-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CAV/f4Y3xlM+4gEpqmU0PZ21iVNew/bNLlvf51veyVj+qU01b2E28cpTzc6WalYL M4ig9tsBrraYpRh1fH7uYg== 0000950134-97-001925.txt : 19970320 0000950134-97-001925.hdr.sgml : 19970320 ACCESSION NUMBER: 0000950134-97-001925 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970319 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWMONT MINING CORP CENTRAL INDEX KEY: 0000071824 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 131806811 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01153 FILM NUMBER: 97559043 BUSINESS ADDRESS: STREET 1: ONE UNITED BANK CTR STREET 2: 1700 LINCOLN ST CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038637414 8-K 1 NEWMONT MINING CORP. FORM 8-K DATED 3/19/97 1 NEWMONT MINING CORPORATION 2 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 19, 1997 NEWMONT MINING CORPORATION DELAWARE 1-1153 13-1806811 (STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER JURISDICTION OF IDENTIFICATION NUMBER) INCORPORATION)
1700 LINCOLN STREET, DENVER, CO 80203 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 863-7414 ================================================================================ 3 ITEM 5. OTHER EVENTS. In connection with the filing by Newmont Mining Corporation ("Newmont Mining") of Amendment No. 1 to its Registration Statement on Form S-4 (No. 333-19335), Newmont Mining is filing as Exhibits herewith a copy of its consolidated financial statements for the year ended December 31, 1996, together with the report thereon of Arthur Andersen LLP, independent auditors, (which is attached as Exhibit 99.1 and is incorporated herein by reference) and a copy of its Management's Discussion and Analysis of Results of Operations and Financial Condition for the three year period ended December 31, 1996 (which is attached as Exhibit 99.2 and is incorporated herein by reference). ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) None. (b) None. (c) Exhibits. 23.1 Consent of Arthur Andersen LLP. 99.1 Newmont Mining's consolidated financial statements for the year ended December 31, 1996, together with the report thereon of Arthur Andersen LLP, independent auditors. 99.2 Newmont Mining Management's Discussion and Analysis of Results of Operations and Financial Condition for the three year period ended December 31, 1996. 4 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 hereunto duly authorized. NEWMONT MINING CORPORATION By: /s/ TIMOTHY J. SCHMITT ------------------------------------ Timothy J. Schmitt Vice President, Secretary and Assistant General Counsel Date: March 19, 1997 5 EXHIBIT INDEX Exhibit 23.1 Consent of Arthur Andersen LLP. Exhibit 99.1 Newmont Mining's consolidated financial statements for the year ended December 31, 1996, together with the report thereon of Arthur Andersen LLP, independent auditors. Exhibit 99.2 Newmont Mining Management's Discussion and Analysis of Results of Operations and Financial Condition for the three-year period ended December 31, 1996.
EX-23.1 2 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Current Report on Form 8-K dated March 19, 1997 into Newmont Mining Corporation's previously filed S-8 Registration Statement No. 33-49872, S-8 Registration Statement No. 33-53267, S-3 Registration Statement No. 33-54249, S-8 Registration Statement No. 33-62469, S-8 Registration Statement No. 333-04161 and S-4 Registration Statement No. 333-19335. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Denver, Colorado March 19, 1997. EX-99.1 3 NEWMONT MINING; CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.1 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Newmont Mining Corporation: We have audited the accompanying consolidated balance sheets of Newmont Mining Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related statements of consolidated income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Newmont Mining Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Denver, Colorado, January 28, 1997, except for Note 17 as to which the date is March 10, 1997. 1 2 NEWMONT MINING CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (IN THOUSANDS, EXCEPT PER SHARE)
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Sales and other income Sales.................................................... $768,455 $636,219 $597,370 Dividends, interest and other............................ 26,471 42,157 22,316 Gain on disposition of investment........................ -- 113,188 -- -------- -------- -------- 794,926 791,564 619,686 -------- -------- -------- Costs and expenses Costs applicable to sales................................ 476,090 370,617 326,385 Depreciation, depletion and amortization................. 124,841 106,835 91,115 Exploration and research................................. 58,709 57,291 69,151 General and administrative............................... 48,093 43,219 38,518 Interest, net of amounts capitalized..................... 43,987 36,415 9,823 Write-off of exploration properties...................... -- 52,537 -- Other.................................................... 13,855 11,681 46,029 -------- -------- -------- 765,575 678,595 581,021 -------- -------- -------- Income before equity income and income taxes............... 29,351 112,969 38,665 Equity in income of affiliated companies................... 45,221 28,895 15,395 -------- -------- -------- Pre-tax income............................................. 74,572 141,864 54,060 Income tax benefit (provision)............................. 19,400 (16,992) 29,334 Minority interest in income of Newmont Gold Company........ (8,896) (12,238) (7,273) -------- -------- -------- Net income................................................. 85,076 112,634 76,121 Preferred stock dividends.................................. -- 11,157 15,813 -------- -------- -------- Net income applicable to common shares..................... $ 85,076 $101,477 $ 60,308 ======== ======== ======== Net income per common share................................ $ 0.86 $ 1.17 $ 0.70 ======== ======== ======== Average shares outstanding................................. 99,357 87,006 86,147 ======== ======== ========
The accompanying notes are an integral part of these statements. 2 3 NEWMONT MINING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE)
AT DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- ASSETS Cash and cash equivalents................................... $ 185,681 $ 59,142 Short-term investments...................................... 12,724 11,820 Accounts receivable......................................... 28,692 24,458 Inventories................................................. 188,345 173,984 Other current assets........................................ 40,440 20,128 ---------- ---------- Current assets............................................ 455,882 289,532 Property, plant and mine development, net................... 1,301,952 1,255,278 Other long-term assets...................................... 323,240 228,960 ---------- ---------- Total assets...................................... $2,081,074 $1,773,770 ========== ========== LIABILITIES Short-term debt............................................. $ 45,981 $ 29,179 Current portion of long-term debt........................... 19,250 4,375 Accounts payable............................................ 48,099 38,570 Other accrued liabilities................................... 110,764 122,312 ---------- ---------- Current liabilities....................................... 224,094 194,436 Long-term debt.............................................. 585,009 604,259 Reclamation and remediation liabilities..................... 60,672 64,795 Other long-term liabilities................................. 79,244 85,352 ---------- ---------- Total liabilities................................. 949,019 948,842 ---------- ---------- Minority interest in Newmont Gold Company................... 107,168 81,981 ---------- ---------- Commitments and contingencies STOCKHOLDERS' EQUITY Common stock -- $1.60 par value; 120,000 shares authorized; 99,829 and 94,802 shares issued less 307 and 591 treasury shares, respectively...................................... 159,237 150,738 Capital in excess of par value.............................. 565,246 308,566 Retained earnings........................................... 300,404 283,643 ---------- ---------- Total stockholders' equity........................ 1,024,887 742,947 ---------- ---------- Total liabilities and stockholders' equity........ $2,081,074 $1,773,770 ========== ==========
The accompanying notes are an integral part of these statements. 3 4 NEWMONT MINING CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE)
PREFERRED STOCK COMMON STOCK CAPITAL IN ----------------- ----------------- EXCESS OF RETAINED SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS ------ -------- ------ -------- ---------- -------- Balance at December 31, 1993........... 2,875 $ 14,375 85,796 $137,274 $293,031 $185,152 Transaction with parent (Note 2)..... -- -- -- -- -- 14,069 Common stock issued from treasury, primarily for stock options exercised......................... -- -- 284 454 9,769 (350) Net income........................... -- -- -- -- -- 76,121 Common stock dividends -- $0.48 per share............................. -- -- -- -- -- (41,452) Preferred stock dividends -- $5.50 per share......................... -- -- -- -- -- (15,813) Minimum pension liability adjustment........................ -- -- -- -- -- 835 ------ -------- ------ -------- -------- -------- Balance at December 31, 1994........... 2,875 14,375 86,080 137,728 302,800 218,562 Stock options exercised.............. -- -- 232 372 8,126 (280) Preferred stock redemption and conversion, net of costs.......... (2,875) (14,375) 7,899 12,638 (2,360) 5,260 Net income........................... -- -- -- -- -- 112,634 Common stock dividends -- $0.48 per share............................. -- -- -- -- -- (41,823) Preferred stock dividends -- $3.88 per share......................... -- -- -- -- -- (11,157) Minimum pension liability adjustment........................ -- -- -- -- -- 447 ------ -------- ------ -------- -------- -------- Balance at December 31, 1995........... -- -- 94,211 150,738 308,566 283,643 Common stock issuance................ -- -- 4,651 7,442 233,814 (19,465) Stock options exercised.............. -- -- 660 1,057 23,182 (1,190) Net income........................... -- -- -- -- -- 85,076 Common stock dividends -- $0.48 per share............................. -- -- -- -- -- (47,732) Minimum pension liability adjustment........................ -- -- -- -- -- 72 Other................................ -- -- -- -- (316) -- ------ -------- ------ -------- -------- -------- Balance at December 31, 1996........... -- $ -- 99,522 $159,237 $565,246 $300,404 ====== ======== ====== ======== ======== ========
The accompanying notes are an integral part of these statements. 4 5 NEWMONT MINING CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 --------- --------- --------- Operating Activities Net income............................................ $ 85,076 $ 112,634 $ 76,121 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization........... 124,841 106,835 91,115 Undistributed earnings of affiliates............... (13,134) (3,603) (14,553) Minority interest, net of dividends................ 3,901 7,253 1,318 Deferred taxes..................................... (15,840) (16,300) (28,052) Gain on sale of investments........................ -- (113,188) -- Write-off of exploration properties................ -- 52,591 -- Other.............................................. 1,644 1,128 (1,950) (Increase) decrease in operating assets: Accounts receivable.............................. (4,113) 13,815 9,970 Inventories...................................... (45,960) (55,669) (13,336) Other assets..................................... (15,202) 8,816 1,609 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses............ 14,412 43,552 24,868 Other liabilities................................ (246) (5,683) (3,378) --------- --------- --------- Net cash provided by operating activities............... 135,379 152,181 143,732 --------- --------- --------- Investing Activities Additions to property, plant and mine development..... (231,174) (309,269) (402,030) Proceeds from sale of investment...................... -- 116,357 -- Advances to joint venture............................. (3,684) (30,543) (14,675) Other................................................. (4,126) (8,345) 15,533 --------- --------- --------- Net cash used in investing activities................... (238,984) (231,800) (401,172) --------- --------- --------- Financing Activities Short-term borrowings................................. 16,802 13,440 -- Proceeds from long-term borrowings.................... -- 15,000 528,634 Repayments of long-term borrowings.................... (4,375) -- (127,000) Proceeds from issuance of common stock................ 265,449 8,034 10,599 Dividends paid on common stock........................ (47,732) (41,823) (41,452) Dividends paid on preferred stock..................... -- (11,860) (15,813) Preferred stock redemption and conversion costs....... -- (4,442) -- Debt issuance costs................................... -- (225) (6,641) --------- --------- --------- Net cash provided by (used in) financing activities..... 230,144 (21,876) 348,327 --------- --------- --------- Net increase (decrease) in cash and cash equivalents.... 126,539 (101,495) 90,887 Cash and cash equivalents at beginning of year.......... 59,142 160,637 69,750 --------- --------- --------- Cash and cash equivalents at end of year................ $ 185,681 $ 59,142 $ 160,637 ========= ========= =========
See Note 14 for supplemental cash flow information. The accompanying notes are an integral part of these statements. 5 6 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Newmont Mining Corporation ("NMC") and its more-than-50% owned subsidiaries (collectively, the "Corporation"). The Corporation also includes its pro-rata share of assets, liabilities and operations for joint ventures in which it has an interest. All significant intercompany balances and transactions have been eliminated. NMC's principal subsidiary is Newmont Gold Company ("NGC"), which holds all of the operating assets of the Corporation and is approximately 91% owned by NMC. The functional currency for all subsidiaries is the U.S. dollar. NATURE OF OPERATIONS The Corporation is a worldwide company engaged in gold production, exploration for gold and acquisition of gold properties. Substantially all of the Corporation's consolidated sales and operating profit in 1995 and 1994 related to its gold mining activities in the United States. In 1996, the Corporation's consolidated sales resulted from operations in the United States, Uzbekistan and Indonesia. See geographic information in Note 15. Although most of the Corporation's consolidated identifiable assets relate to domestic activities, 19% of its assets as of December 31, 1996 related to foreign operations. The Minahasa project in Indonesia began production in early 1996, operations commenced in Uzbekistan in 1995 and the Corporation has a nonconsolidated equity interest in a property in Peru that went into production in 1993. The Corporation carries political risk insurance on its investments in all three countries. The Corporation also conducts exploration for gold deposits worldwide. Gold mining requires the use of specialized facilities and technology. The Corporation relies heavily on such facilities to maintain its production levels. Also, the profitability of the Corporation's current operations is significantly affected by the market price of gold. Market gold prices can fluctuate widely and are affected by numerous factors beyond the Corporation's control. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Excess cash balances are primarily invested in United States Treasury bills, with lesser amounts invested in high-quality commercial paper and time deposits. INVESTMENTS Short-term investments are carried at cost, which approximates market, and include Eurodollar government and corporate obligations rated AA or higher. At December 31, 1996 and 1995, $8.7 million and $7.9 million, respectively, of such investments secured letters of credit. 6 7 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Investments in companies in which NGC's ownership is 20% to 50% are accounted for by the equity method of accounting and are included in other long-term assets. Included in such investments is NGC's 38% equity investment in Minera Yanacocha S.A. (See Note 17). Summarized financial information for Minera Yanacocha S.A. follows (in millions):
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Sales.................................................... $313.9 $212.5 $116.6 Costs applicable to sales and depreciation, depletion and amortization........................................... $ 89.2 $ 66.7 $ 42.2 Exploration.............................................. $ 17.5 $ 11.4 $ 4.1 Other, including Peruvian income tax provision........... $ 82.5 $ 53.6 $ 29.1 Net income............................................... $124.7 $ 80.8 $ 41.2 Dividends applicable to NGC's 38% interest............... $ 29.6 $ 23.2 $ --
AT DECEMBER 31, ---------------- 1996 1995 ------ ------ Current assets.............................................. $ 85.2 $ 71.7 Noncurrent assets........................................... 108.2 88.1 ------ ------ Total assets...................................... $193.4 $159.8 ====== ====== Current liabilities......................................... $ 45.4 $ 50.0 Noncurrent liabilities...................................... 39.8 48.3 ------ ------ Total liabilities................................. $ 85.2 $ 98.3 ====== ====== Total equity...................................... $108.2 $ 61.5 ====== ======
As a result of the contemplated ownership structure discussed in Note 16, the Batu Hijau project in Indonesia is being accounted for as an equity investment effective July 1996. The Corporation's investment at December 31, 1996 was $46.6 million. Investments in companies owned less than 20% are recorded at the lower of cost or net realizable value. Income from such investments is recorded when dividends are paid. The Corporation held no such investments at December 31, 1996 or 1995. INVENTORIES Ore and in-process inventories and materials and supplies are stated at the lower of average cost or net realizable value. Precious metals are stated at market value. Non-current inventories are stated at the lower of average cost or net realizable value and represent ore-in-stockpiles from which no material is expected to be processed for more than one year after the balance sheet date. PROPERTY, PLANT AND MINE DEVELOPMENT Expenditures for new facilities or expenditures which extend the useful lives of existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities. Productive lives range from 2 to 21 years. Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed, the costs incurred to develop such property, including costs to further delineate the ore body and remove overburden to initially expose the ore body, are capitalized. Such costs, and 7 8 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) estimated future development costs, are amortized using a unit-of-production method over the estimated life of the ore body. On-going development expenditures to maintain production are generally charged to operations as incurred. Significant payments related to the acquisition of exploration interests are capitalized. If a mineable ore body is discovered, such costs are amortized using a unit-of-production method. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value. Interest expense allocable to the cost of developing mining properties and to constructing new facilities is capitalized until operations commence. Gains or losses from normal sales or retirements of assets are included in other income or expense. REVENUE RECOGNITION Gold sales are recognized when gold is produced. MINING COSTS In general, mining costs are charged to operations as incurred. However, certain of the Corporation's deposits have diverse grade and waste-to-ore ratios over the mine's life. Mining costs for these deposits, to the extent they do not relate to current gold production, are capitalized and then charged to operations when the applicable gold is produced. RECLAMATION AND REMEDIATION COSTS Estimated future reclamation and remediation costs are based principally on legal and regulatory requirements. Such costs related to active mines are accrued and charged over the expected operating lives of the mines using a unit-of-production method. Future reclamation and remediation costs for inactive mines are accrued based on management's best estimate at the end of each period of the undiscounted costs expected to be incurred at a site. Such cost estimates include where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates are charged to earnings in the period an estimate is revised. INCOME TAXES The Corporation accounts for income taxes using Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the liability method of SFAS 109, the Corporation recognizes certain temporary differences between the financial reporting basis of the Corporation's liabilities and assets and the related income tax basis for such liabilities and assets. This generates a net deferred income tax liability or net deferred income tax asset for the Corporation as of the end of the year, as measured by the statutory tax rates in effect as enacted. The Corporation derives its deferred income tax charge or benefit by recording the change in the net deferred income tax liability or net deferred income tax asset balance for the year. The Corporation's deferred income tax assets include certain future tax benefits such as net operating losses or tax credit carryforwards. The Corporation must record a valuation allowance against any portion of those deferred income tax assets which it believes it will more likely than not fail to realize. GOLD HEDGING ACTIVITIES The Corporation may enter into gold loans, options contracts and forward sales contracts to hedge the effect of price changes on the gold it produces. Gains and losses realized on such instruments, as well as any cost or revenue associated therewith, are recognized in sales when the related gold is produced. 8 9 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EARNINGS PER COMMON SHARE The treasury stock method is used in computing earnings per common and common equivalent share. Earnings per common and common equivalent share are based on the sum of the weighted average number of common shares outstanding during each period and the assumed exercise of stock options having exercise prices less than the average market prices of the common stock. The convertible preferred shares outstanding until conversion, as discussed in Note 8, were not common stock equivalents as they were anti-dilutive. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. RECLASSIFICATIONS Certain amounts in prior years have been reclassified to conform to the 1996 presentation. (2) TRANSACTION WITH NEWMONT GOLD COMPANY Effective January 1, 1994, NGC acquired essentially all of the Corporation's non-NGC assets and assumed essentially all of the Corporation's non-NGC liabilities. As part of the transaction, NMC transferred 8,649,899 shares of NGC stock to NGC. The result of the transaction is that the common shareholders of both entities have interests in the same assets and liabilities. Furthermore, NMC declared a 1.2481 shares to 1 share stock split on March 21, 1994 which resulted in the two entities having identical per share earnings. The transfer of assets, NGC common stock and liabilities to NGC was recorded at historical cost since the transaction was between entities under common control. As a result of the transaction, consolidated retained earnings increased approximately $14 million and the minority interest in NGC decreased by a like amount. This resulted because net liabilities, with a historical cost of approximately $203 million, were transferred to NGC, offset partially by NMC's decrease in ownership of NGC resulting from the transfer of NGC shares to NGC. (3) INVENTORIES
AT DECEMBER 31, -------------------- 1996 1995 -------- -------- (IN THOUSANDS) Current: Ore and in-process inventories............................ $ 95,922 $101,684 Precious metals........................................... 33,304 29,691 Materials and supplies.................................... 57,413 40,651 Other..................................................... 1,706 1,958 -------- -------- $188,345 $173,984 ======== ======== Non-current: Ore-in-stockpiles (included in other long-term assets).... $ 85,652 $ 53,167 ======== ========
9 10 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) PROPERTY, PLANT AND MINE DEVELOPMENT
AT DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- (IN THOUSANDS) Land and mining claims...................................... $ 71,432 $ 56,846 Buildings and equipment..................................... 1,472,090 1,387,586 Mine development............................................ 254,297 246,043 Construction-in-progress.................................... 58,829 137,436 ---------- ---------- 1,856,648 1,827,911 Accumulated depreciation, depletion and amortization........ (747,320) (695,501) Capitalized mining costs.................................... 192,624 122,868 ---------- ---------- $1,301,952 $1,255,278 ========== ==========
(5) OTHER ACCRUED LIABILITIES
AT DECEMBER 31, -------------------- 1996 1995 -------- -------- (IN THOUSANDS) Interest.................................................... $ 26,927 $ 33,696 Contingent dividends received (see Note 17)................. 18,556 8,143 Payroll and related benefits................................ 17,497 18,443 Reclamation and remediation................................. 10,000 10,000 Plant and equipment......................................... 4,981 17,926 Other....................................................... 32,803 34,104 -------- -------- $110,764 $122,312 ======== ========
10 11 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INCOME TAXES Components of the Corporation's consolidated deferred income tax liabilities and assets are as follows (in thousands):
AT DECEMBER 31, -------------------- 1996 1995 -------- -------- Deferred tax liabilities: Accelerated tax depreciation.............................. $(60,016) $(63,219) Capitalized mining costs.................................. (24,719) (3,843) Capitalized interest...................................... (8,951) (8,158) Depletion of the cost of land and mining claims........... (2,474) (2,872) Net undistributed earnings from equity investment......... (2,108) (1,357) Other..................................................... (487) (923) -------- -------- Deferred tax liabilities.......................... (98,755) (80,372) -------- -------- Deferred tax assets: Exploration costs......................................... 61,405 69,746 Remediation and reclamation costs......................... 33,391 31,842 Alternative minimum tax credit carryforward............... 23,166 7,769 Sale/leaseback transaction, net........................... 12,512 9,638 Foreign tax credit carryforward........................... 12,461 1,262 Retiree benefit costs..................................... 11,277 9,933 Capitalized inventory costs............................... 9,937 10,622 Deferred gain on interest rate hedges..................... 2,940 3,240 Mine development costs.................................... 2,759 199 Relocation/reorganization costs........................... 2,491 2,610 Other..................................................... 3,857 2,911 -------- -------- Deferred tax assets............................... 176,196 149,772 -------- -------- Valuation allowance for deferred tax assets............... (14,000) (9,800) -------- -------- Net deferred tax assets................................... $ 63,441 $ 59,600 ======== ========
As of December 31, 1996, the Corporation had approximately $23.2 million of nonexpiring alternative minimum tax credit carryforwards and approximately $12.5 million of foreign tax credit carryforwards. Of these foreign tax credit carryforwards, $1.3 million expire in 2000 and $11.2 million expire in 2001. Based primarily upon estimates of future operations, the Corporation, more likely than not, will utilize $162.2 million of the $176.2 million of deferred income tax assets at December 31, 1996. This estimate reflects a valuation allowance of $14.0 million, which is an increase of $4.2 million from December 31, 1995's valuation allowance. The Corporation, however, gives no assurance that it will generate sufficient taxable income to fully realize the $162.2 million of deferred income tax assets at December 31, 1996. The Corporation's future levels of taxable income will depend, in part, upon gold prices, general economic conditions and other factors beyond the Corporation's control. 11 12 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Corporation's pre-tax financial statement income (loss) consists of (in thousands):
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ------- -------- -------- Domestic................................................ $28,013 $136,387 $ 68,880 Foreign................................................. 46,559 5,477 (14,820) ------- -------- -------- $74,572 $141,864 $ 54,060 ======= ======== ========
The Corporation's benefit (provision) for income taxes consists of (in thousands):
YEARS ENDED DECEMBER 31, ---------------------------- 1996 1995 1994 ------- -------- ------- Current: Domestic............................................... $ 7,565 $(30,815) $(3,660) Foreign................................................ (4,005) (2,477) (586) ------- -------- ------- 3,560 (33,292) (4,246) ------- -------- ------- Deferred: Domestic............................................... 17,465 16,300 33,580 Foreign................................................ (1,625) -- -- ------- -------- ------- 15,840 16,300 33,580 ------- -------- ------- $19,400 $(16,992) $29,334 ======= ======== =======
The Corporation's resulting benefit (provision) for income taxes differ from the amounts computed by applying the United States corporate income tax statutory rate for the following reasons (in thousands):
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- U.S. corporate income tax at statutory rate........ $(26,100) $(49,652) $(18,921) Percentage depletion............................... 24,933 26,999 27,437 Resolution of tax issues associated with prior years............................................ 6,000 -- 16,250 Foreign tax credits................................ 13,057 8,658 4,421 Foreign losses (earnings).......................... 1,705 (1,715) -- State taxes........................................ -- (1,300) (500) Non-taxable portion of dividends received from domestic corporations............................ -- 700 564 Other.............................................. (195) (682) 83 -------- -------- -------- $ 19,400 $(16,992) $ 29,334 ======== ======== ========
12 13 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) DEBT LONG-TERM DEBT Long-term debt consists of (in thousands):
AT DECEMBER 31, -------------------- 1996 1995 -------- -------- Sale-leaseback of refractory ore treatment plant............ $349,134 $349,134 8 5/8% notes................................................ 150,000 150,000 Medium-term notes........................................... 42,000 42,000 Project financing........................................... 63,125 67,500 -------- -------- 604,259 608,634 Current maturities.......................................... (19,250) (4,375) -------- -------- $585,009 $604,259 ======== ========
Scheduled minimum long-term debt repayments are $19.3 million in 1997, $25.0 million in 1998, $33.5 million in 1999, $14.4 million in 2000, $11.9 million in 2001 and $500.2 million thereafter. Actual payments may be greater in any one year due to actual operating cash flows realized. The Corporation is in compliance with all covenants associated with its debt. Sale-Leaseback of the Refractory Ore Treatment Plant In September 1994, NGC entered into a sale and leaseback agreement for its refractory ore treatment plant located in Carlin, Nevada for $349.1 million. The transaction was accounted for as debt for financial statement purposes, with the cost of the refractory ore treatment plant recognized as an asset and depreciated. The lease is for 21 years and the aggregate future minimum lease payments, which include interest, as of December 31, 1996 and 1995 were $638.2 million and $667.9 million, respectively. Payments began in January 1996 and are $29.7 million annually through 2000. Principal payments are included in these amounts beginning in 1998. The lease has purchase options during and at the end of the lease at predetermined prices. The interest rate on this sale-leaseback transaction is 6.36%. Because of the uniqueness of this transaction, the Corporation determined that it is not practicable to estimate the fair value of this debt. In connection with this transaction, the Corporation entered into certain interest rate contracts to hedge the interest cost of the financing. These contracts were settled for a gain of $11 million which is being recognized as a reduction of interest expense over the term of the lease. As a result of this gain, the effective interest rate on this sale and leaseback transaction is 6.15%. 8 5/8% Notes Unsecured notes with a principal amount of $150 million due April 1, 2002 bearing an annual interest rate of 8 5/8% were outstanding at December 31, 1996 and 1995. Interest is payable semi-annually in April and October and the notes are not redeemable prior to maturity. Using interest rates prevailing on similar instruments at December 31, 1996 and 1995, this debt was estimated to have a fair value of $165.7 million and $169.5 million, respectively. Medium-Term Notes Notes totaling $42 million, with a weighted average interest rate of 7.7%, maturing on various dates ranging from mid-1999 to late 2004, were outstanding as of December 31, 1996 and 1995. Interest is payable semi-annually in March and September and the notes are not redeemable prior to maturity. Using the interest 13 14 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) rates prevailing on similar instruments at December 31, 1996 and 1995, this debt was estimated to have a fair value of $44.4 million and $44.9 million, respectively. Project Financing Facility NGC, through a wholly-owned subsidiary, is a 50% participant in Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") in the Republic of Uzbekistan. The other 50% participants are two entities of the Uzbekistan government. As of December 31, 1996, Zarafshan-Newmont had $126.25 million outstanding on a project financing loan secured by the assets of the project. The loan is to be repaid in semi-annual installments until 2001. Starting in 1997, the average interest rate is between 3.9 and 4.25 percentage points over the three-month London Interbank Offered Rate. The carrying amount of the loan is estimated to approximate its fair market value. The weighted average interest rates for 1996 and 1995 were 8.2% and 8.4%, respectively, and the interest rates at December 31, 1996 and 1995 were 9.4% and 8.2%, respectively. Until defined completion tests have been satisfied, the Corporation has guaranteed the payment of certain amounts due under the loan which totaled $58.75 million at December 31, 1996. The 50% Uzbek partner has guaranteed the repayment of the remaining amount due under the loan until such completion tests have been satisfied. After satisfaction of the completion tests, the loan becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed to extend the date by which the completion tests must be met to October 1998. Revolving Credit Facility The Corporation has a $400 million revolving credit facility with a consortium of banks that expires in April 1998. No amounts were outstanding under the facility as of December 31, 1996 and 1995. Interest rates are variable and adjust subject to changes in the Corporation's long-term debt ratings and to usage of the facility in terms of borrowings as a percentage of commitments. Currently, the Corporation's interest rate is the lenders' base rate plus 0.25%. The Corporation has the option to fix the rate for up to six months. There is an annual facility fee which will also adjust subject to the Corporation's debt ratings. This fee is currently 0.15% of the lenders' total commitment. The credit agreement contains covenants that limit consolidated indebtedness, as defined, to 67% of total capitalization; require minimum net worth, as defined, of $300 million and $275 million in 1996 and 1995, respectively, which then increases to $325 million in 1997; and require an interest coverage ratio, as defined, of not less than 2.5 to 1. SHORT-TERM DEBT All short-term debt at December 31, 1996 and 1995 consisted of bank debt. The Corporation had unsecured demand bank lines of credit aggregating $70 million and $39 million at December 31, 1996 and 1995, respectively, of which $46.0 million and $29.2 million were outstanding at the same respective periods. These facilities bear interest at customary short-term rates for borrowers with similar credit ratings. The carrying value of this debt is assumed to approximate its fair value. The weighted average interest rates for 1996 and 1995 were 6.9% and 8.8%, respectively, and the interest rates at December 31, 1996 and 1995 were 8.25% and 8.5%, respectively. CAPITALIZED INTEREST Capitalized interest was $5.4 million, $11.6 million and $19.7 million in 1996, 1995 and 1994, respectively. 14 15 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) STOCKHOLDERS' EQUITY COMMON STOCK OFFERING In January 1996, NMC issued 4.65 million shares of common stock for $51.87 per share under an existing "shelf" registration statement with the Securities and Exchange Commission. Proceeds of the issue netted $241.3 million and were used to purchase an equal number of shares of common stock of NGC. Such proceeds were used by NGC to fund its operations. This transaction increased NMC's ownership of NGC to 90.5%. PREFERRED STOCK NMC called all of the outstanding 2.875 million shares of $5.50 convertible preferred stock, $5.00 par value, for redemption on December 14, 1995 at a redemption price of $105.21 per share. Each share of preferred stock was convertible at the option of the shareholder into shares of common stock at a conversion price of $36.395 per share of common stock (equivalent to a conversion rate of 2.7476 shares of common stock for each whole share of convertible preferred stock). Substantially all of the preferred stock was converted prior to the redemption date. A total of 7.9 million common shares were issued in the redemption. COMMON STOCK RIGHTS Equal Value Rights In September 1987, the Board of Directors declared a dividend distribution of one equal value right ("EVR") on each share of common stock outstanding on October 5, 1987. Each share issued subsequent to such date automatically receives an EVR. The EVRs, which are non-voting, expire in September 1997 unless redeemed earlier by NMC, and separate from the common shares effective with the public announcement (the "Control Date") that a person or group has acquired more than 50% of the common stock. Until an EVR is exercised, the holder thereof has no rights as a stockholder of NMC. Until the Control Date, the EVRs will be evidenced by NMC's common stock and will be transferred with and only with such certificates. In the event of a subsequent merger or other specified transaction by NMC, each EVR would entitle the holder, under certain circumstances, to receive from NMC an amount in cash equal to the amount by which the highest price per share paid by such acquirer within 91 days prior to and including the Control Date exceeds the fair market value of the consideration paid for each share of NMC's common stock in connection with the merger or other transaction. At any time prior to the Control Date, NMC may (but only with the concurrence of continuing directors) redeem the EVRs at a price of $0.02 per EVR. Preferred Share Purchase Rights In August 1990, the Board of Directors declared a dividend distribution of one preferred share purchase right ("PSPR") on each share of common stock outstanding on September 11, 1990. Each share issued subsequent to September 11, 1990 and prior to the "Distribution Date" referred to below (and in certain limited circumstances thereafter) will be issued with a PSPR. Each PSPR entitles the holder to purchase from NMC one five-hundredth of a share of participating preferred stock of NMC for $150, subject to adjustment. Prior to the Distribution Date, the PSPRs are not exercisable, will be evidenced by NMC's common stock certificates and will be transferred with and only with such certificates. The PSPRs expire in September 2000 unless earlier redeemed. Until a PSPR is exercised, the holder thereof has no rights as a stockholder of NMC. The Distribution Date, which is the date on which the PSPRs separate from the common stock and become exercisable, is the earlier of (i) ten days after the public announcement that a person or group (other than NMC's present shareholder groups subject to a standstill agreement dated as of December 7, 1990, as amended and certain related entities and their transferees, but only to the extent of their current share ownership) (an "Acquiring Person") has acquired 15% or more of the common stock (the date of such first 15 16 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) public announcement being the "Stock Acquisition Date"), or (ii) ten business days after the commencement of a tender or exchange offer that would result in a person or group owning 15% or more of the common stock. If after the Distribution Date a person shall become an Acquiring Person (other than pursuant to certain offers approved by the Board of Directors) each holder of a PSPR (other than the Acquiring Person and, in certain circumstances, transferees of the Acquiring Person) will have the right to receive, upon exercise, common stock (or, in certain circumstances, cash, property or other securities of NMC) having a value equal to two times the purchase price of the PSPR. In addition, if after a Stock Acquisition Date NMC is not the surviving entity in certain business combinations, or 50% or more of NMC's assets or earning power is sold or transferred, each holder of a PSPR shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the PSPR. Prior to the earlier of a Stock Acquisition Date or the expiration date of the PSPR, NMC, in certain circumstances with the approval of continuing directors, may redeem the PSPRs at a price of $0.01 per PSPR. Each one five-hundredth share of preferred stock is designed to have similar rights to one share of common stock. The preferred shares have a preferential quarterly dividend that is 500 times the dividends on the common stock, but in no event less than one dollar. The liquidation preference per preferred share is the greater of $500 (plus accrued dividends to the date of distribution) or an amount equal to 500 times the aggregate amount of dividends to be distributed per share to holders of NMC's common stock. In the event of a business combination in which shares of NMC's common stock are exchanged, each preferred share will be entitled to receive 500 times the amount and type of consideration received per share of common stock. Each preferred share will have 500 votes and vote together with the common stock. The preferred shares are not redeemable. (9) EMPLOYEE BENEFIT PLANS STOCK OPTIONS Under the Corporation's stock option plans, options to purchase shares of NMC are granted to key employees generally at the fair market value of such shares on the date of grant. The options under these plans generally vest over a two year period and are exercisable over a period not exceeding ten years. At December 31, 1996, 2,831,003 shares were available for future grants under the Corporation's plans. In 1994, 1993 and 1992 certain key executives were granted NMC options that, although the exercise price is generally equal to the fair market value on the date of grant, cannot be exercised when otherwise vested unless the market price of NMC's common stock is a defined amount above the NMC option exercise price. In addition, the same executives were granted NMC options in 1994, 1993 and 1992 having exercise prices in excess of the fair market value on the date of grant. Generally, these key executive NMC options vest over a period of one to five years and are exercisable over a ten year period. At December 31, 1996, 605,989 of these NMC options were outstanding. 16 17 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes annual total stock option activity for each of the three years ended December 31:
1996 1995 1994 --------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- --------- --------- --------- --------- --------- Outstanding at beginning of year............................ 2,350,587 $40 2,177,546 $39 2,055,087 $37 Granted........................... 869,909 $55 534,035 $41 476,703 $41 Exercised......................... (660,136) $37 (232,109) $34 (276,894) $31 Forfeited......................... (110,009) $46 (128,885) $41 (77,350) $41 --------- --------- --------- Outstanding at end of year........ 2,450,351 $46 2,350,587 $40 2,177,546 $39 ========= ========= ========= Options exercisable at year end... 1,205,399 1,287,688 1,007,998 Weighted-average fair value of options granted during the year............................ $ 20.83 $ 16.14 Not calculated
The following table summarizes information about stock options outstanding at December 31, 1996 with exercise prices equal to the fair market value on the date of grant and no restrictions on exercisability after vesting:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------- ------------------------------ WEIGHTED-AVERAGE RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- ---------------- ----------- ---------------- $27 to $35 91,553 4.3 years $31 91,553 $31 $35 to $43 817,699 7.9 years $40 555,298 $40 $43 to $51 533,790 9.4 years $51 90,351 $46 $51 to $59 401,320 9.3 years $58 -- $-- --------- ------- $27 to $59 1,844,362 8.5 years $47 737,202 $40 ========= =======
Information about all other stock options outstanding at December 31, 1996 is summarized below:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE TYPE OF OPTION PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE -------------- ---------- ----------- ----------- --------- ----------- --------- Options with exercise prices in excess of the fair market value on the date of the grant.......................... $40 to $56 355,581 6.2 years $49 286,687 $47 Options that cannot be exercised until the market price of NMC's stock exceeds a fixed amount above the exercise price........................ $30 to $41 250,408 6.7 years $37 181,510 $37
17 18 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Corporation applies APB Opinion 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for its stock options. Had compensation cost for the options been determined based upon their fair value at their grant dates in 1995 and 1996, consistent with the methodology prescribed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," the Corporation's net income (in thousands) and earnings per share would have been the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, -------------------- 1996 1995 ------- -------- Net income................................... As reported $85,076 $112,634 Pro forma $81,090 $111,848 Earnings per share........................... As reported $ 0.86 $ 1.17 Pro forma $ 0.82 $ 1.16
For purposes of determining the pro forma amounts, the fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions for 1996 and 1995, respectively: weighted-average risk-free interest rates of 6.1% and 5.8%, dividend yield of 1% for both years, expected lives of 5 years for both periods and volatility of 35% and 39%, respectively. Compensation costs included in the pro forma amounts above only reflect fair values associated with options granted after January 1, 1995. These amounts may not be indicative of future amounts that will apply to all future outstanding nonvested awards or future grants. PENSION BENEFITS The Corporation has two qualified non-contributory defined benefit pension plans, one which covers salaried employees and the other which covers substantially all hourly employees. The Corporation also has a non-qualified supplemental pension plan for salaried employees whose benefits under the qualified plan are limited by federal legislation. The vesting period is five years of service for each plan. The plans' benefit formulas are based on an employee's years of credited service and either such employee's last five years average pay (salaried plan) or a flat dollar amount adjusted by a service-weighted multiplier (hourly plan). Pension costs are determined annually by independent actuaries and pension contributions to the qualified plans are made based on funding standards established under the Employee Retirement Income Security Act of 1974 ("ERISA"). The components of pension expense for these three plans, in the aggregate, consist of (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 -------- ------- ------- Service cost......................................... $ 4,351 $ 2,651 $ 3,070 Interest cost on projected benefit obligation........ 5,317 4,755 4,633 Return on assets..................................... (10,754) (5,938) (5,370) Net amortization and deferral........................ 4,812 176 211 -------- ------- ------- Pension expense...................................... $ 3,726 $ 1,644 $ 2,544 ======== ======= =======
18 19 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables set forth the funded status of the Corporation's pension plans and the amounts recognized in the Corporation's consolidated balance sheets at December 31, 1996 and 1995, respectively (in thousands):
AT DECEMBER 31, 1996 --------------------------------- SALARY HOURLY SUPPLEMENTAL PENSION PENSION SALARY PLAN PLAN PENSION PLAN -------- ------- ------------ Actuarial present value of benefit obligations: Accumulated benefit obligation -- Vested benefits................................. $(56,997) $(7,737) $ (590) Non-vested benefits............................. (2,420) (1,293) (53) -------- ------- ------- (59,417) (9,030) (643) Effect of future salary increases/service-weighted benefit multiplier.............................. (9,020) (654) (157) -------- ------- ------- Projected benefit obligation......................... (68,437) (9,684) (800) Plan assets at fair value............................ 76,979 8,870 -- -------- ------- ------- Plan assets greater (less) than projected benefit obligation......................................... 8,542 (814) (800) Unrecognized prior service cost...................... (505) 1,220 523 Unrecognized net (gain) loss......................... (4,306) (492) 3,493 Unrecognized net transition (asset) liability........ (1,750) (66) 1,939 Adjustment required to recognize minimum liability... -- -- (5,798) -------- ------- ------- Net pension asset (liability).............. $ 1,981 $ (152) $ (643) ======== ======= =======
AT DECEMBER 31, 1995 --------------------------------- SALARY HOURLY SUPPLEMENTAL PENSION PENSION SALARY PLAN PLAN PENSION PLAN -------- ------- ------------ Actuarial present value of benefit obligations: Accumulated benefit obligation -- Vested benefits................................. $(56,420) $(6,637) $ (430) Non-vested benefits............................. (2,102) (1,381) (20) -------- ------- ------- (58,522) (8,018) (450) Effect of future salary increases.................. (7,631) -- (43) -------- ------- ------- Projected benefit obligation......................... (66,153) (8,018) (493) Plan assets at fair value............................ 68,331 6,918 -- -------- ------- ------- Plan assets greater (less) than projected benefit obligation......................................... 2,178 (1,100) (493) Unrecognized prior service cost...................... (548) 130 567 Unrecognized net loss................................ 2,752 871 3,549 Unrecognized net transition (asset) liability........ (2,215) (72) 2,327 Adjustment required to recognize minimum liability... -- -- (6,400) -------- ------- ------- Net pension asset (liability).............. $ 2,167 $ (171) $ (450) ======== ======= =======
In October 1996, an amendment was made to increase the benefit multiplier of the benefits under the Hourly Pension Plan. The effect of this amendment was to increase the accumulated benefit obligation by approximately $0.5 million, the projected benefit obligation and prior service cost by $1.2 million and to increase the annual pension cost by $0.3 million. 19 20 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," an adjustment was required to reflect a minimum liability for the supplemental pension plan in 1996, 1995 and 1994. Such adjustment resulted in recording an intangible asset and, to the extent the minimum liability adjustment exceeded the unrecognized net transition liability, a reduction of $2.0 million, $2.0 million and $2.5 million in stockholders' equity, which is net of related deferred income tax benefits, for 1996, 1995 and 1994, respectively. In measuring the projected benefit obligation for the plans, the following actuarial assumptions were used:
AT DECEMBER 31, ---------------- 1996 1995 ------ ------ Weighted average discount rate......................... 7.5% 7.0% Rate of increase in future compensation (applicable only to salaried plans).............................. 4.0% 4.0%
The weighted average expected long-term rate of return on plan assets was assumed to be 8.75% for 1996, 9.00% for 1995 and 8.25% for 1994. The Corporation maintains a trust for the purpose of funding the supplemental pension plan as well as death benefits for officers of the Corporation. This trust is funded at the discretion of the Corporation and had a balance, which approximated market value, of $2 million at both December 31, 1996 and December 31, 1995. Although the trust's assets can be used to pay benefits for the supplemental pension plan, they cannot be used in determining the net pension liability for the supplemental pension plan. The qualified plans' assets consist of stocks, bonds and cash. RETIREE BENEFITS OTHER THAN PENSIONS The Corporation provides defined medical benefits to qualified retirees who were salaried employees and to their eligible dependents, and it provides defined life insurance benefits to qualified retirees who were salaried employees. In general, participants become eligible for these benefits upon retirement directly from the Corporation if they are at least 55 years old and the combination of their age and years of service with the Corporation equals 75 or more. The defined medical benefits cover most of the reasonable and customary charges for hospital, surgical, diagnostic and physician services and prescription drugs. Life insurance benefits are based on a percentage of final base annual salary and decline over time after retirement commences. The Corporation accounts for these postretirement benefits other than pensions under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The statement requires that postretirement benefits other than pensions be accrued during an employee's service to the Corporation. The components of expense for postretirement benefits other than pensions are shown in the table below (in thousands):
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ------ ------ ------ Service cost............................................. $2,199 $1,570 $1,846 Interest cost............................................ 1,747 1,904 1,642 Amortization of net gain................................. (64) (80) -- ------ ------ ------ Expense for postretirement benefits other than pensions............................................... $3,882 $3,394 $3,488 ====== ====== ======
20 21 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the components of the liability for the Corporation's plans for postretirement benefits other than pensions recognized in its balance sheet (in thousands):
YEARS ENDED DECEMBER 31, ------------------ 1996 1995 ------- ------- Actuarial present value of accumulated benefit obligation ("APBO"): Retirees and eligible dependents.......................... $11,290 $12,510 Other fully eligible plan participants.................... 1,874 1,974 Other active plan participants............................ 13,541 13,076 ------- ------- Total APBO........................................ 26,705 27,560 Unrecognized net gain..................................... 4,776 820 ------- ------- Accrued liability for postretirement benefits other than pensions.................................................. $31,481 $28,380 ======= =======
At December 31, 1996 and 1995, $2.6 million of assets, with a market value of approximately the same amount, was designated in a trust to pay postretirement benefits other than pensions. Since these assets could be used to pay other employee benefits, they cannot be used for the postretirement benefit calculations. The Corporation has no formal policy for funding postretirement benefit obligations. Weighted average discount rates of 7.5% and 7.0% were used in calculating the APBO at December 31, 1996 and 1995, respectively. The assumed health care cost trend rates to measure the expected cost of benefits at December 31, 1996 start at an 8% annual increase for coverage before the age of 65 and a 7% annual increase for coverage after the age of 64. The assumed health care cost trend rates to measure the expected cost of benefits at December 31, 1995 start at a 9% annual increase for coverage before the age of 65 and an 8% annual increase for coverage after the age of 64. These rates were assumed to decrease one percentage point each year until a 5% annual rate of increase was reached, at which point a 5% annual rate of increase was assumed thereafter. The effect of a one percentage point annual increase in the assumed cost trend rates would increase the aggregate of service and interest costs by approximately 19% in 1996 and the APBO at December 31, 1996 by approximately 15%. The effect of a one percentage point annual increase in the assumed cost trend rates would increase the aggregate of service and interest costs in 1995 by approximately 23% and the APBO at December 31, 1995 by approximately 19%. SAVINGS PLAN The Corporation has two qualified defined contribution savings plans, one which covers salaried employees and the other which covers substantially all hourly employees. In addition, the Corporation has a non-qualified supplemental savings plan for salaried employees whose benefits under the qualified plan are limited by federal regulations. Upon the employee meeting eligibility requirements, the Corporation matches 100% of employee contributions of up to 6% and 4% of base salary for the salaried and hourly plans, respectively. The Corporation's matching contributions to such plans were $4.6 million, $3.7 million and $3.3 million in 1996, 1995 and 1994, respectively. (10) WRITE-OFF OF EXPLORATION PROPERTIES In 1995, the Corporation recorded write-offs of two exploration properties totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over the next three years, extensive drilling, environmental studies and mine models were developed to determine the economics of extracting gold from the property. A feasibility report was issued in June 1995 that reflected high levels of environmental and mining costs that 21 22 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) resulted in financial returns much lower than the Corporation's threshold for development. Accordingly, the decision was made not to develop the property and $18.8 million of capitalized costs associated with the property were written off in June 1995. An additional charge of $4.6 million was taken as other expense for estimated costs to reclaim areas disturbed by previous mining and exploration activity on the property. The Grassy Mountain property was purchased in September 1992. At the time of the purchase, certain reliance was placed upon geological models prepared by the seller. Work performed by the Corporation in 1993 demonstrated that the gold was not distributed as modeled by the seller. In 1994, the Corporation created new detailed models of the deposit based on its revised geologic interpretation. These models resulted in fewer high grade ounces, which led to the reclassification of 996,000 ounces of reserves to mineralized material at the end of 1994. However, additional drilling and modeling was required to determine whether there was an impairment of the asset based on the work performed through that date. Based on economic information at that time and the use of undiscounted cash flows, no write-down was considered necessary as of December 31, 1994. Throughout 1995, further refinement of geological and economic models continued with open-pit, underground and price hedging scenarios all resulting in deposit sizes and economic returns smaller than the Corporation's threshold for development. Based on these results, capitalized costs of $33.8 million relating to the Grassy Mountain property were written off in December 1995. (11) GAIN ON SALE OF INVESTMENTS In May 1995, NGC sold its 10.7% interest in Southern Peru Copper Corporation for $116.4 million, which resulted in a gain of $113.2 million. (12) DIVIDEND, INTEREST AND OTHER INCOME Included in dividends, interest and other income are $3.1 million, $28.3 million and $9.2 million for 1996, 1995 and 1994, respectively, for business interruption insurance that was received for problems associated with the refractory ore treatment plant at the Carlin, Nevada operations. (13) MAJOR CUSTOMERS The Corporation is not economically dependent on a limited number of customers for the sale of its product because gold commodity markets are well-established worldwide. In 1996, sales to three customers accounted for $213.3 million, $108.5 million and $107.2 million of total sales, each of which represented more than 10% of total sales and together accounted for 56% of the annual sales. During 1995, four such customers accounted for $109 million, $85.7 million, $82.2 million and $73.1 million of total sales, or 55% of the annual sales. In 1994, sales to three such major customers accounted for $125.2 million, $99.6 million and $88.5 million, or 52% of total sales. (14) SUPPLEMENTAL CASH FLOW INFORMATION Net cash provided by operating activities includes the following cash payments (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ------- ------- ------- Income taxes, net of refunds..................... $(4,477) $18,992 $21,375 Interest, net of amounts capitalized............. $43,021 $12,197 $ 6,975
22 23 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Excluded from the statements of consolidated cash flows are the effects of certain non-cash transactions. In July 1996, NGC began accounting for the Batu Hijau project as an equity investment (See Note 16). The adjustments that were made to the Corporation's balance sheet are as follows (in thousands):
INCREASE (DECREASE) ------------------- Assets Other current assets...................................... $ (849) Property, plant and mine development, net................. (43,936) Other long-term assets.................................... 44,603 -------- Total assets...................................... $ (182) ======== Liabilities Accounts payable.......................................... $ (182) -------- Total liabilities................................. $ (182) ========
In 1996, the Corporation retired mostly fully depreciated property, plant and equipment with an original cost of $77.0 million, which is not reflected in the statements of consolidated cash flows. In 1996 and 1994, the Corporation recognized income tax benefits of $6.0 million and $16.2 million, respectively, resulting from the resolution of certain tax issues associated with prior years. In 1996, as discussed in Note 8, NMC issued 4.65 million shares of common stock. This resulted in a $19.5 million decrease to retained earnings to adjust for NMC's ownership interest in NGC. In 1995, as discussed in Note 8, NMC called for redemption of all of the outstanding 2.875 million shares of convertible preferred stock. Substantially all of the convertible preferred stock was converted into common stock of NMC. This transaction resulted in a non-cash decrease to preferred stock offset by a non-cash increase to common stock and capital in excess of par value. Also, retained earnings increased $5.3 million to adjust for NMC's ownership interest in NGC. (15) GEOGRAPHIC INFORMATION The Corporation operates predominantly in a single industry as a worldwide corporation engaged in gold production, exploration for gold and acquisition of gold properties. The Corporation has consolidated operations in the United States, Indonesia and Uzbekistan. In computing earnings from operations, no allocations of general corporate expenses, exploration and research, interest or income taxes have been made. Identifiable assets by country represent those assets related to the operations in those countries. Information by geographic location for the year ended December 31, 1996 is as follows (in thousands):
INDONESIA UNITED STATES UZBEKISTAN AND OTHER CONSOLIDATED ------------- ---------- --------- ------------ Sales.................................. $ 657,882 $ 62,609 $ 47,964 $ 768,455 Earnings from Operations............... $ 144,134 $ 14,423 $ 14,231 $ 172,788 Exploration and Research............... $ 35,238 $ 1,184 $ 22,287 $ 58,709 Identifiable Assets.................... $1,221,552 $226,721 $172,035 $1,620,308
Included in the United States sales are $647.2 million of export sales. In 1995 and 1994, export sales from the United States were $629.1 million and $497.2 million, respectively. Prior to 1996, substantially all operations were in the United States. 23 24 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The above geographic information does not include NGC's equity investment in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996 sales, earnings from operations and exploration was $119.3 million, $76.9 million and $6.6 million, respectively. NGC's equity in Minera Yanacocha's total assets at December 31, 1996 was $73.5 million. See Notes 1 and 17. (16) COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL OBLIGATIONS The Corporation'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 Corporation 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 Corporation has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Corporation cannot predict such future expenditures. Estimated future reclamation and remediation costs are based principally on legal and regulatory requirements. At December 31, 1996 and 1995, $20.8 million and $19.0 million, respectively, were accrued for reclamation and remediation costs relating to currently producing mineral properties. In addition, the Corporation 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 Corporation 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 Corporation's best estimate of its liability for these matters, $49.8 million and $55.8 million were accrued for such obligations at December 31, 1996 and 1995, respectively. These amounts are included in other current liabilities and reclamation and remediation liabilities. Depending upon the ultimate resolution of these matters, the Corporation believes that it is reasonably possible that the liability for these matters could be as much as 100% greater or 40% lower than the amount accrued at December 31, 1996. The amounts accrued for these matters are reviewed periodically based upon facts and circumstances available at the time. Changes in estimates are charged to other expense in the period estimates are revised. Charges related to these matters were $6.6 million, $3.0 million and $16.1 million in the years ended December 31, 1996, 1995 and 1994, respectively. Details about certain of the more significant sites involved are discussed below. Idarado Mining Company ("Idarado") -- 80.1% owned by NGC In July 1992, the Corporation and Idarado signed a consent decree with the State of Colorado ("State") which 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. The Corporation expects to complete the remediation work at this property by the end of 1997. If the remediation work does not meet specific technical criteria specified in the consent decree, the State and the court reserve the right to require Idarado to perform other remediation work. Idarado and the Corporation have obtained a $16.3 million letter of credit to secure their obligations under the consent decree. 24 25 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Resurrection Mining Company ("Resurrection") -- 100% owned by NGC In 1983, the State of Colorado filed a lawsuit under the Superfund Act which involves a Resurrection Mining Company and Asarco Incorporated ("Asarco") joint venture mining operation near Leadville, Colorado. This action was subsequently consolidated with a lawsuit filed by the U.S. Environmental Protection Agency ("EPA") in 1986, with the EPA taking the lead role. The proceedings seek to compel the defendants to remediate the impacts of pre-existing, historic mining activities that date back to the mid-1800's which the government agencies claim are causing substantial environmental problems in the area. The lawsuits have named the Corporation, Resurrection, the joint venture and Asarco as defendants in the proceedings. The EPA is also proceeding against other companies with interests in the area. The EPA divided the remedial work into two phases. Phase I addresses the Yak Tunnel, a drainage and access tunnel owned by the joint venture. Phase II addresses the remainder of the site. In 1988 and 1989, the EPA issued administrative orders with respect to Phase I work for the Yak Tunnel. The joint venture, Asarco, Resurrection and the Corporation have collectively implemented those orders by constructing a water treatment plant which was placed in operation in early 1992. The joint venture is in negotiations regarding remaining remedial work for Phase I, which primarily consists of environmental monitoring and operating and maintenance activities. The parties have entered into a consent decree with respect to Phase II which 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. However, the EPA has not yet selected the final remedy for the site. Accordingly, the Corporation cannot yet determine the full extent or cost of its share of the remedial action which will be required under Phase II. The government agencies may also seek to recover for damages to natural resources. Dawn Mining Company ("Dawn") -- 51% owned by NGC Dawn leased a currently inactive open-pit uranium mine 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. 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, for any alternate plan, or for the closure of its mill. The Department of Interior previously notified Dawn that when the lease was terminated, it would seek to hold Dawn and the Corporation (as Dawn's then 51% owner) liable for any costs incurred as a result of Dawn's failure to comply with the lease and applicable regulations. If asserted, the Corporation will vigorously contest any such claims. The Corporation cannot reasonably predict the likelihood or outcome of any future action against Dawn or the Corporation arising from this matter. Dawn has received a license for a mill closure plan which would generate funds to close and reclaim both the mine and the mill. The license is being challenged by third parties. Insurance Receivables The Corporation carried insurance policies for which it filed claims for the costs of certain of its remediation activities. The Corporation recorded receivables for claims under such policies when management 25 26 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) believed the likelihood of recovery was probable. Prior to 1993, three of the insurance companies commenced actions against NMC seeking judgments that they had no liability. In the fall of 1993, NMC instituted a comprehensive lawsuit against its carriers. Based on the views of prior lead counsel, the Corporation had believed that significant progress in certain settlement discussions would have been achieved by mid-summer 1994, but that expectation was not realized. The absence of such anticipated progress in settlement discussions, as well as the Corporation's discussions with new lead counsel for the insurance recovery actions regarding its review of such actions, caused the Corporation in the second quarter of 1994 to provide a $20.0 million valuation allowance on its insurance receivables, which was recorded as other expense, resulting in a net balance of $16.7 million outstanding at December 31, 1994. In the first quarter of 1995, settlement in certain of the insurance litigation was reached enabling the Corporation to realize the receivable outstanding at December 31, 1994. Settlement discussions continue with respect to additional insurance litigation. Trial of this litigation has been scheduled for late 1997. The Corporation intends to vigorously pursue its claims with respect to the remaining litigation and believes that it is reasonably possible that additional amounts will be recovered, although no such amounts are accrued. BATU HIJAU In July 1996, NGC and Sumitomo Corporation ("Sumitomo") entered into a definitive partnership agreement to develop and operate the Batu Hijau copper/gold deposit in Indonesia. The estimated cost for development of the open pit mine, mill, and infrastructure including employee housing, a port, electrical generation facilities, interest during construction, cost escalations and working capital is expected to approximate $1.9 billion. Batu Hijau contains proven and probable reserves of 12.1 million ounces (5.4 million equity ounces) of gold and 10.6 billion pounds (4.8 billion equity pounds) of copper. Production is expected to begin around the turn of the century, with a projected mine life in excess of 20 years. Under the terms of the agreement with Sumitomo, NGC will contribute its interest in the company that owns the project and Sumitomo will contribute an agreed upon amount of cash, expected to be approximately $235 million. After the contributions are made, NGC will retain a 45% interest in the company that owns the project and Sumitomo will have a 35% interest. The remaining 20% will be held by an unrelated Indonesian company. The parties' obligations to make their contributions to the partnership are subject to the receipt of certain approvals from the Indonesian government. Until such approvals are received, Sumitomo has agreed to fund up to $100 million of costs through non-interest bearing loans, ($20.2 million of which were outstanding at December 31, 1996) which NGC has effectively guaranteed. Effectively, any amounts outstanding under such loans will go towards meeting Sumitomo's cash contribution of the previously mentioned $235 million. If such approvals are not received by March 31, 1997, either party has the right to terminate the agreement and the loans would become due. After the Sumitomo contributions are made, additional contributions required by the parties will be contributed 56.25% by NGC and 43.75% by Sumitomo. Project financing for development of the property is expected to be approximately $1 billion and will be guaranteed by NGC and Sumitomo, 56.25% and 43.75%, respectively, until project completion tests are met. The source of NGC's future contributions will be operating cash flow, bank credit lines or other third party financing as needed. As a result of the contemplated ownership structure, the Corporation is accounting for its investment in Batu Hijau as an equity investment effective July 1996. The Corporation's investment at December 31, 1996, which is included in other long-term assets, was $46.6 million. In anticipation of Indonesian government approvals related to the Batu Hijau project, the entity owning the project has entered into a construction contract for approximately $1 billion. 26 27 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GUARANTEE OF THIRD PARTY INDEBTEDNESS The Corporation guaranteed a former subsidiary's $35.7 million Pollution Control Revenue Bonds, due 2009. The former subsidiary is BHP Copper Inc., formerly known as Magma Copper Company. It is expected that the Corporation will be required to remain liable on this guarantee as long as the bonds remain outstanding; however, the Corporation has not been required to pay any of these amounts, nor does it expect to have to pay any in the future. GOLD PRICE HEDGING CONTRACTS The Corporation has entered into hedging transactions, that began maturing in January 1996 and continue through December 2000, for production from its Minahasa property, located in Indonesia. These transactions consist of forward sales of 125,000 ounces of gold per year at an average price of $454 an ounce, plus 40% of the amount by which the market price exceeds the forward sales price. No production was hedged in 1995 or 1994. OTHER COMMITMENTS AND CONTINGENCIES Under a 1992 agreement with Barrick Goldstrike Mines, Inc. ("Barrick"), Barrick is mining NGC's Carlin, Nevada Post deposit which extends beyond NGC's property boundaries onto Barrick's property. NGC and Barrick share the costs so that each ounce of gold mined bears the same mining cost. NGC is obligated to pay Barrick for such costs as Barrick mines the deposit. In addition, the Corporation is obligated to share dewatering costs which are associated with the deposit. NGC incurred $63.7 million, $62.5 million and $39.0 million of such mining and dewatering costs in 1996, 1995 and 1994, respectively, and expects to incur approximately $15 million in 1997. The Corporation has minimum royalty obligations on one of its producing mines for the life of the mine. The amount to be paid to meet the royalty obligations is based upon a defined average market gold price. Any amounts paid due to the minimum royalty obligation not being met in any year are recoverable in future years when the minimum royalty obligation is exceeded. Although the minimum royalty requirement may not be met in any certain year, the Corporation expects the mine's gold production over its life will meet the minimum royalty requirements. At December 31, 1996, there were $100.2 million of outstanding letters of credit that were primarily for bonding reclamation plans and electric supply and reinsurance agreements. The Corporation has provided investment collateral for $8.7 million of these letters of credit. The remaining $91.5 million represents unsecured letters of credit. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined in the market place. The Corporation is from time to time involved in various legal proceedings of a character normally incident to its business. It does not believe that adverse decisions in any pending or threatened proceedings or any amounts which it may be required to pay by reason thereof will have a material adverse effect on its financial condition or results of operations. (17) SUBSEQUENT EVENTS PROPOSED MERGER WITH SANTA FE PACIFIC GOLD CORPORATION In March 1997, NMC announced it had entered into a merger agreement with Santa Fe Pacific Gold Corporation ("Santa Fe") under which each outstanding share of Santa Fe common stock would be exchanged for 0.43 of a share of NMC common stock. A condition of the merger is that it would be accounted for as a pooling of interests. The merger is also subject to the approval of the shareholders of both companies and other customary conditions. It is expected to be consummated during the second quarter of 1997. If NMC 27 28 NEWMONT MINING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) is successful in acquiring Santa Fe, Santa Fe would become a wholly-owned subsidiary of NGC. NGC would issue shares of common stock to NMC equal to the number of common shares the Corporation issues to acquire Santa Fe (estimated to be approximately 56.5 million). Santa Fe reported 1996 sales of $337.2 million and net income of $21.1 million with total assets at December 31, 1996 of $1.3 billion, long-term debt of $454.9 million and net worth of $570.0 million as of the same date. ADDITIONAL INTEREST IN MINERA YANACOCHA In November 1993, the French government announced its intention to privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the geological and mining bureau of the French government ("BRGM"). In September 1994, BRGM announced its intention to transfer its 24.7% interest in Minera Yanacocha to another entity. NGC and Compania de Minas Buenaventura, S.A. ("Buenaventura"), then 38.0% and 32.3% owners of Minera Yanacocha, respectively, filed suit in Peru to seek enforcement of a provision in the bylaws of Minera Yanacocha giving shareholders preemptive rights on the proposed sale or transfer of any shareholder's interest. In February 1995, an appellate court in Peru issued a preliminary ruling in favor of NGC and Buenaventura, both of whom elected to exercise their preemptive rights to acquire their proportionate share of the 24.7% interest. In accordance with the court ruling, Minera Yanacocha canceled the BRGM shares and issued shares representing interests in Minera Yanacocha of 13.35% to NGC and 11.35% to Buenaventura. NGC deposited $48.6 million for its additional interest, together with the additional shares, with a Peruvian bank pending the final resolution of the case. NGC borrowed the $48.6 million from the same Peruvian bank with the right of set off against the deposit, and accordingly, these amounts have been netted in the accompanying balance sheet. Through December 31, 1996, NGC had received $18.6 million of dividends on the additional shares. In September 1996, a court ruling provided that NGC and Buenaventura had the right to acquire the 24.7% interest for a purchase price of $109.3 million, $59.1 million attributable to the 13.35% interest of NGC. As established by such ruling, the preemptive rights were triggered in November 1993 and thus the valuation of the shares held in escrow were calculated as of such date. BRGM and other defendants filed an appeal to the Superior Court of Lima challenging the court's determination that the preemptive rights were triggered and the date and amount of the valuation. In February 1997, the Superior Court upheld the decision of the trial court. Therefore, beginning in 1997, NGC will consider the additional interest to have been acquired and will consolidate Minera Yanacocha in its financial statements to reflect the increase in its ownership from 38% to 51.35%. BRGM and other defendants have filed a request for review of the resolution by the Superior Court of Peru. Peruvian counsel has advised the Company that decisions of the Superior Court can be modified by the Supreme Court only in very limited instances and that it is not likely that any further review will be granted. The following pro forma income statement assumes the acquisition of the additional interest occurred on January 1, 1996 and the pro forma balance sheet assumes the acquisition occurred on December 31, 1996. The pro forma financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations which would have been realized had the acquisition of the additional interest been considered to occur as of the dates for which the pro forma financial statements are presented. The pro forma financial statements also are not necessarily indicative of the consolidated position or results of operations in the future. 28 29 NEWMONT MINING CORPORATION AND MINERA YANACOCHA PRO FORMA CONSOLIDATED INCOME STATEMENT -- UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE) FOR THE YEAR ENDED DECEMBER 31, 1996
NEWMONT MINERA PRO FORMA PRO FORMA MINING YANACOCHA ADJUSTMENTS CONSOLIDATED -------- --------- ----------- ------------ Sales and other income Sales................................. $768,455 $313,870 $1,082,325 Dividends, interest and other......... 26,471 2,336 28,807 -------- -------- --------- ---------- 794,926 316,206 1,111,132 -------- -------- --------- ---------- Costs and expenses Costs applicable to sales............. 476,090 89,206 $ (2,172)(A) (1,624)(B) 561,500 Depreciation, depletion and amortization....................... 124,841 24,595 12,289 (C) 161,725 Exploration and research.............. 58,709 17,482 76,191 General and administrative............ 48,093 -- 1,624 (B) (617)(D) 49,100 Interest, net......................... 43,987 5,447 49,434 Other................................. 13,855 -- 13,855 -------- -------- --------- ---------- 765,575 136,730 9,500 911,805 Equity in income of affiliated companies............................. 45,221 -- (47,381)(E) (617)(D) (2,172)(A) (4,949) -------- -------- --------- ---------- Pretax income........................... 74,572 179,476 (59,670) 194,378 Income tax (provision) benefit.......... 19,400 (54,784) (599)(F) (35,983) Minority interest in income of subsidiaries.......................... (8,896) -- (60,663)(G) (356)(H) (69,915) -------- -------- --------- ---------- Net income.............................. $ 85,076 $124,692 $(121,288) $ 88,480 ======== ======== ========= ========== Income per common share................. $ 0.86 $ 0.89 ======== ========== Weighted average number of shares of common stock and common stock equivalents outstanding............... 99,357 99,357 ======== ==========
- --------------- (A) To eliminate royalties paid by Minera Yanacocha to an equity affiliate of NGC. (B) To eliminate management fees paid by Minera Yanacocha to a subsidiary of NGC. (C) Estimated additional amortization of excess purchase price over book value of net assets acquired. (D) Reclassification of NGC's share (38%) of management fees charged to Minera Yanacocha. (E) Elimination of equity income recognized for Minera Yanacocha to reflect consolidation. (F) Additional adjustment to taxes required for consolidation of Minera Yanacocha. (G) Minority interest (48.65%) in income of Minera Yanacocha. (H) Adjustment of minority interest due to increased income of NGC resulting from additional interest in Minera Yanacocha. 29 30 NEWMONT MINING CORPORATION AND MINERA YANACOCHA PRO FORMA CONSOLIDATED BALANCE SHEET -- UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE) DECEMBER 31, 1996
NEWMONT MINERA PRO FORMA PRO FORMA MINING YANACOCHA ADJUSTMENTS CONSOLIDATED ---------- --------- ----------- ------------ Assets Cash and cash equivalents............. $ 185,681 $ 40,705 $ 226,386 Inventories........................... 188,345 15,661 204,006 Other................................. 81,856 28,848 110,704 ---------- -------- -------- ---------- Current assets..................... 455,882 85,214 541,096 Property, plant and mine development, net................................ 1,301,952 106,308 $ 53,368(A) (14,445)(B) 1,447,183 Other long-term assets................ 323,240 1,887 (41,115)(C) (2,843)(A) 281,169 ---------- -------- -------- ---------- Total assets.................. $2,081,074 $193,409 $ (5,035) $2,269,448 ========== ======== ======== ========== Liabilities Short-term debt and current portion of long-term debt..................... $ 65,231 $ 14,256 $ 79,487 Other current liabilities............. 158,863 31,190 $ 50,525(A) 240,578 ---------- -------- -------- ---------- Current liabilities................ 224,094 45,446 50,525 320,065 Long-term debt........................ 585,009 24,244 609,253 Other long-term liabilities........... 139,916 15,520 155,436 ---------- -------- -------- ---------- Total liabilities............. 949,019 85,210 50,525 1,084,754 ---------- -------- -------- ---------- Minority interest in subsidiaries....... 107,168 -- 52,639(D) 159,807 ---------- -------- -------- ---------- Stockholders' Equity.................... 1,024,887 108,199 (14,445)(B) (41,115)(C) (52,639)(D) 1,024,887 ---------- -------- -------- ---------- Total liabilities and stockholders' equity........ $2,081,074 $193,409 $ (5,035) $2,269,448 ========== ======== ======== ==========
- --------------- (A) To record acquisition of additional 13.35% interest. (B) Elimination of 13.35% of Minera Yanacocha's net book value. (C) Elimination of NGC's investment in Minera Yanacocha to reflect consolidation. (D) To reflect minority interest in Minera Yanacocha. 30 31 (18) UNAUDITED SUPPLEMENTARY DATA QUARTERLY DATA The following is a summary of selected quarterly financial information (amounts in millions except per share amounts):
1996 ------------------------------------------------------------------ THREE MONTHS ENDED --------------------------------------------------- YEAR ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, --------- -------- ------------- ------------ ------------ Sales........................... $ 154.7 $ 181.2 $226.0 $ 206.6 $ 768.5 Gross profit(1)................. $ 28.1 $ 38.2 $ 58.5 $ 42.7 $ 167.5 Net income...................... $ 10.7 $ 19.5 $ 35.4 $ 19.5 $ 85.1 Net income per common share..... $ 0.11 $ 0.20 $ 0.35 $ 0.20 $ 0.86 Weighted average shares outstanding(2)................ 98.5 99.9 99.8 99.7 99.4 Dividends declared per common share......................... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48 Closing price of common stock... $56.625 $49.375 $47.25 $ 44.75 $ 44.75
1995 ------------------------------------------------------------------ THREE MONTHS ENDED --------------------------------------------------- YEAR ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, --------- -------- ------------- ------------ ------------ Sales........................... $ 134.5 $ 145.1 $172.3 $ 184.4 $ 636.2 Gross profit(1)................. $ 26.6 $ 31.6 $ 52.1 $ 48.6 $ 158.8 Net income...................... $ 15.6 $ 67.8(3) $ 25.3 $ 4.0 (4) $ 112.6(3,4) Preferred stock dividends....... $ 4.0 $ 4.0 $ 4.0 $ (0.7)(5) $ 11.2(5) Net income applicable to common stock......................... $ 11.6 $ 63.8(3) $ 21.3 $ 4.7 (4) $ 101.5(3,4) Net income per common share..... $ 0.14 $ 0.74(3) $ 0.25 $ 0.05 (4) $ 1.17(3,4) Weighted average shares outstanding................... 86.1 86.3 86.5 89.3 (5) 87.0(5) Dividends declared per common share......................... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48 Closing price of common stock... $ 42.75 $41.875 $42.50 $45.375 $45.375
- --------------- (1) Sales less costs applicable to sales and depreciation, depletion and amortization. (2) In January 1996, 4.65 million shares of common stock were issued under an existing shelf registration statement (see Note 8). (3) Includes an after-tax gain of $72 million, or $0.75 per share for the quarter and $0.74 per share for the year, from the sale of the Corporation's interest in Southern Peru Copper Corporation and an after-tax charge of $15.1 million, or $0.16 per share, for the write-off of the investment and additional reclamation provision of the Ivanhoe exploration property (see Notes 10 and 11). (4) Includes an after-tax charge of $22 million, or $0.22 per share, for the quarter and $0.23 per share for the year, for the write-off of the investment in the Grassy Mountain property (see Note 10). (5) Substantially all of the convertible preferred stock was converted into common stock in December 1995 (see Note 8). RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges was 2.1, 3.6, 1.7, 6.3 and 6.5 for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The Corporation guarantees certain third party debt which had total interest obligations of $1.2 million, $1.4 million, $1 million, $0.8 million and $3.3 million for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The Corporation has not been required to pay any of these amounts, nor does it expect to have to pay any amounts; therefore, such amounts have not been included in the ratio of earnings to fixed charges. 31 EX-99.2 4 NEWMONT MINING MANAGEMENT DISCUSSION 1 EXHIBIT 99.2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Newmont Mining Corporation ("NMC") and its subsidiaries' (collectively, the "Corporation") consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. NMC's principal subsidiary is Newmont Gold Company ("NGC"), which holds all of the operating assets of the Corporation, and is approximately 91% owned by NMC. As a result, all per share amounts take into consideration the minority interest in NGC. The discussion and analysis, as well as the notes to such financial statements, contain "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially, as discussed in "Forward-Looking Statements" below. SUMMARY Over the past two years, the Corporation's earnings per share, on a comparable basis, have increased on average approximately 10% annually. The Corporation earned $85.1 million ($0.86 per share) in 1996, compared with $70.3 million ($0.81 per share) in 1995, before considering certain gains and charges, and $76.1 million ($0.70 per share) in 1994. Additionally in 1995, there was a gain on the sale of an investment and the write-off of two exploration properties. NGC sold its 10.7% interest in Southern Peru Copper Corporation ("SPCC") for $116.4 million, resulting in a pre-tax gain of $113.2 million, or $72 million after-tax ($0.74 per share). The write-off of the Grassy Mountain and Ivanhoe exploration properties resulted in a pre-tax charge of $57.1 million, or $37.1 million after-tax ($0.38 per share). Including these items, net income in 1995 was $112.6 million ($1.17 per share). NGC's total equity gold production increased 23% in 1996 to 2,284,200 ounces from 1,862,800 ounces in 1995. NGC's equity production in 1995 increased 11% from 1994's equity production of 1,671,000 ounces. Weighted average total cash costs per ounce of equity production of NGC were $220, $210 and $202 for 1996, 1995 and 1994, respectively. RESULTS OF OPERATIONS Consolidated sales revenues have increased primarily from gold production of 1,970,200 ounces, 1,653,000 ounces and 1,555,300 ounces in 1996, 1995 and 1994, respectively. (Such production does not include the Corporation's share of gold production from Minera Yanacocha S.A. ("Minera Yanacocha") which was accounted for on the equity method during these periods, but commencing in 1997 will be consolidated in the Corporation's financial statements as discussed below.) The average annual gold price per ounce received on such production was $390, $385 and $384 in 1996, 1995 and 1994, respectively. The profitability of the Corporation's operations is significantly affected by the market price of gold. Gold prices can fluctuate widely and are affected by numerous factors beyond the Corporation's control. During the beginning of 1997, the market price of gold declined from 1996 levels. The Corporation has forward sales contracts that began in January 1996 and continue through December 2000 for production from its Minahasa property, located in Indonesia. These contracts provide for forward sales of 125,000 ounces per year at an average price of $454 an ounce, plus 40% of the amount by which the market price exceeds the forward sales price. No production was hedged in 1995 or 1994. 1 2 The effects of the changes in the average annual gold price received and annual consolidated production levels on sales revenues between years are reflected in the following table (in thousands):
1996 VS. 1995 1995 VS. 1994 ------------- ------------- Increase in sales revenues due to: Gold price................................................ $ 10,154 $ 1,339 Production................................................ 122,082 37,510 -------- ------- Total............................................. $132,236 $38,849 ======== =======
NGC's North American operations are located on the geological feature known as the Carlin Trend, hereafter, referred to as "Carlin." Carlin gold production has increased approximately 5% in each of the last two years from 1,555,300 ounces in 1994 to 1,634,500 ounces in 1995 to 1,700,000 ounces in 1996. Improved operating rates at the refractory ore treatment plant in conjunction with increased amounts of high grade underground ore processed were the primary reasons for the increase in gold production between 1995 and 1996. The refractory ore treatment plant, which began operations in mid-1994, operated at reduced rates in 1994 and 1995 due primarily to a crack in a weld of a riding ring in the double rotator mill in August 1994 and a fire in an electrostatic precipitator in November 1994. As the plant operated at steadily increasing rates during 1995 and production from high grade underground ores increased, production also increased from 1994 to 1995. Carlin's ore production is shifting from open-pit oxide ore to refractory ore coming from both open-pits and underground operations. The refractory ore treatment plant, which processes most of the refractory ore, is expected to account for approximately 40% of Carlin's gold production in 1997, up from approximately 30% in 1996 and 20% in 1995. Carlin's production is expected to continue to increase approximately 5% annually in 1997 and 1998 with the mining of higher grade ores from the Post deposit. This deposit is mined by Barrick Goldstrike Mines, Inc. ("Barrick") under a joint mining agreement, as discussed below. The Corporation's international operations include the Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont"), a 50%-50% joint venture between a subsidiary of NGC and two Uzbekistan governmental entities. Zarafshan-Newmont, which began production in September 1995, produces gold by crushing and leaching low grade oxide ore from existing stockpiles at the government owned Muruntau mine in Uzbekistan. Production was 326,500 ounces (163,200 equity ounces) for 1996 and 37,000 ounces (18,500 equity ounces) for 1995. Although problems were encountered in the startup of the leach facility in 1995, gradual improvements were made throughout 1996. In 1997, production is expected to be approximately 400,000 ounces with 50% attributable to NGC's interest. In Indonesia, the Corporation began production in 1996 at NGC's 80% owned Minahasa ("Minahasa") property. Revenue production was 107,000 ounces. In addition, 5,700 ounces were produced before commercial operations commenced, and the revenue from these ounces was credited against the capitalized costs of the project. Although NGC has an 80% interest in this project, it is entitled to 100% of the gold production until its investment has been recovered, since it funded 100% of the construction costs. Production is expected to reach approximately 150,000 ounces in 1997, with higher levels expected in future years. NGC has also had a 38% interest in Minera Yanacocha, a Peruvian entity which is managed by a subsidiary of NGC. Minera Yanacocha has increased its production 166% over the past two years. Production totaled 811,400 ounces (308,300 equity ounces), 552,000 ounces (209,800 equity ounces) and 304,600 ounces (115,700 equity ounces) in 1996, 1995 and 1994, respectively, at total cash costs of $107, $119, and $135 per ounce produced, respectively. The increased production in 1996 was primarily due to production beginning at a third mine. In 1995, production began at a second mine, resulting in increased production levels over 1994. Production is expected to increase at least 5% in 1997 and future production levels are expected to be consistent with those of 1997. Total cash costs are expected to increase slightly in 1997 and 1998, due primarily to higher mining costs. 2 3 As discussed in Note 17 of Item 8 -- "Financial Statements and Supplementary Data," in February 1997 the Peruvian Superior Court upheld the decision of a Peruvian trial court which ruled that NGC had the right to exercise its preemptive right increasing its interest in Minera Yanacocha from 38% to 51.35% at a purchase price of $59.1 million. The court ruled that the preemptive right was triggered in November 1993. Due to the dispute over the exercise of the preemptive right, NGC had continued to account for the interest in Minera Yanacocha on an equity basis at 38%. As a result of the Superior Court's decision, the additional 13.35% interest will be accounted for as having been acquired in 1997 and the 51.35% interest will be consolidated in the Corporation's financial results, net of the amortization of the purchase price of the incremental interest over its net book value and the NGC minority interest therein. BRGM and other defendants have filed a request for review of the Superior Court decision by the Supreme Court of Peru. Peruvian counsel have advised the Corporation that decisions of the Superior Court can be modified by the Supreme Court in very limited circumstances and that it is not likely that further review will be granted. See the previously mentioned Note 17 in Item 8 for pro forma statements reflecting the additional interest. NGC has targeted total equity gold production of approximately 2.6 million ounces for 1997. Costs applicable to sales were $476.1 million, $370.6 million and $326.4 million in 1996, 1995 and 1994, respectively. In 1996, $415.3 million relates to the Carlin operations, $36.9 million relates to NGC's share of costs at Zarafshan-Newmont and $23.9 million relates to Minahasa. Of the 1995 amount, $4.1 million of the costs relate to NGC's share of costs attributable to Zarafshan-Newmont. All other costs applicable to sales for 1995 and 1994 were attributable to the Carlin operations. The Corporation's costs applicable to consolidated sales on a per ounce of gold sold basis were as follows for 1996, 1995 and 1994:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- ZARAFSHAN- CARLIN NEWMONT MINAHASA CONSOLIDATED ------------------ ----------- -------- ------------------ 1996 1995 1994 1996 1995 1996 1996 1995 1994 ---- ---- ---- ---- ---- -------- ---- ---- ---- Cash operating costs.................... $222 $189 $178 $225 $218 $217 $222 $189 $178 Royalties............................... 20 31 25 0 0 7 17 31 25 Other cash costs........................ 1 3 5 0 0 0 1 3 5 ---- ---- ---- ---- ---- ---- ---- ---- ---- Total cash costs............... 243 223 208 225 218 224 240 223 208 Other................................... 1 1 2 1 1 2 1 1 2 ---- ---- ---- ---- ---- ---- ---- ---- ---- Total costs applicable to sales........................ $244 $224 $210 $226 $219 $226 $241 $224 $210 ==== ==== ==== ==== ==== ==== ==== ==== ====
The above consolidated amounts do not take into account NGC's interest in Minera Yanacocha because it was accounted for on the equity basis. If NGC's equity interest in Minera Yanacocha were included with the consolidated amounts, the weighted-average total cash costs per ounce of equity production would have been $220, $210 and $202 in 1996, 1995 and 1994, respectively. Cash operating costs consist principally of charges for mining ore and waste associated with current period gold production and processing ore through milling and leaching facilities. Total Carlin cash operating costs were $376.8 million in 1996, $308.4 million in 1995, and $277.3 million in 1994. The increases in aggregate and per ounce costs between 1996 and 1995 were primarily attributable to higher mining and milling costs. Approximately half of the increase is attributable to increased mining costs which resulted from more underground mining and higher waste-to-ore ratios at the open-pit mines in 1996. Another quarter of the increase was due to higher milling costs primarily associated with the refractory ore treatment plant. High maintenance costs were incurred at the plant in 1996 as certain components corroded more quickly than anticipated. In 1997, it is planned that these components will be replaced using materials which are expected to significantly increase their operating lives. The remainder of the 1996 increase was attributable to various other factors. The increases in costs between 1995 and 1994 were primarily attributable to increased milling costs associated with the refractory ore treatment plant during its first full year of operation and increased underground mining costs. Per ounce cash operating costs at Carlin are expected to decrease in 1997 and 1998 when the production of higher grade ore from the Post deposit enters the production stream. 3 4 NGC's share of cash operating costs at Zarafshan-Newmont increased to $36.9 million from $4.1 million in 1995 due to a full year of operation in 1996. Per ounce cash costs increased slightly from 1995 to 1996 primarily due to a reduction in the estimated ultimate gold recovery rate in 1996. Per ounce cash operating costs are expected to slightly decrease in 1997 as greater efficiencies and higher production levels are achieved, but may increase in 1998 as lower ore grades are expected to be encountered. Per ounce cash operating costs at Minahasa in 1997 are expected to be approximately the same as those in 1996. In the years thereafter, per ounce costs are expected to decline as higher grade ores enter the production stream. In addition to the cash operating costs expensed, the Corporation is capitalizing a portion of mining costs associated with tons mined from deposits having diverse grade and waste-to-ore ratios over a mine's life. In 1996 and 1995, such costs were capitalized for certain deposits at Carlin ($63.7 million and $56.2 million, respectively) and at Minahasa ($6.1 million and $1.2 million, respectively), whereas in 1994, these costs only related to the Carlin operations ($33.2 million). The Carlin costs substantially relate to the Post deposit. As previously mentioned, this deposit is being mined by Barrick under a 1992 joint mining agreement. Under such agreement, Barrick, which has a separate and distinct interest in the same ore body, mines the deposit and charges NGC on a basis that will result in both companies ultimately bearing the same cost per contained ounce of gold mined. Some of NGC's contained ounces in this deep deposit are expected to be processed in 1997, at which time such mining costs will be matched against the revenues from the ounces that are produced. Capitalized mining costs increased in 1996 and 1995 due to elevated mining rates for the Post deposit, as well as commencement of production at Minahasa in 1996. Such capitalized mining costs are expected to decrease in 1997 from the 1996 amount, as the Company mines a higher proportion of Post ore relative to waste material. Royalty costs, which are a function of the amount of royalty ore processed, were $34.4 million, $51.6 million and $38.7 million in 1996, 1995 and 1994, respectively. In 1995, greater amounts of royalty-burdened ore were processed than in 1996 and 1994. Including the effect of royalties at Minera Yanacocha, royalty costs are expected to decrease from 1996 to 1997 by approximately 35% due to a significant reduction in the amount of royalty-burdened ore processed from open-pit mines at Carlin. On a consolidated basis, the Corporation's costs applicable to sales per ounce are expected to significantly decrease in 1997 with the lower cost per ounce production at Carlin and Zarafshan-Newmont and the consolidation of the low-cost Minera Yanacocha operations. In total, costs applicable to sales will increase in 1997 as a result of the consolidation of Minera Yanacocha. Depreciation, depletion and amortization ("DD&A") was $124.8 million, $106.8 million and $91.1 million in 1996, 1995 and 1994, respectively. The increase in 1996 over 1995 is primarily due to additional assets placed in service at Carlin, a full year of Zarafshan-Newmont operations and the startup of Minahasa operations. The increase in 1995 over 1994 is primarily due to new facilities and equipment at the Carlin operations, including the refractory ore treatment plant. Including the consolidation of Minera Yanacocha, DD&A is expected to increase to between $165 million and $175 million in 1997 due to a full year of operation at Minahasa and the additional assets placed in service in 1996 at all operations. Exploration and research expenses were $58.7 million, $57.3 million and $69.2 million in 1996, 1995 and 1994, respectively. The decrease in exploration and research expenses in 1995 compared to the 1994 amount was due to the Corporation's planned decrease in exploration spending and increased focus on resource development, for which costs are capitalized. NGC intends to replace and increase its reserve base primarily through exploration. At December 31, 1996, NGC's proven and probable gold reserves were 37.1 million equity ounces, compared to 28.8 million equity ounces at December 31, 1995. Exploration and research expenses in 1997 are expected to increase to between $70 million and $75 million with the consolidation of Minera Yanacocha. As discussed in Note 16 of Item 8 -- "Financial Statements and Supplementary Data," in July 1996, the Corporation and Sumitomo Corporation ("Sumitomo") entered into an agreement to develop and operate the 4 5 Batu Hijau project in Indonesia. As a result of the contemplated ownership structure, the Corporation began accounting for NGC's investment in Batu Hijau as an equity investment in July 1996. In 1995 and for the first six months of 1996, development costs for this large copper/gold porphyry deposit were capitalized. The Corporation's cash expenditures totaled $15.1 million and $27.7 million for 1996 and 1995, respectively. In addition, in 1996 Sumitomo advanced $20.2 million for project development. In 1994, the Corporation incurred $16.8 million of exploration and research expenses for this project. General and administrative expense ("G&A") was $48.1 million, $43.2 million and $38.5 million in 1996, 1995 and 1994, respectively. The increases are primarily related to the additional staffing required for the increased international focus of the Corporation's operations. The Corporation provides extensive management oversight and technical expertise to its overseas operations. G&A expenses are not expected to increase significantly in 1997 over the 1996 levels. Interest expense before capitalized interest was $49.4 million, $48.0 million and $29.5 million in 1996, 1995 and 1994, respectively. The increase in 1995 from 1994 is associated with higher debt balances, primarily due to the sale-leaseback financing of the refractory ore treatment plant which was completed in September 1994. Net interest expense will increase in 1997 with the consolidation of Minera Yanacocha and its planned $100 million financing. See "Liquidity and Capital Resources." In 1995, the Corporation recorded write-offs of two exploration properties totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over the next three years, extensive drilling, environmental studies and mine models were developed to determine the economics of extracting gold from the property. A feasibility report was issued in June 1995 that reflected high levels of environmental and mining costs that resulted in financial returns much lower than the Corporation's threshold for development. Accordingly, the decision was made not to develop the property and $18.8 million of capitalized costs associated with the property were written off in June 1995. At that same time, an additional charge of $4.6 million was taken as other expense for estimated costs to reclaim areas disturbed by previous mining and exploration activity on the property. The Grassy Mountain property was purchased in September 1992. At the time of the purchase, certain reliance was placed upon geological models prepared by the seller. Work performed by the Corporation in 1993 demonstrated that the gold was not distributed as modeled by the seller. In 1994, the Corporation created new detailed models of the deposit based on its revised geologic interpretation. These models resulted in fewer high grade ounces, which led to the reclassification of 996,000 ounces of reserves to mineralized material at the end of 1994. However, additional drilling and modeling was required to determine whether there was an impairment of the asset based on the work performed through that date. Based on economic information at that time and the use of undiscounted cash flows, no write-down was considered necessary as of December 31, 1994. Throughout 1995, further refinement of geological and economic models continued with open-pit, underground and price hedging scenarios all resulting in deposit sizes and economic returns smaller than the Corporation's threshold for development. Based on these results, capitalized costs of $33.8 million relating to the Grassy Mountain property were written off in December 1995. Other expenses were $13.9 million, $11.7 million and $46.0 million for 1996, 1995 and 1994, respectively. These amounts reflect charges of $6.6 million, $3.0 million and $36.1 million in 1996, 1995 and 1994, respectively, related to environmental obligations associated with former mining activities discussed in Note 16 to Item 8 -- "Financial Statements and Supplementary Data." The additional charges related to environmental obligations in all periods reflect revisions of estimates of future costs to be incurred. Included in the 1994 amount is a valuation allowance of $20 million that was made against receivables from insurance companies for recoveries related to such environmental obligations. The Corporation recorded the valuation allowance after discussions with its then new lead counsel regarding its review of the litigation with the insurance companies and due to the absence of expected settlement discussions. After recording the valuation allowance there remained a net receivable balance from insurance companies of approximately $16.7 million at December 31, 1994. Settlement of certain of the insurance litigation was reached in 1995 enabling the Corporation to realize the receivable. Trial of the remaining litigation is scheduled for late 1997. The 5 6 Corporation intends to vigorously pursue its claims with respect to the remaining litigation and believes that it is reasonably possible that additional amounts will be recovered, although no such amounts are accrued. Since the actual cash payments for the environmental obligations associated with the Corporation's former mining activities are expected to occur over a number of years, such cash requirements are not expected to have a significant negative impact on the Corporation's liquidity. The Corporation made such payments of $14.8 million, $20.0 million and $14.5 million in 1996, 1995 and 1994, respectively. The Corporation expects to pay approximately $10.0 million of such costs in 1997. Total estimated future costs related to these environmental liabilities of $50.2 million were accrued at December 31, 1996. Because of the uncertain nature of these liabilities, the Corporation estimates that it is reasonably possible that the ultimate liability may be as much as 100% greater or 40% lower than the amount accrued at December 31, 1996. Absent concurrent insurance recoveries, or revenue generating operations associated with closure, on-going cash expenditures will be funded out of operating cash flow and/or borrowings. The Corporation continuously monitors and reviews its environmental obligations and, although the Corporation believes that it has adequately accrued for such costs, as additional facts become known additional provisions may be required. Dividends, interest and other income was $26.5 million, $42.2 million and $22.3 million for 1996, 1995 and 1994, respectively. The amounts include $3.1 million, $28.3 million and $9.2 million for 1996, 1995 and 1994, respectively, for business interruption insurance recorded for certain problems associated with the refractory ore treatment plant, as previously discussed. The remaining variance between the years is due primarily to variances in interest income which has increased over the three years due to higher cash balances. As discussed in Note 8 of Item 8 -- "Financial Statements and Supplementary Data", in January 1996, NMC issued 4.65 million shares of common stock resulting in higher cash balances in 1996. Interest income is expected to be the primary component of dividends, interest and other in 1997, and is expected to decrease slightly from 1996. Income tax benefit (provision) was $19.4 million, ($17.0) million and $29.3 million for 1996, 1995 and 1994, respectively. Included in the 1996 income tax benefit are foreign tax credits associated with Minera Yanacocha, which were substantially higher in 1996 than 1995, as well as $6.0 million of benefits resulting from resolution of certain tax issues from prior years. In 1995, the Corporation recognized taxes of $41.2 million related to the sale of its investment in SPCC. This charge was partially offset by a tax benefit of $20 million related to the charges associated with the write-offs of the Ivanhoe and Grassy Mountain properties. In 1994, the Corporation recognized an income tax benefit of $16.2 million resulting from the resolution of certain tax issues associated with prior years, as well as a tax benefit of $12.6 million recognized in connection with the charge relating to environmental obligations. Tax benefits from percentage depletion and foreign tax credits were realized in all three years. At December 31, 1996, the Corporation had $63.4 million of net deferred tax assets. Although it can give no assurances, the Corporation expects that projected future operations will result in the utilization of these net deferred tax assets. General inflation over the past three years has not had a material effect on the Corporation's cost of doing business and is not expected to have a material effect in the foreseeable future. Changes in the price received for gold will impact the Corporation's revenue stream, as previously discussed. LIQUIDITY AND CAPITAL RESOURCES During 1996, the Corporation's cash outlays included $231.2 million in capital expenditures and $47.7 million in dividends. Of the capital expenditures, approximately $154.0 million was spent on projects at the Carlin operations which were primarily associated with capitalized mining costs, underground development, mining and processing equipment, and refractory leach pads. In addition, $27.4 million was spent by the Corporation on mine site development for the Minahasa project, $15.1 million on the Batu Hijau project before the agreement was reached with Sumitomo, and $11.6 million was spent on the construction of a new technical facility in Denver, Colorado. The balance of capital expenditures related to various other projects. These expenditures were funded by proceeds from issuances of common stock of $265.4 million and cash flow from operating activities of $135.4 million. In addition, $16.8 million was borrowed under short-term credit facilities to finance environmental reclamation and remediation activities. 6 7 Including Minera Yanacocha, approximately $300 million is expected to be spent on capital projects in 1997. Carlin expenditures of approximately $145 million will be for capitalized mining costs, mine equipment, refractory leach pads and underground development. Funds for capital expenditures of approximately $8 million and $26 million will also be required for the Zarafshan-Newmont and Minahasa projects, respectively. Minera Yanacocha expenditures of approximately $110 million will be primarily for the construction of a second processing facility and the construction and expansion of leach pads. Of the Corporation's $231.2 million in capital expenditures in 1996, it is estimated that approximately $12 million was required to comply with environmental regulations. Including the effect of Minera Yanacocha, the Corporation estimates that approximately $25 million of the capital expenditures in 1997 will be required to comply with environmental regulations. The ongoing costs to comply with environmental regulations are not a significant portion of the Corporation's cash operating costs. Also in 1997, the Corporation expects to spend approximately $20 million on development of La Herradura, a 44% equity investment located in Mexico. The property will be developed by Minera Penmont S.A. de C.V., which is owned 56%-44% between Industriales Penoles S.A. de C.V. ("Penoles") and a subsidiary of NGC. The property is a low grade, open-pit deposit that is expected to begin heap-leach production in mid-1998. Penoles, as managing partner, has the responsibility for development and construction of this project. However, the Corporation will continue to provide technical expertise on an ongoing basis. Additionally in 1997, the acquisition of the incremental interest in Minera Yanacocha is expected to require the payment of approximately $59.1 million plus additional costs required to complete the acquisition. As previously mentioned, in January 1996, NMC issued 4.65 million shares of common stock for $51.87 per share under an existing "shelf" registration statement with the Securities and Exchange Commission. Proceeds of the issue netted $241.3 million and were used to purchase an equal number of shares of common stock of NGC. NGC used these proceeds to fund its operations. This transaction increased NMC's ownership of NGC to 90.5%. In addition, $24.2 million was received in 1996 from the exercise of employee stock options. Cash on hand at December 31, 1996 of $185.7 million, operating cash flow and short-term borrowings will be used to fund the Corporation's capital expenditures and other cash requirements in 1997 (other than Minera Yanacocha). The Corporation also has a $400 million unused revolving credit facility with a consortium of banks. Additionally, in June 1994, NGC filed a "shelf" registration statement with the Securities and Exchange Commission covering the issuance of up to $150 million in non-convertible debt securities. There are no present plans to use the revolving credit facility or issue any such securities. In addition, Minera Yanacocha intends to raise $100 million of project financing in 1997 to partially finance its 1997 capital spending program and for other general corporate purposes. As discussed in Note 16 of Item 8 -- "Financial Statements and Supplementary Data," in July 1996, NGC and Sumitomo entered into an agreement to develop and operate the Batu Hijau project in Indonesia. The estimated cost for development of the open-pit mine, mill and infrastructure including employee housing, a port, electrical generation facilities, interest during construction, cost escalations and working capital is expected to approximate $1.9 billion. Batu Hijau contains proven and probable reserves of 12.1 million ounces (5.4 million equity ounces to NGC) of gold and 10.6 billion pounds (4.8 billion equity pounds to NGC) of copper. Production is expected to begin around the turn of the century, with a projected mine life in excess of 20 years. Under the partnership agreement between Sumitomo and NGC, NGC will, at the outset, contribute to the partnership its interest in the company that owns the project and retain a 45% interest. Sumitomo will contribute, at the outset, approximately $165 million in cash and in the months immediately following the date of the initial contributions, an estimated additional $70 million in cash and receive a 35% interest. The remaining 20% interest in the project is held by an Indonesian company that has no cash requirements. The parties' obligations to make their initial contributions to the partnership are subject to certain conditions, including receipt of certain approvals from the Indonesian government. Until these conditions are satisfied, Sumitomo has agreed to fund up to $100 million of project costs through non-interest bearing loans which NGC has effectively guaranteed. Such funding will be credited against Sumitomo's initial contribution. If the 7 8 above conditions are not satisfied by March 31, 1997, either party has the right to terminate the agreement and the loans would become due. As a result of the contemplated ownership structure, the Corporation is accounting for its investment in Batu Hijau as an equity investment effective July 1996. The Corporation's investment at December 31, 1996, which is included in other long-term assets, was $46.6 million. At December 31, 1996, Sumitomo had loaned $20.2 million to the company that owns the project. Project financing for the Batu Hijau project of approximately $1 billion is being arranged. Such financing will be guaranteed until project completion by NGC and Sumitomo, 56.25% and 43.75%, respectively. NGC and Sumitomo are also expected to enter into certain support agreements related to such debt. The Corporation expects NGC to fund its share of remaining project costs through operating cash flow, bank credit lines or other third party financing as needed. Depending on financing arrangements, it is possible that no cash requirements will be necessary for NGC until 1998. Total project costs for 1997 are estimated to be approximately $400 million. Scheduled minimum long-term debt repayments are $19.3 million in 1997. The Corporation expects to fund maturities of its debt through operating cash flow and/or by refinancing the debt as it becomes due. For active mines, the Corporation provides for future reclamation and remediation costs on a unit-of-production basis. The annual accrual for costs associated with current operations has not been significant. The Corporation reviews the adequacy of its reclamation and remediation closure reserves in light of current laws and regulations and makes provisions as necessary. In addition, periodic internal environmental audits are conducted to evaluate environmental compliance. Cash flow from the Corporation's operations and salvage values are expected to provide funding for reclamation and remediation closure costs. The Corporation believes that its current operations are in compliance with applicable laws and regulations designed to protect the public health and environment. Current and non-current inventories (non-current inventories are included in other long-term assets) increased from December 31, 1995 to December 31, 1996 by $14.4 and $32.5 million, respectively. Of these increases, $23.4 million relates to Zarafshan-Newmont's commencement of operations and NGC acquiring ore stockpiles from its partners in 1996 to allow them to fund their capital contributions to the venture. In addition, $16.3 million is related to the commencement of operations at Minahasa. PROPOSED MERGER WITH SANTA FE PACIFIC GOLD CORPORATION As discussed in Note 17 of Item 8 -- "Financial Statements and Supplementary Data," NMC has entered into a merger agreement with Santa Fe Pacific Gold Corporation ("Santa Fe") under which each share of Santa Fe common stock will be exchanged for 0.43 of a share of NMC common stock. A condition of the merger is that it be accounted for as a pooling of interests. The merger is also subject to the approval of the shareholders of both companies and other customary conditions. It is expected to be consummated during the second quarter of 1997. If NMC is successful in acquiring Santa Fe, Santa Fe would become a wholly-owned subsidiary of NGC. NGC would issue shares of common stock to NMC equal to the number of shares NMC issues to acquire Santa Fe (estimated to be approximately 56.5 million). Santa Fe reported 1996 sales of $337.2 million, gold production of 851,600 ounces, total cash costs of $215 per ounce and net income of $21.1 million. Santa Fe also reported as of December 31, 1996 total assets of $1.3 billion, long-term debt of $454.9 million and net worth of $570.0 million. Costs associated with this transaction, estimated to be approximately $125 million, will be funded by the operating cash flow of each company and/or third party financing sources as required. FORWARD-LOOKING STATEMENTS The foregoing discussion and analysis, as well as certain of the notes to the consolidated financial statements, contain "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended. Such statements include, but are not limited to, (i) estimates of future gold production for specific operations and on a consolidated basis, (ii) estimates of future production costs, exploration expenditures 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 8 9 expectations as to the funding thereof, (iv) statements as to the projected development of certain ore deposits, including estimates of development and other capital costs, financing plans with respect thereto and expected production commencement dates, and (v) estimates of future costs and other liabilities for certain environmental matters. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the forward-looking statements. Future gold production could be affected by, among other things, the price of gold, risks and hazards associated with mining operations, variances in ore grade and metallurgical and other characteristics from assumptions contained in mining plans, labor disputes and acts of God. Future production costs, exploration expenditures and other expenses could be affected by a number of factors, including, but not limited to, unanticipated geological configurations or other geological or grade problems, metallurgical and other processing problems, the occurrence of inclement or hazardous weather conditions or other unusual operating conditions, the failure of equipment, processes or facilities to operate in accordance with specifications or expectations, labor disputes, accidents and changes in U.S. or foreign laws or regulations or the interpretation, enforcement or implementation thereof. The amount and timing of future capital expenditures could be influenced by a number of factors, including the timing of receipt of necessary permits and other governmental approvals, the failure of equipment, processes or facilities to operate in accordance with specifications and expectations, labor disputes and unanticipated changes in mine plans. The funding of such expenditures and other cash needs will be affected by the level of cash flow generated by the Corporation and the ability of the Corporation to otherwise finance such expenditures, which in turn could be affected by general U.S. and international economic and political conditions, political and economic conditions in the country in which the expenditure is being made, as well as financial market conditions. The development of certain ore deposits could be affected by, among other things, labor disputes, delays in the receipt of or failure to receive necessary governmental permits or approvals, changes in U.S. or foreign laws or regulations or the interpretation, enforcement or implementation thereof, the failure of any of the Corporation's joint venture partners to perform as agreed, unanticipated ground and water conditions, the failure of equipment, processes or facilities to operate in accordance with specifications or expectations, or delays in the receipt of or the ability to obtain any necessary financing. Future environmental costs and liabilities could be impacted by changes in U.S. or foreign laws or regulations or the interpretation, enforcement and implementation thereof, unanticipated ground and water conditions, the failure of equipment, processes or facilities to operate in accordance with specifications or expectations, delays in receiving necessary permits and other factors beyond the control of the Corporation. For a more detailed discussion of the foregoing risks and uncertainties as well as other risks and uncertainties affecting the Corporation and its operations, see Item 1 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 to be filed with the Securities and Exchange Commission. Many of these factors are beyond the Corporation's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. 9 -----END PRIVACY-ENHANCED MESSAGE-----