

Newmont had the following derivative instruments designated as hedges at September 30, 2012 and December 31, 2011:

 

     Fair Value  
     At September 30, 2012  
     Other
Current
Assets
     Other Long-
Term Assets
     Other
Current
Liabilities
     Other Long-
Term
Liabilities
 

Foreign currency exchange contracts:

           

A$ operating fixed forwards

   $ 109      $ 140      $ —         $ —     

A$ capital fixed forwards

     3        1        —           —     

NZ$ operating fixed forwards

     3        —           —           —     

Diesel fixed forwards

     5        1        1        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments (Note 20 and 22)

   $ 120      $ 142      $ 1      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value  
     At December 31, 2011  
     Other
Current
Assets
     Other Long-
Term Assets
     Other
Current
Liabilities
     Other Long-
Term
Liabilities
 

Foreign currency exchange contracts:

           

A$ operating fixed forwards

   $ 121        112        6        4  

A$ capital fixed forwards

     —           —           —           1  

NZ$ operating fixed forwards

     2        —           1        —     

Diesel fixed forwards

     4        —           2        1  

Forward starting interest rate swaps

     —           —           399        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments (Note 20 and 22)

   $ 127      $ 112      $ 408      $ 6  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

The following tables show the location and amount of gains (losses) reported in the Company’s Condensed Consolidated Financial Statements related to the Company’s cash flow and fair value hedges and the gains (losses) recorded for the hedged item related to the fair value hedges.

 

     Foreign Currency
Exchange Contracts
    Diesel Forward
Contracts
    Forward Starting
Swap Contracts
 
     2012      2011     2012      2011     2012     2011  

For the three months ended September 30,

              

Cash flow hedging relationships:

              

Gain (loss) recognized in other comprehensive income (effective portion) 

   $ 70      $ (263   $ 14      $ (7   $ —        $ (345

Gain (loss) reclassified from Accumulated other comprehensive income into income (effective portion) (1) 

     40        50       2        3       (3     —     

(Loss) reclassified from Accumulated other comprehensive income into income (ineffective portion) (2) 

     —           —          —           —          —          (10

For the nine months ended September 30,

              

Cash flow hedging relationships:

              

Gain (loss) recognized in other comprehensive income (effective portion) 

   $ 156      $ (70   $ 10      $ 3     $ 36     $ (356

Gain (loss) reclassified from Accumulated other comprehensive income into income (effective portion) (1) 

     125        141       6        12       (7     —     

Gain (loss) reclassified from Accumulated other comprehensive income into income (ineffective portion) (2) 

     —           —          —           —          2       (10

 

(1) 

The gain (loss) for the effective portion of the foreign exchange and diesel cash flow hedges reclassified from Accumulated other comprehensive income is included in Costs applicable to sales. The loss for the effective portion of the forward starting swaps reclassified from Accumulated other comprehensive income is included in Interest Expense.

(2)

The ineffective portion recognized for cash flow hedges is included in Other Income, net.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

      Interest Rate
Swap Contracts
      5/8% Debentures
(Hedged Portion)
 
      2012      2011     2012      2011  

For the nine months ended September 30,

          

Fair value hedging relationships:

          

Gain (loss) recognized in income (effective portion) (1) 

   $ —         $ 3     $ —         $ (6

(Loss) recognized in income (ineffective portion) (2) 

     —           (2     —           —     

 

(1)

The gain (loss) recognized for the effective portion of fair value hedges and the underlying hedged debt is included in Interest expense, net.

(2) 

The ineffective portion recognized for fair value hedges and the underlying hedged debt is included in Other income, net.

The amount to be reclassified from Accumulated other comprehensive income, net of tax to income for derivative instruments during the next 12 months is a gain of approximately $61.

Provisional Copper and Gold Sales

The Company’s provisional copper and gold sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the gold and copper concentrates at the prevailing indices’ prices at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to final settlement.

London Metal Exchange (“LME”) copper prices averaged $3.50 per pound during the three months ended September 30, 2012, compared with the Company’s recorded average provisional price of $3.53 per pound before mark-to-market adjustments and treatment and refining charges. LME copper prices averaged $3.61 per pound during the nine months ended September 30, 2012, compared with the Company’s recorded average provisional price of $3.60 per pound before mark-to-market adjustments and treatment and refining charges. During the three and nine months ended September 30, 2012, changes in copper prices resulted in a provisional pricing mark-to-market gain of $18 ($0.30 per pound) and gain of $31 ($0.19 per pound), respectively. At September 30, 2012, Newmont had copper sales of 67 million pounds priced at an average of $3.74 per pound, subject to final pricing over the next several months.

The average London P.M. fix for gold was $1,652 per ounce during the three months ended September 30, 2012, compared with the Company’s recorded average provisional price of $1,653 per ounce before mark-to-market adjustments and treatment and refining charges. The average London P.M. fix for gold was $1,652 per ounce during the nine months ended September 30, 2012, compared to the Company’s recorded average provisional price of $1,652 per ounce before mark-to-market adjustments and treatment and refining charges. During the three and nine months ended September 30, 2012, changes in gold prices resulted in a provisional pricing mark-to-market gain of $13 ($9 per ounce) and gain of $17 ($4 per ounce), respectively. At September 30, 2012, Newmont had gold sales of 87,000 ounces priced at an average of $1,777 per ounce, subject to final pricing over the next several months.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 17    INVESTMENTS

 

     At September 30, 2012  
     Cost/Equity
Basis
     Unrealized     Fair/Equity
Basis
 
        Gain      Loss    

Current:

          

Marketable Equity Securities:

          

Paladin Energy Ltd.

   $ 59      $ 8      $ —        $ 67  

Other

     14        9        (1     22  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 73      $ 17      $ (1   $ 89  
  

 

 

    

 

 

    

 

 

   

 

 

 

Long-term:

          

Marketable Debt Securities:

          

Asset backed commercial paper

   $ 26      $ —         $ (6   $ 20  

Auction rate securities

     8        —           (3     5  

Corporate

     6        2        —          8  
  

 

 

    

 

 

    

 

 

   

 

 

 
     40        2        (9     33  
  

 

 

    

 

 

    

 

 

   

 

 

 

Marketable Equity Securities:

          

Canadian Oil Sands Ltd.

     314        347        —          661  

Gabriel Resources Ltd.

     79        29        —          108  

Regis Resources Ltd.

     36        402        —          438  

Other

     59        18        (1     76  
  

 

 

    

 

 

    

 

 

   

 

 

 
     488        796        (1     1,283  
  

 

 

    

 

 

    

 

 

   

 

 

 

Other investments, at cost

     11        1        —          12  

Investment in Affiliates:

          

Minera La Zanja S.R.L.

     69        —           —          69  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 608      $ 799      $ (10   $ 1,397  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

     At December 31, 2011  
     Cost/Equity
Basis
     Unrealized     Fair/Equity
Basis
 
        Gain      Loss    

Current:

          

Marketable Equity Securities:

          

Paladin Energy Ltd.

   $ 60      $ 13      $ —        $ 73  

Other

     15        7        (1     21  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 75      $ 20      $ (1   $ 94  
  

 

 

    

 

 

    

 

 

   

 

 

 

Long-term:

          

Marketable Debt Securities:

          

Asset backed commercial paper

   $ 25      $ —         $ (6   $ 19  

Auction rate securities

     7        —           (2     5  

Corporate

     10        1        —          11  
  

 

 

    

 

 

    

 

 

   

 

 

 
     42        1        (8     35  
  

 

 

    

 

 

    

 

 

   

 

 

 

Marketable Equity Securities:

          

Canadian Oil Sands Trust

     302        401        —          703  

Gabriel Resources Ltd.

     76        236        —          312  

Regis Resources Ltd.

     36        218        —          254  

Other

     92        16        (17     91  
  

 

 

    

 

 

    

 

 

   

 

 

 
     506        871        (17     1,360  
  

 

 

    

 

 

    

 

 

   

 

 

 

Other investments, at cost

     11        —           —          11  

Investment in Affiliates:

          

Minera La Zanja S.R.L.

     66        —           —          66  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 625      $ 872      $ (25   $ 1,472  
  

 

 

    

 

 

    

 

 

   

 

 

 

Included in Investments at September 30, 2012 and December 31, 2011 are $9 and $11 of long-term marketable debt securities, respectively, and $8 and $4 of long-term marketable equity securities, respectively, that are legally pledged for purposes of settling asset retirement obligations related to the San Jose Reservoir at Yanacocha.

During the three and nine months ended September 30, 2012, the Company recognized impairments for other-than-temporary declines in value of $7 and $39 for marketable equity securities. During the third quarter of 2011, the Company recognized impairments for other-than-temporary declines in value of $148 related to its holdings of Paladin Energy Ltd. and $26 for other marketable equity securities.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

The following tables present the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by length of time that the individual securities have been in a continuous unrealized loss position:

 

     Less than 12 Months      12 Months or Greater      Total  

At September 30, 2012

   Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Marketable equity securities

   $ 7      $ 2      $ —         $ —         $ 7      $ 2  

Asset backed commercial paper

     —           —           20        6        20        6  

Auction rate securities

     —           —           5        3        5        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 7      $ 2      $ 25      $ 9      $ 32      $ 11  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 Months      12 Months or Greater      Total  

At December 31, 2011

   Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Marketable equity securities

   $ 42      $ 18      $ —         $ —         $ 42      $ 18  

Asset backed commercial paper

     —           —           19        6        19        6  

Auction rate securities

     —           —           5        2        5        2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 42      $ 18      $ 24      $ 8      $ 66      $ 26  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

While the fair values of the Company’s investments in asset backed commercial paper and auction rate securities are below their respective cost, the Company views these declines as temporary. The Company intends to hold its investment in auction rate securities and asset backed commercial paper until maturity or such time that the market recovers and therefore considers these losses temporary.

NOTE 18    INVENTORIES

 

     At September 30,
2012
     At December 31,
2011
 

In-process

   $ 122      $ 159  

Concentrate

     192        116  

Precious metals

     39        12  

Materials, supplies and other

     489        427  
  

 

 

    

 

 

 
   $ 842      $ 714  
  

 

 

    

 

 

 

NOTE 19    STOCKPILES AND ORE ON LEACH PADS

 

     At September 30,
2012
     At December 31,
2011
 

Current:

     

Stockpiles

   $ 560      $ 506  

Ore on leach pads

     160        165  
  

 

 

    

 

 

 
   $ 720      $ 671  
  

 

 

    

 

 

 

Long-term:

     

Stockpiles

   $ 2,384      $ 1,904  

Ore on leach pads

     391        367  
  

 

 

    

 

 

 
   $ 2,775      $ 2,271  
  

 

 

    

 

 

 

 

25


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

     At September 30,
2012
     At December 31,
2011
 

Stockpiles and ore on leach pads:

     

Nevada

   $ 649      $ 536  

La Herradura

     39        6  

Yanacocha

     509        512  

Boddington

     476        435  

Batu Hijau

     1,436        1,119  

Other Australia/New Zealand

     175        161  

Ahafo

     211        173  
  

 

 

    

 

 

 
   $ 3,495      $ 2,942  
  

 

 

    

 

 

 

NOTE 20    OTHER ASSETS

 

     At September 30,
2012
     At December 31,
2011
 

Other current assets:

     

Refinery metal inventory and receivable

   $ 636      $ 796  

Prepaid assets

     224        93  

Derivative instruments

     120        127  

Restricted cash

     —           20  

Note receivable

     —           12  

Other

     109        85  
  

 

 

    

 

 

 
   $ 1,089      $ 1,133  
  

 

 

    

 

 

 

Other long-term assets:

     

Goodwill

   $ 188      $ 188  

Derivative instruments

     142        112  

Intangible assets

     139        147  

Restricted cash

     98        48  

Debt issuance costs

     76        59  

Income tax receivable

     57        142  

Other receivables

     11        17  

Other

     185        144  
  

 

 

    

 

 

 
   $ 896      $ 857  
  

 

 

    

 

 

 

 

26


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(dollars in millions, except per share, per ounce and per pound amounts)

 

NOTE 21    DEBT

 

     At September 30, 2012      At December 31, 2011  
     Current      Non-Current      Current      Non-Current  

Sale-leaseback of refractory ore treatment plant

   $ 15      $ —         $ 165      $ —     

Corporate revolving credit facility

     —           —           —           33  

2012 Convertible Senior Notes, net

     —           —           514        —     

2014 Convertible Senior Notes, net