UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
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
NEWMONT MINING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
|
84-1611629 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
6363 South Fiddler’s Green Circle |
|
80111 (Zip Code) |
Greenwood Village, Colorado |
|
|
(Address of Principal Executive Offices) |
|
|
Registrant’s telephone number, including area code (303) 863-7414
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
|
Name of Each Exchange on Which Registered |
Common Stock, $1.60 par value |
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
|
|
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At June 30, 2018, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $20,052,691,396 based on the closing sale price as reported on the New York Stock Exchange. There were 532,669,445 shares of common stock outstanding on February 14, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant’s definitive Proxy Statement submitted to the Registrant’s stockholders in connection with our 2019 Annual Stockholders Meeting to be held in April 2019 are incorporated by reference into Part III of this report.
|
|
|
|
Page |
|
|
|
|
|
|
1 |
|||
|
|
3 |
||
|
|
|
3 |
|
|
|
|
3 |
|
|
|
|
3 |
|
|
|
|
6 |
|
|
|
|
6 |
|
|
|
|
9 |
|
|
|
|
9 |
|
|
|
|
9 |
|
|
|
|
9 |
|
|
|
|
10 |
|
|
|
|
11 |
|
|
|
|
11 |
|
|
|
|
14 |
|
|
|
14 |
||
|
|
38 |
||
|
|
|
38 |
|
|
|
|
47 |
|
|
|
|
49 |
|
|
|
|
55 |
|
|
|
58 |
||
|
|
58 |
||
|
|
|
|
|
|
|
59 |
||
|
|
60 |
||
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
61 |
|
61 |
||||
|
|
|
61 |
|
|
|
|
67 |
|
|
|
|
74 |
|
|
|
|
79 |
|
|
|
|
79 |
|
|
|
|
80 |
|
|
|
|
89 |
|
|
|
|
89 |
|
|
|
97 |
||
|
|
|
97 |
|
|
|
|
97 |
|
97 |
||||
|
|
|
98 |
|
|
|
99 |
||
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
|
172 |
|
|
|
172 |
||
|
|
174 |
||
|
|
|
|
|
|
|
175 |
||
|
|
176 |
||
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|
176 |
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
|
177 |
|
|
|
177 |
||
|
|
|
|
|
|
|
178 |
||
|
S-1 |
|||
|
SCH-1 |
NEWMONT MINING CORPORATION
(unaudited, in millions, except per share, per ounce and per pound)
|
Years Ended December 31, |
|
|||||||
|
2018 |
|
2017 |
|
2016 |
|
|||
Financial Results: |
|
|
|
|
|
|
|
|
|
Sales |
$ |
7,253 |
|
$ |
7,379 |
|
$ |
6,680 |
|
Gold |
$ |
6,950 |
|
$ |
7,064 |
|
$ |
6,430 |
|
Copper |
$ |
303 |
|
$ |
315 |
|
$ |
250 |
|
Costs applicable to sales (1) |
$ |
4,093 |
|
$ |
4,062 |
|
$ |
3,738 |
|
Gold |
$ |
3,906 |
|
$ |
3,899 |
|
$ |
3,523 |
|
Copper |
$ |
187 |
|
$ |
163 |
|
$ |
215 |
|
Net income (loss) from continuing operations |
$ |
319 |
|
$ |
(71) |
|
$ |
(812) |
|
Net income (loss) |
$ |
380 |
|
$ |
(109) |
|
$ |
(943) |
|
Net income (loss) from continuing operations attributable to Newmont stockholders |
$ |
280 |
|
$ |
(76) |
|
$ |
(226) |
|
Per common share, diluted: |
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to Newmont stockholders |
$ |
0.53 |
|
$ |
(0.14) |
|
$ |
(0.42) |
|
Net income (loss) attributable to Newmont stockholders |
$ |
0.64 |
|
$ |
(0.21) |
|
$ |
(1.18) |
|
Adjusted net income (loss) (2) |
$ |
718 |
|
$ |
774 |
|
$ |
631 |
|
Adjusted net income (loss) per share, diluted (2) |
$ |
1.34 |
|
$ |
1.45 |
|
$ |
1.19 |
|
Earnings before interest, taxes and depreciation and amortization (2) |
$ |
2,160 |
|
$ |
2,574 |
|
$ |
1,266 |
|
Adjusted earnings before interest, taxes and depreciation and amortization (2) |
$ |
2,584 |
|
$ |
2,650 |
|
$ |
2,377 |
|
Net cash provided by (used in) operating activities of continuing operations |
$ |
1,837 |
|
$ |
2,139 |
|
$ |
1,917 |
|
Free Cash Flow (2) |
$ |
805 |
|
$ |
1,273 |
|
$ |
784 |
|
Cash dividends declared per common share |
$ |
0.56 |
|
$ |
0.25 |
|
$ |
0.125 |
|
|
|
|
|
|
|
|
|
|
|
Operating Results: |
|
|
|
|
|
|
|
|
|
Consolidated gold ounces (thousands): |
|
|
|
|
|
|
|
|
|
Produced |
|
5,479 |
|
|
5,654 |
|
|
5,243 |
|
Sold |
|
5,516 |
|
|
5,632 |
|
|
5,172 |
|
Attributable gold ounces (thousands): |
|
|
|
|
|
|
|
|
|
Produced |
|
5,101 |
|
|
5,266 |
|
|
4,898 |
|
Sold |
|
5,133 |
|
|
5,243 |
|
|
4,839 |
|
Consolidated and attributable copper pounds (millions): |
|
|
|
|
|
|
|
|
|
Produced |
|
109 |
|
|
113 |
|
|
119 |
|
Sold |
|
110 |
|
|
111 |
|
|
116 |
|
Average realized price: |
|
|
|
|
|
|
|
|
|
Gold (per ounce) |
$ |
1,260 |
|
$ |
1,255 |
|
$ |
1,243 |
|
Copper (per pound) |
$ |
2.74 |
|
$ |
2.83 |
|
$ |
2.15 |
|
Consolidated costs applicable to sales: (1)(2) |
|
|
|
|
|
|
|
|
|
Gold (per ounce) |
$ |
708 |
|
$ |
692 |
|
$ |
681 |
|
Copper (per pound) |
$ |
1.69 |
|
$ |
1.47 |
|
$ |
1.85 |
|
All-in sustaining costs: (2) |
|
|
|
|
|
|
|
|
|
Gold (per ounce) |
$ |
909 |
|
$ |
890 |
|
$ |
880 |
|
Copper (per pound) |
$ |
2.02 |
|
$ |
1.80 |
|
$ |
2.21 |
|
(1) |
Excludes Depreciation and amortization and Reclamation and remediation. |
(2) |
See Non-GAAP Financial Measures beginning on page 80. |
1
Highlights
· |
Net income (loss): Delivered Net income (loss) from continuing operations attributable to Newmont stockholders of $280 or $0.53 per diluted share, an increase of $356 from the prior year, primarily due to lower income tax expense and a gain from the sale of our royalty portfolio in June 2018, partially offset by increased impairments of exploration and long-lived assets in North America and lower production at various sites. |
· |
Adjusted net income (loss): Delivered Adjusted net income (loss) of $718 or $1.34 per diluted share, an 8% decrease from the prior year (See “Non-GAAP Financial Measures” beginning on page 80). |
· |
Adjusted EBITDA: Generated $2.6 billion in Adjusted EBITDA, a 2% decrease from the prior year (See “Non-GAAP Financial Measures” beginning on page 80). |
· |
Cash flow: Reported Net cash provided by operating activities of continuing operations of $1.8 billion and free cash flow of $0.8 billion. (See “Non-GAAP Financial Measures” beginning on page 80). |
· |
Portfolio improvements: Advanced Tanami Expansion 2 to definitive feasibility study and progressed the Tanami Power Project in Australia; completed the Cripple Creek & Victor (“CC&V”) concentrates project, reached commercial production at Twin Underground and Northwest Exodus, acquired 50 percent interest in Galore Creek, and progressed Long Canyon Phase 2 to feasibility study in North America; reached commercial production at Subika Underground, progressed the Ahafo Mill Expansion, and advanced Akyem Underground to prefeasibility study in Africa; reached first gold at Quecher Main, advanced Yanacocha Sulfides to definitive feasibility study and completed the primary crusher at Merian in South America; divested royalty portfolio to Maverix Metals and formed strategic partnerships with Teck Resources Limited, Sumitomo Corporation, Evrim Resources, Miranda Gold and Orosur Mining. |
· |
Attributable gold production: Gold production decreased 3% to 5.1 million ounces, primarily due to lower grade at various sites and lower leach tons placed at Carlin, Phoenix, CC&V and Yanacocha, partially offset by higher grade and recovery at Tanami and Ahafo. |
· |
Financial strength: Ended the year with $3.4 billion cash on hand and net debt of $0.9 billion; an industry-leading balance sheet with investment-grade credit profile; declared dividends of $0.56 per share. |
Our global project pipeline
Newmont’s capital-efficient project pipeline supports stable production with improving margins and mine life. Near-term development capital projects and those recently completed are presented below. Funding for Ahafo Mill Expansion, Quecher Main and Tanami Power projects have been approved and these projects are in execution.
Subika Underground, Africa. This project leverages existing infrastructure and an optimized approach to develop Ahafo’s most promising underground resource. First production was achieved in June 2017 and commercial production was achieved in the fourth quarter of 2018. The project is expected to have an average annual gold production of 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. The project was completed on schedule and on budget for $186, adding higher-grade, lower-cost gold production at the Ahafo mine in Ghana.
Ahafo Mill Expansion, Africa. This project 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 resources. The expansion is expected to have an average annual gold production of between 75,000 and 100,000 ounces per year for the first five years beginning in 2020. Development capital costs (excluding capitalized interest) since approval were $119, of which $77 related to 2018. Both first production and commercial production are expected in the second half of 2019.
Quecher Main, South America. This project will add oxide production at Yanacocha, leverage existing infrastructure and enable potential future growth at Yanacocha. First production was achieved in late 2018 with commercial production expected in the second half of 2019. Quecher Main extends the life of the Yanacocha operation to 2027 with average annual gold production of about 200,000 ounces per year (on a consolidated basis) between 2020 and 2025. Development capital costs (excluding capitalized interest) since approval were $101, of which $89 related to 2018.
Tanami Power, Australia. This project will lower power costs beginning in 2019, mitigate fuel supply risk and reduce carbon emissions. The project includes the construction of a 280 mile (450 kilometer) natural gas pipeline connecting the Tanami site to the Amadeus Gas Pipeline, and construction and operation of two on-site power stations. The gas supply, gas transmission and power purchase agreements are for a ten year term with options to extend.
We manage our wider project portfolio to maintain flexibility to address the development risks associated with our projects including permitting, local community and government support, engineering and procurement availability, technical issues, escalating costs and other associated risks that could adversely impact the timing and costs of certain opportunities.
2
ITEM 1.BUSINESS (dollars in millions, except per share, per ounce and per pound amounts)
Newmont Mining Corporation is primarily a gold producer with significant operations and/or assets in the United States, Australia, Peru, Ghana and Suriname. At December 31, 2018, Newmont had attributable proven and probable gold reserves of 65.4 million ounces and an aggregate land position of approximately 24,000 square miles (63,000 square kilometers). Newmont is also engaged in the production of copper, principally through operations in Boddington in Australia and Phoenix in the United States. Newmont Mining Corporation’s original predecessor corporation was incorporated in 1921 under the laws of Delaware.
Newmont’s corporate headquarters are in Greenwood Village, Colorado, USA. In this report, “Newmont,” the “Company,” “our” and “we” refer to Newmont Mining Corporation together with our affiliates and subsidiaries, unless the context otherwise requires. References to “A$” refer to Australian currency.
On January 14, 2019, the Company entered into a definitive agreement (as amended by the first amendment to the arrangement agreement, dated as of February 19, 2019, the “Arrangement Agreement”) to acquire all outstanding common shares of Goldcorp, Inc. (“Goldcorp”) in a primarily stock transaction (the “Proposed Transaction”). Under the terms of the agreement, Goldcorp shareholders will receive 0.3280 shares of Newmont’s common stock and $0.02 in cash for each Goldcorp common share they own, for a total transaction value of approximately $10 billion as of the announcement date on January 14, 2019. The transaction, which is subject to approval by both Newmont and Goldcorp shareholders, and other customary conditions and regulatory approvals, is expected to close in the second quarter of 2019. Upon closing, the combined company will be known as Newmont Goldcorp.
Our regions include North America, South America, Australia, and Africa. Our North America segment consists primarily of Carlin, Phoenix, Twin Creeks, Long Canyon and Cripple Creek &Victor (“CC&V”) in the United States of America (collectively, “U.S.” or “USA”). Our South America segment consists primarily of Yanacocha in Peru and Merian in Suriname. Our Australia segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia. Our Africa segment consists primarily of Ahafo and Akyem in Ghana. See Item 1A, Risk Factors, below, and Note 3 to the Consolidated Financial Statements for information relating to our operating segments, domestic and export sales and lack of dependence on a limited number of customers.
References in this report to “attributable gold ounces” or “attributable copper pounds” mean that portion of gold or copper produced, sold or included in proven and probable reserves based on our proportionate ownership, unless otherwise noted.
Gold
General. We had consolidated gold production from continuing operations of 5.5 million ounces (5.1 million attributable ounces) in 2018, 5.7 million ounces (5.3 million attributable ounces) in 2017 and 5.2 million ounces (4.9 million attributable ounces) in 2016. Of our 2018 consolidated gold production, approximately 38% came from North America, 19% from South America, 28% from Australia and 15% from Africa.
For 2018, 2017 and 2016, 96%, 96% and 96%, respectively, of our Sales were attributable to gold. Most of our Sales come from the sale of refined gold. The end product at our gold operations, however, is generally doré bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of our refining agreements, the doré bars are refined for a fee, and our share of the refined gold and the separately-recovered silver is credited to our account or delivered to buyers. A portion of gold sold from Boddington and Kalgoorlie in Australia and Phoenix in Nevada is sold in a concentrate containing other metals such as copper and silver.
Gold Uses. Gold generally is used for fabrication or investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry.
3
Gold Supply. A combination of mine production, recycling and draw-down of existing gold stocks held by governments, financial institutions, industrial organizations and private individuals make up the annual gold supply. Based on public information available, for the years 2016 through 2018, mine production has averaged approximately 70% of the annual gold supply.
Gold Price. The following table presents the annual high, low and average daily afternoon London Bullion Market Association (“LBMA”) Gold Price over the past ten years on the London Bullion Market ($/ounce):
Year |
|
High |
|
Low |
|
Average |
|
|||
2009 |
|
$ |
1,213 |
|
$ |
810 |
|
$ |
972 |
|
2010 |
|
$ |
1,421 |
|
$ |
1,058 |
|
$ |
1,225 |
|
2011 |
|
$ |
1,895 |
|
$ |
1,319 |
|
$ |
1,572 |
|
2012 |
|
$ |
1,792 |
|
$ |
1,540 |
|
$ |
1,669 |
|
2013 |
|
$ |
1,694 |
|
$ |
1,192 |
|
$ |
1,411 |
|
2014 |
|
$ |
1,385 |
|
$ |
1,142 |
|
$ |
1,266 |
|
2015 |
|
$ |
1,296 |
|
$ |
1,049 |
|
$ |
1,160 |
|
2016 |
|
$ |
1,366 |
|
$ |
1,077 |
|
$ |
1,251 |
|
2017 |
|
$ |
1,346 |
|
$ |
1,151 |
|
$ |
1,257 |
|
2018 |
|
$ |
1,355 |
|
$ |
1,178 |
|
$ |
1,268 |
|
2019 (through February 14, 2019) |
|
$ |
1,323 |
|
$ |
1,280 |
|
$ |
1,298 |
|
On February 14, 2019, the afternoon LBMA gold price was $1,311 per ounce.
We recognize revenue for doré generally at the prevailing market price when gold bullion credits are delivered to the customer. We recognize revenue for concentrate when control is transferred to the customer, which generally occurs as material passes over the vessel’s rail at the port of loading. We use a provisional price based on the estimated forward price of the month of final settlement. The gold concentrate receivable is marked to market through earnings as an adjustment to revenue until final settlement.
Copper
General. We had consolidated copper production from continuing operations of 109 million pounds in 2018, 113 million pounds in 2017 and 119 million pounds in 2016. Copper sales are in the form of concentrate that is sold to smelters for further treatment and refining, and cathode. For 2018, 2017 and 2016, 4%, 4% and 4%, respectively, of our Sales were attributable to copper. Of our 2018 consolidated copper production, approximately 29% came from North America and 71% from Australia.
Copper Uses. Refined copper is incorporated into wire and cable products for use in the construction, electric utility, communications and transportation industries. Copper is also used in industrial equipment and machinery, consumer products and a variety of other electrical and electronic applications and is also used to make brass. Copper substitutes include aluminum, plastics, stainless steel and fiber optics. Refined, or cathode, copper is also an internationally traded commodity.
Copper Supply. A combination of mine production and recycled scrap material make up the annual copper supply. Mine production since 2016 has accounted for over 70% of total refined production.
4
Copper Price. The copper price is quoted on the London Metal Exchange (“LME”) in terms of dollars per metric tonne of high grade copper. The following table presents the dollar per pound equivalent of the annual high, low and average daily prices of high grade copper on the LME over the past ten years ($/pound):
Year |
|
High |
|
Low |
|
Average |
|
|||
2009 |
|
$ |
3.33 |
|
$ |
1.38 |
|
$ |
2.34 |
|
2010 |
|
$ |
4.42 |
|
$ |
2.76 |
|
$ |
3.42 |
|
2011 |
|
$ |
4.60 |
|
$ |
3.08 |
|
$ |
4.00 |
|
2012 |
|
$ |
3.93 |
|
$ |
3.29 |
|
$ |
3.61 |
|
2013 |
|
$ |
3.74 |
|
$ |
3.01 |
|
$ |
3.32 |
|
2014 |
|
$ |
3.37 |
|
$ |
2.86 |
|
$ |
3.11 |
|
2015 |
|
$ |
2.92 |
|
$ |
2.05 |
|
$ |
2.49 |
|
2016 |
|
$ |
2.69 |
|
$ |
1.96 |
|
$ |
2.21 |
|
2017 |
|
$ |
3.27 |
|
$ |
2.48 |
|
$ |
2.80 |
|
2018 |
|
$ |
3.29 |
|
$ |
2.64 |
|
$ |
2.96 |
|
2019 (through February 14, 2019) |
|
$ |
2.82 |
|
$ |
2.64 |
|
$ |
2.72 |
|
On February 14, 2019, the high grade copper closing price on the LME was $2.80 per pound.
We generally sell our copper concentrate based on the monthly average market price for the third month following the month in which the delivery to the smelter takes place. We currently recognize revenue from a sale when control is transferred to the customer, which generally occurs as material passes over the vessel’s rail at the port of loading. For revenue recognition, we use a provisional price based on the estimated forward price of the month of final settlement. The copper concentrate receivable is marked to market through earnings as an adjustment to revenue until final settlement.
We generally sell our copper cathode based on the weekly average market price for the week following production and recognize revenue when material is picked up by the carrier.
Effective January 1, 2018, we adopted changes to our revenue recognition policy in accordance with Accounting Standards Codification (“ASC”) 606. Refer to Note 2 of the Consolidated Financial Statements for further information.
Silver
General. Silver is produced as a by-product at certain of our operations and is included as a reduction to Costs applicable to sales in the Consolidated Financial Statements. We had consolidated silver production from continuing operations of 3.4 million ounces (2.8 million attributable ounces) in 2018, 3.6 million ounces (3.1 million attributable ounces) in 2017 and 3.0 million ounces (2.8 million attributable ounces) in 2016.
Gold and Copper Processing Methods
Gold is extracted from naturally-oxidized ores by either milling or heap leaching, depending on the amount of gold contained in the ore, the amenability of the ore to treatment and related capital and operating costs. Higher grade oxide ores are generally processed through mills, where the ore is ground into a fine powder and mixed with water into a slurry, which then passes through a carbon-in-leach circuit. Lower grade oxide ores are generally processed using heap leaching. Heap leaching consists of stacking crushed or run-of-mine ore on impermeable, synthetically lined pads where a weak cyanide solution is applied to the surface of the heap to dissolve the gold. In both cases, the gold-bearing solution is then collected and pumped to process facilities to remove the gold by collection on carbon or by zinc precipitation.
Gold contained in ores that are not naturally-oxidized can be directly milled if the gold is liberated and amenable to cyanidation, generally known as free milling ores. Ores that are not amenable to cyanidation, known as refractory ores, require more costly and complex processing techniques than oxide or free milling ore. Higher grade refractory ores are processed through either roasters or autoclaves. Roasters heat finely ground ore to a high temperature, burn off the carbon and oxidize the sulfide minerals that prevent efficient leaching. Autoclaves use heat, oxygen and pressure to oxidize sulfide ores.
Some gold sulfide ores may be processed through a flotation plant or by bio-milling. In flotation, ore is finely ground, turned into slurry, then placed in a tank known as a flotation cell. Chemicals are added to the slurry causing the gold-containing sulfides to attach to air bubbles and float to the top of the tank. The sulfides are removed from the cell and converted into a concentrate that can
5
then be processed in an autoclave or roaster to recover the gold. Bio-milling incorporates patented technology that involves inoculation of suitable crushed ore on an impermeable leach pad with naturally occurring bacteria strains, which oxidize the sulfides over a period of time. The ore is then processed through an oxide mill.
At Phoenix and Boddington, ore containing copper and gold is crushed to a coarse size at the mine and then transported via conveyor to a process plant, where it is further crushed and then finely ground as a slurry. The ore is initially treated by successive stages of flotation resulting in a copper/gold concentrate containing approximately 15% to 20% copper. Flotation concentrates are also processed via a gravity circuit to recover fine liberated gold and then dewatered and stored for loading onto ships or rail for transport to smelters. The flotation tailings have a residual gold content that is recovered in a carbon-in-leach circuit.
In addition, at Phoenix, copper heap leaching is performed on copper oxide ore and enriched copper sulfide ore to produce copper cathodes. Heap leaching is accomplished by stacking uncrushed ore onto impermeable, synthetically lined pads where it is contacted with a diluted sulfuric acid solution thus leaching the acid soluble minerals into a copper sulfate solution. The copper sulfate solution is then collected and pumped to the solvent extraction (“SX”) plant. The SX process consists of two steps. During the first step, the copper is extracted into an organic solvent solution. The loaded organic solution is then pumped to the second step where copper is stripped with a strong acid solution before being sent through the electrowinning (“EW”) process. Cathodes produced in electrowinning are 99.99% copper.
Our strategy is to provide shareholders with leverage to changes in gold and copper prices by selling our production at spot market prices. Consequently, we do not hedge our gold and copper sales. To a limited extent, we have and may continue to manage certain risks associated with commodity input costs, interest rates and foreign currencies using the derivative market.
For additional information, see Hedging in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, and Note 17 to the Consolidated Financial Statements.
Gold, Copper and Silver Reserves
At December 31, 2018, we had 65.4 million attributable ounces of proven and probable gold reserves. The decrease in proven and probable gold reserves during 2018, compared to 2017, is due to depletion of 6.1 million ounces, revisions of 3.6 million ounces and divestments of 0.1 million ounces, partially offset by additions of 6.7 million ounces. Reserves at December 31, 2018 were calculated at a gold price assumption of $1,200 or A$1,600 per ounce. A reconciliation of the changes in attributable proven and probable gold reserves during the past three years is as follows:
|
|
Years Ended December 31, |
|
||||
|
|
2018 |
|
2017 |
|
2016 |
|
(millions of ounces) |
|
|
|
|
|
|
|
Opening balance (1) |
|
68.5 |
|
68.5 |
|
73.7 |
|
Depletion |
|
(6.1) |
|
(6.4) |
|
(6.0) |
|
Revisions (2) |
|
(3.6) |
|
1.9 |
|
(0.7) |
|
Additions (3) |
|
6.7 |
|
4.4 |
|
4.1 |
|
Acquisitions (4) |
|
— |
|
0.1 |
|
— |
|
Divestments (5) |
|
(0.1) |
|
— |
|
(2.3) |
|
Discontinued operations (6) |
|
— |
|
— |
|
(0.3) |
|
Closing balance |
|
65.4 |
|
68.5 |
|
68.5 |
|
6
A reconciliation of the changes in attributable proven and probable gold reserves for 2018 by region is as follows:
|
|
North |
|
South |
|
|
|
|
|
|
|
America |
|
America |
|
Australia |
|
Africa |
|
(millions of ounces) |
|
|
|
|
|
|
|
|
|
Opening balance |
|
28.8 |
|
6.0 |
|
21.0 |
|
12.7 |
|
Depletion |
|
(2.5) |
|
(0.8) |
|
(1.8) |
|
(1.0) |
|
Revisions (2) |
|
(3.1) |
|
(0.2) |
|
0.1 |
|
(0.4) |
|
Additions (3) |
|
2.0 |
|
2.6 |
|
1.4 |
|
0.7 |
|
Divestments (5) |
|
— |
|
(0.1) |
|
— |
|
— |
|
Closing balance |
|
25.2 |
|
7.5 |
|
20.7 |
|
12.0 |
|
(1) |
The opening balance includes 2.6 million ounces of gold reserves in 2016 related to Batu Hijau. For further information regarding our discontinued operations, see Note 11 to the Consolidated Financial Statements. |
(2) |
Revisions are due to reclassification of reserves to mineralized material, optimizations, model updates and updated operating costs and recoveries. The gold price assumption remained at $1,200 per ounce in 2018, 2017 and 2016. The 3.6 million ounces of negative revisions were largely at the Carlin (1.6 million ounces) and Phoenix (1.1 million ounces) open pit mines in North America. The Carlin revisions were due to the removal of a layback at the Gold Quarry mine which was driven by an updated pit design and geotechnical assumptions. Other revisions at Carlin were due to increased costs, lower recovery and other model changes. The Phoenix revisions were due to an updated resource model that was based on recent drilling and reduced mill recovery assumptions based on actual plant performance. A portion of the Carlin revisions and the Phoenix revisions have been reclassified as mineralized material. Future positive revisions, if any, remain subject to improvements in costs, recovery, gold price or a combination of these and other factors. |
(3) |
Additions are due to reserve conversions from mineralized material due to new drilling information and successful feasibility studies for first time declarations. |
(4) |
Acquisitions include an increase in ownership at Yanacocha in December 2017. The increase in ownership at Yanacocha added 0.1 million ounces to proven and probable reserves in 2017. |
(5) |
Divestments are related to the sale of Yanacocha’s 5% ownership interest to a subsidiary of Sumitomo Corporation (“Sumitomo”), reducing Newmont’s ownership to 51.35%, in June 2018, and the sale of the Batu Hijau mine in November 2016. |
(6) |
Amounts relate to depletion, revisions and additions activity at Batu Hijau, which was sold in November 2016 and classified as discontinued operations. For further information regarding our discontinued operations, see Note 11 to the Consolidated Financial Statements. |
At December 31, 2018, we had 2,880 million attributable pounds of proven and probable copper reserves. The increase in proven and probable copper reserves during 2018, compared to 2017, is due to additions of 770 million pounds, partially offset by revisions of 400 million pounds and depletion of 160 million pounds. Reserves at December 31, 2018 were calculated at a copper price of $2.50 or A$3.35 per pound. A reconciliation of the changes in attributable proven and probable copper reserves during the past three years is as follows:
|
|
Years Ended December 31, |
|
||||
|
|
2018 |
|
2017 |
|
2016 |
|
(millions of pounds) |
|
|
|
|
|
|
|
Opening balance (1) |
|
2,670 |
|
2,490 |
|
5,670 |
|
Depletion |
|
(160) |
|
(160) |
|
(170) |
|
Revisions (2) |
|
(400) |
|
250 |
|
(400) |
|
Additions (3) |
|
770 |
|
90 |
|
— |
|
Divestments (4) |
|
— |
|
— |
|
(2,390) |
|
Discontinued operations (5) |
|
— |
|
— |
|
(220) |
|
Closing balance |
|
2,880 |
|
2,670 |
|
2,490 |
|
A reconciliation of changes in attributable proven and probable copper reserves for 2018 by region is as follows:
|
|
North |
|
South |
|
|
|
|
|
America |
|
America |
|
Australia |
|
(millions of pounds) |
|
|
|
|
|
|
|
Opening balance |
|
1,330 |
|
— |
|
1,340 |
|
Depletion |
|
(60) |
|
— |
|
(100) |
|
Revisions (2) |
|
(400) |
|
— |
|
— |
|
Additions (3) |
|
20 |
|
740 |
|
10 |
|
Closing balance |
|
890 |
|
740 |
|
1,250 |
|
(1) |
The opening balance includes 2,610 million pounds of copper reserves in 2016 related to Batu Hijau. For further information regarding our discontinued operations, see Note 11 to the Consolidated Financial Statements. |
7
(2) |
Revisions are due to reclassification of reserves to mineralized material, optimizations, model updates, metal price changes and updated operating costs and recoveries. The copper price assumption remained at $2.50 per pound in 2018 and 2017. The copper price assumption was decreased from $2.75 to $2.50 per pound in 2016. The impact of the change in copper price assumption decreased reserves by 270 million pounds in 2016. |
(3) |
Additions are due to reserve conversions from mineralized material due to new drilling information and successful feasibility studies for first time declarations at Yanacocha. |
(4) |
Divestments are related to the sale of Batu Hijau in November 2016. |
(5) |
Amounts relate to depletion, revisions and additions activity at Batu Hijau, which was sold in November 2016 and classified as discontinued operations. For further information regarding our discontinued operations, see Note 11 to the Consolidated Financial Statements. |
Our silver reserves are a by-product of gold and/or copper reserves and are included in calculations for mine planning and operations. At December 31, 2018, we had 85.7 million ounces of attributable proven and probable silver reserves. The decrease in proven and probable silver reserves during 2018, compared to 2017, is due to revisions of 29.4 million ounces, depletion of 4.8 million ounces and divestments of 1.3 million ounces, partially offset by additions of 33.3 million ounces. Reserves at December 31, 2018 were calculated at a silver price of $16 per ounce. A reconciliation of the changes in proven and probable silver reserves during the past three years is as follows:
|
|
Years Ended December 31, |
|
||||
|
|
2018 |
|
2017 |
|
2016 |
|
(millions of ounces) |
|
|
|
|
|
|
|
Opening balance (1) |
|
87.9 |
|
89.3 |
|
113.3 |
|
Depletion |
|
(4.8) |
|
(6.6) |
|
(7.6) |
|
Revisions (2) |
|
(29.4) |
|
2.3 |
|
(7.4) |
|
Additions (3) |
|
33.3 |
|
1.6 |
|
— |
|
Acquisitions (4) |
|
— |
|
1.3 |
|
— |
|
Divestments (5) |
|
(1.3) |
|
— |
|
(7.9) |
|
Discontinued operations (6) |
|
— |
|
— |
|
(1.1) |
|
Closing balance |
|
85.7 |
|
87.9 |
|
89.3 |
|
A reconciliation of the changes in attributable proven and probable silver reserves for 2018 by region is as follows:
|
|
North |
|
South |
|
|
|
America |
|
America |
|
(millions of ounces) |
|
|
|
|
|
Opening balance |
|
60.9 |
|
27.0 |
|
Depletion |
|
(2.2) |
|
(2.6) |
|
Revisions (2) |
|
(28.3) |
|
(1.1) |
|
Additions (3) |
|
1.5 |
|
31.8 |
|
Divestments (5) |
|
— |
|
(1.3) |
|
Closing balance |
|
31.9 |
|
53.8 |
|
(1) |
The opening balance include 9.0 million ounces of silver reserves in 2016 related to Batu Hijau. For further information regarding our discontinued operations, see Note 11 to the Consolidated Financial Statements. |
(2) |
Revisions are due to reclassification of reserves to mineralized material, optimizations, model updates, metal price changes and updated operating costs and recoveries. The revisions in 2018 were primarily related to the model update at Phoenix in North America. The silver price assumption remained at $16 per ounce in 2018. The silver price assumption was decreased from $17 to $16 per ounce in 2017 and from $19 to $17 per ounce in 2016. The impact of the change in silver price assumption had no impact in 2017. The impact of the change in silver price assumption decreased reserves by 11 million ounces in 2016. |
(3) |
Additions are due to reserve conversions from mineralized material due to new drilling information and successful feasibility studies for first time declarations at Yanacocha. |
(4) |
Acquisitions include an increase in ownership at Yanacocha in December 2017. The increase in ownership at Yanacocha added 1.3 million ounces to proven and probable reserves in 2017. |
(5) |
Divestments are related to the sale of Yanacocha’s 5% ownership interest to a subsidiary of Sumitomo, reducing Newmont’s ownership to 51.35%, in June 2018, and the sale of the Batu Hijau mine in November 2016. |
(6) |
Amounts relate to depletion, revisions and additions activity at Batu Hijau, which was sold in November 2016 and classified as discontinued operations. For further information regarding our discontinued operations, see Note 11 to the Consolidated Financial Statements. |
Our exploration efforts are directed to the discovery of new mineralized material and converting it into proven and probable reserves. We conduct brownfield exploration around our existing mines and greenfield exploration in other regions globally. Brownfield exploration can result in the discovery of additional deposits, which may receive the economic benefit of existing operating, processing and administrative infrastructures. In contrast, the discovery of mineralization through greenfield exploration
8
efforts will require capital investment to build a stand-alone operation. Our Exploration expense was $197, $179 and $148 in 2018, 2017 and 2016, respectively.
For additional information, see Item 2, Properties, Proven and Probable Reserves.
The top 10 producers of gold comprise approximately thirty percent of total worldwide mined gold production. We currently rank in the top three among those producers with approximately five percent of estimated total worldwide mined gold production. Our competitive position is based on the size and grade of our ore bodies and our ability to manage costs compared with other producers. We have a diverse portfolio of mining operations with varying ore grades and cost structures. Our costs are driven by the location, grade and nature of our ore bodies, and the level of input costs, including energy, labor and equipment. The metals markets are cyclical, and our ability to maintain our competitive position over the long term is based on our ability to acquire and develop quality deposits, hire and retain a skilled workforce, and to manage our costs.
Other than operating licenses for our mining and processing facilities, there are no third party patents, licenses or franchises material to our business. In many countries, however, we conduct our mining and exploration activities pursuant to concessions granted by, or under contracts with, the host government. These countries include, among others, the United States, Australia, Ghana, Peru and Suriname. The concessions and contracts are subject to the political risks associated with the host country. See Item 1A, Risk Factors, below.
Condition of Physical Assets and Insurance
Our business is capital intensive and requires ongoing capital investment for the replacement, modernization or expansion of equipment and facilities. For more information, see Liquidity and Capital Resources in Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, below.
We maintain insurance policies against property loss and business interruption and insure against risks that are typical in the operation of our business, in amounts that we believe to be reasonable. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. There can be no assurance that claims would be paid under such insurance policies in connection with a particular event. See Item 1A, Risk Factors, below.
Our United States mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment, including the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Endangered Species Act; the Federal Land Policy and Management Act; the National Environmental Policy Act; the Resource Conservation and Recovery Act; and related state laws. These laws and regulations are continually changing and are generally becoming more restrictive. Our activities outside the United States are also subject to various levels of governmental regulations for the protection of the environment and, in some cases, those regulations can be as, or more, restrictive than those in the United States.
We conduct our operations so as to protect public health and the environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Each operating mine has a reclamation plan in place that meets in all material respects applicable legal and regulatory requirements. At December 31, 2018, $2,316 was accrued for reclamation costs relating to current or recently producing properties.
We are 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. Based upon our best estimate of our liability for these matters, $279 was accrued at December 31, 2018 for such obligations associated with properties previously owned or operated by us or our subsidiaries. The amounts accrued for these matters are reviewed periodically based upon facts and circumstances available at the time.
9
For a discussion of the most significant reclamation and remediation activities, see Item 7, Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, and Note 5 and Note 29 to the Consolidated Financial Statements.
In addition to legal and regulatory compliance, we have developed complementary programs to guide our Company toward achieving transparent and sustainable environmental and socially responsible performance objectives. In support of our management’s commitment towards these objectives, our corporate headquarters are located in an environmentally sustainable, Leadership in Energy and Environmental Design, gold-certified building. We are committed to managing climate change related risks and responsibly managing our greenhouse gas emissions. We have publicly reported our greenhouse gas emissions since 2004 to the Carbon Disclosure Project (now known only as “CDP”). Our greenhouse gas emissions are independently verified to satisfy all the requirements for emissions reporting under International Standard Organization (“ISO”) 14064-3:2006. We actively participate in the International Council on Mining and Metals (“ICMM”) and are committed to the ICMM’s 10 Principles of Sustainable Development and its commitment to implement the UN Global Compact's 10 principles on human rights, bribery and corruption, labor and the environment. In 2018, Newmont Mining Corporation headquarters was certified for the first time as ISO 14001 compliant and all Newmont operated sites maintained their certification as ISO 14001 compliant except for Merian in Suriname which will be audited for the first time in October 2019. We transparently report on our sustainability performance using the GRI (formerly Global Reporting Initiative) sustainability reporting guidelines, in accordance with the GRI Standards Core option and the GRI Mining and Metals Sector Supplement. In 2018, for the fourth year in a row, Newmont was ranked by the Dow Jones Sustainability World Index (“DJSI World”) as the mining industry’s overall leader in sustainability. Newmont’s inclusion on the index also marked the 12th consecutive year the Company has been selected for the DJSI World. Newmont also received the highest score in the mining sector across a number of areas measured by the index including Corporate Governance, Policy Influence, Risk and Crisis Management; Climate Strategy; Labor Practice Indicators, Human Rights, Biodiversity, Water-related Risks; Asset Closure Management; and Corporate Citizenship and Philanthropy. As of the end of 2018, all of our sites were certified through the International Cyanide Management Code (“ICMC”) or in the process for re-certification by independent auditors.
We design and conduct our business to protect the health and safety of our employees, contractors and visitors and believe that our operations are in compliance with applicable laws and regulations in all material respects. In addition, the Company has an established Health & Safety Management System and Health & Safety Standards that in most cases exceed regulatory requirements in the jurisdictions in which we operate. The quality of our Health & Safety Management System is audited regularly as part of our assurance and governance process.
The safety of our people and the communities in which we operate is a priority core value with the right to life and right to safe working conditions among our most salient human rights and key priorities. We strongly believe it is possible to effectively manage these risks so everyone returns home safely at the end of the day. To embed a culture of Zero Harm, Newmont has centered its health and safety activities on four key focus areas: health and safety leadership; fatality prevention; employee engagement; and occupational health and wellness.
On April 7, 2018, Newmont experienced a tragic event at our Ahafo Mill Expansion project in Ghana, resulting in multiple fatalities. A contractor crew of eight construction workers was inside the reclaim tunnel of the Ahafo Mill Expansion project when the roof of the structure collapsed during the pouring of concrete. Of these eight, two individuals escaped with minor injuries. Emergency response teams were immediately dispatched to the scene of the accident, but six people lost their lives. Newmont Ghana immediately notified authorities and operations at Ahafo and the Ahafo Mill Expansion project were temporarily suspended. Subsequent to the event, Newmont engaged and cooperated with the Ghana Mineral Commission on their investigation in addition to conducting a thorough internal investigation. Post investigation we launched a process to integrate lessons learned from this tragic event. These lessons related to establishing and enforcing barriers and exclusion zones; designing and verifying effective temporary structures; and managing changes to work conditions and tasks through appropriate risk assessment and controls. We also shared those lessons learned with the broader mining community and others.
On November 11, 2018, an Underground Technician was killed at our Pete-Bajo Operation in Nevada, when the Load-Haul-Dump (LHD) machine he had been operating underground ran over him. The event is currently under investigation by the U.S. Mine Safety and Health Administration. In addition, a Newmont team of subject matter experts are conducting an in-depth investigation into the root causes so we can apply what we learn across our operations and prevent this type of event from ever happening again.
10
These tragic events highlight the need to re-double our efforts around integrating our Fatality Risk Management system across our business. Managing fatality and health risks remains a core component of our health and safety journey. In recent years, the primary focus of our safety strategy has been on eliminating fatalities in the workplace. Launched in 2016, our Fatality Risk Management system provides the rigor and discipline around understanding our top risks and effectively managing them through robust controls and systems. The Fatality Risk Management system is focused on the top 16 fatality risks that are common across our business along with the three to four critical controls that must be in place every time we undertake a task involving those risks to prevent or minimize the consequence of a fatality. To ensure the critical controls are in place and effective at the time the work activity is occurring, site managers perform frequent field-based observations called verifications. Any deficiencies found during the verifications must be addressed before resuming work. Also essential in preventing fatalities is conducting quality event investigations and ensuring lessons are genuinely learned and adopted, not just shared.
Engaging employees requires visible felt leadership and quality safety interactions. Creating a positive safety culture to support injury and fatality prevention requires visible leadership that demonstrates care and concern for people’s safety.
We measure our health and safety performance by leading indicators, such as safety interactions and implementation of effective critical controls, and by tracking lagging indicators, such as injury rates. All significant events are investigated, and lessons learned are shared with workers. Investigations and corrective actions to prevent recurrence related to serious potential and actual events are reported to the executive leadership team and the Board of Directors.
We are committed to learning from and sharing best practices with others. We actively participate in programs to improve our performance as members of the ICMM and the Mining Safety Roundtable. We also participate in regional health and safety programs, such as the Western Australia Chamber of Minerals and Energy, the Ghana Chamber of Mines and the United States National Mining Association's CORESafety program.
Approximately 12,400 people were employed by Newmont and Newmont subsidiaries at December 31, 2018. In addition, approximately 11,800 people were working as contractors in support of Newmont’s operations at December 31, 2018.
Certain statements contained in this report (including information incorporated by reference herein) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provided for under these sections. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “estimate(s),” “should,” “intend(s)” and similar expressions are intended to identify forward-looking statements. Our forward-looking statements may include, without limitation:
· |
estimates regarding future earnings and the sensitivity of earnings to gold, copper and other metal prices; |
· |
estimates of future mineral production and sales; |
· |
estimates of future production costs, other expenses and taxes for specific operations and on a consolidated basis; |
· |
estimates of future cash flows and the sensitivity of cash flows to gold and other metal prices; |
· |
estimates of future capital expenditures, construction, production or closure activities and other cash needs, for specific operations and on a consolidated basis, and expectations as to the funding or timing thereof; |
· |
estimates as to the projected development of certain ore deposits, including the timing of such development, the costs of such development and other capital costs, financing plans for these deposits and expected production commencement dates; |
· |
estimates of reserves and statements regarding future exploration results and reserve replacement and the sensitivity of reserves to metal price changes; |
11
· |
statements regarding the availability of, and terms and costs related to, future borrowing or financing and expectations regarding future share repurchase transactions, debt repayments or debt tender transactions; |
· |
estimates regarding future exploration expenditures, results and reserves and mineralized material; |
· |
statements regarding fluctuations in financial and currency markets; |
· |
estimates regarding potential cost savings, productivity, operating performance and ownership and cost structures; |
· |
expectations regarding statements regarding future transactions, including, without limitation, statements related to future acquisitions and projected benefits, synergies and costs associated with acquisitions and related matters; |
· |
expectations of future equity and enterprise value; |
· |
expectations regarding the start-up time, design, mine life, production and costs applicable to sales and exploration potential of our projects; |
· |
statements regarding future hedge and derivative positions or modifications thereto; |
· |
statements regarding political, economic or governmental conditions and environments; |
· |
statements regarding the impacts of changes in the legal and regulatory environment in which we operate, including, without limitation, relating to regional, national, domestic and foreign laws; |
· |
statements regarding expected changes in the tax regimes in which we operate, including, without limitation, estimates of future tax rates and estimates of the impacts to income tax expense, valuation of deferred tax assets and liabilities, and other financial impacts resulting from recent changes to U.S. tax laws; |
· |
estimates of income taxes and expectations relating to tax contingencies or tax audits; |
· |
estimates of future costs, accruals for reclamation costs and other liabilities for certain environmental matters, including without limitation with respect to our Yanacocha operation; |
· |
statements relating to potential impairments, revisions or write-offs, including without limitation, the result of fluctuation in metal prices, unexpected production or capital costs, or unrealized reserve potential; |
· |
estimates of pension and other post-retirement costs; |
· |
statements regarding estimates of timing of voluntary early adoption of recent accounting pronouncements and expectations regarding future impacts to the financial statements resulting from accounting pronouncements; |
· |
statements relating to Newmont’s planned acquisition of Goldcorp and the expected terms, timing and closing of the proposed transaction, including receipt of required approvals and satisfaction of other customary closing conditions; |
· |
estimates of future cost reductions, synergies, savings and efficiencies in connection with the planned acquisition of Goldcorp; and |
· |
expectations regarding future exploration and the development, growth and potential of operations, projects and investments. |
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties and other factors,
12
which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. Such risks include, but are not limited to:
· |
the price of gold, copper and other metal prices and commodities; |
· |
the cost of operations; |
· |
currency fluctuations; |
· |
geological and metallurgical assumptions; |
· |
operating performance of equipment, processes and facilities; |
· |
labor relations; |
· |
timing of receipt of necessary governmental permits or approvals; |
· |
domestic and foreign laws or regulations, particularly relating to the environment, mining and processing; |
· |
changes in tax laws; |
· |
domestic and international economic and political conditions; |
· |
our ability to obtain or maintain necessary financing; and |
· |
other risks and hazards associated with mining operations. |
In addition, material risks that could cause actual results to differ from forward-looking statements relating to Newmont’s planned acquisition of Goldcorp include: the inherent uncertainty associated with financial or other projections; the prompt and effective integration of Newmont’s and Goldcorp’s businesses and the ability to achieve the anticipated synergies and value-creation contemplated by the proposed transaction; the risk associated with Newmont’s and Goldcorp’s ability to obtain the approval of the proposed transaction by their shareholders required to consummate the proposed transaction and the timing of the closing of the proposed transaction, including the risk that the conditions to the proposed transaction are not satisfied on a timely basis or at all and the failure of the proposed transaction to close for any other reason; the risk that a consent or authorization that may be required for the proposed transaction is not obtained or is obtained subject to conditions that are not anticipated; the outcome of any legal proceedings that may be instituted against the parties and others related to the arrangement agreement; unanticipated difficulties or expenditures relating to the proposed transaction, the response of business partners and retention as a result of the announcement and pendency of the proposed transaction; potential volatility in the price of Newmont Common Stock due to the proposed transaction; the anticipated size of the markets and continued demand for Newmont’s and Goldcorp’s resources and the impact of competitive responses to the announcement of the proposed transaction; and the diversion of management time on transaction-related issues. In connection with the proposed transaction, the Company filed a proxy statement relating to a special meeting of its stockholders with the SEC and will file other relevant materials in connection with the proposed transaction with the SEC. Security holders of the Company are urged to read the proxy statement regarding the proposed transaction and any other relevant materials carefully in their entirety when they become available before making any voting or investment decision with respect to the proposed transaction because they will contain important information about the proposed transaction and the parties to the proposed transaction.
More detailed information regarding these factors is included in Item 1, Business; Item 1A, Risk Factors and elsewhere throughout this report. Many of these factors are beyond our ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.
All subsequent written and oral forward-looking statements attributable to Newmont or to persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. We disclaim any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
13
Newmont maintains a website at www.newmont.com and makes available, through the Investor Relations section of the website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). Certain other information, including Newmont’s Corporate Governance Guidelines, the charters of key committees of its Board of Directors and its Code of Conduct are also available on the website.
ITEM 1A. RISK FACTORS (dollars in millions, except per share, per ounce and per pound amounts)
Our business activities are subject to significant risks, including those described below. You should carefully consider these risks. If any of the described risks actually occurs, our business, financial position and results of operations could be materially adversely affected. Such risks are not the only ones we face and additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Forward-Looking Statements.”
Risks Related to Our Business
A substantial or extended decline in gold or copper prices would have a material adverse effect on Newmont.
Our business is dependent on the prices of gold and copper, which fluctuate on a daily basis and are affected by numerous factors beyond our control. Factors tending to influence prices include:
· |
Gold sales, purchases or leasing by governments and central banks; |
· |
Speculative short positions taken by significant investors or traders in gold or copper; |
· |
The relative strength of the U.S. dollar; |
· |
The monetary policies employed by the world’s major Central Banks; |
· |
The fiscal policies employed by the world’s major industrialized economies; |
· |
Expectations of the future rate of inflation; |
· |
Interest rates; |
· |
Recession or reduced economic activity in the United States, China, India and other industrialized or developing countries; |
· |
Decreased industrial, jewelry or investment demand; |
· |
Increased import and export taxes; |
· |
Increased supply from production, disinvestment and scrap; |
· |
Forward sales by producers in hedging or similar transactions; and |
· |
Availability of cheaper substitute materials. |
Average gold prices for 2018 were $1,268 per ounce (2017: $1,257; 2016: $1,251) and average copper prices for 2018 were $2.96 per pound (2017: $2.80; 2016: $2.21). Any decline in our realized gold or copper price adversely impacts our revenues, net income and operating cash flows, particularly in light of our strategy of not engaging in hedging transactions with respect to gold or
14
copper sales. We have recorded asset impairments in the past and may experience additional impairments as a result of lower gold or copper prices in the future.
In addition, sustained lower gold or copper prices can:
· |
Reduce revenues further through production declines due to cessation of the mining of deposits, or portions of deposits, that have become uneconomic at sustained lower gold or copper prices; |
· |
Reduce or eliminate the profit that we currently expect from ore stockpiles and ore on leach pads and increase the likelihood and amount that the Company might be required to record as an impairment charge related to the carrying value of its stockpiles; |
· |
Halt or delay the development of new projects; |
· |
Reduce funds available for exploration and advanced projects with the result that depleted reserves may not be replaced; and |
· |
Reduce existing reserves by removing ores from reserves that can no longer be economically processed at prevailing prices. |
We may be unable to replace gold and copper reserves as they become depleted.
Gold and copper producers must continually replace reserves depleted by production to maintain production levels over the long term and provide a return on invested capital. Depleted reserves can be replaced in several ways, including expanding known ore bodies, by locating new deposits or acquiring interests in reserves from third parties. Exploration is highly speculative in nature, involves many risks and uncertainties and is frequently unsuccessful in discovering significant mineralization. Accordingly, our current or future exploration programs may not result in new mineral producing operations. Even if significant mineralization is discovered, it will likely take many years from the initial phases of exploration until commencement of production, during which time the economic feasibility of production may change.
We may consider, from time to time, the acquisition of ore reserves from others related to development properties and operating mines. Such acquisitions are typically based on an analysis of a variety of factors including historical operating results, estimates of and assumptions regarding the extent of ore reserves, the timing of production from such reserves and cash and other operating costs. Other factors that affect our decision to make any such acquisitions may also include our assumptions for future gold or copper prices or other mineral prices and the projected economic returns and evaluations of existing or potential liabilities associated with the property and its operations and projections of how these may change in the future. In addition, in connection with any acquisitions we may rely on data and reports prepared by third parties (including ability to permit and compliance with existing regulations) and which may contain information or data that we are unable to independently verify or confirm. Other than historical operating results, all of these factors are uncertain and may have an impact on our revenue, our cash flow and other operating issues, as well as contributing to the uncertainties related to the process used to estimate ore reserves. In addition, there may be intense competition for the acquisition of attractive mining properties.
As a result of these uncertainties, our exploration programs and any acquisitions which we may pursue may not result in the expansion or replacement of our current production with new ore reserves or operations, which could have a material adverse effect on our business, prospects, results of operations and financial position.
Estimates of proven and probable reserves and mineralized material are uncertain and the volume and grade of ore actually recovered may vary from our estimates.
The reserves stated in this report represent the amount of gold and copper that we estimated, at December 31, 2018, could be economically and legally extracted or produced at the time of the reserve determination. Estimates of proven and probable reserves are subject to considerable uncertainty. Such estimates are, to a large extent, based on the prices of gold and copper and interpretations of geologic data obtained from drill holes and other exploration techniques, which data may not necessarily be indicative of future results. Producers use feasibility studies for undeveloped orebodies to derive estimates of capital and operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the predicted configuration of the ore body, expected recovery rates of metals from the ore, the costs of comparable facilities, the costs of operating and processing equipment and other factors. Actual
15
operating and capital cost and economic returns on projects may differ significantly from original estimates. Further, it may take many years from the initial phases of exploration until commencement of production, during which time, the economic feasibility of production may change.
Additionally, the term “mineralized material” does not indicate proven and probable reserves as defined by the SEC or the Company’s standards. Estimates of mineralized material are subject to further exploration and development, and are, therefore, subject to considerable uncertainty. Despite the Company’s history of converting a substantial portion of mineralized material to reserves through additional drilling and study work, the Company cannot be certain that any part or parts of the mineralized material deposit will ever be confirmed or converted into SEC Industry Guide 7 compliant reserves or that mineralized material can be economically or legally extracted.
In addition, if the price of gold or copper declines from recent levels, if production costs increase or recovery rates decrease or if applicable laws and regulations are adversely changed, we can offer no assurance that the indicated level of recovery will be realized or that mineral reserves or mineralized material can be mined or processed profitably. If we determine that certain of our ore reserves have become uneconomic, this may ultimately lead to a reduction in our aggregate reported reserves and mineralized material. Consequently, if our actual mineral reserves and mineralized material are less than current estimates, our business, prospects, results of operations and financial position may be materially impaired.
Increased operating and capital costs could affect our profitability.
Costs at any particular mining location are subject to variation due to a number of factors, such as variable ore grade, changing metallurgy and revisions to mine plans in response to the physical shape and location of the ore body, as well as the age and utilization rates for the mining and processing related facilities and equipment. In addition, costs are affected by the price and availability of input commodities, such as fuel, electricity, labor, chemical reagents, explosives, steel, concrete and mining and processing related equipment and facilities. Commodity costs are, at times, subject to volatile price movements, including increases that could make production at certain operations less profitable. Further, changes in laws and regulations can affect commodity prices, uses and transport. Reported costs may also be affected by changes in accounting standards. A material increase in costs at any significant location could have a significant effect on our profitability and operating cash flow.
We could have significant increases in capital and operating costs over the next several years in connection with the development of new projects in challenging jurisdictions and in the sustaining and/or expansion of existing mining and processing operations. Costs associated with capital expenditures may increase in the future as a result of factors beyond our control. Increased capital expenditures may have an adverse effect on the profitability of and cash flow generated from existing operations, as well as the economic returns anticipated from new projects.
Estimates relating to new development projects and mine plans of existing operations are uncertain and we may incur higher costs and lower economic returns than estimated.
Mine development projects typically require a number of years and significant expenditures during the development phase before production is possible. Such projects could experience unexpected problems and delays during development, construction and mine start-up.
Our decision to develop a project is typically based on the results of feasibility studies, which estimate the anticipated economic returns of a project. The actual project profitability or economic feasibility may differ from such estimates as a result of any of the following factors, among others:
· |
Changes in tonnage, grades and metallurgical characteristics of ore to be mined and processed; |
· |
Changes in input commodity and labor costs; |
· |
The quality of the data on which engineering assumptions were made; |
· |
Adverse geotechnical conditions; |
· |
Availability of adequate and skilled labor force; |
16
· |
Availability, supply and cost of water and power; |
· |
Fluctuations in inflation and currency exchange rates; |
· |
Availability and terms of financing; |
· |
Delays in obtaining environmental or other government permits or approvals or changes in the laws and regulations related to our operations or project development; |
· |
Changes in tax laws, the laws and/or regulations around royalties and other taxes due to the regional and national governments and royalty agreements; |
· |
Weather or severe climate impacts, including, without limitation, prolonged or unexpected precipitation, drought and/or sub-zero temperatures; |
· |
Potential delays relating to social and community issues, including, without limitation, issues resulting in protests, road blockages or work stoppages; and |
· |
Potential challenges to permits or other approvals or delays in development and construction of projects based on claims of disturbance of cultural resources. |
New projects require, among other things, the successful completion of feasibility studies, attention to various fiscal, tax and royalty matters, obtainment of, and compliance with, required governmental permits and arrangements for necessary surface and other land rights. We may also have to identify adequate sources of water and power for new projects, ensure that appropriate community infrastructure (for example, reliable rail, ports, roads, and bridges) is developed to support the project and secure appropriate financing to fund a new project. These infrastructures and services are often provided by third parties whose operational activities are outside of our control. Establishing infrastructure for our development projects requires significant resources, identification of adequate sources of raw materials and supplies, and the cooperation of national and regional governments, none of which can be assured. In addition, new projects have no operating history upon which to base estimates of future financial and operating performance, including future cash flow. Thus, it is possible that actual costs may increase significantly and economic returns may differ materially from our estimates. Consequently, our future development activities may not result in the expansion or replacement of current production with new production, or one or more of these new production sites or facilities may be less profitable than currently anticipated or may not be profitable at all, any of which could have a material adverse effect on our results of operations and financial position.
For our existing operations, we base our mine plans on geological and metallurgical assumptions, financial projections and commodity price estimates. These estimates are periodically updated to reflect changes in our operations, including modifications to our proven and probable reserves and mineralized material, revisions to environmental obligations, changes in legislation and/or our political or economic environment, and other significant events associated with mining operations. For example, in December 2018, we revised our historical estimates of proven and probable reserves at Carlin Open Pits in Nevada and at Phoenix in Nevada, a portion of which was reclassified to mineralized material. Further, future positive revisions, if any, remain subject to improvements in costs, recovery, gold price or a combination of these and other factors. Additionally, we review our operations for events and circumstances that could indicate that the carrying value of our long-lived assets may not be recoverable. If indicators of impairment are determined to exist at our mine operations, we review the recoverability of the carrying value of long-lived assets by estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Management makes multiple assumptions in estimating future undiscounted cash flows, which include productions levels based on life of mine plans, future costs of production, estimates of future production levels based on value beyond proven and probable reserves at the operations, prices of metals, the historical experience of the operations and other factors. There are numerous uncertainties inherent in estimating production levels of gold and copper and the costs to mine recoverable reserves, including many factors beyond our control, that could cause actual results to differ materially from expected financial and operating results or result in future impairment charges. We may be required to recognize impairments of long-lived assets in the future if actual results differ materially from management’s estimates, which include metal prices, our ability to reduce or control production or capital costs through strategic mine optimization initiatives, increased costs or decreased production due to regulatory issues or if we do not realize the mineable ore reserves or exploration potential at our mining properties. If an impairment charge is incurred, such charges are not reversible at a later date even when favorable modifications to our proven and probable reserves and mineralized material, favorable revisions to environmental obligations, favorable changes in legislation and/or our political or economic environment, and other favorable events occur.
17
Our business is subject to the U.S. Foreign Corrupt Practices Act and other extraterritorial and domestic anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and other collateral consequences and reputational harm.
We operate in certain jurisdictions that have experienced governmental and private sector corruption to some degree, and, in certain circumstances, compliance with anti-bribery laws and heightened expectations of enforcement authorities may be in tension with certain local customs and practices. For example, the U.S. Foreign Corrupt Practices Act and other laws with extraterritorial reach, including the U.K. Bribery Act, and anti-bribery laws in other jurisdictions in which we operate generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. We have an ethics and compliance program which includes our Code of Conduct, Business Integrity Policy and other policies and standards, all of which mandate compliance with these anti-bribery laws by the Company and its subsidiaries and their personnel, and also by third parties when they are engaged on our behalf. Our program also includes a well-publicized hot line for raising issues and processes for investigating such issues and assurances of non-retaliation for persons who in good faith raise concerns. We report regularly to the Audit Committee of our Board of Directors on such programs. There can be no assurance that Newmont’s internal control policies and procedures will always protect it from misinterpretation of or noncompliance with applicable laws and internal policies, recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees, agents or associated persons for which we might be claimed to be responsible. As such, our corporate policies and processes may not prevent or detect all potential breaches of law or other governance practices. We occasionally identify or are apprised of information or allegations that certain employees, affiliates, agents or associated persons may have engaged in unlawful conduct for which we might be held responsible. Our policy when receiving credible information or allegations is to conduct internal investigations and compliance reviews to evaluate that information, determine compliance with applicable anti-bribery laws and regulations and company policies and take such remedial steps as may be warranted. In appropriate circumstances, we communicate with authorities in the United States and elsewhere about those investigations and reviews. Violations of these laws, or allegations of such violations, could lead to substantial civil and criminal fines and penalties, litigation, loss of operating licenses or permits and other collateral consequences, and may damage the Company’s reputation, which could have a material adverse effect on our business, financial position and results of operations or cause the market value of our common shares to decline.
Mine closure, reclamation and remediation costs for environmental liabilities may exceed the provisions we have made.
Natural resource extractive companies are required to close their operations and rehabilitate the lands that they mine in accordance with a variety of environmental laws and regulations. Estimates of the total ultimate closure and rehabilitation costs for gold and copper mining operations are significant and based principally on current legal and regulatory requirements and mine closure plans that may change materially. For example, we have conducted extensive remediation work at two inactive sites in the United States. We are conducting remediation activities at a third site in the United States, an inactive uranium mine and mill site formerly operated by a subsidiary of Newmont. In addition, we may be held responsible for the costs of addressing contamination at the site of current or former activities or at third party sites or be held liable to third parties for exposure to hazardous substances.
The laws and regulations governing mine closure and remediation in a particular jurisdiction are subject to review at any time and may be amended to impose additional requirements and conditions which may cause our provisions for environmental liabilities to be underestimated and could materially affect our financial position or results of operations. For a more detailed description of potential environmental liabilities, see the discussion in Environmental Matters in Note 29 to the Consolidated Financial Statements. In addition, regulators are increasingly requesting security in the form of cash collateral, credit, trust arrangements or guarantees to secure the performance of environmental obligations, which could have an adverse effect on our financial position.
Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) and its state law equivalents, current or former owners of properties may be held jointly and severally liable for the costs of site cleanup or required to undertake remedial actions in response to unpermitted releases of hazardous substances at such property, in addition to, among other potential consequences, liability to governmental entities for the cost of damages to natural resources, which may be significant. These subject properties are referred to as “superfund” sites. For example, the inactive uranium mine and mill at Midnite Mine is a superfund site subject to CERCLA. It is possible that certain of our other current or former operations in the U.S. could be designated as a superfund site in the future, exposing us to potential liability under CERCLA.
Any underestimated or unanticipated retirement and rehabilitation costs could materially affect our financial position, results of operations and cash flows. Environmental liabilities are accrued when they become known, are probable and can be reasonably estimated. Whenever a previously unrecognized remediation liability becomes known, or a previously estimated reclamation cost is
18
increased, the amount of that liability and additional cost will be recorded at that time and could materially reduce our consolidated net income attributable to Newmont stockholders and potentially result in impairments.
For example, the Company completed a comprehensive study of the Yanacocha long-term mining and closure plans in 2016 as part of the requirement to submit an updated closure plan to Peruvian regulators every five years. As a result, the Company recorded an increase to the reclamation obligation at Yanacocha for the fourth quarter of 2016 in connection with an update to the Yanacocha closure plan, resulting in an increase to the recorded asset retirement cost related to the producing areas of the mine and a non-cash charge to reclamation expense related to the areas of the mine no longer in production. The increase to the reclamation obligation was primarily due to higher estimated long-term water management costs, heap leach earthworks and related support activities. For additional information regarding our review of the Yanacocha closure plan, see Note 6 to our Consolidated Financial Statements.
Our business depends on good relations with our employees.
Production at our mines is dependent upon the efforts of our employees and, consequently, our maintenance of good relationships with our employees. Due to union activities or other employee actions, we could experience labor disputes, work stops or other disruptions in production that could adversely affect us. At December 31, 2018, various unions represented approximately 34% of our employee workforce worldwide. Labor rates in Ghana are agreed through 2018, but negotiations relating to other terms and conditions remain ongoing. One of our labor agreements in Peru expires February 2019 and will be the subject of contract negotiations in 2019. The Company entered into a collective labor agreement in Nevada that will expire in January 2022. A failure to successfully enter into new contracts could result in future labor disputes, work stoppages or other disruptions in production that could adversely affect our operations and financial performance. We are just beginning preliminary discussions with a new union formed in March 2018 at Merian in Suriname. A failure to successfully enter into an initial contract could result in similar risks as described above. There can be no assurance that any future disputes at the Company’s operations or projects will be resolved without disruptions.
If we are unable to attract and retain additional highly skilled employees, our business and future operations may be adversely affected.
We depend upon the services of a number of key executives and management personnel. Our success is also dependent on the contributions of our highly skilled and experienced workforce. There continues to be competition over highly skilled personnel in our industry. The loss of members of our highly-skilled and experienced management and workforce or our inability to attract and retain additional experienced management and skilled workers may have a material adverse effect on our business, financial position and results of operations.
Damage to our reputation may result in decreased investor confidence, challenges in maintaining positive community relations and can pose additional obstacles to our ability to develop our projects, which may result in a material adverse impact on our business, financial position, results of operations and growth prospects.
Damage to our reputation can be the result of the actual or perceived occurrence of a variety of events and circumstances, and could result in negative publicity (for example, with respect to our handling of environmental matters or our dealings with local community organizations). The growing use of social media to generate, publish and discuss community news and issues and to connect with others has made it significantly easier, among other things, for individuals and groups to share their opinions of us and our activities, whether true or not. We do not have direct control over how we are perceived by others and loss of reputation could have a material adverse effect on our business, financial position and results of operations.
Currency fluctuations may affect our costs.
Currency fluctuations may affect the costs that we incur at our operations. Gold and copper are sold throughout the world based principally on the U.S. dollar price, but a portion of our operating expenses are incurred in local currencies. The appreciation of those local currencies against the U.S. dollar increases our costs of production in U.S. dollar terms at mines located outside the United States.
The foreign currency that primarily impacts our results of operations is the Australian dollar. We estimate that every $0.10 increase in the U.S. dollar/Australian dollar exchange rate increases annually the U.S. dollar Costs applicable to sales by approximately $84 for each ounce of gold sold from operations in Australia before taking into account the impact of currency hedging. The annual average Australian dollar exchange rate depreciated by approximately 2% from December 31, 2017 to
19
December 31, 2018. The annual average Australian dollar exchange rate appreciated by approximately 3% from December 31, 2016 to December 31, 2017.
Inflation may have a material adverse effect on results of operations.
Certain of our operations are located in countries that have in the past experienced high rates of inflation. It is possible that in the future, high inflation in the countries in which we operate may result in an increase in operational costs in local currencies (without a concurrent devaluation of the local currency of operations against the dollar or an increase in the dollar price of gold and copper). This could have a material adverse effect on our business, financial position and results of operations. Significantly higher and sustained rates of inflation, with subsequent increases in operational costs, could result in the deferral or closure of projects and mines in the event that operating costs become prohibitive.
Our business requires substantial capital investment and we may be unable to raise additional funding on favorable terms.
The construction and operation of potential future projects and various exploration projects will require significant funding. Our operating cash flow and other sources of funding may become insufficient to meet all of these requirements, depending on the timing and costs of development of these and other projects. As a result, new sources of capital may be needed to meet the funding requirements of these investments, fund our ongoing business activities and pay dividends. Our ability to raise and service significant new sources of capital will be a function of macroeconomic conditions, future gold and copper prices, our operational performance and our current cash flow and debt position, among other factors. In the event of lower gold and copper prices, unanticipated operating or financial challenges, or a further dislocation in the financial markets as experienced in recent years, our ability to pursue new business opportunities, invest in existing and new projects, fund our ongoing operations, retire or service all of our outstanding debt and pay dividends could be significantly constrained.
To the extent that we seek to expand our operations and increase our reserves through acquisitions, we may experience issues in executing acquisitions or integrating acquired operations.
From time to time, we examine opportunities to make selective acquisitions in order to provide increased returns to our shareholders and to expand our operations and reported reserves and, potentially, generate synergies. The success of any acquisition would depend on a number of factors, including, but not limited to:
· |
Identifying suitable candidates for acquisition and negotiating acceptable terms; |
· |
Obtaining approval from regulatory authorities and potentially Newmont’s shareholders; |
· |
Maintaining our financial and strategic focus and avoiding distraction of management during the process of integrating the acquired business; |
· |
Implementing our standards, controls, procedures and policies at the acquired business and addressing any pre-existing liabilities or claims involving the acquired business; and |
· |
To the extent the acquired operations are in a country in which we have not operated historically, understanding the regulations and challenges of operating in that new jurisdiction. |
There can be no assurance that we will be able to conclude any acquisitions successfully or that any acquisition will achieve the anticipated synergies or other positive results. Any material problems that we encounter in connection with such an acquisition could have a material adverse effect on our business, results of operations and financial position.
Our operations may be adversely affected by rising energy prices or energy shortages.
Our mining operations and development projects require significant amounts of energy. Increasing global demand for energy, concerns about nuclear power and the limited growth of new energy sources are affecting the price and supply of energy. A variety of factors, including higher energy usage in emerging market economies, actual and proposed taxation of carbon emissions as well as concerns surrounding unrest and potential conflict in the Middle East, could result in increased demand or limited supply of energy and/or sharply escalating diesel fuel, gasoline, natural gas and other energy prices. Increased energy prices could negatively impact our operating costs and cash flow.
20
Our principal energy sources are electricity, purchased petroleum products, natural gas and coal. Some of our operations are in remote locations requiring long distance transmission of power, and in some locations we compete with other companies for access to third party power generators or electrical supply networks. A disruption in the transmission of energy, inadequate energy transmission infrastructure or the termination of any of our energy supply contracts could interrupt our energy supply and adversely affect our operations.
Continuation of our mining production is dependent on the availability of sufficient water supplies to support our mining operations.
Our mining operations require significant quantities of water for mining, ore processing and related support facilities. Our operations in North and South America and Australia are in areas where water is scarce and competition among users for continuing access to water is significant. Continuous production at our mines is dependent on our ability to maintain our water rights, claims and contracts and to defeat claims adverse to our current water uses in legal proceedings. Although each of our operations currently has sufficient water rights, claims and contracts to cover its operational demands, we cannot predict the potential outcome of pending or future legal proceedings relating to our water rights, claims, contracts and uses. Water shortages may also result from weather or environmental and climate impacts out of the Company’s control. For example, the continuation of the below average rainfall or the occurrence of drought in southwest Australia could impact our raw water supply at Boddington. While we incorporated systems to address the impact of the dry season as part of our operating plans, we can make no assurances that those systems will be sufficient to address all shortages in water supply, which could result in production and processing interruptions. The loss of some or all water rights for any of our mines, in whole or in part, or shortages of water to which we have rights could require us to curtail or shut down mining production and could prevent us from pursuing expansion opportunities. Laws and regulations may be introduced in some jurisdictions in which we operate which could limit our access to sufficient water resources in our operations, thus adversely affecting our operations.
We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation, upgrade and integration.
We are dependent upon information technology systems in the conduct of our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. We have experienced attempts by external parties to penetrate our networks and systems. Although such attempts to date have not resulted in any material breaches, disruptions, or loss of business-critical information, our systems and procedures for preparing and protecting against such attempts and mitigating such risks may prove to be insufficient in the future and attacks could have an adverse impact on our business and operations, including damage to our reputation and competitiveness, remediation costs, litigation or regulatory actions. Various measures have been implemented to manage our risks related to information technology systems and network disruptions. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions. In addition, as technologies evolve and these cybersecurity attacks become more sophisticated, we may incur significant costs to upgrade or enhance our security measures to protect against such attacks and we may face difficulties in fully anticipating or implementing adequate preventive measures or mitigating potential harm, which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations. For instance, we engage an independent third party to conduct penetration and vulnerability testing on an annual basis and review findings and recommendations from these tests, we then seek to address any remediation actions through our ongoing cyber security program. Such efforts may incur significant costs and yet prove insufficient to deter future cybersecurity attacks or prevent all security breaches.
We could also be adversely affected by system or network disruptions if new or upgraded information technology systems are defective, not installed properly or not properly integrated into our operations. Various measures have been implemented to manage our risks related to the system implementation and modification, but system modification failures could have a material adverse effect on our business, financial position and results of operations and could, if not successfully implemented, adversely impact the effectiveness of our internal controls over financial reporting.
21
The occurrence of events for which we are not insured may affect our cash flow and overall profitability.
We maintain insurance policies that mitigate against certain risks related to our operations. This insurance is maintained in amounts that we believe are reasonable depending upon the circumstances surrounding each identified risk. However, we may elect not to have insurance for certain risks because of the high premiums associated with insuring those risks or for various other reasons; in other cases, insurance may not be available for certain risks. Some concern always exists with respect to investments in parts of the world where civil unrest, war, nationalist movements, political violence or economic crises are possible. These countries may also pose heightened risks of expropriation of assets, business interruption, increased taxation or unilateral modification of concessions and contracts. We do not maintain insurance policies against political risk. Occurrence of events for which we are not insured may affect our results of operations and financial position.
We rely on contractors to conduct a significant portion of our operations and construction projects.
A significant portion of our operations and construction projects are currently conducted in whole or in part by contractors. As a result, our operations are subject to a number of risks, some of which are outside our control, including:
· |
Negotiating agreements with contractors on acceptable terms; |
· |
The inability to replace a contractor and its operating equipment in the event that either party terminates the agreement; |
· |
Reduced control over those aspects of operations which are the responsibility of the contractor; |
· |
Failure of a contractor to perform under its agreement; |
· |
Interruption of operations or increased costs in the event that a contractor ceases its business due to insolvency or other unforeseen events; |
· |
Failure of a contractor to comply with applicable legal and regulatory requirements, to the extent it is responsible for such compliance; and |
· |
Problems of a contractor with managing its workforce, labor unrest or other employment issues. |
In addition, we may incur liability to third parties as a result of the actions of our contractors. The occurrence of one or more of these risks could adversely affect our results of operations and financial position.
To the extent we hold or acquire interests in any joint ventures or joint operations or enter into any joint ventures or joint operations in the future, our interest in these properties is subject to the risks normally associated with the conduct of joint ventures or joint operations.
To the extent we hold or acquire interests in any joint ventures or joint operations or enter into any joint ventures or joint operations in the future, the existence or occurrence of one or more of the following circumstances and events could have a material adverse impact on our profitability or the viability of our interests held through joint ventures, which could have a material adverse impact on our future cash flows, earnings, results of operations and financial condition:
· |
disagreements with partners on strategy for the most efficient development or operation of mines; |
· |
inability to control certain strategic decisions made in respect of properties; |
· |
inability of partners to meet their financial and other obligations to the joint venture, joint operation or third parties; and |
· |
litigation between partners regarding management, funding or other decisions related to the joint venture or joint operation. |
To the extent that we are not the operator of a joint venture or joint operation properties, we will be unable to control the activities of the operator and as a result the success of such operations will be beyond our control. In many cases we will be bound by
22
the decisions made by the operator in the operation of such property, and will rely on the operator to manage the property and to provide accurate information related to such property. We can provide no assurance that all decisions of operators of properties we do not control will achieve the expected results.
We are subject to litigation and may be subject to additional litigation in the future.
We are currently, and may in the future become, subject to litigation, arbitration or other legal proceedings with other parties. If decided adversely to Newmont, these legal proceedings, or others that could be brought against us in the future, could have a material adverse effect on our financial position or prospects. Furthermore, to the extent we sell or reduce our interest in certain assets, we may give representations and warranties and indemnities customary for such transactions and we may agree to retain responsibility for certain liabilities related to the period prior to the sale. As a result, we may incur liabilities in the future associated with assets we no longer own or in which we have a reduced interest. For a more detailed discussion of pending litigation, see Note 29 to our Consolidated Financial Statements.
In the event of a dispute arising at our foreign operations, we may be subject to the exclusive jurisdiction of foreign courts or arbitral panels, or may not be successful in subjecting foreign persons to the jurisdiction of courts or arbitral panels in the United States. Our inability to enforce our rights and the enforcement of rights on a prejudicial basis by foreign courts or arbitral panels could have an adverse effect on our results of operations and financial position.
Title to some of our properties may be defective or challenged.
Although we have conducted title reviews of our properties, title review does not preclude third parties from challenging our title or related property rights. While we believe that we have satisfactory title to our properties, some titles may be defective or subject to challenge by governments, indigenous or communal peoples, or private parties. For example, at our Conga project in Peru, we continue to seek resolution to a land dispute with local residents. In addition, certain of our Australian properties could be subject to native title or traditional landowner claims, and our ability to use these properties is dependent on agreements with traditional owners of the properties. A determination of defective title or risks in connection with a challenge to title rights could impact existing operations as well as exploration and development projects, and future acquisitions which could have an adverse effect on operations, our ability to develop new projects, and our financial position. For more information regarding native title or traditional landowner claims, see the discussion under the Australia Section of Item 2, Properties, in this report.
Civil disturbances, criminal activities, including illegal mining, and artisanal mining, occurs on or adjacent to certain of our properties, which can disrupt business and expose the Company to liability.
Civil disturbances and criminal activities such as trespass, illegal mining, sabotage, theft and vandalism may cause disruptions and could result in the suspension of operations and development at certain sites. Incidents of such activities have occasionally led to conflict with security personnel and/or police, which in some cases resulted in injuries including in Peru and Suriname. Although security measures have been implemented by the Company to protect employees, property and assets, such measures will not guarantee that such incidents will not continue to occur in the future, or result in harm to employees or trespassers, decrease operational efficiency or construction delays, increase community tensions or result in liabilities. The manner in which the Company’s personnel, national police or other security forces respond to civil disturbances and criminal activities can give rise to additional risks where those responses are not conducted in a manner consistent with international and Newmont standards relating to the use of force and respect for human rights.
Newmont takes seriously our obligation to respect and promote human rights, is a signatory to and active participant in the Voluntary Principles on Security and Human Rights, and has adopted a Sustainability and Stakeholder Engagement Policy and Human Rights Standard in-line with the UN Guiding Principles on Business and Human Rights due diligence processes. Nonetheless, although the Company has implemented a number of significant measures and safeguards which are intended to ensure that personnel understand and uphold these standards, the implementation of these measures will not guarantee that personnel, national police or other security forces will uphold these standards in every instance. The evolving expectations related to human rights, indigenous rights, and environmental protections may result in opposition to our current and future operations or the development of new projects and mines. Such opposition may take the form of legal or administrative proceedings or manifestations such as protests, roadblocks or other forms of public expression against our activities, and may have a negative impact on our reputation and operations. Opposition by community and activist groups to our operations may require modification of, or preclude the operation or development of, our projects and mines or may require us to enter into agreements with such groups or local governments with respect to our projects and mines, in some cases, causing increased costs and significant delays to the advancement of our projects. The failure to conduct
23
operations in accordance with Company standards can result in harm to employees, community members or trespassers, increase community tensions, reputational harm to Newmont or result in criminal and/or civil liability and/or financial damages or penalties.
Artisanal and illegal miners have been active on, or adjacent to, some of Newmont’s African and South American properties, including recently at Suriname. Illegal mining, which involves trespass into the development or operating area of the mine, is both a security and safety issue, which may present a security threat to property and human life. The illegal miners from time to time have clashed with security staff and law enforcement personnel who have attempted to move them away from the facilities. Although, under certain circumstances, artisanal mining may be a legally sanctioned activity, artisanal mining is also associated with a number of negative impacts, including environmental degradation, poor working practices, erosion of civil society, human rights abuse and funding of conflict. The environmental, social, safety and health impacts of artisanal and illegal mining are frequently attributed to formal mining activity, and it is often assumed that artisanally-mined gold is channeled through large-scale mining operators, even though artisanal and large-scale miners may have separate supply chains. These misconceptions impact negatively on the reputation of the industry. The activities of the illegal miners could cause damage to Newmont’s properties for which Newmont could potentially be held responsible. The presence of illegal miners could lead to exploration and project delays and disputes regarding the development or operation of commercial gold deposits. Illegal mining and theft could also result in lost gold production and reserves, mine and development stoppages, and have a material adverse effect on financial condition or results of operations or project development.
Competition from other natural resource companies may harm our business.
We compete with other natural resource companies to attract and retain key executives, skilled labor, contractors and other employees. We also compete with other natural resource companies for specialized equipment, components and supplies, such as drill rigs, necessary for exploration and development, as well as for rights to mine properties containing gold, copper and other minerals. We may be unable to continue to attract and retain skilled and experienced employees, to obtain the services of skilled personnel and contractors or specialized equipment or supplies, or to acquire additional rights to mine properties, which could have an adverse effect on our competitive position or adversely impact our results of operations.
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income.
We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized, otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize the deferred tax assets could be impacted. In the future, our estimates could change requiring a valuation allowance or impairment of our deferred tax assets. Additionally, future changes in tax laws could limit our ability to obtain the future tax benefits represented by our deferred tax assets. See Note 9 to the Financial Statements under the heading “Income and Mining Taxes - Valuation of Deferred Tax Assets” and Note 2 under the heading “Summary of Significant Accounting Policies – Valuation of Deferred Tax Assets” for additional information and factors that could impact the Company’s ability to realize the deferred tax assets. At December 31, 2018, the Company’s non-current deferred tax assets were $401.
Returns for investments in pension plans are uncertain.
We maintain pension plans for certain employees which provide for specified payments after retirement. The ability of the pension plans to provide the specified benefits depends on our funding of the plans and returns on investments made by the plans. Returns, if any, on investments are subject to fluctuations based on investment choices and market conditions. A sustained period of low returns or losses on investments could require us to fund the pension plans to a greater extent than anticipated. If future plan investment returns are not sufficient, we may be required to increase the amount of future cash contributions.
Any downgrade in the credit ratings assigned to our debt securities could increase our future borrowing costs and adversely affect the availability of new financing.
There can be no assurance that any rating currently assigned by Standard & Poor’s Rating Services or Moody’s Investors Service to Newmont will remain unchanged for any given period of time or that a rating will not be lowered if, in that rating agency’s judgment, future circumstances relating to the basis of the rating so warrant. If we are unable to maintain our outstanding debt and financial ratios at levels acceptable to the credit rating agencies, or should our business prospects or financial results deteriorate, our ratings could be downgraded by the rating agencies. The Company’s credit ratings have been subject to change over the years. We
24
currently maintain a Standard & Poor’s rating of “BBB” and a Moody’s Investors Service rating of Baa2. We cannot make assurances regarding how long these ratings will remain unchanged or regarding the outcome of the rating agencies future reviews (including following any planned or future business combinations). A downgrade by the rating agencies could adversely affect the value of our outstanding securities, our existing debt and our ability to obtain new financing on favorable terms, if at all, and increase our borrowing costs, which in turn could impair our results of operations and financial position.
Future funding requirements may affect our business.
Potential future investments, including projects in the Company’s project pipeline, acquisitions and other investments, will require significant funds for capital expenditures. Depending on gold and copper prices, our operating cash flow may not be sufficient to meet all of these expenditures, depending on the timing of development of these and other projects. As a result, new sources of capital may be needed to meet the funding requirements of these investments, fund our ongoing business activities and pay dividends. Our ability to raise and service significant new sources of capital will be a function of macroeconomic conditions, future gold and copper prices as well as our operational performance, current cash flow and debt position, among other factors. We may determine that it may be necessary or preferable to issue additional equity or other securities, defer projects or sell assets. Additional financing may not be available when needed or, if available, the terms of such financing may not be favorable to us and, if raised by offering equity securities, any additional financing may involve substantial dilution to existing shareholders. In the event of lower gold and copper prices, unanticipated operating or financial challenges, or new funding limitations, our ability to pursue new business opportunities, invest in existing and new projects, fund our ongoing business activities, retire or service all outstanding debt and pay dividends could be significantly constrained. In addition, our joint venture partners may not have sufficient funds or borrowing ability in order to make their capital commitments. In the case that our partners do not make their economic commitments, the Company may be prevented from pursuing certain development opportunities or may assume additional financial obligations, which may require new sources of capital.
Risks Related to Our Industry
We may experience increased costs or losses resulting from the hazards and uncertainties associated with mining.
The exploration for natural resources and the development and production of mining operations are activities that involve a high level of uncertainty. These can be difficult to predict and are often affected by risks and hazards outside of our control. These factors include, but are not limited to:
· |
Environmental hazards, including discharge of metals, concentrates, pollutants or hazardous chemicals; |
· |
Industrial accidents, including in connection with the operation of mining equipment, milling equipment and/or conveyor systems and accidents associated with the preparation and ignition of large-scale blasting operations, milling and processing; |
· |
Accidents in connection with transportation, including transportation of chemicals, explosions or other materials, transportation of large mining equipment and transportation of employees and business partners to and from sites; |
· |
Social, community or labor force disputes or stoppages; |
· |
Changes to legal and regulatory requirements; |
· |
Security incidents, including activities of illegal or artisanal miners, gold bullion or concentrate theft, and corruption and fraud; |
· |
Shortages in materials or equipment and energy and electrical power supply interruptions or rationing; |
· |
Failure of unproven or evolving technologies or loss of information integrity or data; |
· |
Surface or underground fires or floods; |
· |
Unexpected geological formations or conditions (whether in mineral or gaseous form); |
25
· |
Metallurgical conditions and gold recovery, including unexpected decline of ore grade; |
· |
Unanticipated changes in inventory levels at heap-leach operations; |
· |
Ground and water conditions; |
· |
Fall-of-ground accidents in underground operations; |
· |
Failure of mining pit slopes and tailings dam walls; |
· |
Seismic activity; and |
· |
Other natural phenomena, such as lightning, cyclonic or tropical storms, floods or other inclement weather conditions, including those impacting operations or the ability to access and supply sites. For example, in 2017 rainfall and flooding in Northern Australia and Peru, temporarily impacted our ability to import fuel and other key deliveries to our Tanami and Yanacocha sites, respectively. |
The occurrence of one or more of these events in connection with our exploration activities and development and production of mining operations may result in the death of, or personal injury to, our employees, other personnel or third parties, the loss of mining equipment, damage to or destruction of mineral properties or production facilities, monetary losses, deferral or unanticipated fluctuations in production, environmental damage and potential legal liabilities, all of which may adversely affect our reputation, business, prospects, results of operations and financial position.
Mining companies are increasingly required to consider and provide benefits to the communities and countries in which they operate, and are subject to extensive environmental, health and safety laws and regulations.
As a result of public concern about the real or perceived detrimental effects of economic globalization and global climate impacts, businesses generally and large multinational corporations in natural resources industries, such as Newmont, in particular, face increasing public scrutiny of their activities. These businesses are under pressure to demonstrate that, as they seek to generate satisfactory returns on investment to shareholders, other stakeholders, including employees, governments, communities surrounding operations and the countries in which they operate, benefit and will continue to benefit from their commercial activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high impact on their social and physical environment. In Ghana, for instance, a number of community related demonstrations occurred during 2018 in response to the perceived impacts of our operations on the land and on fairness of compensation. Similarly, a number of community based groups continue pressuring the company for additional benefits related to jobs, training and benefit sharing. The company is seeking mechanisms for dialogue to understand concerns and address impacts and benefits in a transparent and participatory manner. The potential consequences of these pressures include reputational damage, legal suits, increasing social investment obligations to communities and pressure to increase taxes and royalties payable to governments.
Our exploration, development, mining and processing operations are subject to extensive laws and regulations governing worker health and safety and land use and the protection of the environment, which generally apply to air and water quality, protection of endangered, protected or other specified species, hazardous waste management and reclamation. For example, in recent years, plans to protect the greater sage grouse, a species whose natural habitat is found across much of the western United States, have been an area of significant focus. As a result, in 2016, Newmont, the State of Nevada and federal agencies agreed to a historic conservation agreement for 1.5 million acres of public and private lands managed by Newmont to protect and enhance the habitat of the greater sage grouse and other sagebrush ecosystem species. Following a programmatic review of federal greater sage grouse management plans, the US Department of Interior developed revised plans and analyzed their potential effects pursuant to the National Environmental Policy Act. The public review of the proposed revised resource management plans is ongoing and implementation decisions are pending. The extent to which sage grouse conservation plans will be further revised and whether land withdrawals limiting development activities occurring on federal lands may occur remains unclear. No assurances can be made that possible land use restrictions will not have an adverse impact on our growth plans or not result in delays in project development, constraints on exploration and constraints on operations in impacted areas.
Some of the countries in which we operate have implemented, and are developing, laws and regulations related to climate change and greenhouse gas emissions. We have made, and expect to make in the future, significant expenditures to comply with such
26
laws and regulations. Compliance with these laws and regulations imposes substantial costs and burdens, and can cause delays in obtaining, or failure to obtain, government permits and approvals which may adversely impact our closure processes and operations.
Future changes in applicable laws, regulations, permits and approvals or changes in their enforcement or regulatory interpretation could substantially increase costs to achieve compliance, lead to the revocation of existing or future exploration or mining rights or otherwise have an adverse impact on our results of operations and financial position. For instance, the operation of our mines in the United States is subject to regulation by the U.S. Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Over the past several years MSHA has significantly increased the numbers of citations and orders charged against mining operations and increased the dollar penalties assessed for citations issued. If MSHA inspections result in an alleged violation, we may be subject to fines, penalties or sanctions and our mining operations could be subject to temporary or extended closures. MSHA issued fines, penalties or sanctions and mandated temporary or extended closures could have an adverse effect on our results of operations and financial position. See Exhibit 95 to this report for additional information regarding certain MSHA orders and citations issued during the year ended December 31, 2018.
Increased global attention or regulation on consumption of water by industrial activities, as well as water quality discharge, and on restricting or prohibiting the use of cyanide and other hazardous substances in processing activities could similarly have an adverse impact on our results of operations and financial position due to increased compliance and input costs.
We have implemented a management system designed to promote continuous improvement in health and safety, environmental performance and community relations. However, we nevertheless in 2018 experienced seven fatalities, six at our operations in Ghana and one at our operations in Nevada, which involved subsequent investigations by Ghana’s Mineral Commission and the MSHA, respectively. See Item 4 “Mine Safety Disclosures” for additional information on these incidents. Our ability to operate (including the effect of any impact on our workforce) and thus, our results of operations and our financial position (including because of potential related fines and sanctions), could be adversely affected by accidents or events detrimental (or perceived to be detrimental) to the health and safety of our employees, the environment or the communities in which we operate.
We may be unable to obtain or retain necessary permits, which could adversely affect our operations.
Our mining and processing operations and development and exploration activities are subject to extensive permitting requirements. The requirements to obtain and/or achieve or maintain full compliance with such permits can be costly and involve extended timelines. While we strive to obtain and comply with all permits required of us, there can be no assurance that we will obtain all such permits and/or achieve or maintain full compliance with such permits at all times. Previously obtained permits may be suspended or revoked for a number of reasons, including through government or court action. Failure to obtain and/or comply with required permits can have serious consequences, including damage to our reputation; cessation of the development of a project; increased costs of development or production and litigation or regulatory action, any of which could materially adversely affect our business, results of operations or financial condition.
Our ability to obtain the required permits and approvals to explore for, develop and operate mines and to successfully operate near communities in the jurisdictions in which we operate depends in part on our ability to develop, operate and close mines in a manner that is consistent with the creation of social and economic benefits in the surrounding communities, which may or may not be required by law. Our ability to obtain permits and approvals and to operate near certain communities may be adversely impacted by real or perceived detrimental events associated with our activities or those of other mining companies affecting the environment, health and safety of communities in which we operate. Key permits and approvals may be revoked or suspended or may be adjusted in a manner that adversely affects our operations, including our ability to explore or develop properties, commence production or continue operations.
Regulations and pending legislation governing issues involving climate change could result in increased operating costs which could have a material adverse effect on our business.
Producing gold is an energy-intensive business, resulting in a significant carbon footprint. Energy costs account for approximately twenty percent of our overall operating costs, with our principal energy sources being purchased electricity, diesel fuel, gasoline, natural gas and coal.
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impacts of climate change that are viewed as the result of emissions from the combustion of carbon-based fuels. At the 21st
27
Conference of the Parties of the United Nations Framework Convention on Climate Change (“UNFCC”) held in Paris in 2015, the Paris Agreement was adopted which was intended to govern emission reductions beyond 2020. The Paris Agreement went into effect in November 2016 when countries that produce at least 55% of the world's greenhouse gas emissions ratified the agreement. While there are no immediate impacts to business from the Paris Agreement, the goal of limiting global warming to “well below 2o C” will be taken up at national levels. Industrialized nations (e.g., Australia) are likely to implement national emission reduction targets that require an investment shift towards low carbon technologies and systems, shifting away from coal and diesel power generation. The temperature change goal implies a move to net zero greenhouse gas emissions from energy use and industrial activities by 2050 to 2060. The relevant details of the shift towards low carbon technologies are defined in the national plans, which will need further definition in new rules from each country by 2020. The Trump Administration has announced the intention to withdraw from the Paris Agreement, which begins a lengthy process that will not be completed until November 2020.
Some of the countries in which we operate have implemented, and are developing, laws and regulations related to climate change and greenhouse gas emissions. In December 2009, the United States Environmental Protection Agency (“EPA”) issued an endangerment finding under the U.S. Clean Air Act that current and projected concentrations of certain mixed greenhouse gases, including carbon dioxide, in the atmosphere threaten the public health and welfare. Additionally, the United States and China signed a bilateral agreement in November 2014 that committed the United States to reduce greenhouse gas emissions by an additional 26% to 28% below 2005 levels by the year 2025. The EPA in August 2015 issued final rules for the Clean Power Plan under Section 111 (d) of the Clean Air Act designed to reduce greenhouse gas emissions at electric utilities in line with reductions planned for the compliance with the Paris Agreement. On October 16, 2017, the EPA as part of a regulatory review directed by the Energy Independence Executive Order has proposed a repeal of the Clean Power Plan. In Australia the Emissions Reduction Fund legislation, Safeguard Mechanism Rule 2015 came into effect on July 1, 2016. Facilities that exceed the baseline mandated by the law in future years are required to purchase Australian Carbon Credit Units (ACCUs).
Legislation and increased regulation and requirements regarding climate change could impose increased costs on us, our venture partners and our suppliers, including increased energy, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. In August 2015, the EPA issued the final rules for the Clean Power Plan under Section 111(d) of the Clean Air Act. Under the Clean Power Plan Newmont’s TS Power Plant would be subject to greenhouse gas emission reductions as part of the Nevada compliance plan. The EPA has subsequently issued the Affordable Clean Energy Rule in August 2018, which would eliminate the emission reduction standards proposed in the Clean Power Plan. The Clean Power Plan is currently in litigation in the Washington DC Circuit preventing the implementation of either rule.
The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. Operations that rely on national hydro-electric grid power can be adversely affected by drought resulting in power load-shedding and lost production. These impacts may adversely impact the cost, production and financial performance of our operations.
Our Company and the mining industry are facing continued geotechnical challenges, which could adversely impact our production and profitability.
Newmont and the mining industry are facing continued geotechnical challenges due to the older age of certain of our mines and a trend toward mining deeper pits and more complex deposits. This leads to higher pit walls, more complex underground environments and increased exposure to geotechnical instability and hydrological impacts. As our operations are maturing, the open pits at many of our sites are getting deeper and we have experienced certain geotechnical failures at some of our mines, including, without limitation, at our operations in Australia, Nevada, Ghana, Peru and Colorado. For example, pit failures at the Silverstar pit and Gold Quarry pit of the Carlin operation in 2018 and in the eastern wall of the open pit of the KCGM operation in 2018 resulted in temporary shutdowns and have impacted production. See also the risk factor under the heading “Mining companies are increasingly required to consider and provide benefits to the communities and countries in which they operate, and are subject to extensive environmental, health and safety laws and regulations” earlier in this section.
No assurances can be given that unanticipated adverse geotechnical and hydrological conditions, such as landslides and pit wall failures, will not occur in the future or that such events will be detected in advance. Geotechnical instabilities can be difficult to predict and are often affected by risks and hazards outside of our control, such as severe weather and considerable rainfall, which may lead to periodic floods, mudslides, wall instability and seismic activity, which may result in slippage of material.
28
In addition, Newmont has numerous operational and closed tailings impoundments in a variety of climatic and topographic settings. Annually, the Company manages and places more than 100 million tonnes of tailings. Recognizing the importance of careful design, management and monitoring, Newmont conducts extensive siting, engineering, environmental and social studies to support the specific selection and design of each facility. Newmont’s engineering, construction and operating standards and technical guidance explicitly cover tailings management and establish requirements throughout their operating and post-mine closure life. The design, construction and operation of all tailings impoundment facilities are scrutinized through our investment system process, supported by inspections and audits, critical controls and strict application of annual inspections by independent qualified geotechnical engineers. Newmont’s environmental standards also cover the long-term management of tailings impoundment facilities. The failure of tailings dam and storage facilities and other impoundments at our mining sites could cause severe, and in some cases catastrophic, property and environmental damage and loss of life. For example, in early 2019, the extractive industry experienced a large scale tailings dam failure at an unaffiliated mine, which resulted in numerous fatalities and caused extensive property and environmental damage. Recognizing this risk, Newmont continues to review and enhance our existing practices. However, no assurance can be given that these events will not occur in the future. See also the risk factor under the heading “We may experience increased costs or losses resulting from the hazards and uncertainties associated with mining” earlier in this section.
Geotechnical or tailings storage facility failures could result in limited or restricted access to mine sites, suspension of operations, government investigations, increased monitoring costs, remediation costs and other impacts, which could result in a material adverse effect on our results of operations and financial position.
Shortages of critical parts and equipment may adversely affect our operations and development projects.
The mining industry has been impacted, from time to time, by increased demand for critical resources such as input commodities, drilling equipment, trucks, shovels and tires. These shortages have, at times, impacted the efficiency of our operations, and resulted in cost increases and delays in construction of projects; thereby impacting operating costs, capital expenditures and production and construction schedules.
Risks Related to the Jurisdictions in Which We Operate
Our operations are subject to risks of doing business in multiple jurisdictions.
Exploration, development, production and mine closure activities are subject to regional, political, economic, community and other risks of doing business in multiple jurisdictions, including:
· |
Potential instability of foreign governments and changes in government policies, including relating to or in response to changes of U.S. laws or foreign policies; |
· |
Expropriation or nationalization of property; |
· |
Restrictions on the ability to pay dividends offshore or to otherwise repatriate funds; |
· |
Restrictions on the ability of local operating companies to sell gold offshore for U.S. dollars, or on the ability of such companies to hold U.S. dollars or other foreign currencies in offshore bank accounts; |
· |
Import and export regulations, including restrictions on the export of gold and/or copper; |
· |
Disadvantages relating to submission to the jurisdiction of foreign courts or arbitration panels or enforcement or appeals of judgments at foreign courts or arbitration panels against a sovereign nation within its own territory; |
· |
Royalty and tax increases or claims, including retroactive increases and claims and requests to renegotiate terms of existing investment agreements, contracts of work, leases, royalties and taxes, by governmental entities, including such increases, claims and/or requests by the governments of Australia, Ghana, Peru, Suriname, the State of Colorado and the State of Nevada in the U.S.; |
· |
Changes in laws or regulations in the jurisdictions in which we operate, including in changes resulting from changes in political administrations; |
29
· |
Risk of loss due to inability to access our properties or operations; |
· |
Other risks arising out of foreign sovereignty over the areas in which our operations are conducted, including risks inherent in contracts with government owned entities such as unilateral cancellation or renegotiation of contracts, licenses or other mining rights; |
· |
Delays in obtaining or renewing, or the inability to obtain, maintain or renew, necessary governmental permits, mining or operating leases and other agreements and/or approvals; |
· |
Risk of loss due to civil strife, acts of war, guerrilla activities, insurrection and terrorism; |
· |
Claims for increased mineral royalties or ownership interests by local or indigenous communities; |
· |
Risk of loss due to criminal activities such as trespass, local artisanal or illegal mining, theft and vandalism; |
· |
Delays in obtaining or renewing collective bargaining or certain labor agreements; |
· |
Disadvantages of competing against companies from countries that are not subject to the rigorous laws and regulations of the U.S. or other jurisdictions, including without limitation, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and the Dodd-Frank Act; |
· |
Increases in training and other costs and challenges relating to requirements by governmental entities to employ the nationals of the country in which a particular operation is located; |
· |
Increased financing costs; |
· |
Currency fluctuations, particularly in countries with high inflation; |
· |
Foreign exchange controls; |
· |
Increases in costs relating to, or restrictions or prohibitions on, the use of ports for concentrate storage and shipping, such as in relation to our Boddington operation where use of alternative ports is not currently economical, or in relation to our ability to procure economically feasible ports for developing projects; |
· |
Risk of disruption, damage or failure of information technology systems, and risk of loss and operational delays due to impacts to operational technology systems, such as due to cyber-attacks, malicious software computer viruses, security breaches, design failures and natural disasters; |
· |
Risk of loss due to disease, such as malaria or the Zika virus, and other potential endemic health issues, such as Ebola; and |
· |
Disadvantage and risk of loss due to the limitations of certain local health systems and infrastructure to contain diseases and potential endemic health issues. |
Consequently, our exploration, development and production activities may be affected by these and other factors, many of which are beyond our control, some of which could materially adversely affect our financial position or results of operations.
Changes in mining or investment policies or shifts in political and social attitudes in the jurisdictions in which we operate may adversely affect our operations or profitability.
Our operations may be affected in a number of ways by laws and regulations related, but not limited to: restrictions on production; price controls; export controls; import restrictions, such as restrictions applicable to, among other things, equipment, services and supplies, currency remittance, income taxes, expropriation of property, foreign investment, maintenance of mineral claims, environmental legislation, land use, surface land access, land claims of local communities, water use, and mine safety. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in
30
loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as partners with carried or other interests, any of which may adversely affect our operations or profitability.
In addition, as governments continue to struggle with deficits and concerns over the potential and actual effects of depressed economic conditions, many of them have targeted the mining and metals sector in order to raise revenue. Governments are continually assessing the fiscal terms of the economic rent for a mining company to exploit resources in their countries. Numerous countries have implemented changes to their mining regimes that reflect increased government control over or participation in the mining sector, including, but not limited to, changes of law affecting foreign ownership and takeovers, mandatory government participation in mining enterprises, taxation and royalties, working conditions, rates of exchange, exchange controls, exploration licensing, export duties, repatriation of income or return of capital, environmental protection, as well as requirements intended to boost the local economy, including usage of local goods and employment of local and community staff or contractors, among other benefits to be provided to local residents. The effects of the various requirements and uncertainties related to the economic risks of operating in foreign jurisdictions cannot be accurately predicted and could have a material adverse effect on our financial position or results of operations.
Our operations at Yanacocha and the development of our Conga project in Peru are subject to political and social unrest risks.
During the last several years, Minera Yanacocha S.R.L. (“Yanacocha”), in which we own a 51.35% interest, and whose properties include the mining operations at Yanacocha and the Conga project in Peru, has been the target of local political and community protests, some of which blocked the road between the Yanacocha mine and Conga project complexes and the City of Cajamarca in Peru and resulted in vandalism and equipment damage. We cannot predict whether similar or more significant incidents will occur in the future. The recurrence of significant political or community opposition or protests could continue to adversely affect the Conga Project’s development and the continued operation of Yanacocha.
Construction activities on our Conga project were suspended on November 30, 2011, at the request of Peru’s central government following increasing protests in Cajamarca by anti-mining activists led by the regional president. At the request of the Peruvian central government, the environmental impact assessment prepared in connection with the project, which was previously approved by the central government in October 2010, was reviewed by independent experts in an effort to resolve allegations around the environmental viability of Conga. This review concluded that the environmental impact assessment complied with international standards and provided some recommendations to improve water management. Yanacocha focused on the construction of water reservoirs prior to the development of other project facilities. However, development of Conga is contingent upon generating acceptable project returns and getting local community and government support. Under the current social and political environment, the Company does not anticipate being able to develop Conga for at least the next five years. Due to the uncertainty surrounding the project’s development, the Company has allocated its exploration and development capital to other projects in recent years, and the Conga project is currently in care and maintenance. Should the Company be unable to develop the Conga project, the Company may have to consider other alternatives for the project, which may result in a future impairment charge.
The Central Government of Peru continued to support responsible mining as a vehicle for the growth and future development of Peru in 2018. However, we are unable to predict whether the Central government will continue to take similar positions in the future. The regional government of Cajamarca and other political parties actively opposed the Conga project in the past. We are unable to predict the positions that will be taken in the future and whether such positions or changes in law will affect Yanacocha or Conga. Such changes may include increased labor regulations, environmental and other regulatory requirements, and additional taxes and royalties, as well as future protests, community demands and road blockages. We cannot predict future positions of either the Central or regional government on foreign investment, mining concessions, land tenure or other regulation. Any change in government positions or laws on these issues could adversely affect the assets and operations of Yanacocha or Conga, which could have a material adverse effect on our results of operations and financial position. Additionally, the inability to develop Conga or operate at Yanacocha could have an adverse impact on our growth and production in the region.
In addition, in early 2015, the Peruvian government agency responsible for certain environmental regulations, the Ministry of the Environment (“MINAM”), issued proposed water quality criteria for designated beneficial uses which apply to mining companies, including Yanacocha. These criteria would modify the in-stream water quality criteria pursuant to which Yanacocha has been designing water treatment processes and infrastructure. In December 2015, MINAM issued the final regulation that modified the water quality standards. In response in February 2017, Yanacocha submitted its proposed modification to the previously approved Environmental Impact Assessment to the Mining Ministry (“MINEM”), which is still under review. After approval, MINEM may allow up to three years to develop and implement the modifications to the water management system. In the event Yanacocha is unsuccessful in implementing the modifications in compliance with the new regulations and deadlines, it could result in fines and
31
penalties relating to potential intermittent non-compliant exceedances. In addition, if accepted the treatment options will result in increased costs. These impacts may adversely impact the future cost and financial performance of our operations in Peru.
Our Merian operation in Suriname is subject to political and economic risks.
We hold a 75% interest in the Merian gold mine in the mid-eastern part of Suriname. The president of Suriname and others, including a number of members of the current administration, have been named defendants in a trial in connection with the deaths of certain political opponents in 1982. Those proceedings were previously halted based upon an executive order. However, in January 2017, a court in Suriname directed that the trial be recommenced and such trial proceeding ended on November 30, 2018. The trial entered the final stage of rendering a verdict by the court. The exact date for the judgement by the court is not yet known, but judgement is expected in the first half of 2019. The prosecutor in the trial has recommended that the current president be sentenced to 20 years prison for murder. Such a sentencing could result in civil and political instability, and heighten the risk of abrupt changes in the government and national policy impacting foreign investment and operators.
Operations in Suriname are governed by a mineral agreement with the Republic of Suriname that establishes the terms and conditions under which Merian operations and development are conducted. The mineral agreement was approved by parliament and requires approval by parliament to change. No assurances can be made that the government will not request changes to the agreement in the future. While the government is generally considered by the Company to be mining friendly, it is possible that the current or future government may adopt substantially different policies, make changes in taxation treatment or regulations, take arbitrary action which might halt operations, increase costs, or otherwise impact mining and exploration rights and/or permits, any of which could have a material and adverse effect on the Company's future cash flows, earnings, results of operations and/or financial condition.
The government of Suriname previously exercised its option to participate in a fully-funded 25 percent equity ownership stake in Merian. Suriname manages its participation through Staatsolie Maatschappij Suriname N.V. (“Staatsolie”), a Surinamese corporation that is wholly owned by the government. The Company can make no assurances that Staatsolie will have sufficient funds or borrowing ability in order to make their capital commitments in accordance with the terms of the partnership agreement. See the risk factor under the heading “Future funding requirements may affect our business” later in this section.
Artisanal and illegal miners have been active on, or adjacent to, the Merian mine in recent years. See the risk factor under the heading “Civil disturbances, criminal activities, including illegal mining, and artisanal mining, occurs on or adjacent to certain of our properties, which can disrupt business and expose the Company to liability” earlier in this “Risk Factors” section for additional information.
Risks Related To Our Common Stock
The Proposed Transaction could negatively affect the price of our common stock as a response to the Proposed Transaction, significant delays in consummation of the arrangement, or the termination of the Arrangement Agreement.
The market price of our common stock may vary significantly from the price on the date of the Arrangement Agreement (as defined below). Negative market response to the Proposed Transaction, or any significant delays in the consummation of the arrangement could negatively affect our stock price. In addition, there can be no assurance that the conditions to the consummation of the Proposed Transaction will be satisfied in a timely manner or at all. If the arrangement is not consummated or is delayed, the market price of our common stock may decline significantly, particularly to the extent the market price reflects a market assumption that the arrangement will be consummated or will be consummated in a particular timeframe.
Stock price changes may result from a variety of factors that are beyond our control, including:
· |
market reaction to the announcement of the Proposed Transaction and market assessment of the likelihood of the Proposed Transaction being consummated; |
· |
changes in the respective businesses, operations or prospects of Newmont or Goldcorp, including their respective ability to meet earnings estimates; |
· |
governmental or litigation developments or regulatory considerations affecting Newmont or Goldcorp or the mining industry; |
32
· |
general business, market, industry or economic conditions; |
· |
the worldwide supply/demand balance for gold and copper and the prevailing commodity price environment; and |
· |
other factors beyond our control, including those described elsewhere in, or incorporated by reference into, this “Risk Factors” section. |
The price of our common stock may be volatile, which may make it difficult for you to resell the common stock when you want or at prices you find attractive.
The market price and volume of our common stock may be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations, business prospects or liquidity. Among the factors that could affect the price of our common stock are:
· |
changes in gold, and to a lesser extent, copper prices; |
· |
operating and financial performance that vary from the expectations of management, securities analysts and investors or our financial outlook; |
· |
developments in our business or in the mining sector generally; |
· |
regulatory changes affecting our industry generally or our business and operations; |
· |
the operating and stock price performance of companies that investors consider to be comparable to us; |
· |
announcements of strategic developments, acquisitions and other material events by us or our competitors; |
· |
our ability to integrate and operate the companies and the businesses that we acquire; |
· |
response to activism; and |
· |
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility. |
The stock markets in general have experienced extreme volatility that has at times been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
Holders of our common stock may not receive dividends.
Holders of our common stock are entitled to receive only such dividends as our Board of Directors may declare out of funds legally available for such payments. We are incorporated in Delaware and governed by the Delaware General Corporation Law. Delaware law allows a corporation to pay dividends only out of surplus, as determined under Delaware law or, if there is no surplus, out of net profits for the fiscal year in which the dividend was declared and for the preceding fiscal year. Under Delaware law, however, we cannot pay dividends out of net profits if, after we pay the dividend, our capital would be less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. Our ability to pay dividends will be subject to our future earnings, capital requirements and financial condition, as well as our compliance with covenants and financial ratios related to existing or future indebtedness. Although we have historically declared cash dividends on our common stock, we are not required to declare cash dividends on our common stock and our Board of Directors may modify the dividend policy or reduce, defer or eliminate our common stock dividend in the future.
Risks Relating to the Proposed Transaction
As disclosed in this Form 10-K, including in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview,” on January 14, 2019, the Company entered into a definitive agreement (the “Arrangement
33
Agreement”) to acquire all outstanding common shares of Goldcorp in a primarily stock transaction. The Proposed Transaction could subject us to significant risks, including those described below.
The Proposed Transaction is subject to satisfaction or waiver of several conditions.
The Proposed Transaction is conditional upon, among other things, approval of the issuance of Newmont common stock to Goldcorp shareholders in exchange for their Goldcorp common shares pursuant to the Arrangement Agreement and authorization to amend and restate Newmont’s certificate of incorporation to increase Newmont’s authorized shares of common stock by Newmont’s stockholders, approval of the Proposed Transaction by Goldcorp shareholders, and Newmont and Goldcorp having obtained all government or regulatory approvals required by law, policy or practice, including, without limitation, approval of competition or antitrust and/or foreign investment authorities in Canada, Mexico and Korea. There can be no assurance that any or all such approvals will be obtained.
The Arrangement Agreement may be terminated in certain circumstances.
Each of Newmont and Goldcorp has the right to terminate the Arrangement Agreement in certain circumstances. For instance, either party may terminate the Arrangement Agreement if the transaction has not been completed by July 31, 2019 and the parties do not mutually agree to extend the Arrangement Agreement. Failure to complete the Proposed Transaction could negatively impact the trading price of our common stock or otherwise adversely affect Newmont’s business.
If the Proposed Transaction is not completed as a result of, among other reasons, a change in recommendation by us or a breach of a representation or warranty made by us in the Arrangement Agreement and prior to termination there is an acquisition proposal for us announced and within 12 months we enter into an agreement or consummate an acquisition proposal, we will be required to pay a termination fee of $650 to Goldcorp in connection with the termination of the Arrangement Agreement. If the termination fee is ultimately required to be paid to Goldcorp, the payment of such fee will have an adverse impact on our financial results.
The issuance of a significant number of shares of our common stock and a resulting “market overhang” could adversely affect the market price of shares of our common stock after completion of the Proposed Transaction.
On completion of the Proposed Transaction, a significant number of additional shares of our common stock will be issued and available for trading in the public market. The increase in the number of shares of our common stock may lead to sales of such shares or the perception that such sales may occur (commonly referred to as “market overhang”), either of which may adversely affect the market for, and the market price of, shares of our common stock.
We do not currently control Goldcorp and its subsidiaries.
We will not control Goldcorp and its subsidiaries until completion of the Proposed Transaction and the business and results of operations of Goldcorp may be adversely affected by events that are outside of our control during the intervening period. The performance of Goldcorp may be influenced by, among other factors, economic downturns, changes in commodity prices, political instability in the countries in which Goldcorp operates, changes in applicable laws, expropriation, increased environmental regulation, volatility in the financial markets, unfavorable regulatory decisions, litigation, rising costs, civic and labor unrest, disagreements with joint venture partners, delays in ongoing exploration and development projects and other factors beyond our control. As a result of any one or more of these factors, among others, the operations and financial performance of Goldcorp may be negatively affected, which may adversely affect the future financial results of the combined company.
Goldcorp and Newmont may be the targets of legal claims, securities class actions, derivative lawsuits and other claims and negative publicity related to the Proposed Transaction.
Goldcorp and Newmont may be the target of securities class actions and derivative lawsuits which could result in substantial costs and may delay or prevent the Proposed Transaction. Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into an agreement to acquire a public company or to be acquired. Third parties may also attempt to bring claims against Newmont or Goldcorp seeking to restrain the Proposed Transaction or seeking monetary compensation or other remedies. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Proposed Transaction, then that injunction may delay or prevent the Proposed Transaction.
34
In addition, political and public attitudes towards the Proposed Transaction could result in negative press coverage and other adverse public statements affecting Newmont and Goldcorp. Adverse press coverage and other adverse statements could lead to investigations by regulators, legislators and law enforcement officials or in legal claims or otherwise negatively impact the ability of the combined company to take advantage of various business and market opportunities. The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on the combined company’s business, financial condition and results of operations.
We may not realize the anticipated benefits of the Proposed Arrangement and the integration of Goldcorp may not occur as planned.
The Proposed Transaction has been agreed with the expectation that its completion will result in an increase in sustained profitability, cost savings and enhanced growth opportunities for the combined company. These anticipated benefits will depend in part on whether Goldcorp’s and Newmont’s operations can be integrated in an efficient and effective manner. A significant number of operational and strategic decisions and certain staffing decisions with respect to integration of the two companies have not yet been made. These decisions and the integration of the two companies will present challenges to management, including the integration of systems and personnel of the two companies which may be geographically separated, anticipated and unanticipated liabilities, unanticipated costs (including substantial capital expenditures required by the integration) and the loss of key employees.
The performance of the combined company’s operations after completion of the Proposed Transaction could be adversely affected if, among other things, the combined company is not able to achieve the anticipated savings and synergies expected to be realized in entering the Proposed Transaction, or retain key employees to assist in the integration and operation of Goldcorp and Newmont. The consummation of the Proposed Transaction may pose special risks, including one-time write-offs, restructuring charges and unanticipated costs. In addition, the integration process could result in diversion of the attention of management and disruption of existing relationships with suppliers, employees, customers and other constituencies of each company. Although Newmont and its advisors have conducted due diligence on the operations of Goldcorp, there can be no guarantee that Newmont is aware of any and all liabilities of Goldcorp. As a result of these factors, it is possible that certain benefits expected from the combination of Goldcorp and Newmont may not be realized.
Goldcorp’s public filings are subject to Canadian disclosure standards, which differ from SEC disclosure requirements.
Our reserve estimates have been prepared in accordance with Industry Guide 7 published by the SEC. We have not been involved in the preparation of Goldcorp’s mineral reserve and mineral resource estimates. Goldcorp’s mineral reserves and mineral resource estimates were prepared in accordance with the disclosure standards of National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining and Metallurgy Classification system under Canadian securities laws, which differ from the requirements of United States securities laws.
Industry Guide 7 and NI 43-101 have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but embody different approaches and definitions. For example, the terms “Mineral Reserve,” “Proven Mineral Reserve” and “Probable Mineral Reserve” are Canadian mining terms as defined in NI 43-101, and these definitions differ from the definitions in Industry Guide 7. The terms “mineral resource,” “measured mineral resource,” “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed in accordance with NI 43-101, but these terms are not defined terms under Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. “Inferred mineral resources” under NI 43-101 have a great amount of uncertainty as to the existence of such resources and their economic and legal feasibility. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. By contrast, under Industry Guide 7 standards, a “final or “bankable” feasibility study is typically required to report reserves or cash flow analysis to designate reserves. Further, under Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
Expectations regarding the combined mineral reserves and mineral resources of Newmont and Goldcorp following the closing of the Proposed Transaction will remain subject to adjustment, pending continuing review of Goldcorp’s mineral resources in accordance with SEC Industry Guide 7 standards. Future adjustment may occur due to differing standards, required study levels, price assumptions, future divestments and acquisitions and other factors.
35
The combined company will face political risks in new jurisdictions.
Goldcorp’s principal operations, development and exploration activities and significant investments are held in Canada, Mexico, Chile, Argentina, and the Dominican Republic, some of which may be considered to have an increased degree of political and sovereign risk. Any material adverse changes in government policies or legislation of such countries or any other country that Goldcorp has economic interests in may affect the viability and profitability of the combined company following the Proposed Transaction.
While the governments in Canada, Mexico, Chile, Argentina, the Dominican Republic and other countries in which Goldcorp has mining operations or development or exploration projects have historically supported the development of natural resources by foreign companies, there is no assurance that such governments will not in the future adopt different regulations policies or interpretations with respect to, but not limited to, foreign ownership of mineral resources, royalty rates, taxation, rates of exchange, environmental protection, labor relations, repatriation of income or return of capital, restrictions on production or processing, price controls, export controls, currency remittance, or the obligations of Goldcorp under its respective mining codes and stability conventions. The possibility that such governments may adopt substantially different policies or interpretations, which might extend to the expropriation of assets, may have a material adverse effect on the combined company following the Proposed Transaction. Political risk also includes the possibility of terrorism, civil or labor disturbances and political instability. No assurance can be given that applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining authorizations nor can assurance be given that such exploration and mining authorizations will not be challenged or impugned by third parties. The effect of any of these factors may have a material adverse effect on the combined company’s results of operations and financial condition.
Increased exposure to foreign exchange fluctuations and capital controls may adversely affect the combined company’s earnings and the value of some of the combined company’s assets.
Our reporting currency is the US dollar and the majority of our earnings and cash flows are denominated in US dollars. The operations of Goldcorp are also conducted in US dollars, but Goldcorp conducts some of its business in currencies other than the US dollar and, as a result, following the Proposed Transaction, the combined company’s consolidated earnings and cash flows may be impacted by movements in the exchange rates to a greater extent than prior to the Proposed Transaction. In particular, any change in the value of the currencies of the Canadian Dollar, the Mexican Peso, the Dominican Peso, the Argentine Peso, or the Chilean Peso versus the US dollar following the Proposed Transaction could negatively impact the combined company’s earnings, and could negatively impact the combined company’s ability to realize all of the anticipated benefits of the Proposed Transaction.
In addition, from time to time, emerging market countries such as those in which the combined company will operate adopt measures to restrict the availability of the local currency or the repatriation of capital across borders. These measures are imposed by governments or central banks, in some cases during times of economic instability, to prevent the removal of capital or the sudden devaluation of local currencies or to maintain in-country foreign currency reserves. In addition, many emerging markets countries require consents or reporting processes before local currency earnings can be converted into U.S. dollars or other currencies and/or such earnings can be repatriated or otherwise transferred outside of the operating jurisdiction. These measures may have a number of negative effects on the combined company, reduction of the immediately available capital that the combined company could otherwise deploy for investment opportunities or the payment of expenses. In addition, measures that restrict the availability of the local currency or impose a requirement to operate in the local currency may create other practical difficulties for the company.
New legislation and tax risks in certain Goldcorp operating jurisdictions.
Goldcorp has operations and conducts business in a number of jurisdictions in which we do not currently operate or conduct business, which may increase our susceptibility to sudden tax changes. Taxation laws of these jurisdictions are complex, subject to varying interpretations and applications by the relevant tax authorities and subject to changes and revisions in the ordinary course. Any unexpected taxes imposed on the combined company could have a material and adverse impact on the combined company.
Failure by Goldcorp to comply with applicable laws prior to the Proposed Transaction could subject the combined company to adverse consequences following the Proposed Transaction.
Goldcorp is subject to anti-corruption and anti-bribery laws, including the U.S. Foreign Corrupt Practices Act and the Corruption of Foreign Public Officials Act (Canada). The foregoing laws prohibit companies from making improper payments to
36
officials, require the maintenance of records and require adequate internal controls. Following the Proposed Transaction, the combined company may be liable for any violation of the foregoing laws attributable to Goldcorp prior to the Proposed Transaction.
Goldcorp is also subject to a wide variety of laws relating to the environment, health and safety, taxes, employment, labor standards, money laundering, terrorist financing and other matters.
Failure by Goldcorp to comply with any of the foregoing legislation prior to the Proposed Transaction could result in severe criminal or civil sanctions, and may subject the combined company to other liabilities, including fines, prosecution and reputational damage, all of which could have a material adverse effect on the business, consolidated results of operations and consolidated financial condition of the combined company. The compliance mechanisms and monitoring programs adopted and implemented by Goldcorp prior to the Proposed Transaction may not adequately prevent or detect possible violations of such applicable laws. Investigations by governmental authorities related to any actual or perceived violation of the foregoing laws could also have a material adverse effect on the business, consolidated results of operations, and consolidated financial condition of the combined company.
37
ITEM 2.PROPERTIES (dollars in millions, except per share, per ounce and per pound amounts)
Production and Development Properties
Newmont’s significant production and development properties are described below. Operating statistics for each region are presented in a table in the Operating Statistics section. In addition, Newmont holds investment interests in Canada, Colombia, Mexico and various other locations.
North America
The North America region maintains its headquarters in Elko, Nevada and operates five sites, Carlin, Phoenix, Twin Creeks, Long Canyon and Cripple Creek & Victor.
In Colorado and Nevada, various mining specific taxes are paid to state and local governments. These taxes are generally assessed on gross income from mining in Colorado at a rate of 2.25% or net proceeds from mining in Nevada at a rate of 5%.
Carlin, Nevada, USA. (100% owned) Carlin is located 25 miles west of Elko, Nevada off of Interstate 80 and can be accessed by paved highway. Newmont has been mining gold at Carlin since 1965 and either owns the private fee land and unpatented mining claims, which are renewed annually, or controls the land through long-term mining leases associated with the minerals and surface area within the boundaries of the present operations. Properties held under long-term mining leases expire at varying dates over the next 40 years. With respect to a portion of the Gold Quarry pit, we pay a royalty equivalent to 16.2% of the mineral production. With respect to various other Carlin deposits, we pay third-party royalties that vary from 1% to 8% of production.
The Carlin complex consists of four open pits and four underground mines. The open pits include the Emigrant and the Gold Quarry pits in the South end of the Carlin Trend and the Silverstar and Goldstar pits in the North end of the Carlin Trend. The Emigrant open pit ceased mining operations in December 2018 while residual leaching of gold continues. The underground mines include Leeville, which is a shaft mine, along with Chukar, Pete Bajo and Exodus, which are portal mines. The majority of the underground ore as well as higher-grade surface refractory ores are processed through the roaster at Mill 6, which consists of a grinding circuit, roasting circuit and a conventional carbon-in leach circuit. Mill 6 processed approximately 3.3 million tons of ore in
38
2018. Higher-grade surface oxide ores are processed by conventional milling and cyanide leaching at Mill 5. Additionally, Mill 5 operates as a flotation mill treating lower grade, non-carbonaceous, sulfidic refractory ore to produce a gold/pyrite concentrate. Mill 5 processed approximately 4.9 million tons of ore in 2018. Lower-grade surface material with suitable cyanide solubility is treated on one of four heap leach pads. Carlin is a sediment-hosted disseminated gold deposit with an available mining fleet consisting of six shovels and 47 haul trucks, which range from 150 to 250 tons.
Brownfield exploration and development for new reserves is ongoing.
Power is supplied by Wells Rural Electric Company (“WREC”) in the southern section of the property and in the northern section of the property power is partially supplied by a power plant Newmont built and placed in operations in 2008. Power generated is sold to NV Energy and then repurchased by the operations.
Carlin’s gross property, plant and mine development at December 31, 2018 was $4,331. Carlin produced 927,000 ounces of gold in 2018 and reported 12.5 million ounces of gold reserves at December 31, 2018.
Phoenix, Nevada, USA. (100% owned) Phoenix is comprised of the Phoenix operations and the Lone Tree operations. The Phoenix and Lone Tree properties are owned through fee property and unpatented mining claims, which are renewed annually.
Phoenix is an open pit operation, located approximately 10 miles south of Battle Mountain, Nevada and can be accessed by paved highway to a Newmont maintained dirt road. Phoenix was acquired through the Battle Mountain Gold merger and began operations in 2006.
Phoenix is a skarn-hosted polymetallic massive sulfide replacement deposit. The Phoenix mill produces a gravity gold concentrate and a copper/gold flotation concentrate and recovers additional gold from cyanide leaching of the flotation tails. The Phoenix surface mine’s available mining fleet consists of three shovels and twenty 240-ton haul trucks. Process facilities include a flotation mill, which processed approximately 12.2 million tons of ore in 2018, a carbon-in-leach plant, a copper leach pad and a solvent extraction electrowinning (“SX/EW”) plant. The copper leach and SX/EW plant allows for the production of copper cathode.
Brownfield exploration and development for new reserves is ongoing.
Lone Tree is an open pit operation, located approximately 20 miles northwest of Battle Mountain, Nevada and can be accessed by paved highway. Lone Tree was acquired through the Santa Fe merger and began operations in 1991.
Mining was completed in 2007, with residual leaching and ongoing reclamation activities. Lone Tree’s available mining fleet consists of two haul trucks, which range from 150 tons to 190 tons, to handle leach material for residual leaching operations. The site also has an autoclave and flotation mill, which are currently on care and maintenance.
Power is partially supplied by a power plant built by Newmont and placed in operations in 2008. Power generated is sold to NV Energy and then repurchased by the operations.
The Phoenix operations’ gross property, plant and mine development at December 31, 2018 was $1,308. The Phoenix operations produced 241,000 ounces of gold and 32 million pounds of copper in 2018. At December 31, 2018, the Phoenix operations reported 2.9 million ounces of gold reserves and 890 million pounds of copper reserves.
Twin Creeks, Nevada, USA. The Twin Creeks property is comprised of the Twin Creeks mine (100% owned) and the Turquoise Ridge joint venture (25% owned).
Twin Creeks is comprised of an open pit and an underground operation. The Twin Creeks open pit is located approximately 15 miles north of Golconda, Nevada and can be accessed by paved highway to a dirt road maintained by Newmont. The Twin Creeks open pit mine began operations in 1987 and was acquired through the Santa Fe merger in 1997. The Twin Creeks underground mine is located below and north of the Vista Pit within the Twin Creeks open pit footprint. First production for the underground mine began in August 2017 and commercial production began in July 2018. The property is owned through fee property and unpatented mining claims, which are renewed annually.
Twin Creeks is a sediment-hosted disseminated gold deposit. Higher-grade oxide ores are processed by conventional milling and cyanide leaching at the Juniper mill. Higher-grade refractory ores are processed in the Sage autoclave and lower-grade material
39
with suitable cyanide solubility is treated on heap leach pads. Twin Creeks’ available mining fleet consists of two shovels and fourteen 240-ton haul trucks. The process facilities include an autoclave, which processed approximately 4.1 million tons of ore in 2018, an oxide mill, which processed 926,000 tons of ore in 2018, and three leach pads.
Brownfield exploration and development for new reserves is ongoing.
Power is partially supplied by a power plant Newmont built and placed in operations in 2008. Power generated is sold to NV Energy and then repurchased by the operations.
Turquoise Ridge is an underground gold mine located in Golconda, Nevada and can be accessed by a paved highway to a dirt road maintained by Newmont. Turquoise Ridge is a joint venture with a subsidiary of Barrick Gold Corporation (“Barrick”), where Barrick is the operator. We have a 25% interest in Turquoise Ridge and we report our interest on a pro rata basis. The operation includes a refractory ore deposit, which utilizes the Twin Creeks autoclave for processing. Additionally, we have a toll milling agreement with Barrick for processing capacity at Twin Creeks. The agreement has a term of seven years and provides milling capacity to Turquoise Ridge of 850,000 tons per year in 2018 and 2019 and 1.2 million tons per year from 2020 through 2024.
The Twin Creeks operations’ gross property, plant and mine development at December 31, 2018 was $1,308. The Twin Creeks operation produced 359,000 ounces of gold in 2018 and reported 5.5 million ounces of attributable gold reserves at December 31, 2018.
Long Canyon, Nevada, USA. (100% owned) Long Canyon is an open pit operation located approximately 75 miles east of Elko, Nevada off of Interstate 80 and can be accessed by paved highway. Long Canyon was acquired in 2011 through the purchase of Fronteer Gold Inc. The property is owned through fee property and unpatented mining claims, which are renewed annually. Commercial production at Long Canyon was achieved in November 2016.
Long Canyon is a sediment-hosted disseminated gold deposit. Oxide ore with suitable cyanide solubility is treated on a heap leach pad. The Long Canyon available mining fleet consists of two shovels and twelve 240-ton haul trucks. Gold recovered from the leach pad is transferred as gold-bearing carbon to Carlin for refining and shipment.
Brownfield exploration and development for new reserves is ongoing.
Power is supplied by WREC.
Long Canyon’s gross property, plant and mine development at December 31, 2018 was $1,155. The Long Canyon operation produced 170,000 ounces of gold in 2018 and reported 1.0 million ounces of gold reserves at December 31, 2018.
Cripple Creek & Victor, Colorado, USA. (100% owned) Cripple Creek &Victor (“CC&V”) is an open pit operation, located next to the town of Victor, Colorado and can be accessed by paved highway. Newmont acquired CC&V through a purchase from AngloGold Ashanti Limited in 2015. The vast majority of the property is controlled through fee patented mining claims as well as long-term mining leases. Properties held under long-term mining leases expire at varying dates over the next 20 years. Royalties on various sections of the deposit vary up to 5% of production.
CC&V is an epithermal alkalic deposit with heap leaching and milling processing facilities located on site. Heap leaching is used to process lower-grade ore, while the mill is used to process higher-grade ore. CC&V’s available mining fleet consists of two shovels and twenty-two 240-ton haul trucks. The process facilities include a mill, which processed 1.7 million tons of ore in 2018, and two valley leach facilities. Beginning in February 2018, gold concentrate inventory from CC&V is shipped and processed in Carlin, Nevada.