FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number: 001-31240

 

 

LOGO

NEWMONT MINING CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   84-1611629

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

6363 South Fiddler’s Green Circle

Greenwood Village, Colorado

  80111
(Address of Principal Executive Offices)   (Zip Code)

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

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act).    ¨  Yes    x  No

There were 491,247,996 shares of common stock outstanding on July 18, 2012 (and 4,914,758 exchangeable shares).

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  
PART I   

ITEM 1. FINANCIAL STATEMENTS

     1   

Condensed Consolidated Statements of Income

     1   

Condensed Consolidated Statements of Comprehensive Income

     2   

Condensed Consolidated Statements of Cash Flows

     3   

Condensed Consolidated Balance Sheets

     4   

Notes to Condensed Consolidated Financial Statements

     5   

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     44   

Overview

     44   

Selected Financial and Operating Results

     46   

Consolidated Financial Results

     47   

Results of Consolidated Operations

     53   

Liquidity and Capital Resources

     58   

Environmental

     61   

Accounting Developments

     61   

Non-GAAP Financial Measures

     62   

Safe Harbor Statement

     64   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     65   

ITEM 4. CONTROLS AND PROCEDURES

     67   
PART II   

ITEM 1. LEGAL PROCEEDINGS

     68   

ITEM 1A. RISK FACTORS

     68   

ITEM 2. ISSUER PURCHASES OF EQUITY SECURITIES

     68   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     68   

ITEM 4. MINE SAFETY DISCLOSURES

     68   

ITEM 5. OTHER INFORMATION

     69   

ITEM 6. EXHIBITS

     69   

SIGNATURES

     70   

EXHIBIT INDEX

     71   


Table of Contents

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in millions except per share)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Sales (Note 3)

   $ 2,229     $ 2,384     $ 4,912     $ 4,849  

Costs and expenses

        

Costs applicable to sales (1) (Note 3)

     1,002       917       2,019       1,857  

Amortization

     248       250       479       506  

Reclamation and remediation (Note 4)

     16       43       32       57  

Exploration 

     106       89       194       151  

Advanced projects, research and development

     82       86       184       154  

General and administrative 

     57       50       111       95  

Other expense, net (Note 5)

     126       87       246       160  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,637       1,522       3,265       2,980  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Other income, net (Note 6)

     36       48       69       79  

Interest expense, net 

     (71     (63     (123     (128
  

 

 

   

 

 

   

 

 

   

 

 

 
     (35     (15     (54     (49
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income and mining tax and other items

     557       847       1,593       1,820  

Income and mining tax expense (Note 9)

     (175     (187     (518     (492

Equity income (loss) of affiliates 

     (11     —          (30     2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations 

     371       660       1,045       1,330  

Loss from discontinued operations (Note 10)

     —          (136     (71     (136
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income 

     371       524       974       1,194  

Net income attributable to noncontrolling interests (Note 11)

     (92     (137     (205     (293
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Newmont stockholders 

   $ 279     $ 387     $ 769     $ 901  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Newmont stockholders:

        

Continuing operations 

   $ 279     $ 523     $ 840     $ 1,037  

Discontinued operations 

     —          (136     (71     (136
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 279     $ 387     $ 769     $ 901  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income per common share (Note 12)

        

Basic:

        

Continuing operations 

   $ 0.56     $ 1.06     $ 1.69     $ 2.10  

Discontinued operations 

     —          (0.28     (0.14     (0.28
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 0.56     $ 0.78     $ 1.55     $ 1.82  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Continuing operations 

   $ 0.56     $ 1.04     $ 1.67     $ 2.07  

Discontinued operations 

     —          (0.27     (0.14     (0.27
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 0.56     $ 0.77     $ 1.53     $ 1.80  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share 

   $ 0.35     $ 0.20     $ 0.70     $ 0.35  
        

 

(1) 

Excludes Amortization and Reclamation and remediation.

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

1


Table of Contents

NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Net income

   $ 371     $ 524     $ 974     $ 1,194  

Other comprehensive income (loss):

        

Unrealized loss on marketable securities, net of $18, $108, $(5) and $80 tax benefit and (expense), respectively

     (273     (243     (313     (75

Foreign currency translation adjustments

     (10     38       —          127  

Change in pension and other post-retirement benefits, net of $2, $2, $4 and $3 tax expense, respectively

     4       4       8       8  

Change in fair value of cash flow hedge instruments, net of $8, $163, $(18) and $152 tax benefit and (expense), respectively

        

Net change from periodic revaluations

     4       162       73       217  

Net amount reclassified to income

     (24     (39     (59     (72
  

 

 

   

 

 

   

 

 

   

 

 

 

Net unrecognized gain (loss) on derivatives

     (20     123       14       145  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (299     (78     (291     205  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 72     $ 446     $ 683     $ 1,399  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to:

        

Newmont stockholders

   $ (18   $ 308     $ 478     $ 1,103  

Noncontrolling interests

     90       138       205       296  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 72     $ 446     $ 683     $ 1,399  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

 

     Six Months Ended
June 30,
 
     2012     2011  

Operating activities:

    

Net income

   $ 974     $ 1,194  

Adjustments:

    

Amortization

     479       506  

Loss from discontinued operations

     71       136  

Reclamation and remediation

     32       57  

Deferred income taxes

     12       (38

Stock based compensation and other non-cash benefits

     36       44  

Impairment of marketable securities

     32       1  

Gain on asset sales, net

     (10     (53

Other operating adjustments and write-downs

     106       96  

Net change in operating assets and liabilities (Note 23)

     (768     (540
  

 

 

   

 

 

 

Net cash provided from continuing operations

     964       1,403  

Net cash used in discontinued operations

     (8     (2
  

 

 

   

 

 

 

Net cash provided from operations

     956       1,401  
  

 

 

   

 

 

 

Investing activities:

    

Additions to property, plant and mine development

     (1,578     (1,020

Sale of marketable securities

     106       55  

Purchases of marketable securities

     (196     (15

Acquisitions, net

     (22     (2,291

Proceeds from sale of other assets

     13       6  

Other

     (37     (15
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,714     (3,280
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from debt, net

     3,343       775  

Repayment of debt

     (1,941     (973

Payment of conversion premium on debt

     (172     —     

Dividends paid to common stockholders

     (347     (173

Dividends paid to noncontrolling interests

     (3     (17

Proceeds from stock issuance, net

     15       8  

Other

     (1     —     
  

 

 

   

 

 

 

Net cash provided from (used in) financing activities

     894       (380
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     1       58  
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     137       (2,201

Cash and cash equivalents at beginning of period

     1,760       4,056  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,897     $ 1,855  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3


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NEWMONT MINING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions)

 

     At June  30,
2012
     At December  31,
2011
 
ASSETS      

Cash and cash equivalents

   $ 1,897      $ 1,760  

Trade receivables

     290        300  

Accounts receivable

     359        320  

Investments (Note 17)

     132        94  

Inventories (Note 18)

     803        714  

Stockpiles and ore on leach pads (Note 19)

     798        671  

Deferred income tax assets

     255        396  

Other current assets (Note 20)

     738        1,133  
  

 

 

    

 

 

 

Current assets

     5,272        5,388  

Property, plant and mine development, net

     16,936        15,881  

Investments (Note 17)

     1,185        1,472  

Stockpiles and ore on leach pads (Note 19)

     2,579        2,271  

Deferred income tax assets

     1,686        1,605  

Other long-term assets (Note 20)

     1,002        857  
  

 

 

    

 

 

 

Total assets

   $ 28,660      $ 27,474  
  

 

 

    

 

 

 
LIABILITIES      

Debt (Note 21)

   $ 40      $ 689  

Accounts payable

     574        561  

Employee-related benefits

     293        307  

Income and mining taxes

     173        250  

Other current liabilities (Note 22)

     1,287        2,133  
  

 

 

    

 

 

 

Current liabilities

     2,367        3,940  

Debt (Note 21)

     6,088        3,624  

Reclamation and remediation liabilities (Note 4)

     1,270        1,169  

Deferred income tax liabilities

     2,056        2,147  

Employee-related benefits

     487        459  

Other long-term liabilities (Note 22)

     403        364  
  

 

 

    

 

 

 

Total liabilities

     12,671        11,703  
  

 

 

    

 

 

 

Commitments and contingencies (Note 26)

     
EQUITY      

Common stock

     786        784  

Additional paid-in capital

     8,291        8,408  

Accumulated other comprehensive income

     361        652  

Retained earnings

     3,474        3,052  
  

 

 

    

 

 

 

Newmont stockholders’ equity

     12,912        12,896  

Noncontrolling interests

     3,077        2,875  
  

 

 

    

 

 

 

Total equity

     15,989        15,771  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 28,660      $ 27,474  
  

 

 

    

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

NOTE 1 BASIS OF PRESENTATION

The interim Condensed Consolidated Financial Statements (“interim statements”) of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont” or the “Company”) are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with Newmont’s Consolidated Financial Statements for the year ended December 31, 2011 filed February 24, 2012 on Form 10-K. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by United States generally accepted accounting principles (“GAAP”) have been condensed or omitted.

References to “A$” refer to Australian currency, “C$” to Canadian currency, “NZ$” to New Zealand currency and “$” to United States currency.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

Goodwill Impairment

In September 2011, ASC guidance was issued related to goodwill impairment. Under the updated guidance, an entity will have the option to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If the Company believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The update does not change how the Company performs the two-step impairment test under previous guidance. The Company’s January 1, 2012 adoption of the guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

Fair Value Accounting

In May 2011, ASC guidance was issued related to disclosures around fair value accounting. The updated guidance clarifies different components of fair value accounting including the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and disclosing quantitative information about the unobservable inputs used in fair value measurements that are categorized in Level 3 of the fair value hierarchy. The Company’s January 1, 2012 adoption of the updated guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 3 SEGMENT INFORMATION

 

      Sales     Costs
Applicable to
Sales
    Amortization     Advanced
Projects  and
Exploration
    Pre-Tax
Income  (Loss)
 

Three Months Ended June 30, 2012

          

Nevada

   $ 571      $ 258      $ 47      $ 43      $ 217   

La Herradura

     93        33        6        11        46   

Other North America

     —          —          —          1        (54 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     664        291        53        55        209   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     614        177        62        18        333   

Conga

     —          —          —          12        (12 )  

Other South America

     —          —          —          19        (19 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     614        177        62        49        302   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

          

Gold

     264        157        49        NA        NA   

Copper

     42        38        12        NA        NA   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     306        195        61        2        37   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Batu Hijau:

          

Gold

     18        11        3        NA        NA   

Copper

     88        70        14        NA        NA   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     106        81        17        7        (16 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Australia/New Zealand

     331        182        33        18        101   

Other Asia Pacific

     —          —          2        4        (9 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     743        458        113        31        113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     208        76        16        11        100   

Akyem

     —          —          —          5        (5 )  

Other Africa

     —          —          —          3        (2 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     208        76        16        19        93   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          4        34        (160
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 2,229      $ 1,002      $ 248      $ 188      $ 557   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

           Costs           Advanced        
           Applicable to           Projects and     Pre-Tax  
     Sales     Sales     Amortization     Exploration     Income (Loss)  

Three Months Ended June 30, 2011

          

Nevada

   $ 529      $ 224      $ 56      $ 38      $ 195   

La Herradura

     81        27        5        3        44   

Other North America

     —          —          4        53        (8 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     610        251        65        94        231   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     524        190        66        11        232   

Conga

     —          —          1        7        (7 )  

Other South America

     —          —          —          7        (9 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     524        190        67        25        216   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

          

Gold

     269        117        31        N/A        N/A   

Copper

     54        27        7        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     323        144        38        2        140   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Batu Hijau:

          

Gold

     92        30        7        N/A        N/A   

Copper

     242        79        18        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     334        109        25        1        186   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Australia/New Zealand

     375        158        31        10        168   

Other Asia Pacific

     —          —          —          5        (34 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     1,032        411        94        18        460   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     218        65        20        8        119   

Akyem

     —          —          —          1        (1 )  

Other Africa

     —          —          —          3        (5 )  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     218        65        20        12        113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          4        26        (173
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 2,384      $ 917      $ 250      $ 175      $ 847   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     Sales     Costs
Applicable to
Sales
    Amortization     Advanced
Projects  and
Exploration
    Pre-Tax
Income
(Loss)
    Total
Assets
    Capital
Expenditures(1)
 

Six Months Ended June 30, 2012

              

Nevada

   $ 1,294      $ 525      $ 100      $ 77      $ 586      $ 7,280      $ 370   

La Herradura

     186        65        11        17        91        353        29   

Other North America

     —          —          —          1        (106 )       199        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     1,480        590        111        95        571        7,832        399   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     1,208        338        112        35        682        2,775        243   

Conga

     —          —          —          39        (39 )       1,462        342   

Other South America

     —          —          —          44        (44 )       44        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     1,208        338        112        118        599        4,281        585   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

              

Gold

     562        294        81        N/A        N/A        N/A        N/A   

Copper

     103        68        18        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     665        362        99        5        180        4,640        52   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Batu Hijau:

              

Gold

     52        30        6        N/A        N/A        N/A        N/A   

Copper

     260        155        30        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     312        185        36        14        32        3,651        61   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Australia/New Zealand

     758        372        69        33        280        1,348        137   

Other Asia Pacific

     —          —          3        10        (4 )       606        8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     1,735        919        207        62        488        10,245        258   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     489        172        40        22        250        1,328        108   

Akyem

     —          —          —          9        (10 )       750        189   

Other Africa

     —          —          —          5        (4 )       9        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     489        172        40        36        236        2,087        297   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          9        67        (301 )       4,215        37   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 4,912      $ 2,019      $ 479      $ 378      $ 1,593      $ 28,660      $ 1,576   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes a decrease in accrued capital expenditures of $2; consolidated capital expenditures on a cash basis were $1,578.

 

8


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     Sales     Costs
Applicable
to Sales
    Amortization     Advanced
Projects  and
Exploration
    Pre-Tax
Income
(Loss)
    Total
Assets
    Capital
Expenditures(1)
 

Six Months Ended June 30, 2011

              

Nevada

   $ 1,111      $ 496      $ 128      $ 55      $ 411      $ 6,797      $ 228   

La Herradura

     146        45        9        9        80        260        41   

Other North America

     —          —          7        97        (58 )       2,294        27   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

North America

     1,257        541        144        161        433        9,351        296   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Yanacocha

     886        343        119        17        381        2,634        127   

Conga

     —          —          1        10        (11 )       562        251   

Other South America

     —          —          —          14        (15 )       37        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

South America

     886        343        120        41        355        3,233        378   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boddington:

              

Gold

     501        217        59        N/A        N/A        N/A        N/A   

Copper

     107        55        14        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     608        272        73        3        244        4,419        75   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Batu Hijau:

              

Gold

     232        64        14        N/A        N/A        N/A        N/A   

Copper

     611        168        38        N/A        N/A        N/A        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     843        232        52        1        509        3,513        88   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Australia/New Zealand

     790        324        66        22        365        1,124        134   

Other Asia Pacific

     —          —          1        6        (34 )       625        4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

     2,241        828        192        32        1,084        9,681        301   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ahafo

     465        145        42        15        255        1,037        37   

Akyem

     —          —          —          2        (2 )       351        67   

Other Africa

     —          —          —          3        (6 )       6        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

     465        145        42        20        247        1,394        104   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

     —          —          8        51        (299 )       4,979        18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 4,849      $ 1,857      $ 506      $ 305      $ 1,820      $ 28,638      $ 1,097   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes an increase in accrued capital expenditures of $77; consolidated capital expenditures on a cash basis were $1,020.

 

9


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 4 RECLAMATION AND REMEDIATION

At June 30, 2012 and December 31, 2011, $1,145 and $1,070, respectively, were accrued for reclamation obligations relating to mineral properties. In addition, the Company is involved in several matters concerning environmental obligations associated with former, primarily historic, mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. At June 30, 2012 and December 31, 2011, $191 and $170, respectively, were accrued for such obligations. These amounts are also included in Reclamation and remediation liabilities.

The following is a reconciliation of Reclamation and remediation liabilities:

 

     Six Months Ended June 30,  
     2012     2011  

Balance at beginning of period

   $ 1,240     $ 1,048  

Additions, changes in estimates and other

     105       32  

Liabilities settled

     (41     (15

Accretion expense

     32       29  
  

 

 

   

 

 

 

Balance at end of period

   $ 1,336     $ 1,094  
  

 

 

   

 

 

 

The current portion of Reclamation and remediation liabilities of $66 and $71 at June 30, 2012 and December 31, 2011, respectively, are included in Other current liabilities (see Note 22).

The Company’s reclamation and remediation expenses consisted of:

 

      Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Reclamation

   $ —         $ 28      $ —         $ 28  

Accretion - operating 

     13        13        27        25  

Accretion - non-operating

     3        2        5        4  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 16      $ 43      $ 32      $ 57  
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 5 OTHER EXPENSE, NET

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Hope Bay care and maintenance

   $ 52      $ —         $ 102      $ —     

Community development

     20        23        51        40  

Regional administration

     29        21        50        37  

Acquisiton costs

     12        20        12        21  

Western Australia power plant

     4        5        8        9  

Indonesian value added tax settlement

     —           —           —           21  

Other

     9        18        23        32  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 126      $ 87      $ 246      $ 160  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 6 OTHER INCOME, NET

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Income (loss) from developing projects, net

   $ 19     $ (4   $ 33     $ 20  

Reduction of allowance for loan receivable

     —          —          21       —     

Canadian Oil Sands

     11       10       20       16  

Gain on asset sales, net

     —          —          10       3  

Refinery income, net

     2       —          7       —     

Interest

     2       2       7       6  

Gain on sale of investments, net

     —          50       —          50  

Foreign currency exchange, net

     12       (18     (3     (29

Impairment of marketable securities

     (8     (1     (32     (1

Other 

     (2     9       6       14  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 36     $ 48     $ 69     $ 79  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 7 EMPLOYEE PENSION AND OTHER BENEFIT PLANS

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Pension benefit costs, net

        

Service cost

   $ 8     $ 6     $ 15     $ 12  

Interest cost

     11       10       21       20  

Expected return on plan assets

     (11     (11     (22     (21

Amortization

     8       7       14       12  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 16     $ 12     $ 28     $ 23  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Other benefit costs, net

        

Service cost

   $ —        $ —        $ 1     $ 1  

Interest cost

     2       1       3       2  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2     $ 1     $ 4     $ 3  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 8 STOCK BASED COMPENSATION

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Stock options

   $ 3      $ 7      $ 7      $ 10  

Restricted stock units

     6        11        11        21  

Performance leveraged stock units

     3        1        6        3  

Strategic stock units

     1        —           1        —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 13      $ 19      $ 25      $ 34  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 9 INCOME AND MINING TAXES

During the second quarter of 2012, the Company recorded estimated income and mining tax expense of $175 resulting in an effective tax rate of 32%. Estimated income and mining tax expense during the second quarter of 2011 was $187 for an effective tax rate of 22%. During the first half of 2012, estimated income and mining tax expense was $518 resulting in an effective tax rate of 33%. Estimated income and mining tax expense during the first half of 2011 was $492 for an effective tax rate of 27%. The higher effective tax rate in the second quarter and first half of 2012 is a result of the following: (i) valuation allowances recorded on our Canadian deferred tax assets generated in 2012 due to care and maintenance expenditures at Hope Bay, (ii) an increase in mining taxes included in Income and mining tax expense, primarily related to Nevada and Peru, and (iii) a $65 non-recurring tax benefit in the second quarter and first half of 2011, recorded in connection with the conversion of non-U.S. tax-paying entities to entities currently subject to U.S. income tax which resulted in an increase in net deferred tax assets.

The Company operates in numerous countries around the world and accordingly it is subject to, and pays annual income taxes under, the various income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual agreements with the local government, and others are defined by the general corporate income tax laws of the country. The Company has historically filed, and continues to file, all required income tax returns and pay the income taxes reasonably determined to be due. The tax rules and regulations in many countries are highly complex and subject to interpretation. From time to time the Company is subject to a review of its historic income tax filings and in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain rules to the Company’s business conducted within the country involved.

At June 30, 2012, the Company’s total unrecognized tax benefit was $245 for uncertain income tax positions taken or expected to be taken on income tax returns. Of this, $28 represents the amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate.

As a result of the statute of limitations that expire in the next 12 months in various jurisdictions, and possible settlements of audit-related issues with taxing authorities in various jurisdictions with respect to which none of the issues are individually significant, the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax benefits will decrease by approximately $20 to $25 in the next 12 months.

The Company’s income and mining tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  

Income before income and mining tax and other items

     $ 557        $ 847        $ 1,593        $ 1,820   
    

 

 

     

 

 

     

 

 

     

 

 

 

Tax on income at statutory rate

     35     195        35     296        35     558        35     637   

Reconciling items:

                

Tax benefit generated on change in form of a non-U.S. subsidiary

       —          (8 )%      (65       —          (4 )%      (65

Percentage depletion

     (6 )%      (34     (7 )%      (56     (7 )%      (108     (6 )%      (111

Change in valuation allowance on deferred tax assets

     2     13          —          3     46          —     

Other

     1     1        2     12        2     22        2     31   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income and mining tax expense

     32   $ 175        22   $ 187        33   $ 518        27   $ 492   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 10 DISCONTINUED OPERATIONS

Discontinued operations include Holloway Mining Company, which owned the Holt-McDermott property (“Holt property”) and was sold to St. Andrew Goldfields Ltd. (“St. Andrew”) in 2006. In 2009, the Superior Court issued a decision finding Newmont Canada Corporation (“Newmont Canada”) liable for a sliding scale royalty on production from the Holt property, which was upheld in 2011 by the Ontario Court of Appeal. During the first half of 2012, the Company recorded an additional $71 charge, net of tax benefits of $4, to reflect an increase in future expected production at the Holt property due to new reserve and resource estimates published by St. Andrew and a higher gold price.

Net operating cash used in discontinued operations of $8 in the first half of 2012 relates to payments on the Holt property royalty.

NOTE 11 NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012     2011      2012      2011  

Yanacocha

   $ 97     $ 72      $ 195      $ 126  

Batu Hijau

     (5     64        8        166  

Other

     —          1        2        1  
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 92     $ 137      $ 205      $ 293  
  

 

 

   

 

 

    

 

 

    

 

 

 

At June 30, 2012, Newmont had a 48.5% effective economic interest in PT Newmont Nusa Tenggara (“PTNNT”). PTNNT operates the Batu Hijau copper and gold mine in Indonesia. Based on ASC guidance for variable interest entities, Newmont consolidates PTNNT in its Condensed Consolidated Financial Statements.

Newmont has a 51.35% ownership interest in Minera Yanacocha S.R.L. (“Yanacocha”), with the remaining interests held by Compañia de Minas Buenaventura, S.A.A. (43.65%) and the International Finance Corporation (5%).

 

13


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 12 INCOME PER COMMON SHARE

Basic income per common share is computed by dividing income available to Newmont common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is computed similarly to basic income per common share except that weighted average common shares is increased to include the potential issuance of dilutive common shares.

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012      2011     2012     2011  

Net income attributable to Newmont stockholders

         

Continuing operations

   $ 279      $ 523     $ 840     $ 1,037  

Discontinued operations

     —           (136     (71     (136
  

 

 

    

 

 

   

 

 

   

 

 

 
   $ 279      $ 387     $ 769     $ 901  
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average common shares:

         

Basic

     496        494       496       494  

Effect of employee stock-based awards

     1        1       1       1  

Effect of convertible notes

     1        6       5       6  
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

     498        501       502       501  
  

 

 

    

 

 

   

 

 

   

 

 

 

Income per common share

         

Basic:

         

Continuing operations

   $ 0.56      $ 1.06     $ 1.69     $ 2.10  

Discontinued operations

     —           (0.28     (0.14     (0.28
  

 

 

    

 

 

   

 

 

   

 

 

 
   $ 0.56      $ 0.78     $ 1.55     $ 1.82  
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted:

         

Continuing operations

   $ 0.56      $ 1.04     $ 1.67     $ 2.07  

Discontinued operations

     —           (0.27     (0.14     (0.27
  

 

 

    

 

 

   

 

 

   

 

 

 
   $ 0.56      $ 0.77     $ 1.53     $ 1.80  
  

 

 

    

 

 

   

 

 

   

 

 

 

Options to purchase 2 and 3 million shares of common stock at average exercise prices of $58 and $57 were outstanding at June 30, 2012 and 2011, respectively, but were not included in the computation of diluted weighted average common shares because their effect would have been anti-dilutive.

Under its convertible note indentures, Newmont is required to settle the principal amount of its 2014 and 2017 Convertible Senior Notes in cash and may elect to settle the remaining conversion premium (Newmont average share price in excess of the conversion price), if any, in cash, shares or a combination thereof. The effect of contingently convertible instruments on diluted earnings per share is calculated under the net share settlement method in accordance with ASC guidance. The average price of the Company’s common stock exceeded the conversion prices for all periods presented, resulting in additional shares included in the computation of diluted weighted average common shares.

In February 2012, the holders of the Company’s 2012 Convertible Senior Notes exercised their election to convert the notes. The Company elected to pay the $172 conversion premium with cash, and as a result no common shares were issued.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 13 CHANGES IN EQUITY

 

     Six Months Ended June 30,  
     2012     2011  

Common stock:

    

At beginning of period

   $ 784     $ 778  

Stock based awards

     2       2  
  

 

 

   

 

 

 

At end of period

     786       780  
  

 

 

   

 

 

 

Additional paid-in capital:

    

At beginning of period

     8,408       8,279  

Stock based awards

     55       52  

Conversion premium on convertible notes

     (172     —     

Shares issued in exchange for exchangeable shares

     —          (1
  

 

 

   

 

 

 

At end of period

     8,291       8,330  
  

 

 

   

 

 

 

Accumulated other comprehensive income:

    

At beginning of period

     652       1,108  

Other comprehensive income

     (291     202  
  

 

 

   

 

 

 

At end of period

     361       1,310  
  

 

 

   

 

 

 

Retained earnings:

    

At beginning of period

     3,052       3,180  

Net income attributable to Newmont stockholders

     769       901  

Dividends paid

     (347     (173
  

 

 

   

 

 

 

At end of period

     3,474       3,908  
  

 

 

   

 

 

 

Noncontrolling interests:

    

At beginning of period

     2,875       2,371  

Net income attributable to noncontrolling interests

     205       293  

Dividends paid

     (3     (2

Other comprehensive income

     —          3  
  

 

 

   

 

 

 

At end of period

     3,077       2,665  
  

 

 

   

 

 

 

Total equity

   $ 15,989     $ 16,993  
  

 

 

   

 

 

 

 

15


Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 14 ACQUISITIONS

On April 6, 2011, Newmont completed the acquisition of Fronteer Gold, Inc. (“Fronteer”). Under the Arrangement, shareholders of Fronteer received C$14.00 in cash and one-fourth common share in Pilot Gold, which retained certain exploration assets of Fronteer, for each common share of Fronteer. In connection with the acquisition, Newmont incurred transaction costs of $21, which were recorded in Other Expense, net in the first half of 2011.

On June 25, 2009 the Company completed the acquisition of the remaining 33.33% interest in Boddington from AngloGold Ashanti Australia Limited (“AngloGold”), with a transaction that included maximum contingent consideration of $100, based on an operating margin royalty. Since the completion of the acquisition, the Company has accrued the maximum royalty, of which $12 was accrued in the current quarter.

NOTE 15 FAIR VALUE ACCOUNTING

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

  Level 1   Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
  Level 2   Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
  Level 3   Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     Fair Value at June 30, 2012  
     Total      Level 1      Level 2      Level 3  

Assets:

           

Cash equivalents

   $ 503      $ 503      $ —         $ —     

Marketable equity securities:

           

Extractive industries

     1,110        1,110        —           —     

Other

     10        10        —           —     

Marketable debt securities:

           

Asset backed commercial paper

     19        —           —           19  

Corporate

     98        —           98        —     

Auction rate securities

     5        —           —           5  

Trade receivable from provisional copper and gold concentrate sales, net

     179        179        —           —     

Derivative instruments, net:

           

Foreign exchange forward contracts

     223        —           223        —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,147      $ 1,802      $ 321      $ 24  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Diesel forward contracts

     8        —           8        —     

Boddington contingent consideration

     44        —           —           44  

Holt property royalty

     243        —           —           243  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 295      $ —         $ 8      $ 287  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s cash equivalent instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash equivalent instruments that are valued based on quoted market prices in active markets are primarily money market securities and U.S. Treasury securities.

The Company’s marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The securities are segregated based on industry. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

The Company’s corporate marketable debt securities are valued using quoted market prices in non-active markets and as such are classified within Level 2 of the fair value hierarchy. The Company’s marketable debt securities include investments in auction rate securities and asset backed commercial paper. The Company reviews the fair value for auction rate securities and asset backed commercial paper on a quarterly basis. The auction rate securities are traded in markets that are not active, trade infrequently and have little price transparency. The Company estimated the fair value of the auction rate securities based on weighted average risk calculations using cash flow assumptions discounted approximately 42%, which reflects an estimated discount for lack of marketability. The Company estimated the fair value of its asset backed commercial paper using a probability of return ranging from 13%-74% for each class of notes, which is reflective of information reviewed regarding the separate classes of securities. As a result of utilizing the unobservable inputs noted above in its fair value estimation of the Company’s auction rate securities and asset backed commercial paper, both fair value estimates are classified within Level 3 of the fair value hierarchy.

The Company’s net trade receivable from provisional copper and gold concentrate sales, subject to final pricing, is valued using quoted market prices based on forward curves and, as such, is classified within Level 1 of the fair value hierarchy.

The Company’s derivative instruments are valued using pricing models and the Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility, and correlations of such inputs. The Company’s derivatives trade in liquid markets, and as such, model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

The estimated value of the Boddington contingent royalty was determined using a Monte Carlo valuation model which simulates future gold and copper prices and costs applicable to sales. This contingent royalty is capped at $100, and at June 30, 2012, the Company has accrued the maximum of $100. At June 30, 2012 the Company used the following long-term price assumptions: 1) $1,500 per ounce gold price, 2) $3.50 per pound copper price, 3) $90 per barrel of oil, and 4) a $1.00 A$/US$ exchange rate. The Company used an approximate 4% discount rate in the model. The contingent royalty liability is classified within Level 3 of the fair value hierarchy.

The estimated fair value of the Holt sliding scale royalty was determined using a Monte Carlo valuation model to simulate future gold prices utilizing a long-term gold price assumption of $1,500 per ounce, various gold production scenarios based on publicly available reserve and resource information for the Holt property and an approximate 4% weighted average discount rate. The sliding scale royalty liability is classified within Level 3 of the fair value hierarchy.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial assets and liabilities for the six months ended June 30, 2012:

 

     Auction  Rate
Securities
     Asset  Backed
Commercial
Paper
     Total Assets      Boddington
Contingent
Royalty
    Holt  Property
Royalty
    Total
Liabilities
 

Balance at beginning of period

   $ 5      $ 19      $ 24      $ 54     $ 176     $ 230  

Settlements

     —           —           —           (22     (8     (30

Revaluation

     —           —           —           12       75       87  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 5      $ 19      $ 24      $ 44     $ 243     $ 287  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

At June 30, 2012, assets and liabilities classified within Level 3 of the fair value hierarchy represent 1% and 97%, respectively, of total assets and liabilities measured at fair value.

NOTE 16 DERIVATIVE INSTRUMENTS

The Company’s strategy is to provide shareholders with leverage to changes in gold and copper prices by selling its production at spot market prices. Consequently, the Company does not hedge its gold and copper sales. The Company continues to manage certain risks associated with commodity input costs, interest rates and foreign currencies using the derivative market. All of the derivative instruments described below were transacted for risk management purposes and qualify as cash flow or fair value hedges.

Cash Flow Hedges

The foreign currency, diesel and forward starting swap contracts are designated as cash flow hedges, and as such, the effective portion of unrealized changes in market value have been recorded in Accumulated other comprehensive income and are reclassified to income during the period in which the hedged transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings.

Foreign Currency Contracts

Newmont utilizes foreign currency contracts to reduce the variability of the US dollar amount of forecasted foreign currency expenditures caused by changes in exchange rates. Newmont hedges a portion of the Company’s A$ and NZ$ denominated operating expenditures which results in a blended rate realized each period. The hedging instruments are fixed forward contracts with expiration dates ranging up to five years from the date of issue. The principal hedging objective is reduction in the volatility of realized period-on-period $/A$ and $/NZ$ rates, respectively.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

In June 2011, Newmont began hedging a portion of the Company’s A$ denominated capital expenditures related to the construction of the Akyem project in Africa utilizing foreign currency contracts. The hedging instruments are fixed forward contracts with expiration dates ranging up to two years.

In July 2011, Newmont began hedging a portion of the Company’s A$ denominated capital expenditures related to the construction of a mine shaft at Tanami in Australia utilizing foreign currency contracts. The hedging instruments are fixed forward contracts with expiration dates ranging up to three years.

Newmont had the following foreign currency derivative contracts outstanding at June 30, 2012:

 

     Expected Maturity Date  
     2012     2013     2014     2015     2016     2017     Total/
Average
 

A$ Operating Fixed Forward Contracts:

              

A$ notional (millions)

     641        1,048        762        471        244        28        3,194   

Average rate ($/A$)

     0.93        0.93        0.90        0.89        0.90        0.88        0.91   

Expected hedge ratio

     78     68     50     33     17     4  

A$ Capital Fixed Forward Contracts:

              

A$ notional (millions)

     27        51        22        —          —          —          100   

Average rate ($/A$)

     1.00        0.98        0.96        —          —          —          0.98   

Expected hedge ratio

     37     28     40     —          —          —       

NZ$ Operating Fixed Forward Contracts:

              

NZ$ notional (millions)

     41        37        4        —          —          —          82   

Average rate ($/NZ$)

     0.78        0.78        0.78        —          —          —          0.78   

Expected hedge ratio

     60     29     8     —          —          —       

Diesel Fixed Forward Contracts

Newmont hedges a portion of its operating cost exposure related to diesel consumed at its Nevada operations to reduce the variability in realized diesel prices. The hedging instruments consist of a series of financially settled fixed forward contracts with expiration dates ranging up to three years from the date of issue.

Newmont had the following diesel derivative contracts outstanding at June 30, 2012:

 

     Expected Maturity Date  
     2012     2013     2014     2015     Total/
Average
 

Diesel Fixed Forward Contracts:

          

Diesel gallons (millions)

     16        22        10        1        49   

Average rate ($/gallon)

     2.91        2.92        2.88        2.85        2.91   

Expected hedge ratio

     71     50     24     8  

Forward Starting Swap Contracts

During 2011, Newmont entered into forward starting interest rate swap contracts with a total notional value of $2,000. These contracts hedged movements in treasury rates related to a debt issuance that occurred in the first quarter of 2012. On March 8, 2012, Newmont closed its sale of $2,500 senior notes consisting of 3.5% senior notes due 2022 in the principal amount of $1,500 (10-year notes), and 4.875% senior notes due 2042 in the principal amount of $1,000 (30-year notes). As a result, the forward-starting interest rate swaps were settled for $362, of which $349 represented the effective portion of the hedging instrument included in Accumulated other comprehensive income. The net proceeds from the debt issuance were adjusted by the settlement amount of the swap contracts and included as a financing activity in the Condensed Consolidated Statements of Cash Flow.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

Fair Value Hedges

Interest Rate Swap Contracts

Newmont had $222 fixed to floating swap contracts designated as a hedge against 8 5/8% debentures which matured in May 2011.

Derivative Instrument Fair Values

Newmont had the following derivative instruments designated as hedges at June 30, 2012 and December 31, 2011:

 

     Fair Value  
     At June 30, 2012  
     Other
Current
Assets
     Other Long-
Term Assets
     Other
Current
Liabilities
     Other Long-
Term
Liabilities
 

Foreign currency exchange contracts:

           

A$ operating fixed forwards

   $ 102      $ 121      $ 2      $ 1  

A$ capital fixed forwards

     1        1        —           —     

NZ$ operating fixed forwards

     1        —           —           —     

Diesel fixed forwards

     1        —           6        3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments (Note 20 and 22)

   $ 105      $ 122      $ 8      $ 4  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value  
     At December 31, 2011  
     Other
Current
Assets
     Other Long-
Term Assets
     Other
Current
Liabilities
     Other Long-
Term
Liabilities
 

Foreign currency exchange contracts:

           

A$ operating fixed forwards

   $ 121        112        6        4  

A$ capital fixed forwards

     —           —           —           1  

NZ$ operating fixed forwards

     2        —           1        —     

Diesel fixed forwards

     4        —           2        1  

Forward starting interest rate swaps

     —           —           399        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments (Note 20 and 22)

   $ 127      $ 112      $ 408      $ 6  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

The following tables show the location and amount of gains (losses) reported in the Company’s Condensed Consolidated Financial Statements related to the Company’s cash flow and fair value hedges and the gains (losses) recorded for the hedged item related to the fair value hedges.

 

     Foreign Currency
Exchange  Contracts
     Diesel Forward Contracts     Forward Starting  Swap
Contracts
 
     2012      2011      2012     2011     2012     2011  

For the three months ended June 30,

              

Cash flow hedging relationships:

              

Gain (loss) recognized in other comprehensive income (effective portion) 

   $ 23      $ 126      $ (16   $ (5   $ —        $ —     

Gain (loss) reclassified from Accumulated other comprehensive income into income (effective portion) (1) 

     38        49        1       5       (3     —     

For the six months ended June 30,

              

Cash flow hedging relationships:

              

Gain (loss) recognized in other comprehensive income (effective portion) 

   $ 85      $ 193      $ (4   $ 10     $ 36     $ —     

Gain(loss) reclassified from Accumulated other comprehensive income into income (effective portion) (1) 

     85        91        4       9       (4     —     

Gain reclassified from Accumulated other comprehensive income into income (ineffective portion) (2) 

     —           —           —          —          2       —     

 

(1) 

The gain (loss) for the effective portion of the foreign exchange and diesel cash flow hedges reclassified from Accumulated other comprehensive income is included in Costs applicable to sales. The loss for the effective portion of the forward starting swaps reclassified from Accumulated other comprehensive income is included in Interest Expense.

(2) 

The ineffective portion recognized for cash flow hedges is included in Other Income, net.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     Interest Rate
Swap Contracts
    8 5/8% Debentures
(Hedged Portion)
 
     2012      2011     2012      2011  

For the three months ended June 30,

          

Fair value hedging relationships:

          

Gain (loss) recognized in income (effective portion) (1) 

   $ —         $ 1     $ —         $ (1

(Loss) recognized in income (ineffective portion) (2) 

     —           (1     —           —     

For the six months ended June 30,

          

Fair value hedging relationships:

          

Gain (loss) recognized in income (effective portion) (1) 

   $ —         $ 3     $ —         $ (6

(Loss) recognized in income (ineffective portion) (2) 

     —           (2     —           —     

 

(1)

The gain (loss) recognized for the effective portion of fair value hedges and the underlying hedged debt is included in Interest expense, net.

(2) 

The ineffective portion recognized for fair value hedges and the underlying hedged debt is included in Other income, net.

The amount to be reclassified from Accumulated other comprehensive income, net of tax to income for derivative instruments during the next 12 months is a gain of approximately $49.

Provisional Copper and Gold Sales

The Company’s provisional copper and gold sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the gold and copper concentrates at the prevailing indices’ prices at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to final settlement.

London Metal Exchange (“LME”) copper prices averaged $3.57 per pound during the three months ended June 30, 2012, compared with the Company’s recorded average provisional price of $3.52 per pound before mark-to-market adjustments and treatment and refining charges. LME copper prices averaged $3.67 per pound during the six months ended June 30, 2012, compared with the Company’s recorded average provisional price of $3.65 per pound before mark-to-market adjustments and treatment and refining charges. During the three and six months ended June 30, 2012, changes in copper prices resulted in a provisional pricing mark-to-market loss of $18 ($0.40 per pound) and gain of $13 ($0.12 per pound), respectively. At June 30, 2012, Newmont had copper sales of 40 million pounds priced at an average of $3.44 per pound, subject to final pricing over the next several months.

The average London P.M. fix for gold was $1,609 per ounce during the three months ended June 30, 2012, compared with the Company’s recorded average provisional price of $1,607 per ounce before mark-to-market adjustments and treatment and refining charges. The average London P.M. fix for gold was $1,651 per ounce during the six months ended June 30, 2012, compared to the Company’s recorded average provisional price of $1,651 per ounce before mark-to-market adjustments and treatment and refining charges. During the three and six months ended June 30, 2012, changes in gold prices resulted in a provisional pricing mark-to-market loss of $2 ($2 per ounce) and gain of $4 ($1 per ounce), respectively. At June 30, 2012, Newmont had gold sales of 74,000 ounces priced at an average of $1,600 per ounce, subject to final pricing over the next several months.

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

NOTE 17 INVESTMENTS

 

     At June 30, 2012  
     Cost/Equity      Unrealized     Fair/Equity  
     Basis      Gain      Loss     Basis  

Current:

          

Marketable Equity Securities:

          

Paladin Energy Ltd.

   $ 60      $ 7      $ —        $ 67  

Other

     14        6        (3     17  
  

 

 

    

 

 

    

 

 

   

 

 

 
     74        13        (3     84  
  

 

 

    

 

 

    

 

 

   

 

 

 

Marketable Debt Securities:

          

Corporate

     48        —           —          48  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 122      $ 13      $ (3   $ 132  
  

 

 

    

 

 

    

 

 

   

 

 

 

Long-term:

          

Marketable Debt Securities:

          

Asset backed commercial paper

   $ 25      $ —         $ (6   $ 19  

Auction rate securities

     8        —           (3     5  

Corporate

     48        2        —          50  
  

 

 

    

 

 

    

 

 

   

 

 

 
     81        2        (9     74  
  

 

 

    

 

 

    

 

 

   

 

 

 

Marketable Equity Securities:

          

Canadian Oil Sands Ltd.

     303        296        —          599  

Gabriel Resources Ltd.

     76        1        —          77  

Regis Resources Ltd.

     36        260        —          296  

Other

     68        8        (12     64  
  

 

 

    

 

 

    

 

 

   

 

 

 
     483        565        (12     1,036  
  

 

 

    

 

 

    

 

 

   

 

 

 

Other investments, at cost

     12        —           —          12  

Investment in Affiliates:

          

Euronimba Ltd.

     2        —           —          2  

Minera La Zanja S.R.L.

     61        —           —          61  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 639      $ 567      $ (21   $ 1,185  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     At December 31, 2011  
     Cost/Equity      Unrealized     Fair/Equity  
     Basis      Gain      Loss     Basis  

Current:

          

Marketable Equity Securities:

          

Paladin Energy Ltd.

   $ 60      $ 13      $ —        $ 73  

Other

     15        7        (1     21  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 75      $ 20      $ (1   $ 94  
  

 

 

    

 

 

    

 

 

   

 

 

 

Long-term:

          

Marketable Debt Securities:

          

Asset backed commercial paper

   $ 25      $ —         $ (6   $ 19  

Auction rate securities

     7        —           (2     5  

Corporate

     10        1        —          11  
  

 

 

    

 

 

    

 

 

   

 

 

 
     42        1        (8     35  
  

 

 

    

 

 

    

 

 

   

 

 

 

Marketable Equity Securities:

          

Canadian Oil Sands Trust

     302        401        —          703  

Gabriel Resources Ltd.

     76        236        —          312  

Regis Resources Ltd.

     36        218        —          254  

Other

     92        16        (17     91  
  

 

 

    

 

 

    

 

 

   

 

 

 
     506        871        (17     1,360  
  

 

 

    

 

 

    

 

 

   

 

 

 

Other investments, at cost

     11        —           —          11  

Investment in Affiliates:

          

Minera La Zanja S.R.L.

     66        —           —          66  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 625      $ 872      $ (25   $ 1,472  
  

 

 

    

 

 

    

 

 

   

 

 

 

Included in Investments at June 30, 2012 and December 31, 2011 are $7 and $11 of long-term marketable debt securities, respectively, and $10 and $4 of long-term marketable equity securities, respectively, that are legally pledged for purposes of settling asset retirement obligations related to the San Jose Reservoir at Yanacocha.

During the three and six months ended June 30, 2012, the Company recognized impairments for other-than-temporary declines in value of $8 and $32 for marketable equity securities.

During the first half of 2012, the Company made net purchases of corporate marketable debt securities of $91.

The following tables present the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by length of time that the individual securities have been in a continuous unrealized loss position:

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     Less than 12 Months      12 Months or Greater      Total  

At June 30, 2012

   Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Marketable equity securities

   $ 34      $ 14      $ —         $ —         $ 34      $ 14  

Asset backed commercial paper

     —           —           19        6        19        6  

Auction rate securities

     —           —           5        3        5        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 34      $ 14      $ 24      $ 9      $ 58      $ 23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 Months      12 Months or Greater      Total  

At December 31, 2011

   Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Marketable equity securities

   $ 42      $ 18      $ —         $ —         $ 42      $ 18  

Asset backed commercial paper

     —           —           19        6        19        6  

Auction rate securities

     —           —           5        2        5        2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 42      $ 18      $ 24      $ 8      $ 66      $ 26  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

While the fair values of the Company’s investments in asset backed commercial paper and auction rate securities are below their respective cost, the Company views these declines as temporary. The Company intends to hold its investment in auction rate securities and asset backed commercial paper until maturity or such time that the market recovers and therefore considers these losses temporary.

NOTE 18 INVENTORIES

 

     At June 30,      At December 31,  
     2012      2011  

In-process

   $ 123      $ 159  

Concentrate

     192        116  

Precious metals

     36        12  

Materials, supplies and other

     452        427  
  

 

 

    

 

 

 
   $ 803      $ 714  
  

 

 

    

 

 

 

NOTE 19 STOCKPILES AND ORE ON LEACH PADS

 

     At June 30,      At December 31,  
     2012      2011  

Current:

     

Stockpiles

   $ 590      $ 506  

Ore on leach pads

     208        165  
  

 

 

    

 

 

 
   $ 798      $ 671  
  

 

 

    

 

 

 

Long-term:

     

Stockpiles

   $ 2,187      $ 1,904  

Ore on leach pads

     392        367  
  

 

 

    

 

 

 
   $ 2,579      $ 2,271  
  

 

 

    

 

 

 

 

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Table of Contents

NEWMONT MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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

 

     At June 30,      At December 31,  
     2012      2011  

Stockpiles and ore on leach pads:

     

Nevada

   $ 608      $ 536  

La Herradura

     21        6  

Yanacocha

     591        512  

Boddington

     456        435  

Batu Hijau

     1,331        1,119  

Other Australia/New Zealand

     165        161  

Ahafo

     205        173  
  

 

 

    

 

 

 
   $ 3,377      $ 2,942  
  

 

 

    

 

 

 

NOTE 20 OTHER ASSETS

 

     At June 30,      At December 31,  
     2012      2011  

Other current assets:

     

Refinery metal inventory and receivable

   $ 393      $ 796  

Prepaid assets

     176        93  

Derivative instruments

     105        127  

Restricted cash