Newmont Mining Announces Q2 2017 Results
DENVER--(BUSINESS WIRE)-- Newmont Mining Corporation (NYSE: NEM) (Newmont or the Company) announced second quarter 2017 results that demonstrated improved operational and financial performance.
- Net income: Delivered GAAP net income attributable to stockholders from continuing operations of $192 million or $0.36 per diluted share, and adjusted net income1 of $248 million or $0.46 per diluted share
- EBITDA: Generated $698 million in adjusted EBITDA2, up 16 percent from the prior year quarter
- Cash flow: Reported net operating cash flow from continuing operations of $529 million and free cash flow3 of $346 million
- Gold costs applicable to sales (CAS)4: Reported CAS of $664 per ounce in line with the prior year quarter, favorable to guidance
- Gold all-in sustaining costs (AISC)5: Improved AISC by three percent to $884 per ounce, favorable to guidance
- Attributable gold production: Produced 1.4 million ounces of gold, up 13 percent from the prior year quarter, in-line with guidance
- Portfolio improvements: Approved the high grade, low cost Twin Underground mine in Nevada; acquired a 19.9% stake in Continental Gold to support development of the Buriticá project in Colombia; mined first ore at Subika Underground in Africa; on track for commercial production of the Tanami Expansion Project in Australia in the third quarter of 2017
- Financial strength: Reduced net debt to $1.5 billion, ending the quarter with $3.1 billion cash on hand, and an industry-leading, investment-grade credit profile; in July 2017, further deleveraged and simplified the balance sheet with the full repayment of $575 million convertible senior notes; second quarter dividend triples from the prior year quarter to $0.075 per share
- Outlook: Improved production and cost outlook for 2017; attributable production guidance improves to between 5.0 and 5.4 million ounces of gold; CAS guidance improves to between $675 and $715 per ounce; AISC guidance6 improves to between $900 and $950 per ounce; capital guidance lowered to between $890 and $990 million; G&A guidance improved
“Operational execution has driven superior second quarter results, further investment in profitable growth, and improved guidance for 2017,” said Gary J. Goldberg, President and Chief Executive Officer. “We increased adjusted EBITDA by $98 million compared to the prior year quarter to nearly $700 million, and reported free cash flow of $346 million. Operations across the portfolio outperformed, reducing all-in sustaining costs to $884 per ounce and producing 13 percent more gold on an attributable basis. We expect to sustain this performance through strong technical fundamentals and ongoing investment in value-adding technology, and have improved our cost, capital and production outlook as a result. This performance gives us the means to fund near-term growth through our new Twin Underground mine and profitable expansions at Ahafo, Tanami and Northwest Exodus, and to invest in maintaining our profitability for years to come with new greenfields prospects as well as our interest in the high grade Buriticá project in Colombia, and the promising Plateau opportunity in the Yukon.”
Second Quarter 2017 Summary Results
GAAP Net income attributable to shareholders from continuing operations of $192 million or $0.36 per diluted share for the quarter, up $178 million from $14 million or $0.02 per share in the prior year quarter.
Adjusted net income improved by 59 percent to $248 million or $0.46 per diluted share from $155 million or $0.29 per share in the prior year quarter mostly due to higher sales volumes. The primary adjustments to net income include $0.11 per share net tax adjustments primarily related to valuation allowances.
Revenue rose 12 percent to $1,875 million for the quarter due to increased sales volumes.
Average realized price7 for gold was $1,250 per ounce for the quarter compared to $1,257 in the prior year quarter; average realized price for copper improved $0.46 to $2.46 per pound.
Attributable gold production increased 13 percent to 1.4 million ounces for the quarter as new production from Merian and Long Canyon more than offset lower grades at Tanami and Yanacocha.
Gold CAS totaled $955 million for the quarter. Gold CAS per ounce was mostly unchanged at $664 per ounce for the quarter compared to $661 in the prior year quarter.
Gold AISC improved three percent to $884 per ounce compared to $913 in the prior year quarter primarily due to lower sustaining capital and higher sales volumes.
Attributable copper production from Phoenix and Boddington increased 15 percent to 15,000 tonnes for the quarter. Copper CAS totaled $44 million for the quarter. Copper CAS per pound improved 27 percent to $1.38 per pound for the quarter on higher sales volumes, full potential improvements and lower co-product allocation of costs to copper. Copper AISC improved 22 percent to $1.69 per pound on improved unit CAS.
Capital expenditures8 decreased 35 percent from the prior year quarter to $183 million as growth projects including Merian and Long Canyon moved into commercial production partially offset by increased spending on capital projects in Africa.
Consolidated operating cash flow from continuing operations decreased 21 percent from the prior year quarter to $529 million primarily due to changes in working capital. Free cash flow was $39 million lower at $346 million for the quarter on improved volumes and lower capital expenditures, offset by working capital changes.
Balance sheet improved as Newmont ended the quarter with $3.1 billion cash on hand, a leverage ratio of 0.6x net debt to adjusted EBITDA and one of the best credit ratings in the mining sector. On July 17, the Company announced the retirement of $575 million of convertible senior notes. Since 2013, Newmont has streamlined its balance sheet and reduced gross debt by over 30% and net debt by over 70%.The Company is committed to maintaining an investment grade credit profile.
Non-GAAP measure. See end of the release for reconciliation to Net income (loss) attributable to Newmont stockholders.
Non-GAAP measure. See end of the release for reconciliation to Net income (loss) attributable to Newmont stockholders.
Non-GAAP measure. See end of the release for reconciliation to Net cash provided by operating activities.
Non-GAAP measure. See end of the release for reconciliation to Costs applicable to sales.
Non-GAAP measure. See end of the release for reconciliation to Costs applicable to sales.
Non-GAAP measure. See end of the release for reconciliation to Costs applicable to sale outlook. See also cautionary statement at the end of the release regarding outlook.
Non-GAAP measure. See end of the release for reconciliation to Sales.
Capital expenditures refers to Additions to property plant and mine development from the Condensed Consolidated Statements of Cash Flows.
Newmont’s capital-efficient project pipeline supports stable production with improving margins and mine life. Near-term projects are presented below. Funding for the Tanami Expansion, Subika Underground, Ahafo Mill Expansion and Twin Underground projects has been approved. Additional projects represent incremental improvements to production and cost guidance.
- Tanami Expansion (Australia) includes a second decline in the mine and incremental capacity in the plant to increase profitable production and serve as a platform for future growth. The project is on track to reach commercial production in the third quarter of 2017 and will maintain Tanami’s annual gold production at 425,000 to 475,000 ounces at AISC of between $700 and $750 per ounce for the first five years of production. Capital costs are estimated at between $100 and $120 million with expenditure of $30 to $50 million in 2017.
- Subika Underground (Africa) leverages existing infrastructure and an optimized approach to develop Ahafo’s most promising underground resource. Achieved first production in June 2017 with commercial production expected in the second half of 2018. The project is expected to increase average annual gold production by between 150,000 and 200,000 ounces per year for the first five years beginning in 2019 with an initial mine life of approximately 11 years. Capital costs for the project are estimated at between $160 and $200 million with expenditure of $80 to $90 million in 2017. The project has an IRR of more than 20 percent at a $1,200 gold price.
- Ahafo Mill Expansion (Africa) is designed to maximize resource value by improving production margins and accelerating stockpile processing. The project also supports profitable development of Ahafo’s highly prospective underground resource. First production is expected in the first half of 2019 with commercial production expected in the second half of 2019. The expansion is expected to increase average annual gold production by between 75,000 and 100,000 ounces per year for the first five years beginning in 2020. Capital costs for the project are estimated at between $140 and $180 million with expenditure of approximately $40 to $50 million in 2017. The project has an IRR of more than 20 percent at a $1,200 gold price.
Together the Ahafo expansion projects (Ahafo Mill Expansion and Subika Underground) improve Ahafo’s production to between 550,000 and 650,000 ounces per year for the first five full years of production (2020–2024). During this period Ahafo’s CAS is expected to be between $650 and $750 per ounce and All-in sustaining cost is expected to be between $800 and $900 per ounce. This represents average production improvement of between 200,000 and 300,000 ounces at CAS improvement of between $150 and $250 per ounce and AISC improvement of $250 to $350 per ounce, compared to 2016 actuals.
- Twin Underground (North America) is a portal mine beneath Twin Creek’s Vista surface mine with similar mineralization. First production is expected in the fourth quarter of 2017 with commercial production mid-2018. The expansion is expected to average between 30,000 and 40,000 ounces per year for the first five years (2018 to 2022). During this period CAS is expected to be between $525 and $625 per ounce and AISC between $650 and $750 per ounce. Capital costs are expected to be between $45 and $55 million with expenditure of $15 to $25 million in 2017, up from prior estimates due to higher production and additional infrastructure to support a phased approach with exploration upside. IRR is expected to be about 20 percent at a $1,200 gold price.
- Quecher Main (South America) would add oxide production at Yanacocha, and serve as a bridge to development of Yanacocha’s considerable sulfide deposits. An investment decision is expected in the second half of 2017 with first production in 2019. Quecher extends the life of the Yanacocha operation to 2025 with average annual gold production of approximately 200,000 ounces per year between 2020 and 2025 (100 percent basis). Capital costs for the project are estimated at between $275 and $325 million with expenditure of $10 to $15 million in 2017.
Newmont’s outlook reflects steady gold production and ongoing investment in its current assets and best growth prospects. Newmont does not include potential cost and efficiency improvements in its outlook beyond 2017, nor does it include development projects that have not yet been funded or reached the execution stage – both of which represent upside to guidance. Economic assumptions include $1,200 per ounce gold, $2.50 per pound copper, $55 per barrel WTI and $0.75 Australian dollar exchange rate.
Attributable gold production guidance is improved — Production guidance for 2017 improves to between 5.0 and 5.4 million ounces on Full Potential improvements in North America and Africa. Compared to the prior year, full year production at Merian and Long Canyon more than offsets declines at Twin Creeks and Yanacocha. Production guidance for 2018 and longer-term guidance is unchanged at between 4.7 and 5.2 million ounces with production from the Ahafo expansions and new production at Twin Underground offsetting declines at maturing assets. Expansion at Yanacocha represents upside to both production and cost guidance.
- North America production guidance is improved. Production guidance for 2017 improves to between 2.1 and 2.2 million ounces following changes to blend management at Twin Creeks and improved mill grade and leach volumes at Cripple Creek & Victor. Compared to the prior year, a full year of operation at Long Canyon offsets the impact of higher planned stripping at Twin Creeks. Guidance is unchanged at between 1.9 and 2.1 million ounces in 2018 and between 1.8 and 2.0 million ounces in 2019 due to planned stripping at Carlin and continued stripping at Twin Creeks. Both sites are expected to return to higher production levels in 2020.
- South America production guidance is unchanged. Production guidance remains between 630,000 and 690,000 ounces in 2017 and between 625,000 and 725,000 ounces in 2018 as Merian increases production. Guidance remains at between 500,000 and 600,000 ounces in 2019 due to declining production at Yanacocha and higher stripping at Merian. The Company continues to advance oxide and sulfide potential at Yanacocha; both opportunities represent additional upside not currently captured in guidance.
- Australia production guidance is unchanged. Production guidance for 2017 and 2018 remains at between 1.5 and 1.7 million ounces and between 1.4 and 1.6 million ounces for 2019 as Boddington stripping results in lower grades before returning to higher production levels in 2020. The Company is studying a further expansion at Tanami which represents additional upside not currently captured in guidance.
- Africa production guidance is improved. Production guidance for 2017 improves to between 775,000 and 835,000 ounces following Full Potential improvements to throughput and recovery at Akyem. Guidance remains at between 750,000 and 850,000 ounces in 2018 as Subika Underground offsets depletion of softer ores and higher grade stockpiles at Akyem. Production in 2019 remains at between 1.0 and 1.1 million ounces as Ahafo reaches higher grade ore in the Subika pit and the Ahafo Mill Expansion achieves commercial production.
Gold cost outlook is improved – CAS guidance for 2017 is improved to between $675 and $715 per ounce on increased production and mining and processing improvements in North America, Africa and Australia. Guidance remains between $700 and $800 per ounce for 2018 and between $650 and $750 per ounce for 2019-2021, before any portfolio improvements expected through the Full Potential program. AISC guidance for 2017 is improved to between $900 and $950 per ounce on CAS improvements and reduction of sustaining capital in North America, Africa and Australia. Guidance remains between $950 and $1,050 per ounce for 2018, excluding further cost and efficiency improvements. Longer-term AISC guidance is unchanged at between $870 and $970 per ounce as increased production from Ahafo – combined with ongoing productivity, cost and capital improvements – is expected to more than offset inflation and partially counter the effects of lower grades.
- North America cost guidance is improved. CAS per ounce guidance for 2017 improves to between $675 and $725 on increased production, mine plan improvements at Carlin and Full Potential cost savings at Cripple Creek & Victor and Long Canyon. Guidance remains between $750 and $850 in both 2018 and 2019. AISC per ounce guidance for 2017 improves to between $855 and $930 on lower CAS and sustaining capital. Guidance remains at between $950 and $1,050 in 2018 and between $930 and $1,030 in 2019, as a result of planned stripping at Carlin combined with lower grades at Twin Creeks and Cripple Creek & Victor.
- South America cost guidance is unchanged. CAS per ounce guidance remains at between $675 and $725 in 2017, between $650 and $750 in 2018 and between $575 and $675 in 2019. AISC per ounce guidance is unchanged at between $880 and $980 in 2017, between $850 and $950 in 2018 and between $810 and $910 in 2019. Costs decrease as lower cost production from Merian replaces higher cost production from Yanacocha. Yanacocha reaches higher grade ore in Tapado Oeste in 2019.
- Australia cost guidance is improved. CAS per ounce guidance for 2017 improves to between $640 and $690 on Full Potential improvements to mining costs at Boddington. Guidance remains at between $675 and $775 in both 2018 and 2019. AISC per ounce guidance for 2017 improves to between $795 and $855 on lower CAS and sustaining capital improvements. Guidance remains at between $850 and $950 in both 2018 and 2019. Higher costs year-on-year are due to lower grades as a result of stripping at Boddington, lower grades at Tanami, and treatment of additional lower grade stockpile ore at Kalgoorlie in 2019.
- Africa cost guidance is improved. CAS per ounce guidance for 2017 improves to between $695 and $745 on Full Potential at Akyem and lower inventory adjustments and direct costs at Ahafo. Guidance remains at between $800 and $900 in 2018 and between $475 and $575 in 2019. AISC per ounce guidance for 2017 improves to between $870 and $920 on lower CAS. Guidance remains at between $960 and $1,060 for 2018 and between $680 and $780 for 2019. Medium term costs increase due to Akyem processing harder, lower-grade ore, which is more than offset as the Subika Underground mine achieves production in 2018, and higher-grade ore is reached in the Subika open pit in 2019.
Copper — Together, Boddington and Phoenix are expected to produce between 40,000 and 60,000 tonnes of copper per year, unchanged from previous guidance. CAS guidance remains at between $1.45 and $1.65 per pound and AISC guidance remains at between $1.85 and $2.05 per pound; higher costs at Phoenix due to lower copper grades are offset by lower costs at Boddington due to improved mine planning and cost improvements. Longer term cost guidance is unchanged; CAS guidance remains at between $1.50 and $1.90 per pound and AISC guidance remains at between $1.85 and $2.15 per pound.
Capital — Capital guidance for 2017 is lowered to between $890 and $990 million, including the remaining capital for the Northwest Exodus and Tanami Expansion projects, the initial capital for Subika Underground and the Ahafo Mill Expansion and Twin Underground. Guidance is unchanged at between $900 million and $1.0 billion for 2018 and between $630 million and $730 million for 2019. Sustaining capital outlook for 2017 is lowered to between $575 and $675 million and remains between $600 and $700 million per year longer-term. Newmont expects to reach a development decision on the Quecher Main project in the second half of this year; this is currently excluded from outlook.
|(Koz, Kt)||(Koz, Kt)||($/oz, $/lb)||($/oz, $/lb)||($M)|
|Other North America||15||–||25|
|Other South America|
|Consolidated Expense Outlookh|
|General & Administrative||$||215||–||$||240|
|Depreciation and Amortization||$||1,325||–||$||1,425|
|Advanced Projects & Exploration||$||325||–||$||375|
2017 Outlook in the table above are considered “forward-looking statements” and are based upon certain assumptions, including, but not limited to, metal prices, oil prices, certain exchange rates and other assumptions. For example, 2017 Outlook assumes $1,200/oz Au, $2.50/lb Cu, $0.75 USD/AUD exchange rate and $55/barrel WTI; AISC and CAS estimates do not include inflation, for the remainder of the year. Production, AISC and capital estimates exclude projects that have not yet been approved, (Quecher Main). The potential impact on inventory valuation as a result of lower prices, input costs, and project decisions are not included as part of this Outlook. Such assumptions may prove to be incorrect and actual results may differ materially from those anticipated. See cautionary note at the end of the release.
All-in sustaining costs or AISC as used in the Company’s Outlook is a non-GAAP metric defined as the sum of costs applicable to sales (including all direct and indirect costs related to current gold production incurred to execute on the current mine plan), reclamation costs (including operating accretion and amortization of asset retirement costs), G&A, exploration expense, advanced projects and R&D, treatment and refining costs, other expense, net of one-time adjustments and sustaining capital. See reconciliation at the end of the release.
Includes Lone Tree operations.
Includes TRJV operations.
Consolidated production for Yanacocha and Merian is presented on a total production basis for the mine site; attributable production represents a 51.35% interest for Yanacocha and a 75% interest for Merian.
Both consolidated and attributable production are shown on a pro-rata basis with a 50% ownership for Kalgoorlie.
Production outlook does not include equity production from stakes in TMAC (28.8%) or La Zanja (46.94%).
Consolidated expense outlook is adjusted to exclude extraordinary items. For example, the tax rate outlook above is a consolidated adjusted rate, which assumes the exclusion of certain tax valuation allowance adjustments.
|Three Months Ended June 30,||Six Months Ended June 30,|
|Operating Results||2017||2016||% Change||2017||2016||% Change|
|Attributable Sales (koz, kt)|
|Attributable gold ounces sold||1,350||1,207||12||%||2,552||2,304||11||%|
|Attributable copper tonnes sold||14||13||8||%||26||24||8||%|
|Average Realized Price ($/oz, $/lb)|
|Average realized gold price||$||1,250||$||1,257||(1||)%||$||1,236||$||1,226||1||%|
|Average realized copper price||$||2.46||$||2.00||23||%||$||2.56||$||2.02||27||%|
|Attributable Production (koz, kt)|
|CAS Consolidated ($/oz, $/lb)|
|Total Gold (by-product)||$||641||$||660||(3||)%||$||651||$||667||(2||)%|
|AISC Consolidated ($/oz, $/lb)|
|Total Gold (by-product)||$||869||$||918||(5||)%||$||874||$||905||(3||)%|