0000950131-01-503888.txt : 20011031 0000950131-01-503888.hdr.sgml : 20011031 ACCESSION NUMBER: 0000950131-01-503888 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWMONT MINING CORP CENTRAL INDEX KEY: 0000071824 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 132526632 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01153 FILM NUMBER: 1768592 BUSINESS ADDRESS: STREET 1: ONE UNITED BANK CTR STREET 2: 1700 LINCOLN ST CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038637414 10-Q 1 d10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 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 196,034,980 shares of common stock outstanding on October 25, 2001. PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements NEWMONT MINING CORPORATION AND SUBSIDIARIES Statements of Consolidated Operations and Comprehensive Income (Loss) (In thousands, except per share) (Unaudited)
Three Months Ended September 30, ------------- 2001 2000 -------- -------- Sales and other income Sales $424,397 $419,395 Dividends, interest and other (3,291) 697 -------- -------- 421,106 420,092 -------- -------- Costs and expenses Costs applicable to sales 283,269 256,320 Depreciation and depletion 71,479 89,204 Exploration and research 12,843 20,699 General and administrative 12,388 18,593 Interest, net of capitalized interest of $2,881 and $2,189, respectively 21,745 22,984 Expenses for acquisition settlement -- 42,181 Other 2,953 20,616 -------- -------- 404,677 470,597 -------- -------- Operating income (loss) 16,429 (50,505) Gain on written call options 943 24,123 -------- -------- Pre-tax income (loss) before minority interest and equity income 17,372 (26,382) Income tax benefit 8,509 10,552 Minority interest in income of affiliates (19,335) (19,496) Equity income of Batu Hijau 16,852 666 -------- -------- Net income (loss) 23,398 (34,660) Preferred stock dividends (1,870) (1,870) -------- -------- Net income (loss) applicable to common shares $ 21,528 $(36,530) ======== ======== Net income (loss) $ 23,398 $(34,660) Other comprehensive income (loss), net of tax 7,163 (8,934) -------- -------- Comprehensive income (loss) $ 30,561 $(43,594) ======== ======== Net income (loss) per common share, basic and diluted $ 0.11 $ (0.19) ======== ======== Basic weighted average shares outstanding 195,880 192,191 Diluted weighted average shares outstanding 196,068 192,191 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)
Nine Months Ended September 30, ------------------------ 2001 2000 ---------- ---------- Sales and other income Sales $1,210,855 $1,283,712 Dividends, interest and other 3,587 4,460 ---------- ---------- 1,214,442 1,288,172 ---------- ---------- Costs and expenses Costs applicable to sales 812,963 758,626 Depreciation and depletion 218,829 258,605 Exploration and research 43,463 58,884 General and administrative 40,532 49,389 Interest, net of capitalized interest of $9,523and $4,039, respectively 62,641 71,063 Merger and restructuring 60,510 -- Expenses for acquisition settlement -- 42,181 Other 8,203 25,873 ---------- ---------- 1,247,141 1,264,621 ---------- ---------- Operating income (loss) (32,699) 23,551 Gain on written call options 1,797 13,054 ---------- ---------- Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect of changes in accounting principle (30,902) 36,605 Income tax benefit (expense) 6,666 ( 5,782) Minority interest in income of affiliates (44,423) (66,733) Equity income (loss) of Batu Hijau 23,214 (14,735) ---------- ---------- Net loss before cumulative effect of changes in accounting principle (45,445) (50,645) Cumulative effect of changes in accounting principle, net -- (12,572) ---------- ---------- Net loss (45,445) (63,217) Preferred stock dividends (5,607) (5,607) ---------- ---------- Net loss applicable to common shares $ (51,052) $ (68,824) ========== ========== Net loss $ (45,445) $ (63,217) Other comprehensive income (loss), net of tax 11,140 (27,309) ---------- ---------- Comprehensive loss $ (34,305) $ (90,526) ========== ========== Net loss before cumulative effect of changes in accounting principles per common share, basic and diluted $ (0.26) $ (0.29) ========== ---------- Net loss per common share, basic and diluted $ (0.26) $ (0.36) ========== ========== Basic weighted average shares outstanding 194,720 192,014 Diluted weighted average shares outstanding 194,720 192,014 Cash dividends declared per common share $ 0.09 $ 0.09 ========== ==========
See Notes to Consolidated Financial Statements 3 NEWMONT MINING CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands) (Unaudited)
September 30, December 31, 2001 2000 ---------- ---------- Assets Cash and cash equivalents $ 90,516 $ 77,558 Short-term investments 7,338 7,084 Accounts receivable 26,381 29,281 Inventories 327,801 361,040 Marketable securities of Lihir 62,340 37,879 Prepaid taxes 20,130 46,307 Current portion of deferred income tax assets 9,626 9,624 Other current assets 46,856 43,395 ---------- ---------- Current assets 590,988 612,168 Property, plant and mine development, net 2,261,642 2,190,504 Investment in Batu Hijau 541,464 527,568 Long-term inventory 148,474 163,782 Deferred income tax assets 341,744 294,939 Restricted cash -- 41,968 Other long-term assets 92,944 85,837 ---------- ---------- Total assets $3,977,256 $3,916,766 ========== ========== Liabilities Short-term borrowings $ -- $ 10,000 Current portion of long-term debt 189,189 70,447 Accounts payable 72,400 87,757 Current portion of deferred income tax liabilities 7,983 10,223 Other accrued liabilities 186,482 220,175 ---------- ---------- Current liabilities 456,054 398,602 Long-term debt 1,092,293 1,129,390 Reclamation and remediation liabilities 170,342 160,548 Deferred revenue 191,039 137,198 Fair value of written call options -- 55,638 Deferred income tax liabilities 123,046 104,649 Other long-term liabilities 254,366 239,384 ---------- ---------- Total liabilities 2,287,140 2,225,409 ---------- ---------- Contingencies (Notes 5 and 12) Minority interest in affiliates 230,539 191,314 ---------- ---------- Stockholders' equity Convertible preferred stock 11,500 11, 500 Common stock 313,559 312,107 Additional paid-in capital 1,460,637 1,463,318 Accumulated other comprehensive loss (14,648) (25,788) Retained deficit (311,471) (261,094) ---------- ---------- Total stockholders' equity 1,459,577 1,500,043 ---------- ---------- Total liabilities and stockholders' equity $3,977,256 $3,916,766 ========== ==========
See Notes to Consolidated Financial Statements 4 NEWMONT MINING CORPORATION AND SUBSIDIARIES Statements of Consolidated Cash Flows (In thousands) (Unaudited)
Nine Months Ended September 30, ------------- 2001 2000 ---- ---- Operating activities: Net loss $ (45,445) $ (63,217) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and depletion 218,829 258,605 Amortization of capitalized mining costs 30,696 62,814 Deferred taxes (35,282) (22,736) Noncash merger and restructuring expenses 14,667 -- Stock issued for acquisition settlement -- 40,000 Cumulative effect of accounting changes -- 12,572 Amortization of put option premiums -- 16,842 Gain on written call options (1,797) (13,054) Foreign currency exchange loss 5,283 5,855 Minority interest, net of dividends 39,224 37,048 Undistributed (income) losses of Batu Hijau (23,214) 14,735 Gain on sale of assets and other (5,795) (862) (Increase) decrease in operating assets: Accounts receivable (2,502) 7,214 Inventories 49,402 (44,253) Other assets 21,785 (14,982) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses (45,046) 16,689 Other liabilities 13,531 24,971 ---------- --------- Net cash provided by operating activities 234,336 338,241 ---------- --------- Investing activities: Additions to property, plant and mine development (329,374) (271,063) Repayments from (advances to) Batu Hijau 8,780 (111,488) Repayments from joint ventures and affiliates -- 16,440 Cash effect of affiliate merger -- (54,700) Proceeds from asset sales and other 2,073 (3,671) ---------- --------- Net cash used in investing activities (318,521) (424,482) ---------- --------- Financing activities: Repayment of short-term borrowings (10,000) -- Proceeds from long-term borrowings 1,013,550 384,000 Repayments of long-term borrowings (931,196) (342,971) Decrease in restricted cash 40,000 -- Dividends paid on common and preferred stock (23,219) (20,724) Other 5,845 (938) ---------- --------- Net cash provided by financing activities 94,980 19,367 ---------- --------- Effect of exchange rate changes on cash 2,163 3,572 ---------- --------- Net change in cash and cash equivalents 12,958 (63,302) Cash and cash equivalents at beginning of period 77,558 122,832 ---------- --------- Cash and cash equivalents at end of period $ 90,516 $ 59,530 ========== ========= Supplemental information: Interest paid, net of amounts capitalized of $9,523 and $4,039, respectively $ 60,449 $ 77,387 Income taxes paid $ 56,379 $ 67,370
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 on May 9, 2001. Certain prior year amounts have been reclassified to conform to the current year presentation. In January 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 Nine Months Ended September 30, September 30, ------------------ --------------------- 2001 2000 2001 2000 ------ ------ -------- -------- Sales - pre-merger: Company $ -- $363.5 $ -- $1,082.1 Battle Mountain -- 55.9 -- 201.6 Sales - post-merger 424.4 -- 1,210.9 -- ------ ------ -------- -------- Total $424.4 $419.4 $1,210.9 $1,283.7 ====== ====== ======== ======== Net income (loss) applicable to common shares pre-merger: Company $ -- $(20.1) $ -- $ (38.6) Battle Mountain -- (16.4) -- (30.2) Net income (loss) applicable to common shares post merger 21.5 -- (51.1) -- ------ ------ -------- -------- Total $ 21.5 $(36.5) $ (51.1) $ (68.8) ====== ====== ======== ========
(2) Inventories (in thousands) At September 30, At December 31, 2001 2000 -------- -------- Current: Ore and in-process inventories $222,293 $241,181 Precious metals 9,111 23,452 Materials and supplies 96,397 95,395 Other -- 1,012 -------- -------- $327,801 $361,040 ======== ======== Non-current: Ore in stockpiles $148,474 $163,782 ======== ======== 6 (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 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 $541.5 million and $527.6 million at September 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) $206.9 million for the fair market value adjustment recorded by NTP in conjunction with the Company's initial contribution, net of amortization, (ii) $22.7 million for intercompany charges, (iii) $115.2 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) $139.8 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 (11) 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 Nine Months Ended September 30, September 30, ------------------ ------------------ 2001 2000 2001 2000 ------ ------ ------ ------ Revenues $133.3 $111.7 $356.7 $284.8 Net income (loss) $ 19.0 $(11.1) $ 1.9 $(64.1) Dividends received $ -- $ -- $ -- $ --
At September 30, At December 31, (in thousands) 2001 2000 ---------- ---------- Current assets $ 215,438 $ 209,011 Property, plant and mine development, net $1,935,172 $2,020,386 Other assets $ 185,533 $ 135,674 Current portion of long-term debt $ 86,732 $ 86,732 Current liabilities $ 195,563 $ 198,455 Debt and related interest to partners and affiliates $ 252,802 $ 283,504 Long-term debt $ 892,403 $ 913,268 Other liabilities $ 4,879 $ 2,013
(4) Long-Term Debt In October 2001, the Company replaced its $1.0 billion revolving credit facility, expiring in June 2002, with a new $600 million revolving credit facility with a consortium of banks. The new facility includes (1) a $200 million revolver, with an initial term of 364 days that can be renewed annually as may be agreed between the Company and the lenders and (2) a $400 million 5- year revolving facility that matures in October 2006. There have been no borrowings under the new facility. Interest rates under the new facility are variable, can be fixed for up to six months at the option of the Company and are subject to adjustment if changes in the Company's long-term debt ratings occur. An annual facility fee of 0.150% and 0.175% is required for the 364-day and 5- year components, respectively. The new facility contains certain covenants, including limitations on aggregate consolidated indebtedness (net of cash balances) to 62.5% of total capitalization, maintenance of a ratio of "consolidated indebtedness (net of cash balances)" to "earnings before interest, taxes, depreciation and amortization" of 4.0 or less and certain limitations on incurring liens, fundamental business changes and transactions with affiliates. In May 2001, the Company issued $275 million of 8.625% notes due 2011. Proceeds of $272 million after transaction costs were used to repay then outstanding debt under the Company's $1.0 billion 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. 7 Subsequent to the NMC/Battle Mountain merger, the entire loan was repaid from the collateral cash account and from the Company's credit facility. (5) Sales Contracts, Commodity and Financial 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 noncash purchase was paid for by selling call option contracts for 2.35 million ounces at average strike prices ranging from $350 to $385 per ounce. 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 initial fair value of $37.6 million, were marked to market at each reporting date in current earnings and at December 31, 2000, had a fair value of $55.6 million. In September 2001, the Company entered into transactions that closed out the call options. These options were replaced with a series of sales contracts requiring physical delivery of the same quantity of gold over slightly extended future periods. The written call options were marked to their market value of $53.8 million immediately prior to close out, resulting in a noncash gain of $0.9 million in the third quarter of 2001. The noncash mark-to-market gain totaled $1.8 million and $13.1 million for the nine months ended September 30, 2001 and 2000, respectively. The $53.8 million value of the sales contracts was recorded as Deferred revenue and will be included in sales revenue as delivery occurs. Under the terms of the sales contracts, the Company will receive the lower of the gold spot market price on each delivery date or the designated capped price indicated below:
2005 2008 2009 2011 Total --------------------------------------------------------------------------- Ounces 500,000 1,000,000 600,000 250,000 2,350,000 --------------------------------------------------------------------------- Price cap per ounce $ 350 $ 384 $ 381 $ 392 $ 377 ---------------------------------------------------------------------------
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 these delivery commitments. The fair value of the forward purchase contracts was $1.5 million at September 30, 2001 and changes in fair value are reflected in Other comprehensive income (loss). The Company also had the following commodity instruments as of September 30, 2001:
2001 2002 2003 2004 Total/Average ------ ------ ------ ------ ------------- Combination call and put options: Written call options - ounces 23,188 92,752 92,752 7,563 216,255 Average strike price per ounce $ 348 $ 348 $ 348 $ 359 $ 348 Purchased put options - ounces 23,188 92,752 92,752 7,563 216,255 Average strike price per ounce $ 286 $ 286 $ 286 $ 296 $ 286 Flat forward contracts - ounces 7,813 31,252 31,252 1,563 71,880 Average price per ounce $ 314 $ 314 $ 314 $ 323 $ 314
The Company is not required to place collateral with respect to its sales contracts and commodity instruments and there are no associated margin calls. 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 $1.4 million and $2.7 million at September 30, 2001 and January 1, 2001, respectively (included in Other long-term assets). The effective portion of the intrinsic value component of these hedges is marked to market through accumulated Other comprehensive income (loss). The flat forwards had a fair value of $1.3 million and $2.0 million at September 30, 2001 and December 31, 2000, respectively. A $1.00 increase in the gold price would result in a $0.57 per ounce increase and $1.00 per ounce decrease in the fair value of the combination options and flat forwards, respectively, at September 30, 2001. In September and October 2001, the Company entered into a series of interest-rate swap transactions in which the Company will receive fixed-rate interest payments, at 8.375% or 8.625%, and will pay floating-rate interest amounts based on periodic LIBOR settings plus a spread, ranging from 3.45% to 4.25%. To date, the notional principal amount of these transactions (representing the amount of principal tied to floating interest rate exposure) totals $110 million. These transactions have been designated as fair value hedges and at September 30, 2001, had a fair value of $0.6 million. 8 (6) Dividends, Interest and Other Income
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ----- ----- ----- ----- Interest income............................................. $ 1.5 $ 1.9 $ 3.2 $ 7.9 Foreign currency exchange loss, net......................... (4.5) (2.7) (5.3) (6.6) Net gain (loss) on sale of surplus properties............... (0.2) -- 3.6 -- Other....................................................... (0.1) 1.5 2.1 3.2 ----- ----- ----- ----- Total..................................................... $(3.3) $ 0.7 $ 3.6 $ 4.5 ===== ===== ===== =====
(7) Merger and Restructuring Expenses In conjunction with the NMC/Battle Mountain merger, expenses of $28.1 million were incurred in the first quarter of 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) Expenses for Acquisition Settlement and Other Expenses In the third quarter of 2000, the Company resolved a long-standing dispute regarding the acquisition of an additional interest in Minera Yanacocha, a gold mining operation located in Peru, by issuing $40 million (2.6 million shares) of NMC common stock. Including expenses, $42.2 million was charged to income. Other expenses for the 2000 periods included $9.5 million for community improvements, remediation efforts and a fine related to the Yanacocha mercury spill described in Note 12 (b) and $5.6 million to increase the estimated reclamation liability at the San Luis property in Colorado. (9) 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. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" that established standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. The statement provides for an initial recognition of the fair value of a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of fair value can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expense using a systematic and rational allocation method and is adjusted to reflect period-to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate. The statement is effective for fiscal years beginning after June 15, 2002 and the Company is in the process of determining the effect of adoption, but does not anticipate a significant impact upon adoption. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that established a single accounting model, based on the framework of SFAS No. 121 ("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), for long-lived assets to be disposed of by sale. The statement is effective for fiscal years beginning after December 15, 2001 and the Company does not expect any significant impact upon adoption. 9 (10) Comprehensive Income (Loss) Other comprehensive income (loss), net of tax, included a $16.6 million gain and a $24.9 million loss, for temporary changes in the market value of Lihir Gold securities, and losses of $5.2 million and $2.4 million, for foreign currency translation adjustments, in the nine months ended September 30, 2001 and 2000, respectively. The first nine months of 2001 also included losses of $0.3 million for the effective portion of changes in fair value of cash flow hedge instruments. (11) 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 September 30, 2001 ---------------------------------------------------------------------------------- North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- --------- ---------- --------- ----- ------------ Sales $214.1 $164.1 $21.2 $16.9 $8.1 $ -- $424.4 Interest income $ 0.1 $ 0.6 $ 0.1 $ 0.3 $ -- $ 0.4 $ 1.5 Interest expense, net of amounts capitalized $ 0.1 $ 0.8 $ -- $ 0.2 $ -- $ 20.6 $ 21.7 Depreciation and depletion $ 36.5 $ 25.9 $ 3.9 $ 2.5 $1.0 $ 1.7 $ 71.5 Pre-tax income (loss) before minority interest and equity income $ (8.6) $ 60.7 $ 4.5 $ 6.3 $2.9 $(48.4) $ 17.4 Significant non-cash items: Amortization of capitalized mining $ 12.1 $ -- $ -- $ -- $ -- $ -- $ 12.1 Capital expenditures $ 16.1 $ 75.9 $ -- $11.3 $0.6 $ 4.6 $108.5
* Not reduced for minority interest
Three Months Ended September 30, 2000 ---------------------------------------------------------------------------------- North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- --------- ---------- --------- ----- ------------ Sales $231.7 $140.8 $24.3 $15.5 $7.1 $ -- $419.4 Interest income $ -- $ 0.5 $ -- $ -- $ -- $ 1.4 $ 1.9 Interest expense, net of amounts capitalized $ -- $ 0.7 $ -- $ 0.4 $ -- $ 21.9 $ 23.0 Depreciation and depletion $ 48.3 $ 27.4 $ 6.6 $ 4.4 $0.9 $ 1.6 $ 89.2 Pre-tax income (loss) before minority interest and equity income $ (3.9) $ 46.8 $ 7.7 $ 3.7 $3.5 $(84.2) $(26.4) Significant non-cash items: Amortization of capitalized mining $ 25.9 $ -- $ 1.2 $ -- $ -- $ -- $ 27.1 Capital expenditures $ 39.6 $ 68.3 $ -- $ 0.7 $1.2 $ 1.8 $111.6
* Not reduced for minority interest 10
Nine Months Ended September 30, 2001 ---------------------------------------------------------------------------------- North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- --------- ---------- --------- ----- ------------ Sales $632.5 $437.0 $73.4 $43.6 $24.4 $ -- $1,210.9 Interest income $ 0.1 $ 1.5 $ 0.1 $ 0.3 $ -- $ 1.2 $ 3.2 Interest expense, net of amounts capitalized $ 0.2 $ 2.4 $ -- $ 0.7 $ -- $ 59.3 $ 62.6 Depreciation and depletion $110.4 $ 77.2 $15.0 $ 8.3 $ 3.0 $ 4.9 $ 218.8 Pre-tax income (loss) before minority interest and equity income $(21.2) $134.0 $20.7 $13.0 $10.2 $(187.6) $ (30.9) Significant non-cash items: Amortization of capitalized mining $ 26.6 $ -- $ 4.1 $ -- $ -- $ -- $ 30.7 Capital expenditures $ 60.4 $242.1 $ -- $17.2 $ 2.1 $ 7.6 $ 329.4
* Not reduced for minority interest
Nine Months Ended September 30, 2000 ---------------------------------------------------------------------------------- North South Zarafshan- American American Minahasa, Newmont, Operations Operations* Indonesia Uzbekistan Australia Other Consolidated ---------- ----------- --------- ---------- --------- ----- ------------ Sales $703.5 $417.8 $86.7 $51.8 $23.9 $ -- $1,283.7 Interest income $ -- $ 3.0 $ 0.1 $ -- $ -- $ 4.8 $ 7.9 Interest expense, net of amounts capitalized $ 0.2 $ 4.0 $ -- $ 1.4 $ -- $ 65.5 $ 71.1 Depreciation and depletion $148.2 $ 72.8 $18.3 $10.0 $ 3.4 $ 5.9 $ 258.6 Pre-tax income (loss) before minority interest, equity loss and cumulative effect of a change in accounting principle $ 19.2 $161.8 $33.0 $17.4 $11.5 $(206.3) $ 36.6 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 $ 60.8 $ -- $ 2.0 $ -- $ -- $ -- $ 62.8 Capital expenditures $ 96.2 $156.8 $ 2.3 $ 3.0 $ 4.2 $ 8.6 $ 271.1
* 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 Nine Months Ended September 30, September 30, ------------ ------------- 2001 2000 2001 2000 ------ ------ -------- -------- Sales.................................... $133.0 $111.6 $ 356.0 $ 284.5 Interest income.......................... $ 0.3 $ -- $ 0.7 $ 0.3 Interest expense......................... $ 27.4 $ 37.6 $ 98.1 $ 93.7 Depreciation and amortization............ $ 24.1 $ 19.1 $ 69.9 $ 56.0 Net income (loss)........................ $ 13.4 $(23.1) $ (20.8) $ (83.4) Capital expenditures..................... $ (0.6) $ 55.4 $ (23.2) $ 124.7 Total assets at September 30,............ $2,204.8 $2,230.4
Equity income of Batu Hijau was $16.9 million in the third quarter of 2001 (based on 56.25% of Batu Hijau's income and elimination of $5.2 million and $2.8 million of intercompany interest and management fees, respectively, and amortization adjustments of $1.4 million). In the comparable 2000 period, equity income was $0.7 million (based on 56.25% of the Batu Hijau loss and elimination of $9.2 million and $2.9 million of intercompany interest and management fees, respectively, and amortization adjustments of $1.6 million). For the nine months ended September 30, 2001, equity income of Batu Hijau was $23.2 million (based on 56.25% of Batu Hijau's income and elimination of $22.6 million and $8.5 million of intercompany interest and management fees, respectively, and amortization adjustments of $3.8 million) and for the comparable 2000 period, the equity loss was $14.7 million (based on 56.25% of the Batu Hijau loss and elimination of $20.6 million and $8.8 million of intercompany interest and management fees, respectively, and amortization adjustments of $2.8 million). 11 (12) 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 September 30, 2001 and December 31, 2000, $120.3 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, $58.6 million and $63.5 million were accrued for such obligations at September 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 required if it is concluded such damages have occurred. 12 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 $14.1 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. On September 10, 2001, NMC, various wholly-owned subsidiaries and Minera Yanacocha S.R.L. (51.35% owned by Newmont Second Capital Corporation) and other defendants were named in a lawsuit filed by over 900 Peruvian citizens in Denver District Court for the State of Colorado. This action seeks compensatory and punitive damages based on claims associated with the mercury spill incident. The response to the Complaint will be filed in late October. Neither the Company nor Minera Yanacocha can reasonably predict the likelihood of any additional expenditures related to this matter. (13) Supplementary Data The ratio of earnings to fixed charges for the nine months ended September 30, 2001 was 0.83 and earnings were inadequate to cover fixed charges with a deficiency of $12 million. The ratio of earnings to fixed charges represents income before income taxes 13 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 in January 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 were restated to include Battle Mountain's financial data as if Battle Mountain had always been part of Newmont. SUMMARY Newmont recorded net income to common shares of $21.5 million ($0.11 per share) and a net loss of $36.5 million ($0.19 per share) in the third quarter of 2001 and 2000, respectively. For the first nine months of 2001 and 2000, before an accounting change for revenue recognition in 2000, net losses to common shares were $51.1 million ($0.26 per share) and $56.3 million ($0.29 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 third quarter and first nine months of 2001 included, net of tax, a $0.6 million and $1.1 million gain, respectively, for the noncash mark-to-market position on call option contracts that were closed out at the end of the quarter. The nine-month results in 2001 reflected lower gold prices and merger and restructuring expenses of $43.7 million ($0.23 per share), net of tax. The third quarter and first nine months of 2000 included, net of tax, a $13.3 million gain ($0.07 per share) and a $2.4 million loss ($0.01 per share), respectively, for noncash mark-to-market losses on call option contracts and amortization of put option premiums. The 2000 results also included $27.4 million ($0.14 per share), net of tax, for expenses related to an acquisition settlement. Total equity gold sales, total cash costs and average realized gold prices were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ------ ------ ----- ------ Equity gold sales ounces (000) 1,393.3 1,320.1 4,034.9 3,986.4 Total cash costs per ounce $ 191 $ 176 $ 185 $ 173 Total costs per ounce $ 241 $ 240 $ 237 $ 235 Average price realized per ounce $ 274 $ 280 $ 269 $ 283
For the full-year 2001, gold sales are expected to total approximately 5.4 million ounces with a total cash cost of $183 per ounce. 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 $269 for the first nine months of 2001 and $283 for September 2001. Changes in the market price of copper also affect Newmont's profitability and cash flow from its Batu Hijau mine in Indonesia. 14 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 September 30, 2001, the following commodity instruments were outstanding:
Ounces Fair Value ------ ---------- (in millions) ------------- Combination, matched put and call options, expiring 2001-2004 216,255 $ 1.4 Flat forward sales contracts, 2001-2004 71,880 $ 1.3
The combination, matched put and call options have been designated as cash flow hedges such that changes in the effective portion of the intrinsic value component 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 $0.57 per ounce increase and $1.00 per ounce decrease in the fair value of the combination option contracts and flat forward contracts, respectively, assuming all other factors are constant. 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 noncash purchase was paid for by selling call option contracts for 2.35 million ounces at average strike prices ranging from $350 to $385 per ounce. 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 initial fair value of $37.6 million, were marked to market at each reporting date in current earnings and at December 31, 2000, had a fair value of $55.6 million. In September 2001, the Company entered into transactions that closed out the call options. These options were replaced with a series of sales contracts requiring physical delivery of the same quantity of gold over slightly extended future periods. The written call options were marked to the market value of $53.8 million immediately prior to close, resulting in a noncash gain of $0.9 million in the third quarter of 2001. The noncash mark-to-market gain totaled $1.8 million and $13.1 million for the nine months ended September 30, 2001 and 2000, respectively. The $53.8 million value of the sales contracts were recorded as Deferred revenue and will be included in sales revenue as delivery occurs. Under the terms of the contracts, Newmont will realize the lower of the spot price on the delivery date or the capped price ranging from $350 per ounce in 2005 to $392 per ounce in 2011. 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 $5.3 million and $6.6 million in the nine months ended September 30, 2001 and 2000, respectively. INTEREST RATES Newmont's long-term debt is substantially comprised of fixed-rate debt as of September 30, 2001. In September and October 2001, Newmont entered into a series of interest-rate swap transactions in which it will receive fixed-rate interest payments, at 8.375% or 8.625%, and will pay floating-rate interest amounts based on periodic LIBOR settings plus a spread, ranging from 3.45% to 4.25%. To date, the notional principal amount of these transactions (representing the amount of principal tied to floating interest rate exposure) totals $110 million. These transactions have been designated as fair value hedges and at September 30, 2001, had a fair value of $0.6 million. 15 RESULTS OF OPERATIONS GOLD SALES
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2001 2000 2001 2000 2001 2000 2001 2000 ------- ------- ------- ------- ------- ------- ------- ------- Equity Ozs. Sold Total Cash Costs Equity Ozs. Sold Total Cash Costs (in thousands) Per Oz. (in thousands) Per Oz. ---------------- ---------------- ---------------- ---------------- North American operations: Nevada operations............................. 653.9 728.0 $ 238 $ 212 1,986.6 2,020.6 $ 223 $ 212 Mesquite, California.......................... 16.5 30.5 188 212 80.2 98.5 208 204 La Herradura, Mexico.......................... 14.0 13.2 179 109 40.8 37.0 168 133 Golden Giant, Canada.......................... 72.6 73.0 204 148 196.2 332.1 193 144 Holloway, Canada.............................. 20.5 19.4 218 230 64.4 65.8 226 212 South American operations: Yanacocha, Peru............................... 264.0 220.8 116 79 719.5 645.3 117 85 Kori Kollo, Bolivia........................... 76.9 65.8 127 191 201.1 187.9 164 199 Zarafshan-Newmont, Uzbekistan................... 62.5 56.0 129 132 162.6 183.4 136 126 Vera/Nancy, Australia........................... 29.6 25.3 129 106 90.9 84.2 108 102 Minahasa, Indonesia............................. 78.4 67.5 162 147 275.4 248.1 135 141 Batu Hijau, Indonesia........................... 104.4 38.5 n/a n/a 235.2 101.4 n/a n/a Less prepaid forward ounces................... -- (18.0) (18.0) (18.0) ------- ------- ------- ------- Total/Weighted average....................... 1,393.3 1,320.0 $ 191 $ 175 4,034.9 3,986.3 $ 185 $ 173 ======= ======= ======= =======
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. Cash costs per ounce are determined based on the Gold Institute reporting standard below:
Three Months Ended Nine Months Ended Production Costs Per Equity Ounce September 30, September 30, ------------- ------------- 2001 2000 2001 2000 -------- -------- -------- -------- Direct mining and production costs $ 177 $ 176 $ 177 $ 168 Capitalized mining cost adjustments............................. 8 (4) 4 1 Other........................................................... 1 -- -- -- -------- -------- -------- -------- Cash operating costs............................................ $ 186 $ 172 $ 181 $ 169 Royalties....................................................... 4 3 3 3 Production taxes................................................ 1 -- 1 1 -------- -------- -------- -------- Total cash costs................................................ $ 191 $ 175 $ 185 $ 173 Reclamation and mine closure.................................... 3 4 4 4 -------- -------- -------- -------- Total costs applicable to sales................................. 194 179 189 177 Depreciation, depletion and amortization........................ 47 60 48 58 -------- -------- -------- -------- Total costs..................................................... $ 241 $ 239 $ 237 $ 235 ======== ======== ======== ======== Reconciliation (in millions): Costs applicable to sales per financial statements.............. $ 283.3 $ 256.3 $ 813.0 $ 758.6 Minority interest in Yanacocha.................................. (31.9) (21.7) (87.9) (65.1) Minority interest in Kori Kollo................................. (1.4) (1.7) (4.7) (4.8) Reclamation accruals............................................ (4.3) (5.3) (14.2) (13.9) -------- -------- -------- -------- Total cash costs used in per ounce calculations................. $ 245.7 $ 227.6 $ 706.2 $ 674.8 ======== ======== ======== ======== Equity ounces sold, net (000)................................... 1,288.9 1,299.5 3,817.7 3,902.9 Equity total cash cost per ounce................................ $ 191 $ 175 $ 185 $ 173
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 third quarter of 2001 decreased 10% to 654 thousand ounces from the comparable 2000 period, with lower average mill ore grades and lower leach production. Total cash costs for the third quarter of 2001 were $238 per ounce compared with $212 per ounce in the same 2000 period, primarily reflecting the inclusion of previously capitalized mining costs that were amortized in the current period. In the first nine months of 2001 and 2000, sales totaled 2.0 million ounces with total cash costs per ounce of $223 and $212, respectively. Full-year 2001 sales in Nevada are expected to exceed 2.7 million ounces with total cash costs about $220 per ounce. Production at the Deep Post underground mine began in March 2001 with 143 thousand ounces year-to-date. Production at 16 the underground mine was temporarily halted on August 29, 2001 as a safety precaution following a slope movement on the south wall of the Betze-Post open pit that affected a section of the south access road to Deep Post. Operations resumed on September 5, 2001 following inspections by the federal Mine Safety and Health Administration and the Nevada State Mine Inspector's Office. No injuries or damage to underground mine workings, facilities or reserves occurred. By 2003, Deep Post will reach an annual production rate of 380 thousand ounces at an average total cash cost of approximately $150 per ounce over the life of the mine. Mesquite mine sales were 17 thousand ounces and 80 thousand ounces in the third quarter and first nine months of 2001, respectively. Total cash costs were $208 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 95 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 41 thousand equity ounces in the first nine months of 2001 at a total cash cost of $168 per ounce. Production for 2001 is expected at approximately 60 thousand equity ounces at a cash cost about $175 per ounce. Gold sales from the Golden Giant and the 84.65%-owned Holloway underground mines in Ontario, Canada were 196 thousand and 64 thousand ounces, respectively, in the first nine months of 2001, with total cash costs of $193 and $226 per ounce. Production for 2001 is expected to total approximately 300 thousand and 90 thousand equity ounces at Golden Giant and Holloway, respectively, with cash costs about $180 and $215 per ounce. OVERSEAS OPERATIONS Sales at Minera Yanacocha in Peru increased 20% and 11% in the third quarter and first nine months of 2001, respectively, to 264 thousand and 720 thousand equity ounces from the same 2000 periods, with higher recoveries. Total cash costs increased to $116 per ounce in the third quarter and to $117 per ounce in first nine months of 2001 compared with $79 and $85 per ounce in respective 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 were completed in the third quarter of 2001, with gold production commencing in 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. At the 88%-owned Kori Kollo open-pit mine in Bolivia, gold sales totaled 77 thousand and 201 thousand equity ounces in the third quarter and first nine months of 2001 at a total cash cost of $164 per ounce year-to date. For 2001, total sales are expected at 250 thousand equity ounces with total cash costs about $160 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 remainder of the year. In the third quarter and first nine months of 2001, equity gold sales from Zarafshan-Newmont, a 50%-owned joint venture in the Central Asian Republic of Uzbekistan, were 63 thousand ounces and 163 thousand ounces, respectively, about 11% below the year-to-date 2000 period reflecting lower average ore grades. Total cash costs per ounce of $136 in the 2001 nine-month period compared with $126 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. In Indonesia, at Newmont's 80%-owned Minahasa property, gold sales of 78 thousand ounces were up 16% from the third quarter of 2000 and sales of 275 thousand ounces for the first nine months were up 11% from the comparable 2000 period reflecting higher leach production and average ore grades. Total cash costs were $135 per ounce for the first nine months of 2001 compared with $141 for the same 2000 period. 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, nine- months 2001 equity gold sales were 91 thousand ounces with total cash costs of $108 per ounce. Total production in 2001 is expected at approximately 125 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 104 million and 292 million equity pounds of copper during the third quarter and first nine months of 2001, respectively, and sold 104 thousand and 235 17 thousand equity ounces of gold. Copper sales totaled 283 million equity pounds for the first nine months of 2001 compared with 188 million equity pounds in the same 2000 period. Total cash costs were $0.36 and $0.63 per pound, after gold sales credits, for the first nine months of 2001 and 2000, respectively. Production has continued to ramp up since 1999 and 2001 production benefited from higher mill throughput, average ore grades and recovery rates. Copper production in 2001 is expected to be between 320 million and 350 million equity pounds at a cash cost under $0.40 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 increase in consolidated sales revenue in the third quarter was primarily attributable to increased gold sales and the decrease in the first nine months of 2001, primarily to lower gold prices as shown in the following table:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Consolidated sales (in millions)........................ $ 424.4 $ 419.4 $1,210.9 $1,283.7 Consolidated production ounces sold (000)............... 1,549.6 1,499.8 4,508.8 4,522.0 Average price received per ounce........................ $ 274 $ 280 $ 269 $ 283 Average market price received per ounce................. $ 274 $ 277 $ 268 $ 283
Three Months Nine Months Ended Ended September 30, September 30, 2001 vs 2000 2001 vs 2000 ------------ ------------ Increase (decrease) in consolidated sales due to (in millions): Consolidated production............................................... $ 10.8 $ (2.4) Average gold price received........................................... (5.8) (70.4) ------ ------- Total............................................................... $ 5.0 $ (72.8) ====== =======
Costs applicable to sales include total cash costs and provisions for estimated final reclamation expenses related to consolidated production.
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- (in millions) North American operations: Nevada operations........................ $158.0 $156.7 $451.0 $434.2 Mesquite................................. 3.1 6.6 18.1 20.2 La Herradura............................. 2.5 1.5 7.0 5.1 Golden Giant............................. 15.3 11.2 39.0 50.0 Holloway................................. 4.6 4.5 14.9 14.9 South American operations: Yanacocha................................ 63.3 37.2 173.5 115.1 Kori Kollo............................... 11.6 16.9 38.8 49.9 Vera/Nancy................................ 3.8 2.7 9.8 9.0 Zarafshan-Newmont......................... 8.2 7.4 22.3 23.3 Minahasa.................................. 12.8 10.1 37.8 35.5 Other..................................... 0.1 1.5 0.8 1.4 ------ ------ ------ ------ Total.................................... $283.3 $256.3 $813.0 $758.6 ====== ====== ====== ======
18 Depreciation and depletion:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- (in millions) North American operations: Nevada operations.................. $29.0 $37.8 $ 86.7 $107.2 Mesquite........................... 0.9 2.4 3.7 8.5 La Herradura....................... 0.9 0.8 2.7 2.2 Golden Giant....................... 4.2 4.8 12.5 21.6 Holloway........................... 1.5 2.5 4.8 8.7 South American operations: Yanacocha.......................... 20.2 21.3 61.7 54.6 Kori Kollo......................... 5.7 6.1 15.5 18.2 Vera/Nancy.......................... 1.0 0.9 3.0 3.4 Zarafshan-Newmont................... 2.5 4.4 8.3 10.0 Minahasa............................ 3.9 6.6 15.0 18.3 Other............................... 1.7 1.6 4.9 5.9 ----- ----- ------ ------ Total.............................. $71.5 $89.2 $218.8 $258.6 ===== ===== ====== ======
Exploration and research expense was $43.5 million in the first nine months of 2001 compared with $58.9 million in the 2000 period, reflecting the planned reduction to approximately $50 million for the year. General and administrative expense was $40.5 million in the first nine months of 2001, 18% 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 $21.7 million and $23.0 million for the third quarter of 2001 and 2000, respectively, and $62.6 million and $71.1 million for the first nine months of 2001 and 2000, respectively, reflecting lower average interest rates and higher capitalized interest in the current periods. Income tax expense in the first nine months of 2001 and 2000 was a $6.7 million benefit and a $5.8 million expense, respectively. The decrease primarily reflected recovery of taxes provided in prior periods. Merger and restructuring expenses in the first nine months 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. Expenses for acquisition settlement of $42.2 million in the 2000 periods were related to the resolution of a dispute regarding Newmont's purchase of an additional 13.35% interest in Minera Yanacocha. Under the settlement, Newmont issued $40 million of its common stock, or 2.6 million shares. Other expenses for the 2000 periods included $9.5 million for community improvements, remediation efforts and a fine related to the Yanacocha mercury spill described in Note 12 (b) and $5.6 million to increase the estimated reclamation liability at the San Luis property in Colorado. Gain on written call options reflected the change in fair value as of the end of each period. In September 2001, the Company entered into transactions that closed out the call options. These options were replaced with a series of sales contracts requiring physical delivery of the same quantity of gold over slightly extended future periods. The call options were marked to the market value of $53.8 million immediately prior to close, resulting in a noncash gain of $0.9 million in the third quarter of 2001. The noncash mark-to-market gain totaled $1.8 million and $13.1 million for the nine months ended September 30, 2001 and 2000, respectively. The value of new sales contracts were recorded as Deferred revenue and will be included in sales revenue as delivery occurs. Equity in income of Batu Hijau of $16.9 million and $23.2 million for the third quarter and first nine months of 2001, respectively, compared with income of $0.7 million and losses of $14.7 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 19 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 $16.6 million gain and a $24.9 million loss, for temporary changes in the market value of Lihir Gold securities, and losses of $5.2 million and $2.4 million, for foreign currency translation adjustments, in the nine months ended September 30, 2001 and 2000, respectively. The first nine months of 2001 also included a $0.3 million loss for the effective portion of changes in fair value of cash flow hedge instruments. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 2001, cash flow from operations ($234.3 million), restricted cash ($40.0 million), net borrowings ($72.4 million) and other investing activities ($10.9 million) funded capital expenditures ($329.4 million) and dividends ($23.2 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 (in milions):
Nine Months Ended September 30, ------------------------------- 2001 2000 ------ ------ North American operations $ 60.4 $ 96.2 Overseas operations 261.4 166.3 Other projects and capitalized interest................ 7.6 8.6 ------ ------ Total................................................ $329.4 $271.1 ====== ======
Expenditures for North American operations during the first nine months of 2001 included $48.2 million related to activities in Nevada, primarily for the development of the Deep Post underground mine. Overseas capital expenditures were primarily at Minera Yanacocha ($232.7 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. In the fourth quarter of 2001, Newmont expects to contribute approximately $10 million to Batu Hijau in conjunction with a contingent support facility, to be utilized for scheduled debt repayments. FINANCING ACTIVITIES In October 2001, the Company replaced its $1.0 billion revolving credit facility, expiring in June 2002, with a new $600 million revolving credit facility with a consortium of banks. The new facility includes a $200 million revolver, with an initial term of 364 days that can be renewed annually as may be agreed between Newmont and the lenders, and a $400 million 5-year revolving facility that matures in October 2006. There have been no borrowings under the new facility. Interest rates under the new facility are variable, can be fixed for up to six months at the option of the Company and are subject to adjustment if changes in the Company's long-term debt ratings occur. An annual facility fee of 0.150% and 0.175% is required for the 364-day and 5-year components, respectively. The new facility contains certain covenants, including (1) limitations on aggregate consolidated indebtedness (net of cash balances) to 62.5% of total capitalization, (2) maintenance of a "consolidated indebtedness (net of cash balances)" to "earnings before interest, taxes, depreciation and amortization" ratio not to exceed 4.0 and (3) certain limitations on incurring liens, fundamental business changes and transactions with affiliates. In May 2001, Newmont 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 nine months of 2001, net repayments of $147 million were made under Newmont's $1.0 billion revolving credit facility, with no remaining outstanding borrowing. 20 During the first nine months of 2001, net borrowings of $41.5 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 $1.0 billion credit facility. 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 at the time made. 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 by Newmont with the United States Securities and Exchange Commission. Many of these factors are beyond Newmont's ability to control or predict. Readers are cautioned not to put undue reliance on forward- looking statements. 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's forward-looking statements contained in this Report speak only as of the date of this Report. Newmont disclaims any intent or obligation to update 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 None ITEM 6. Exhibits and Reports on Form 8-K None 21 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: October 29, 2001 /s/ BRUCE D. HANSEN ------------------- Bruce D. Hansen Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: October 29, 2001 /s/ LINDA K. WHEELER -------------------- Linda K. Wheeler Vice President and Controller (Principal Accounting Officer) 22 Newmont Mining Corporation EXHIBIT INDEX Exhibit Number Description ----- ----------- 12 - Statement re Computation of Ratio of Earnings to Fixed Charges. EX-12 3 dex12.txt STATEMENT RE COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 NEWMONT MINING CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Amounts in thousands except ratio) (Unaudited)
Nine Months Ended September 30, ------------- 2001 ---- Earnings: Loss before income taxes $(75,326) Adjustments: Net interest expense (1) 62,641 Amortization of capitalized interest 4,730 Portion of rental expense representative of interest 2,065 Undistributed income of affiliate 23,214 Minority interest 44,423 -------- $ 61,747 ======== Fixed Charges: Net interest expense (1) $ 62,641 Capitalized interest 9,523 Portion of rental expense representative of interest 2,065 -------- $ 74,229 ======== Ratio of earnings to fixed charges 0.83 ========
(1) Includes interest expense of majority-owned subsidiaries and amortization of debt issuance costs.