10-K 1 d10k.htm FORM 10-K Form 10-K
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UNITED STATES

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, 2003

 

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

 

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.)

1700 Lincoln Street

Denver, Colorado

  80203
(Address of Principal Executive Offices)   (Zip Code)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class


 

Name of Each Exchange on Which Registered


Common Stock, $1.60 par value   New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2003: $11,747,114,016. There were 400,563,988 shares of common stock outstanding (and 42,252,191 exchangeable shares exchangeable into Newmont Mining Corporation common stock on a one-for-one basis) on March 2, 2004.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of Registrant’s definitive Proxy Statement submitted to the Registrant’s stockholders in connection with our 2004 Annual Stockholders Meeting to be held on April 28, 2004, are incorporated by reference into Part III of this report.

 



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TABLE OF CONTENTS

 

          Page

     PART I     

ITEM 1.

   BUSINESS    1
     Introduction    1
     Segment Information, Export Sales, etc.    2
     Products    2
     Hedging Activities    5
     Merchant Banking    5
     Exploration    7
     Licenses and Concessions    7
     Condition of Physical Assets and Insurance    8
     Environmental Matters    8
     Employees    9
     Forward-Looking Statements    9
     Available Information    10

ITEM 1A.

   RISK FACTORS    10
     Risks Related to the Gold Mining Industry Generally    10
     Risks Related to Newmont Operations    12

ITEM 2.

   PROPERTIES    17
     Gold Processing Methods    17
     Newmont Properties    18
     Production Properties    18
     Operating Statistics    25
     Reconciliation of Non-GAAP Financial Measures    30
     Royalty Properties    37
     Investment Interests    38
     Proven and Probable Reserves    40

ITEM 3.

   LEGAL PROCEEDINGS    47

ITEM 4.

   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    47

ITEM 4A.

   EXECUTIVE OFFICERS OF THE REGISTRANT    48
     PART II     

ITEM 5.

   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES    50

ITEM 6.

   SELECTED FINANCIAL DATA    51

ITEM 7.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS    51
     Overview    52
     Accounting Changes    55
     Restructuring    57
     Acquisitions    57
     Critical Accounting Policies    58
     Consolidated Financial Results    70
     Results of Operations    81

 

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          Page

     Recent Accounting Pronouncements    94
     Liquidity and Capital Resources    96
     Investing Activities    100
     Financing Activities    105
     Environmental    109
     Forward-Looking Statements    110

ITEM 7A.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    110
     Metal Price    110
     Foreign Currency    110
     Hedging    111
     Fixed Rate Debt    115
     Pension and Other Benefit Plans    115

ITEM 8.

   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    116

ITEM 9.

   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE    211

ITEM 9A.

   CONTROLS AND PROCEDURES    211
     PART III     

ITEM 10.

   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT    211

ITEM 11.

   EXECUTIVE COMPENSATION    211

ITEM 12.

   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS    212

ITEM 13.

   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS    214

ITEM 14.

   PRINCIPAL ACCOUNTANT FEES AND SERVICES    214
     PART IV     

ITEM 15.

   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K    215
NUSA TENGGARA PARTNERSHIP V.O.F. CONSOLIDATED FINANCIAL STATEMENTS    NT-1
EXHIBIT INDEX    E-1

 

 

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This document (including information incorporated herein by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve a degree of risk and uncertainty due to various factors affecting Newmont Mining Corporation and our affiliates and subsidiaries. For a discussion of some of these factors, see the discussion in Item 1A, Risk Factors, of this report.

 

PART I

 

ITEM 1.    BUSINESS

 

Introduction

 

Newmont Mining Corporation is the world’s largest gold producer with significant assets or operations on five continents. We have mining operations in the United States, Australia, Peru, Indonesia, Canada, Uzbekistan, Turkey, Bolivia, New Zealand and Mexico. As of December 31, 2003, Newmont had gold reserves of 91.3 million equity ounces and an aggregate land position of approximately 60,000 square miles (155,840 square kilometers). In 2003, we obtained more than 65% of our equity gold production from politically and economically stable countries, namely the United States, Australia and Canada. Newmont is also engaged in the production of silver, copper and zinc.

 

Newmont Mining Corporation’s original predecessor corporation was incorporated in 1921 under the laws of Delaware. On February 13, 2002, at a special meeting of the stockholders of Newmont, stockholders approved adoption of an Agreement and Plan of Merger that provided for a restructuring of Newmont to facilitate the February 2002 acquisitions described below and to create a more flexible corporate structure. Newmont merged with an indirect, wholly-owned subsidiary, which resulted in Newmont becoming a wholly-owned subsidiary of a new holding company. The new holding company was renamed Newmont Mining Corporation. There was no impact to the consolidated financial statements of Newmont as a result of this restructuring and former stockholders of Newmont became stockholders of the new holding company. In this report, “Newmont,” the “Company” and “we” refer to Newmont Mining Corporation and/or our affiliates and subsidiaries.

 

On February 16, 2002, Newmont completed the acquisition of Franco-Nevada Mining Corporation Limited, a Canadian company, pursuant to a Plan of Arrangement. On February 20, 2002, Newmont gained control of Normandy Mining Limited, an Australian company, through an off-market bid for all of the ordinary shares of Normandy. On February 26, 2002, when Newmont’s off-market bid for Normandy expired, Newmont had a relevant interest in more than 96% of Normandy’s outstanding shares. Newmont exercised compulsory acquisition rights under Australian law to acquire all of the remaining shares of Normandy in April 2002. The results of operations of Normandy and Franco-Nevada have been included in this Annual Report and Newmont’s financial statements from February 16, 2002 forward.

 

In 2001, Newmont completed an acquisition of Battle Mountain Gold Company. The acquisition was accounted for as a pooling of interests and, as such, the financial statements in this report include Battle Mountain’s financial data as if Battle Mountain had always been a part of Newmont.

 

During 2002 and 2003, Newmont continued to review its asset base and operations, with the goal of achieving synergies by consolidating separately-managed assets, combining administrative and exploration staffs, achieving purchasing economies and better utilizing existing processing facilities. We also sold or disposed of lower-margin or non-core operations or interests. Although we will continue to evaluate the potential of achieving additional synergies, the review of our asset base and operations, integration of separately-managed assets and consolidation of administrative and exploration staffs is substantially complete.

 

In November 2003, Newmont completed a public offering of 25 million shares of common stock, receiving gross proceeds of approximately $1.0 billion.


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Unless explicitly stated otherwise in this report, production, ounces sold, revenue and other financial information with respect to 2001 does not include the operations or revenues of Normandy or Franco-Nevada.

 

For the years ended December 31, 2003, 2002 and 2001, Newmont had revenues of $3.21 billion, $2.66 billion and $1.67 billion, respectively. In 2003 and 2002, Newmont had net income applicable to common shares of $475.7 million and $154.3 million, respectively. In 2001, Newmont had a net loss applicable to common shares of $54.1 million.(1)

 

Newmont’s corporate headquarters are in Denver, Colorado, USA.

 

For additional information, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations.

 

Segment Information, Export Sales, etc.

 

Newmont predominantly operates in a single industry, engaged in worldwide gold production, exploration for gold and acquisition of gold properties. Newmont also has a Base Metals Segment, a Merchant Banking Segment and an Exploration Segment. See Note 26 to the Consolidated Financial Statements for information relating to our business segments, our domestic and export sales, and our customers.

 

Products

 

Gold

 

General.    Newmont sold 7.38 million equity ounces of gold in 2003 and 7.63 million equity ounces in 2002. References in this report to “equity ounces” or “equity pounds” mean that portion of gold or base metals, respectively, produced, sold, or included in proven and probable reserves that is attributable to our ownership or economic interest.

 

Approximately 39% of Newmont’s equity gold sales in 2003 came from North American operations and 61% came from overseas operations. In 2002, approximately 42% of our gold sales came from North American operations and 58% came from overseas operations. In 2003, 33% of overseas production, or 20% of total production, was attributable to Yanacocha in Peru. As of December 31, 2003, approximately 44% of our total long-lived assets were related to operations outside North America, with 23% of that total in Indonesia and 26% in Peru.

 

Most of Newmont’s revenue comes from the sale of refined gold in the international market. The end product at each of Newmont’s gold operations, however, is generally doré bars. In certain limited circumstances Newmont sells doré directly to a customer, but generally, because doré is an alloy consisting mostly of gold but also containing silver, copper and other metals, doré bars are sent to refiners to produce bullion that meets the required market standard of 99.95% pure gold. Under the terms of refining agreements, the doré bars are refined for a fee, and Newmont’s share of the refined gold and the separately-recovered silver are credited to Newmont’s account or delivered to buyers, except in the case of the doré produced from Newmont’s operation in Uzbekistan. Doré from that operation is refined locally and the refined gold is physically returned to Newmont for sale in international markets.

 

Newmont has interests in two gold refining businesses: a 40% interest in the AGR Matthey joint venture in Australia, which is one of the world’s largest gold refineries and the largest distributor into the Asian market; and a 50% interest in European Gold Refineries SA in Switzerland, which owns 100% of a gold refining business and a 66.65% interest in a gold distribution business.

 


(1)   All references to “dollars,” “U.S.$,” or “$” in this report refer to United States currency unless otherwise specified. References to “A$” are to Australian currency, “CDN$” to Canadian currency, “NZD$” to New Zealand currency and “CHF” to Swiss currency.

 

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Gold Uses.    Gold has two main categories of use—product fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and high-karat jewelry, in addition to equity in gold companies such as Newmont.

 

Gold Supply.    The worldwide supply of gold consists of a combination of new production from mining and the draw-down of existing stocks of bullion and fabricated gold held by governments, financial institutions, industrial organizations and private individuals. In recent years, mine production has accounted for 60% to 70% of the total annual supply of gold.

 

Gold Price.    The following table presents the annual high, low and average afternoon fixing prices over the past ten years, expressed in U.S. dollars, for gold per ounce on the London Bullion Market.

 

Year


   High

   Low

   Average

1994

   $ 396    $ 370    $ 384

1995

   $ 396    $ 372    $ 384

1996

   $ 415    $ 367    $ 388

1997

   $ 362    $ 283    $ 331

1998

   $ 313    $ 273    $ 294

1999

   $ 326    $ 253    $ 279

2000

   $ 313    $ 264    $ 279

2001

   $ 293    $ 256    $ 271

2002

   $ 349    $ 278    $ 310

2003

   $ 416    $ 320    $ 363

2004 (through March 8, 2004)

   $ 426    $ 391    $ 409

Source of Data: Kitco and Reuters

 

On March 8, 2004, the afternoon fixing price for gold on the London Bullion Market was $399.85 per ounce and the spot market price of gold on the New York Commodity Exchange (“Comex”) was $401.15 per ounce.

 

Newmont generally sells its gold or doré at the prevailing market prices during the month in which the gold or doré is delivered to the customer. Newmont recognizes revenue from a sale when the price is determinable, the gold or doré has been delivered, the title has been transferred to the customer and collection of the sales price is reasonably assured.

 

Copper

 

General.    At December 31, 2003, Newmont had a 56.25% economic interest (a 45% ownership interest) in the Batu Hijau mine in Indonesia, which began production in 1999. During 2003, the Batu Hijau mine sold copper/gold concentrates containing 343.4 million equity pounds of copper and 328,900 equity ounces of gold. The Batu Hijau concentrates contain approximately 31% copper and about 0.51 ounce of gold per ton. In addition, the 100% owned Golden Grove operation in Western Australia sold concentrates containing 74.3 million pounds of copper during 2003. The Golden Grove copper concentrates contain approximately 25% copper. The majority of Newmont’s production is sold under long-term contracts, and the balance on the spot market.

 

Copper Uses.    Refined copper, the final product from the treatment of concentrates, is incorporated into wire and cable products for use in the construction, electric utility, communications and transportation industries. Copper is also used in industrial equipment and machinery, consumer products and a variety of other electrical and electronic applications and is used to make brass. Copper substitutes include aluminum, plastics, stainless steel and fiber optics. Refined, or cathode, copper is also an internationally traded commodity.

 

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Copper Price.    The price of copper is quoted on the London Metal Exchange in terms of dollars per metric ton of high grade copper. Copper prices tend to be more cyclical than gold prices and are more directly affected by worldwide supply and demand. The volatility of the copper market is illustrated by the following table, which shows the dollar per pound equivalent of the high, low and average prices of high grade copper on the London Metal Exchange in each of the last ten years.

 

Year


   High

   Low

   Average

1994

   $ 1.40    $ 0.78    $ 1.05

1995

   $ 1.47    $ 1.23    $ 1.33

1996

   $ 1.29    $ 0.83    $ 1.04

1997

   $ 1.23    $ 0.77    $ 1.03

1998

   $ 0.85    $ 0.65    $ 0.75

1999

   $ 0.84    $ 0.61    $ 0.71

2000

   $ 0.91    $ 0.73    $ 0.82

2001

   $ 0.83    $ 0.60    $ 0.72

2002

   $ 0.77    $ 0.64    $ 0.71

2003

   $ 1.05    $ 0.70    $ 0.81

2004 (through March 8, 2004)

   $ 1.39    $ 1.06    $ 1.20

Source of Data: London Metal Exchange

 

On March 8, 2004, the closing spot price of high grade copper was equivalent to $1.33 per pound on the London Metal Exchange.

 

Zinc

 

General.    Newmont produces zinc, lead and copper concentrates at its Golden Grove operation in Western Australia. Golden Grove sold concentrates containing 104.7 million pounds of zinc during 2003. The Golden Grove zinc concentrates contain approximately 52% zinc.

 

Zinc Uses.    Newmont delivers and sells its zinc concentrates to major zinc smelters in Japan and Korea. The majority of the concentrates are sold under long-term “evergreen” contracts. The pricing terms of these contracts are negotiated annually. Refined zinc, the final product from the treatment of the concentrates, is primarily used for galvanizing iron and steel products such as sheet and strip steel, pipes, tubes, wire and wire rope. Other uses include the manufacture of a broad range of die-cast products and the manufacture of brass.

 

Zinc Price.    The price of zinc is quoted on the London Metal Exchange in terms of dollars per metric ton. The volatility of the zinc market is illustrated by the following table, which shows the dollar per pound equivalent of the high, low and average prices of zinc on the London Metal Exchange in each of the last ten years.

 

Year


   High

   Low

   Average

1994

   $ 0.54    $ 0.41    $ 0.45

1995

   $ 0.55    $ 0.43    $ 0.47

1996

   $ 0.50    $ 0.44    $ 0.46

1997

   $ 0.80    $ 0.47    $ 0.60

1998

   $ 0.52    $ 0.42    $ 0.46

1999

   $ 0.56    $ 0.41    $ 0.49

2000

   $ 0.58    $ 0.46    $ 0.51

2001

   $ 0.48    $ 0.33    $ 0.40

2002

   $ 0.38    $ 0.33    $ 0.35

2003

   $ 0.46    $ 0.34    $ 0.38

2004 (through March 8, 2004)

   $ 0.52    $ 0.45    $ 0.48

Source of Data: London Metal Exchange

 

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On March 8, 2004, the closing spot price of zinc on the London Metal Exchange was equivalent to $0.50 per pound.

 

Hedging Activities

 

With respect to gold, Newmont’s philosophy is to remain largely unhedged. Therefore, Newmont generally sells its gold production at market prices. Historically, Newmont has, on a limited basis, entered into derivative contracts to protect the selling price for certain anticipated gold production and to manage risks associated with commodities, interest rates and foreign currency. The hedging policy authorized by Newmont’s Board of Directors limits total gold hedging activity to 16 million ounces. Prior to the acquisitions of Normandy and Franco-Nevada, Newmont utilized forward sales contracts for a portion of the gold production from the Minahasa mine in Indonesia and from the Nevada and Canadian operations. No costs were incurred in connection with these forward sales contracts and there were no margin requirements related to these contracts.

 

At the time of Normandy’s acquisition, three of its affiliates had a substantial derivative instrument position. Those affiliates are now known as Newmont Gold Treasury (“NGT”), Newmont NFM Limited and Newmont Yandal Operations Pty Ltd (“NYOL”). Normandy’s policy was to hedge a minimum of 60% of recoverable reserves (which are generally between 80% and 95% of total reserves). Normandy utilized forward sales contracts with fixed and floating gold lease rates, but did not enter into contracts that required margin calls and had no outstanding long-dated sold call options.

 

Following the Normandy acquisition, and in accordance with our unhedged philosophy, efforts to proactively reduce and simplify the Normandy hedge positions were undertaken. The Newmont NFM and NGT gold hedge books were reduced by approximately 9.4 million ounces from February 16, 2002 to December 31, 2003. Gold forward sales contracts and other “committed hedging obligations” were reduced by 7.5 million ounces by delivering production into the contracts or through early close-outs. Similarly, uncommitted contracts for 1.9 million ounces were either delivered into, were allowed to lapse or were closed out early. Thus, as of December 31, 2003, the Newmont NFM gold hedge book has been eliminated, and the NGT gold hedge book has been reduced to zero committed ounces and 528,000 uncommitted ounces.

 

In addition, on May 28, 2003, a wholly-owned subsidiary of Newmont offered to acquire all of NYOL’s gold hedge obligations from NYOL’s counterparties. Six of seven of these counterparties accepted this offer, receiving $0.50 for each dollar of net mark-to-market liability under their individual hedge contracts, calculated as of May 22, 2003. On July 3, 2003, NYOL was placed into voluntary administration (a form of Australian insolvency proceeding). On September 10, 2003, NYOL emerged from the voluntary administration process, remaining a wholly-owned indirect subsidiary of Newmont, following acceptance by NYOL’s creditors of an offer from another Newmont subsidiary that effectively valued the assets of NYOL at more than $200 million. Acceptance of this offer by NYOL’s creditors had the effect of extinguishing NYOL’s hedge contract liability.

 

As of December 31, 2002, the mark-to-market valuation of the Normandy gold hedge positions was a negative $433 million, broken down as follows: NGT, negative $122 million; Newmont NFM, negative $23 million; and NYOL, negative $288 million. At December 31, 2003, the mark-to-market valuation of the Normandy gold hedge positions was approximately negative $12 million.

 

For additional information, see Hedging in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, and Note 15 to the Consolidated Financial Statements.

 

Merchant Banking

 

Newmont has a separate Merchant Banking business unit. Merchant Banking is a “reportable segment” for financial reporting purposes, with sub-segments relating to portfolio management (providing in-house investment banking and advisory services) and management of Newmont’s equity portfolio, royalty portfolio and downstream gold refining and distribution business.

 

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With respect to portfolio management, the Merchant Banking group helps Newmont maximize net asset value per share and increase cash flow, earnings and reserves by working with Newmont’s exploration, operations and finance teams to prioritize near-term goals within longer-term strategies. Merchant Banking is engaged in developing value optimization strategies for operating and non-operating assets, business development activities, potential merger and acquisition analysis and negotiations, monetizing inactive exploration properties, capitalizing on Newmont’s proprietary technology and know-how and acting as an internal resource for other corporate groups to improve and maximize business outcomes. In 2003, Merchant Banking completed more than 40 separate transactions. Merchant Banking was instrumental in the acquisitions of the minority interests at Tanami in Australia and Martha in New Zealand, through the Newmont NFM and Otter privatizations, and in the Ahafo project in Ghana. In 2002 and 2003, Merchant Banking advised Newmont regarding the process of extinguishing the majority of bond and derivative liabilities of NYOL. For additional information on the NYOL transactions, see Note 12 to the Consolidated Financial Statements.

 

A key aspect of portfolio management is assisting Newmont in extracting economies of scale with its partners and neighboring mines. Merchant Banking continues to evaluate district optimization opportunities in Nevada, Australia and Canada, covering a broad range of alternatives, including asset exchanges, unitization, joint ventures, partnerships, sales, spinouts and buyouts. In 2003, Merchant Banking assisted in the acquisition of a 25% interest in the Turquoise Ridge joint venture in Nevada, enabling ores from the Getchell and Turquoise Ridge mines to be processed at Newmont’s Twin Creeks Mill.

 

In early 2003, Merchant Banking was instrumental in creating the seventh largest gold company in the world by contributing its equity interest in Echo Bay Mines Ltd. and selling its interest in the TVX Newmont Americas joint venture into the newly merged Kinross Gold Corporation. Merchant Banking sold part of Newmont’s interest in Kinross in September 2003 for $225 million. The approximate fair value of Newmont’s equity portfolio was $140 million as of December 31, 2003.

 

Merchant Banking is responsible for managing Newmont’s royalty income portfolio. Royalties offer a natural hedge against lower gold prices by providing free cash flow from a diversified set of assets with limited operating, capital or environmental risk while retaining upside exposure to further exploration discoveries and reserve expansions. Merchant Banking seeks to grow Newmont’s royalty portfolio in a number of different ways, and looks for opportunities to acquire existing royalties from third parties or to create them in connection with transactions. Merchant Banking also identifies current Newmont properties or exploration targets for sale if they are incompatible with our core objectives. In the case of a sale, Merchant Banking often seeks to retain royalty or other future participation rights in addition to cash or other consideration received in the sale. Through this process, Newmont intends to continue to benefit from any discoveries made by other operators on lands on which we have a royalty, and to obtain revenues from the properties without incurring operating or capital risk.

 

In 2003, Newmont’s royalty interests generated $56.3 million in revenue. Newmont has royalty interests in Barrick Gold Corporation’s Goldstrike and Eskay Creek mines, Placer Dome’s Henty and Bald Mountain mines and Stillwater Mining’s Stillwater and East Boulder palladium-platinum mines, among others. Newmont also has a significant oil and gas royalty portfolio in western Canada. During the year, new royalties were added through property transactions and asset sales. A land lease program in Nevada is accelerating exploration of non-core lands with Newmont retaining royalties and future participation rights. For additional information regarding Newmont’s royalty portfolio, see Item 2, Properties, Royalty Properties, below.

 

Merchant Banking manages Newmont’s interests in two gold refining and product distribution businesses, AGR Matthey joint venture (“AGR”) in Australia and European Gold Refineries SA (“EGR”) in Switzerland. Newmont has a 40% interest in AGR, from which Newmont received dividends in 2003 of $2.1 million. AGR is one of the world’s largest gold refineries and is the largest distributor of gold into the Asian market. The products division markets wholesale finished jewelry and supplies the jewelry manufacturing industry throughout Australia and Asia.

 

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During 2003, Newmont acquired a 50% interest in EGR, with Swiss residents holding the remaining 50%. Simultaneously, EGR purchased 100% of a Swiss gold refinery, Valcambi SA (“Valcambi”), and 66.65% of a gold distribution business, Finorafa SA (“Finorafa”). Valcambi is a London Gold Delivery precious metals refiner and manufacturer of semi-finished products for the luxury Swiss watch industry, and Finorafa is the second largest distributor and financier of gold products for the Italian market.

 

Exploration

 

Newmont spent $115.2 million in 2003, $88.9 million in 2002 and $55.5 million in 2001 for exploration, research and development. The Exploration Segment is responsible for all activities, regardless of location, associated with the Company’s efforts to discover mineralized material (as defined in Note 2 to the Consolidated Financial Statements) that will potentially advance into proven and probable reserves. Exploration work may be conducted in areas surrounding our existing mines for the purpose of locating additional deposits and determining mine geology, and in other prospective gold regions. Our exploration teams employ state-of-the-art technology, including airborne geophysical data acquisition systems, satellite location devices and field-portable imaging systems, as well as geochemical and geological prospecting methods, to identify prospective targets.

 

As of December 31, 2003, Newmont had proven and probable reserves of 91.3 million equity ounces. As a result of exploration efforts and the assumption of a higher gold price, Newmont added 15.1 million equity ounces to proven and probable reserves in 2003, with 8.8 million ounces being depleted from mining.

 

In Nevada, Newmont added approximately 6 million equity ounces, before depletion of 3.0 million equity ounces from mining, for year-end 2003 proven and probable reserves of 33.7 million equity ounces.

 

In Peru, exploration at Yanacocha focused on defining surface and covered oxide mineralization in the La Quinua basin including the prospective Corimayo deposit, which was brought into reserves in 2002. Exploration work also continued to further define mineralized sulfide material below several oxide deposits. In 2003, 1.5 million equity ounces were added to proven and probable reserves, and 2.0 million equity ounces were depleted from mining, for year-end proven and probable reserves of 16.3 million equity ounces.

 

In Australia, the Company added 738,000 equity ounces of proven and probable reserves at Kalgoorlie and 222,000 ounces at Pajingo. These additions, plus the increase in ownership at Tanami to 100%, helped offset depletion of 2.0 million equity ounces, for year-end 2003 Australian proven and reserves of 16.2 million equity ounces.

 

At Batu Hijau, positive exploration and mine optimization efforts resulted in proven and probable reserves of 6.3 billion equity pounds of copper and 7.1 million equity ounces of gold as of December 31, 2003, despite depletion of 492 million equity pounds of copper and 442,000 equity ounces of gold.

 

In addition to reserve additions at our core operations, exploration and mine development efforts in 2003 focused on two projects in Ghana, Ahafo and Akyem, nearly doubling the prior year’s reserves. As of December 31, 2003, the Company reported reserves of 7.6 million ounces at Ahafo and 4.3 million equity ounces at Akyem.

 

For additional information, see Item 2, Properties, Proven and Probable Reserves.

 

Licenses and Concessions

 

Other than operating licenses for our mining and processing facilities, there are no third party patents, licenses or franchises material to Newmont’s business. In many countries, however, we conduct our mining and exploration activities pursuant to concessions granted by, or under contract with, the host government. These countries include, among others, Australia, Bolivia, Ghana, Indonesia, Peru, Mexico, Turkey and Uzbekistan. The concessions and contracts are subject to the political risks associated with foreign operations. See Item 1A, Risk Factors, Risks Related to Newmont Operations, below. For a more detailed description of our Indonesian Contracts of Work, see Item 2, Properties, below.

 

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Condition of Physical Assets and Insurance

 

Our business is capital intensive, requiring ongoing capital investment for the replacement, modernization or expansion of equipment and facilities. For more information, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Liquidity and Capital Resources, below.

 

We maintain insurance against property loss and business interruption and insure against risks that are typical in the operation of our business, in amounts that we believe to be reasonable. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. There can be no assurance that claims would be paid under such insurance in connection with a particular event. See Item 1A, Risk Factors, Risks Related to Newmont Operations, below.

 

Environmental Matters

 

Newmont’s United States mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment, including the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Endangered Species Act; the Federal Land Policy and Management Act; the National Environmental Policy Act; the Resource Conservation and Recovery Act; and related state laws. These laws and regulations are continually changing and are generally becoming more restrictive. Newmont’s activities outside the United States are also subject to governmental regulations for the protection of the environment. In general, environmental regulations have not had, and are not expected to have, a material adverse impact on Newmont’s operations or our competitive position.

 

We conduct our operations so as to protect the public health and environment and believe our operations are in compliance with all applicable laws and regulations. Each operating Newmont mine has a reclamation plan in place that meets all applicable legal and regulatory requirements. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements. At December 31, 2003, $361.0 million was accrued for reclamation costs relating to currently producing mineral properties.

 

Newmont also 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. We believe 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 activities required to meet general environmental standards. Based upon our best estimate of our liability for these matters, $58.6 million was accrued as of December 31, 2003 for such obligations associated with properties previously owned or operated by Newmont or our subsidiaries. These amounts are included in Other current liabilities and Reclamation and remediation liabilities. Depending upon the ultimate resolution of these matters, we believe that it is reasonably possible that the liability for these matters could be as much as 54% greater or 41% lower than the amount accrued as of December 31, 2003. The amounts accrued for these matters are reviewed periodically based upon facts and circumstances available at the time. Changes in estimates are charged to costs and expenses in the period estimates are revised.

 

For a discussion of the most significant reclamation and remediation activities, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, and Note 27 to the Consolidated Financial Statements, below.

 

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Employees

 

There were approximately 13,400 people employed by Newmont and our affiliates worldwide at December 31, 2003, and approximately 13,200 people employed by Newmont and our affiliates worldwide at December 31, 2002.

 

Forward-Looking Statements

 

Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided for under these sections. Our forward-looking statements include, without limitation:

 

    statements regarding future earnings, and the sensitivity of earnings to gold and other metal prices;

 

    estimates of future mineral production and sales for specific operations and on a consolidated basis;

 

    estimates of future production costs and other expenses, for specific operations and on a consolidated basis;

 

    estimates of future cash flows and the sensitivity of cash flows to gold and other metal prices;

 

    estimates of future capital expenditures and other cash needs for specific operations and on a consolidated basis and expectations as to the funding thereof;

 

    statements as to the projected development of certain ore deposits, including estimates of development and other capital costs, financing plans for these deposits, and expected production commencement dates;

 

    estimates of future costs and other liabilities for certain environmental matters;

 

    estimates of reserves, and statements regarding future exploration results and reserve replacement;

 

    statements regarding modifications to Newmont’s hedge positions;

 

    statements regarding future transactions relating to portfolio management or rationalization efforts;

 

    estimates regarding timing of future capital expenditures, production or closure activities; and

 

    projected synergies and costs associated with acquisitions and related matters.

 

Where we express 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, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. Such risks include, but are not limited to: the price of gold and copper; currency fluctuations; geological and metallurgical assumptions; operating performance of equipment, processes and facilities; labor relations; timing of receipt of necessary governmental permits or approvals; domestic and foreign laws or regulations, particularly relating to the environment and mining; domestic and international economic and political conditions; the ability of Newmont to obtain or maintain necessary financing; and other risks and hazards associated with mining operations. More detailed information regarding these factors is included in Item 1, Business, Item 1A, Risk Factors, and elsewhere throughout this report. Given these uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.

 

All subsequent written and oral forward-looking statements attributable to Newmont or to persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Newmont disclaims any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

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Available Information

 

Newmont maintains an internet web site at www.newmont.com. Newmont makes available, free of charge, through the Investor Information section of the web site, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Newmont has provided same day access to such reports through its web site since November 15, 2002. Newmont’s Corporate Governance Guidelines, the charters of key committees of its Board of Directors and its Code of Business Ethics and Conduct are also available on the web site. Any of the foregoing information is available in print to any stockholder who requests it by contacting Newmont’s Investor Relations Department.

 

ITEM 1A.    RISK FACTORS

 

Every investor or potential investor in Newmont should carefully consider the following risks, which have been separated into two groups:

 

    risks related to the gold mining industry generally; and

 

    risks related to Newmont’s operations.

 

Risks Related to the Gold Mining Industry Generally

 

A Substantial or Extended Decline in Gold Prices Would Have a Material Adverse Effect on Newmont

 

Newmont’s business is extremely dependent on the price of gold, which is affected by numerous factors beyond Newmont’s control. Factors tending to put downward pressure on the price of gold include:

 

    sales or leasing of gold by governments and central banks;

 

    a strong U.S. dollar;

 

    global and regional recession or reduced economic activity;

 

    speculative trading;

 

    decreased demand for gold for industrial uses, use in jewelry and investment;

 

    high supply of gold from production, disinvestment, scrap and hedging;

 

    sales by gold producers in forward transactions and other hedging transactions; and

 

    devaluing local currencies (relative to gold priced in U.S. dollars) leading to lower production costs and higher production in certain major gold-producing regions.

 

Any drop in the price of gold adversely impacts our revenues, profits and cash flows, particularly in light of our unhedged philosophy. Newmont has recorded asset write-downs in recent years as a result of a sustained period of low gold prices. Newmont may experience additional asset impairment as a result of low gold prices in the future.

 

In addition, sustained low gold prices can:

 

    reduce revenues further through production cutbacks due to cessation of the mining of deposits or portions of deposits that have become uneconomic at the then-prevailing gold price;

 

    halt or delay the development of new projects;

 

    reduce funds available for exploration, with the result that depleted reserves are not replaced; and

 

    reduce existing reserves, by removing ores from reserves that cannot be economically mined or treated at prevailing prices.

 

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Also see the discussion in Item 1, Business, Gold Price.

 

Gold Producers Must Continually Obtain Additional Reserves

 

Gold producers must continually replace gold reserves depleted by production. Depleted reserves must be replaced by expanding known ore bodies or by locating new deposits in order for gold producers to maintain production levels over the long term. Gold exploration is highly speculative in nature, involves many risks and frequently is unproductive. No assurances can be given that any of our new or ongoing exploration programs will result in new mineral producing operations. Once mineralization is discovered, it may take many years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change.

 

Estimates of Proven and Probable Reserves Are Uncertain

 

Estimates of proven and probable reserves are subject to considerable uncertainty. Such estimates are, to a large extent, based on interpretations of geologic data obtained from drill holes and other sampling techniques. Gold producers use feasibility studies to derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the predicted configuration of the ore body, expected recovery rates of metals from the ore, comparable facility, equipment, and operating costs, and other factors. Actual cash operating costs and economic returns on projects may differ significantly from original estimates. Further, it may take many years from the initial phase of drilling before production is possible and, during that time, the economic feasibility of exploiting a discovery may change.

 

Increased Costs Could Affect Profitability

 

Cash costs at any particular mining location frequently are subject to great variation from one year to the next due to a number of factors, such as changing ore grade, metallurgy and revisions to mine plans in response to the physical shape and location of the ore body. In addition, cash costs are affected by the price of commodities such as fuel and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. A material increase in costs at any one location could have a significant effect on Newmont’s profitability.

 

Mining Accidents or Other Adverse Events at a Mining Location Could Reduce Our Production Levels

 

At any of Newmont’s operations, production may fall below historic or estimated levels as a result of mining accidents such as a pit wall failure in an open pit mine, or cave-ins or flooding at underground mines. In addition, production may be unexpectedly reduced at a location if, during the course of mining, unfavorable ground conditions or seismic activity are encountered; ore grades are lower than expected; the physical or metallurgical characteristics of the ore are less amenable to mining or treatment than expected; or our equipment, processes or facilities fail to operate properly or as expected.

 

Currency Fluctuations May Affect the Costs that Newmont Incurs

 

Currency fluctuations may affect the costs that we incur at our operations. Gold is sold throughout the world based principally on the U.S. dollar price, but a portion of Newmont’s operating expenses are incurred in local currencies. The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the costs of gold production in U.S. dollar terms at mines located outside the United States, making such mines less profitable. The currencies that primarily impact Newmont’s results of operations are the Australian and Canadian dollars.

 

During 2003, the Australian and Canadian dollars strengthened by an average of 17% and 11%, respectively, against the U.S. dollar. This increased U.S. dollar reported operating costs in Australia and Canada by approximately $76.2 million and $7.6 million, respectively. For additional information, see Item 7,

 

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Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Results of Operations, Foreign Currency Exchange Rates, below. For a more detailed description of how currency exchange rates may affect costs, see discussion in Foreign Currency in Item 7A, Quantitative and Qualitative Disclosures About Market Risk.

 

Gold Mining Companies Are Subject to Extensive Environmental Laws and Regulations

 

Newmont’s exploration, mining and processing operations are regulated in all countries in which we operate under various federal, state, provincial and local laws relating to the protection of the environment, which generally include air and water quality, hazardous waste management and reclamation. Delays in obtaining or failure to obtain government permits and approvals may adversely impact our operations. The regulatory environment in which Newmont operates could change in ways that would substantially increase costs to achieve compliance. In addition, significant changes in regulation could have a material adverse effect on Newmont’s operations or financial position. For a more detailed discussion of potential environmental liabilities, see the discussion in Environmental Matters, Note 27 to the Consolidated Financial Statements.

 

Risks Related to Newmont Operations

 

Our Operations Outside North America and Australia Are Subject to Risks of Doing Business Abroad

 

Exploration, development and production activities outside of North America and Australia are potentially subject to political and economic risks, including:

 

    cancellation or renegotiation of contracts;

 

    disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act;

 

    changes in foreign laws or regulations;

 

    royalty and tax increases or claims by governmental entities, including retroactive claims;

 

    expropriation or nationalization of property;

 

    currency fluctuations (particularly in countries with high inflation);

 

    foreign exchange controls;

 

    restrictions on the ability of local operating companies to sell gold offshore for U.S. dollars, and on the ability of such companies to hold U.S. dollars or other foreign currencies in offshore bank accounts;

 

    import and export regulations, including restrictions on the export of gold;

 

    restrictions on the ability to pay dividends offshore;

 

    risk of loss due to civil strife, acts of war, guerrilla activities, insurrection and terrorism;

 

    risk of loss due to disease and other potential endemic health issues; and

 

    other risks arising out of foreign sovereignty over the areas in which our operations are conducted.

 

Consequently, Newmont’s exploration, development and production activities outside of North America and Australia may be substantially affected by factors beyond Newmont’s control, any of which could materially adversely affect Newmont’s financial position or results of operations. Furthermore, in the event of a dispute arising from such activities, Newmont may be subject to the exclusive jurisdiction of courts outside North America or Australia, which could adversely affect the outcome of a dispute.

 

 

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Newmont has substantial investments in Indonesia, a nation that since 1997 has undergone financial crises and devaluation of its currency, outbreaks of political and religious violence, changes in national leadership, and the secession of East Timor, one of its former provinces. Despite democratic elections in 1999, a change in government occurred in late July 2001, and civil unrest, independence movements and tensions between the civilian government and the military continue. The presidential election occurring in 2004 could lead to increased instability. These factors heighten the risk of abrupt changes in the national policy toward foreign investors, which in turn could result in unilateral modification of concessions or contracts, increased taxation, or expropriation of assets. If this were to occur with respect to Newmont’s Indonesian Contracts of Work, Newmont’s financial condition and results of operations could be materially adversely affected. For additional information, see Note 10 to the Consolidated Financial Statements.

 

During the last several years, Minera Yanacocha, of which Newmont owns a 51.35% interest, has been the target of numerous local political protests, including ones that blocked the road between the Yanacocha mine complex and the city of Cajamarca in Peru. We cannot predict whether these incidents will continue, nor can we predict the government’s continuing positions on foreign investment, mining concessions, land tenure, environmental regulation or taxation. The continuation or intensification of protests or a change in prior governmental positions could adversely affect operations in Peru.

 

Recent violence committed by radical elements in Indonesia and other countries, and the presence of U.S. forces in Iraq and Afghanistan, may increase the risk that operations owned by U.S. companies will be the target of further violence. If any of Newmont’s operations were so targeted it could have an adverse effect on our business.

 

Our Success May Depend on Our Social and Environmental Performance

 

Newmont’s ability to operate successfully in communities around the world will likely depend on our ability to develop, operate and close mines in a manner that is consistent with the health and safety of our employees, the protection of the environment, and the creation of long-term economic and social opportunities in the communities in which we operate. Newmont has implemented a management system designed to promote continuous improvement in health and safety, environmental performance and community relations. However, our ability to operate may be adversely impacted by accidents or events detrimental (or perceived to be detrimental) to the health and safety of our employees or the communities in which we operate.

 

Remediation Costs for Environmental Liabilities May Exceed the Provisions We Have Made

 

Newmont has conducted extensive remediation work at two inactive sites in the United States. At one of these sites, remediation requirements have not been finally determined, and, therefore, the final cost cannot be determined. At a third site in the United States, an inactive uranium mine and mill formerly operated by a subsidiary of Newmont, remediation work at the mill is ongoing, but remediation at the mine is subject to dispute and has not yet commenced. The environmental standards that may ultimately be imposed at this site as a whole remain uncertain and there is a risk that the costs of remediation may exceed the provision Newmont’s subsidiary has made for such remediation by a material amount.

 

Whenever a previously unrecognized remediation liability becomes known or a previously estimated cost is increased, the amount of that liability or additional cost is expensed and this can materially reduce net income in that period.

 

The Use of Hedging Instruments May Prevent Gains Being Realized from Subsequent Price Increases

 

Consistent with Newmont’s unhedged philosophy, Newmont does not intend to enter into new material gold hedging positions and intends to continue to decrease hedge positions over time by opportunistically delivering gold into our existing hedge contracts, or by seeking to eliminate our hedge position when economically attractive. Nonetheless, Newmont currently has gold hedging positions and may, from time-to-time, enter into

 

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hedge contracts for other metals. If the gold or other metal price rises above the price at which future production has been committed under these hedge instruments, Newmont will have an opportunity loss. However, if the gold or other metal price falls below that committed price, Newmont’s revenues will be protected to the extent of such committed production. In addition, we may experience losses if a hedge counterparty defaults under a contract when the contract price exceeds the gold or other metal price.

 

For a more detailed description of the Newmont hedge positions, see the discussion in Hedging in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, and Note 15 to the Consolidated Financial Statements, below.

 

Our Level of Indebtedness May Affect Our Business

 

As of December 31, 2003, Newmont had debt of $1.1 billion, as compared to $1.8 billion as of December 31, 2002. Although Newmont was successful in reducing debt during 2003, there can be no assurance that it can continue to do so. Our level of indebtedness could have important consequences for our operations, including:

 

    Newmont may need to use a large portion of its cash flow to repay principal and pay interest on our debt, which will reduce the amount of funds available to finance our operations and other business activities;

 

    Newmont’s debt level may make us vulnerable to economic downturns and adverse developments in Newmont’s businesses and markets; and

 

    Newmont’s debt level may limit our ability to pursue other business opportunities, borrow money for operations or capital expenditures in the future or implement our business strategy.

 

Newmont expects to obtain the funds to pay our expenses and to pay principal and interest on our debt by utilizing cash flow from operations. Newmont’s ability to meet these payment obligations will depend on our future financial performance, which will be affected by financial, business, economic and other factors. Newmont will not be able to control many of these factors, such as economic conditions in the markets in which Newmont operates. Newmont cannot be certain that our future cash flow from operations will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations. If cash flow from operations is insufficient, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or issue additional equity. We cannot be sure that we will be able to do so on commercially reasonable terms, if at all.

 

Occurrence of Events for Which We Are Not Insured May Affect Our Cash Flow and Overall Profitability

 

We maintain insurance to protect ourselves against certain risks related to our operations. This insurance is maintained in amounts that we believe to be reasonable depending upon the circumstances surrounding each identified risk. However, Newmont may elect not to have insurance for certain risks because of the high premiums associated with insuring those risks or for various other reasons; in other cases, insurance may not be available for certain risks. Some concern always exists with respect to investments in parts of the world where civil unrest, war, nationalist movements, political violence or economic crisis are possible. These countries may also pose heightened risks of expropriation of assets, business interruption, increased taxation and a unilateral modification of concessions and contracts. Newmont does not maintain insurance against political risk. Occurrence of events for which Newmont is not insured may affect our cash flow and overall profitability.

 

Our Business Depends on Good Relations with Our Employees

 

Newmont may experience labor disputes, work stoppages or other disruptions in production that could adversely affect us. At December 31, 2003, unions represented approximately 23% of our worldwide work force. On that date, Newmont had 1,009 employees at its Carlin, Nevada operations, 191 employees in Canada at its

 

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Golden Giant operations, 3,150 employees in Indonesia at its Batu Hijau operations, 39 employees in New Zealand at its Martha operation, 169 employees in Bolivia at its Kori Kollo operation, 265 employees in Australia at its Golden Grove, Mt. Leyshon and Kalgoorlie operations, 390 employees in Peru at its Yanachocha operation, and 299 employees in Turkey at its Ovacik operation, working under a collective bargaining agreement or similar labor agreement. Currently there are labor agreements in effect for all of these workers.

 

Our Earnings Could Be Affected by the Prices of Other Commodities

 

The revenues and earnings of Newmont also could be affected by the prices of other commodities such as copper and zinc, although to a lesser extent than by the price of gold. The prices of copper and zinc are affected by numerous factors beyond Newmont’s control. For more information, see Item 1, Products, Copper and Zinc, above, and Item 2, Properties, below.

 

Title to Some of Our Properties May Be Defective or Challenged

 

Although we have conducted title reviews of our properties, title review does not necessarily preclude third parties from challenging our title. While Newmont believes that it has satisfactory title to its properties, some risk exists that some titles may be defective or subject to challenge. In addition, certain of our Australian properties could be subject to native title or traditional landowner claims, but such claims would not deprive us of the properties. For information regarding native title or traditional landowner claims, see the discussion under the Australia section of Item 2, Properties, below.

 

We Compete With Other Mining Companies

 

We compete with other mining companies to attract and retain key executives and other employees with technical skills and experience in the mining industry. We also compete with other mining companies for rights to mine properties containing gold and other minerals. There can be no assurance that Newmont will continue to attract and retain skilled and experienced employees, or to acquire additional rights to mine properties.

 

Newmont’s Anti-Takeover Provisions Could Limit Amounts Offered in a Takeover

 

Article Ninth of our certificate of incorporation and our shareholder rights plan may make it more difficult for various corporations, entities or persons to acquire control of us or to remove management. Article Ninth of our certificate of incorporation requires us to obtain the approval of holders of 80% of all classes of our capital stock who are entitled to vote in the election of directors, voting together as one class, to enter into certain types of transactions generally associated with takeovers, unless our Board of Directors approves the transaction before the other corporation, entity or person acquires 10% or more of our outstanding shares. In addition, we also have a shareholder rights plan, pursuant to which each share of our common stock also evidences one preferred share purchase right. The shareholder rights plan, in effect, imposes a significant penalty upon any person or group that acquires 15% or more of our outstanding common stock without the approval of the Board. While the anti-takeover provisions in our certificate of incorporation and our shareholder rights plan protect stockholders from coercive or otherwise unfair takeover tactics, they may also limit the premium over market price available to holders of common stock in a takeover situation.

 

Certain Factors Outside of Our Control May Affect Our Ability to Support the Carrying Value of Goodwill

 

At December 31, 2003, the carrying value of our goodwill was approximately $3.0 billion or 28% of our total assets. Such goodwill has been assigned to our Merchant Banking ($1,594 million) and Exploration ($1,130 million) Segments, and to various mine site reporting units ($320 million in the aggregate). As further described in Note 3 to the Consolidated Financial Statements, this goodwill primarily arose in connection with

 

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our February 15, 2002 acquisitions of Normandy and Franco-Nevada, and it represents the excess of the aggregate purchase price for those companies over the fair value of the identifiable net assets of Normandy and Franco-Nevada. Such goodwill was assigned to reporting units based on independent appraisals performed by Behre Dolbear and Company, Inc., an independent consulting and valuation firm (“Behre Dolbear”). We evaluate, on at least an annual basis, the carrying amount of goodwill to determine whether current events and circumstances indicate that such carrying amount may no longer be recoverable. This evaluation involves a comparison of the fair value of our reporting units to their carrying values.

 

Based on a valuation prepared by an independent valuation firm, the Company concluded that the fair values of the Merchant Banking and Exploration Segments as of December 31, 2003 significantly exceeded their respective carrying values. The fair values of the reporting units are based in part on certain factors that may be partially or completely outside of our control, such as the investing environment, the discovery of proven and probable reserves, commodity prices and other factors. In addition, certain of the assumptions underlying the December 31, 2003 Merchant Banking and Exploration valuations may not be easily achieved by the Company, even though such assumptions were based on historical experience and the Company considers such assumptions to be reasonable under the circumstances.

 

The fair value of the Company’s equity portfolio at December 31, 2002 was approximately $310 million. During 2003, the Company did not make any substantial new additions to the equity portfolio but did sell a substantial proportion of its investment in Kinross, which represented the majority of value of the equity portfolio at the time of sale. As discussed below, the December 31, 2003 discounted cash flow analysis for the equity portfolio sub-segment of the Merchant Banking Segment assumed an initial equity portfolio of approximately $140 million (approximate fair value of equity portfolio at December 31, 2003) and capital infusions of $120 million annually for the next three fiscal years. The assumed capital infusions are necessary to bring the equity portfolio to a level necessary to support the carrying value of the Merchant Banking Segment. The Company has both the ability and intention to meet these funding requirements, but no assurance can be given that it will be successful in this regard.

 

To perform its December 31, 2003 impairment testing, the Company revised the financial model used to support the valuation of the Merchant Banking Segment to take into account the evolving activities and objectives of the Merchant Banking Segment and to recognize the reduced investment level of the equity portfolio. Assumptions applicable to the equity portfolio sub-segment of the Merchant Banking Segment financial model included: (i) a discount rate of 9%; (ii) a time horizon of ten years; (iii) pre-tax returns on investment ranging from 35% starting in 2004 and gradually declining to 15% in 2011 through 2013; (iv) an initial equity portfolio investment of approximately $140 million; (v) capital infusions of $120 million annually for the next three fiscal years; and (vi) a terminal value of approximately $1.5 billion. With respect to the royalty portfolio sub-segment of the Merchant Banking Segment, such assumptions included: (i) a discount rate of 9%; (ii) a time horizon of ten years; (iii) an annual growth rate of 5% in the royalty portfolio; and (iv) a pre-tax rate of return on investment of 13%. With respect to the portfolio management sub-segment of the Merchant Banking Segment, such assumptions included: (i) a discount rate of 9%; (ii) a time horizon of ten years; and (iii) a pre-tax advisory fee of 5% on approximately $500 million of transactions and value-added activities in 2004, with the dollar amounts of such transactions and activities increasing by 5% annually thereafter. With respect to the downstream gold refining sub-segment of the Merchant Banking Segment, such assumptions included: (i) a discount rate of 9%; (ii) a time horizon of ten years; and (iii) a pre-tax annual return on investments of $4.2 million. The valuation analysis assumed a combined terminal value for the royalty portfolio, portfolio management and downstream gold refining sub-segments of approximately $900 million.

 

To perform its December 31, 2003 Exploration Segment impairment testing, the Company reviewed the segment’s performance during 2003 and prior years in generating additions to proven and probable reserves. Based on this review, the Company revised the financial model used to support the valuation of the Exploration Segment. The Exploration Segment financial model assumed the following: (i) the Exploration Segment would be responsible for adding 7.9 million ounces to proven and probable reserves in year one of

 

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the discount period; (ii) such additions would increase by 5% annually; and (iii) approximately 64%, 61%, 58% and 20% of additions in years 2004, 2005, 2006 and 2007 would represent ounces that had previously been valued in the Normandy purchase accounting. In addition, the discounted cash flow model for the Exploration Segment assumed, among other matters: (i) a sixteen-year time horizon, including a six-year time lapse between discovery and the initiation of production and a five-year production period; (ii) a 9% discount rate; (iii) a terminal value of approximately $3.9 billion; (iv) an average gold price of $360 per ounce during the time horizon; (v) cash operating costs per ounce produced of $201; and (vi) capital costs per ounce of $50.

 

In the absence of any mitigating valuation factors, the Company’s failure to achieve one or more of the December 31, 2003 valuation assumptions will over time result in an impairment charge. Accordingly, no assurance can be given that significant non-cash impairment losses will not be recorded in the future due to possible declines in the fair values of our reporting units. For a more detailed description of the estimates and assumptions involved in assessing the recoverability of the carrying value of goodwill, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Critical Accounting Policies, below.

 

ITEM 2.    PROPERTIES

 

Gold Processing Methods

 

Gold is extracted from naturally-oxidized ores by either heap leaching or milling, depending on the amount of gold contained in the ore and the amenability of the ore to treatment. Gold contained in ores that are not naturally oxidized can be directly milled if the gold is amenable to cyanidization, generally known as free milling ores. Ores that are not amenable to cyanidization, known as refractory ores, require more costly and complex processing techniques than oxide or free milling ore. Higher-grade refractory ores are processed through either roasters or autoclaves. Roasters heat finely ground ore with air and oxygen to a high temperature, burn off the carbon and oxidize the sulfide minerals that prevent efficient leaching. Autoclaves use heat, oxygen and pressure to oxidize sulfide minerals in the ore.

 

Some gold-bearing sulfide ores may be processed through a flotation plant or by bio-milling. In flotation, ore is finely ground, turned into slurry, then placed in a tank known as a flotation cell. Chemicals are added to the slurry causing the gold-containing sulfides to float in air bubbles to the top of the tank, where they can be separated from waste particles that sink to the bottom. The sulfides are removed from the cell and converted into a concentrate that can then be processed in an autoclave or roaster to recover the gold. Bio-milling incorporates patented technology that involves inoculation of suitable crushed ore on a leach pad with naturally occurring bacteria strains, which oxidize the sulfides over a period of time. The ore is then processed through an oxide mill.

 

Higher-grade oxide ores are processed through mills, where the ore is ground into a fine powder and mixed with water in slurry, which then passes through a cyanide leaching circuit. Lower grade oxide ores are processed using heap leaching. Heap leaching consists of stacking crushed or run-of-mine ore on impermeable pads, where a weak cyanide solution is applied to the top surface of the heaps to dissolve the gold. In both cases, the gold-bearing solution is then collected and pumped to facilities to remove the gold by collection on carbon or by zinc precipitation directly from leach solutions.

 

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Newmont Properties

 

LOGO

 

Production Properties

 

Set forth below is a description of the significant production properties of Newmont and its subsidiaries. Total cash costs and total production costs for each operation are presented in a table in the next section of this Item 2. Total cash costs and total production costs represent measures of performance that are not calculated in accordance with generally accepted accounting principles (“GAAP”). Management uses these non-GAAP financial measures to analyze the cash generating capacities and performance of Newmont’s mining operations. For a reconciliation of these non-GAAP measures to Costs Applicable to Sales as calculated and presented under GAAP, see Item 2, Properties, Operating Statistics.

 

North America

 

Nevada.    Newmont has been mining gold in Nevada since 1965. Newmont’s Nevada operations include Carlin, located west of Elko on the geologic feature known as the Carlin Trend, and the Winnemucca Region, located 80 miles (129 kilometers) to the west of Carlin. The Carlin Trend is the largest gold district discovered in North America in the last 50 years. The Winnemucca Region includes the Twin Creeks mine located near Winnemucca, the Lone Tree Complex located near Battle Mountain, and the Battle Mountain Complex, near Battle Mountain, where a large gold/copper deposit known as Phoenix is under development. Our Nevada operations also include the Midas underground mine, acquired in February 2002.

 

Gold sales from Newmont’s Nevada operations totaled approximately 2.5 million equity ounces for 2003. Ore was mined from 12 open pit deposits and five underground mines in 2003. Production began in 2003 at Section 30 at Twin Creeks and at the Gold Quarry South Layback on the Carlin Trend. Underground mine development is expected to continue in 2004 at the Leeville underground mine, with annual gold production of approximately 500,000 ounces expected to commence in late 2005. At the Phoenix project, full-scale annual production is expected to be between 400,000 to 450,000 ounces of gold and 18 to 20 million pounds of copper and is scheduled to begin in mid-2006.

 

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Newmont’s operations in Nevada have a number of different ore types and processing techniques. Newmont has developed a linear programming model to determine the best mix of ore types for each processing facility in order to optimize the value of the ore deposits. Approximately 71% of Newmont’s 2003 year-end proven and probable gold reserves in Nevada are refractory and the remainder are oxide. Refractory ores require more complex, higher cost processing methods. Refractory ore treatment facilities generated 71% of Nevada’s gold production in 2003, compared with 66% in 2002, and 65% in 2001. In 2004, the percentage of production from refractory treatment facilities is expected to be approximately 66% of Nevada’s gold production, as ore is processed from two new, predominantly oxide, ore laybacks at Gold Quarry and Twin Creeks. Over the next several years, however, the percentage of production from refractory treatment facilities is expected to increase.

 

Higher-grade oxide ores are processed at one oxide mill at Carlin, one at Twin Creeks and one at Lone Tree. Lower-grade oxide ores are processed using heap leaching. Higher-grade refractory ores are processed through either a roaster at Carlin or through autoclaves at Twin Creeks and Lone Tree. Lower-grade sulfide ores are processed through a flotation plant at Lone Tree and through bio-milling at Mill 5. Ore from the Midas mine is processed by conventional milling and Merrill-Crowe zinc precipitation. Gold-bearing activated carbon from Carlin’s milling and leaching facilities is processed on-site at a central carbon processing plant and adjacent refining facilities. Loaded carbon from the Twin Creeks and Lone Tree mines is processed at the Twin Creeks refinery. Zinc precipitate at Midas is refined on site.

 

Newmont owns, or controls through long-term mining leases and unpatented mining claims, all of the minerals and surface area within the boundaries of the present Carlin, Winnemucca Region and Midas mining operations (except for Turquoise Ridge and Getchell described below). The long-term leases extend for at least the anticipated mine life of those deposits. With respect to a significant portion of the Gold Quarry mine at Carlin, Newmont owns a 10% undivided interest in the mineral rights and leases the remaining 90%, on which Newmont pays a royalty equivalent to 18% of the mineral production. The remainder of the Gold Quarry mineral rights are wholly-owned or controlled by Newmont, in some cases subject to additional royalties. With respect to certain smaller deposits in the Winnemucca Region, Newmont is obligated to pay royalties on production to third parties that vary from 2% to 5% of production.

 

In 2003, Newmont formed a joint venture with a subsidiary of Placer Dome Inc. under which Newmont acquired a 25% interest in the Turquoise Ridge and Getchell mines, in return for providing up to 2,000 tons per day of milling capacity at Newmont’s Twin Creeks facility and the extinguishment of a 2% net smelter return royalty payable by Placer Dome as it relates to the joint venture property. Placer Dome operates the joint venture.

 

California.    During most of 2003, Newmont had one mine in California, Mesquite. Mining operations at Mesquite ceased in the second quarter of 2001, with the depletion of the main ore body. Production from residual heap leaching resulted in gold sales of 49,200 ounces during Newmont’s ownership in 2003. Newmont sold the Mesquite operations to Western Goldfields, Inc. in November 2003.

 

Canada.    Newmont’s Canadian operations include two underground mines. The Golden Giant mine (100% owned) is located approximately 25 miles (40 kilometers) east of Marathon in Ontario, Canada, and has been in production since 1985. The Holloway mine is located approximately 35 miles (56 kilometers) east of Matheson in Ontario, and about 400 miles (644 kilometers) northeast of Golden Giant, and has been in production since 1996. The Holloway mine is owned by a joint venture in which Newmont has an 84.65% interest. The remaining 15.35% interest is held by Teddy Bear Valley Mines. In 2003, the Golden Giant mine sold 229,700 ounces of gold, and the Holloway mine sold 65,100 equity ounces of gold.

 

During January 2003, Newmont owned an interest in the TVX Newmont Americas joint venture, which owned gold operations in Canada and South America. Newmont’s interest in TVX Newmont Americas was sold as of January 31, 2003. For additional information, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, below.

 

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Mexico.    Newmont has a 44% interest in the La Herradura mine, which is located in Mexico’s Sonora desert. La Herradura is operated by Industriales Peñoles, Mexico’s largest silver producer. The mine is an open pit operation with a two-stage crushing circuit and heap leach recovery. La Herradura sold 67,800 equity ounces of gold in 2003.

 

South America

 

Peru.    The properties of Minera Yanacocha S.R.L. (“Yanacocha”) are located approximately 375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca. Since the discovery of gold in 1986, the area has become the largest gold district in South America. Yanacocha began production in 1993. Newmont holds a 51.35% interest in Yanacocha. The remaining interests are held by Compañia de Minas Buenaventura, S.A.A. (43.65%) and the International Finance Corporation (5%).

 

Yanacocha has mining rights with respect to a large land position that includes multiple deposits as well as other prospects. Yanacocha’s 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, beginning in the early 1990s, renewable at the option of Yanacocha for another 20 years. In October 2000, Newmont and Buenaventura consolidated their land holdings in northern Peru, folding them into Yanacocha. The consolidation increased Yanacocha’s land position from 100 to 535 square miles.

 

Five open pit mines, four leach pads, and two processing plants are in operation at Yanacocha. Yanacocha’s gold sales for 2003 totaled 2.86 million ounces (1.47 million equity ounces).

 

Bolivia.    The Kori Kollo open pit mine is on a high plain in northwestern Bolivia near Oruro, on government mining concessions issued to a Bolivian corporation, Empresa Minera Inti Raymi S.A., in which Newmont has an 88% interest. The remaining 12% is owned by Mrs. Beatriz Rocabado. Inti Raymi owns and operates the mine. In 2003, the mine sold 158,500 equity ounces of gold. As higher-grade ores have been exhausted at Kori Kollo, mining ceased in October 2003, with leach production to continue until stockpiles are depleted. Potential development of another pit, Kori Chaca, is currently being evaluated.

 

Other.    During January 2003, Newmont owned an interest in the TVX Newmont Americas joint venture, which owned gold operations in Canada and South America. Newmont’s interest in TVX Newmont Americas was sold as of January 31, 2003. For additional information, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Results of Operations, below.

 

Australia

 

Prior to the acquisition of Normandy, Newmont owned a 50% interest in the Pajingo mine discussed below. The remaining 50% interest in Pajingo, and all other Australian properties described in this report, were acquired as part of the acquisition of Normandy in February 2002.

 

In Australia, mineral exploration and mining titles are granted by the individual states or territories. Mineral titles may also be subject to native title legislation. In 1992, the High Court of Australia held that Aboriginal people who have maintained a continuing connection with their land according to their traditions and customs may hold certain rights in respect of the land, such rights commonly referred to as native title. Since the High Court’s decision, Australia has passed legislation providing for the protection of native title and established procedures for Aboriginal people to claim these rights. The fact that native title is claimed with respect to an area, however, does not necessarily mean that native title exists, and disputes may be resolved by the courts.

 

Generally, under native title legislation, all mining titles granted before January 1, 1994 are valid. Titles granted between January 1, 1994 and December 23, 1996, however, may be subject to invalidation if they were not obtained in compliance with applicable legislative procedures, though subsequent legislation has validated

 

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some of these titles. After December 23, 1996, mining titles over areas where native title is claimed to exist became subject to legislative processes that generally give native title claimants the “right to negotiate” with the title applicant for compensation and other conditions. Native title holders do not have a veto over the granting of mining titles, but if agreement cannot be reached, the matter will be referred to the National Native Title Tribunal for decision.

 

Newmont does not expect that native title claims will have a material adverse effect on any of its operations in Australia. The High Court of Australia determined in an August 2002 decision, which refined and narrowed the scope of native title, that native title does not extend to minerals in Western Australia and that the rights granted under a mining title would, to the extent inconsistent with asserted native title rights, operate to extinguish those native title rights. Generally, native title is only an issue for Newmont with respect to obtaining new mineral titles or moving from one form of title to another, for example, from an exploration title to a mining title. In these cases, the requirements for negotiation and the possibility of paying compensation may result in delay and increased costs for mining in the affected areas. Similarly, the process of conducting Aboriginal heritage surveys to identify and locate areas or sites of Aboriginal cultural significance can result in delay in gaining access to land for exploration and mining-related activities.

 

In Australia, various ad valorum royalties are paid to state and territorial governments and to traditional land owners, typically based on a percentage of gross revenues.

 

Pajingo.    The Pajingo gold mine is an underground mine located approximately 93 miles (150 kilometers) southwest of Townsville, Queensland and 45 miles (72 kilometers) south of the local township of Charters Towers. Prior to the Normandy acquisition, Newmont owned a 50% interest in Pajingo. Following the Normandy acquisition, Newmont owns 100% of Pajingo. In 2003, Pajingo sold 330,300 ounces of gold.

 

Kalgoorlie.    The Kalgoorlie operations comprise the Fimiston open pit (commonly referred to as the Super Pit) and Mt. Charlotte underground mine at Kalgoorlie-Boulder, 373 miles (600 kilometers) east of Perth. The mines are managed by Kalgoorlie Consolidated Gold Mines Pty Ltd for the joint venture owners, Newmont and Barrick Gold Corporation, each of which holds a 50% interest. The Super Pit is Australia’s largest gold mine, in terms of both gold production and total annual mining volume. During 2003, the Kalgoorlie operations sold 404,700 equity ounces.

 

Yandal.    The Yandal operations consist of the Bronzewing, Jundee and Wiluna mines situated approximately 435 miles (700 kilometers) northeast of Perth in Western Australia. The three operations collectively sold 565,600 equity ounces of gold in 2003. Newmont owns a 100% interest in Newmont Yandal Operations Pty Ltd, which owns and operates the Bronzewing and Jundee mines. The Wiluna mine was sold in December 2003. Depletion of Bronzewing reserves is anticipated to occur in March 2004, at which time production will cease. For additional information, see Item 1, Business, Hedging Activities, above, and Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Results of Operations, Investing Activities, below.

 

Tanami.    The Tanami operations include The Granites treatment plant and associated mining operations, which are located in the Northern Territory approximately 342 miles (550 kilometers) northwest of Alice Springs, adjacent to the Tanami highway, and the Dead Bullock Soak mining operations, approximately 25 miles (40 kilometers) west of The Granites. The Tanami operations also include the Groundrush deposit. The Tanami operations have been wholly-owned since April 2003, when Newmont acquired the minority interests in Newmont NFM by means of a scheme of arrangement and buy-back offer under Australian law.

 

The operations are predominantly focused on the Callie underground mine at Dead Bullock Soak, with mill feed supplemented by production from the Dead Bullock Soak open pit and the Bunkers and Quorn pits at The Granites. Ore from all of these operations is processed through The Granites plant. Ore from Groundrush is

 

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processed through the Tanami plant rather than The Granites plant. During 2003, the Tanami operations sold 588,600 equity ounces of gold.

 

Boddington.    Boddington is located 81 miles (130 kilometers) southeast of Perth in Western Australia. Boddington is owned by Newmont (44.4%), AngloGold Limited (33.3%) and Newcrest Mining Limited (22.2%). Mining operations ceased in November 2001. A proposed expansion project is being optimized, and restructuring of current management arrangements is under discussion.

 

Golden Grove.    Newmont owns 100% of the Golden Grove operation in Western Australia, approximately 217 miles (350 kilometers) north of Perth. The principal products are zinc and copper concentrates. A high precious metal lead concentrate is also produced. Golden Grove has two underground mines at the Scuddles and Gossan Hill deposits. Golden Grove sold 74.3 million pounds of copper and 104.7 million pounds of zinc during 2003.

 

New Zealand

 

Newmont acquired an interest in the Martha gold mine as part of the Normandy acquisition. This mine is located within the town of Waihi, located approximately 68 miles (110 kilometers) southeast of Auckland, New Zealand. Newmont acquired the minority interests in the Martha mine in April 2003, giving it 100% ownership. For additional information, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Results of Operations, Investing Activities, below.

 

The operation sold 108,900 equity ounces of gold during 2003. The Martha mine does not currently pay royalties. Under new royalty arrangements, a royalty will apply to Favona, a new discovery. The royalty rate is the greater of 1% of gross revenues from silver and gold sales or 5% of accounting profit.

 

Indonesia

 

Newmont has two operating properties in Indonesia, Minahasa, a gold operation, and Batu Hijau, a producer of copper/gold concentrates.

 

Newmont owns 80% of Minahasa. The remaining 20% interest is a carried interest held by P.T. Tanjung Serapung, an unrelated Indonesian company. Prior to November 2001, 100% of Minahasa’s gold production was attributed to Newmont. As of November 2001, Newmont had recouped a sufficient amount of its investment in Minahasa to entitle the Indonesian shareholder to receive 6% of any dividends distributed after that date. As a result, only 94% of Minahasa’s gold production has been attributed to Newmont since November 2001.

 

Minahasa, on the island of Sulawesi, approximately 1,500 miles (2,414 kilometers) northeast of Jakarta, was a Newmont discovery and consisted of a multi-deposit operation. Production began in 1996 and mining was completed in late 2001. However, processing of stockpiled ore from this mine will continue until mid-2004. In 2003, Minahasa sold 92,200 equity ounces of gold.

 

Newmont has a 45% ownership interest in Batu Hijau. Newmont’s interest is held through a partnership with an affiliate of Sumitomo Corporation. Newmont owns 56.25% of the partnership and the Sumitomo affiliate holds the remaining 43.75%. The partnership, in turn, owns 80% of P.T. Newmont Nusa Tenggara (“PTNNT”), the subsidiary that owns Batu Hijau. The remaining 20% interest in PTNNT is a carried interest held by P.T. Pukuafu Indah, an unrelated Indonesian company. To date, PTTNT has recorded cumulative losses. Due to the cumulative losses, no dividends have yet been paid, although repayments of shareholder loans made by the Newmont/Sumitomo partnership to PTNNT have been made. Therefore, Newmont has historically reported a 56.25% economic interest in Batu Hijau. As a result of higher metal prices, improved operating and financial results, and increased life of mine expectations regarding production, costs and economics, PTNNT is expected to report positive retained earnings and begin paying dividends during 2004. Under existing shareholder agreements, the Indonesian shareholder is entitled to receive 6% of any dividends paid by PTNNT. Newmont

 

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will, therefore, decrease its reported interest in Batu Hijau to 52.875%, reflecting 56.25% of the 94% of PTNNT’s dividends payable to the Newmont/Sumitomo partnership. We account for our investment in Batu Hijau as an equity investment due to each PTNNT shareholder’s significant participating rights in Batu Hijau’s business. Newmont has identified the Batu Hijau operation as a VIE because of certain capital structures and contractual relationships. Newmont has also determined that it is the primary beneficiary of the Batu Hijau operation. Newmont therefore expects to consolidate Batu Hijau effective January 1, 2004. See Note 2 to the Consolidated Financial Statements for more information.

 

Batu Hijau is located on the island of Sumbawa, approximately 950 miles (1,529 kilometers) east of Jakarta. Batu Hijau is a large porphyry copper/gold deposit, which Newmont discovered in 1990. Development and construction activities began in 1997 and start-up took place in late 1999. In 2003, copper sales were 343.4 million equity pounds, while gold sales, treated as by-product credits, were 328,900 equity ounces.

 

In Indonesia, rights are granted to foreign investors to explore for and to develop mineral resources within defined areas through Contracts of Work entered into with the Indonesian government. In 1986, Newmont entered into separate Contracts of Work with the central government covering Minahasa and Batu Hijau, under which Newmont was granted the exclusive right to explore in the contract area, construct any required facilities, extract and process the mineralized materials, and sell and export the minerals produced, subject to certain requirements including Indonesian government approvals and payment of royalties to the government. Under the Contracts of Work, Newmont has the right to continue operating the projects for 30 years from operational start-up, or longer if approved by the Indonesian government.

 

Under Newmont’s Minahasa and Batu Hijau Contracts of Work, beginning in the fifth year after mining operations commenced, and continuing through the tenth year, a portion of each project must be offered for sale to the Indonesian government or to Indonesian nationals, equal to the difference between the following percentages and the percentage of shares already owned by Indonesian nationals (if such number is positive): 15%, by the end of the fifth year; 23%, by the end of the sixth year; 30%, by the end of the seventh year; 37%, by the end of the eighth year; 44%, by the end of the ninth year; and 51%, by the end of the tenth year. The price at which such interest must be offered for sale to the Indonesian parties is the highest of the then-current replacement cost, the price at which shares of the project company would be accepted for listing on the Jakarta Stock Exchange, or the fair market value of such interest in the project company as a going concern.

 

In accordance with its Contract of Work, and given that an Indonesian national owns a 20% interest in Minahasa, Newmont offered of a 3% interest in Minahasa in 2002 and a 10% interest in 2003, but received no interest in these offers due in large part, we believe, to the imminent closure of the operation. In the case of Batu Hijau, an Indonesian national currently owns a 20% interest, which would require Newmont and Sumitomo to offer a 3% interest in Batu Hijau to Indonesian nationals in 2006. Pursuant to this provision of the Batu Hijau Contract of Work, it is possible that the ownership interest of the Newmont/Sumitomo partnership in Batu Hijau could be reduced to 49% by the end of 2010.

 

See Note 10 to the Consolidated Financial Statements for additional information regarding Newmont’s interest in the Indonesian operating properties.

 

Uzbekistan

 

Newmont has a 50% interest in the Zarafshan-Newmont Joint Venture in Uzbekistan. Ownership of the remaining 50% interest is divided between the State Committee for Geology and Mineral Resources and the Navoi Mining and Metallurgical Combine, each a state entity of Uzbekistan. The joint venture produces gold by crushing and leaching ore from existing stockpiles of low-grade oxide material from the nearby government-owned Muruntau mine, located in the Kyzylkum Desert. The gold produced by Zarafshan-Newmont is sold in international markets for U.S. dollars. Zarafshan-Newmont sold 218,100 equity ounces of gold in 2003.

 

The State Committee and Navoi furnish ore to Zarafshan-Newmont under an ore supply agreement. Under the agreement, the State Committee and Navoi are obligated to deliver 242.5 million tons of ore to Zarafshan-

 

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Newmont from various areas of the stockpiles designated into four different “Zones” under the agreement. As of December 31, 2003, approximately 124.3 million tons of ore have been delivered, leaving a balance of 118.2 million tons to be delivered (8.9 million tons from Zone 3 and 109.3 million tons from Zone 4). Initially, ore from all Zones was to be delivered regardless of the gold price and the price of the ore was dependent on the grade of ore delivered. In May 2003, the parties amended the grade and pricing structure of the ore supply agreement with respect to ore to be delivered from Zone 4. Under the May 2003 amendment the parties have agreed to a mine plan designed to achieve an average grade of at least 0.036 ounce of gold per ton for ore from Zone 4. The amount paid for this ore is dependent on the average grade of ore and the average gold price during the period in which the ore is processed. In the event the State Committee and Navoi supply ore from Zone 4 having an average grade less than 0.036 ounce per ton in a given month and the average gold price during such month is less than $320 per ounce, the price of such ore will be discounted. At certain combinations of low ore grade and at gold prices less than $320 per ounce, the computed price may result in a credit to Zarafshan-Newmont, which will be offset against free cash distributions or future ore purchase payments due to the State Committee and Navoi.

 

Turkey

 

The wholly-owned Ovacik mine, located in western Turkey 12 miles from the Aegean Sea and 66 miles (106 kilometers) north of the city of Izmir, commenced production in May 2001 and sold 168,200 ounces of gold during 2003. Newmont acquired the Ovacik mine as part of the Normandy acquisition. At Ovacik, ore is mined from open pit operations and transported for processing in a 600,000 ton per annum grinding circuit and modified carbon-in-leach recovery plant. The Ovacik mine has a long history of legal challenges to the operation of the mine and, in particular, for its use of cyanide in gold production, which could result in closure of the mine or interruption of mining activities. For additional information, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Results of Operations, below.

 

Ghana

 

Newmont has two advanced development projects in Ghana. The Ahafo project, located in the Brong Ahafo Region of Ghana, is 100% owned by Newmont following the acquisition of the remaining 50% of the Ntotoroso property from Moydow Mines International, Inc. in December 2003. At year-end, the Ahafo project had reserves of 7.6 million ounces of gold. In December 2003, following the Government of Ghana’s approval of Newmont’s Investment Agreement (described below), Newmont announced that it was proceeding with development of the project. Development costs at Ahafo are estimated at approximately $350 million, with gold production expected to commence in the second half of 2006. The Ahafo project is anticipated to generate steady-state annual gold sales of approximately 500,000 ounces, with higher production in the initial years.

 

Newmont also has an 85% interest in the Akyem project, located in the Eastern Region of Ghana. At year-end, the Akyem project had 4.3 million equity ounces of gold reserves. The remaining 15% interest in the Akyem project is held by Kenbert Mines Limited. Newmont is currently updating and optimizing the feasibility study for Akyem with a view to making a development decision in late 2004.

 

In December 2003, Ghana’s Parliament unanimously ratified an Investment Agreement between Newmont and the Government of Ghana. The Agreement establishes a fixed fiscal and legal regime, including fixed royalty and tax rates, for the life of any Newmont project in Ghana. Under the Agreement, Newmont will pay corporate income tax at a fixed rate of 32.5% and fixed gross royalties on gold production of 3.0% (3.6% for any production from forest reserve areas). The Government of Ghana is also entitled to receive 10% of a project’s net cash flow after Newmont has recouped its investment and may acquire up to 20% of a project’s equity at fair market value on or after the 15th anniversary of such project’s commencement of production. The Investment Agreement also contains commitments with respect to job training for local Ghanaians, community development, purchasing of local goods and services and environmental protection.

 

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Operating Statistics

 

The following tables detail Newmont’s operating statistics related to gold production and sales.

 

North American Operations

 

     North America

 
     Nevada

    Other North America

 

Year Ended December 31,


   2003

    2002

    2001

    2003

    2002

    2001

 

Tons Mined (000 dry short tons):

                                    

Open Pit

   176,254     139,985     139,000     11,696     11,774     19,030  

Underground

   1,733     1,538     1,123     1,191     1,621     1,607  

Tons Milled/Processed (000):

                                    

Oxide

   2,914     5,164     5,395     1,228     1,628     1,605  

Refractory

   9,129     9,201     8,844     n/a     n/a     n/a  

Leach

   18,376     15,027     24,448     4,035     3,981     7,861  

Average Ore Grade:

                                    

Oxide

   0.140     0.119     0.108     0.260     0.230     0.236  

Refractory

   0.219     0.224     0.218     n/a     n/a     n/a  

Leach

   0.028     0.031     0.033     0.026     0.026     0.028  

Average Mill Recovery Rate:

                                    

Oxide

   80.8 %   74.4 %   70.5 %   95.3 %   95.0 %   95.2 %

Refractory

   90.6 %   88.6 %   88.9 %   n/a     n/a     n/a  

 

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    North America

    Nevada

  Other North America

  Total North America

Year Ended December 31,


  2003

    2002

  2001

  2003

  2002

    2001

  2003

    2002

  2001

Ounces Produced (000)

    2,560.7       2,718.1     2,696.9     413.8     485.8       496.0     2,974.5       3,203.9     3,192.9
   


 

 

 

 


 

 


 

 

Equity Ounces Produced (000):

                                                           

Oxide

    336.0       474.8     433.2     297.8     364.5       348.7     633.8       839.3     781.9

Refractory

    1,834.2       1,805.7     1,749.3     n/a     n/a       n/a     1,834.2       1,805.7     1,749.3

Leach

    390.5       437.6     514.4     116.0     121.3       147.3     506.5       558.9     661.7
   


 

 

 

 


 

 


 

 

Total

    2,560.7       2,718.1     2,696.9     413.8     485.8       496.0     2,974.5       3,203.9     3,192.9
   


 

 

 

 


 

 


 

 

Equity Ounces Sold (000)

    2,490.8       2,723.5     2,703.2     411.8     500.5       520.4     2,902.6       3,224.0     3,223.6
   


 

 

 

 


 

 


 

 

Production Costs Per Ounce:

                                                           

Direct mining and production costs

  $ 248     $ 207   $ 207   $ 221   $ 192     $ 187   $ 244     $ 205   $ 204

Deferred stripping and other costs

    (20 )     11     11     ––     (1 )         (17 )     9     9
   


 

 

 

 


 

 


 

 

Cash operating costs

    228       218     218     221     191       187     227       214     213

Royalties and production taxes

    7       7     4     4     2       5     6       6     4
   


 

 

 

 


 

 


 

 

Total cash costs

    235       225     222     225     193       192     233       220     217

Reclamation and other costs

    ––       2     4     5     4       8     1       2     5
   


 

 

 

 


 

 


 

 

Total costs applicable to sales

    235       227     226     230     197       200     234       222     222

Depreciation, depletion and amortization

    57       44     43     84     73       68     61       49     47
   


 

 

 

 


 

 


 

 

Total production costs

  $ 292     $ 271   $ 269   $ 314   $ 270     $ 268   $ 295     $ 271   $ 269
   


 

 

 

 


 

 


 

 

 

Overseas Operations

 

     South America

 
     Yanacocha, Peru

     Other South America

 

Year Ended December 31,


   2003

     2002

     2001

     2003

    2002

    2001

 

Tons Mined (000 dry short tons):

                                       

Open Pit

   204,889      203,720      155,707      7,638     18,676     18,444  

Underground

   n/a      n/a      n/a      n/a     n/a     n/a  

Tons Milled/Processed (000):

                                       

Oxide

   n/a      n/a      n/a      n/a     n/a     n/a  

Refractory

   n/a      n/a      n/a      5,599     7,675     7,582  

Leach

   145,275      148,297      84,738      3,696     6,479     3,853  

Average Ore Grade:

                                       

Oxide

   n/a      n/a      n/a      n/a     n/a     n/a  

Refractory

   n/a      n/a      n/a      0.036     0.047     0.059  

Leach

   0.027      0.023      0.030      0.017     0.018     0.021  

Average Mill Recovery Rate:

                                       

Oxide

   n/a      n/a      n/a      n/a     n/a     n/a  

Refractory

   n/a      n/a      n/a      61.7 %   60.7 %   61.8 %

 

26


Table of Contents
    South America

 
    Yanacocha, Peru

    Other South America

    Total South America

 

Year Ended December 31,


  2003

    2002

    2001

    2003

    2002

    2001

    2003

    2002

    2001

 

Ounces Produced (000)

    2,851.1       2,285.6       1,902.5       176.2       284.1       305.6       3,027.3       2,569.7       2,208.1  
   


 


 


 


 


 


 


 


 


Equity Ounces Produced (000):

                                                                       

Oxide

    n/a       n/a       n/a       n/a       n/a       n/a       n/a       n/a       n/a  

Refractory

    n/a       n/a       n/a       112.9       195.9       247.4       112.9       195.9       247.4  

Leach

    1,464.1       1,173.6       976.9       42.1       54.1       21.6       1,506.2       1,227.7       998.5  
   


 


 


 


 


 


 


 


 


Total

    1,464.1       1,173.6       976.9       155.0       250.0       269.0       1,619.1       1,423.6       1,245.9  
   


 


 


 


 


 


 


 


 


Equity Ounces Sold (000)

    1,467.9       1,176.9       983.1       158.5       249.4       274.8       1,626.4       1,426.3       1,257.9  
   


 


 


 


 


 


 


 


 


Production Costs Per Ounce:

                                                                       

Direct mining and production costs

  $ 118     $ 123     $ 113     $ 197     $ 163     $ 163     $ 125     $ 130     $ 124  

Deferred stripping and other costs

    (4 )     (2 )     (1 )     (13 )     (7 )     (5 )     (4 )     (3 )     (2 )
   


 


 


 


 


 


 


 


 


Cash operating costs

    114       121       112       184       156       158       121       127       122  

Royalties and production taxes

    6       4       3                         5       4       3  
   


 


 


 


 


 


 


 


 


Total cash costs

    120       125       115       184       156       158       126       131       125  

Reclamation and other costs

    2       3       3       13       7       5       3       3       3  
   


 


 


 


 


 


 


 


 


Total costs applicable to sales

    122       128       118       197       163       163       129       134       128  

Depreciation, depletion and amortization

    62       57       48       38       48       62       60       55       51  
   


 


 


 


 


 


 


 


 


Total production costs

  $ 184     $ 185     $ 166     $ 235     $ 211     $ 225     $ 189     $ 189     $ 179  
   


 


 


 


 


 


 


 


 


 

     Australia

     Pajingo

    Other Australia

Year Ended December 31,


   2003

    2002

    2001

    2003

    2002

   

2001


Tons Mined (000 dry short tons):

                                  

Open Pit

   n/a     n/a     n/a     68,198     66,328     n/a

Underground

   761     656     368     5,983     4,975     n/a

Tons Milled/Processed (000):

                                  

Oxide

   792     738     361     8,869     7,898     n/a

Refractory

   n/a     n/a     n/a     8,071     7,056     n/a

Leach

   n/a     n/a     n/a     n/a     n/a     n/a

Average Ore Grade:

                                  

Oxide

   0.450     0.397     0.351     0.133     0.137     n/a

Refractory

   n/a     n/a     n/a     0.078     0.069     n/a

Leach

   n/a     n/a     n/a     n/a     n/a     n/a

Average Mill Recovery Rate:

                                  

Oxide

   96.8 %   96.8 %   96.9 %   94.7 %   96.0 %   n/a

Refractory

   n/a     n/a     n/a     85.1 %   82.2 %   n/a

 

 

27


Table of Contents
    Australia

    Pajingo

  Other Australia

  Total Australia

Year Ended December 31,


  2003

    2002

    2001

  2003

    2002

    2001

  2003

    2002

    2001

Ounces Produced (000)

    340.5       290.7       123.8     1,641.6       1,457.3     n/a     1,982.1       1,748.0       123.8
   


 


 

 


 


 
 


 


 

Equity Ounces Produced (000):

                                                               

Oxide

    340.5       290.7       123.8     1,098.7       957.0     n/a     1,439.2       1,247.7       123.8

Refractory

    n/a       n/a       n/a     523.7       426.2     n/a     523.7       426.2       n/a

Leach

    n/a       n/a       n/a     n/a       n/a     n/a     n/a       n/a       n/a
   


 


 

 


 


 
 


 


 

Total

    340.5       290.7       123.8     1,622.4       1,383.2     n/a     1,962.9       1,673.9       123.8
   


 


 

 


 


 
 


 


 

Equity Ounces Sold (000)

    330.3       296.4       126.0     1,558.9       1,388.2     n/a     1,889.2       1,684.6       126.0
   


 


 

 


 


 
 


 


 

Production Costs Per Ounce:

                                                               

Direct mining and production costs

  $ 124     $ 90     $ 97   $ 245     $ 207       $ 224     $ 186     $ 97

Deferred stripping and other costs

    (6 )     (4 )     1     (2 )     (7 )       (3 )     (6 )     1
   


 


 

 


 


 
 


 


 

Cash operating costs

    118       86       98     243       200         221       180       98

Royalties and production taxes

    11       9       7     15       12         15       11       7
   


 


 

 


 


 
 


 


 

Total cash costs

    129       95       105     258       212         236       191       105

Reclamation and other costs

    ––       4       1     2       5         1       6       1
   


 


 

 


 


 
 


 


 

Total costs applicable to sales

    129       99       106     260       217         237       197       106

Depreciation, depletion and amortization

    88       72       34     51       68         58       68       34
   


 


 

 


 


 
 


 


 

Total production costs

  $ 217     $ 171     $ 140   $ 311     $ 285       $ 295     $ 265     $ 140
   


 


 

 


 


 
 


 


 

 

     Zarafshan-Newmont
Uzbekistan


   Other International
Operations


 

Year Ended December 31,


   2003

   2002

   2001

   2003

    2002

    2001

 

Tons Mined (000 dry short tons):

                                 

Open Pit

   n/a    n/a    n/a    11,245     10,345     5,586  

Underground

   n/a    n/a    n/a    n/a     10     n/a  

Tons Milled/Processed (000):

                                 

Oxide

   n/a    n/a    n/a    1,890     1,514     n/a  

Refractory

   n/a    n/a    n/a    697     717     716  

Leach

   8,080    7,867    7,677    n/a     n/a     1,572  

Average Ore Grade:

                                 

Oxide

   n/a    n/a    n/a    0.160     0.164     n/a  

Refractory

   n/a    n/a    n/a    0.156     0.213     0.387  

Leach

   0.043    0.053    0.044    n/a     n/a     0.080  

Average Mill Recovery Rate:

                                 

Oxide

   n/a    n/a    n/a    93.8 %   91.7 %   n/a  

Refractory

   n/a    n/a    n/a    91.0 %   90.9 %   91.4 %

 

28


Table of Contents
     Zarafshan-Newmont
Uzbekistan


  Other International
Operations


  Total Gold

Year Ended December 31,


   2003

   2002

    2001

  2003

    2002

    2001

  2003

    2002

  2001

Ounces Produced (000)

     218.7      259.0       216.7     382.1       384.4       326.0     8,584.7       8,165.0     6,067.5
    

  


 

 


 


 

 


 

 

Equity Ounces Produced (000):

                                                               

Oxide

     n/a      n/a       n/a     281.1       230.3       n/a     2,354.1       2,317.3     905.7

Refractory

     n/a      n/a       n/a     92.3       130.5       251.6     2,563.1       2,558.3     2,248.3

Leach

     218.7      259.0       216.7     1.0       14.4       72.1     2,232.4       2,060.0     1,949.0
    

  


 

 


 


 

 


 

 

Total

     218.7      259.0       216.7     374.4       375.2       323.7     7,149.6       6,935.6     5,103.0
    

  


 

 


 


 

 


 

 

Equity Ounces Sold (000)

     218.1      255.8       222.0     369.3       380.7       341.5     7,005.6       6,971.4     5,171.0
    

  


 

 


 


 

 


 

 

Production Costs Per Ounce:

                                                               

Direct mining and production costs

   $ 145    $ 132     $ 133   $ 203     $ 177     $ 125   $ 205     $ 181   $ 173

Deferred stripping and other costs

     2      2       3     (31 )     (13 )     14     (10 )     1     7
    

  


 

 


 


 

 


 

 

Cash operating costs

     147      134       136     172       164       139     195       182     180

Royalties and production taxes

                    8       5       3     8       7     4
    

  


 

 


 


 

 


 

 

Total cash costs

     147      134       136     180       169       142     203       189     184

Reclamation and other costs

     4      (1 )     1     2       9       3     2       3     3
    

  


 

 


 


 

 


 

 

Total costs applicable to sales

     151      133       137     182       178       145     205       192     187

Depreciation, depletion and amortization

     46      40       54     88       99       66     61       58     50
    

  


 

 


 


 

 


 

 

Total production costs

   $ 197    $ 173     $ 191   $ 270     $ 277     $ 211   $ 266     $ 250   $ 237
    

  


 

 


 


 

 


 

 

 

Batu Hijau Copper Production

 

Year Ended December 31,


   2003

    2002

    2001

 

Dry tons processed (000)

   49,819     51,754     48,358  

Average copper grade

   0.72 %   0.72 %   0.75 %

Average recovery rate

   88.6 %   89.0 %   89.2 %

Copper pounds produced (000)

   634,123     657,664     656,954  

Equity copper pounds produced (000)

   356,694     369,936     369,537  

Equity copper pounds sold (000)

   343,378     362,253     359,955  

 

Year Ended December 31, 2003


   By-Product
Method


    Co-Product Method

 
     Copper

    Gold

    Total

 

Revenue

   $ 294,029     $ 294,029     $ 117,898     $ 411,927  

Cash production costs

   $ 201,902     $ 144,115     $ 57,787     $ 201,902  

By-product credits

     (122,208 )     (3,076 )     (1,234 )     (4,310 )
    


 


 


 


Total Cash Costs

     79,694       141,039       56,553       197,592  

Noncash costs

     67,127       47,914       19,213       67,127  
    


 


 


 


Total Production Costs

   $ 146,821     $ 188,953     $ 75,766     $ 264,719  
    


 


 


 


Pounds of copper sold (000)

     343,378                          

Ounces of gold sold (000)

     328.9                          

Cash cost per lb./oz.

   $ 0.23     $ 0.41     $ 172          

Noncash cost per lb./oz.

     0.20       0.14       58          
    


 


 


       

Total costs per lb./oz.

   $ 0.43     $ 0.55     $ 230          
    


 


 


       

 

29


Table of Contents

Year Ended December 31, 2002


   By-Product
Method


    Co-Product Method

 
     Copper

    Gold

    Total

 

Revenue

   $ 260,670     $ 260,670     $ 85,840     $ 346,510  

Cash production costs

   $ 200,619     $ 150,920     $ 49,699     $ 200,619  

By-product credits

     (89,548 )     (2,789 )     (919 )     (3,708 )
    


 


 


 


Total Cash Costs

     111,071       148,131       48,780       196,911  

Noncash costs

     63,975       48,127       15,848       63,975  
    


 


 


 


Total Production Costs

   $ 175,046     $ 196,258     $ 64,628     $ 260,886  
    


 


 


 


Pounds of copper sold (000)

     362,253                          

Ounces of gold sold (000)

     278.0                          

Cash cost per lb./oz.

   $ 0.31     $ 0.41     $ 175          

Noncash cost per lb./oz.

     0.17       0.13       57          
    


 


 


       

Total costs per lb./oz.

   $ 0.48     $ 0.54     $ 232          
    


 


 


       

 

Year Ended December 31, 2001


   By-Product
Method


    Co-Product Method

 
     Copper

    Gold

    Total

 

Revenue

   $ 251,601     $ 251,601     $ 78,198     $ 329,799  

Cash production costs

   $ 214,417     $ 163,577     $ 50,840     $ 214,417  

By-product credits

     (81,709 )     (2,679 )     (832 )     (3,511 )
    


 


 


 


Total Cash Costs

     132,708       160,898       50,008       210,906  

Noncash costs

     61,385       46,830       14,555       61,385  
    


 


 


 


Total Production Costs

   $ 194,093     $ 207,728     $ 64,563     $ 272,291  
    


 


 


 


Pounds of copper sold (000)

     359,955                          

Ounces of gold sold (000)

     295.1                          

Cash cost per lb./oz.

   $ 0.37     $ 0.45     $ 169          

Noncash cost per lb./oz.

     0.17       0.13       49          
    


 


 


       

Total costs per lb./oz.

   $ 0.54     $ 0.58     $ 219          
    


 


 


       

 

Golden Grove Copper and Zinc Production

 

Year Ended December 31,


   2003

    2002

 

Dry tons processed

     1,406,497       1,273,222  

Average copper grade

     4.6 %     4.7 %

Average zinc grade

     12.4 %     13.9 %

Copper pounds produced (000)

     57,799       60,973  

Copper pounds sold (000)

     74,303       44,754  

Zinc pounds produced (000)

     120,425       114,806  

Zinc pounds sold (000)

     104,711       111,177  

Copper cash cost per pound

   $ 0.59     $ 0.57  

Zinc cash cost per pound

   $ 0.19     $ 0.24  

 

Reconciliation of Non-GAAP Measures

 

For all periods presented, total cash costs include charges for mining ore and waste associated with current period production, processing ore through milling and leaching facilities, by-product credits, production taxes, royalties and other cash costs. Certain gold mines produce silver as a by-product, and Batu Hijau produces gold as a by-product. Proceeds from the sale of by-products are reflected as credits to total cash costs. With the

 

30


Table of Contents

exception of Nevada, Yanacocha, Golden Grove and Batu Hijau, such by-product sales have not been significant to the economics or profitability of the Company’s mining operations. See Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition, Results of Operations. All of these charges and by-product credits are included in Costs applicable to sales. Charges for reclamation are also included in Costs applicable to sales, but are not included in total cash costs. Reclamation charges are included in total production costs, together with total cash costs and Depreciation, depletion and amortization. A reconciliation of total cash costs to Costs applicable to sales in total and by segment is provided below. Total production costs provide an indication of earnings before interest expense and taxes for Newmont’s share of mining properties, when taking into account the average realized price received for production sold, as this measure combines Costs applicable to sales plus Depreciation, depletion and amortization, net of minority interest.

 

Total cash costs per ounce is a measure intended to provide investors with information about the cash generating capacities of these mining operations. Newmont’s management uses this measure for the same purpose and for monitoring the performance of its mining operations. This information differs from measures of performance determined in accordance with GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with GAAP. This measure was developed in conjunction with gold mining companies associated with the Gold Institute, a non-profit industry group no longer in existence, in an effort to provide a level of comparability; however, Newmont’s measures may not be comparable to similarly titled measures of other companies.

 

Reconciliation of Costs applicable to sales to total cash costs and total production costs per ounce (unaudited):

 

For the Year Ended

December 31, 2003


   Nevada

    Mesquite

    La
Herradura


    Golden
Giant


    Holloway

   

Total North

America


 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 597.8     $ 9.3     $ 11.1     $ 53.4     $ 20.8     $ 692.4  

Minority interest

                                    

Write-downs of stockpiles, ore on leach pads and inventories

     (2.9 )                 ––             (2.9 )

Reclamation and other

     0.1       (0.2 )     (0.1 )     (1.3 )     (0.5 )     (2.0 )

Other

     (32.1 )                             (32.1 )
    


 


 


 


 


 


Total cash costs for per ounce calculation

     562.9       9.1       11.0       52.1       20.3       655.4  

Reclamation and other

     (0.1 )     0.2       0.1       1.3       0.5       2.0  

Depreciation, depletion and amortization

     137.7       3.9       3.4       22.0       5.3       172.3  

Minority interest and other

                                    
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 700.5     $ 13.2     $ 14.5     $ 75.4     $ 26.1     $ 829.7  

Equity ounces sold (000)

     2,490.8       49.2       67.8       229.7       65.1       2,902.6  

Equity cash cost per ounce sold

   $ 235     $ 184     $ 162     $ 227     $ 312     $ 233  

Equity production cost per ounce sold

   $ 292     $ 267     $ 214     $ 329     $ 402     $ 295  

 

31


Table of Contents

For the Year Ended

December 31, 2003


   Yanacocha

    Kori Kollo

   

Total South

America


    Pajingo

    Kalgoorlie

    Yandal

 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 362.5     $ 35.6     $ 398.1     $ 42.9     $ 108.4     $ 158.7  

Minority interest

     (183.5 )     (4.2 )     (187.7 )                  

Write-downs of stockpiles, ore on leach pads and inventories

                             (1.0 )     (3.0 )

Reclamation and other

     (3.4 )     (2.1 )     (5.5 )     (0.1 )     (0.8 )     (1.5 )

Other

     ––                                
    


 


 


 


 


 


Total cash costs for per ounce calculation

     175.6       29.3       204.9       42.8       106.6       154.2  

Reclamation and other

     3.4       2.1       5.5       (0.3 )     0.8       1.4  

Depreciation, depletion and amortization

     160.4       6.8       167.2       29.2       9.8       35.8  

Minority interest and other

     (70.1 )     (0.8 )     (70.9 )                  
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 269.3     $ 37.4     $ 306.7     $ 71.7     $ 117.2     $ 191.4  

Equity ounces sold (000)

     1,467.9       158.5       1,626.4       330.3       404.7       565.6  

Equity cash cost per ounce sold

   $ 120     $ 184     $ 126     $ 129     $ 263     $ 273  

Equity production cost per ounce sold

   $ 184     $ 235     $ 189     $ 217     $ 289     $ 339  

For the Year Ended

December 31, 2003


   NFM
Tanami


    Total
Australia


    Zarafshan-
Newmont,
Uzbekistan


    Minahasa

    Martha

    Ovacik

 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 148.9     $ 458.9     $ 32.9     $ 26.3     $ 24.9     $ 22.3  

Minority interest

     (4.2 )     (4.2 )                 (0.3 )      

Write-downs of stockpiles, ore on leach pads and inventories

     (2.0 )     (6.0 )           (1.3 )     (2.6 )     (0.1 )

Reclamation and other

     (1.2 )     (3.6 )     (0.7 )     (0.5 )     (0.4 )     (0.4 )

Other

                       (1.6 )            
    


 


 


 


 


 


Total cash costs for per ounce calculation

     141.5       445.1       32.2       22.9       21.6       21.8  

Reclamation and other

     0.2       2.1       0.7       0.5       0.2       0.2  

Depreciation, depletion and amortization

     36.0       110.8       10.1       7.6       11.5       13.9  

Minority interest and other

     (1.0 )     (1.0 )           (0.5 )     (0.1 )      
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 176.7     $ 557.0     $ 43.0     $ 30.5     $ 33.2     $ 35.9  

Equity ounces sold (000)

     588.6       1,889.2       218.1       92.2       108.9       168.2  

Equity cash cost per ounce sold

   $ 240     $ 236     $ 147     $ 249     $ 199     $ 129  

Equity production cost per ounce sold

   $ 300     $ 295     $ 197     $ 332     $ 306     $ 213  

 

32


Table of Contents

For the Year Ended

December 31, 2003


   Total Other
International


    Total
Gold


    Golden
Grove


    Other
Non-
Gold


    Consolidated

     
     (dollars in millions except per ounce amounts)      

Costs applicable to sales per financial statements

   $ 106.4     $ 1,655.8     $ 43.5     $ 1.0     $ 1,700.3      

Minority interest

     (0.3 )     (192.2 )                 (192.2 )    

Write-downs of stockpiles, ore on leach pads and inventories

     (4.0 )     (12.9 )     (7.2 )           (20.1 )    

Reclamation and other

     (2.0 )     (13.1 )                 (13.1 )    

Other

     (1.6 )     (33.7 )     (36.3 )     (1.0 )     (71.0 )    
    


 


 


 


 


   

Total cash costs for per ounce calculation

     98.5       1,403.9                   1,403.9      

Reclamation and other

     1.6       11.2       ––       ––       11.2      

Depreciation, depletion and amortization

     43.1       493.4       29.1       42.0       564.5      

Minority interest and other

     (0.6 )     (72.5 )     (29.1 )     (42.0 )     (143.6 )    
    


 


 


 


 


   

Total production cost for per ounce calculation

   $ 142.6     $ 1,836.0     $     $     $ 1,836.0      

Equity ounces sold (000)

     587.4       7,005.6       n/a       n/a       7,005.6      

Equity cash cost per ounce sold

   $ 168     $ 203       n/a       n/a     $ 203      

Equity production cost per ounce sold

   $ 243     $ 266       n/a       n/a     $ 266      

 

For the Year Ended

December 31, 2002


   Nevada

    Mesquite

   La
Herradura


    Golden
Giant


    Holloway

    Total
North America


 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 657.1     $ 10.1    $ 11.5     $ 57.1     $ 20.4     $ 756.2  

Minority interest

                                   

Write-downs of stockpiles, ore on leach pads and inventories

     (37.0 )                (0.3 )           (37.3 )

Reclamation and other

     (7.0 )          (0.2 )     (1.7 )     (0.5 )     (9.4 )

Non-cash inventory adjustment

     (1.5 )                            (1.5 )

Other

                                  ––  
    


 

  


 


 


 


Total cash costs for per ounce calculation

     611.6       10.1      11.3       55.1       19.9       708.0  

Reclamation and other

     8.4            0.2       1.6       0.5       10.7  

Depreciation, depletion and amortization

     118.2       6.3      3.1       20.5       6.7       154.8  

Minority interest and other

                                   
    


 

  


 


 


 


Total production cost for per ounce calculation

   $ 738.2     $ 16.4    $ 14.6     $ 77.2     $ 27.1     $ 873.5  

Equity ounces sold (000)

     2,723.5       57.1      64.2       281.5       97.7       3,224.0  

Equity cash cost per ounce sold

   $ 225     $ 177    $ 176     $ 196     $ 204     $ 220  

Equity production cost per ounce sold

   $ 271     $ 287    $ 227     $ 274     $ 277     $ 271  

 

33


Table of Contents

For the Year Ended

December 31, 2002


   Yanacocha

    Kori
Kollo


    Total
South America


    Pajingo

    Kalgoorlie

    Yandal

 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 302.0     $ 46.6     $ 348.6     $ 30.5     $ 85.0     $ 136.4  

Minority interest

     (151.6 )     (5.6 )     (157.2 )                  

Write-downs of stockpiles, ore on leach pads and inventories

           (0.5 )     (0.5 )                 (1.6 )

Reclamation and other

     (3.0 )     (1.6 )     (4.6 )     (1.2 )     (1.7 )     (3.2 )

Non-cash inventory adjustment

                       (1.0 )     (13.6 )     (0.1 )

Other

     ––             ––                    
    


 


 


 


 


 


Total cash costs for per ounce calculation

     147.4       38.9       186.3       28.3       69.7       131.5  

Reclamation and other

     3.0       1.6       4.6       1.8       15.3       3.1  

Depreciation, depletion and amortization

     121.5       13.8       135.3       20.6       9.0       43.5  

Minority interest and other

     (54.6 )     (1.7 )     (56.3 )                  
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 217.3     $ 52.6     $ 269.9     $ 50.7     $ 94.0     $ 178.1  

Equity ounces sold (000)

     1,176.9       249.4       1,426.3       296.4       324.7       611.1  

Equity cash cost per ounce sold

   $ 125     $ 156     $ 131     $ 95     $ 215     $ 215  

Equity production cost per ounce sold

   $ 185     $ 211     $ 189     $ 171     $ 289     $ 292  

For the Year Ended

December 31, 2002


   NFM
Tanami


    Total
Australia


    Zarafshan-
Newmont,
Uzbekistan


    Minahasa

    Martha

    Ovacik

 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 111.5     $ 363.4     $ 34.0     $ 41.2     $ 19.6     $ 17.5  

Minority interest

     (15.8 )     (15.8 )                        

Write-downs of stockpiles, ore on leach pads and inventories

           (1.6 )           (4.6 )            

Reclamation and other

     (1.8 )     (7.9 )     0.3       (2.4 )     (0.7 )     (0.7 )

Non-cash inventory adjustment

     (0.9 )     (15.6 )                 (2.1 )     (1.5 )

Other

                       (2.1 )            
    


 


 


 


 


 


Total cash costs for per ounce calculation

     93.0       322.5       34.3       32.1       16.8       15.3  

Reclamation and other

     1.9       22.1       (0.3 )     2.4       2.6       2.0  

Depreciation, depletion and amortization

     33.7       106.8       10.3       9.5       13.9       11.5  

Minority interest and other

     (4.5 )     (4.5 )           (0.6 )            
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 124.1     $ 446.9     $ 44.3     $ 43.4     $ 33.3     $ 28.8  

Equity ounces sold (000)

     452.4       1,684.6       255.8       147.2       107.8       125.7  

Equity cash cost per ounce sold

   $ 205     $ 191     $ 134     $ 218     $ 156     $ 122  

Equity production cost per ounce sold

   $ 273     $ 265     $ 173     $ 294     $ 309     $ 229  

 

34


Table of Contents

For the Year Ended

December 31, 2002


   Total Other
International


    Total
Gold


    Golden
Grove


    Kasese

    Other
Non-Gold


    Consolidated

 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 112.3     $ 1,580.5     $ 27.7     $ 7.8     $ 0.4     $ 1,616.4  

Minority interest

           (173.0 )                       (173.0 )

Write-downs of stockpiles, ore on leach pads and inventories

     (4.6 )     (44.0 )     (0.4 )                 (44.4 )

Reclamation and other

     (3.5 )     (25.4 )                       (25.4 )

Non-cash inventory adjustment

     (3.6 )     (20.7 )                       (20.7 )

Other

     (2.1 )     (2.1 )     (27.3 )     (7.8 )     (0.4 )     (37.6 )
    


 


 


 


 


 


Total cash costs for per ounce calculation

     98.5       1,315.3                         1,315.3  

Reclamation and other

     6.7       44.1       ––             ––       44.1  

Depreciation, depletion and amortization

     45.2       442.1       22.9             40.6       505.6  

Minority interest and other

     (0.6 )     (61.4 )     (22.9 )           (40.6 )     (124.9 )
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 149.8     $ 1,740.1     $     $     $     $ 1,740.1  

Equity ounces sold (000)

     636.5       6,971.4       n/a       n/a       n/a       6,971.4  

Equity cash cost per ounce sold

   $ 155     $ 189       n/a       n/a       n/a     $ 189  

Equity production cost per ounce sold

   $ 235     $ 250       n/a       n/a       n/a     $ 250  

For the Year Ended

December 31, 2001


   Nevada

    Mesquite

    La
Herradura


    Golden
Giant


    Holloway

    Total
North America


 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 627.1     $ 20.4     $ 9.6     $ 55.0     $ 19.1     $ 731.2  

Minority interest

                                    

Write-downs of stockpiles, ore on leach pads and inventories

     (16.2 )                 (0.2 )           (16.4 )

Reclamation

     (10.3 )     (1.5 )     (0.2 )     (1.7 )     (0.4 )     (14.1 )

Other

                                    
    


 


 


 


 


 


Total cash costs for per ounce calculation

     600.6       18.9       9.4       53.1       18.7       700.7  

Reclamation

     10.3       1.5       0.2       1.7       0.4       14.1  

Depreciation, depletion and amortization

     117.4       7.5       3.2       18.3       6.5       152.9  

Minority interest and other

                                    
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 728.3     $ 27.9     $ 12.8     $ 73.1     $ 25.6     $ 867.7  

Equity ounces sold (000)

     2,703.2       92.6       54.7       283.7       89.4       3,223.6  

Equity cash cost per ounce sold

   $ 222     $ 205     $ 173     $ 187     $ 209     $ 217  

Equity production cost per ounce sold

   $ 269     $ 301     $ 233     $ 257     $ 288     $ 269  

 

35


Table of Contents

For the Year Ended

December 31, 2001


   Yanacocha

    Kori
Kollo


    Total
South America


    Pajingo

    Zarafshan-
Newmont,
Uzbekistan


    Minahasa

 
     (dollars in millions except per ounce amounts)  

Costs applicable to sales per financial statements

   $ 238.0     $ 50.9     $ 288.9     $ 13.4     $ 30.9     $ 53.7  

Minority interest

     (117.6 )     (6.1 )     (123.7 )                  

Write-downs of stockpiles, ore on leach pads and inventories

     (4.1 )     (0.1 )     (4.2 )           (0.5 )     (4.0 )

Reclamation

     (2.9 )     (1.4 )     (4.3 )     (0.2 )     (0.2 )     (1.0 )

Other

                                    
    


 


 


 


 


 


Total cash costs for per ounce calculation

     113.4       43.3       156.7       13.2       30.2       48.7  

Reclamation

     2.9       1.4       4.3       0.2       0.2       1.0  

Depreciation, depletion and amortization

     82.3       19.5       101.8       4.3       11.9       22.8  

Minority interest and other

     (35.7 )     (2.3 )     (38.0 )                  
    


 


 


 


 


 


Total production cost for per ounce calculation

   $ 162.9     $ 61.9     $ 224.8     $ 17.7     $ 42.3     $ 72.5  

Equity ounces sold (000)

     983.1       274.8       1,257.9       126.0       222.0       341.5  

Equity cash cost per ounce sold

   $ 115     $ 158     $ 125     $ 105     $ 136     $ 142  

Equity production cost per ounce sold

   $ 166     $ 225     $ 179     $ 140     $ 191     $ 211  

 

For the Year Ended December 31, 2001


   Total gold

    Other non-gold

    Consolidated

 
     (dollars in millions except
per ounce amounts)
 

Costs applicable to sales per financial statements

   $ 1,118.1     $ (0.2 )   $ 1,117.9  

Minority interest

     (123.7 )           (123.7 )

Write-downs of stockpiles, ore on leach pads and inventories

     (25.1 )           (25.1 )

Reclamation

     (19.8 )           (19.8 )

Other

           0.2       0.2  
    


 


 


Total cash costs for per ounce calculation

   $ 949.5     $     $ 949.5  

Reclamation

     19.8             19.8  

Depreciation, depletion and amortization

     293.7       7.9       301.6  

Minority interest and other

     (38.0 )     (7.9 )     (45.9 )
    


 


 


Total production cost for per ounce calculation

   $ 1,225.0     $     $ 1,225.0  

Equity ounces sold (000)

     5,171.0       n/a       5,171.0  

Equity cash cost per ounce sold

   $ 184       n/a     $ 184  

Equity production cost per ounce sold

   $ 237       n/a     $ 237  

 

36


Table of Contents

Reconciliation of PTNNT Costs applicable to sales to total cash costs and total production costs per pound or ounce, as applicable (unaudited):

 

For the Year Ended December 31,


   2003

    2002

    2001

 
    

(dollars in millions except

per ounce amounts)

 

Costs applicable to sales per financial statements

   $ 58,646     $ 107,355     $ 145,559  

Smelting and refining

     98,045       103,727       101,892  

Minority interest

     (72,813 )     (96,923 )     (112,970 )

Reclamation and other

     (4,184 )     (3,088 )     (1,773 )
    


 


 


Total cash costs for per pound or ounce calculation

     79,694       111,071       132,708  

Reclamation

     4,184       3,088       1,773  

Depreciation, depletion and amortization

     62,943       60,887       59,612  
    


 


 


Total production cost for per pound or ounce calculation

   $ 146,821     $ 175,046     $ 194,093  

Equity copper pounds sold (000)

     343,378       362,253       359,955  

Equity cash cost per pound or ounce

   $ 0.23     $ 0.31     $ 0.37  

Equity total production cost per pound

   $ 0.43     $ 0.48     $ 0.54