By Classfmonline.com on 2019-04-30 09:14:01
Newmont Goldcorp Corporation (NYSE: NEM, TSX: NGT) has released its first quarter 2019 results for Newmont Mining Corporation with a net debt of $0.8 billion and $3...
Newmont Goldcorp Corporation (NYSE: NEM, TSX: NGT) has released its first quarter 2019 results for Newmont Mining Corporation with a net debt of $0.8 billion and $3.5 billion cash on hand.
Newmont Goldcorp also delivered a GAAP net income from continuing operations attributable to stockholders of $113 million or $0.21 per diluted share; and also delivered adjusted net income of $176 million or $0.33 per diluted share, down $0.02 compared to the prior year quarter.
• EBITDA: Generated $687 million in adjusted EBITDA, up seven percent from the prior year quarter.
• Cash flow: Reported consolidated cash flow from continuing operations of $574 million, more than double prior year quarter, and free cash flow of $349 million.
• Gold costs applicable to sales (CAS): Reported CAS of $701 per ounce, an improvement of six percent compared to the prior year quarter, and in-line with the Company’s full year guidance.
• Gold all-in sustaining costs (AISC): Reported AISC of $907 per ounce, an improvement of four percent compared to the prior year quarter, and in-line with the Company’s full year guidance.
• Attributable gold production: Produced 1.23 million ounces of gold, in-line with the Company’s full-year guidance.
• Portfolio improvements: Forged a strategic joint venture agreement with Barrick to create the world’s largest gold producing complex by combining the companies’ respective mining operations, assets, reserves, and talent in Nevada; completed Tanami Power Project in Australia safely and on schedule, lowering power costs and carbon emissions by 20 per cent.
• Financial strength: Ended the quarter with net debt of $0.8 billion and $3.5 billion cash on hand, supporting an investment-grade credit profile; declared a first quarter dividend of $0.14 per share; declared a one-time special dividend of $0.88 per share to be paid on May 1, 2019, to Newmont shareholders of record based on outstanding shares as of April 17, 2019, and not including any shares issued in connection with the recently completed Newmont Goldcorp transaction.
• Newmont Goldcorp update: On January 14, 2019, the Company entered into a definitive agreement to acquire all outstanding common shares of Goldcorp Inc. (Goldcorp) in a primarily stock transaction. On April 18, 2019, Newmont closed its acquisition of Goldcorp following receipt of all regulatory approvals and approval by Newmont’s and Goldcorp’s shareholders of the resolutions at the shareholder meetings on April 11 and April 4, 2019, respectively. As of the closing date, the combined company is known as Newmont Goldcorp Corporation, continuing to be traded on the New York Stock Exchange under the ticker NEM and listed on the Toronto Stock Exchange under the ticker NGT.
“We delivered $349 million in free cash flow in the quarter while meeting production and cost targets on the back of continued operational excellence,” said Gary J. Goldberg, Chief Executive Officer. “This performance gave us the means to deliver superior shareholder value in the form of a special dividend, and to build a stronger future by advancing profitable projects on three continents, and by progressing two historic transactions. Our joint venture in Nevada will generate synergies and create the world’s largest gold mining complex, and our combination with Goldcorp will create the world’s leading gold business as measured by assets, prospects and people.”
First Quarter 2019 Summary Results
Net income (loss) from continuing operations attributable to Newmont stockholders was $113 million or $0.21 per diluted share, a decrease of $57 million from the prior year quarter primarily due to integration and transaction costs associated with the Newmont Goldcorp transaction and Nevada Joint Venture and lower average realised gold prices; partially offset by higher gold production.
Adjusted net income was $176 million or $0.33 per diluted share, compared to $185 million or $0.35 per diluted share in the prior year quarter. The adjustments to net income of $0.12 related to integration and transaction costs associated with the Newmont Goldcorp transaction and Nevada Joint Venture, an increase in the fair value of investments, restructuring charges, and valuation allowances and other tax adjustments.
Revenue of $1.8 billion was in-line with the prior year quarter as higher gold ounces sold were offset by lower average realised gold price and lower copper pounds sold.
Average realised price for gold was $1,300, a decrease of $26 per ounce over the prior year quarter; average realised price for copper was $2.89 per pound, in-line with the prior year quarter.
Attributable gold production increased two percent to 1.23 million ounces primarily due to a full quarter of mining at Subika Underground and higher grade at Merian and Yanacocha, partially offset by reduced mining and lower grade at KCGM.
Gold CAS decreased five percentto $935 million for the quarter. Gold CAS per ounce improved to $701 for the quarter from higher production, lower stockpile and leach pad inventory adjustments and a favorable Australian dollar foreign currency exchange rate.
Gold AISC decreased four percentto $907 per ounce for the quarter on lower CAS.
Attributable copper production decreased 17 percent to 10,000 tonnes for the quarter, primarily due to lower grades and throughput at Boddington, partially offset by higher grades at Phoenix. Copper CAS totaled $43 million for the quarter. Copper CAS was $1.94 per pound, an 11 percent increase over the prior year quarter due to lower production at Boddington, partially offset by higher production at Phoenix and a favorable Australian dollar foreign currency exchange rate. Copper AISC for the quarter rosenine percent to $2.26 per pound primarily from higher CAS per pound.
Capital expenditures decreased by three percent from the prior year quarter to $225 million primarily due to the completion of Subika Underground; partially offset by higher spending for growth projects, including Quecher Main, Yanacocha Sulfides, Tanami Expansion 2, and the Ahafo Mill Expansion and Ahafo North.
Consolidated operating cash flow from continuing operations increased 116 percent from the prior year quarter to $574 million due to favorable changes in working capital. Free cash flow also increased $314 million to $349 million for the quarter from higher operating cash flow.
Balance sheet ended the quarter with $3.5 billion cash on hand and a leverage ratio of 0.3x net debt to adjusted EBITDA. Newmont is committed to maintaining an investment-grade credit profile.
On March 10, 2019, the Company entered into an implementation agreement with Barrick Gold Corporation (Barrick) to establish a joint venture that will combine certain mining operations and assets located in Nevada and historically included in the Company’s North America reportable segment and certain of Barrick’s Nevada mining operations and assets (the Nevada JV Agreement). Pursuant to the terms of the Nevada JV Agreement, Barrick and the Company will hold economic interests in the joint venture equal to 61.5 percent and 38.5 percent, respectively. Barrick will operate the joint venture with overall management responsibility and will be subject to the supervision and direction of the joint venture’s Board of Managers, which will be comprised of three managers appointed by Barrick and two managers appointed by Newmont. The Company and Barrick will have an equal number of representatives on the joint venture’s technical, finance and exploration advisory committees. Establishment of the joint venture is subject to the usual conditions, including regulatory approvals, and is expected to be completed in the coming months.
Newmont’s capital-efficient project pipeline supports stable production with improving margins and mine life. Near-term development capital projects are presented below. Funding for Ahafo Mill Expansion and Quecher Main has been approved and these projects are in execution. Additional projects represent incremental improvements to production and cost guidance. Internal rates of return (IRR) on these projects are calculated at a $1,200 gold price.
• Ahafo Mill Expansion (Africa) is designed to maximize resource value by improving production margins and accelerating stockpile processing. The project also supports profitable development of Ahafo’s highly prospective underground resources. Both first production and commercial production are expected in the fourth quarter of 2019. The expansion is expected to increase average annual gold production by between 75,000 and 100,000 ounces per year for the first five years beginning in 2020. Capital costs for the project are estimated between $140 and $180 million with expenditure of approximately $35 to $45 million in 2019. The project has an IRR of more than 20 percent.
The Ahafo Mill Expansion, together with the Company’s recently completed Subika Underground project, will improve Ahafo’s production to between 550,000 and 650,000 ounces per year for the first five full years of production (2020 to 2024). During this period Ahafo’s CAS is expected to be between $650 and $750 per ounce and AISC is expected to be between $800 and $900 per ounce. This represents average production improvement of between 200,000 and 300,000 ounces at CAS improvement of between $150 and $250 per ounce and AISC improvement of $250 to $350 per ounce, compared to 2016 actuals.
• Quecher Main (South America) will add oxide production at Yanacocha, leverage existing infrastructure and enable potential future growth at Yanacocha. Commercial production is expected in the fourth quarter of 2019. Quecher Main extends the life of the Yanacocha operation to 2027 with average annual gold production of approximately 200,000 ounces per year between 2020 and 2025 (100 percent basis). During the same period, incremental CAS is expected to be between $750 and $850 per ounce and AISC between $900 and $1,000 per ounce. Capital costs for the project are expected to be between $250 and $300 million with expenditure of $95 to $105 million in 2019. The project IRR is expected to be greater than 10 percent.
Newmont issued its 2019 and longer-term outlook in December 2018 and the figures did not include the impact of the Newmont Goldcorp transaction, which closed on April 18, 2019, or the proposed Nevada Joint Venture. The outlook reflected steady gold production and ongoing investment in its operating assets and most promising growth prospects. Newmont does not include development projects that have not yet been funded or reached execution stage in its outlook which represents upside to guidance.
Attributable gold production is expected to be 5.2 million ounces in 2019, primarily driven by a full year of higher grade production from the recently completed Subika Underground project in Africa. Production is expected to be 4.9 million ounces in 2020 and longer-term production is expected to remain stable at between 4.4 and 4.9 million ounces per year through 2023 excluding development projects which have yet to be approved.
• North America production is expected to be 1.9 million ounces in 2019 as higher grade production from Northwest Exodus and Twin Underground are offset by the depletion of Silverstar ore at Carlin and lower gold production at Phoenix as mining shifts to higher copper grade ore from the Bonanza pit. Production remains at 1.9 million ounces in 2020 and 2021 as higher grades at Long Canyon following the stripping campaign help offset lower grades at CC&V. North American production may be impacted by approximately 70,000 ounces following the Gold Quarry wall slip but mine plan optimisation work is ongoing. The Company continues to pursue profitable growth opportunities at Carlin, Long Canyon, CC&V and Galore Creek.
• South America production is expected to be 650,000 ounces in 2019 as productivity improvements at Merian offset the transition to harder ore. Production is expected to decrease to 560,000 ounces in 2020 and 450,000 ounces in 2021 as the Tapado Oeste pit and Yanacocha laybacks are mined out and Merian transitions from saprolite to hard rock. The Company continues to advance near-mine growth opportunities at Merian and both oxide and sulfide potential at Yanacocha.
• Australia production is expected to be 1.5 million ounces in 2019 with higher grades and throughput and productivity gains at Tanami, offset by lower mining rates at KCGM following the wall slips and the continuation of stripping at Boddington. Production is expected to be 1.5 million ounces in 2020 and 1.6 million ounces in 2021 as Boddington accesses higher grade ore. KCGM’s near-term production has been lowered due to the wall slips, but optimisation work continues to recover the impacted ounces as part of the broader Golden Mile Growth Study. The Company continues to advance studies for a second expansion at Tanami and expects to reach a full-funds decision in the second half of 2019.
• Africa production is expected to be 1.1 million ounces in 2019 with a full year of production from Subika Underground, higher grades from the Subika open pit and improved mill throughput in the second half of the year with the Ahafo Mill Expansion. Production is expected to be 930,000 ounces in 2020 with lower grades at Akyem and Subika open pit which are partially offset by higher underground grades at Ahafo and a full year of production from the Ahafo Mill Expansion. In 2021, production is expected to be 1 million ounces as Akyem reaches higher grades near the bottom of the pit. The company continues to advance the Ahafo North project and other prospective surface and underground opportunities.
Gold cost outlook – CAS is expected to be $710 per ounce for 2019 following higher production at Ahafo, lower mining costs at Yanacocha and lower operational costs at Tanami with the completion of the Tanami Power Project. The Company continues to implement Full Potential cost and efficiency improvements and advance technology initiatives to offset inflation and input cost pressures. CAS is expected to be $750 per ounce for 2020 and between $690 and $740 per ounce longer-term through 2023. AISC is expected to be $935 per ounce in 2019 on improved CAS in Africa and South America partially offset by higher sustaining capital. AISC is expected to be $975 per ounce in 2020 and between $875 and $975 longer-term through 2023. Future Full Potential savings and profitable ounces from projects that are not yet approved represent additional upside not currently captured in guidance.
• North America CAS is expected to be $785 per ounce in 2019 as lower leach grades drive inventory cost increases at CC&V which are partially offset by cost improvements across the other North American operations. CAS is expected to be $760 per ounce in 2020 and $790 per ounce in 2021 with higher production at Twin Creeks as the Turquoise Ridge Joint Venture (TRJV) optimisation project ramps up. AISC is expected to be $975 per ounce in 2019 on improved unit CAS. AISC is expected to be $925 per ounce in 2020 and 2021. North American CAS and AISC guidance may be impacted by the Gold Quarry wall slip and mine plan optimization work is ongoing.
• South America CAS is expected to be $640 per ounce in 2019 driven by a lower stripping ratio at Yanacocha partially offset by higher labor and mill maintenance costs at Merian. CAS is expected to increase to $825 per ounce in 2020 with higher inventory costs and strip ratio at Yanacocha. CAS is expected to be $830 per ounce in 2021 as Merian fully transitions into harder rock which is partially offset by lower operating costs at Yanacocha as the oxide mill shuts down. AISC is expected to be $800 per ounce in 2019 due to lower CAS and sustaining capital. AISC is expected to be $995 per ounce in 2020 and $1,000 per ounce in 2021 on higher CAS and increases in sustaining capital.
• Australia CAS is expected to be $775 per ounce in 2019 driven by increased stripping at Boddington and the drawdown of lower grade stockpiles at KCGM, partially offset by higher production and lower power costs at Tanami from switching to natural gas. CAS is expected to be $750 per ounce in 2020 and $645 per ounce in 2021 as Boddington reaches higher grades. AISC is expected to be $945 per ounce in 2019 on increased CAS. AISC is expected to be $925 per ounce in 2020 and $800 per ounce in 2021.
• Africa CAS is expected to be $570 per ounce in 2019 due to higher grades from Subika Underground and Subika open pit and the Ahafo Mill Expansion coming online. CAS is expected to be $660 per ounce in 2020 and $625 per ounce in 2021 with mine sequencing at the Ahafo and Akyem pits driving production changes. AISC is expected to be $735 per ounce in 2019 on improved unit CAS, partly offset by higher sustaining capital for the Ahafo tailing storage facility expansion. AISC is expected to be $830 per ounce in 2020 and $780 per ounce in 2021.
Copper – Attributable production is expected to be 45,000 tonnes in 2019 and 2020 as Phoenix reaches higher grade copper ore from the Bonanza pit which is offset by lower production at Boddington. Copper production increases to between 45,000 and 65,000 tonnes longer-term through 2023 driven primarily from higher grades at Boddington following completion of the next stripping campaign. CAS is expected to rise to $2.05 per pound in 2019 and $2.10 per pound in 2020 due to higher stripping at Boddington. CAS is expected to improve to $1.55 to $1.75 per pound longer-term through 2023 as production at Boddington increases offsetting lower copper grades at Phoenix. AISC is expected to rise to $2.45 per pound in 2019 on increased CAS. AISC is expected to be $2.55 per pound in 2020 and $1.80 to $2.10 per pound longer-term.
Capital – Total consolidated capital is expected to be $1,070 million for 2019 and $730 million for 2020. Development capital of $390 million in 2019 includes investments in the Tanami Power Project in Australia, Ahafo Mill Expansion in Africa, Quecher Main in South America, and the TRJV third shaft in North America and expenditures to advance studies for future projects. Development capital is expected to be $70 million in 2020 and approximately $50 million longer-term until additional projects are approved. Sustaining capital is expected to be $700 million for 2019, $660 million for 2020 and between $450 and $550 million per year longer-term to cover infrastructure, equipment and ongoing mine development.
Consolidated expense outlook – Interest expense is expected to be $215 million for 2019 from leases related to the Tanami Power Project and lower capitalized interest. Investment in exploration and advanced projects is expected to be $430 million in 2019 with increased near-mine and greenfield exploration spend across all regions and higher advanced project spend in North America. 2019 outlook for general & administrative costs is stable at $245 million and guidance for depreciation and amortisation is expected to be $1,370 million.
Assumptions and sensitivities – Newmont’s outlook assumes $1,200 per ounce gold price, $2.50 per pound copper price, $0.75 USD/AUD exchange rate and $65 per barrel WTI oil price. Assuming a 35% portfolio tax rate, $100 per ounce increase in gold price would deliver an expected $335 million improvement in attributable free cash flow. Similarly, a $10 per barrel reduction in the price of oil and a $0.05 favorable change in the Australian dollar would deliver an expected $25 million and $45 million improvement in attributable free cash flow, respectively. These estimates exclude current hedge programs; please refer to Newmont’s Form 10-Q which was filed with the SEC on April 25, 2019 for further information on hedging positions.
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