10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2001 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 1-1153 NEWMONT MINING CORPORATION -------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2526632 -------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) incorporation or organization) 1700 Lincoln Street, Denver, Colorado 80203 -------------------------------------- ------ (Address of principal executive offices) (Zip Code) 303-863-7414 ------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No There were 195,827,929 shares of common stock outstanding on July 31, 2001. PART I - FINANCIAL INFORMATION ------------------------------- ITEM 1. Financial Statements ------------------------------ NEWMONT MINING CORPORATION AND SUBSIDIARIES Statements of Consolidated Operations and Comprehensive Loss (In thousands, except per share) (Unaudited)
Three Months Ended June 30, ------------------------ 2001 2000 -------- -------- Sales and other income Sales $362,361 $411,227 Dividends, interest and other 3,450 (673) -------- -------- 365,811 410,554 -------- -------- Costs and expenses Costs applicable to sales 260,402 240,934 Depreciation and depletion 72,174 83,385 Exploration and research 15,305 21,049 General and administrative 13,665 15,470 Interest, net of capitalized interest of $3,795 and $1,387, respectively 20,624 23,347 Other 1,707 4,059 -------- -------- 383,877 388,244 -------- -------- Operating income (loss) (18,066) 22,310 Unrealized mark-to-market loss on call options (14,719) (11,305) -------- -------- Pre-tax income (loss) before minority interest and equity income (loss) (32,785) 11,005 Income tax (expense) benefit 703 ( 5,272) Minority interest in income of affiliates (10,272) (22,398) Equity income (loss) of Batu Hijau 10,757 (7,297) -------- -------- Net loss (31,597) (23,962) Preferred stock dividends (1,868) (1,868) -------- -------- Net loss applicable to common shares $(33,465) $(25,830) ======== ======== Other comprehensive income, net of tax 8,634 537 -------- -------- Comprehensive loss $(24,831) $(25,293) ======== ======== Net loss per common share, basic and diluted $(0.17) $(0.13) ======== ======== Basic and diluted weighted average shares outstanding 195,637 192,014 Cash dividends declared per common share $0.03 $0.03 ======== ========
See Notes to Consolidated Financial Statements 2 NEWMONT MINING CORPORATION AND SUBSIDIARIES Statements of Consolidated Operations and Comprehensive Loss (In thousands, except per share) (Unaudited)
Six Months Ended June 30, ----------------------- 2001 2000 -------- -------- Sales and other income Sales $786,458 $864,317 Dividends, interest and other 6,878 3,763 -------- -------- 793,336 868,080 -------- -------- Costs and expenses Costs applicable to sales 529,694 502,306 Depreciation and depletion 147,350 169,401 Exploration and research 30,620 38,185 General and administrative 28,144 30,796 Interest, net of capitalized interest of $6,64 and $1,850, respectively 40,896 48,079 Merger and restructuring 60,510 Other 5,250 5,257 -------- -------- 842,464 794,024 -------- -------- Operating income (loss) (49,128) 74,056 Unrealized mark-to-market gain (loss) on call options 854 (11,069) -------- -------- Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect of changes in accounting principle (48,274) 62,987 Income tax expense (1,843) (16,334) Minority interest in income of affiliates (25,088) (47,237) Equity income (loss) of Batu Hijau 6,362 (15,401) -------- -------- Net loss before cumulative effect of changes in accounting principle (68,843) (15,985) Cumulative effect of changes in accounting principle, net -- (12,572) -------- -------- Net loss (68,843) (28,557) Preferred stock dividends (3,737) (3,737) -------- -------- Net loss applicable to common shares $(72,580) $(32,294) ======== ======== Other comprehensive income (loss), net of tax 3,977 (18,375) -------- -------- Comprehensive loss $(68,603) $(50,669) ======== ======== Net loss before cumulative effect of changes in accounting principles per common share, basic and diluted $(0.37) $(0.10) ======== -------- Net loss per common share, basic and diluted $(0.37) $(0.17) ======== ======== Basic and diluted weighted average shares outstanding 194,131 191,926 Cash dividends declared per common share $0.06 $0.06 ======== ========
See Notes to Consolidated Financial Statements 3 NEWMONT MINING CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands) (Unaudited)
June 30, December 31, 2001 2000 ---------- ---------- Assets Cash and cash equivalents $ 76,746 $ 77,558 Short-term investments 7,691 7,084 Accounts receivable 21,718 29,281 Inventories 329,714 361,040 Marketable securities of Lihir 50,482 37,879 Prepaid taxes 19,511 46,307 Current portion of deferred income tax assets 9,627 9,624 Other current assets 42,795 43,395 ---------- ---------- Current assets 558,284 612,168 Property, plant and mine development, net 2,240,931 2,190,504 Investment in Batu Hijau 532,826 527,568 Long-term inventory 159,299 163,782 Deferred income tax assets 327,370 294,939 Restricted cash 1,378 41,968 Other long-term assets 93,455 85,837 ---------- ---------- Total assets $3,913,543 $3,916,766 ========== ========== Liabilities Short-term borrowings $ -- $ 10,000 Current portion of long-term debt 194,948 70,447 Accounts payable 84,340 87,757 Current portion of deferred income tax liabilities 8,325 10,223 Other accrued liabilities 162,554 220,175 ---------- ---------- Current liabilities 450,167 398,602 Long-term debt 1,085,630 1,129,390 Reclamation and remediation liabilities 168,623 160,548 Deferred revenue from sale of future production 137,198 137,198 Fair value of written call options 54,784 55,638 Deferred income tax liabilities 112,376 104,649 Other long-term liabilities 259,499 239,384 ---------- ---------- Total liabilities 2,268,277 2,225,409 ---------- ---------- Contingencies (Notes 5 and 11) Minority interest in affiliates 211,227 191,314 ---------- ---------- Stockholders' equity Convertible preferred stock 11,500 11, 500 Common stock 313,347 312,107 Additional paid-in capital 1,464,049 1,463,318 Accumulated other comprehensive loss (21,811) (25,788) Retained deficit (333,046) (261,094) ---------- ---------- Total stockholders' equity 1,434,039 1,500,043 ---------- ---------- Total liabilities and stockholders' equity $3,913,543 $3,916,766 ========== ==========
See Notes to Consolidated Financial Statements 4 NEWMONT MINING CORPORATION AND SUBSIDIARIES Statements of Consolidated Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, -------- 2001 2000 -------- --------- Operating activities: Net loss $ (68,843) $ (28,557) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and depletion 147,350 169,401 Amortization of capitalized mining costs 18,632 35,712 Amortization of put option premiums -- 13,088 Noncash merger and restructuring expenses 14,667 -- Unrealized mark-to-market (gain) loss on call options (854) 11,069 Deferred taxes (29,937) (13,141) Foreign currency exchange loss 786 3,875 Cumulative effect of accounting changes -- 12,572 Minority interest, net of dividends 19,912 17,702 Undistributed (income) losses of Batu Hijau (6,362) 15,401 Gain on sale of assets and other (2,665) (613) (Increase) decrease in operating assets: Accounts receivable 6,657 (17,307) Inventories 36,663 (15,233) Other assets 30,791 (5,691) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses (45,247) (849) Other liabilities 3,716 13,852 --------- --------- Net cash provided by operating activities 125,266 211,281 --------- --------- Investing activities: Additions to property, plant and mine development (220,900) (159,586) Repayments from (advances to) Batu Hijau 343 (91,800) Repayments from joint ventures and affiliates -- 15,364 Cash effect of affiliate merger -- (54,700) Proceeds from asset sales and other (42) (4,069) --------- --------- Net cash used in investing activities (220,599) (294,791) --------- --------- Financing activities: Proceeds from short-term borrowings -- 5,000 Repayment of short-term borrowings (10,000) -- Proceeds from long-term borrowings 989,100 237,000 Repayments of long-term borrowings (907,627) (217,257) Decrease in restricted cash 40,000 -- Dividends paid on common and preferred stock (15,473) (13,811) Other 1,109 (619) --------- --------- Net cash provided by financing activities 97,109 10,313 --------- --------- Effect of exchange rate changes on cash (2,588) 2,627 --------- --------- Net change in cash and cash equivalents (812) (70,570) Cash and cash equivalents at beginning of period 77,558 122,832 --------- --------- Cash and cash equivalents at end of period $ 76,746 $ 52,262 ========= ========= Supplemental information: Interest paid, net of amounts capitalized of $6,642 and $1,850, respectively $ 39,197 $ 48,486 Income taxes paid $ 42,598 $ 50,111
See Notes to Consolidated Financial Statements 5 NEWMONT MINING CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Preparation of Financial Statements --------------------------------------------- These unaudited interim consolidated financial statements of Newmont Mining Corporation ("NMC") and its subsidiaries (collectively, the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles as long as the statements are not misleading. In the opinion of management, all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal recurring nature. These interim financial statements should be read in conjunction with the 2000 financial statements of the Company filed on Form 8-K. Certain prior year amounts have been reclassified to conform to the current year presentation. On January 10, 2001, the Company completed a merger with Battle Mountain Gold Company ("Battle Mountain") where each share of common stock of Battle Mountain and each exchangeable share of Battle Mountain Canada Ltd. (a wholly- owned subsidiary of Battle Mountain) was converted into the right to receive 0.105 share of NMC common stock, or approximately 24.1 million shares. The Company also exchanged 2.3 million shares of newly issued $3.25 convertible preferred stock for all outstanding shares of Battle Mountain $3.25 convertible preferred stock. The merger was accounted for as a pooling of interests, and as such, consolidated financial statements have been restated to include Battle Mountain's financial data as if Battle Mountain had always been part of Newmont. The following table sets forth results of operations of the previously separate companies for the periods before the combination (in millions):
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- --------------------------- 2001 2000 2001 2000 ------ ------ ------ ------ Sales - pre-merger: Company $ -- $351.0 $ -- $718.6 Battle Mountain -- 60.2 -- 145.7 Sales - post-merger 362.4 -- 786.5 -- ------ ------ ------ ------ Total $362.4 $411.2 $786.5 $864.3 ====== ====== ====== ====== Net loss applicable to common shares pre-merger: Company $ -- $(16.4) $ -- $(18.5) Battle Mountain -- (9.4) -- (13.8) Net loss applicable to common shares post merger (33.5) -- (72.6) -- ------ ------ ------ ------ Total $(33.5) $(25.8) $(72.6) $(32.3) ====== ====== ====== ======
(2) Inventories ----------- At June 30, At December 31, 2001 2000 -------- -------- (In thousands) Current: Ore and in-process inventories $224,791 $241,181 Precious metals 11,897 23,452 Materials and supplies 93,025 95,395 Other 1 1,012 -------- -------- $329,714 $361,040 ======== ======== Non-current: Ore in stockpiles $159,299 $163,782 ======== ======== (3) Investment in Batu Hijau ------------------------ The Company has an indirect 45% interest in P.T. Newmont Nusa Tenggara (PTNNT), the owner of the Batu Hijau copper/gold mine in Indonesia, through the Nusa Tenggara Partnership (NTP). Because the Company carried a proportionate 6 amount of the investment of the 20% Indonesian owner, until recouping the bulk of its construction investment, including interest, the Company recognizes 56.25% of Batu Hijau's income. The equity investment in Batu Hijau was $532.8 million and $527.6 million at June 30, 2001 and December 31, 2000, respectively, based on accounting principles generally accepted in the U.S. Differences between 56.25% of NTP's net assets and the Company's investment include (i) $208.8 million for the fair market value adjustment recorded by NTP in conjunction with the Company's initial contribution, net of amortization, (ii) $42.8 million for intercompany charges, (iii) $116.4 million for the fair market value adjustment recorded by the Company in conjunction with the purchase of a subsidiary minority interest, net of amortization and (iv) $148.3 million for contributions recorded by the Company that were classified as debt by NTP. Certain of these amounts are amortized or depreciated on a unit-of-production basis. (See Note (10) for a description of the Company's equity income (loss) in Batu Hijau, where its net income reflects the elimination of interest between PTNNT and NTP). NTP's long-term debt is non-recourse to the Company and its partner. Repayment of this debt will be in semi-annual installments of $43.5 million from May 2001 through November 2010, and $22.1 million from May 2011 through November 2013 for the project financing and $22.5 million in May 2005 for an additional loan facility. The Company and its partner have a contingent obligation to provide a $125 million support facility on a pro-rata basis, if required. Following is NTP summarized financial information based on U.S. generally accepted accounting principles (in millions):
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- --------------------------- 2001 2000 2001 2000 ------ ------ ------ ------ Revenues $131.4 $ 85.2 $223.4 $173.2 Net income (loss) $ 3.3 $(22.9) $(17.1) $(50.3) Dividends received $ -- $ -- $ -- $ --
At June 30, At December 31, 2001 2000 ---------- ---------- Current assets $ 187,958 $ 209,011 Property, plant and mine development, net $1,972,997 $2,020,386 Other assets $ 163,177 $ 135,674 Current portion of long-term debt $ 86,732 $ 86,732 Current liabilities $ 189,879 $ 198,455 Debt and related interest to partners and affiliates $ 265,589 $ 283,504 Long-term debt $ 892,403 $ 913,268 Other liabilities $ 3,073 $ 2,013
(4) Long-Term Debt -------------- On May 14, 2001, the Company issued $275 million of 8.625% notes due 2011. Proceeds of $272 million after transaction costs were used to repay outstanding debt under the Company's revolving credit facility, with the remainder for general corporate purposes. Battle Mountain Canada had $87.1 million outstanding at December 31, 2000 under a loan agreement with the Canadian Imperial Bank of Commerce, with respect to which a restricted, collateral cash account had been established for repayment of a portion of the loan. Another portion of the loan was due the earlier of the sale of Lihir Gold stock or December 31, 2003. Subsequent to the NMC/Battle Mountain merger, the entire loan was repaid from the collateral cash account and from the Company's credit facility. As of June 30, 2001, scheduled minimum long-term debt repayments are $13.4 million in the second half of 2001, $189.4 million in 2002, $71.5 million in 2003, $82.9 million in 2004, $333.6 million in 2005 and $589.8 million thereafter. (5) Option Contracts and Commodity Instruments ------------------------------------------ In mid-1999, the Company purchased near-term put option contracts for 2.85 million ounces of gold, with a strike price of $270 per ounce, which expired August 1999 through December 2000. This purchase was paid for by selling call option contracts for 2.35 million ounces at average strike prices noted below: Ounces Price --------- ----- 2004 250,000 $350 2005 250,000 $350 2008 1,000,000 $386 2009 850,000 $385 The initial fair value of the put options of $37.6 million was amortized over the term of the options. The call options, with an 7 initial fair value of $37.6 million, are marked to market at each reporting date in current earnings and on June 30, 2001 and December 31, 2000, had a fair value of $54.8 million and $55.6 million, respectively. The noncash unrealized mark to market gain (loss) was $0.9 million and ($11.1 million) for the six months ended June 30, 2001 and 2000, respectively. At June 30, 2001, a $1.00 increase in the gold price would result in a $0.39 per ounce increase in the fair value of the liability associated with call options. The Company had the following commodity instruments as of June 30, 2001:
2001 2002 2003 2004 Total/Average ------- ------- ------- ------ ------------- Combination call and put options: Written call options - ounces 46,376 92,752 92,752 7,563 239,443 Average strike price per ounce $ 348 $ 348 $ 348 $ 359 $ 348 Purchased put options - ounces 46,376 92,752 92,752 7,563 239,443 Average strike price per ounce $ 286 $ 286 $ 286 $ 296 $ 286 Flat forward contracts - ounces 15,626 31,252 31,252 1,563 79,693 Average price per ounce $ 314 $ 314 $ 314 $ 323 $ 314
The Company is not required to place collateral with respect to its commodity instruments and there are no margin calls associated with such contracts. Credit risk is minimized by dealing only with major financial institutions/counterparties. The combination put and call options have been designated as cash flow hedges and had a fair value of $3.8 million and $2.7 million at June 30, 2001 and January 1, 2001, respectively, included in other long-term assets. The effective portion of these hedges is marked to market through accumulated other comprehensive income (loss). The flat forwards had a fair value of $2.0 million at both June 30, 2001 and December 31, 2000. A $1.00 increase in the gold price would result in a $0.67 per ounce increase and $0.97 per ounce decrease in the fair value of the combination options and flat forwards, respectively, at June 30, 2001. (6) Dividends, Interest and Other Income ------------------------------------
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2001 2000 2001 2000 ----- ----- ----- ----- Interest income............................................... $ 1.1 $ 3.2 $ 1.7 $ 6.0 Foreign currency exchange gain (loss), net.................... 0.2 (4.9) (0.8) (4.4) Net gain on sale of surplus properties........................ 0.2 -- 3.8 -- Other......................................................... 2.0 1.0 2.2 2.2 ----- ----- ----- ----- Total...................................................... $ 3.5 $(0.7) $ 6.9 $ 3.8 ===== ===== ===== =====
(7) Merger and Restructuring Expenses --------------------------------- In conjunction with the NMC/Battle Mountain merger, expenses of $28.1 million were incurred in the six months ended June 30, 2001. Total merger expenses of $35.0 million, of which $6.9 million were incurred in 2000, included $19.8 million for investment/professional advisory fees, $11.7 for terminated employee benefits and severance costs and $3.5 million for office closures and related disposals of redundant assets. Expenses associated with restructuring the Company's exploration program and a voluntary early retirement program were $32.4 million and included $22.1 million for retirement benefits and $10.3 million for employee severance and office closures. (8) Accounting Changes ------------------ Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") that requires recognition of all derivative instruments on the balance sheet as either assets or liabilities and measurement at fair value. Unless specific hedging criteria are met, changes in the derivative's fair value are recognized currently in earnings. Gains and losses on derivative hedging instruments are recorded in either other comprehensive income (loss) or current earnings (loss), depending on the nature of the instrument. The Company changed its method of accounting for revenue recognition in the fourth quarter of 2000, effective January 1, 2000, to record sales upon delivery of third-party refined gold to the customer. Previously, revenue was recognized upon the completion of the production process, or when gold was poured into dore at the mine site. The cumulative effect of the change was $12.6 million, net of tax and minority interest. In June 2001, the FASB issued SFAS Nos. 141 and 142, "Business Combinations" and "Goodwill and Other Intangible Assets", respectively. The adoption of these standards is not expected to impact the Company's historical financial statements or results of operations. 8 (9) Comprehensive Income (Loss) --------------------------- Other comprehensive income (loss), net of tax, included a $9.0 million gain and a $17.9 million loss for temporary changes in the market value of Lihir Gold securities for the six months ended June 30, 2001 and 2000, respectively. The first six months of 2001 also included gains of $1.1 million for the effective portion of changes in fair value of cash flow hedge instruments and a $6.1 million loss for foreign currency translation adjustments. (10) Segment Information ------------------- The Company predominantly operates in a single industry as a worldwide corporation engaged in gold production, exploration for gold and acquisition of gold properties. The Company has operations in North America, South America, Indonesia, Uzbekistan and Australia and its reportable segments are based on the geographic location of these operations. Earnings from operations do not include general corporate expenses, interest (except project-specific interest) or income taxes (except for equity investments). Financial information relating to the Company's consolidated segments is as follows (in millions):
Three Months Ended June 30, 2001 -------------------------------- North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ----------- ----------- --------- ---------- --------- ------- ------------- Sales $ 186.9 $ 131.4 $ 21.7 $ 13.5 $ 8.9 $ -- $ 362.4 Interest income $ -- $ 0.7 $ 0.1 $ -- $ -- $ 0.3 $ 1.1 Interest expense $ -- $ 0.3 $ -- $ 0.2 $ -- $ 20.1 $ 20.6 Depreciation and depletion $ 34.8 $ 26.4 $ 5.5 $ 2.9 $ 0.9 $ 1.7 $ 72.2 Pre-tax income (loss) before minority interest and equity income (loss) $ (18.1) $ 30.5 $ 4.4 $ 3.5 $ 4.2 $(57.3) $ (32.8) Significant non-cash items: Amortization of capitalized mining $ 8.8 $ -- $ 0.2 $ -- $ -- $-- $ 9.0 Capital expenditures $ 15.4 $ 98.9 $ -- $ 5.0 $ 0.6 $ 1.2 $ 121.1
* Not reduced for minority interest
Three Months Ended June 30, 2000 -------------------------------- North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- ---------- ---------- --------- ------- ------------ Sales $ 226.1 $ 132.1 $ 26.0 $ 17.6 $ 9.4 $ -- $ 411.2 Interest income $ -- $ 1.5 $ 0.1 $ -- $ -- $ 1.6 $ 3.2 Interest expense $ 0.1 $ 1.1 $ -- $ 0.5 $ -- $ 21.6 $ 23.3 Depreciation and depletion $ 48.3 $ 23.0 $ 5.9 $ 2.8 $ 1.2 $ 2.2 $ 83.4 Pre-tax income (loss) before minority interest and equity loss $ 7.5 $ 53.0 $ 7.1 $ 6.4 $ 5.3 $(68.3) $ 11.0 Significant non-cash items: Amortization of capitalized mining $ 12.5 $ -- $ 0.5 $ -- $ -- $ -- $ 13.0 Capital expenditures $ 35.4 $ 56.7 $ 1.5 $ 1.3 $ 1.6 $ 6.2 $ 102.7
* Not reduced for minority interest 9
Six Months Ended June 30, 2001 ------------------------------ North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- --------- ---------- --------- ------- ------------ Sales $ 418.4 $ 272.9 $ 52.2 $ 26.7 $ 16.3 $ -- $ 786.5 Interest income $ -- $ 0.9 $ 0.1 $ -- $ -- $ 0.7 $ 1.7 Interest expense $ 0.1 $ 1.6 $ -- $ 0.5 $ -- $ 38.7 $ 40.9 Depreciation and depletion $ 73.9 $ 51.3 $ 11.1 $ 5.8 $ 2.0 $ 3.3 $ 147.4 Pre-tax income (loss) before minority interest and equity income (loss) $ (12.6) $ 73.3 $ 16.2 $ 6.8 $ 7.3 $(139.3) $ (48.3) Significant non-cash items: Amortization of capitalized mining $ 14.5 $ -- $ 4.1 $ -- $ -- $ -- $ 18.6 Capital expenditures $ 41.4 $ 166.2 $ -- $ 5.9 $ 1.5 $ 5.9 $ 220.9
* Not reduced for minority interest
Six Months Ended June 30, 2000 ------------------------------ North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- --------- ---------- --------- ------- ------------ Sales $ 471.8 $ 277.0 $ 62.4 $ 36.3 $ 16.8 $ -- $ 864.3 Interest income $ -- $ 2.5 $ 0.1 $ -- $ -- $ 3.4 $ 6.0 Interest expense $ 0.2 $ 3.3 $ -- $ 1.0 $ -- $ 43.6 $ 48.1 Depreciation and depletion $ 99.9 $ 45.4 $ 11.7 $ 5.6 $ 2.5 $ 4.3 $ 169.4 Pre-tax income (loss) before minority interest, equity loss and cumulative effect of a change in accounting principle $ 23.1 $ 115.0 $ 25.3 $ 13.7 $ 8.0 $(122.1) $ 63.0 Cumulative effect of a change in accounting principle $ (5.2) $ (5.2) $ (2.1) $ (2.4) $ (0.1) $ 2.4 $ (12.6) Significant non-cash items: Amortization of capitalized mining $ 34.9 $ -- $ 0.8 $ -- $ -- $ 35.7 Capital expenditures $ 56.6 $ 88.5 $ 2.3 $ 2.3 $ 3.0 $ 6.9 $ 159.6
* Not reduced for minority interest The Company operates the Batu Hijau mine in Indonesia that is accounted for as an equity investment. Batu Hijau financial information, based on U.S. generally accepted accounting principles, was as follows (in millions):
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2001 2000 2001 2000 ------ ------ -------- -------- Sales.............................................. $131.2 $ 85.0 $ 223.0 $ 172.9 Interest income.................................... $ 0.2 $ 0.1 $ 0.4 $ 0.2 Interest expense................................... $ 37.1 $ 27.1 $ 70.7 $ 58.8 Depreciation and amortization...................... $ 23.7 $ 19.3 $ 45.8 $ 36.9 Net loss........................................... $ (5.9) $(28.0) $ (34.2) $ (62.9) Capital expenditures............................... $ 9.3 $ 16.7 $ (22.6) $ 69.3 Total assets at June 30,........................... $2,191.8 $2,174.7
Equity income of Batu Hijau was $10.8 million in the second quarter of 2001(based on 56.25% of Batu Hijau's income and elimination of $10.2 million and $3.0 million of intercompany interest and management fees, respectively, and amortization adjustments of $0.6 million). In the comparable 2000 period, the equity loss was $7.3 million (based on 56.25% of the Batu Hijau loss and elimination of $6.2 million and $1.8 million of intercompany interest and management fees, respectively, and amortization adjustments of $0.4 million). For the six months ended June 30, 2001, equity income of Batu Hijau was $6.4 million (based on 56.25% of Batu Hijau's income and elimination of $17.4 million and $5.6 million of intercompany interest and management fees, respectively, and amortization adjustments of $1.3 million) and for the comparable 2000 period, the equity loss was $15.4 million (based on 56.25% of the Batu Hijau loss and elimination of $13.0 million and $5.9 million of intercompany interest and management fees, respectively, and amortization adjustments of $1.2 million). 10 (11) Contingencies (a) Reclamation Obligations The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements. At June 30, 2001 and December 31, 2000, $117.1 million and $108.9 million, respectively, were accrued for reclamation costs relating to currently producing mineral properties. In addition, the Company is involved in several matters concerning environmental obligations associated with former mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. The Company believes that the related environmental obligations associated with these sites are similar in nature with respect to the development of remediation plans, their risk profile and the compliance required to meet general environmental standards. Based upon the Company's best estimate of its liability for these matters, $60.0 million and $63.5 million were accrued for such obligations at June 30, 2001 and December 31, 2000, respectively. These amounts are included in Other accrued liabilities and Reclamation and remediation liabilities. Depending upon the ultimate resolution of these matters, the Company believes that it is reasonably possible that the liability for these matters could be as much as 40% greater or lower than the amount accrued at December 31, 2000. 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, Other in the period estimates are revised. Details about certain of the more significant sites involved are discussed below. Idarado Mining Company ("Idarado")--80.1% owned In July 1992, the Company and Idarado signed a consent decree with the State of Colorado ("State") that was agreed to by the U.S. District Court of Colorado to settle a lawsuit brought by the State under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), generally referred to as the "Superfund Act." Idarado settled natural resources damages and past and future response costs and provided habitat enhancement work. In addition, Idarado agreed in the consent decree to undertake specified remediation work at its former mining site in the Telluride/Ouray area of Colorado. Remediation work at this property is substantially complete. If the remediation does not achieve specific performance objectives defined in the consent decree, the State may require Idarado to implement supplemental activities at the site, also as defined in the consent decree. Idarado and the Company have obtained a $7.0 million reclamation bond to secure their potential obligations under the consent decree. Resurrection Mining Company ("Resurrection")--100% owned The Company, Resurrection and other defendants were named in lawsuits filed by the State of Colorado, under the Superfund Act in 1983, and subsequently consolidated with a lawsuit filed by the U.S. Environmental Protection Agency ("EPA") in 1986. These proceedings seek to compel the defendants to remediate the impacts of pre-existing, historic mining activities near Leadville, Colorado that date back to the mid-1800's, which the government agencies claim are causing substantial environmental problems in the area. In 1988 and 1989, the EPA issued administrative orders with respect to one area on the site and the defendants have collectively implemented those orders by constructing a water treatment plant, which was placed in operation in early 1992. Remaining remedial work for this area primarily consists of environmental monitoring and maintenance activities. The parties have entered into a consent decree with respect to the remaining areas that apportions liabilities and responsibilities for the site among the various parties. The EPA has approved remedial actions for selected components of Resurrection's portion of the site, which were initiated in 1995. The EPA has not yet selected the final remedy for the site. Accordingly, the Company cannot yet determine the full extent or cost of its share of the remedial action that will be required. The government agencies may also seek to recover for damages to natural resources. In March 1999, the parties entered into a Memorandum of Understanding ("MOU") to facilitate the settlement of natural resources damages claims under CERCLA for the upper Arkansas River Basin. The MOU provides a structure for evaluation of damages and possible restoration activities that may be 11 required if it is concluded such damages have occurred. Dawn Mining Company LLC ("Dawn")--51% owned Dawn leased an open-pit uranium mine, currently inactive, on the Spokane Indian Reservation in the State of Washington. The mine is subject to regulation by agencies of the U.S. Department of Interior, the Bureau of Indian Affairs and the Bureau of Land Management, as well as the EPA. Dawn also owns a nearby uranium millsite facility that is subject to federal and state regulation. In 1991, Dawn's lease was terminated. As a result, Dawn was required to file a formal mine closure and reclamation plan. The Department of Interior has commenced an Environmental Impact Study to analyze Dawn's proposed plan and to consider alternate closure and reclamation plans for the mine. Dawn cannot predict at this time what type of mine reclamation plan may be selected by the Department of Interior. Dawn does not have sufficient funds to pay for the reclamation plan it proposed or for any alternate plan. The Department of Interior previously notified Dawn that when the lease was terminated, it would seek to hold Dawn and the Company (as Dawn's 51% owner) liable for any costs incurred as a result of Dawn's failure to comply with the lease and applicable regulations. Other government agencies have asserted that the Company is liable for future reclamation or remediation work at the mine or millsite. In mid-2000, the mine was included on the National Priorities List under CERCLA. The Company will vigorously contest any claims as to its liability. The Company cannot reasonably predict the likelihood or outcome of any future action against Dawn or the Company arising from this matter. In late 1999, Dawn initiated state approval for a revised mill closure plan that, if implemented, would expedite the reclamation process at the mill. The State of Washington recently approved this revised plan. The currently approved clean fill plan for the mill is secured by a $19.9 million bond that is 50% secured by a letter of credit and is guaranteed by the Company. San Luis, Colorado--100% owned The San Luis open-pit gold mine in southern Colorado was operated by a subsidiary of Battle Mountain and ceased operations in November 1996. Since then substantial closure and reclamation work has been performed. In August 1999, the Colorado Department of Public Health and Environment ("CDPHE") issued a notice of violation of the Water Quality Control Act and in October 1999 amended the notice to authorize operation of a water treatment facility and the discharge of treated water. Battle Mountain has made all submittals required by the CDPHE notice and conducted the required response activities. Battle Mountain negotiated a settlement with CDPHE resolving alleged violations that was effective September 1, 2000. In October 2000, the CDPHE received an "Application for Reconsideration of Order for Civil Penalty" by project opponents seeking to appeal the terms of the settlement. The application was denied by CDPHE. Project opponents have filed a judicial appeal in the District Court for Costilla County, Colorado, naming the CDPHE as defendant. Battle Mountain has intervened in the appeal to protect its interests in the settlement. The Company cannot reasonably predict the likelihood or outcome of this or any future action against Battle Mountain or the Company relating to this site. (b) Other In June 2000, a transport contractor of Minera Yanacocha spilled approximately 151 kilograms of mercury near the town of Choropampa, Peru, which is located 53 miles southwest of the mine. Mercury is a byproduct of gold mining and was sold to a Lima firm for use in medical instrumentation and industrial applications. A comprehensive health and environmental remediation program was undertaken by Minera Yanacocha. In August 2000, Minera Yanacocha paid under protest a fine of 1,740,000 soles (approximately US$500,000) to the Peruvian government. Minera Yanacocha entered into agreements with three of the communities impacted by this incident to provide a variety of public works as compensation for the disruption and inconvenience caused by the incident. Estimated costs of $10.0 million for these improvements, other remediation efforts, personal compensation and the fine were included in Other expense in 2000. Neither the Company nor Minera Yanacocha can reasonably predict the likelihood of any additional expenditures related to this matter. In 1999, the Company entered into a prepaid forward sale contract for approximately 483,333 ounces of gold, with initial proceeds of $137.2 million, for delivery in June 2005, 2006 and 2007. Such proceeds were recorded as deferred revenue and will be recognized in income when the related gold is delivered. Additional proceeds will be determined at each delivery date based on the excess of the then existing market price (not to exceed $380 per ounce) over $300 per ounce. The prepaid forward sale contract also included semi-annual delivery requirements of approximately 17,950 ounces beginning June 2000 through June 2007. The Company entered into forward purchase contracts at prices increasing from $263 per ounce in 2000 to $354 per ounce in 2007 to coincide with 12 these delivery commitments. The fair value of the forward purchase contracts was $3.4 million at June 30, 2001 and changes in fair value are reflected in Other comprehensive income. (12) Supplementary Data ----------------------- The ratio of earnings to fixed charges for the six months ended June 30, 2001 was 0.07 and were inadequate to cover fixed charges with a deficiency of $45 million. The ratio of earnings to fixed charges represents income before income taxes and interest expense divided by interest expense. Interest expense includes amortization of capitalized interest and the portion of rent expense representative of interest. The Company guarantees certain third party debt; however, it has not been and does not expect to be required to pay any amounts associated with such debt. Therefore, related interest on such debt has not been included in the ratio of earnings to fixed charges. ITEM 2. Management's Discussion and Analysis of Results of Operations and ------------------------------------------------------------------------- Financial Condition ------------------- The following provides information that management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of Newmont Mining Corporation ("NMC") and its subsidiaries (collectively, "Newmont"). The discussion should be read in conjunction with Management's Discussion and Analysis included in Newmont's Annual Report on Form 10-K. As described in Note (1), Newmont completed a merger with Battle Mountain Gold Company on January 10, 2001, where each share of common stock of Battle Mountain and each exchangeable share of Battle Mountain Canada Ltd. (a wholly- owned subsidiary of Battle Mountain) was converted into the right to receive 0.105 share of NMC stock, or approximately 24.1 million shares. The transaction was accounted for as a pooling of interests and as such, consolidated financial statements include Battle Mountain's financial data as if Battle Mountain had always been part of Newmont. SUMMARY Newmont recorded a net loss to common shares of $33.5 million ($0.17 per share) and $25.8 million ($0.13 per share) in the second quarter of 2001 and 2000, respectively. For the first half of 2001 and 2000, before an accounting change for revenue recognition in 2000, net losses to common shares were $72.6 million ($0.37 per share) and $19.7 million ($0.10 per share), respectively. The cumulative effect of the 2000 accounting change totaled $12.6 million ($0.07 per share), net of tax and minority interest. The 2001 results were impacted by lower gold prices, merger and restructuring expenses and noncash unrealized gains/losses on call option contracts that are marked-to-market as of the last day of each quarter-end. The second quarter and first half of 2001 included, net of tax, a $9.6 million loss ($0.05 per share) and a $0.5 million gain ($0.00 per share), respectively, for the noncash unrealized mark-to-market position on call option contracts. The first half of 2001 also included $43.7 million ($0.22 per share) for merger and restructuring expenses. The second quarter and first half of 2000 included, net of tax, $11.6 million ($0.06 per share) and $15.7 million ($0.08 per share), respectively, for noncash unrealized mark-to-market losses on call option contracts and amortization of put option premiums. Total equity gold sales, total cash costs and average realized gold prices were as follows:
Three Months Ended Six Months Ended June 30, June 30, -------------------------- --------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Equity gold sales ounces (000) 1,219.3 1,278.9 2,641.6 2,666.3 Total cash costs per ounce $ 194 $ 173 $ 182 $ 172 Total costs per ounce $ 251 $ 236 $ 235 $ 233 Average price realized per ounce $ 268 $ 282 $ 266 $ 285
For the full-year 2001, gold sales are expected to total approximately 5.4 million ounces with a total cash cost of $180 per ounce. 13 MARKET CONDITIONS AND RISKS METAL PRICE Changes in the market price of gold significantly affect Newmont's profitability and cash flow. Gold prices can fluctuate widely and are affected by numerous factors, such as demand; forward selling by producers; central bank sales, purchases and lending; investor sentiment and global mine production levels. The gold price fell to a 20-year low of $253 in July 1999 and has periodically recovered moderately, with an average price of $266 for the first half of 2001. Changes in the market price of copper also affect Newmont's profitability and cash flow from its Batu Hijau mine in Indonesia. Newmont has generally sold its production at market prices, but has used a limited number of commodity instruments to provide a measure of price protection. At June 30, 2001, the following commodity instruments were outstanding:
Ounces Fair Value ------ ---------- (in millions) ------------- Combination, matched put and call options, expiring 2001-2004 239,443 $ 3.8 Flat forward sales contracts, 2001-2004 79,693 $ 2.0 Written call option contracts liabliity, expiring 2004-2009 2,350,000 $(54.8)
The option contracts are marked to market at each quarter-end and the resulting gains or losses in current earnings may fluctuate significantly, primarily depending upon gold spot market prices and volatility. The combination, matched put and call options have been designated as cash flow hedges such that changes in the effective portion of the hedge is marked to market through accumulated other comprehensive income or loss. A one-dollar increase in the gold price would result in a $0.67 per ounce increase and $0.97 per ounce decrease in the fair value of the combination option contracts and flat forward contracts, respectively, and a $0.39 per ounce increase in the fair value of the liability associated with written call options as of June 30, 2001, assuming all other factors are constant. FOREIGN CURRENCY In addition to the U.S., Newmont conducts operations in Canada, Peru, Bolivia, Uzbekistan and Indonesia and has an interest in joint ventures in Mexico and Australia. Gold produced at these operations is sold in the international markets for U.S. dollars. The cost and debt structures at these operations are also primarily U.S. dollar denominated, except for Canadian and Australian operations where such structures are primarily denominated in local currencies. To the extent that there are fluctuations in local currency exchange rates against the U.S. dollar, the devaluation of a local currency is generally economically neutral or beneficial to the operation since local salaries and supply contracts will decrease against the U.S. dollar revenue stream. Foreign currency exchange rate losses related to Canadian and Australian operations were $0.8 million and $4.4 million in the six months ended June 30, 2001 and 2000, respectively. RESULTS OF OPERATIONS GOLD SALES
Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- ----------------------------------- 2001 2000 2001 2000 2001 2000 2001 2000 ------- ------- ----- ----- ------- ------- ----- ----- Total Cash Costs Total Cash Costs Equity Ozs. Sold Per Oz. Equity Ozs. Sold Per Oz. ---------------- ---------------- ---------------- -------------- North American operations: Nevada operations................................... 603.1 661.6 $ 236 $ 205 1,332.7 1,292.6 $ 216 $ 212 Mesquite, California................................ 24.2 30.4 216 193 63.7 68.0 213 200 La Herradura, Mexico................................ 14.1 13.5 174 142 26.8 23.8 163 146 Golden Giant, Canada................................ 52.0 92.9 176 147 123.6 259.1 186 144 Holloway, Canada.................................... 20.9 17.1 270 274 43.9 46.4 230 205 South American operations: Yanacocha, Peru..................................... 216.6 205.7 127 88 455.5 424.5 117 88 Kori Kollo, Bolivia................................. 63.7 57.3 176 222 124.2 122.1 188 211 Zarafshan-Newmont, Uzbekistan......................... 50.4 62.8 139 127 100.1 127.4 140 124 Vera/Nancy, Australia................................. 31.1 33.4 100 77 61.3 58.9 98 100 Minahasa, Indonesia................................... 82.0 73.4 142 176 197.0 180.6 125 139 Batu Hijau, Indonesia................................. 79.2 30.8 n/a n/a 130.8 62.9 n/a n/a Less prepaid forward ozs. delivered................. (18.0) n/a (18.0) n/a ------- ------- ------- ------- Total/Weighted average........................... 1,219.3 1,278.9 $ 194 $ 173 2,641.6 2,666,3 $ 182 $ 172 ======= ======= ======= =======
Total cash costs include charges for mining ore and waste associated with current period gold production, processing ore through milling and leaching facilities, production taxes, royalties and other cash costs. Batu Hijau costs are reported per pound of copper, with gold revenue as an offsetting by-product credit. 14 NORTH AMERICAN OPERATIONS Newmont's Nevada operations are along the Carlin Trend near Elko and in the Winnemucca Region, where the Twin Creeks and the Lone Tree Complex mines are located. Gold sales in the second quarter of 2001 decreased 9% to 603 thousand ounces from the comparable 2000 period, with reduced throughput from the Carlin roaster resulting from the annual maintenance shutdown and lower leach production. Total cash costs for the second quarter of 2001 were $236 per ounce compared with $205 per ounce in the same 2000 period, primarily reflecting lower production and higher electrical power costs. In the first six months of 2001, sales totaled 1.33 million ounces compared with 1.29 million ounces in the same 2000 period. Full-year 2001 sales in Nevada are expected to exceed 2.7 million ounces with total cash costs about $215 per ounce. Production at the Deep Post underground mine began in March 2001 with 43 thousand ounces in the second quarter. With the continued ramp up in production, 150 thousand ounces are expected in the second half of the year. By 2003, Deep Post will reach an annual production rate of 380,000 ounces at an average total cash costs of approximately $150 per ounce over the life of the mine. Exploration along the drift connecting Deep Post and Deep Star underground deposits has generated encouraging results. Mesquite mine sales were 24 thousand ounces and 64 thousand ounces in the second quarter and first six months of 2001, respectively. Total cash costs were $213 per ounce year-to-date 2001. The heap-leach operation in southern California ceased mining operations in the second quarter of 2001 with the depletion of the ore body. Production in 2001 is expected at approximately 90 thousand ounces with total cash costs about $200 per ounce, as declining amounts of gold are recovered from the leach pads. Selected equipment from the Mesquite mine has been transferred to operations in South America and in Nevada. La Herradura, a 44%-owned non-operated joint venture in Mexico, sold 27 thousand equity ounces in the first half of 2001 at a total cash cost of $163 per ounce. Production for 2001 is expected at approximately 55 thousand equity ounces at a cash cost about $170 per ounce. Gold sales from the Golden Giant and the 84.65%-owned Holloway underground mines in Ontario, Canada were 124 thousand and 44 thousand ounces, respectively, in the first six months of 2001, with total cash costs of $186 and $230 per ounce. Production for 2001 is expected to total approximately 300 thousand and 100 thousand equity ounces at Golden Giant and Holloway, respectively, with cash costs about $170 and $215 per ounce. Higher production in the second half of 2001 at Golden Giant is expected from the deepening of the mine shaft that has been recently completed. OVERSEAS OPERATIONS Sales at Minera Yanacocha in Peru increased 5% and 7% in the second quarter and first six months of 2001, respectively, to 217 thousand and 456 thousand equity ounces from the same 2000 periods, with higher ore grades. Total cash costs increased to $127 per ounce in the second quarter and to $117 per ounce in first six months of 2001 compared with $88 per ounce in both 2000 periods, primarily reflecting higher waste-to-ore ratios resulting from short-term changes in the mine production schedule. Gold production for 2001 is expected to be just over one million equity ounces at a total cash cost of about $120 per ounce. At the newly developed La Quinua deposit at Yanacocha, testing of the agglomeration facility and ore placements on the leach pad is scheduled during the third quarter of 2001, with initial production during the fourth quarter. By 2003, production from La Quinua is expected to reach one million ounces at a total cash cost of approximately $125 per ounce over the life of the deposit. Exploration drilling at Yanacocha is focused on the Corimayo oxide deposit, adjacent to the La Quinua deposit, and on possible extensions of oxide mineralization adjacent to other deposits. Exploration work continues to better understand the copper/gold sulfide geology underneath the Yanacocha deposit, with 26 drill holes completed year-to-date. At the 88%-owned Kori Kollo open-pit mine in Bolivia, sales totaled 64 thousand and 124 thousand ounces in the second quarter and first six months of 2001 at a total cash cost of $188 per ounce year-to date. For 2001, total sales are expected at 260 thousand equity ounces with total cash costs about $190 per ounce. Ore placements on its first heap leach pad began at the end of the 2001 second quarter and will add to production in the second half of the year. In the second quarter and first six months of 2001, equity gold sales from Zarafshan- Newmont, a 50%- owned joint venture in the Central Asian Republic of Uzbekistan, were 50 thousand ounces and 100 thousand ounces, respectively, about 20% below that in the same 2000 periods reflecting lower average ore grades. Total cash costs per ounce of $140 in the 2001 six-month period compared with $124 in the same 2000 period. Production in 2001 is expected to total approximately 200 thousand equity ounces with total cash costs of about $140 per ounce. Ore placement on the heap leach pad expansion project is scheduled for the beginning of 2002. 15 In Indonesia, at Newmont's 80%-owned Minahasa property, gold sales of 82 thousand ounces were up 12% from the second quarter of 2000 and sales of 197 thousand ounces for the first six months were up 9% from the comparable 2000 period. Total cash costs were $125 per ounce for the first half of 2001, down 10% from the first half of 2000. Production is expected to approximate 320 thousand ounces in 2001 with total cash costs of approximately $150 per ounce. Mining operations will cease by the end of the 2001 with the depletion of the ore body. At Vera/Nancy, a 50%-owned joint venture in Queensland, Australia, first half 2001 equity gold sales were 61 thousand ounces with total cash costs of $98 per ounce. Total production in 2001 is expected at approximately 120 thousand ounces at a total cash cost of about $100 per ounce. The Batu Hijau mine in Indonesia, which commenced production in the fourth quarter of 1999, produced 98 million and 189 million equity pounds of copper during the second quarter and first half of 2001, respectively, and 79 thousand and 131 thousand equity ounces of gold sales. Copper sales totaled 170 million equity pounds for the first six months of 2001 compared with 121 million equity pounds in the same 2000 period. Total cash costs were $0.40 and $0.62 per pound, after gold sales credits, for the first half of 2001 and 2000, respectively. Production has continued to ramp up since 1999 and 2001 production benefited from higher ore grades and recovery rates. In the second quarter of 2001, mill throughput averaged 119 thousand metric tons per day, with rated capacity at 120 thousand metric tons. Copper production in 2001 is expected to be between 320 million and 350 million equity pounds at a cash cost about $0.43 per pound, with gold production over 260 thousand equity ounces. FINANCIAL RESULTS Consolidated sales include 100% of Minera Yanacocha and Kori Kollo and Newmont equity production elsewhere, but exclude Batu Hijau, which is accounted for as an equity investment. The decrease in consolidated sales revenue in the second quarter and first half of 2001 from the comparable 2000 periods primarily resulted from lower gold prices as shown in the following table:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Consolidated sales (in millions)........................... $ 362.4 $ 411.2 $ 786.5 $ 864.3 Consolidated production ozs. sold (000)................... 1,354.0 1,450.8 2,959.2 3,022.2 Average price received per ounce........................... $ 268 $ 282 $ 266 $ 285 Average market price received per ounce.................... $ 268 $ 283 $ 266 $ 286
Three Months Six Months Ended June 30, Ended June 30, 2001 vs 2000 2001 vs 2000 -------------- ------------- Decrease in consolidated sales due to (in millions): Consolidated production................................................. $(21.5) $(12.5) Average gold price received............................................. (27.4) (65.4) ------ ------ Total................................................................ $(48.9) $(77.9) ====== ======
Costs applicable to sales include total cash costs and provisions for estimated final reclamation expenses related to consolidated production.
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2001 2000 2001 2000 ------ ------ ------ ------ (in millions) North American operations: Nevada operations............................................. $144.5 $137.2 $293.0 $277.5 Mesquite...................................................... 6.4 5.9 15.0 13.6 La Herradura.................................................. 2.5 2.0 4.5 3.6 Golden Giant.................................................. 9.5 14.2 23.7 38.8 Holloway...................................................... 5.7 3.8 10.3 10.4 South American operations: Yanacocha..................................................... 56.5 37.9 110.2 77.9 Kori Kollo.................................................... 14.8 16.0 27.2 33.0 Vera/Nancy...................................................... 3.1 2.9 6.0 6.3 Zarafshan-Newmont............................................... 7.0 8.0 14.1 15.9 Minahasa........................................................ 11.8 13.1 25.0 25.4 Other........................................................... (1.4) (0.1) 0.7 (0.1) ------ ------ ------ ------ Total......................................................... $260.4 $240.9 $529.7 $502.3 ====== ====== ====== ======
16 Depreciation and depletion:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2001 2000 2001 2000 ----- ----- ------ ------ (in millions) North American operations: Nevada operations............................................. $27.3 $36.3 $ 57.7 $ 69.4 Mesquite .................................................... 1.3 2.7 2.8 6.1 La Herradura.................................................. 1.0 0.8 1.8 1.4 Golden Giant.................................................. 3.6 6.2 8.3 16.8 Holloway...................................................... 1.6 2.3 3.3 6.2 South American operations: Yanacocha..................................................... 21.4 17.0 41.5 33.3 Kori Kollo.................................................... 5.0 6.0 9.8 12.1 Vera/Nancy...................................................... 0.9 1.2 2.0 2.5 Zarafshan-Newmont............................................... 2.9 2.8 5.8 5.6 Minahasa........................................................ 5.5 5.9 11.1 11.7 Other........................................................... 1.7 2.2 3.3 4.3 ----- ----- ------ ------ Total......................................................... $72.2 $83.4 $147.4 $169.4 ===== ===== ====== ======
Exploration and research expense was $30.6 million in the first half of 2001 compared with $38.2 million in the 2000 first half reflecting the planned reduction to approximately $50 million for the year. General and administrative expense was $28.1 million in the first half of 2001, 9% lower than in the comparable 2000 period reflecting synergies from the Battle Mountain merger and savings from the first quarter 2001 restructuring. Interest expense, net of capitalized interest was $20.6 million and $23.3 million for the first quarter of 2001 and 2000, respectively, and $40.9 million and $48.1 million for the first half of 2001 and 2000, respectively, reflecting increased capitalized interest in the second quarter of 2001, related to the La Quinua project at Yanacocha, and higher debt balances for the first half of 2001. Income tax expense in the first six months of 2001 and 2000 was $1.8 million and $16.3 million, respectively. The decrease reflected lower taxable income in 2001, primarily the result of lower gold prices realized on metal sales. Merger and restructuring expenses in the first half of 2001 of $60.5 million ($43.7 million, net of tax) included $28.1 million of transaction and related costs associated with the Battle Mountain merger and $32.4 million of restructuring expenses that included $22.1 million for voluntary early retirement pension benefits and $10.3 million for employee severance and office closures. Unrealized mark-to-market gain (loss) on call option contracts of $0.9 million and ($11.1 million) for the six months ended June 30, 2001 and 2000, respectively, reflected the change in fair value as of the end of each period. An decrease in fair value represents an unrealized loss to the counterparty holding these contracts and a corresponding unrealized gain to Newmont. The change in fair value in the first half of 2001 primarily resulted from volatility in the gold spot market. Over the life of the contracts, any unrealized gains or losses will be restored to income. Equity in income of Batu Hijau of $10.8 million and $6.4 million for the second quarter and first half of 2001, respectively, compared with losses of $7.3 million and $15.4 million for the same 2000 periods, reflecting the ramp up in production that commenced in December 1999. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") that requires recognition of all derivative instruments on the balance sheet as either assets or liabilities and measurement at fair value. Unless specific hedging criteria are met, changes in the derivative's fair value are recognized currently in earnings. Gains and losses on derivative hedging instruments are recorded in either other comprehensive income (loss) or current earnings (loss), depending on the nature of the instrument. The Company changed its method of accounting for revenue recognition in the fourth quarter of 2000, effective January 1, 2000, to record sales upon delivery of third-party refined gold to the customer. Previously, revenue was recognized upon the completion of the production process, or when gold was poured into dore at the mine site. The cumulative effect of the change was $12.6 million, net of tax and minority interest. Other comprehensive income (loss), net of tax, included a $9.0 million gain and a $17.9 million loss for temporary changes in the market value of Lihir Gold securities for the six months ended June 30, 2001 and 2000, respectively, and $6.1 million and $0.5 million losses from foreign currency translation adjustments. The first half of 2001 also included a $1.1 million gain for the effective portion of changes in fair value of cash flow hedge instruments. 17 LIQUIDITY AND CAPITAL RESOURCES During the first six months of 2001, cash flow from operations ($125.3 million), restricted cash ($40.0 million) and net borrowings ($71.5 million) funded capital expenditures ($220.9 million) and dividends ($15.5 million). In the current gold price environment, Newmont is continuously monitoring and adjusting cash requirements for operating, exploration and capital expenditures in order to minimize long-term borrowings required during 2001. INVESTING ACTIVITIES AND CAPITAL EXPENDITURES Capital expenditures were as follows:
2001 2000 ------ ------ (in millions) North American operations $ 41.4 $ 56.6 Overseas operations 173.6 96.1 Other projects and capitalized interest........................... 5.9 6.9 ------ ------ Total........................................................ $220.9 $159.6 ====== ======
Expenditures for North American operations during the first six months of 2001 included $36.0 million related to activities in Nevada, primarily for the development of the Deep Post underground mine. Overseas capital expenditures were primarily at Minera Yanacocha ($159.0 million) for development of the La Quinua project and other ongoing expansion work. Capital expenditures in the 2000 period were primarily for Nevada and Minera Yanacocha leach pad expansion projects and Nevada capitalized mining. FINANCING ACTIVITIES On May 14, 2001, the Company issued $275 million of 8.625% notes due 2011. Proceeds of $272 million after transaction costs were used to repay debt outstanding under the Company's revolving credit facility, with the remainder for general corporate purposes. As a result, during the first six months of 2001, net repayments of $147 million were made under Newmont's $1.0 billion revolving credit facility, with no remaining outstanding borrowing at June 30, 2001. Refinancing of the revolving credit facility to between $500 million and $600 million is expected to occur by year-end. In late July 2001, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, registering shelf securities in the amount of $275 million. As a result, the Company has debt and equity shelf securities with a maximum public offering price of $500 million both registered and available for issuance from time to time. The Company has no immediate plans to issue additional securities subject to this registration. During the first half of 2001, net borrowings of $40.6 million occurred under project financings, primarily for Minera Yanacocha. And at the time of the merger, Battle Mountain Canada had $87.1 million of debt outstanding, which was repaid in January 2001, using $40 million of restricted cash and borrowings under Newmont's credit facility. As of June 30, 2001, scheduled minimum long-term debt repayments are $13.4 million in the second half of 2001, $189.4 million in 2002, $71.5 million in 2003, $82.9 million in 2004, $333.6 million in 2005 and $589.8 million thereafter. SAFE HARBOR STATEMENT The foregoing discussion and analysis, as well as certain information contained elsewhere in this Quarterly Report, contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor created thereby. Such forward-looking statements include, without limitation, (i) estimates of future gold production for specific operations and on a consolidated basis, (ii) estimates of future production costs and other expenses for specific operations and on a consolidated basis, (iii) estimates of future capital expenditures and other cash needs for specific operations and on a consolidated basis and expectations as to the funding thereof, (iv) estimates of future costs and other liabilities for certain environmental and related health matters, (v) estimates of reserves and (vi) estimates with respect to future operations. Where Newmont expresses an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from such forward-looking statements. Important factors that could cause actual results to differ materially from such forward-looking statements ("cautionary statements") are disclosed under "Risk Factors" in the Newmont Annual Report on Form 10-K for the year ended December 31, 2000, as well as other filings with the Securities and Exchange Commission. Many of these factors are beyond Newmont's ability to control or predict. Readers are 18 cautioned not to put undue reliance on 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 the cautionary statements. Newmont disclaims any intent or obligation to update publicly any forward-looking statements set forth in this Report, whether as a result of new information, future events or otherwise. PART II - OTHER INFORMATION --------------------------- ITEM 4. Submission Of Matters To A Vote Of Security Holders ----------------------------------------------------------- Registrant's annual meeting of stockholders was held on May 3, 2001. All eleven directors nominated to serve as directors of Registrant were reelected. The vote was as follows:
Name Votes Withheld ------------------------------------------------------------------ V. A. Calarco 156,044,084 1,770,663 ------------------------------------------------------------------ R. C. Cambre 156,032,990 1,781,757 ------------------------------------------------------------------ J. T. Curry, Jr. 156,020,088 1,794,659 ------------------------------------------------------------------ J. P. Flannery 156,031,137 1,783,610 ------------------------------------------------------------------ L. I. Higdon, Jr. 156,063,890 1,750,857 ------------------------------------------------------------------ R. J. Miller 156,035,358 1,779,389 ------------------------------------------------------------------ W. W. Murdy 156,060,372 1,754,375 ------------------------------------------------------------------ R. A. Plumbridge 156,050,713 1,764,034 ------------------------------------------------------------------ M. A. Qureshi 156,022,883 1,791,864 ------------------------------------------------------------------ M. K. Reilly 156,048,689 1,766,058 ------------------------------------------------------------------ J. V. Taranik 156,062,485 1,752,262 ------------------------------------------------------------------
ITEM 5. Other Information -------------------------- In May 2001, the following were elected as officers of Newmont Mining Corporation: Ronald C. Cambre Chairman of the Board Wayn W. Murdy President and Chief Executive Officer John A. S. Dow Executive Vice President and Group Executive, Latin America David H. Francisco Executive Vice President, Operations Bruce D. Hansen Senior Vice President and Chief Financial Officer Lawrence T. Kurlander Senior Vice President and Chief Administrative Officer W. James Mullin Senior Vice President and Group Executive, North America David A. Baker Vice President, Environmental, Health and Safety Affairs Britt D. Banks Vice President, General Counsel and Secretary D. Scott Barr Vice President and Chief Technical Officer Robert J. Bush Vice President, Administration and Human Resources Thomas M. Conway Vice President, Risk Management Thomas L. Enos Vice President and Group Executive, Indonesia W. Durand Eppler Vice President, Corporate Development Greg V. Etter Vice President, External Affairs Gary E. Farmar Vice President, Internal Audit Jeffrey R. Huspeni Vice President, Exploration Donald G. Karras Vice President, Taxes Leland W. Krugerud Vice President, Business Affairs, North American Operations Richard Perry Vice President, Nevada Operations Linda K. Wheeler Vice President and Controller Thomas P. Mahoney Treasurer and Assistant Secretary In July 2001, Glen A. Barton was elected to the Board of Directors of the Corporation. 19 ITEM 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) The exhibits to this report are listed in the Exhibit Index on Page 22 hereof. (b) Reports filed on Form 8-K during the quarter ended June 30, 2001: Report dated May 9, 2001, related to restated historical financial information giving effect to the merger of Newmont and Battle Mountain Gold Company, which was completed on January 10, 2001 and which was accounted for as a pooling of interests. Report dated May 14, 2001, related to the public offering by Newmont of its 8 5/8% Notes due 2011. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEWMONT MINING CORPORATION (Registrant) Date: August 2, 2001 /s/ BRUCE D. HANSEN ------------------- Bruce D. Hansen Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 2, 2001 /s/ LINDA K. WHEELER -------------------- Linda K. Wheeler Vice President and Controller (Principal Accounting Officer) 21 Newmont Mining Corporation EXHIBIT INDEX Exhibit Number Description ------ ----------- 12 - Statement re Computation of Ratio of Earnings to Fixed Charges.