Newmont Mining Corporation (NYSE: NEM) (Newmont or the Company) announced first quarter 2017 results that demonstrated improved operational and financial performance.
- Net income: Delivered GAAP net income attributable to stockholders from continuing operations of $69 million or $0.13 per diluted share, and adjusted net income of $133 million or $0.25 per diluted share
- EBITDA: Generated $566 million in adjusted EBITDA, up 20 percent from the prior year quarter
- Cash flow: Increased net operating cash flow from continuing operations to $379 million and free cash flow to $199 million, up $322 million from the prior year quarter
- Gold Costs applicable to sales (CAS): Reported CAS of $687 per ounce, favorable to guidance
- Gold All-in sustaining costs (AISC): Reported AISC of $900 per ounce, favorable to guidance
- Attributable gold production: Produced 1.23 million ounces of gold, up nine percent from the prior year quarter, in-line with guidance
- Portfolio improvements: Approved the Subika Underground and Ahafo Mill Expansion projects in Africa; announced agreement to secure rights to develop a prospective new gold district in the Yukon with Goldstrike Resources; on track for commercial production at the Tanami Expansion Project in Australia mid-2017
- Financial strength: Reduced net debt to $1.7 billion, ending the quarter with $2.9 billion cash on hand and an industry-leading, investment-grade credit profile
- Outlook: The Subika Underground and Ahafo Mill Expansion projects improve volumes beginning in 2018, improve costs beginning in 2020, with additional development capital in 2017-2019
"We generated strong financial results this quarter and approved plans to invest in profitable growth in Ghana and a prospective gold district in the Yukon," said Gary Goldberg, President and Chief Executive Officer. "We increased free cash flow by more than $320 million and adjusted EBITDA by 20 percent to $566 million compared to the prior year quarter. Our teams in Australia and South America overcame significant weather events safely and efficiently and we remain well on track to meet our 2017 outlook. Permits, funding and resources are in place to build the Subika Underground mine - which will produce 1.8 million ounces of gold over an 11-year mine life, and access ore grades that are three times higher than our surface mines - and the Ahafo Mill Expansion. Our cost and capital discipline, combined with our industry-leading balance sheet, gives us the means to continue self-funding projects, growing margins and improving the quality and life of our Reserves, with a goal to deliver sustainable value for our shareholders."
First Quarter 2017 Summary Results
GAAP Net income attributable to Newmont stockholders from continuing operations was $69 million or $0.13 per share for the quarter, up $81 million from the prior quarter.
Adjusted net income of $133 million or $0.25 per diluted share for the quarter, up four percent from the prior quarter as higher gold production and favorable pricing were partially offset by higher CAS. The primary adjustments to net income include 10 cents per share net tax adjustments primarily related to valuation allowances on foreign tax credits and two cents per share related to restructuring and remediation activities.
Revenue rose 13 percent to $1.7 billion for the quarter primarily due to increased volumes and slightly higher pricing.
Average realized price for gold improved $29 to $1,221 per ounce for the quarter; average realized price for copper improved $0.65 to $2.68 per pound.
Attributable gold production increased nine percent to 1.23 million ounces for the quarter as new production from Merian and Long Canyon more than offset geotechnical issues at Carlin. Exceptional weather also affected operations in Australia and South America.
Gold CAS totaled $894 million for the quarter. Gold CAS per ounce rose one percent to $687 per ounce for the quarter due primarily to increased costs of processing lower grades. These impacts were partially offset by increased sales.
Gold AISC was in-line with the prior quarter at $900 per ounce on higher CAS, higher near-term sustaining capital and increased advanced projects and exploration expense.
Attributable copper production from Phoenix and Boddington was unchanged at 13,000 tonnes for the quarter. Copper CAS totaled $39 million for the quarter. Copper CAS improved 17 percent to $1.50 per pound for the quarter on changes to gold-copper cost allocation. Copper AISC improved 17 percent to $1.77 per pound for the quarter on improved unit CAS.
Capital expenditures decreased 36 percent from the prior year quarter to $180 million as growth projects including Merian and Long Canyon moved into commercial production.
Consolidated operating cash flow from continuing operations rose 141 percent from the prior year quarter to $379 million on increased sales and improved pricing. Free cash flow increased $322 million to $199 million for the quarter on improved sales, higher pricing and lower capital expenditures.
Balance sheet improved as Newmont ended the quarter with $2.9 billion cash on hand, a leverage ratio of 0.7x net debt to adjusted EBITDA and one of the best credit ratings in the mining sector. The Company is committed to maintaining an investment grade credit profile.
Newmont's capital-efficient project pipeline supports stable production with improving margins and mine life. Near-term projects are presented below. Funding for the Tanami Expansion Project, Subika Underground, and Ahafo Mill Expansion has been approved. The remaining projects represent incremental improvements to production and cost guidance.
- Tanami Expansion (Australia) includes a second decline in the mine and incremental capacity in the plant to increase profitable production and serve as a platform for future growth. The project is on track to reach commercial production mid-2017 and will maintain Tanami's annual gold production at 425,000 to 475,000 ounces at AISC of between $700 and $750 per ounce for the first five years of production. Capital costs are estimated at between $100 and $120 million with expenditure of $30 to $50 million in 2017.
- Subika Underground (Africa) leverages existing infrastructure and an optimized approach to develop Ahafo's most promising underground resource. First production is expected in the second half of 2017 with commercial production beginning in the second half of 2018. The expansion is expected to increase average annual gold production by between 150,000 and 200,000 ounces per year for the first five years beginning in 2019 with an initial mine life of approximately 11 years. Capital costs for the project are estimated at between $160 and $200 million with expenditure of $80 to $90 million in 2017. The project has an IRR of more than 20 percent at a $1,200 gold price.
- Ahafo Mill Expansion (Africa) is designed to maximize resource value by improving production margins and accelerating stockpile processing. The project also supports profitable development of Ahafo's highly prospective underground resource. First production is expected in the first half of 2019 with commercial production expected in the second half of 2019. The expansion is expected to increase average annual gold production by between 75,000 and 100,000 ounces per year for the first five years beginning in 2020. Capital costs for the project are estimated at between $140 and $180 million with expenditure of approximately $40 to $50 million in 2017. The project has an IRR of more than 20 percent at a $1,200 gold price.
Together the Ahafo expansion projects (Ahafo Mill Expansion and Subika Underground) improve Ahafo's production to between 550,000 and 650,000 ounces per year for the first five full years of production (2020-2024). During this period Ahafo's CAS is expected to be between $650 and $750 per ounce and All-in sustaining cost is expected to be between $800 and $900 per ounce. This represents average production improvement of between 200,000 and 300,000 ounces at CAS improvement of between $150 and $250 per ounce and AISC improvement of $250 to $350 per ounce, compared to 2016 actuals.
- Quecher Main (South America) would add oxide production at Yanacocha, and serve as a bridge to development of Yanacocha's considerable sulfide deposits. An investment decision is expected in the second half of 2017 with first production in 2019. Quecher extends the life of the Yanacocha operation to 2025 with average annual gold production of approximately 200,000 ounces per year between 2020 and 2025 (100 percent basis). Capital costs for the project are estimated at between $275 and $325 million with expenditure of $5 to $10 million in 2017.
- Twin Underground (North America) is a portal mine beneath Twin Creek's Vista surface mine with similar mineralization. An investment decision is expected in the second half of 2017 with first production in 2018. The expansion would add about 30,000 ounces per year for the first five years. Capital costs for the project are estimated at between $10 and $20 million.
Newmont's outlook reflects steady gold production and ongoing investment in its current assets and best growth prospects. Newmont does not include potential cost and efficiency improvements in its outlook beyond 2017, nor does it include development projects that have not yet been funded or reached the execution stage - both of which represent upside to guidance. Economic assumptions include $1,200 per ounce gold, $2.25 per pound copper, $55 per barrel WTI and $0.75 Australian dollar exchange rate. Outlook has been updated to include the Ahafo expansion projects. Newmont continues to review 2017 performance and will re-assess outlook with second quarter results.
Attributable gold production guidance is improved — Outlook for 2017 remains at between 4.9 and 5.4 million ounces as full year production at Merian and Long Canyon more than offsets declines at Twin Creeks and Yanacocha. Production guidance for 2018 and longer-term guidance improves to between 4.7 and 5.2 million ounces with production from the Ahafo expansions offsetting declines at maturing assets. Expansion projects at Yanacocha and Twin Creeks represent upside to both production and cost guidance.
- North America guidance is unchanged. Production guidance remains at between 2.0 and 2.2 million ounces in 2017 with a full year of operation at Long Canyon offsetting the impact of higher planned stripping at Twin Creeks. Guidance is unchanged at between 1.9 and 2.1 million ounces in 2018 and between 1.8 and 2.0 million ounces in 2019 due to planned stripping at Carlin and continued stripping at Twin Creeks. Both sites are expected to return to higher production levels in 2020.
- South America guidance is unchanged. Production guidance remains between 630,000 and 690,000 ounces in 2017 and between 625,000 and 725,000 ounces in 2018 as Merian increases production. Guidance remains at between 500,000 and 600,000 ounces in 2019 due to declining production at Yanacocha and higher stripping at Merian. Quecher Main at Yanacocha represents additional upside currently not captured in guidance. The Company continues to advance oxide and sulfide potential at Yanacocha.
- Australia guidance is unchanged. Production guidance for 2017 and 2018 remains at between 1.5 and 1.7 million ounces and between 1.4 and 1.6 million ounces for 2019 as Boddington stripping results in lower grades before returning to higher production levels in 2020. The Company is studying a further expansion at Tanami which represents additional upside not currently captured in guidance.
- Africa guidance is improved following the inclusion of the Subika Underground and Mill Expansion projects. Production guidance improves to between 725,000 and 785,000 ounces in 2017 and improves to between 750,000 and 850,000 ounces in 2018 as Subika Underground offsets depletion of softer ores and higher grade stockpiles at Akyem. Production is expected to further improve in 2019 to between 1.0 and 1.1 million ounces as Ahafo reaches higher grade ore in the Subika pit and the Ahafo Mill Expansion achieves commercial production.
Gold cost outlook is improved for 2019-2021 - CAS guidance remains unchanged at between $700 and $750 per ounce for 2017, between $700 and $800 per ounce for 2018 and between $650 and $750 per ounce for 2019-2021, before any portfolio improvements expected through the Full Potential program. AISC guidance for 2017 and 2018 is unchanged at between $940 and $1,000 per ounce and between $950 and $1,050 per ounce, respectively, excluding further cost and efficiency improvements. Longer-term AISC guidance is improved to between $870 and $970 per ounce as increased production from Ahafo - combined with ongoing productivity, cost and capital improvements - is expected to more than offset inflation and partially counter the effects of lower grades.
- North America cost guidance is unchanged. CAS per ounce guidance remains at between $705 and $755 in 2017 and between $750 and $850 in both 2018 and 2019. AISC per ounce guidance remains at between $905 and $980 in 2017, between $950 and $1,050 in 2018 and between $930 and $1,030 in 2019, as a result of planned stripping at Carlin combined with lower grades at Twin Creeks and CC&V.
- South America cost guidance is unchanged. CAS per ounce guidance remains at between $675 and $725 in 2017, between $650 and $750 in 2018 and between $575 and $675 in 2019. AISC per ounce guidance is unchanged at between $880 and $980 in 2017, between $850 and $950 in 2018 and between $810 and $910 in 2019. Costs decrease as lower cost production from Merian replaces higher cost production from Yanacocha. Yanacocha reaches higher grade ore in Tapado Oeste in 2019.
- Australia cost guidance is unchanged. CAS per ounce guidance remains at between $660 and $710 in 2017 and at between $675 and $775 in both 2018 and 2019. AISC per ounce guidance is unchanged at between $820 and $880 in 2017 and between $850 and $950 in both 2018 and 2019. Higher costs are due to lower grades as a result of stripping at Boddington, lower grades at Tanami, and treatment of additional lower grade stockpile ore at Kalgoorlie in 2019.
- Africa cost guidance for 2018 is improved following the inclusion of the Subika Underground and Mill Expansion projects. CAS per ounce guidance is unchanged at between $780 and $830 in 2017, between $800 and $900 in 2018 and between $475 and $575 in 2019. AISC per ounce guidance is unchanged in 2017 at between $950 and $1,010, improved in 2018 to between $960 and $1,060 and remains unchanged in 2019 at between $680 and $780 in 2019. Medium term costs increase due to Akyem processing harder, lower-grade ore, which is more than offset as the Subika Underground mine achieves production in 2018, and higher-grade ore is reached in the Subika open pit in 2019.
Copper — Together, Boddington and Phoenix are expected to produce between 40,000 and 60,000 tonnes of copper per year, unchanged from previous guidance. Overall cost guidance remains unchanged; CAS guidance remains at between $1.45 and $1.65 per pound and AISC guidance remains at between $1.85 and $2.05 per pound. Longer term cost guidance is unchanged; CAS guidance remains at between $1.50 and $1.90 per pound and AISC guidance remains at between $1.85 and $2.15 per pound.
Capital — Capital guidance for 2017 is increased to between $900 million and $1.1 billion, covering the remaining capital for the Northwest Exodus and Tanami Expansion projects and the initial capital for Subika Underground and the Ahafo Mill Expansion. Capital guidance for 2018 is increased to between $900 million and $1.0 billion and 2019 guidance is increased to between $630 million and $730 million. 2017 and longer-term sustaining capital outlook of between $600 and $700 million is unchanged from prior guidance. Newmont expects to reach development decisions on the Quecher Main and Twin Underground projects in the second half of this year. These projects are currently excluded from outlook.