10-K 1 d10k.htm FORM 10-K Form 10-K
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(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, 2005

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

(Check one):    Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2005, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $17,126,388,000 based on the closing sale price as reported on the New York Stock Exchange. There were 417,383,659 shares of common stock outstanding (and 31,145,915 exchangeable shares exchangeable into Newmont Mining Corporation common stock on a one-for-one basis) on February 22, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s definitive Proxy Statement submitted to the Registrant’s stockholders in connection with our 2006 Annual Stockholders Meeting to be held on April 25, 2006, are incorporated by reference into Part III of this report.

 



Table of Contents

TABLE OF CONTENTS

 

          Page
PART I

ITEM 1.

  

BUSINESS

   1
  

Introduction

   1
  

Segment Information, Export Sales, etc.  

   1
  

Products

   2
  

Hedging Activities

   3
  

Merchant Banking

   3
  

Exploration

   4
  

Licenses and Concessions

   6
  

Condition of Physical Assets and Insurance

   6
  

Environmental Matters

   6
  

Employees

   7
  

Forward-Looking Statements

   7
  

Available Information

   8

ITEM 1A.

  

RISK FACTORS

   8
  

Risks Related to the Mining Industry Generally

   8
  

Risks Related to Newmont Operations

   10

ITEM 2.

  

PROPERTIES

   16
  

Gold and Copper Processing Methods

   16
  

Newmont Properties

   17
  

Production Properties

   17
  

Operating Statistics

   23
  

Royalty Properties

   25
  

Investment Interests

   26
  

Proven and Probable Reserves

   26

ITEM 3.

  

LEGAL PROCEEDINGS

   32

ITEM 4.

  

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   32

ITEM 4A.

  

EXECUTIVE OFFICERS OF THE REGISTRANT

   32
PART II

ITEM 5.

  

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

   35

ITEM 6.

  

SELECTED FINANCIAL DATA

   36

ITEM 7.

  

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

   37
  

Overview

   37
  

Accounting Changes

   39
  

Critical Accounting Policies

   40
  

Consolidated Financial Results

   47
  

Results of Consolidated Operations

   58
  

Recent Accounting Pronouncements

   67
  

Liquidity and Capital Resources

   68
  

Environmental

   76
  

Forward-Looking Statements

   76

 

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ITEM 7A.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   77
  

Metal Price

   77
  

Foreign Currency

   77
  

Hedging

   77
  

Fixed and Variable Rate Debt

   79
  

Pension and Other Benefit Plans

   80

ITEM 8.

  

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   81

ITEM 9.

  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

   161

ITEM 9A.

  

CONTROLS AND PROCEDURES

   161

ITEM 9B.

  

OTHER INFORMATION

   161
PART III

ITEM 10.

  

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   162

ITEM 11.

  

EXECUTIVE COMPENSATION

   162

ITEM 12.

  

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

   162

ITEM 13.

  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   163

ITEM 14.

  

PRINCIPAL ACCOUNTANT FEES AND SERVICES

   163
PART IV

ITEM 15.

  

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

   164

NUSA TENGGARA PARTNERSHIP V.O.F. CONSOLIDATED FINANCIAL STATEMENTS

   NT-1

SIGNATURES

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

Introduction

Newmont Mining Corporation is primarily a gold producer with significant assets or operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, Uzbekistan, Bolivia, New Zealand and Mexico. As of December 31, 2005, Newmont had proven and probable gold reserves of 93.2 million equity ounces and an aggregate land position of approximately 50,600 square miles (131,100 square kilometers). Newmont is also engaged in the production of copper, principally through its Batu Hijau operation in Indonesia. Newmont Mining Corporation’s original predecessor corporation was incorporated in 1921 under the laws of Delaware.

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 (“Normandy”), 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 an 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.

Of Newmont’s revenues in 2005, 2004, and 2003, 24%, 24% and 30%, respectively, were derived from the United States, with the balance derived from operations in Peru, Australia, Indonesia, Canada, Mexico, Bolivia, New Zealand and Uzbekistan. For the years 2005, 2004 and 2003, 39%, 34% and 34%, respectively, of revenues came from Peru; 19%, 22% and 25%, respectively, from Australia; and 8%, 9% and 1%, respectively, from Indonesia. In 2005, 2004 and 2003, 54%, 52% and 54%, respectively, of the Company’s long-lived assets were located in the United States, with the balance located in Peru, Australia, Indonesia, Ghana, Canada, Mexico, Bolivia, and Uzbekistan. For the years 2005, 2004 and 2003, 11%, 11% and 12%, respectively, of the Company’s long-lived assets were located in Peru; 7%, 10% and 16%, respectively, were located in Australia; and 17%, 19% and 10%, respectively, were located in Indonesia.

Newmont’s corporate headquarters are in Denver, Colorado, USA. In this report, “Newmont,” the “Company”, “our” and “we” refer to Newmont Mining Corporation and/or our affiliates and subsidiaries. All dollars are in millions, except per share, per ounce, and per pound amounts.

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, namely exploration for and production of gold. Our major operations are in Nevada, Peru, Indonesia and Australia/New Zealand and we have two significant development projects in Ghana. We also have a Merchant Banking Segment and an Exploration Segment. See Note 28 to the Consolidated Financial Statements for information relating to our business segments, our domestic and export sales, and our customers.


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Products

Gold

General.    Newmont had consolidated sales of 8.6 million ounces of gold (6.5 million equity ounces) in 2005, 8.8 million ounces (7.0 million equity ounces) in 2004 and 8.4 million ounces (7.4 million equity ounces) in 2003. For 2005, 2004 and 2003, 85%, 82% and 100%, respectively, of our net revenues were attributable to gold sales. Of our 2005 gold sales, approximately 39% came from Yanacocha, 28% from Nevada, 19% from Australia/New Zealand and 8% from Indonesia. References in this report to “equity ounces” or “equity pounds” mean that portion of gold or base metals produced, sold or included in proven and probable reserves that is attributable to our ownership or economic interest.

Most of our revenue comes from the sale of refined gold in the international market. The end product at each of our gold operations, however, is generally doré bars. Doré is an alloy consisting mostly of gold but also containing silver, copper and other metals. Doré is 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 our share of the refined gold and the separately-recovered silver are credited to our account or delivered to buyers, except in the case of the doré produced from our operation in Uzbekistan. Doré from that operation is refined locally and the refined gold is physically returned to us for sale in international markets. Gold sold from Batu Hijau is contained in a concentrate.

Gold Uses.    Gold has two main categories of use: 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 jewelry.

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

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

 

Year

   High    Low    Average

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

   $ 454    $ 375    $ 410

2005

   $ 536    $ 411    $ 444

2006 (through February 22, 2006)

   $ 572    $ 524    $ 552

Source: Kitco and Reuters

On February 22, 2006, the afternoon fixing price for gold on the London Bullion Market was $553 per ounce and the spot market price of gold on the New York Commodity Exchange was $553 per ounce.

We generally sell our gold at the prevailing market prices during the month in which the gold is delivered to the customer. We recognize revenue from a sale when the price is determinable, the gold has been delivered, the title has been transferred to the customer and collection of the sales price is reasonably assured.

 

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Copper

General.    At December 31, 2005, Newmont had a 52.875% economic interest (a 45% ownership interest) in the Batu Hijau operation in Indonesia, which began production in 1999. Production at Batu Hijau is in the form of a copper/gold concentrate that is sold to smelters for further treatment and refining. During 2005, Batu Hijau sold concentrates containing 572.7 million pounds of payable copper and 720,500 ounces of payable gold. For 2005 and 2004, 15% and 18%, respectively, of our net revenues were attributable to copper sales. During 2005, Newmont sold its Golden Grove copper/zinc operation in Australia.

Copper Uses.    Refined copper 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 also used to make brass. Copper substitutes include aluminum, plastics, stainless steel and fiber optics. Refined, or cathode, copper is also an internationally traded commodity.

Copper Supply.    The supply of copper consists of a combination of production from mining and recycled scrap material. Copper supply has not kept pace with increasing demand in recent years, resulting in price increases reflected in the chart below.

Copper Price.    The price of copper is quoted on the London Metal Exchange in terms of dollars per metric ton of high grade copper. The following table presents the dollar per pound equivalent of the high, low and average prices of high grade copper on the London Metal Exchange over the past ten years.

 

Year

   High    Low    Average

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

   $ 1.49    $ 1.06    $ 1.30

2005

   $ 2.11    $ 1.39    $ 1.67

2006 (through February 22, 2006)

   $ 2.33    $ 2.06    $ 2.20

Source: London Metal Exchange

On February 22, 2006, the closing price of high grade copper was $2.28 per pound on the London Metal Exchange.

Hedging Activities

Newmont generally avoids gold hedging. Our philosophy is to provide shareholders with leverage to changes in the gold price by selling our gold production at market prices. We have entered into derivative contracts to protect the selling price for certain anticipated gold and copper production and to manage risks associated with commodities, interest rates and foreign currencies.

For additional information, see Hedging in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, and Note 21 to the Consolidated Financial Statements.

Merchant Banking

Merchant Banking is a “reportable segment” for financial reporting purposes. Merchant Banking, also referred to as Newmont Capital, manages a royalty portfolio, an equity portfolio, a downstream gold refining

 

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business, and engages in portfolio management activities (managing interests in oil and gas, iron ore and coal properties as well as providing in-house investment banking and advisory services).

Merchant Banking manages Newmont’s royalty portfolio. Royalties generally offer a natural hedge against lower gold prices by providing free cash flow from assets with limited operating, capital or environmental risk, while retaining upside exposure to further exploration discoveries and reserve expansions. Merchant Banking seeks to grow the royalty portfolio in a number of 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 properties or exploration targets for sale if they are non-core in nature. 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.

In 2005, our royalty and equity portfolios generated $79 in Royalty and dividend income. We have royalty interests in Barrick Gold Corporation’s (“Barrick”) Goldstrike, Eskay Creek, Henty and Bald Mountain mines and Stillwater Mining’s Stillwater and East Boulder palladium-platinum mines, among others. We also have a significant oil and gas royalty portfolio in western Canada. For additional information regarding our royalty portfolio, see Item 2, Properties, Royalty Properties, below.

As of December 31, 2005, Merchant Banking’s equity portfolio had a market value of approximately $940. The equity portfolio is primarily composed of our investments in Canadian Oil Sands Trust, Shore Gold, Inc., Mirimar Mining Corporation and Gabriel Resources, Ltd.

Merchant Banking also manages our interests in downstream gold refining and distribution businesses (40% interest in AGR Matthey Joint Venture (“AGR”) and 50% interest in European Gold Refineries (“EGR”)). Merchant Banking earned $4 in Equity income (loss) of affiliates through its investments in AGR and EGR in 2005.

Merchant Banking’s portfolio management activities include managing the reserve delineation program on our 100% owned oil sands leases in Alberta, Canada, and advancing our other interests in coal, iron ore and gas.

Merchant Banking provides advisory services to assist in managing the portfolio of operating and property interests. The Merchant Banking group helps maximize net asset value per share and increase cash flow, earnings and reserves by working with the 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 proprietary technology and know-how and acting as an internal resource for other corporate groups to improve and maximize business outcomes. In 2005, Merchant Banking provided assistance in the sale of non-core properties, including Golden Grove in Australia, Ovacik in Turkey and Mezcala in Mexico.

A key aspect of these advisory services is assisting in extracting economies of scale with 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.

Exploration

Exploration is a “reportable segment” for financial reporting purposes. Newmont’s exploration group is responsible for all activities, regardless of location, associated with the Company’s efforts to discover new mineralized material and, if successful, advance such mineralized material into proven and probable reserves. Exploration is conducted in areas surrounding our existing mines for the purpose of locating additional deposits and determining mine geology, and in other prospective gold regions globally. Near-mine exploration can result

 

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in the discovery of new gold mineralization, which will receive the economic benefit of existing operating, processing, and administrative infrastructures. Greenfields exploration is where a discovery of new gold mineralization would likely require the investment of new capital to build a separate, stand-alone operation away from any of the Company’s existing infrastructure. 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. We spent $147 in 2005, $107 in 2004 and $76 in 2003 on Exploration.

As of December 31, 2005, we had proven and probable gold reserves of 93.2 million equity ounces. We added 9.4 million equity ounces to proven and probable reserves, with 8.6 million equity ounces of depletion and divestitures during 2005. A reconciliation of the changes in proven and probable reserves during the past three years is as follows:

 

(millions of equity ounces)    2005     2004     2003  

Opening balance

   92.4     91.3     86.9  

Additions(1)(2) 

   9.4     12.4     15.1  

Acquisitions

   —       —       2.3  

Depletion

   (8.3 )   (8.3 )   (8.8 )

Reclassifications(3) 

   —       (2.0 )   —    

Other divestments

   (0.3 )   (1.0 )   (4.4 )
                  

Closing balance

   93.2     92.4     91.3  
                  

(1) Additions attributable to the Exploration Segment

Total additions

   9.4     12.4     15.1  

Previously valued in purchase accounting

   (1.2 )   (1.9 )   (6.5 )

Reclassifications(3)

   —       (2.0 )   —    
                  
   8.2     8.5     8.6  
                  

 

(2) The impact of the change in gold price on reserve additions was 2.6, 3.8 and 2.8 million equity ounces in 2005, 2004 and 2003, respectively.
(3) Yanacocha reassessed the challenges involved in obtaining required permits for Cerro Quilish, primarily related to increased community concerns. Based upon this reassessment, Yanacocha reclassified 3.9 million ounces (2.0 million equity ounces) from proven and probable reserves to mineralized material not in reserve as of December 31, 2004.

In Nevada, exploration efforts during 2005 added 2.2 million equity ounces to proven and probable reserves, offset by depletion of 2.9 million equity ounces, resulting in total proven and probable reserves in Nevada of 33.3 million equity ounces as of December 31, 2005.

In Peru, equity gold reserves increased to 16.8 million ounces, after depletion of 2.4 million ounces. At Conga, 1.6 million equity ounces of gold and 0.5 billion equity pounds of copper were added to proven and probable reserves. Conga is a development project that currently consists of two gold-copper porphyry deposits located northeast of the Yanacocha operating area in the provinces of Celendin, Cajamarca and Hualgayoc.

In Australia/New Zealand, the Company replaced depletion of 1.7 million equity ounces during 2005. Australia/New Zealand reported proven and probable reserves of 14.9 million equity ounces as of December 31, 2005.

At Batu Hijau, the Company depleted 0.4 billion equity pounds of copper and 0.5 million equity ounces of gold during 2005. Batu Hijau had proven and probable reserves of 6.1 billion equity pounds of copper and 6.7 million equity ounces of gold as of December 31, 2005.

 

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At the Ahafo and Akyem projects in Ghana, proven and probable reserves increased by 1.6 million and 1.1 million equity ounces, respectively. As of December 31, 2005, the Company reported reserves of 12.2 million ounces at Ahafo and 6.5 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 our 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, Canada, Ghana, Indonesia, Peru, New Zealand, Mexico 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 Contract of Work, see Item 2, Properties, below.

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 policies 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 policies 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. Our 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 our operations or our competitive position.

We conduct our operations so as to protect public health and the environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Each operating 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. We have made estimates of the amount of such expenditures, but cannot precisely predict the amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements. At December 31, 2005, $431 was accrued for reclamation costs relating to currently producing mineral properties.

We are also 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

 

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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, $77 was accrued as of December 31, 2005 for such obligations associated with properties previously owned or operated by us 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 101% greater or 34% lower than the amount accrued as of December 31, 2005. 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 Notes 13 and 30 to the Consolidated Financial Statements, below.

Employees

There were approximately 15,000 people employed by Newmont worldwide as of December 31, 2005.

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;

 

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

 

    Estimates of future costs applicable to sales, other expenses and taxes for specific operations and on a consolidated basis;

 

    Estimates of future cash flows;

 

    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 and financing plans for these deposits;

 

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

 

    Statements regarding future borrowing, debt repayment and financing;

 

    Estimates of reserves and statements regarding future exploration results and reserve replacement;

 

    Statements regarding modifications to hedge and derivative positions;

 

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

 

    Statements regarding the cost impacts of future changes in the regulatory environment in which we operate; and

 

    Estimates regarding timing of future capital expenditures, construction, production or closure activities.

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

 

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limited to: the price of gold, copper and other commodities; 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.

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’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.

The Company filed with the New York Stock Exchange (“NYSE”) on May 26, 2005, the annual certification by its Chief Executive Officer, certifying that, as of the date of the certification, he was not aware of any violation by the Company of the NYSE’s corporate governance listing standards, as required by Section 303A.12(a) of the NYSE Listed Company Manual. The Company has filed the required certifications under Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of its public disclosures as Exhibits 31.1 and 31.2 to this report.

 

ITEM 1A. RISK FACTORS (dollars in millions except per share, per ounce and per pound amounts)

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

 

    Risks related to the mining industry generally; and

 

    Risks related to Newmont’s operations.

Risks Related to the Mining Industry Generally

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

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

 

    Sales or leasing of gold by governments and central banks;

 

    U.S. dollar strength;

 

    Recession or reduced economic activity;

 

    Speculative selling;

 

    Decreased industrial, jewelry or investment demand;

 

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    Increased supply from production, disinvestment and scrap;

 

    Sales by producers in forward and other hedging transactions; and

 

    Devaluing local currencies (relative to gold and copper priced in U.S. dollars) leading to lower production costs and higher production in certain regions.

Any drop in the realized price of gold or copper adversely impacts our revenues, net income and cash flows, particularly in light of our philosophy of avoiding gold hedging. We have recorded asset write-downs during periods of low gold prices in the past and may experience additional impairments as a result of low gold or copper prices in the future.

In addition, sustained low gold or copper 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 or copper price;

 

    Halt or delay the development of new projects;

 

    Reduce funds available for exploration, with the result that depleted reserves may not be replaced; and

 

    Reduce existing reserves by removing ores from reserves that can no longer be economically mined or treated at prevailing prices.

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

Gold and Copper Producers Must Continually Obtain Additional Reserves

Gold and copper producers must continually replace reserves depleted by production. Depleted reserves must be replaced by expanding known ore bodies or by locating new deposits in order for producers to maintain production levels over the long term. 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 will likely take many years from the initial phases of exploration 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. Producers use feasibility studies to derive estimates of capital and 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, the costs of comparable facilities, the costs of operating and processing equipment and other factors. Actual operating costs and economic returns on projects may differ significantly from original estimates. Further, it may take many years from the initial phase of exploration before production is possible and, during that time, the economic feasibility of exploiting a discovery may change.

Increased Costs Could Affect Profitability

Costs at any particular mining location frequently are subject to variation due to a number of factors, such as changing ore grade, changing metallurgy and revisions to mine plans in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities, such as fuel, electricity and labor. Commodity costs are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. Reported costs may be affected by changes in accounting standards. A material increase in costs at any significant location could have a significant effect on Newmont’s profitability.

 

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Mining Accidents or Other Adverse Events or Conditions 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.

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, or otherwise 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 30 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, or 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, including risks inherent in contracts with government owned entities.

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

 

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adversely affect Newmont’s financial position or results of operations. Furthermore, if a dispute arises 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.

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. 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, denial of permits or permit renewals or expropriation of assets. If this were to occur with respect to the Batu Hijau operation, Newmont’s financial condition and results of operations could be materially adversely affected.

In July 2004, a criminal complaint was filed against PTNMR, the Newmont subsidiary that operated the Minahasa mine in Indonesia, alleging environmental pollution relating to submarine tailings placement into nearby Buyat Bay. The Indonesian police detained five PTNMR employees during September and October of 2004. The police investigation and the detention of PTNMR’s employees was declared illegal by the South Jakarta District Court in December 2004, but in March 2005, the Indonesian Supreme Court upheld the legality of the police investigation, and the police turned their evidence over to the local prosecutor. In July 2005, the prosecutor filed an indictment against PTNMR and its President Director, alleging environmental pollution at Buyat Bay. After the court rejected motions to dismiss the proceeding, the prosecutor called its first witnesses in October 2005. The trial is continuing and is expected to conclude in mid-2006.

On March 9, 2005, the Indonesian Ministry of the Environment filed a civil lawsuit against PT Newmont Minahasa Raya (“PTNMR”) and it’s President Director in relation to these allegations, seeking in excess of $100 in monetary damages. In October 2005, PTNMR filed an objection to the court’s jurisdiction, contending that the Government previously agreed to resolve any disputes through out-of-court conciliation or arbitration. The Court upheld PTNMR’s objection and dismissed the case in November 2005. The Government filed a notice appeal of this ruling. On February 16, 2006, PTNMR and the Government of the Republic of Indonesia signed an agreement settling the civil lawsuit. Under the terms of the agreement, the Government and PTNMR will nominate members to an independent scientific panel that will develop and implement a ten-year environmental monitoring and assessment program to make a definitive, scientific conclusion regarding the condition of Buyat Bay. PTNMR is required to fund specific remedial measures if, as a result of its mining operations, pollution has occurred. The agreement also provides for enhanced community development programs in North Sulawesi. PTNMR will provide initial funding of $12 to cover the cost of the monitoring and community development programs. Over a ten year period, PTNMR will contribute an additional $18. The funds will be managed by an organization governed by interested stakeholders. Accountability for the funds will be ensured through yearly reports that will be made available to the public. The transparency of the scientific panel’s activities will also be assured through annual reports to the public. The agreement is expected to end the civil lawsuit against PTNMR.

Independent sampling and testing of Buyat Bay water and fish, as well as area residents, conducted by the World Health Organization and the Australian Commonwealth Scientific and Industrial Research Organization, confirm that PTNMR has not polluted the Buyat Bay environment, and, therefore, has not adversely affected the fish in Buyat Bay or the health of nearby residents. The Company remains steadfast that it has not caused pollution or health problems and will continue to vigorously defend itself against these allegations. However, Newmont cannot predict the outcome of the criminal proceeding or whether additional legal actions may occur. This matter could adversely affect our ability to operate in Indonesia.

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. In 2004, local opposition to the Cerro Quilish project became so pronounced that Yanacocha decided to relinquish its drilling permit for Quilish and the deposit was reclassified from proven and probable reserves to non-reserve mineralization. In 2005, no material roadblocks or protests

 

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occurred involving Yanacocha. We cannot predict, however, whether such incidents will recur in the future, and the recurrence of significant community opposition or protests could adversely affect Minera Yanacocha’s assets and operations in Peru, and could lead to the reclassification of other deposits out of reserves.

Presidential, congressional and regional elections will take place in Peru in 2006, and a new national government will take office in July 2006. We cannot predict the new government’s positions on foreign investment, mining concessions, land tenure, environmental regulation or taxation. A change in government positions on these issues could adversely affect Yanacocha’s assets and operations in Peru.

During 2005, relations between the Republic of Uzbekistan and the U.S. deteriorated significantly, and in July 2005 the government of Uzbekistan evicted the U.S. military from its base at Karshi-Khanabad, south of Tashkent. A further deterioration of relations between the two countries could adversely affect our ability to operate in Uzbekistan.

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, the environment 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 remain uncertain and there is a risk that the costs of remediation may exceed the provision that has been made for such remediation by a material amount. For a more detailed discussion of potential environmental liabilities, see the discussion in Environmental Matters, Note 30 to the Consolidated Financial Statements.

Whenever a previously unrecognized remediation liability becomes known, or a previously estimated reclamation cost is increased, the amount of that liability and additional cost will be recorded at that time and could materially reduce net income in that period.

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

Newmont does not intend to enter into material new gold hedging positions and intends to continue to decrease gold hedge positions over time by opportunistically delivering gold into our outstanding 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 hedge contracts for copper, other metals or commodities, interest rates or foreign currencies. If the gold, copper or other metal price rises above the price at which future production has been committed under these hedge instruments, Newmont will have an

 

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opportunity loss. However, if the gold, copper 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, copper 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 21 to the Consolidated Financial Statements.

Currency Fluctuations May Affect Costs

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 of gold production in U.S. dollar terms at mines located outside the United States, making such mines less profitable. The foreign currencies that primarily impact Newmont’s results of operations are the Australian and Canadian dollars.

During 2005, the Australian and Canadian dollars strengthened by an average of 5% and 7%, respectively, against the U.S. dollar. This increased U.S. dollar Costs applicable to sales in Australia and Canada by approximately $24 and $3, respectively from 2004 to 2005. For additional information, see Item 7, 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.

Our Level of Indebtedness May Affect Our Business

As of December 31, 2005, Newmont had debt of $1,929, as compared to $1,602 as of December 31, 2004. We expect to spend significant funds on capital expenditures essential to existing operations as well as for acquisitions and new project development. Our level of indebtedness could have important consequences for our operations, including:

 

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

 

    Our debt level may make us vulnerable to economic downturns and adverse developments in our businesses and markets; and

 

    Our 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 be able to pay principal and interest on our debt by utilizing cash flow from operations, and our 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. Consequently, we cannot be certain that our future cash flow from operations will be sufficient to allow us to pay principal and interest on our debt, fund required capital expenditures 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, utilize existing cash balances, borrow more money or issue additional equity. We cannot be certain that we will be able to accomplish any of these measures on commercially reasonable terms, if at all.

Our Interest in the Batu Hijau Mine in Indonesia May Be Reduced Under the Contract of Work

Under the Contract of Work with the Indonesian government, beginning in 2005 and continuing through 2010, a portion of each foreign shareholder’s equity interest in the Batu Hijau project must be offered for sale to

 

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the Indonesian government or to Indonesian nationals. The price at which such interest must be offered for sale 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. An Indonesian national currently owns a 20% interest in Batu Hijau, which requires the Newmont/Sumitomo partnership to offer a 3% interest 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.

Costs Estimates and Timing of New Projects Are Uncertain

The capital expenditures and time required to develop new mines or other projects are considerable. Changes in costs or construction schedules can affect project economics. There are a number of factors that can affect costs and construction schedules, including, among others:

 

    availability of labor, power, transportation and other commodities and infrastructure;

 

    increases in input commodity prices;

 

    fluctuations in exchange rates;

 

    availability of financing;

 

    difficulty of estimating construction costs over a period of years; and

 

    delays in obtaining environmental or other government permits.

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

We maintain insurance policies that mitigate against certain risks related to our operations. This insurance is maintained in amounts that we believe are 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 policies 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 could experience labor disputes, work stoppages or other disruptions in production that could adversely affect us. As of December 31, 2005, unions represented approximately 37% of our worldwide work force: Newmont had 1,243 employees at its Carlin, Nevada operations, 78 employees in Canada at its Golden Giant operations, 2,822 employees in Indonesia at its Batu Hijau operations, 42 employees in New Zealand at its Martha operation, 390 employees in Bolivia at its Kori Kollo operation, 194 employees at its Australia operations, and 667 employees in Peru at its Yanacocha operation, working under a collective bargaining agreement or similar labor agreement. Currently there are labor agreements in effect for all of these workers.

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 we believe that we have satisfactory title to our 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/New Zealand section of Item 2, Properties, below.

 

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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.

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

As of December 31, 2005, the carrying value of goodwill was approximately $2,879 or 21% of our total assets. Such goodwill has been assigned to our Merchant Banking ($1,562) and Exploration ($1,126) Segments, and to various mine site reporting units in the Australia/New Zealand Segment ($191). This goodwill primarily arose in connection with our February 2002 acquisitions of Normandy and Franco-Nevada, and it represents the excess of the aggregate purchase price over the fair value of the identifiable net assets of Normandy and Franco-Nevada. 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 estimated fair value of our reporting units to their carrying values.

Based on valuations of the Merchant Banking and Exploration Segments, the Company concluded that the estimated fair values significantly exceeded the respective carrying values as of December 31, 2005. The fair values of the Merchant Banking and Exploration Segments 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, 2005 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.

Additions to proven and probable reserves used in the Company’s valuation models were based on management reviews of historical performance and expectations of future reserve additions. Any model used to value the Exploration Segment will need to take into account the relatively long time horizon required to evaluate the activities of the Exploration Segment. Reserve additions may vary significantly from year to year based on the timing of when proven and probable reserves can be reported under the Securities and Exchange Commission (“SEC”) Industry Guide 7. A period of several years may be required to advance a project from initial discovery to proven and probable reserves.

Based on valuations of various mine site reporting units in the Australia/New Zealand Segment, the Company concluded that the estimated fair values exceeded the respective carrying values as of December 31, 2005. The Company concluded that the estimated fair value of the Nevada Segment did not support the carrying value as of December 31, 2005 and recorded a $41 goodwill impairment charge. In 2004, the Company recorded goodwill and long-lived assets impairment charges of $52 and $6, respectively, relating to the Pajingo reporting unit in the Australia/NewZealand Segment. The Company’s fair value estimates are based on numerous assumptions and it is possible that actual fair value could be significantly different than these estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels, operating costs and capital costs are each subject to significant risks and uncertainties.

In the absence of any mitigating valuation factors, the Company’s failure to achieve one or more of the December 31, 2005 valuation assumptions may over time result in an impairment charge. Accordingly, no assurance can be given that significant non-cash impairment charges 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.

 

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Our accounting policies and methods of reporting financial condition, including accounting for goodwill, require certain estimates, assumptions and judgments for which there is no clear authoritative guidance. Management makes such estimates, assumptions and judgments in good faith based on what they believe is the best available information. The Company has received from the SEC two letters, dated December 27, 2005 and February 17, 2006, requesting additional information and additional disclosure regarding accounting for Exploration and Merchant Banking Segment goodwill. The Company is responding to these letters and will continue to work with the SEC to resolve any further issues it raises.

Our Ability to Recognize the Benefits of Deferred Tax Assets is Dependent on Future Cash Flows and Taxable Income

The Company recognizes the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized. Otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the deferred tax assets could be impacted. Additionally, future changes in tax laws could limit the Company’s ability to obtain the future tax benefits represented by its deferred tax assets. At December 31, 2005, the Company’s current and long-term deferred tax assets were $159 and $517, respectively.

Returns for Investments in Pension Plans Are Uncertain

We maintain defined benefit pension plans for our employees, which provide for specified payments after retirement for certain employees. The ability of the pension plans to provide the specified benefits depends on our funding of the plans and returns on investments made by the plans. Returns, if any, on investments are subject to fluctuations based on investment choices and market conditions. A sustained period of low returns or losses on investments could require us to fund the pension plans to a greater extent than anticipated.

 

ITEM 2. PROPERTIES (dollars in millions except per share, per ounce and per pound amounts)

Gold and Copper 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. Higher grade oxide ores are generally 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 generally 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 heap to dissolve the gold. In both cases, the gold-bearing solution is then collected and pumped to process facilities to remove the gold by collection on carbon or by zinc precipitation directly from leach solutions.

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 sulfide 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

 

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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.

At Batu Hijau, mined ore containing copper and gold is crushed to a coarse size at the mine and then transported from the mine via conveyor to a concentrator. The ore is finely ground and then treated by successive stages of flotation, resulting in a concentrate of copper sulfides containing approximately 30% copper. The concentrate is transferred by pipeline to port facilities. At the port, the concentrate is dewatered and stored for later reclaiming and loading onto ships for transport to smelters.

Newmont Properties

LOGO

Production Properties

Set forth below is a description of Newmont’s significant production properties. Costs applicable to sales for each operation are presented in a table in the next section of Item 2.

Nevada

Newmont has been mining gold in Nevada since 1965. Nevada operations include Carlin, located west of the city of Elko on the geologic feature known as the Carlin Trend, the Twin Creeks mine approximately 15 miles north of Golconda, the Lone Tree Complex near the town of Valmy, and the Midas mine near the town of the same name. Newmont also participates in the Turquoise Ridge joint venture with Barrick, which utilizes mill capacity at Twin Creeks. The Phoenix gold/copper project, located 10 miles south of Battle Mountain, is under construction with production expected by April 2006. The Leeville underground project, located on the Carlin Trend northwest of the Carlin East underground mine, is under construction, with completion scheduled for late 2006.

 

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Gold sales from Nevada totaled approximately 2.4 million ounces for 2005 with ore mined from 13 open pit mines and four underground mines. At year-end 2005, Newmont reported 33.3 million equity ounces of gold reserves in Nevada, with 83% at open pit mines and 17% in underground mines. Process methods assumed over the reserve base are 76% refractory and 24% oxide. Refractory ores require more complex, higher cost processing methods. Refractory ore treatment facilities generated 69% of Nevada’s gold production in 2005, compared with 68% in 2004, and 72% in 2003.

The Nevada operations produce gold from a variety of ore types requiring different processing techniques depending on economic and metallurgical characteristics. To schedule the best use of processing capacity, the Company uses a linear programming model to guide the flow of both mining sequence selection and routing of ore streams to various plants. Higher-grade oxide ores are processed by conventional milling and cyanide leaching at Carlin (Mill 5), Twin Creeks (Juniper) and Lone Tree. Lower-grade material with suitable cyanide solubility is treated on heap leach pads at Carlin, Twin Creeks, Lone Tree and Phoenix. Higher-grade refractory ores are processed through either a roaster at Carlin (Mill 6) or autoclaves at Twin Creeks (Sage) and Lone Tree. Lower-grade refractory ores are processed by a flotation plant at Lone Tree and either bio-oxidation/flotation or direct flotation at Mill 5. Ore from the Midas mine is processed by conventional milling and Merrill-Crowe zinc precipitation. Activated carbon from the various leaching circuits is treated to produce gold ore at Carlin and Twin Creeks. Zinc precipitate at Midas is refined on-site. Mining and the final placement of ore on the leach pads at Lone Tree is scheduled to end in third quarter of 2006. Residual leaching will continue thereafter. Milling of stockpiled ore at Lone Tree is expected to be completed in the first quarter of 2007.

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 Nevada mining operations (except for the Turquoise Ridge joint venture 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.

Newmont has a 25% interest in a joint venture with a subsidiary of Barrick to operate the Turquoise Ridge and Getchell mines. Newmont has an agreement to provide up to 2,000 tons per day of milling capacity at Twin Creeks to the joint venture. Barrick is the operator of the joint venture for mining and ore delivery to process. Gold sales of 52,300 ounces were attributed to Newmont in 2005, based on its 25% ownership interest.

Newmont has an ore sale agreement with Barrick Goldstrike Mines to provide feed to some of Barrick’s facilities on the Carlin Trend. Newmont recognized attributed gold sales, net of treatment charges, of 104,600 ounces in 2005.

Yanacocha, 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. Yanacocha began production in 1993. Newmont holds a 51.35% interest in Yanacocha with the remaining interests 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. Yanacocha’s mining rights were acquired through assignments of concessions granted by the Peruvian government to Yanacocha and a related entity. These mining concessions provide for both the right to explore and exploit. However, Yanacocha must first obtain the respective exploration and exploitation permits, which are generally granted in due course. Yanacocha may retain mining concessions indefinitely by paying annual fees and, during exploitation, complying with production obligations or paying assessed fines. Mining concessions are freely assignable or transferable.

 

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The Yanacocha operations contain the Conga deposit, for which a feasibility study was completed in 2004. Yanacocha added 3.1 million ounces of gold (1.6 million equity ounces) and 1 billion pounds of copper (0.5 billion equity pounds) to proven and probable reserves at Conga in 2005.

Yanacocha currently has five open pit mines, Carachugo, San José, Maqui Maqui, Cerro Yanacocha and La Quinua. Reclamation and/or backfilling activities in the mining areas of Carachugo, San José and Maqui Maqui are currently underway. Cerro Yanacocha and La Quinua are still active pits. In addition, Yanacocha has four leach pads and three processing facilities. Yanacocha’s gold sales for 2005 totaled 3.3 million ounces (1.7 million equity ounces).

Australia/New Zealand

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 or, in the Northern Territory, to Aboriginal freehold title legislation that entitles indigenous persons to compensation calculated by reference to the gross value of production. 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 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 can 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 subsist in 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 additional costs and delay in gaining access to land for exploration and mining-related activities.

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

Pajingo.    Pajingo (100% owned) 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. In 2005, Pajingo sold 192,000 ounces of gold.

Jundee (Yandal).    The Yandal operations (100% owned) are situated approximately 435 miles (700 kilometers) northeast of Perth in Western Australia. In 2003, the operations included Wiluna, Bronzewing and Jundee. Operations at Bronzewing ceased during the second quarter of 2004 and the operations were sold the third quarter of 2004. The Wiluna operation was sold in the fourth quarter of 2003. The Jundee mine is the remaining Yandal operation and sold 341,800 ounces of gold in 2005.

 

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Tanami.    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 included the Groundrush deposit. Mining at the Groundrush open pit was completed in September 2004. Processing of stockpiles continued into the third quarter of 2005. The Tanami operations have been wholly-owned since April 2003, when Newmont acquired the minority interests.

The operations are predominantly focused on the Callie underground mine at Dead Bullock Soak, with mill feed supplemented by production stockpiles from the Dead Bullock Soak open pit and Windy Hill at The Granites. Ore from all of these operations is processed through The Granites plant with the exception of ore from Groundrush, which was processed through the Tanami plant. During 2005, the Tanami operations sold 493,700 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, each of which holds a 50% interest. The Super Pit is Australia’s largest gold mine in terms of gold production and annual mining volume. During 2005, the Kalgoorlie operations sold 409,600 equity ounces of gold.

Martha.    The Martha open pit 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. During 2005, development continued on the Favona underground deposit. Production from the Favona deposit is scheduled for 2007. The operation sold 163,400 ounces of gold during 2005. The Martha mine does not currently pay royalties. Under new royalty arrangements, however, Newmont will pay 1% of gross revenues from gold and silver sales, or 5% of accounting profit, whichever is greater, at Favona.

Boddington.    Boddington is a development project located 81 miles (130 kilometers) southeast of Perth in Western Australia. At December 31, 2005 Boddington was owned by Newmont (44.4%), AngloGold Ashanti Limited (33.3%) and Newcrest Mining Limited (22.2%). In February 2006, Newmont entered into an agreement to acquire Newcrest’s 22.22% interest in Boddington for A$225 plus applicable stamp duty and similar costs. When the transaction closes, Newmont’s interest in Boddington will increase to two-thirds. Closing of the transaction is subject to Australian Foreign Investment Review Board, Western Australia Government and other approvals, and is expected by April 2006. In February 2006, Newmont’s Board of Directors approved the development of the Boddington project.

Batu Hijau, Indonesia

Newmont operates Batu Hijau, a producer of copper/gold concentrates, and has a 45% ownership interest therein, held through a partnership with an affiliate of Sumitomo Corporation. Newmont has a 56.25% interest in 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. Through September 30, 2004, PTNNT recorded cumulative losses and therefore Newmont 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’s cumulative losses had been recovered by the fourth quarter of 2004, thereby allowing for the payment of dividends. Under existing shareholder agreements, the Indonesian shareholder will be entitled to receive 6% of any dividends paid by PTNNT until such time as a loan to the Indonesian shareholder is fully repaid (including accrued interest). Newmont, therefore, decreased its economic interest in Batu Hijau to 52.875%, effective October 1, 2004, reflecting 56.25% of the 94% of PTNNT’s dividends payable to the Newmont/Sumitomo partnership.

 

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Prior to January 1, 2004, we accounted for our investment in Batu Hijau as an equity investment due to each of PTNNT shareholders’ significant participating rights in Batu Hijau’s business. Newmont identified Batu Hijau as a variable interest entity because of certain capital structures and contractual relationships, and determined that it is the primary beneficiary of Batu Hijau. Therefore, pursuant to FIN 46R, Newmont consolidated Batu Hijau effective January 1, 2004. See Note 3 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 occurred in late 1999. In 2005, copper sales were 572.7 million pounds (302.8 million equity pounds), while gold sales were 720,500 ounces (381,000 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, PTNNT entered into a Contract of Work with the Indonesian government covering Batu Hijau, under which PTNNT 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 Contract of Work, PTNNT has the right to continue operating the project for 30 years from operational start-up, or longer if approved by the Indonesian government.

Under the Batu Hijau Contract of Work, beginning in 2005 and continuing through 2010, a portion of the 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 the Indonesian government or Indonesian nationals (if such number is positive): 15% by the end of the 2005; 23% by the end of 2006; 30% by the end of 2007; 37% by the end of 2008, 44% by the end of 2009; and 51% by the end of 2010. 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 as a going concern.

An Indonesian national currently owns a 20% interest in Batu Hijau, which requires the Newmont/Sumitomo partnership to offer a 3% interest in 2006. Pursuant to this provision, 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.

Other Operations

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. Mining operations at Golden Giant were completed in December 2005 with final mill production and gold sales expected in the first quarter of 2006. In 2005, the Golden Giant mine sold 162,000 ounces of gold. 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 100% owned as of October 2005. At December 31, 2005 the Company classified the Holloway mine as an asset held for sale. Operating results for Holloway have been reclassified to discontinued operations for all periods presented.

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 and comprises an open pit operation with run-of-mine heap leach processing. La Herradura sold 80,200 equity ounces of gold in 2005.

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. (“Inti Raymi”), in which Newmont has an 88% interest. The remaining 12% is owned by Mrs. Beatriz Rocabado.

 

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Inti Raymi owns and operates the mine. The mill was closed in October 2003 and production continued from residual leaching. In 2005, additional material from the stockpiles and Lla Llagua pit were placed on the existing leach pad and ore from the Kori Chaca pit was processed on a new leach pad. In 2005, the mine sold 83,200 equity ounces of gold.

Minahasa, Indonesia.    Newmont owns 80% of Minahasa and the remaining 20% interest is a carried interest held by P.T. Tanjung Serapung, an unrelated Indonesian company. Minahasa is located on the island of Sulawesi, approximately 1,500 miles (2,414 kilometers) northeast of Jakarta. Mining was completed in late 2001 and gold production was completed in 2004. See Note 30 to the Consolidated Financial Statements for additional information regarding Minahasa.

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 122,700 equity ounces of gold in 2005.

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-Newmont from various areas of the stockpiles designated into four different “Zones” under the agreement. As of December 31, 2005, approximately 156 million tons of ore have been delivered, leaving a balance of 87 million tons to be delivered from Zone 4 at an average ore grade of 0.036 per ton. In February 2006, Newmont, the State Committee and Navoi reached an agreement to amend the ore supply agreement. This amendment will reduce the average ore grade to be provided from 0.036 ounce per ton to 0.032 ounce per ton.

Ghana, Development Projects

Newmont has two projects under construction in Ghana, in West Africa. 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. Development activities during 2005 included engineering, procurement and construction of the mine and process facilities. Initial development costs at Ahafo are estimated at approximately $475, with estimated average steady-state annual gold sales of approximately 500,000 to 550,000 ounces starting in mid-2006. At December 31, 2005, the Ahafo project had reserves of 12.2 million ounces of gold.

At December 31, 2005, Newmont held an 85% interest in the Akyem project, located in the Eastern Region of Ghana. The remaining 15% was held by Kenbert Mines Limited. In July 2005, Newmont’s Board of Directors approved the development of the Akyem project. Initial development costs are estimated at approximately $500, with gold production expected to commence in the second half of 2008. The Akyem project is anticipated to generate steady-state annual gold sales of approximately 500,000 ounces. At year-end 2005, the Akyem project had 6.5 million equity ounces of gold reserves. In January 2006, Newmont acquired Kenbert’s interest in the Akyem project.

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 the Ghana statutory tax rate (presently 28%) not to exceed 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 operating statistics related to gold production and sales.

 

    Nevada     Yanacocha, Peru  

Year Ended December 31,

  2005     2004     2003     2005     2004     2003  

Tons mined (000 dry short tons):

           

Open pit

    193,565       192,821       176,254       218,933       193,407       204,889  

Underground

    1,727       1,683       1,733       N/A       N/A       N/A  

Tons milled/processed (000 dry short tons):

           

Oxide

    5,645       4,626       2,914       N/A       N/A       N/A  

Refractory

    9,925       8,984       9,129       N/A       N/A       N/A  

Leach

    21,660       17,356       18,376       146,645       133,514       145,275  

Average ore grade (oz/ton):

           

Oxide

    0.108       0.125       0.140       N/A       N/A       N/A  

Refractory

    0.185       0.199       0.219       N/A       N/A       N/A  

Leach

    0.024       0.029       0.028       0.028       0.025       0.027  

Average mill recovery rate:

           

Oxide

    75.1 %     79.1 %     80.8 %     N/A       N/A       N/A  

Refractory

    89.7 %     90.8 %     90.6 %     N/A       N/A       N/A  

Ounces produced (000):

           

Oxide

    405.2       461.2       336.0       N/A       N/A       N/A  

Refractory

    1,671.3       1,666.7       1,834.2       N/A       N/A       N/A  

Leach

    357.1       332.5       390.5       3,333.1       3,017.3       2,851.1  
                                               
    2,433.6       2,460.4       2,560.7       3,333.1       3,017.3       2,851.1  
                                               

Ounces sold (000)

    2,444.1       2,538.0       2,490.8       3,327.5       3,039.9       2,858.7  
                                               

Production costs per ounce:

           

Direct mining and production costs

  $ 346     $ 297     $ 244     $ 150     $ 144     $ 124  

Deferred stripping and other costs

    (23 )     (22 )     (14 )     (8 )     (6 )     (1 )

Royalties and production taxes

    8       5       7       3       2       2  

Reclamation/accretion expense

    2       2       3       2       2       2  
                                               

Total costs applicable to sales

    333       282       240       147       142       127  

Depreciation, depletion and amortization

    51       50       55       62       65       56  
                                               

Total production costs

  $ 384     $ 332     $ 295     $ 209     $ 207     $ 183  
                                               

 

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    Australia/New Zealand     Batu Hijau, Indonesia(1)  

Year Ended December 31,

  2005     2004     2003     2005     2004     2003  

Tons mined (000 dry short tons):

           

Open pit

    60,691       64,083       73,468       225,838       235,455       231,073  

Underground

    4,023       4,806       6,744       N/A       N/A       N/A  

Tons milled/processed (000 dry short tons):

           

Oxide

    8,579       9,560       11,018       N/A       N/A       N/A  

Refractory

    7,314       7,142       8,071       50,210       54,243       49,819  

Average ore grade: (oz/ton)

           

Oxide

    0.147       0.150       0.151       N/A       N/A       N/A  

Refractory

    0.067       0.072       0.078       0.018       0.016       0.015  

Average mill recovery rate:

           

Oxide

    94.0 %     94.4 %     94.9 %     N/A       N/A       N/A  

Refractory

    85.6 %     86.7 %     85.1 %     80.7 %     80.9 %     80.9 %

Ounces produced (000):

           

Oxide

    1,185.6       1,365.5       1,671.1       N/A       N/A       N/A  

Refractory

    409.4       453.2       421.2       731.8       718.8       600.8  
                                               
    1,595.0       1,818.7       2,092.3       731.8       718.8       600.8  
                                               

Ounces sold (000)

    1,600.5       1,887.6       2,016.7       720.5       715.2       N/A  
                                               

Production costs per ounce:

           

Direct mining and production costs

  $ 311     $ 259     $ 225     $ 146     $ 110     $ N/A  

Deferred stripping and other costs

    (10 )     4       (2 )     (5 )     9       N/A  

Royalties and production taxes

    13       14       14       9       8       N/A  

Reclamation/accretion expense

    3       3       2       2       1       N/A  
                                               

Total costs applicable to sales

    317       280       239       152       128       N/A  

Depreciation, depletion and amortization

    74       67       61       47       39       N/A  
                                               

Total production costs

  $ 391     $ 347     $ 300     $ 199     $ 167     $ N/A  
                                               

(1) Newmont’s economic interest decreased to 52.875% from 56.25% on October 1, 2004.
(2) Batu Hijau sold 584,700 ounces of gold in 2003 (328,900 equity ounces). Batu Hijau was accounted for by the equity method in 2003. Had Batu Hijau been consolidated in 2003, Costs applicable to sales would have been $119 per ounce and Depreciation, depletion and amortization would have been $55 per ounce.

 

   

Other Operations

   

Total Gold

Year Ended December 31,

 

2005

 

2004

  2003    

2005

 

2004

 

2003

Ounces produced (000):

           

Oxide

  161.8   264.8     402.3     1,752.6   2,091.5   2,409.4

Refractory

  N/A   63.8     218.7     2,812.5   2,902.5   2,474.1

Leach

  301.6   299.0     391.5     3,991.8   3,648.8   3,633.1
                           
  463.4   627.6     1,012.5     8,556.9   8,642.8   8,516.6
                           

Ounces sold (000)

  459.4   648.2     1,011.2     8,552.0   8,828.9   8,377.4
                           

Production costs per ounce:

           

Direct mining and production costs

  $225   $215   $ 184     $239   $214   $191

Deferred stripping and other costs

  (6)   (4)     (2 )   (12)   (6)   (5)

Royalties and production taxes

  5   5     4     7   6   7

Reclamation/accretion expense

  5   4     3     2   2   2
                           

Total costs applicable to sales

  229   220     189     236   216   195

Depreciation, depletion and amortization

  63   73     67     60   60   58
                           

Total production costs

  $292   $293   $ 256     $296   $276   $253
                           

 

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The following table details operating statistics related to copper production and sales.

 

     Batu Hijau, Indonesia(1)  

Year Ended December 31,

   2005     2004     2003(2)  

Tons milled/processed (thousands)

     50,210       54,243       49,819  

Average copper grade

     0.69 %     0.75 %     0.72 %

Average copper recovery rate

     86.7 %     87.8 %     88.6 %

Copper pounds produced (millions)

     596.0       716.9       634.1  

Copper pounds sold (millions)

     572.7       683.3       N/A  

Costs applicable to sales per pound

   $ 0.53     $ 0.45     $ N/A  

Total production cost per pound

   $ 0.68     $ 0.58     $ N/A  

(1) Newmont’s economic interest decreased to 52.875% from 56.25% on October 1, 2004.
(2) Batu Hijau was accounted for by the equity method in 2003. Had Batu Hijau been consolidated in 2003 copper pounds sold would have been 610.5 million pounds (343.4 million equity pounds), Costs applicable to sales would have been $0.31 per pound and Total production cost per pound would have been $0.44 per pound.

Royalty Properties

The following is a description of Newmont’s principal royalty interests, all of which were acquired as a result of the Franco-Nevada acquisition. Newmont’s royalty interests are generally in the form of a net smelter return (“NSR”) royalty, which provides for the payment, either in cash or physical metal (“in kind”) of a specified percentage of production, less certain specified transportation and refining costs. In some cases, Newmont owns a net profit interest (“NPI”) pursuant to which Newmont is entitled to a specified percentage of the net profits, as defined in each case, from a particular mining operation. The majority of NSR royalty revenue and NPI revenue can be received in kind (generally in the form of gold bullion) at Newmont’s option. Newmont also has a significant oil and gas royalty portfolio in Western Canada. In 2005, Newmont’s Royalty and dividend income, net was $79.

Nevada-Goldstrike.    Newmont holds various NSR and NPI royalties at the Goldstrike properties (Betze-Post and Meikle mines) located on the Carlin Trend in northern Nevada. The Betze-Post and Meikle mines are owned and operated by a subsidiary of Barrick. Newmont received $22 in royalty income from the Goldstrike properties in 2005.

The Betze-Post mine is a conventional open pit operation. The Betze-Post property consists of various claim blocks and Newmont’s royalty interest in each claim block is different, ranging from 0% to 4% for the NSRs and 0% to 6% for the NPIs. The Meikle mine is an underground operation comprising the Meikle, Rodeo and Griffin deposits, located one mile north of the Betze-Post mine, with which it shares the Goldstrike processing facilities. Newmont holds a 4% NSR and a 5% NPI over 1,280 acres of the claims that cover most of the Meikle, Rodeo and Griffin deposits. Newmont is not obligated to fund any portion of the cost associated with the Betze-Post or the Meikle mines.

Montana-Stillwater.    Newmont holds a 5% NSR royalty on a portion of the Stillwater mine and all of the East Boulder mine, both located near Nye, Montana and owned and operated by Stillwater Mining Company. Newmont received $9 in royalty income from the Stillwater properties in 2005. Stillwater produces palladium, platinum, and associated metals (platinum group metals or PGMs) from a geological formation known as the J-M Reef. Stillwater is the only significant producer of PGMs outside of South Africa and Russia. The J-M Reef is an extensive mineralized zone containing PGMs, which has been traced over a strike length of approximately 28 miles. To date, the majority of production has been from the Stillwater mine, with East Boulder commencing production during 2001. For the year 2005, an average of approximately 80% of the total production from the Stillwater mine and 100% of the total production from the East Boulder mine was subject to Newmont’s royalty. Because Newmont’s royalty does not apply to a portion of the Stillwater properties the percentage of future production from the royalty lands will vary from year to year.

 

25


Table of Contents

Canada-Oil and Gas Interests.    Newmont’s oil and gas royalty portfolio covers 1.8 million gross acres of producing and non-producing lands located in western Canada and the Canadian Arctic. The average royalty on these lands is 6%. Newmont received $29 in royalty income from these properties in 2005.

Investment Interests

Newmont owns a portfolio of marketable equity securities, the major components of which are Canadian Oil Sands Trust, Shore Gold Corporation, Gabriel Resources, Ltd. and Miramar Mining Corporation. The market value of the portfolio was $940 as of December 31, 2005.

Proven and Probable Reserves

Newmont had proven and probable gold reserves of 93.2 million equity ounces as of December 31, 2005.

Gold reserves for 2005 were calculated at a gold price of $400, A$550 or NZ$650 per ounce, except at Kalgoorlie, where gold reserves were calculated at a gold price of A$560 per ounce. 2005 gold reserves would decline by approximately 8%, or 7 million ounces, if calculated at a gold price of $375 per ounce. An increase in the gold price to $425 per ounce would increase gold reserves by approximately 6%, or 6 million ounces, all other assumptions remaining constant.

At year-end 2005, Nevada proven and probable gold reserves were 33.3 million equity ounces. Outside of Nevada, year-end gold reserves were 59.9 million equity ounces, including 14.9 million equity ounces in Australia/New Zealand, 16.8 million equity ounces in Peru and 18.7 million equity ounces in Ghana. Copper reserves at year-end 2005 were 9.1 billion equity pounds. Copper reserves were calculated at a copper price of $1.00 or A$1.43 per pound.

Under current mining plans, all reserves are located on fee property or mining claims or will be depleted during the terms of existing mining licenses or concessions, or where applicable, any assured renewal or extension periods for such licenses or concessions.

Proven and probable reserves are based on extensive drilling, sampling, mine modeling and metallurgical testing from which economic feasibility has been determined. The price sensitivity of reserves depends upon several factors including grade, metallurgical recovery, operating cost, waste-to-ore ratio and ore type. Metallurgical recovery rates vary depending on the metallurgical properties of each deposit and the production process used. The reserve tables below list the average metallurgical recovery rate for each deposit, which takes into account the several different processing methods to be used. The cut-off grade, or lowest grade of mineralized material considered economic to process, varies with material type, metallurgical recoveries and operating costs.

The proven and probable reserve figures presented herein are estimates based on information available at the time of calculation. No assurance can be given that the indicated levels of recovery of gold and copper will be realized. Ounces of gold or pounds of copper in proven and probable reserves are calculated without regard to any losses during metallurgical treatment. Reserve estimates may require revision based on actual production experience. Market price fluctuations of gold and copper, as well as increased production costs or reduced metallurgical recovery rates, could render proven and probable reserves containing relatively lower grades of mineralization uneconomic to exploit and might result in a reduction of reserves.

Reserves are published once each year and will be recalculated as of December 31, 2006, taking into account metal prices, divestments and depletion as well as any acquisitions and additions to reserves during 2006.

 

26


Table of Contents

The following tables detail gold proven and probable reserves(1) reflecting only those reserves owned by Newmont on December 31, 2005 and 2004:

 

    December 31, 2005  
        Proven Reserves   Probable Reserves   Proven and Probable Reserves      

Deposits/Districts

 

Newmont

Share

 

Tonnage(2)

(000 tons)

 

Grade

(oz/ton)

 

Ounces(3)

(000)

 

Tonnage(2)

(000 tons)

 

Grade

(oz/ton)

 

Ounces(3)

(000)

 

Tonnage(2)

(000 tons)

 

Grade

(oz/ton)

 

Ounces(3)

(000)

  Metallurgical
Recovery(3)
 

Nevada(4)

                     

Carlin Open Pit(5)

  100%   21,000   0.072   1,520   217,300   0.041   8,810   238,300   0.043   10,330   72 %

Twin Creeks

  100%   14,800   0.081   1,200   46,400   0.072   3,320   61,200   0.074   4,520   82 %

Lone Tree Complex(6)

  100%   800   0.096   70   3,200   0.076   250   4,000   0.080   320   80 %

Phoenix(7)

  100%   —     —     —     308,400   0.029   8,950   308,400   0.029   8,950   81 %

Carlin Underground(8)

  100%   1,700   0.53   900   6,000   0.47   2,850   7,700   0.49   3,750   94 %

Midas(9)

  100%   600   0.67   430   900   0.52   470   1,500   0.58   900   95 %

Turquoise Ridge(10)

  25%   1,100   0.56   620   800   0.57   480   1,900   0.56   1,100   90 %

Nevada Stockpiles(11)

  100%   22,600   0.089   2,010   4,800   0.053   250   27,400   0.083   2,260   80 %

Nevada In-Process(12)

  100%   46,800   0.021   1,000   2,100   0.067   140   48,900   0.023   1,140   65 %
                                 
    109,400   0.071   7,750   589,900   0.043   25,520   699,300   0.048   33,270   80 %
                                 

Yanacocha, Peru

                     

Yanacocha Open Pits(13)

  51.35%   30,900   0.024   740   263,600   0.034   8,960   294,500   0.033   9,700   69 %

Yanacocha In-Process(12)(13)

  51.35%   34,700   0.028   970   —     —     —     34,700   0.028   970   70 %

Conga(14)

  51.35%   —     —     —     317,200   0.019   6,080   317,200   0.019   6,080   79 %
                                 
    65,600   0.026   1,710   580,800   0.026   15,040   646,400   0.026   16,750   73 %
                                 

Australia/New Zealand

                     

Boddington, Western Australia(15)

  44.44%   60,600   0.029   1,780   136,800   0.025   3,380   197,400   0.026   5,160   82 %

Kalgoorlie Open Pits and Underground

  50%   32,900   0.060   1,980   39,400   0.063   2,500   72,300   0.062   4,480   88 %

Kalgoorlie Stockpiles(11)

  50%   12,600   0.033   420   —     —     —     12,600   0.033   420   88 %
                                 

Total Kalgoorlie, Western Australia(16)

  50%   45,500   0.053   2,400   39,400   0.063   2,500   84,900   0.058   4,900   88 %
                                 

Pajingo, Queensland(17)

  100%   400   0.41   150   1,200   0.25   300   1,600   0.29   450   97 %

Tanami Underground and Open Pits

  100%   5,400   0.17   890   8,100   0.16   1,330   13,500   0.16   2,220   95 %

Tanami Stockpiles(11)

  100%   400   0.074   30   2,200   0.037   80   2,600   0.043   110   95 %
                                 

Total Tanami, Northern Territory(18)

  100%   5,800   0.16   920   10,300   0.14   1,410   16,100   0.15   2,330   95 %
                                 

Jundee, Western Australia(19)

  100%   2,900   0.060   170   3,700   0.36   1,360   6,600   0.23   1,530   93 %

Martha, New Zealand(20)

  100%   —     —     —     3,500   0.16   570   3,500   0.16   570   91 %
                                 
    115,200   0.047   5,420   194,900   0.049   9,520   310,100   0.048   14,940   88 %
                                 

Batu Hijau, Indonesia

                     

Batu Hijau Open Pit(21)

  52.875%   147,600   0.012   1,770   446,500   0.010   4,540   594,100   0.011   6,310   80 %

Batu Hijau Stockpiles(11)(21) 

  52.875%   —     —     —     103,900   0.003   340   103,900   0.003   340   69 %
                                 
    147,600   0.012   1,770   550,400   0.009   4,880   698,000   0.010   6,650   80 %
                                 

Ghana

                     

Akyem(22)

  85%   —     —     —     125,100   0.052   6,510   125,100   0.052   6,510   89 %

Ahafo(23)

  100%   —     —     —     156,900   0.078   12,190   156,900   0.078   12,190   88 %
                                 
    —     —     —     282,000   0.066   18,700   282,000   0.066   18,700   88 %
                                 

Other Operations

                     

Holloway, Ontario(24)

  100%   50   0.17   10   100   0.20   20   150   0.19   30   90 %

La Herradura, Mexico(25)

  44%   18,100   0.021   380   16,800   0.023   390   34,900   0.022   770   66 %

Kori Kollo, Bolivia(26)

  88%   12,600   0.010   120   16,200   0.019   320   28,800   0.015   440   63 %

Zarafshan-Newmont, Uzbekistan(27)

  50%   46,700   0.036   1,690   —     —     —     46,700   0.036   1,690   56 %
                                 
    77,450   0.028   2,200   33,100   0.022   730   110,550   0.027   2,930   60 %
                                 

Total Gold

    515,250   0.037   18,850   2,231,100   0.033   74,390   2,746,350   0.034   93,240   81 %
                                 

 

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Table of Contents
    December 31, 2004  
        Proven Reserves   Probable Reserves   Proven and Probable Reserves      

Deposits/Districts

 

Newmont

Share

 

Tonnage(2)

(000 tons)

 

Grade

(oz/ton)

 

Ounces(3)

(000)

 

Tonnage(2)

(000 tons)

  Grade
(oz/ton)
 

Ounces(3)

(000)

 

Tonnage(2)

(000 tons)

 

Grade

(oz/ton)

 

Ounces(3)

(000)

  Metallurgical
Recovery(3)
 

Nevada

                     

Carlin Open Pit

  100%   16,100   0.070   1,130   185,500   0.045   8,290   201,600   0.047   9,420   74 %

Twin Creeks

  100%   14,900   0.083   1,240   46,900   0.073   3,420   61,800   0.075   4,660   81 %

Lone Tree Complex

  100%   2,700   0.099   270   11,300   0.054   610   14,000   0.063   880   81 %

Phoenix

  100%   —     —     —     248,000   0.034   8,470   248,000   0.034   8,470   80 %

Carlin Underground

  100%   1,900   0.65   1,230   6,800   0.47   3,180   8,700   0.51   4,410   94 %

Midas

  100%   700   0.68   460   2,200   0.45   990   2,900   0.51   1,450   96 %

Turquoise Ridge(10)

  25%   1,100   0.61   690   600   0.62   360   1,700   0.61   1,050   91 %

Nevada Stockpiles

  100%   26,700   0.091   2,360   4,300   0.058   250   30,300   0.086   2,610   81 %

Nevada In-Process

  100%   45,700   0.021   940   1,300   0.062   80   47,000   0.022   1,020   65 %
                                 
    109,800   0.076   8,320   506,900   0.051   25,650   616,000   0.055   33,970   81 %
                                 

Yanacocha, Peru

                     

Yanacocha Open Pits

  51.35%   40,400   0.026   1,060   307,800   0.033   10,210   348,200   0.032   11,270   67 %

Yanacocha In-Process

  51.35%   29,000   0.028   820   —     —     —     29,000   0.028   820   77 %

Conga

  51.35%   —     —     —     190,500   0.023   4,470   190,500   0.023   4,470   75 %
                                 
    69,400   0.027   1,880   498,300   0.029   14,680   567,700   0.029   16,560   70 %
                                 

Australia/New Zealand

                     

Boddington, Western Australia(28)

  44.44%   61,000   0.027   1,670   129,900   0.025   3,180   190,900   0.025   4,850   82 %

Golden Grove, Western Australia(29)

  100%   2,400   0.025   60   2,100   0.069   140   4,500   0.045   200   62 %

Kalgoorlie Open Pits and Underground

  50%   35,600   0.061   2,190   39,800   0.064   2,560   75,400   0.063   4,750   87 %

Kalgoorlie Stockpiles

  50%   12,400   0.035   430   —     —     —     12,400   0.035   430   87 %
                                 

Total Kalgoorlie, Western Australia

  50%   48,000   0.055   2,620   39,800   0.064   2,560   87,800   0.059   5,180   87 %
                                 

Pajingo, Queensland

  100%   200   0.47   110   1,700   0.32   540   1,900   0.34   650   96 %

Tanami Underground and Open Pits

  100%   4,800   0.19   890   7,300   0.14   1,060   12,100   0.16   1,950   96 %

Tanami Stockpiles

  100%   1,100   0.079   90   3,000   0.037   110   4,100   0.048   200   95 %
                                 

Total Tanami, Northern Territory

  100%   5,900   0.17   980   10,300   0.11   1,170   16,200   0.13   2,150   95 %
                                 

Jundee, Western Australia

  100%   3,100   0.047   140   5,300   0.24   1,270   8,400   0.17   1,410   93 %

Martha, New Zealand

  100%   —     —     —     4,400   0.15   670   4,400   0.15   670   90 %
                                 
    120,600   0.046   5,580   193,500   0.049   9,530   314,100   0.048   15,110   87 %
                                 

Batu Hijau, Indonesia

                     

Batu Hijau Open Pit(21)

  52.875%   148,600   0.013   1,910   440,100   0.011   5,000   588,700   0.012   6,910   81 %

Batu Hijau Stockpiles(21)

  52.875%   —     —     —     86,400   0.004   300   86,400   0.004   300   73 %
                                 
    148,600   0.013   1,910   526,500   0.010   5,300   675,100   0.011   7,210   80 %
                                 

Ghana, West Africa

                     

Akyem

  85%   —     —     —     109,400   0.049   5,410   109,400   0.049   5,410   89 %

Ahafo

  100%   —     —     —     156,900   0.068   10,630   156,900   0.068   10,630   88 %
                                 
    —     —     —     266,300   0.060   16,040   266,300   0.060   16,040   88 %
                                 

Other Operations

                     

Golden Giant, Ontario(30)

  100%   —     —     —     500   0.31   160   500   0.31   160   96 %

Holloway, Ontario(31)

  93.87%   500   0.16   80   900   0.19   180   1,400   0.18   260   94 %

La Herradura, Mexico

  44%   11,300   0.025   280   11,000   0.030   330   22,300   0.027   610   66 %

Kori Kollo, Bolivia

  88%   5,900   0.017   100   16,600   0.022   370   22,500   0.021   470   63 %

Ovacik, Turkey(32)

  100%   200   0.38   70   200   0.15   30   400   0.25   100   96 %

Zarafshan-Newmont, Uzbekistan

  50%   53,800   0.037   1,940   —     —     —     53,800   0.037   1,940   57 %
                                 
    71,700   0.034   2,470   29,200   0.037   1,070   100,900   0.035   3,540   64 %
                                 

Total Gold

    520,100   0.039   20,160   2,020,700   0.036   72,270   2,540,100   0.036   92,430   81 %
                                 

 

28


Table of Contents

(1) The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination.

The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated in a full feasibility study to be viable and justifiable under reasonable investment and market assumptions.

The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, Newmont must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with Newmont’s current mine plans.

The term “proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; (b) grade and/or quality are computed from the results of detailed sampling; and (c) the sites for inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that size, shape, depth and mineral content of reserves are well established.

The term “probable reserves” means reserves for which quantity and grade are computed from information similar to that used for proven reserves, but the sites for sampling are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

Proven and probable reserves were calculated using different cut-off grades. The term “cut-off grade” means the lowest grade of mineralized material that can economically be included in the reserves in a given deposit. Cut-off grades vary between deposits depending upon prevailing economic conditions, mineability of the deposit, amenability of the ore to gold extraction, and type of milling or leaching facilities available.

2005 reserves were calculated at a gold price of $400, A$550 or NZ$650 per ounce unless otherwise noted.

2004 reserves were calculated at a gold price of $350, A$550 or NZ$650 per ounce unless otherwise noted.

(2) Tonnages include allowances for losses resulting from mining methods. Tonnages are rounded to the nearest 100,000.
(3) Ounces or pounds are estimates of metal contained in ore tonnages and do not include allowances for processing losses. Metallurgical recovery rates represent the estimated amount of metal to be recovered through metallurgical extraction processes. Ounces are rounded to the nearest 10,000.
(4) Cut-off grades utilized in Nevada 2005 reserves were as follows: oxide leach material not less than 0.006 ounce per ton; oxide mill material not less than 0.060 ounce per ton; refractory leach material not less than 0.031 ounce per ton; and refractory mill material not less than 0.038 ounce per ton.
(5) Includes undeveloped reserves at Castle Reef, North Lantern and Emigrant deposits for combined total undeveloped reserves of 1.75 million ounces.
(6) The Lone Tree deposit will be mined out in August 2006 based on the current mine plan. Processing of stockpiles and residual leaching will continue after the open pit operation is closed.
(7) Deposit is partially developed. Construction of facilities began in November 2004, and production is expected in mid-2006.
(8) Includes partially developed reserves at Leeville, which contains total reserves of 2.4 million ounces. Production is expected in 2006.
(9) Also contains reserves of 11 million ounces of silver with a metallurgical recovery of 90%.
(10) Reserves estimate provided by Placer Dome, the operator of the Turquoise Ridge Joint Venture.
(11) Stockpiles are comprised primarily of material that has been set aside to allow processing of higher grade material in the mills. Stockpiles increase or decrease depending on current mine plans. Stockpile reserves are reported separately where tonnage or contained ounces are greater than 5% of the total site-reported reserves and contained ounces are greater than 100,000.
(12) In-process material is material on leach pads at the end of each year from which gold remains to be recovered. In-process material reserves are reported separately where tonnage or contained ounces are greater than 5% of the total site-reported reserves and contained ounces are greater than 100,000.
(13) Reserves include currently undeveloped deposits at Corimayo and Chaquicocha Sur, which contain combined undeveloped reserves of 3 million equity ounces. Cut-off grades utilized in 2005 reserves were as follows: oxide leach material not less than 0.004 ounce per ton; and oxide mill material not less than 0.038 ounce per ton.
(14) Deposits are currently undeveloped. Cut-off grade utilized in 2005 reserves not less than 0.009 ounce per ton.
(15) Deposit is currently undeveloped. Cut-off grade utilized in 2005 reserves not less than 0.010 ounce per ton. Newmont announced the acquisition of an additional 22.22% equity interest on February 12, 2006, which upon closing will increase Newmont’s equity ownership to 66.67%.
(16) Reserves based on a gold price of A$560 per ounce. Cut-off grade utilized in 2005 reserves not less than 0.026 ounce per ton.
(17) Cut-off grade utilized in 2005 reserves not less than 0.035 ounce per ton.
(18) Cut-off grade utilized in 2005 reserves not less than 0.031 ounce per ton.
(19) Cut-off grade utilized in 2005 reserves not less than 0.018 ounce per ton.
(20) Includes partially developed reserves at the Favona deposit containing 350,000 ounces. Cut-off grade utilized in 2005 reserves not less than 0.029 ounce per ton.
(21) Percentage reflects Newmont’s economic interest in remaining reserves. Cut-off grade utilized in 2005 reserves not less than 0.007 ounce per ton.

 

29


Table of Contents
(22) Deposit is undeveloped. Newmont acquired the remaining 15% interest in January 2006, bringing Newmont’s equity interest to 100% for 2006. Cut-off grade utilized in 2005 reserves not less than 0.012 ounce per ton.
(23) Deposits are partially developed and include undeveloped reserves totaling 5.5 million ounces. Construction of facilities began in November 2004, and production is expected in the second half of 2006. Cut-off grade utilized in 2005 reserves not less than 0.016 ounce per ton.
(24) Newmont’s equity interest increased to 100% in 2005 from 93.87% in 2004 because our joint venture partner elected not to participate in the work program; as a result, its equity interest converted into a net profits interest. Property includes partially developed reserves of 15,000 ounces at the Blacktop deposit. Cut-off grade utilized in 2005 reserves not less than 0.16 ounce per ton.
(25) Cut-off grade utilized in 2005 reserves not less than 0.008 ounce per ton.
(26) Cut-off grade utilized in 2005 reserves not less than 0.009 ounce per ton.
(27) Reserves are comprised primarily of stockpile material contractually designated for processing by Zarafshan-Newmont. Tonnage and gold content of material available to Zarafshan-Newmont for processing from the designated stockpiles are guaranteed by the state entities of Uzbekistan. Subsequent to December 31, 2005, and pursuant to an agreement with the state entities, the state entities re-designated the stockpile material available to Zarafshan-Newmont, which will reduce 2006 reserves by approximately 190,000 ounces.
(28) Reserves were calculated at a gold price of A$425 per ounce.
(29) Golden Grove was sold in July 2005. Gold reported in reserves was contained within zinc and copper orebodies.
(30) Reserves were depleted by mining in December 2005, and the mine was closed.
(31) Ownership percentage reflected Newmont’s equity interest based upon the weighted average of its 84.65% interest in the Holloway Joint Venture and 100% interest in remaining reserves.
(32) Ovacik was sold in March 2005.

 

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The following tables detail copper proven and probable reserves(1) reflecting only those reserves owned by Newmont on December 31, 2005 or 2004:

 

    December 31, 2005  
          Proven Reserves   Probable Reserves   Proven and Probable Reserves      

Deposits/Districts

 

Newmont

Share

   

Tonnage(2)

(000 tons)

 

Grade

(Cu %)

    Millions of
Pounds(3)
 

Tonnage(2)

(000 tons)

 

Grade

(Cu %)

    Millions of
Pounds(3)
 

Tonnage(2)

(000 tons)

 

Grade

(Cu %)

   

Millions of

Pounds(3)

  Metallurgical
Recovery(3)
 

Phoenix, Nevada(4)

  100 %   —     —       —     309,900   0.15 %   900   309,900   0.15 %   900   67 %

Conga, Peru(5)

  51.35 %   —     —       —     317,200   0.26 %   1,660   317,200   0.26 %   1,660   85 %

Batu Hijau(6)

  52.875 %   147,600   0.47 %   1,390   446,500   0.44 %   3,920   594,100   0.45 %   5,310   83 %

Batu Hijau, Stockpiles(6)(7)

  52.875 %   —     —       —     103,900   0.36 %   750   103,900   0.36 %   750   70 %
                                 

Total Batu Hijau, Indonesia(6)

  52.875 %   147,600   0.47 %   1,390   550,400   0.42 %   4,670   698,000   0.43 %   6,060   81 %
                                 

Boddington, Western
Australia(8)

  44.44 %   60,600   0.12 %   140   136,600   0.12 %   340   197,200   0.12 %   480   83 %
                                 

Total Copper

    208,200   0.37 %   1,530   1,314,100   0.29 %   7,570   1,522,300   0.30 %   9,100   81 %
                                 
    December 31, 2004  
          Proven Reserves   Probable Reserves   Proven and Probable Reserves      

Deposits/Districts

 

Newmont

Share

   

Tonnage(2)

(000 tons)

 

Grade

(Cu %)

   

Millions of

Pounds(3)

 

Tonnage(2)

(000 tons)

 

Grade

(Cu %)

   

Millions of

Pounds(3)

 

Tonnage(2)

(000 tons)

 

Grade

(Cu %)

   

Millions of

Pounds(3)

 

Metallurgical

Recovery(3)

 

Phoenix, Nevada

  100 %   —     —       —     216,700   0.15 %   660   216,700   0.15 %   660   67 %

Conga, Peru

  51.35 %   —     —       —     190,600   0.30 %   1,140   190,600   0.30 %   1,140   90 %

Batu Hijau

  52.875 %   148,700   0.50 %   1,480   440,200   0.47 %   4,120   588,900   0.48 %   5,600   86 %

Batu Hijau, Stockpiles

  52.875 %   —     —       —     86,500   0.38 %   660   86,500   0.38 %   660   80 %
                                 

Total Batu Hijau, Indonesia(7)

  52.875 %   148,700   0.50 %   1,480   526,700   0.45 %   4,780   675,400   0.46 %   6,260   85 %
                                 

Boddington, Western
Australia(9)

  44.44 %   61,000   0.12 %   140   129,700   0.13 %   330   190,700   0.12 %   470   84 %
                                 

Golden Grove, Western Australia(10)

  100 %   3,100   2.91 %   180   5,600   1.60 %   180   8,700   2.07 %   360   88 %
                                 

Total Copper

    212,800   0.42 %   1,800   1,069,300   0.33 %   7,090   1,282,100   0.35 %   8,890   84 %
                                 

(1) See footnote (1) to the Gold Proven and Probable Reserves tables above. Copper reserves for 2005 were calculated at a copper price of $1.00 or A$1.43 per pound. Copper reserves for 2004 were calculated at a copper price of $0.90 or A$1.45 per pound.
(2) See footnote (2) to the Gold Proven and Probable Reserves tables above. Tonnages are rounded to the nearest 100,000.
(3) See footnote (3) to the Gold Proven and Probable Reserves tables above. Pounds are rounded to the nearest 10 million.
(4) Deposit is partially developed. Construction of facilities began in November 2004, and production is expected in mid-2006.
(5) Deposits are undeveloped.
(6) Percentage reflects Newmont’s economic interest in remaining reserves.
(7) Stockpiles are comprised primarily of material that has been set aside to allow processing of higher grade material in the mills. Stockpiles increase or decrease depending on current mine plans. Stockpile reserves are reported separately where tonnage or contained metal is greater than 5% of the total site-reported reserves.
(8) Deposit is undeveloped. Newmont announced the acquisition of an additional 22.22% equity interest on February 12, 2006, which upon closing will increase Newmont’s equity ownership to 66.67%.
(9) Reserves were calculated at a copper price of A$1.25 per pound.
(10) Golden Grove was sold in July 2005.

 

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The following table reconciles year-end 2005 and 2004 gold proven and probable equity reserves:

 

     Contained Ounces  
     (in millions)  

December 31, 2004

   92.4  

Depletion(1)

   (8.3 )

Divestments(2)

   (0.3 )

Revisions and Additions

   9.4  
      

December 31, 2005

   93.2  
      

(1) Reserves mined and processed in 2005.
(2) Includes 200,000 ounces from the sale of Golden Grove and 100,000 ounces from the sale of Ovacik.

 

ITEM 3. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 30 to the Consolidated Financial Statements.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2005.

 

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Newmont’s executive officers as of February 22, 2006 were:

 

Name

   Age   

Office

Wayne W. Murdy

   61    Chairman and Chief Executive Officer

Pierre Lassonde

   58    President

Britt D. Banks

   44    Senior Vice President and General Counsel

Thomas L. Enos

   54    Senior Vice President, Operations

Bruce D. Hansen

   48    Senior Vice President, Operations Services and Development

Richard T. O’Brien

   51    Senior Vice President and Chief Financial Officer

Russell Ball

   37    Vice President and Controller

Paul J. Dowd

   56    Vice President, Australian Operations

Robert J. Gallagher

   55    Vice President, Australian and Indonesian Operations

David Gutierrez

   51    Vice President, Tax

David Harquail

   49    Vice President, Merchant Banking

Brant Hinze

   50    Vice President, North American Operations

Thomas P. Mahoney

   50    Vice President and Treasurer

Carlos Santa Cruz

   50    Vice President, South American Operations

William M. Zisch

   48    Vice President, African and Central Asian

There are no family relationships by blood, marriage or adoption among any of the above executive officers of Newmont. All executive officers are elected annually by the Board of Directors of Newmont to serve for one year or until his respective successor is elected and qualified. The Arrangement Agreement between Newmont and Franco-Nevada provided that Mr. Lassonde would become the President of Newmont upon our acquisition of Franco-Nevada. There is no arrangement or understanding between any of the above executive officers and any other person pursuant to which he was selected as an executive officer.

Mr. Murdy has been Chairman of the Board of Newmont since January 2002 and Chief Executive Officer thereof since January 2001. Mr. Murdy was President of Newmont from July 1999 to February 2002. He served

 

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as Executive Vice President and Chief Financial Officer from July 1996 to July 1999, and Senior Vice President and Chief Financial Officer from December 1992 to July 1996. Mr. Murdy was elected to the Board of Directors of Newmont in September 1999.

Mr. Lassonde became President of Newmont in February 2002 and was elected a director in March 2002. Previously he served as President and Co-Chief Executive Officer of Franco-Nevada from September 1999 to February 2002 and as President of Franco-Nevada from October 1982 to February 2002. He also served as President and Chief Executive Officer of Euro-Nevada Mining Corporation from 1985 to September 1999, when it amalgamated with Franco-Nevada. He has served as a director of Franco-Nevada since October 1982 and was a director of Normandy Mining Limited from May 2001 to March 2002.

Mr. Banks was elected Senior Vice President and General Counsel in April 2005. Previously, he served as Vice President and General Counsel from May 2001 to April 2005; Secretary from April 2001 to April 2004; and Associate General Counsel from July 1996 to May 2001.

Mr. Enos was elected Senior Vice President, Operations, in October 2005. Previously, he served as Senior Vice President, International Operations, from March 2005 to October 2005; Vice President, International Operations, from December 2002 to March 2005; Vice President of Newmont and Managing Director of Newmont Indonesia Limited from May 2002 to November 2002; and Vice President, Indonesian Operations from July 1998 to May 2002.

Mr. Hansen was elected Senior Vice President, Operations Services and Development in September 2005. Mr. Hansen served as Senior Vice President and Chief Financial Officer from July 1999 to September 2005.

Mr. O’Brien was elected Senior Vice President and Chief Financial Officer in September 2005. Mr. O’Brien was Executive Vice President and Chief Financial Officer of AGL Resources from April 2001 to September 2005 and Vice President of Mirant Corporation from March 2000 to April 2001.

Mr. Ball was elected Vice President and Controller of Newmont in August 2004. Previously, he served as Group Executive, Investor Relations, May 2002 to August 2004 and Finance Director, Indonesia, from June 2001 to April 2002.

Mr. Dowd was named Vice President, Australian Operations, in January 2006. He previously served as Vice President, Australian Operations, from December 2004 to January 2006; Vice President, Operational Development, Health and Safety from July 2002 to December 2004; and Group Executive, Operations of Normandy Mining Limited from May 1999 to July 2002.

Mr. Gallagher was named Vice President, Australian and Indonesian Operations, in January 2006. He served as Vice President, Indonesia Operations, from April 2004 to January 2006; Managing Director, Newmont Indonesia Limited from November 2002 to April 2004; General Manager of Newmont’s Batu Hijau operations in Indonesia from April 2001 to November 2002; and Director of Operations thereof from August 2000 to April 2001.

Mr. Gutierrez was named Vice President, Tax, in December 2005. Prior to joining Newmont, he was a partner with KPMG LLP from June 2002 to December 2005, serving as the Denver office Tax Managing Partner from September 2003 to December 2005. Prior to that he was a partner with Arthur Andersen LLP, serving as the Denver office managing partner from September 1997 to June 2002.

Mr. Harquail was elected Vice President, Merchant Banking, in April 2004, having served as President and Managing Director of Newmont Capital Limited since May 2002 and Vice President of Newmont since September 2003. Previously, he served as Senior Vice President of Franco-Nevada Mining Corporation Limited from May 1998 to February 2002.

 

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Mr. Hinze was elected Vice President, North American Operations, in October 2005. He previously served as General Manager of the Minera Yanacocha operations in Peru from April 2003 to October 2005 and managed Newmont’s Minahasa and Martabe projects in Indonesia from January 2001 to December 2002.

Mr. Mahoney was elected Vice President and Treasurer of Newmont in May 2002. He served as Treasurer of Newmont from May 2001 to May 2002. Previously, he served as Assistant Treasurer from March 1997 to May 2001.

Mr. Santa Cruz has served as Vice President, South American Operations, of Newmont since August 2001. He served as General Manager of Minera Yanacocha S.R.L. from 1997 to 2001.

Mr. Zisch was named Vice President, African and Central Asian Operations, in January 2006. He previously served as Vice President, African Operations from October 2005 to January 2006; Group Executive, African Operations, from October 2003 to October 2005; and Operations Manager of the Minera Yanacocha operations in Peru from January 2001 to October 2003.

 

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Table of Contents

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Newmont’s common stock is listed and principally traded on the New York Stock Exchange (under the symbol “NEM”) and is also listed in the form of CHESS Depositary Interests (“CDIs”) (under the symbol “NEM”) on the Australian Stock Exchange (“ASX”). In Australia, Newmont is referred to as “Newmont Mining Corporation ARBN 099 065 997 organized in Delaware with limited liability.” Since July 1, 2002, Newmont CDIs have traded on the ASX as a Foreign Exempt Listing granted by the ASX, which provides an ancillary trading facility to Newmont’s primary listing on NYSE. Newmont Mining Corporation of Canada Limited’s exchangeable shares (“Exchangeable Shares”) are listed on the Toronto Stock Exchange (under the symbol “NMC”). The Exchangeable Shares were issued in connection with the acquisition of Franco-Nevada. The following table sets forth, for the periods indicated, the high and low sales prices per share of Newmont’s common stock as reported on the New York Stock Exchange Composite Tape.

 

     2005    2004
     High    Low    High    Low

First quarter

   $ 46.24    $ 40.40    $ 49.75    $ 41.10

Second quarter

   $ 42.45    $ 35.10    $ 46.75    $ 35.41

Third quarter

   $ 48.05    $ 36.86    $ 45.53    $ 38.11

Fourth quarter

   $ 53.69    $ 42.51    $ 49.65    $ 43.97

On February 22, 2006, there were outstanding 417,383,659 shares of Newmont’s common stock (including shares represented by CDIs), which were held by approximately 17,493 stockholders of record. A dividend of $0.10 per share of common stock outstanding was declared in each quarter of 2005, for a total of $0.40 during the year. A dividend of $0.05 per share of common stock outstanding was declared in the first quarter of 2004, $0.075 per share of common stock outstanding was declared in the second and third quarters of 2004 and $0.10 per share of common stock outstanding was declared in the fourth quarter of 2004, for a total of $0.30 during the year.

On February 22, 2006, there were outstanding 31,145,915 Exchangeable Shares, which were held by 47 holders of record. The Exchangeable Shares are exchangeable at the option of the holders into Newmont common stock. Holders of Exchangeable Shares are therefore entitled to receive dividends equivalent to those that Newmont declares on its common stock.

The determination of the amount of future dividends will be made by Newmont’s Board of Directors from time to time and will depend on Newmont’s future earnings, capital requirements, financial condition and other relevant factors.

Issuer purchase of equity securities:

 

Period

  

(a)

Total
Number
of Shares
Purchased

   

(b)

Average
Price Paid
Per Share

  

(c)

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

  

(d)

Maximum Number (or
Approximate Dollar Value) of
Shares that may yet be
Purchased under the Plans or
Programs

October 1, 2005 through October 31, 2005

   —         —         N/A

November 1, 2005 through November 30, 2005

   —         —         N/A

December 1, 2005 through December 31, 2005

   2,621 (1)   $ 51.33       N/A

(1) Represents shares delivered to the Company from deferred stock held by Company employees upon vesting for purpose of covering the recipients’ tax withholding obligations.

 

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ITEM 6. SELECTED FINANCIAL DATA (dollars in millions, except per share)

 

    Years Ended December 31,  
    2005     2004(1)     2003     2002   2001  

Revenues

  $ 4,406     $ 4,411     $ 3,059     $ 2,541   $ 1,642  

Income (loss) from continuing operations, net of preferred stock dividend

  $ 374     $ 453     $ 511     $ 147   $ (52 )

Net income (loss) applicable to common shares(2)(3)

  $ 322     $ 443     $ 476     $ 154   $ (54 )

Basic income (loss) per common share:

         

From continuing operations

  $ 0.84     $ 1.02     $ 1.24     $ 0.39   $ (0.27 )

Discontinued operations

  $ (0.12 )   $ 0.09     $ —       $ 0.01   $ (0.01 )

Cumulative effect of a change in accounting principle

  $ —       $ (0.11 )   $ (0.08 )   $ 0.02   $ —    
                                     

Net income (loss) per common share, basic

  $ 0.72     $ 1.00     $ 1.16     $ 0.42   $ (0.28 )
                                     

Diluted income (loss) per common share:

         

From continuing operations

  $ 0.83     $ 1.01     $ 1.23     $ 0.38   $ (0.27 )

Discontinued operations

  $ (0.11 )   $ 0.09     $ —       $ 0.01   $ (0.01 )

Cumulative effect of a change in accounting principle

  $ —       $ (0.11 )   $ (0.08 )   $ 0.02   $ —    
                                     

Net income (loss) per common share, diluted

  $ 0.72     $ 0.99     $ 1.15     $ 0.41   $ (0.28 )
                                     

Dividends declared per common share

  $ 0.40     $ 0.30     $ 0.17     $ 0.12   $ 0.12  
    At December 31,  

Total assets

  $ 13,992     $ 12,776     $ 10,698     $ 10,147   $ 4,142  

Long-term debt, including current portion

  $ 1,929     $ 1,602     $ 1,078     $ 1,817   $ 1,427  

Stockholders’ equity

  $ 8,376     $ 7,938     $ 7,385     $ 5,419   $ 1,500  

(1) Effective January 1, 2004, the Company consolidated Batu Hijau.
(2) Net income (loss) includes the cumulative effect of a change in accounting principle related to a net expense for the consolidation of Batu Hijau of $47 ($0.11 per share) net of tax and minority interest in 2004; a net expense for reclamation and remediation of $35 ($0.08 per share), net of tax, in 2003; and a net gain for depreciation of property, plant and mine development of $8 ($0.02 per share), net of tax, in 2002.
(3) Net income (loss) includes income (loss) from discontinued operations for Golden Grove and Holloway of ($52) ($0.12 per share, $37 ($0.09 per share), $nil, $3 ($0.01 per share) and ($2) ($0.01 per share) net of tax in 2005, 2004, 2003, 2002 and 2001 respectively.

 

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Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in millions, except per share, per ounce and per pound amounts)

The following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont” or the “Company”). References to “A$” refer to Australian currency, “CDN$” to Canadian currency, “CHF” to Swiss currency, “NZD$” to New Zealand currency, “IDR” to Indonesian currency and or “$” to United States currency.

This discussion addresses matters we consider important for an understanding of our financial condition and results of operations as of and for the three years ended December 31, 2005, as well as our future results. It consists of the following subsections:

 

    “Overview,” which provides a brief summary of our consolidated results and financial position and the primary factors affecting those results, as well as a summary of our expectations for 2006;

 

    “Accounting Changes,” which provides a discussion of recent changes to our accounting policies that have affected our consolidated results and financial position;

 

    “Critical Accounting Policies,” which provides an analysis of the accounting policies we consider critical because of their effect on the reported amounts of assets, liabilities, income and/or expenses in our consolidated financial statements and/or because they require difficult, subjective or complex judgments by our management;

 

    “Consolidated Financial Results,” which includes a discussion of our consolidated financial results for the last three years;

 

    “Results of Operations,” which sets forth an analysis of the operating results for the last three years, the Merchant Banking Segment and the Exploration Segment;

 

    “Recent Accounting Pronouncements,” which summarizes recently published authoritative accounting guidance, how it might apply to us and how it might affect our future results; and

 

    “Liquidity and Capital Resources,” which contains a discussion of our cash flows and liquidity, investing activities and financing activities, contractual obligations and off-balance sheet arrangements.

This item should be read in conjunction with our consolidated financial statements and the notes thereto included in this annual report.

Overview

Newmont is one of the world’s largest gold producers and is the only gold company included in the S&P 500 Index. We are also engaged in the exploration for and acquisition of gold properties. We have operations in the United States, Australia, Peru, Indonesia, Canada, Uzbekistan, Bolivia, New Zealand and Mexico. We have two development projects in Ghana, which is expected to become our next core operating district. During the last several years we have expanded our global footprint through our exploration efforts and through the acquisition of operating and development assets.

We face key risks associated with our business. One of the most significant risks is fluctuation in the prices of gold and copper, which are affected by numerous factors beyond our control. Other challenges we face include production cost increases and social and environmental issues. Operating costs at our operations are subject to variation due to a number of factors, such as changing ore grades, metallurgy, revisions to mine plans and changes in accounting principles. At foreign locations, such costs are also influenced by currency fluctuations that may affect our U.S. dollar operating costs. In addition, we must continually replace reserves depleted by production. Depleted reserves must be replaced by expanding known ore bodies, by acquisition or by locating new deposits in order to maintain production levels over the long term.

 

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Summary of Consolidated Financial and Operating Performance

The table below highlights key financial and operating results:

 

     Years Ended December 31,
     2005    2004    2003

Sales—gold, net

   $ 3,734    $ 3,625    $ 3,059

Sales—copper, net

   $ 672    $ 786      N/A

Consolidated gold ounces sold

     8,552.0      8,828.9      8,377.4

Consolidated copper pounds sold

     572.7      683.3      N/A

Average price received(1)

        

Gold ($/oz)

   $ 441    $ 412    $ 365

Copper ($/lb)

   $ 1.45    $ 1.33      N/A

Costs applicable to sales(2)

        

Gold ($/oz)

   $ 236    $ 216    $ 195

Copper ($/lb)

   $ 0.53    $ 0.45      N/A

Income from continuing operations

   $ 374    $ 453    $ 511

Income from continuing operations per share, basic

   $ 0.84    $ 1.02    $ 1.24

(1) Before treatment and refining charges.
(2) Excludes depreciation, depletion and amortization.

Consolidated Financial Performance

Gold revenues increased 3% in 2005 from 2004 primarily due to higher gold prices, partially offset by lower gold sales. Gold sold decreased to 8.6 million ounces in 2005 from 8.8 million ounces in 2004, primarily due to lower production and sales in Nevada and the dispositions of Ovacik and Bronzewing in 2004. Copper revenues decreased 15% in 2005 from 2004 due to a 16% decrease in copper pounds sold at Batu Hijau and higher treatment and refining charges, partially offset by a 9% increase in the average realized price (see Results of Operations below).

The gold price increases over the last few years were partially offset by higher production costs and fewer gold ounces sold. During the same period, Newmont has seen significant increases in the costs of fuel, power and other bulk consumables. In addition, our production costs were affected by increases in foreign currency exchange rates in relation to the U.S. dollar. While a weaker U.S. dollar generally benefits the gold price, which is quoted in U.S. dollars, it also results in higher costs quoted in U.S. dollars at certain of our foreign operations. We experienced appreciation of 5% between 2005 and 2004 and 13% between 2004 and 2003 in the average Australian dollar/U.S. dollar exchange rate.

In addition, our financial and operating results for the year ended December 31, 2005 were impacted by the following:

 

    Impairment of the Nevada reporting unit goodwill ($41);

 

    Significantly higher exploration expenditures ($40 greater than 2004);

 

    Increased reclamation and remediation costs ($37 in 2005);

 

    Minahasa environmental and Buyat Bay related costs, including settlement of the civil suit ($56);

 

    Loss from discontinued operations at Holloway and Golden Grove of $52 in 2005 compared to a gain of $37 in 2004; and

 

    Increased minority interests’ expense at Yanacocha and Batu Hijau ($45 greater than 2004).

 

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Liquidity

The Company’s financial position was as follows:

 

     At December 31,
     2005    2004

Total debt

   $ 1,929    $ 1,602

Total stockholders’ equity

   $ 8,376    $ 7,938

Cash and cash equivalents

   $ 1,082    $ 781

During 2005 our debt and liquidity positions were affected by the following:

 

    Net proceeds from the issuance of debt of $583;

 

    Net cash provided from continuing operations of $1,253;

 

    Proceeds from the sale of discontinued operations and other assets of $226;

 

    Debt repayments of $218 cash and $48 non-cash;

 

    Capital expenditures at continuing operations of $1,226;

 

    Dividends paid to common shareholders of $179; and

 

    Dividends paid to minority interests of $186.

Looking Forward

Certain key factors will affect our future financial and operating results. These include, but are not limited to the following:

 

    Fluctuations in gold prices and, to a lesser extent, copper prices;

 

    Newmont expects 2006 consolidated gold sales of approximately 8 million ounces (approximately 6.25 million equity ounces) at Costs applicable to sales of approximately $280 to $285 per ounce. As a result of lower production from Yanacocha in Peru, planned mine closures in Canada and Nevada and previously announced asset sales, equity gold sales are expected to decline by a further 3% in 2007. Costs applicable to sales are expected to improve as gold sales increase after 2007 with the completion of the Leeville, Phoenix and power plant projects in Nevada, and the Ahafo and Akyem projects in Ghana.

 

    Capital expenditures in 2006 are expected to be between $1,350 and $1,500 (including costs related to the Ahafo and Akyem projects in Ghana, the Leeville and Phoenix projects in Nevada, the power plant in Nevada and mine equipment, leach pad expansions and processing facilities at Yanacocha) before the consideration of the acquisition of an additional 22.22% interest in the Boddington project; and

 

    We expect 2006 exploration expenditures of between $155 and $160.

Accounting Changes

Consolidation of Batu Hijau

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46R, which provides guidance on the identification and reporting for entities over which control is achieved through means other than voting rights. FIN 46R defines such entities as variable interest entities (“VIEs”). Application of this revised interpretation was required in financial statements for companies that have interests in VIEs or potential VIEs, commonly referred to as special-purpose entities, for periods ending after December 31, 2003. Application for all other types of entities was required in financial statements for periods ending after March 15, 2004.

 

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Newmont identified the Nusa Tenggara Partnership (“NTP”) and P.T. Newmont Nusa Tenggara (“PTNNT”) (collectively, “Batu Hijau”) as VIEs because of certain capital structures and contractual relationships (primarily the sharing of the expected residual returns with a party that did not have an equity investment at risk that is considered significant to the total expected residual returns, as well as indications of insufficient equity). Newmont also determined that it is the primary beneficiary of Batu Hijau. Therefore, as of January 1, 2004, the Company fully consolidated Batu Hijau in its Consolidated Financial Statements. For periods prior to 2004, the investment in Batu Hijau was accounted for using the equity method of accounting.

Upon consolidation of Batu Hijau, effective January 1, 2004, certain adjustments were recorded to the opening balance sheet of PTNNT to conform to Newmont’s accounting policies. These adjustments were recorded to change from units-of-production depreciation of processing plant and mining facilities to straight-line depreciation of such facilities and to change from allocating costs to stockpile inventories based on mining costs per ton to allocating costs based on recoverable pounds of copper equivalent contained in the various categories of stockpiles. The impact of these adjustments were charges of $15 and $32, respectively, net of income tax expense and minority interest which have been recorded in Cumulative effect of a change in accounting principle, net of tax in the 2004 Statements of Consolidated Income. The consolidation had a significant impact on the Consolidated Financial Statements.

Mineral Interests

On April 30, 2004, a FASB Staff Position (“FSP”) was issued amending Statement of Financial Accounting Standards (“SFAS”) No. 141 and No. 142 to provide that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on their substance. The FSP was effective for the first reporting period beginning after April 29, 2004, with early adoption permitted. As a result, Newmont reclassified all of its mineral, royalty and oil and gas interests, with a carrying value of $1,273, from mineral interests and other intangible assets to Property, plant and mine development, net in its balance sheets and ceased amortization of exploration stage mineral interests effective April 1, 2004.

Reclamation and Remediation (Asset Retirement Obligations)

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which established a uniform methodology for accounting for estimated reclamation and abandonment costs. The statement was adopted January 1, 2003, when the Company recorded the estimated present value of reclamation liabilities and increased the carrying amount of the related asset, which resulted in a net expense for the cumulative effect of a change in accounting principle of $35. Reclamation costs are allocated to expense over the life of the related assets and are adjusted for changes resulting from the passage of time and revisions to either the timing or amount of the original present value estimate.

Critical Accounting Policies

Listed below are the accounting policies that the Company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.

Carrying Value of Goodwill

At December 31, 2005, the carrying value of goodwill was approximately $2,879. Goodwill was assigned to the Company’s Merchant Banking ($1,562) and Exploration ($1,126) Segments and to various mine site reporting units in the Australia/New Zealand Segment ($191). This goodwill arose in connection with our February 2002 acquisitions of Normandy and Franco-Nevada, and represents the excess of the aggregate purchase price over the fair value of the identifiable net assets. Our approach to allocating goodwill was to identify those reporting units that we believed had contributed to such excess purchase price. We then performed

 

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valuations to measure the incremental increases in the fair values of such reporting units that were attributable to the acquisitions, and that were not already captured in the fair values assigned to such units’ identifiable net assets. In the case of the Merchant Banking and Exploration Segments, these valuations were based on each reporting unit’s potential for future growth, and in the case of the mine site reporting units, the valuation was based on the merger-related synergies that were expected to be realized by each mine site reporting unit.

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. To accomplish this, we compare the estimated fair values of the reporting units to their carrying amounts. If the carrying value of a reporting unit exceeds its fair value at the time of the evaluation, we would compare the implied fair value of the reporting unit’s goodwill to its carrying amount and any shortfall would be charged to earnings. Assumptions underlying fair value estimates are subject to risks and uncertainties. Newmont performed its annual impairment tests of goodwill during the fourth quarter of 2005 and determined that goodwill at one reporting unit, Nevada, was impaired as of December 31, 2005, as discussed below. A similar assessment by the Company during the fourth quarter of 2004 determined that the Pajingo reporting unit was impaired as of December 31, 2004. To the extent the assumptions used in the Company’s valuation models, described below, for such impairment tests are not achieved in the future, it is reasonably possible that the Company will record charges for impairment of goodwill in future periods. The specific application of the Company’s goodwill impairment policy with respect to the Merchant Banking Segment, Exploration Segment and mine site reporting units is separately discussed below.

Merchant Banking Segment Goodwill

Newmont’s Merchant Banking Segment is comprised of an equity portfolio, focused on managing the Company’s portfolio of equity securities, a royalty portfolio, portfolio management activities, providing in-house investment banking and advisory services to the Company, and downstream business activities.

At December 31, 2005, the $1,562 carrying value of the Merchant Banking Segment goodwill represented approximately 58% of the carrying value of the total assets of the Merchant Banking Segment. Based on a December 31, 2005 valuation of the Merchant Banking Segment, the Company concluded that the fair value of the Merchant Banking Segment was significantly in excess of its carrying value at December 31, 2005.

The December 31, 2005 discounted cash flow analysis for the Equity Portfolio of the Merchant Banking Segment assumed: (i) a discount rate of 9%; (ii) a time horizon of ten years; (iii) pre-tax returns on investment ranging from 35% in 2006 and gradually declining to 15% in 2013 through 2015; (iv) an initial equity portfolio investment of approximately $940; (v) capital infusions of $50 annually for the next three years; and (vi) a terminal value of approximately $3,885. The December 31, 2005 discounted cash flow analysis for the Royalty Portfolio of the Merchant Banking Segment assumed: (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%. The December 31, 2005 discounted cash flow analysis for the Portfolio Management of the Merchant Banking Segment assumed: (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 of transactions and value-added activities in 2006, with the dollar amount of such transactions and activities increasing by 5% annually thereafter. The December 31, 2005 discounted cash flow analysis for the downstream business of the Merchant Banking Segment assumed: (i) a discount rate of 9%; (ii) a time horizon of ten years; and (iii) a pre-tax annual return on investment of 15%. The December 31, 2005 discounted cash flow analysis assumed a combined terminal value for the royalty portfolio, portfolio management and downstream business of approximately $707.

For purposes of valuing the Merchant Banking Segment in the future, the Company expects that the valuation model will continue to be reevaluated and enhanced to recognize the activities and objectives of the Merchant Banking Segment. The key drivers of such future valuations are expected to include (i) expected long-term investment returns, adjusted for Company specific and market driven factors; (ii) expected economic value

 

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to be added by the Merchant Banking Segment in addition to such investment returns; (iii) the level of capital accessible by the Merchant Banking Segment; and (iv) other relevant facts and circumstances. To determine the appropriate returns, investment levels and other assumptions for purposes of this analysis, the Company will (i) review the expected or actual returns from transactions that were initiated and/or completed since the last impairment test; (ii) assess the actual economic value added by other Merchant Banking Segment activities since the last impairment test; and (iii) assess the ongoing appropriateness of all assumptions impacting the valuation based on then current conditions and expectations. The Company believes that any model used to value the Merchant Banking Segment will need to take into account the relatively long time horizon required to evaluate the investment returns and other economic value added activities of the Merchant Banking Segment.

A high degree of judgment is involved in determining the assumptions and estimates used to determine the fair value of the Merchant Banking Segment. Accordingly, no assurance can be given that actual results will not differ significantly from the corresponding assumptions and estimates. If a triggering event were to occur that could reasonably be expected to result in an impairment of the carrying value of the Merchant Banking Segment, the Company would be required to test the goodwill assigned to the Merchant Banking Segment as of the end of the reporting period in which any such event occurred. The Company believes that triggering events with respect to the Merchant Banking Segment could include, but are not limited to: (i) the Company’s partial or complete withdrawal of financial support for the Merchant Banking Segment; (ii) a significant reduction in management’s long-term expectation of the price of gold, given the adverse effect such a development could have on the fair values of the Merchant Banking Segment’s investment and royalty interest portfolios and the Merchant Banking Segment’s prospects for future growth; (iii) the divestiture of a significant portion of the Merchant Banking Segment’s investment portfolio together with management’s determination not to fund the replenishment of such portfolio for the foreseeable future; and (iv) any other event that might adversely affect the ability of the Merchant Banking Segment to consummate transactions that create value for the Company. The Company currently has no plans to withdraw financial support for the Merchant Banking Segment. For a discussion of the results of operations of the Merchant Banking Segment, see Results of Operations, Merchant Banking Segment, below.

Exploration Segment Goodwill

The Exploration Segment is responsible for all activities, regardless of location, associated with the Company’s efforts to discover new mineralized material that could ultimately advance into proven and probable reserves. As discussed in greater detail below, when performing its Exploration Segment goodwill impairment testing, the Company only uses historic additions to proven and probable reserves as an indication of the expected future performance of the Exploration Segment. In this regard, once a discovery is made by the Exploration Segment, all subsequent reserve additions (or subtractions) resulting from that original discovery are considered in determining the expected future performance of the Exploration Segment.

Internally generated proven and probable reserve additions are attributed to the Exploration Segment for purposes of determining the Company’s assumptions with respect to the expected future performance of the Exploration Segment only to the extent that such additions are derived from (i) a discovery made by the Company; or (ii) a discovery made on previously acquired properties as a result of exploration efforts conducted subsequent to the acquisition date. A portion of the additions to proven and probable reserves during 2003 through 2005 was derived from the conversion of mineralized material that had been assigned values as part of the purchase price allocation process. In addition, the Company expects that a portion of internally generated reserve additions during 2006 and the next several years will also be derived from the conversion of mineralized material which had been assigned values as part of purchase price accounting. To avoid duplication, the reserves which are expected to be derived from this mineralized material in the future are excluded from the reserve additions used in the valuation of the Exploration Segment performed in connection with the Company’s goodwill impairment tests.

 

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At December 31, 2005, the $1,126 carrying value of the Exploration Segment goodwill represented approximately 99% of the carrying value of the total assets of the Exploration Segment. Based on valuations of the Exploration Segment at December 31, 2005 and 2004, the Company concluded that substantially all of the fair value of the Exploration Segment, which was significantly in excess of the carrying value, was derived from the terminal value. The valuation models included the following:

 

     As at December 31,  
      2005     2004  

Assumptions:

    

Initial year additions to reserves (gold ounces in millions):

    

Total additions

     9.5       11.0  

Less: Additions previously valued in purchase accounting

     (0.9 )     (1.0 )
                

Additions attributable to the Exploration Segment

     8.6       10.0  
                

Annual reserve addition growth rate

     5 %     5 %

Time horizon (years)

     16       16  

Time lag between reserve additions and production (years)

     7.1       7.2  

Production period (years)

     5       5  

Discount rate

     8 %     8 %

Price/cost assumptions (per ounce of gold):

    

Gold price

   $ 450     $ 375  

Operating costs

   $ 264     $ 230  

Capital costs

   $ 56     $ 50  

Finding costs

   $ 13     $ 13  

Terminal value

   $ 7,514     $ 5,812  

Additions to proven and probable reserves used in the Company’s valuation models were based on management reviews of historical performance and expectations of future reserve additions. Any model used to value the Exploration Segment will need to take into account the relatively long time horizon required to evaluate the activities of the Exploration Segment. Reserve additions may vary significantly from year to year based on the timing of when proven and probable reserves can be reported under SEC Industry Guide 7. A period of several years may be required to advance a project from initial discovery to proven and probable reserves.

The Company’s December 31, 2005 Exploration Segment goodwill valuation model assumed proven and probable reserve additions attributable to the Exploration segment of 8.6 million equity ounces in 2006. Actual proven and probable additions attributable to the Exploration segment for 2005 and 2004 compared to assumptions used at December 31, 2004 and 2003, respectively, were as follows:

 

(millions of equity ounces)

   Actual     Assumption(1)     Excess
(shortfall)
 

2005

      

Total additions

   9.4     11.0     (1.6 )

Additions previously valued in purchase accounting

   (1.2 )   (1.0 )   (0.2 )
                  

Additions attributable to the Exploration Segment

   8.2     10.0     (1.8 )
                  

2004

      

Total additions

   12.4     7.9     4.5  

Additions previously valued in purchase accounting

   (1.9 )   (5.0 )   3.1  

Reclassification of Cerro Quilish reserves

   (2.0 )   —       (2.0 )
                  

Additions attributable to the Exploration Segment

   8.5     2.9     5.6  
                  

(1) Additions assumed in the Exploration Segment valuation models for 2005 at December 31, 2004 and for 2004 at December 31, 2003.

 

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Triggering events with respect to the Exploration Segment could include, but are not limited to: (i) the Company’s partial or complete withdrawal of financial support for the Exploration Segment; (ii) a significantly lower assumed annual reserve addition growth rate; (iii) a significant decrease in the Company’s long-term expectation of the price of gold; (iv) a significant change in the financial markets resulting in a significant increase in the discount rate; and (v) a significant increase in long-term operating and capital cost estimates. The Company currently has no plans to withdraw financial support for the Exploration Segment. For a discussion of the results of operations of the Exploration Segment, see Results of Operations, Exploration Segment, below.

On December 27, 2005 and February 17, 2006, the Company received letters from the Securities and Exchange Commission, Division of Corporate Finance (“Comment Letters”) in regards to the Company’s Form 10-K for the fiscal year ended December 31, 2004. The Comment Letters primarily relate to the Company’s disclosures regarding the Exploration Segment and the valuation model used to estimate the fair value of the Exploration Segment for annual goodwill impairment testing. The Company has made certain additional disclosures in response to the Comment Letters and will continue to respond to any additional issues. The Company continues to believe that the valuation model utilized in assessing the Exploration Segment goodwill is reasonable and consistent with the application of generally accepted accounting principles.

Mine Site Goodwill

The assignment of goodwill to mine site reporting units was based on synergies that have been incorporated into the Company’s operations and business plans over time. The amount of goodwill assigned to each segment or reporting unit was based on discounted cash flow analyses that assumed risk-adjusted discount rates over the remaining lives of the applicable mining operations. The Company believes that triggering events with respect to the goodwill assigned to mine site reporting units could include, but are not limited to: (i) a significant decrease in the Company’s long-term gold price assumption; (ii) a decrease in reserves; (iii) a significant reduction in the estimated fair value of mine site exploration potential; and (iv) any event that might otherwise adversely affect mine site production levels or costs. The Company performed its annual impairment test of mine site goodwill as of December 31, 2005 and determined that, except in the case of its Nevada reporting unit, the fair value of each mine site reporting unit was in excess of the relevant carrying value at December 31, 2005. As a result of increased future operating and capital costs at Nevada the Company determined there was an impairment of $41 as of December 31, 2005. For more information on the discounted cash flows used to value mine site reporting units, see Carrying Value of Long-Lived Assets, below.

Depreciation, Depletion and Amortization

Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated future lives of such facilities or equipment. These lives do not exceed the estimated mine life based on proven and probable reserves as the useful lives of these assets are considered to be limited to the life of the relevant mine.

Costs incurred to develop new properties are capitalized as incurred, where it has been determined that the property can be economically developed based on the existence of proven and probable reserves. At the Company’s surface mines, these costs include costs to further delineate the ore body and remove overburden to initially expose the ore body. At the Company’s underground mines, these costs include the cost of building access ways, shaft sinking and access, lateral development, drift development, ramps and infrastructure development. All such costs are amortized using the units-of-production (“UOP”) method over the estimated life of the ore body based on estimated recoverable ounces to be produced from proven and probable reserves.

Major development costs incurred after the commencement of production are amortized using the UOP method based on estimated recoverable ounces to be produced from proven and probable reserves. Depending upon whether the development is expected to benefit the entire remaining ore body, or specific ore blocks or areas only, the UOP basis is either the life of the entire ore body or the life of the specific ore block or area.

 

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The calculation of the UOP rate of amortization, and therefore the annual amortization charge to operations, could be materially impacted to the extent that actual production in the future is different from current forecasts of production based on proven and probable reserves. This would generally occur to the extent that there were significant changes in any of the factors or assumptions used in determining reserves. These factors could include: (i) an expansion of proven and probable reserves through exploration activities; (ii) differences between estimated and actual cash costs of mining, due to differences in grade, metal recovery rates and foreign currency exchange rates; and (iii) differences between actual commodity prices and commodity price assumptions used in the estimation of reserves. Such changes in reserves could similarly impact the useful lives of assets depreciated on a straight-line basis, where those lives are limited to the life of the mine, which in turn is limited to the life of the proven and probable reserves.

The expected useful lives used in depreciation, depletion and amortization calculations are determined based on applicable facts and circumstances, as described above. Significant judgment is involved in the determination of useful lives, and no assurance can be given that actual useful lives will not differ significantly from the useful lives assumed for purpose of depreciation, depletion and amortization calculations.

Carrying Value of Long-Lived Assets

The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. An asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, price trends and related factors), production levels and costs of production, capital and reclamation costs, all based on detailed life-of-mine engineering plans. The significant assumptions in determining the future discounted cash flows for each mine site reporting unit at December 31, 2005, apart from production cost and capitalized expenditure assumptions unique to each operation, included a long-term gold price of $450 per ounce and Australian and Canadian dollar exchange rates of A$1.33 and CDN$1.19, respectively per $1.00. The term “recoverable minerals” refers to the estimated amount of gold or other commodities that will be obtained from proven and probable reserves and all related exploration stage mineral interests, except for other mine-related exploration potential and greenfields exploration potential discussed separately below, after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from such exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. With the exception of other mine-related exploration potential and greenfields exploration potential, all assets at a particular operation are considered together for purposes of estimating future cash flows. In the case of mineral interests associated with other mine-related exploration potential and greenfields exploration potential, cash flows and fair values are individually evaluated based primarily on recent exploration results and recent transactions involving sales of similar properties.

As discussed above under Depreciation, Depletion and Amortization, various factors could impact the Company’s ability to achieve its forecasted production schedules from proven and probable reserves. Additionally, labor and commodity prices, capital expenditure requirements and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material could ultimately be mined economically. Assets classified as other mine-related exploration potential and greenfields exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.

 

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During the years ended December 31, 2005, 2004 and 2003, write-downs of long-lived assets were $43, $39 and $35, respectively. See Consolidated Financial Results below for further discussion. Material changes to any of these factors or assumptions discussed above could result in future impairment charges.

Deferred Stripping Costs

In general, mining costs are allocated to production costs, stockpiles, ore on leach pads and inventories, and are charged to Costs applicable to sales when gold or copper is sold. However, at certain open pit mines, which have diverse grades and waste-to-ore ratios over the mine life, the Company defers and amortizes certain mining costs on a units-of-production basis over the life of the mine. These mining costs, which are commonly referred to as “deferred stripping” costs, are incurred in mining activities that are normally associated with the removal of waste rock. The deferred stripping accounting method is generally accepted in the mining industry where mining operations have diverse grades and waste-to-ore ratios; however, industry practice does vary. Deferred stripping matches the costs of production with the sale of such production at the Company’s operations where it is employed, by assigning each ounce of gold or pound of copper with an equivalent amount of waste removal cost. If the Company were to expense stripping costs as incurred, there might be greater volatility in the Company’s period-to-period results of operations.

In March 2005, the FASB ratified Emerging Issues Task Force Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry,” (EITF 04-6) which addresses the accounting for stripping costs incurred during the production phase of a mine and refers to these costs as variable production costs that should be included as a component of inventory to be recognized in costs applicable to sales in the same period as the revenue from the sale of inventory. As a result, capitalization of stripping costs is appropriate only to the extent product inventory exists at the end of a reporting period and the carrying value is less than the net realizable value. Newmont will adopt the provisions of EITF 04-6 on January 1, 2006. The most significant impact of adoption is expected to be the removal of deferred and advanced stripping costs from the balance sheet, net of taxes and minority interests, and reclassifying the balances as a cumulative effect adjustment reducing beginning retained earnings by approximately $75 to $85. Adoption of EITF 04-6 will have no impact on the Company’s cash position.

Financial Instruments

All financial instruments that meet the definition of a derivative are recorded on the balance sheet at fair market value, with the exception of contracts that qualify for the normal purchases and normal sales exemption. Changes in the fair market value of derivatives recorded on the balance sheet are recorded in the statements of consolidated operations, except for the effective portion of the change in fair market value of derivatives that are designated as a cash flow hedge and qualify for cash flow hedge accounting. The Company’s portfolio of derivatives includes various complex instruments that are linked to gold prices and other factors. Management applies significant judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding gold and other commodity prices, gold lease rates, market volatilities, foreign currency exchange rates and interest rates. Variations in these factors could materially affect amounts credited or charged to earnings to reflect the changes in fair market value of derivatives. In addition, certain derivative contracts are accounted for as cash flow hedges, whereby the effective portion of changes in fair market value of these instruments are deferred in Other comprehensive income and will be recognized in the statements of consolidated operations when the underlying production designated as the hedged item is sold. All derivative contracts qualifying for hedge accounting are designated against the applicable portion of future production from proven and probable reserves, where management believes the forecasted transaction is probable of occurring. To the extent that management determines that such future production is no longer probable of occurring due to changes in the factors impacting the determination of reserves, as discussed above under Depreciation, depletion and amortization, gains and losses deferred in Other comprehensive income would be reclassified to the statements of consolidated operations immediately.

 

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Reclamation and Remediation Obligations (Asset Retirement Obligations)

The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which established a methodology for accounting for estimated reclamation and abandonment costs. The statement was adopted January 1, 2003, when the Company recorded the estimated present value of reclamation liabilities and increased the carrying amount of the related asset, which resulted in a charge to cumulative effect of a change in accounting principle, net of $35. See Note 3 to the Consolidated Financial Statements. The reclamation costs will be allocated to expense over the life of the related assets and will be adjusted for changes resulting from the passage of time and revisions to either the timing or amount of the original present value estimate. Such costs related to active mines were accrued and charged over the expected operating lives of the mines using the UOP method based on proven and probable reserves.

Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the undiscounted costs expected to be incurred. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised.

Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs the Company will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to earnings for reclamation and remediation.

Deferred Tax Assets

The Company recognizes the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows and the application of existing tax laws in each jurisdiction. Refer above under Carrying Value of Long-Lived Assets for a discussion of the factors that could cause future cash flows to differ from estimates. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize deferred tax assets recorded at the balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the Company’s ability to obtain the future tax benefits represented by its deferred tax assets recorded at the reporting date.

Consolidated Financial Results

Sales—gold, net increased 3% in 2005 compared to 2004 due to a 7% increase in the average realized price, partially offset by a 3% decrease in ounces sold. In 2004, gold sales increased 19% over 2003 primarily due to an increase in the average realized gold price and the consolidation of Batu Hijau. The following analysis reflects the increase in consolidated gold revenue:

 

     Years Ended December 31,  
     2005     2004     2003  

Consolidated gold sales, gross

   $ 3,760     $ 3,636     $ 3,060  

Treatment and refining charges

     (26 )     (11 )   $ (1 )
                        

Consolidated gold sales, net

   $ 3,734     $ 3,625     $ 3,059  
                        

Consolidated gold ounces sold (thousands)

     8,552.0       8,828.9       8,377.4  

Average realized price per ounce of gold

   $ 441     $ 412     $ 365  

 

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The change in consolidated gold sales is due to:

 

     2005 vs.
2004
    2004 vs.
2003
 

Changes in consolidated ounces sold

   $ (123 )   $ (96 )

Consolidation of Batu Hijau

     —         288  

Change in average realized gold price

     247       380  

Change in treatment and refining charges

     (15 )     (6 )
                
   $ 109     $ 566  
                

Sales—copper, net decreased 5% in 2005 compared to 2004 due to a 16% decrease in copper pounds sold, partially offset by a 9% increase in the average realized copper price. The following analysis reflects the changes in consolidated copper revenue:

 

     Years Ended December 31,
     2005     2004     2003

Consolidated copper sales, gross

   $ 833     $ 907     $

Treatment and refining charges

     (161 )     (121 )    
                      

Consolidated copper sales, net

   $ 672     $ 786     $
                      

Consolidated copper pounds sold (millions)

     572.7       683.3      

Average realized price per pound of copper

   $ 1.45     $ 1.33     $

During 2005, Batu Hijau sold 470 million copper pounds into copper collar contracts at an average price of $1.35 per pound and sold 103 million unhedged copper pounds at and average realized price of $1.90 per pound.

The change in consolidated copper sales is due to:

 

    

2005 vs.

2004

   

2004 vs.

2003

Changes in consolidated pounds sold

   $ (146 )   $ —  

Consolidation of Batu Hijau

     —         786

Change in average realized copper price

     72       —  

Change in treatment and refining charges

     (40 )     —  
              
   $ (114 )   $ 786
              

 

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The following is a summary of net gold and copper sales by operation:

 

     Years Ended December 31,
     2005     2004    2003

Gold

       

Nevada, USA

   $ 1,053     $ 1,037    $ 901

Yanacocha, Peru

     1,490       1,250      1,037

Australia/New Zealand:

       

Tanami, Australia

     221       273      220

Kalgoorlie, Australia

     183       192      147

Jundee, Australia

     154       156      204

Pajingo, Australia

     87       104      120

Martha, New Zealand

     73       54      41
                     
     718       779      732
                     

Batu Hijau, Indonesia

     318       288      —  

Other Operations:

       

Golden Giant, Canada

     73       66      84

Zarafshan, Uzbekistan

     55       85      79

Kori Kollo, Bolivia

     44       10      64

La Herradura, Mexico

     36       27      25

Ovacik, Turkey

     —         44      61

Minahasa, Indonesia

     —         32      35

Mesquite, USA

     —         —        17
                     
     208       264      365
                     

Corporate

     (53 )     7      24
                     
   $ 3,734     $ 3,625    $ 3,059
                     

Copper

       

Batu Hijau, Indonesia

   $ 672     $ 786    $ —  
                     

Costs applicable to sales—gold increased 6% in 2005 compared to 2004 due to increased operating costs in Nevada and at Yanacocha. The 17% increase in 2004 from 2003 resulted primarily from the consolidation of Batu Hijau and increased costs in Nevada and Australia/New Zealand. Costs applicable to sales—copper were $303 and $305 in 2005 and 2004, respectively. Newmont has seen significant increases in the costs of fuel, power and other consumables during these periods. For a complete discussion regarding variations in operations, see Results of Operations below.

 

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The following is a summary of Costs applicable to sales by operation:

 

     Years Ended December 31,
     2005    2004    2003

Gold

        

Nevada, USA

   $ 807    $ 716    $ 598

Yanacocha, Peru

     487      432      362

Australia/New Zealand:

        

Tanami, Australia

     162      194      149

Kalgoorlie, Australia

     144      141      108

Jundee, Australia

     115      106      159

Pajingo, Australia

     58      59      43

Martha, New Zealand

     29      28      25
                    
     508      528      484
                    

Batu Hijau, Indonesia

     109      91      —  

Other Operations:

        

Golden Giant, Canada

     48      48      53

Zarafshan, Uzbekistan

     27      32      33

Kori Kollo, Bolivia

     16      10      36

La Herradura, Mexico

     15      10      11

Ovacik, Turkey

     —        23      22

Minahasa, Indonesia

     —        20      26

Mesquite, USA

     —        —        9
                    
     106      143      190
                    
   $ 2,017    $ 1,910    $ 1,634
                    

Copper

        

Batu Hijau, Indonesia

   $ 303    $ 305    $ —  
                    

Deferred stripping.    In general, mining costs are allocated to production costs, stockpiles, ore on leach pads and inventories, and are charged to Costs applicable to sales when gold or copper is sold. However, at certain open pit mines that have diverse grades and waste-to-ore ratios over the mine life, the Company defers and amortizes certain mining costs on a units-of-production basis over the life of the mine. These mining costs, which are commonly referred to as “deferred stripping” costs, are incurred in mining activities that are normally associated with the removal of waste rock. The deferred stripping accounting method is generally accepted in the mining industry where mining operations have diverse grade and waste-to-ore rations; however, industry practice does vary. Deferred stripping matches the costs of production with the sale of such production at the Company’s operations where it is employed, by assigning each ounce of gold with an equivalent amount of waste removal cost. If the Company were to expense stripping costs as incurred, there might be greater volatility in the Company’s period-to-period results of operations. Details of deferred stripping with respect to certain of the Company’s open pit mines are as follows:

 

     Nevada(4)    La Herradura(5)
     2005    2004    2003    2005    2004    2003

Life-of-mine Assumptions Used as Basis For Deferred Stripping Calculations

                 

—Stripping ratio(1)

   126.6    126.5    125.0    146.9    149.1    146.4

—Average ore grade(2)

   0.046    0.051    0.049    0.034    0.034    0.030

Actuals for Year

                 

—Stripping ratio(1)

   139.1    154.3    124.9    193.0    156.1    157.4

—Average ore grade(2)

   0.053    0.059    0.075    0.029    0.026    0.026

Remaining Mine Life (years)(3)

   16    10    9    4    4    5

 

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     Tanami(6)    Kalgoorlie(7)
     2005    2004    2003    2005    2004    2003

Life-of-mine Assumptions Used as Basis For Deferred Stripping Calculations

                 

—Stripping ratio(1)

   N/A    82.3    48.8    100.1    110.9    114.8

—Average ore grade(2)

   N/A    0.160    0.160    0.061    0.061    0.065

Actuals for Year

                 

—Stripping ratio(1)

   N/A    52.3    63.5    116.3    102.9    112.2

—Average ore grade(2)

   N/A    0.130    0.108    0.062    0.063    0.063

Remaining Mine Life (years)(3)

   N/A    1    1    12    13    13
     Martha(8)    Ovacik(9)
     2005    2004    2003    2005    2004    2003

Life-of-mine Assumptions Used as Basis For Deferred Stripping Calculations

                 

—Stripping ratio(1)

   18.8    26.1    32.1    N/A    41.6    34.9

—Average ore grade(2)

   0.114    0.107    0.103    N/A    0.385    0.356

Actuals for Year

                 

—Stripping ratio(1)

   12.9    31.7    29.5    N/A    57.0    40.4

—Average ore grade(2)

   0.143    0.091    0.089    N/A    0.298    0.374

Remaining Mine Life (years)(3)

   1    3    3    N/A    2    2

 

     Batu Hijau(10)
     2005    2004    2003

Life-of-mine Assumptions Used as Basis For Deferred Stripping Calculations

        

—Stripping ratio(1)

   0.20    0.22    N/A

—Average ore grade(2)

   4.93    4.63    N/A

Actuals for Year

        

—Stripping ratio(1)

   0.21    0.16    N/A

—Average ore grade(2)

   4.74    6.22    N/A

Remaining Mine Life (years)(3)

   13    14    N/A

(1) Total tons to be mined in future divided by total ounces of gold or total pounds of copper equivalent to be recovered in future, based on proven and probable reserves. Pounds of copper equivalent equate to copper pounds plus gold ounces converted to copper pounds on an equivalent revenue basis.
(2) Total tons mined divided by total ounces of gold recovered or total pounds of copper equivalent recovered.
(3) Remaining mine life (years) is as of January 1st of the year being presented and is based on the then current life-of-mine plan.
(4) The actual stripping ratio and average ore grade are higher than the life-of-mine. The stripping ratio will increase when operations commence at Phoenix.
(5) The actual stripping ratio is higher in 2005 primarily due to increased waste tons being mined. La Herradura is included in the Company’s Other North America reportable segment.
(6) Open pit operations at Tanami were completed in 2004. Tanami is included in the Company’s Australia/New Zealand reportable segment.
(7) The actual stripping ratio is higher in 2005 primarily due to increased waste tons being mined. Kalgoorlie is included in the Company’s Australia/New Zealand reportable segment.
(8) The actual stripping ratio is lower in 2005 primarily due to the higher average ore grade. Martha is included in the Company’s Australia/New Zealand reportable segment.
(9) Ovacik suspended mine operations in August 2004 and was sold in March 2005. Ovacik was included in the Company’s Central Asia reportable segment.
(10) The actual stripping ratio in 2005 is significantly higher than the prior year, primarily a result of the lower average ore grade. The average ore grade in 2005 was impacted as several small pit wall failures limited access to high-grade ore in the bottom of the pit.

 

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Depreciation, depletion and amortization decreased 3% in 2005 from 2004, primarily due to the disposition of the Ovacik mine in Turkey and lower consolidated ounces sold. The 25% increase in 2004 from 2003 primarily resulted from the consolidation of Batu Hijau and significant capital expenditures in recent years at Yanacocha. Depreciation, depletion and amortization expense fluctuates as capital expenditures increase or decrease and as production levels increase or decrease. For a complete discussion, see Results of Operations, below. Newmont expects Depreciation, depletion and amortization to increase to approximately $740 to $780 in 2006.

The following is a summary of Depreciation, depletion and amortization by operation:

 

         Years Ended December 31,    
     2005    2004    2003

Nevada, USA

   $ 124    $ 127    $ 138

Yanacocha, Peru

     205      198      160

Australia/New Zealand:

        

Tanami, Australia

     33      38      36

Kalgoorlie, Australia

     17      16      10

Jundee, Australia

     27      27      36

Pajingo, Australia

     25      31      29

Martha, New Zealand

     16      14      11
                    

Gold

     118      126      122

Other

     3      4      5
                    
     121      130      127
                    

Batu Hijau, Indonesia

        

Gold

     34      28      —  

Copper

     87      90      —  
                    
     121      118      —  
                    

Other Operations:

        

Golden Giant, Canada

     11      11      22

Zarafshan, Uzbekistan

     9      10      10

Kori Kollo, Bolivia

     4      2      7

La Herradura, Mexico

     5      5      3

Ovacik, Turkey

     —        16      14

Minahasa, Indonesia

     —        3      8

Mesquite, USA

     —        —        4
                    

Gold

     29      47      68

Other

     3      4      3
                    
     32      51      71
                    

Other:

        

Merchant Banking

     21      24      26

Corporate and Other

     20      14      8
                    
     41      38      34
                    
   $ 644    $ 662    $ 530
                    

Exploration was $147, $107 and $76 for 2005, 2004 and 2003, respectively. The period-to-period increases reflect increased exploration and related activity in response to higher prevailing gold prices. Advanced projects, research and development were $73, $80 and $35 during 2005, 2004 and 2003, respectively, representing spending on advanced projects, feasibility studies and exploration drilling at Martabe, Akyem, Ahafo and Conga. Newmont expects Exploration to be approximately $155 to $160 and Advanced projects, research and development to be approximately $40 to $45 in 2006.

 

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General and administrative was $134, $116 and $130 for 2005, 2004 and 2003, respectively. The increase in 2005 from 2004 was attributable to increased salaries, benefits, consulting and contracted services. The decrease in 2004 from 2003 resulted from an increase in the allocation of costs incurred by corporate to the individual operations in 2004, partially offset by an increase in consulting fees and costs associated with the Sarbanes-Oxley Act of 2002. General and administrative expense as a percentage of revenues was 3.0% in 2005, compared to 2.6% in 2004 and 4.2% in 2003. Newmont expects General and administrative expenses to be approximately $150 to $160 in 2006, including $9 in stock option expense under FAS 123R, effective January 1, 2006.

Write-down of goodwill was $41 and $52 for 2005 and 2004, respectively. The 2005 expense was related to the Nevada segment resulting from anticipated increased future operating and capital costs. The 2004 expense was related to the Pajingo reporting unit in Australia resulting from anticipated increased future operating costs and lower grade ore.

Write-down of long-lived assets totaled $43, $39 and $35 for 2005, 2004 and 2003, respectively. The 2005 write-down primarily related to an advanced exploration project in Indonesia and exploration tenements in Australia. The 2004 write-down included $16 related to the Ovacik mine in Turkey. The remainder of the write-down for 2004 was related to exploration tenements in Australia, long-lived asset impairment resulting from a reevaluation of future production and operating costs at Pajingo, and processing facilities at Yanacocha. The 2003 write-down included a $28 impairment charge at Golden Giant.

For a discussion of the Company’s policy for assessing the carrying value of its goodwill and long-lived assets for impairment, see Critical Accounting Policies, above.

Other expense in 2005, 2004 and 2003 was $111, $33 and $50, respectively.

 

         Years Ended December 31,    
     2005    2004     2003

Reclamation and remediation

   $ 37    $ (11 )   $ 33

Minahasa environmental and “goodwill agreement” (Note 32)

     56      7       —  

Nevada waste dump slide

     6      —         —  

Other

     12      37       17
                     
   $ 111    $ 33     $ 50
                     

The 2005 expense included legal and other costs incurred in regards to pollution allegations at Minahasa in Indonesia, changes in environmental obligation estimates at other non-operating properties, costs incurred to stabilize material and repair damage to roads and utility lines for a waste dump slide in Nevada and a pension settlement loss. The 2004 expense related to the closure of Minahasa, care and maintenance charges at Ovacik, engineering and permitting expenses for the power plant in Nevada and other miscellaneous expenses. The 2003 expense included additions to reclamation and remediation liabilities related to depleted ore bodies, an accrual for certain environmental obligations, costs associated with the finalization of a de-watering agreement in Nevada, severance costs at the Kori Kollo project in Bolivia, and costs related to compliance and governance implementation activities.

 

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Other income, net in 2005, 2004 and 2003 was $269, $102 and $451, respectively, and is summarized as follows:

 

         Years Ended December 31,      
     2005    2004     2003  

Royalty and dividend income, net

   $ 79    $ 64     $ 56  

Interest income

     59      23       11  

Gain on sale of other assets, net

     48      28       15  

Gain (loss) on investments, net

     54      (39 )     83  

Gain on derivative investments, net

     2      2       23  

Foreign currency exchange gains

     8      7       97  

Gain (loss) on QMC debt guarantee

     9      11       (30 )

Gain on extinguishment of NYOL liabilities, net

     —        —         221  

Loss on extinguishment of debt

     —        —         (34 )

Other

     10      6       9  
                       
   $ 269    $ 102     $ 451  
                       

Royalty and dividend income increased each year due to higher gold, oil and gas prices and as a result of distributions received from Canadian Oil Sands Trust, which was acquired during the second and third quarters of 2004.

Interest income increased each year due to increased funds invested and higher investment yields.

The gain on sale of other assets during 2005 was primarily attributable to the sale of the Mezcala gold deposit for a gain of $31. The 2004 gain on sale of other assets primarily resulted from the sale of Perama, Midwest Uranium and Bronzewing. The 2003 gain resulted from the sale of Mesquite and Wiluna.

The gain on investments during 2005 was primarily attributable to the sale of investments in Kinross and Oxiana which resulted in gains of $20 and $25, respectively. The loss on investments during 2004 was attributable to a $39 impairment of investment in Kinross based on the continued decline in value of Kinross equity securities. The 2003 gain was primarily related to the exchange of Echo Bay equity securities for Kinross equity securities.

The gain on derivative instruments, net, representing non-cash, mark-to-market gains and losses recognized on ineffective and partially ineffective derivative instruments was $2, $2 and $23 for 2005, 2004 and 2003, respectively. The 2003 gain primarily related to the acquired Normandy gold hedge books and resulted predominantly from a strengthening of the Australian dollar, partially offset by an increase in the U.S. dollar gold price. The Company substantially eliminated the acquired Normandy hedge books as of December 31, 2003.

As of December 31, 2003, the Company converted CDN$499 of intercompany loans with a subsidiary whose functional currency is the Canadian dollar, to long-term notes, as the Company does not intend to settle these loans in the foreseeable future. As a result, the Company no longer records foreign currency gains and losses in earnings with respect to the converted long-term notes. The year ended December 31, 2003 foreign currency exchange gain included: (i) exchange gains, net of $59 on the Canadian dollar-denominated intercompany loans reflecting a strengthening of the Canadian dollar during the period; (ii) a $27 mark-to-market gain on ineffective foreign currency swaps; (iii) a $19 foreign currency gain on the translation of Newmont Australia Limited’s financial statements to U.S. dollars; and (iv) other foreign currency losses of $8.

Newmont was the guarantor of an A$71 (approximately $53) amortizing loan facility of QMC Finance Pty Ltd. (“QMC”) which was collateralized by the assets of the Queensland Magnesium Project. Newmont reduced the amount accrued for this contingent obligation by the estimated fair value of the Australian Magnesium

 

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Corporation assets that would be subrogated to Newmont in the event the guarantee was called, which resulted in a $30 loss during 2003. During 2004, Newmont entered into a transaction resulting in a loan from Newmont to a subsidiary of QMC for A$30 (approximately $23), the release of Newmont from its guarantee obligation and recognition of an $11 gain resulting from the release of all previously accrued contingent liabilities. An allowance was provided for 100% of the loan receivable from the QMC entity. In 2005, a gain was recognized for A$12 (approximately $9), resulting from a reduction in the allowance provided on the loan receivable.

Gain on extinguishment of NYOL liabilities, net was $221 in 2003. In 2003, Newmont acquired all of Newmont Yandal Operations Pty Ltd’s (“NYOL”) outstanding 8 7/8% Senior Notes due 2008 and all of NYOL’s gold hedge contracts from the relevant counterparties.

Loss on extinguishment of debt was $34 in 2003. During 2003, Newmont repurchased $148 of its 8 3/8% debentures, $52 of its 8 5/8% debentures, $81 of Newmont Australia 7 1/2% guaranteed notes, $31 of Newmont Australia 7 5/8% guaranteed notes and 100% of its 6% convertible subordinated debentures for total cash consideration of $446. See Liquidity and Capital Resources, Financing Activities.

Interest expense, net of capitalized interest was $98, $98 and $89 for 2005, 2004 and 2003, respectively. Capitalized interest totaled $39, $13 and $9 in each year, respectively. Interest costs increased in 2005 from 2004 due to the issuance of the $600 5 7/8% notes in March 2005. Capitalized interest increased in 2005 due to construction of Leeville and Phoenix in Nevada and Ahafo in Ghana. Interest increased during 2004 as compared to 2003 as a result of the consolidation of Batu Hijau. Newmont expects Interest expense, net of capitalized interest to be approximately $95 to $105 in 2006.

Income tax expense was $314 in 2005, compared to $325 and $212 in 2004 and 2003, respectively. The effective tax rates were 29.5%, 29.2%, and 22.8% in 2005, 2004 and 2003, respectively, based on pre-tax income of $1,064 in 2005, $1,111 in 2004 and $931 in 2003. The factors that most significantly impact the Company’s effective tax rate are percentage depletion and resource allowances, valuation allowances related to deferred tax assets, foreign earnings net of foreign tax credits, earnings attributable to minority interests in subsidiaries and affiliated companies, foreign currency translation gains and losses, changes in tax laws and the impact of certain specific transactions. Most of these factors are sensitive to the average realized price of gold and other metals.

Percentage depletion allowances (tax deductions for depletion that may exceed the Company’s tax basis in its mineral reserves) are available to the Company under the income tax laws of the United States for operations conducted in the United States or through branches and partnerships owned by U.S. subsidiaries included in the Company’s consolidated United States income tax return. The deductions are highly sensitive to the price of gold and other minerals produced by the Company. For 2005 and prior years, similar types of deductions are available for mining operations in Canada and are referred to as resource allowances. The tax benefits from percentage depletion and resource allowances were $47, $47 and $21 in 2005, 2004 and 2003, respectively. The increase in 2004 and 2005 compared to 2003 primarily is due to an increase in the Company’s average realized gold price.

The Company operates in various countries around the world that have tax laws, tax incentives and tax rates that are significantly different than those of the United States. Many of these differences combine to move the Company’s overall effective tax rate higher or lower than the United States statutory rate depending on the mix of income relative to income earned in the United States. The effect of these differences is shown in Note 19 to the Consolidated Financial Statements as either a foreign rate differential or the effect of foreign earnings, net of credits. Differences in tax rates and other foreign income tax law variations make the Company’s ability to fully utilize all of its available foreign income tax credits on a year-by-year basis highly dependent on the price of the gold and copper produced by the Company and the costs of production, since lower prices or higher costs can result in the Company having insufficient sources of taxable income in the United States to utilize all available foreign tax credits. Such credits have limited carryback and carryforward periods and can only be used to reduce the United States income tax imposed on the Company’s foreign earnings included in its annual United States consolidated income tax return. The effects of foreign earnings, net of allowable credits, were an increase of

 

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income tax expense of $10 and $11 in 2005 and 2004 respectively, and a reduction of income tax expense of $28 in 2003. The Company separately stated, in its effective income tax rate reconciliation under “Change in valuation allowance on deferred tax assets”, income tax expense of $30 in 2005, resulting from the establishment of a valuation allowance on foreign tax credit carryforwards for which a valuation allowance had been released in prior periods. This establishment of valuation allowance primarily was caused by the realization of higher sources of taxable income, and therefore higher taxes, outside the United States and lower taxable income inside the United States resulting from an increase in operating costs. The effect of different income tax rates in countries where earnings are indefinitely reinvested contributed to an increase in the Company’s income tax expense of $8 and $61 in 2005 and 2004 respectively, and a decrease in income tax expense of $11 in 2003.

The tax effect of changes in local country tax laws, as shown in the Company’s effective tax reconciliation in Note 19 to the Consolidated Financial Statements, resulted in a net tax benefit of $24, $51 and $36 in 2005, 2004 and 2003, respectively. The net tax benefit is primarily related to a change in tax law in Australia that allows the Company to consolidate wholly-owned subsidiaries in that country.

The need to record valuation allowances related to the Company’s deferred tax assets (primarily attributable to net operating losses and tax credits) is principally dependent on the following factors: (i) the extent to which the net operating losses and tax credits can be carried back and yield a tax benefit; (ii) the Company’s long-term estimate of future average realized minerals prices; and (iii) the degree to which many of the tax laws and income tax agreements imposed upon the Company and its subsidiaries around the world tend to create significant tax deductions early in the mining process. These up-front deductions can give rise to net operating losses and credit carryforwards in circumstances where future sources of taxable income may not coincide with available carryforward periods even after taking into account all available tax planning strategies. Furthermore, certain liabilities, accrued for financial reporting purposes, may not be deductible for tax purposes until such liabilities are actually funded which could happen after mining operations have ceased, when sufficient sources of taxable income may not be available. Changes to valuation allowances increased income tax expense by $22 in 2005, and decreased income tax expense $59 and $85 in 2004 and 2003, respectively. As noted above, $30 of the valuation allowance addition in 2005 was a result of re-establishing a valuation allowance that was released in prior periods with respect to the Company’s foreign tax credits.

The Company, for financial reporting purposes, consolidates subsidiaries of which it does not own 100% of the outstanding equity. However, for tax purposes, the Company only is responsible for the income taxes on the portion of the taxable earnings attributable to its ownership interest of each consolidated entity. Such minority interests contributed $15, $7 and $22 in 2005, 2004 and 2003, respectively, as reductions in the Company’s income tax expense.

The Company’s effective tax decreased by $14 and $13 in 2005 and 2004 respectively due to changes in foreign currency exchange rates compared with an increase of $54 in 2003. In 2005 and 2004, these amounts primarily relate to the Australian tax effect of realized and unrealized translation gains attributable to United States dollar-denominated assets and liabilities and the gold derivatives positions at Newmont Australia Limited whose functional currency is the United States dollar. Because Newmont intends to indefinitely reinvest earnings from Newmont Australia Limited, no offsetting United States deferred income tax effect can be recorded. The effect in 2005 and 2004 differed from 2003 because of the significant strengthening of the Australian dollar against the United States dollar that took place primarily in 2003 versus relative weakness of the Australian dollar in 2004 and 2005.

Based on the uncertainty and inherent unpredictability of the factors influencing the Company’s effective tax rate and the sensitivity of such factors to gold and other metals prices as discussed above, the effective tax rate is expected to be volatile in future periods. The effective tax rate is expected to be between 30% and 34% in 2006.

Minority interest in income of subsidiaries was $380, $335 and $173 for 2005, 2004 and 2003, respectively. The 2005 increase from 2004 resulted from increased earnings at Yanacocha due to increased gold price and

 

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ounces sold, partially offset by an increase in costs (see Results of Operations, South American Operations). The 2004 increase from 2003 resulted from the recording of the minority interest in Batu Hijau which was consolidated in 2004 (see Accounting Changes, above), and increased earnings at Yanacocha.

Equity income (loss) of affiliates was as follows:

 

         Years Ended December 31,      
     2005     2004    2003  

European Gold Refineries

   $ 6     $ 1    $ —    

AGR Matthey Joint Venture

     (2 )     1      1  

Batu Hijau(1)

     —         —        83  

Australian Magnesium Corporation(2)

     —         —        (119 )
                       
   $ 4     $ 2    $ (35 )