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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
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 Identification
Incorporation or Organization) No.)
1700 Lincoln Street 80203
Denver, Colorado (Zip Code)
(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
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Common Stock, $1.60 par value New York Stock Exchange
New York Stock Exchange
$3.25 Convertible Preferred Stock, $5.00 par
value
Securities registered pursuant to Section 12(g) of the Act:
None
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 [X] 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. [_]
The aggregate market value of the voting common stock and equivalents held
by non-affiliates of the Registrant (based on the closing sale price of the
shares of common stock on the New York Stock Exchange) on March 18, 2002, was
approximately $9,254,549,905.
The number of shares of Registrant's common stock outstanding on March 18,
2002, was 335,019,544.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement submitted to the
Registrant's stockholders in connection with our 2002 Annual Stockholders
Meeting to be held on May 15, 2002, are incorporated by reference into
Part III of this report.
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This document (including information incorporated herein by reference)
contains "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, which involve a degree of risk and
uncertainty due to various factors affecting Newmont Mining Corporation and
our subsidiaries. For a discussion of some of these factors, see the
discussion in Item 1A, Risk Factors, of this report commencing on page 8.
PART I
ITEM 1. BUSINESS
Introduction
Newmont Mining Corporation's original predecessor corporation was
incorporated in 1921 under the laws of Delaware. On February 13, 2002, at a
special meeting of the stockholders of Newmont, stockholders approved adoption
of an Agreement and Plan of Merger that provided for a restructuring of
Newmont to facilitate the February 2002 acquisitions described below and to
create a more flexible corporate structure. Newmont merged with an indirect,
wholly-owned subsidiary, which resulted in Newmont becoming a direct wholly-
owned subsidiary of a new holding company. The new holding company was renamed
Newmont Mining Corporation. There is no impact to the consolidated financial
statements of Newmont as a result of this restructuring and former
stockholders of Newmont became stockholders of the new holding company. In
this report, "Newmont" and "we" refer to Newmont Mining Corporation and/or our
affiliates and subsidiaries.
On January 10, 2001, Newmont completed a stock-for-stock merger with Battle
Mountain Gold Company pursuant to an Agreement and Plan of Merger, dated June
21, 2000.(/1/) During 2001, we integrated the former Battle Mountain
operations in Canada and Bolivia, the Phoenix development project in Nevada,
and the interest in the Pajingo (Vera/Nancy) joint venture operation in
Australia.(/2/) Synergies in excess of an estimated $25 million,(/3/) pre-tax,
were achieved during 2001 from consolidation of administrative and exploration
staffs, purchasing economies and the introduction of Newmont's Gold Medal
Performance program at Battle Mountain's operations. The Phoenix project is
expected to provide an opportunity for additional synergies in future years
from utilization of existing nearby processing facilities.
In November 2001, Newmont announced proposed acquisitions of Normandy Mining
Limited, an Australian company, and Franco-Nevada Mining Corporation Limited,
a Canadian company. On February 16, 2002, Newmont completed the acquisition of
Franco-Nevada pursuant to a Plan of Arrangement. On February 20, 2002, Newmont
gained control of Normandy through an off-market bid for all of the ordinary
shares in the capital of Normandy. On February 26, 2002, when Newmont's off-
market bid for Normandy expired, Newmont had a relevant interest in more than
96% of Normandy's outstanding shares. Newmont is exercising compulsory
acquisition rights under Australian law to acquire all of the shares of
Normandy that Newmont does not own and expects this process to be completed in
April 2002.
Franco-Nevada has a portfolio of royalty interests covering producing and
non-producing mineral properties located in the United States, Canada,
Australia, South Africa, Indonesia and various South American countries.
Franco-Nevada also has a portfolio of oil and gas interests in western Canada
and various direct and indirect investments in resource properties in Canada,
Nevada, Central and South America, Australia, South Africa, Indonesia and the
Dominican Republic.
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(1) The merger was accounted for as a pooling of interests, and as such, the
financial and operating data presented in this report includes Battle
Mountain as if it has always been a part of Newmont. Consequently, some
historical financial and operating data presented in this report may
differ from previous reports.
(2) For more information on Pajingo see Item 2, Properties, on page 18.
(3) All references to "dollars" or "$" in this report refer to United States
currency unless otherwise specified.
Normandy is Australia's largest gold producer, with over 2 million equity
ounces of gold sales annually, and with operations in Australia, the United
States, New Zealand, Turkey, Chile, Brazil and Canada. Normandy is also a
producer of zinc concentrates and owns interests in companies producing cobalt
and magnesium.
As a result of the Normandy and Franco-Nevada acquisitions, Newmont has gold
reserves of 86 million ounces and an aggregate land position of approximately
94,000 square miles (244,000 square kilometers). We have operations in North
America, South America, Australia, New Zealand, Indonesia, Uzbekistan and
Turkey. In 2002, we expect to obtain more than 70% of our production from
politically and economically stable countries, namely the United States,
Canada and Australia. Newmont is also engaged in the production of, and
exploration for, copper and zinc.
In connection with the acquisition of Normandy and Franco-Nevada, Newmont
will issue approximately 194 million Newmont common shares or common share
equivalents to former stockholders of Normandy and Franco-Nevada. In addition,
pursuant to Newmont's offer for Normandy, Newmont will make cash payments of
approximately $465 million to former stockholders of Normandy ordinary shares.
During 2002, we will review opportunities to further rationalize our asset
base through the consolidation of separately held and managed assets, asset
swaps, and the sale or disposal of lower margin or non-core operations or
interests.
Unless explicitly provided otherwise in this report, production, revenue and
other financial information with respect to 2001 and prior years do not
include the operations or revenues of Normandy or Franco-Nevada.
As of December 31, 2001, prior to the completion of the Normandy and Franco-
Nevada transactions, Newmont had revenues of $ 1.66 billion in 2001 and $1.82
billion in 2000. In 2001, Newmont had a net loss to common shares of $30.8
million, while in 2000, Newmont had a net loss to common shares of $102.3
million.
Newmont's corporate headquarters are in Denver, Colorado, USA.
For additional information, see Item 7, Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations, commencing on
page 36 below.
Products
Gold
Gold Production
Including Newmont's subsidiaries, partnerships and joint ventures prior to
the Normandy and Franco-Nevada transactions, Newmont sold 5.43 million equity
ounces of gold in 2001 and 5.73 million equity ounces in 2000. References in
this report to "equity ounces" mean that portion of gold produced, or included
in proven and probable reserves, which is attributable or proportionate to our
ownership or economic interest.
Approximately 59% of Newmont's gold production came from North American
operations in 2001 and 41% from overseas operations. In 2000, approximately
64% of our gold production came from North American operations and 36% came
from overseas operations. In 2001, 44% of overseas production, or 18% of total
production, was attributable to Minera Yanacocha in Peru. At December 31,
2001, approximately 47% of our total long-lived assets were related to our
overseas operations, with 37% of that total in Indonesia and 53% in Peru.
2
Gold Uses
Gold has two main categories of use--product fabrication and bullion
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 high-karat
jewelry.
Most of Newmont's revenue comes from the sale of refined gold in the
international market. The end product at each of Newmont's gold operations,
however, is dore bars. Because dore is an alloy consisting mostly of gold but
also containing silver, copper and other metals, dore bars are sent to
refiners to produce bullion that meets the required market standard of 99.95%
pure gold. Under the terms of refining agreements, the dore bars are refined
for a fee, and Newmont's share of the refined gold and the separately,
recovered silver are credited to Newmont's account or delivered to buyers,
except in the case of the dore produced from Newmont's operation in
Uzbekistan. Dore from that operation is refined locally and physically
returned to Newmont for sale in international markets. We do not believe that
the loss of service at any of our refiners would have an adverse effect on our
business due to the availability of alternative refiners able to supply the
necessary services. Additionally, through our recent acquisition of Normandy,
Newmont has an interest in an Australian refinery.
Gold Supply
The worldwide supply of gold consists of a combination of new production
from mining and the draw-down of existing stocks of bullion and fabricated
gold held by governments, financial institutions, industrial organizations and
private individuals. In recent years, mine production has accounted for 60% to
65% of the total annual supply of gold.
Gold Price
The price of gold is affected by numerous factors that are beyond our
control. See Risks Related to the Gold Mining Industry Generally in Item 1A,
Risk Factors, commencing on page 8 below.
The following table presents the annual high, low and average afternoon
fixing prices over the past ten years, expressed in U.S. dollars, for gold per
ounce on the London Bullion Market.
Year High Low Average
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1992.......................................................... $360 $330 $344
1993.......................................................... $406 $326 $360
1994.......................................................... $396 $370 $384
1995.......................................................... $396 $372 $384
1996.......................................................... $415 $367 $388
1997.......................................................... $367 $283 $331
1998.......................................................... $313 $273 $294
1999.......................................................... $326 $253 $279
2000.......................................................... $313 $264 $279
2001.......................................................... $293 $256 $271
2002 (through March 18)....................................... $304 $278 $289
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Source of Data: Metals Week and Reuters.
On March 18, 2002, the afternoon fixing price for gold on the London Bullion
Market was $292.05 per ounce and the spot market price of gold on the New York
Commodity Exchange was $ 292.70 per ounce.
Newmont's gold sales are generally made at the average price prevailing
during the month in which the gold is delivered to the customer plus a
"contango," which is essentially an interest factor, from the beginning of the
month until the date of delivery. Revenue from a sale is recognized when gold
is delivered from the refiner or other depository to the customer.
3
Copper
Copper Production
The Batu Hijau mine in Indonesia, in which Newmont holds a 56.25% economic
interest (a 45% equity interest), produced copper/gold concentrates containing
657.0 million pounds of copper (370 million equity pounds) and 533,600 ounces
of gold (300,200 equity ounces) in 2001. The concentrates, which have the
consistency of fine sand, contain about 30% copper and about 0.42 ounce per
ton of gold. In addition, the Golden Grove operations in Western Australia,
which were acquired in their entirety as a result of the Normandy acquisition,
produced concentrates containing 242.5 million pounds of copper for the 12
months ended June 30, 2001.
Copper Uses
Newmont delivers and sells the concentrates from Batu Hijau to smelters in
Japan, Korea, Australia and Europe. The majority of Newmont's production is
sold under long-term contracts, and the balance on the spot market. Refined
copper, the final product from the treatment of concentrates, is incorporated
into wire and cable products for use in the construction, electric utility,
communication 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 used to make brass. Materials that compete
with copper include aluminum, plastics, stainless steel and fiber optics.
Refined, or cathode, copper is also an internationally traded commodity.
Copper Price
The price of copper is quoted on the London Metal Exchange in terms of
dollars per metric ton of high grade copper and on the New York Commodity
Exchange (Comex) in terms of dollars per pound of high grade copper. Copper
prices tend to be more cyclical than gold prices and are more directly
affected by the worldwide balance of supply and demand. The volatility of the
copper market is illustrated by the following table, which shows the dollar
per pound equivalent of the high, low and average price of high grade copper
on the London Metal Exchange in each of the last ten years:
Year High Low Average
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1992........................................................ $1.21 $0.89 $1.04
1993........................................................ $0.91 $0.72 $0.81
1994........................................................ $1.40 $0.78 $1.05
1995........................................................ $1.47 $1.23 $1.33
1996........................................................ $1.29 $0.83 $1.04
1997........................................................ $1.23 $0.77 $1.03
1998........................................................ $0.85 $0.65 $0.75
1999........................................................ $0.84 $0.61 $0.71
2000........................................................ $0.91 $0.73 $0.82
2001........................................................ $0.83 $0.60 $0.72
2002 (through March 18)..................................... $0.74 $0.64 $0.70
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Source of Data: Metal Bulletin
On March 18, 2002, the closing spot price of high grade copper on the London
Metal Exchange was equivalent to $0.74 per pound.
Zinc
Newmont produces zinc, lead and copper concentrates at our Golden Grove
operations in Western Australia. Golden Grove produced 182,700 tonnes of zinc
concentrates containing 82,400 tonnes of payable zinc during the period July
1, 2000 to June 30, 2001. Golden Grove markets its zinc concentrates under
"evergreen" contracts to major zinc smelters in Japan and Korea. The majority
of zinc concentrates are sold under long term contract arrangements. Pricing
terms are negotiated annually.
4
Hedging Activities
Newmont has a "no hedging" philosophy and generally sells our production at
spot market prices. Nevertheless, Newmont monitors the market on an ongoing
basis and may periodically elect to enter into selective hedging transactions,
if required to achieve our strategic objectives. The hedging policy authorized
by Newmont's board of directors limits total hedging activity to 16 million
ounces.
Newmont sales of gold under forward sales contracts represented 1%, 3%, and
6% of Newmont's total equity sales in 2001, 2000, and 1999, respectively.
Newmont, prior to the acquisitions of Normandy and Franco-Nevada, utilized
forward sales contracts for a portion of the gold production from the Minahasa
mine in Indonesia and from the Nevada and Canadian operations. No costs were
incurred in connection with forward sales contracts and there were no margin
requirements related to these contracts. In December 2001, Newmont entered
into offsetting positions to effectively close out combination matched put and
call options and flat forward sales contracts associated with Canadian
operations. In September 2001, Newmont entered into transactions closing out
certain written call options covering 2.35 million ounces of gold. These
options were replaced with a series of sales contracts requiring physical
delivery of the same quantity of gold from 2005 to 2011. Under the terms of
the sales contracts, Newmont will realize the lower of the spot price on the
delivery date or the stated capped price ranging from $350 per ounce in 2005
to $392 per ounce in 2011.
At December 31, 2001, the following offsetting commodity instruments were
outstanding for Newmont and subsidiaries owned by Newmont on that day:
Ounces Fair Value
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(in millions)
Combination, matched put and call options, expiring
2002-2004............................................. 193,067 $ 3.2
Offsetting combination, matched put and call options,
expiring 2002-2004.................................... 193,067 $ (3.2)
Flat forward sales contracts, 2002-2004................ 64,067 $ 2.0
Forward purchase contracts, 2002-2004.................. 64,067 $ (2.0)
For more information see Market Conditions and Risks in Item 7, Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations, commencing on page 38 below.
Prior to Newmont's acquisition of Normandy, Normandy's policy was to hedge a
minimum of 60% of recoverable reserves. Recoverable reserves were generally
between 80% and 95% of total reserves. Normandy did not enter into contracts
that required margin calls and has no outstanding long-dated sold call
options. Normandy utilized forward sales contracts with fixed and floating
gold lease rates. Newmont intends to opportunistically unwind or deliver into
Normandy's hedge contracts over time.
At December 31, 2001, the Normandy hedge position consisted of derivative
contracts covering approximately 8.6 million ounces of gold at an average
price of $283 per ounce. At that time, the Normandy hedge position included
forward sales, purchased put, and convertible put contracts covering 5.8, 1.3,
and 1.5 million ounces at net contract prices of $286, $267, and $283,
respectively. At December 31, 2001, the mark-to-market value of the combined
Normandy hedge position (which includes subsidiaries) represented an
approximate liability of $239 million. All prices and values noted above were
converted to US dollars at the December 31, 2001, closing exchange rate of
A$1.9543/US$.
Royalty Business
Newmont is in the process of forming a new business unit to build upon the
royalty and merchant banking business of Franco-Nevada. As part of our ongoing
exploration program (which is described in the Exploration section on page 6
below), we identify properties or exploration targets that have good potential
but appear incompatible with our core objectives, and seek to sell those
properties to other operators in return for a royalty. Newmont is in the
process of identifying properties where we do not intend to conduct active
exploration in the foreseeable future. Newmont will attempt to assemble land
packages from among these lands
5
and sell these packages to other operators, possibly in return for a royalty.
In some cases these lands may be prospective for minerals other than gold.
Through this process Newmont intends to continue to benefit from any
discoveries made by other operators on lands in which we have a royalty.
Exploration
Newmont and its subsidiaries, prior to the acquisitions of Normandy and
Franco-Nevada, spent $55.5 million in 2001 and $77.4 million in 2000 for
exploration and research. Exploration work is regularly conducted in areas
surrounding our existing mines for the purpose of locating additional deposits
and determining mine geology. Our exploration staff employs state-of-the-art
technology, including airborne geophysical data acquisition systems, satellite
location devices and field-portable imaging systems to aid in the location of
prospective targets.
Gold exploration is highly speculative in nature, involves many risks and
frequently is unproductive. No assurances can be given that any of our new or
ongoing exploration programs will result in new mineral producing operations.
Once mineralization is discovered, it may take many years from the initial
phases of drilling until production is possible, during which time the
economic feasibility of production may change.
For more information, see Item 2, Properties, commencing on page 14 below.
Segment Information, Export Sales, Etc.
Note 20 to our consolidated financial statements beginning on page 81 of
this report includes information for each of the last three years relating to
our business segments and certain financial information, our domestic and
export sales, and our customers.
Licenses and Concessions
Other than operating licenses for its mining and processing facilities,
there are no third party patents, licenses or franchises material to Newmont's
business. In many foreign countries, however, we conduct our mining and
exploration activities pursuant to concessions granted by, or under contract
with, the host government. These countries include, among others, Australia,
Bolivia, Indonesia, Peru, Mexico and Turkey. The concessions and contracts are
subject to the political risks associated with foreign operations. For a more
detailed description of our Indonesian Contracts of Work, see Item 2,
Properties on pages 19-20 below.
Condition Of Physical Assets; Insurance and Foreign Investment Risks
Our business is capital intensive, requiring 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, on pages 47-50 below.
We maintain insurance against property loss and business interruption and
insure against risks that are typical in the operation of business in amounts
that we believe to be reasonable. Such insurance, however, contains exclusions
and limitations on coverage, particularly with respect to liability for
environmental impairment.
Some concern always exists with respect to investments in less developed
countries and countries with emerging economies where civil unrest,
nationalist movements, political violence or economic crises are possible.
These countries may also pose heightened risks of expropriation of assets,
increased taxation and a unilateral modification of concessions and contracts.
We have obtained political risk insurance through May 2002, to cover portions
of our investment in Indonesia against the risk of expropriation, war, civil
unrest and
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political violence. This insurance is limited to particular risks and is
subject to certain exclusions. There can be no assurance that claims would be
paid under such insurance in connection with a particular event.
Environmental Matters
United States Operations
Newmont's United States mining and exploration activities are subject to
various federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. We conduct our operations so as to
protect the public health and environment and believe our operations are in
compliance with all applicable laws and regulations. Each currently operating
Newmont mine has a reclamation plan in place that meets all currently enacted
legal and regulatory requirements. We have made, and expect to make in the
future, expenditures to comply with such laws and regulations, but cannot
predict the amount of such future expenditures. Estimated future reclamation
costs are based principally on legal and regulatory requirements. At December
31, 2001, $128.4 million was accrued for reclamation costs relating to
currently producing mineral properties owned by Newmont on that day.
Reclamation and Remediation of Inactive Sites within the United States
Newmont is involved in several matters concerning environmental obligations
associated with former U.S. mining activities. Generally, these matters
concern developing and implementing remediation plans at the various sites
involved. We believe that the related environmental obligations associated
with these sites are similar in nature with respect to the development of
remediation plans, their risk profile and the compliance required to meet
general environmental standards. Based upon our best estimate of our liability
for these matters, $57.3 million was accrued for such obligations associated
with properties owned by Newmont or our subsidiaries on or before December 31,
2001. These amounts are included in Other accrued liabilities and Reclamation
and remediation liabilities. Depending upon the ultimate resolution of these
matters, we believe that it is reasonably possible that the liability for
these matters could be as much as 50% greater or 30% lower than the amount
accrued at December 31, 2001. The amounts accrued for these matters are
reviewed periodically based upon facts and circumstances available at the
time. Changes in estimates are charged to costs and expenses in the period
estimates are revised.
For a discussion on the most significant reclamation and remediation
activity, see the discussion in Item 3, Legal Proceedings, commencing on page
31 below, Environmental in Item 7, Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations commencing on page
50 below, and Note 21 of Item 7, commencing on page 83 below.
Operations Outside the United States
Newmont's interests outside the United States are also subject to
governmental regulations for the protection of the environment. These
regulations have not had, and are not expected to have, a material adverse
impact on Newmont's operations or our competitive position. All of the
international projects we manage adopt and implement environmental policies
and procedures developed by us.
Employees
There were 10,600 people employed by Newmont and our affiliates worldwide at
December 31, 2001, and 10,800 people employed by Newmont and our affiliates
worldwide at December 31, 2000. At December 31, 2001, Franco-Nevada employed
25 people and Normandy employed 2,900 people.
Forward-Looking Statements
Certain statements contained in this report (including information
incorporated by reference) are "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended,
7
and are intended to be covered by the safe harbor provided for under this
section. Our forward-looking statements include, without limitation:
. estimates of future mineral production for specific operations and on a
consolidated basis;
. estimates of future production costs and other expenses, for specific
operations and on a consolidated basis;
. estimates of future capital expenditures and other cash needs for
specific operations and on a consolidated basis and expectations as to
the funding thereof;
. statements as to the projected development of certain ore deposits,
including estimates of development and other capital costs, financing
plans for these deposits, and expected production commencement dates;
. estimates of future costs and other liabilities for certain environmental
matters;
. estimates of reserves; and
. projected synergies and costs associated with acquisitions and related
matters.
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, which could cause actual results to
differ materially from future results expressed, projected, or implied by
those forward-looking statements. Cautionary statements setting forth
important factors that could cause actual results to differ materially from
our forward-looking statements are described below in Item 1A and elsewhere
throughout this report. 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 our behalf are expressly qualified in their
entirety by the cautionary statements. Newmont does not undertake any
obligation to release publicly any revisions to these forward-looking
statements, to reflect events or circumstances after the date of the document,
or to reflect the occurrence of unanticipated events, except as may be
required under applicable securities laws.
ITEM 1A. RISK FACTORS
Every investor or potential investor in Newmont should carefully consider the
following risks, which have been separated into two groups:
. risks related to the gold mining industry generally; and
. risks related to Newmont's operations.
Risks Related to the Gold Mining Industry Generally
A Substantial or Extended Decline in Gold Prices Would Have a Material Adverse
Effect on Newmont
Newmont's business is extremely dependent on the price of gold, which is
affected by numerous factors beyond Newmont's control. Factors tending to put
downward pressure on the price of gold include:
. sales or leasing of gold by governments and central banks;
. a low rate of inflation and a strong U.S. dollar;
. global and regional recession or reduced economic activity;
8
. speculative trading;
. the demand for gold for industrial uses, use in jewelry, and investment;
. high supply of gold from production, disinvestment, scrap and hedging;
. sales by gold producers in forward transactions and other hedging
transactions;
. devaluing local currencies (relative to gold priced in US Dollars)
leading to lower production costs and higher production in certain major
gold-producing regions.
Any drop in the price of gold adversely impacts our revenues, profits and
cash flows, particularly in light of our "no hedging" philosophy. Newmont has
recorded asset writedowns in recent years as a result of a sustained period of
low gold prices. Newmont may experience additional asset impairment as a
result of continuing low gold prices.
In addition, sustained low gold prices can:
. reduce revenues further by production cutbacks due to cessation of the
mining of deposits or portions of deposits that have become uneconomic
at the then-prevailing gold price;
. halt or delay the development of new projects;
. reduce funds available for exploration, with the result that depleted
reserves are not replaced; and
. reduce existing reserves, by removing ores from reserves that cannot be
economically mined or treated at prevailing prices.
Also see the discussion in Item 1, Gold Price, commencing on page 3 above.
Gold Producers Need to Continually Obtain Additional Reserves for Gold
Production
Gold producers must continually replace gold reserves depleted by
production. Depleted reserves must be replaced by expanding known orebodies or
by locating new deposits in order for gold producers to maintain production
levels over the long term. Success in exploration for gold is uncertain. As a
result, reserves may decline as gold is produced without adequate replacement.
Estimates of Proven and Probable Reserves are Uncertain
Estimates of proven and probable reserves are subject to considerable
uncertainty. Such estimates are, to a large extent, based on interpretations
of geologic data obtained from drill holes and other sampling techniques. Gold
producers use feasibility studies to derive estimates of cash 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, comparable facility, equipment, and operating costs, and other
factors. Actual cash operating costs and economic returns on projects may
differ significantly from original estimates. Further, it may take many years
from the initial phase of drilling before production is possible and, during
that time, the economic feasibility of exploiting a discovery may change.
Increased Costs Could Affect Profitability
The cash cost of production at any particular mining location is frequently
subject to great variation from one year to the next due to a number of
factors, such as changing waste-to-ore ratios, ore grade and metallurgy. In
the past, a cash cost swing of 10% at any one location has not been a
significant factor in Newmont's profitability. However, this may not always be
the case.
9
Mining Accidents or Other Adverse Events at a Mining Location Could Reduce Our
Production Levels
At any of Newmont's operations, production may fall below historic or
estimated levels as a result of mining accidents such as a pit wall failure in
an open pit mine, or cave-ins or flooding at underground mines. In addition,
production may be unexpectedly reduced at a location if, during the course of
mining, unfavorable ground conditions or seismic activity are encountered, ore
grades are lower than expected, or the physical or metallurgical
characteristics of the ore are less amenable to mining or treatment than
expected.
The Use of Hedging Instruments May Prevent Gains Being Realized from
Subsequent Price Increases
Consistent with Newmont's position as a largely unhedged producer, Newmont
does not intend to enter into new material gold hedging positions and intends
to decrease its hedge position over time. Over time, our intention is to
opportunistically deliver into our existing hedge contracts, and we will seek
to unwind our hedge position when economically attractive. Nonetheless,
Newmont currently has a gold hedging position. If the gold price rises above
the price at which future production has been committed under these hedge
instruments, Newmont will have an opportunity loss. However, if the gold price
falls below that committed price, Newmont's revenues will be protected to the
extent of such committed production.
Currency Fluctuations May Affect the Costs that Newmont Incurs
Currency fluctuations may affect the costs that we incur at our operations.
Gold is sold throughout the world based principally on the U.S. dollar price,
but a portion of Newmont's operating expenses are incurred in local
currencies. The appreciation of non-U.S. dollar currencies against the U.S.
dollar can increase the costs of gold production in U.S. dollar terms at mines
located outside the United States, making such mines less profitable.
Gold Mining Companies are Subject to Extensive Environmental Laws and
Regulations
Newmont's exploration, production, and processing operations are extensively
regulated under various U.S. federal, state, and local, and overseas laws
relating to the protection of air and water quality, hazardous waste
management and mine reclamation. Newmont has incurred current liabilities and
may have potential future liability for environmental costs. Further, the
regulatory environment for Newmont's operations could change in ways that
would substantially increase Newmont's liability or the costs of compliance
and that could have a material adverse effect on Newmont's operations or
financial position.
Risks Related To Newmont Operations
Our Operations Outside North America and Australia are Subject to the Risks of
Doing Business Abroad
Exploration, development and production activities outside of North America
and Australia are potentially subject to political and economic risks,
including:
. cancellation or renegotiation of contracts;
. disadvantages of competing against companies from countries that are not
subject to U.S. laws and regulations, including the Foreign Corrupt
Practices Act;
. changes in foreign laws or regulations;
. changes in tax laws;
. royalty and tax increases or claims by governmental entities, including
retroactive claims;
. expropriation or nationalization of property;
10
. currency fluctuations (particularly in countries with high inflation);
. foreign exchange controls;
. restrictions on the ability of local operating companies to sell gold
offshore for U.S. dollars, and 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;
. restrictions on the ability to pay dividends offshore;
. environmental controls;
. risks of loss due to civil strife, acts of war, guerrilla activities,
insurrection and terrorism; and
. other risks arising out of foreign sovereignty over the areas in which
our operations are conducted.
Consequently, Newmont's exploration, development, and production activities
outside of North America and Australia may be substantially affected by
factors beyond Newmont's control, any of which could materially adversely
affect Newmont's financial position or results of operations. Furthermore, in
the event of a dispute arising from such activities, Newmont may be subject to
the exclusive jurisdiction of courts outside North America or Australia or may
not be successful in subjecting persons to the jurisdiction of the courts in
North America or Australia, which could adversely affect the outcome of a
dispute.
Newmont has substantial investments in Indonesia, a nation that since 1997
has undergone financial crises and devaluation of its currency, outbreaks of
political and religious violence, changes in national leadership, and the
secession of East Timor, one of its former provinces. Despite democratic
elections in 1999, a change in government occurred in late July 2001, and
civil unrest, independence movements, and tensions between the civilian
government and the military continue. These problems heighten the risk of
abrupt changes in the national policy toward foreign investors, which in turn
could result in unilateral modification of concessions or contracts, increased
taxation, or expropriation of assets.
In Peru, elections for a new president and Congress were held in April 2001,
with run-off elections for the presidency held in June 2001. During the last
two years, Minera Yanacocha, of which Newmont owns a 51.35% interest, has been
the target of numerous local political protests, including ones that blocked
the road between the Yanacocha mine complex and the city of Cajamarca. Newmont
cannot predict whether these incidents will continue, nor can we predict the
new government's continuing positions on foreign investment, mining
concessions, land tenure, environmental regulation, or taxation.
Remediation Costs for Federal Superfund Law Liabilities May Exceed the
Provisions We Have Made
Newmont has conducted extensive remediation work at two inactive sites in
the United States as a result of liability under the U.S. Superfund law. At
one of these two sites, remediation requirements have not been finally
determined, and the ultimate cost cannot be estimated with certainty. At a
third site in the U.S., an inactive uranium mine and mill formerly operated by
a subsidiary of Newmont, final remediation has not begun due to the failure to
date of federal agencies to agree on a remediation plan. We dispute our
liability for remediation costs at this site. The environmental standards that
may ultimately be imposed at this site remain uncertain and there is a risk
that the costs of remediation may exceed the provision Newmont's subsidiary
has made for such remediation by a material amount.
Whenever a previously unrecognized remediation claim becomes known or a
previously estimated cost is increased, that amount of additional cost is
expensed and this can materially reduce net income in that period.
11
We May Face Risks Related To Our Investment In Australian Magnesium
Corporation (AMC)
As a result of its acquisition of Normandy, Newmont is a substantial holder
of AMC securities and has significant future obligations to AMC, based in
Queensland, Australia. Newmont has a 22.8% voting interest in AMC.
In November 2001, the AMC board of directors gave formal approval to
commence development of its A$1.3 billion(/4/) magnesium project. AMC raised
A$525 million in equity in November 2001, to support the financing of the
project. Newmont has an obligation to contribute A$100 million in equity
between October 31, 2002 and January 31, 2003. The project's remaining funding
is provided by bank facilities for A$902 million, and federal and state
government support of A$100 million each.
Additionally, AMC announced on November 29, 2001, that Normandy, which
subsequently has become a subsidiary of Newmont, agreed to continue as
guarantor of AMC's foreign exchange hedging position of A$204 million and of
AMC's A$72 million corporate facility with ANZ Banking Group Limited. If AMC
is unable to perform its obligations under these arrangements, there is a risk
that Newmont's subsidiary, as guarantor, may incur liabilities under these
arrangements.
Additionally, there are a number of significant risks related to investments
in AMC, including:
. risks related to the project, which has no operating history;
. AMC's substantial dependence on the project;
. risks related to the magnesium market;
. financial risks specific to AMC's business and operations; and
. AMC's reliance upon Newmont for financial and operational support.
Our Level Of Indebtedness May Affect Our Business
Through Newmont's recent acquisitions, our level of indebtedness has
increased, although debt is a smaller percentage of our total capitalization.
The level of indebtedness could have important consequences for our
operations, including:
. Newmont may need to use a large portion of the money Newmont earns to
repay principal and pay interest on our debt, which will reduce the
amount of money available to finance our operations and other business
activities;
. Newmont's debt level may make us vulnerable to economic downturns and
adverse developments in Newmont's businesses and markets; and
. Newmont's debt level may limit our ability to pursue other business
opportunities, borrow money for operations or capital in the future or
implement our business strategy.
Newmont expects to obtain the funds to pay our expenses and to pay principal
and interest on our debt by utilizing cash flow, refinancing existing debt and
asset sales. Newmont's ability to meet these requirements will
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(4) At March 18, 2002, the exchange rate was A$1.9037/US$.
12
depend on our future financial performance, which will be affected by
financial, business, economic and other factors. Newmont will not be able to
control many of these factors, such as economic conditions in the markets in
which Newmont operates. Newmont cannot be certain that our future cash flow
will be sufficient to allow us to pay principal and interest on our debt and
meet our other obligations. If cash flow is insufficient, we may be required
to refinance all or part of our existing debt, sell assets or borrow more
money. We cannot be sure that we will be able to do so on commercially
reasonable terms, if at all.
Occurrence of Events for which We are not Insured may Affect Our Cash Flows
and Overall Profitability
We maintain insurance to protect ourselves against certain risks related to
our operations. This insurance is maintained in amounts that we believe to be
reasonable depending upon the circumstances surrounding each identified risk.
However, Newmont may elect not to have insurance for certain risks because of
the high premiums associated with insuring those risks or for various other
reasons, including the fact that insurance may not be available for certain
matters. Occurrence of events for which Newmont is not insured may affect its
cash flows and overall profitability.
Uncertainties Exist in Integrating the Business Operations of all of Our
Recently Acquired Subsidiaries
We intend, to the extent possible, to integrate our operations with those of
our recently acquired subsidiaries. Our goal in integrating these operations
is to increase earnings and achieve cost savings by taking advantage of the
synergies of consolidation and enhanced growth opportunities. We may encounter
substantial difficulties integrating these operations, resulting in a delay or
the failure to achieve the anticipated synergies and, therefore, the expected
increases in earnings. Moreover, the integration process may cause us to incur
substantial unanticipated costs as a result of, among other things:
. the loss of key employees;
. the possible inconsistencies in standards, controls, procedures and
policies, business cultures and compensation structures among the
subsidiaries; and the need to implement, integrate and harmonize various
business-specific operating procedures and systems, as well as company-
wide financial, accounting, information, and other systems; and
. the diversion of management's attention from day-to-day business as a
result of the need to deal with integration issues.
For these reasons, Newmont may not complete successfully the necessary
integration or realize some or all of the anticipated benefits of the
integration. Actual cost savings and synergies may be lower than Newmont
currently expects and may take a longer time to achieve than Newmont currently
anticipates.
Our Business Depends on Good Relations with Our Employees
Newmont may experience difficulties in integrating labor policies,
practices, and strategies with our recently acquired subsidiaries. In
addition, problems with or changes affecting employees of one subsidiary may
affect relations with employees of other subsidiaries. The process of
integrating our recently acquired subsidiaries increases the risk of labor
disputes, work stoppages, or other disruptions in production that could
adversely affect us. Furthermore, Newmont has a number of employees subject to
collective bargaining agreements.
Our Earnings also Could be Affected by the Prices for Other Commodities
The revenues and earnings of Newmont also could be affected, to a lesser
extent than by the price of gold, by the prices of other commodities such as
copper and zinc. The prices of these commodities are affected by numerous
factors beyond Newmont's control. For more information see Item 1, Copper and
Zinc, commencing on page 4 above, and Item 2, Properties, commencing on page
14 below.
13
We May Not Have Satisfactory Title to our Properties
The validity and ownership of mining property holdings can be uncertain and
may be contested. Although Newmont has attempted to acquire satisfactory title
to our properties, some risk exists that some titles, particularly titles to
undeveloped properties, may be defective. In addition, there are currently a
number of pending native title or traditional landowner claims relating to
certain properties in Australia.
ITEM 2. PROPERTIES
Introduction: Gold Processing Methods
Gold is extracted from naturally-oxidized ores by either heap leaching or
milling, depending on the amount of gold contained in the ore and the
amenability of the gold ore to treatment. Gold contained in ores that are not
naturally oxidized can be directly milled if the gold is amenable to
cyanidization, generally known as free milling ores. Ores that will not leach
efficiently, 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 with air and oxygen to a high temperature and burn off the carbon
and oxidize the sulfide minerals that encase the gold and prevent efficient
leaching. Autoclaves use heat, oxygen and pressure to remove sulfide minerals
from the ore.
Some gold bearing 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 float in air bubbles to the top of the
tank, where they can be separated from waste particles that sink to the
bottom. The sulfides are removed from the cell and formed into a concentrate
that can then be processed in an autoclave or roaster to fully recover the
gold. Bio-milling incorporates patented technology that involves inoculation
of suitable crushed ore on a leach pad with naturally occurring bacteria
strains that oxidize the sulfides encasing the gold over a period of time. The
ore is then processed through an oxide mill.
Free milled ores and some oxide ores are processed through mills where the
ore is ground into a fine powder and mixed with water in slurry, which then
passes through a cyanide leaching circuit where gold is extracted and
collected on carbon followed by extraction from the carbon and electrowinning.
Other ores are processed using heap leaching. The ore is crushed and stacked
on impermeable pads, where weak cyanide solution is applied to the top surface
of the heaps to dissolve the gold. The gold-bearing solution is collected and
pumped to facilities to remove the gold by collection on carbon or zinc
precipitation directly from leach solutions.
Production Properties
Set forth below is a description of the properties of Newmont and its
subsidiaries, including the properties of Normandy and Franco-Nevada.
North America
Nevada
Production
Newmont has been mining gold in Nevada since 1965. Newmont's Nevada
operations include Carlin, located west of Elko on the geological feature
known as the Carlin Trend, and the Winnemucca Region, located 80 miles (129
kilometers) to the west of Carlin. The Carlin Trend is the largest gold
district discovered in North America in the last 50 years. The Winnemucca
Region includes the Twin Creeks mine located near Winnemucca,
14
the Lone Tree Complex located near Battle Mountain, and the Battle Mountain
Complex, near Battle Mountain, where there are no currently active mining
operations but where studies are ongoing with respect to the feasibility of
developing a large gold/copper deposit, known as Phoenix. Following Newmont's
acquisition of Normandy, our Nevada operations also include the Midas mine.
In 2001, ore was mined from nine open-pit deposits and five underground
mines, including the Midas mine. Although the Deep Post open pit was mined out
at the end of 2000, production from stockpiled ore continued into 2001.
Production from the Deep Post underground mine, which is accessed through a
decline near the bottom of the pit, commenced in March 2001.
Gold sales from Newmont's Nevada operations (excluding the Midas mine, which
was acquired by Newmont in the Normandy acquisition) totaled approximately 2.7
million equity ounces at a cash cost of $222 per ounce for 2001. The Midas
mine sold 138,900 ounces of gold in 2001. Total cash costs per ounce produced
were $135.(/5/)
Underground production will continue to grow at Carlin, as preliminary
underground mine development is expected to begin in 2002 at Leeville.
Additionally, for the first time, underground mining will occur from the Gold
Quarry open pit mine, where development of a small deposit, Chukar, began in
January 2002, with production expected in November 2002.
Processing Facilities
Newmont's operations in Nevada have a number of different ore types and
processing techniques. Newmont has developed a linear programming model to
determine the best mix of ore types for each processing facility in order to
obtain the maximum ounces of gold at the lowest cost from the ores.
Approximately 74.6% of Newmont's 2001 year-end proven and probable gold
reserves in Nevada (excluding the Midas mine) were refractory and the balance
were oxide. Nevada's production has increasingly come from higher-cost
refractory ores from both deep open pits and underground mines, as near-
surface oxide ores have been depleted. Refractory ore treatment facilities are
expected to generate approximately 76% of Nevada's gold production (excluding
the Midas mine) in 2002, compared with 65% in 2001, and 68% in 2000.
Higher-grade oxide ores are processed at one oxide mill at Carlin, two at
Twin Creeks and one at Lone Tree. Newmont is considering whether to continue
operating the Midas mill, or close it and process the Midas ore at one of the
oxide mills at Twin Creeks. Lower-grade oxide ores are processed using heap
leaching. Higher-grade refractory ores are processed through either a roaster
at Carlin or through autoclaves at Twin Creeks or Lone Tree. Lower grade
sulfide ores are processed through a flotation plant at Lone Tree or at Carlin
by bio-milling.
Gold-bearing activated carbon from Carlin's milling and leaching facilities
is processed on site at a central carbon processing plant and adjacent
smelting facilities. Separate carbon processing facilities are located in the
North and South Areas at Twin Creeks with one smelter in the North Area. Lone
Tree has two carbon processing facilities. Material from the Lone Tree carbon
processing facilities is smelted at Carlin.
Other Facilities
Analytical laboratories, maintenance facilities and administrative offices
are located at Carlin, Twin Creeks and the Lone Tree Complex. Newmont also has
an advanced metallurgical research laboratory in Denver, Colorado.
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(5) Midas was acquired by Normandy effective April 1, 2001, prior to which it
was owned and operated by Franco-Nevada.
15
Mineral Rights
Newmont owns, or controls through long-term mining leases and unpatented
mining claims, all of the minerals and surface area within the boundaries of
the present Carlin and Winnemucca Region mining operations. The long-term
leases extend for at least the anticipated mine life of those deposits. With
respect to a significant portion of the Gold Quarry mine at Carlin, Newmont
owns a 10% undivided interest in the mineral rights and leases the remaining
90%, on which Newmont pays a royalty equivalent to 18% of the mineral
production. The remainder of the Gold Quarry mineral rights are wholly-owned
or controlled by Newmont, in some cases subject to additional royalties. With
respect to certain smaller deposits in the Winnemucca Region, Newmont is
obligated to pay royalties on production to third parties that vary from 3% to
5% of production.
Exploration
Exploration near existing mines was highlighted by underground drilling in
the Deep Post/Deep Star corridor. Follow-up drilling will test for additional
extensions and other targets in that region.
California
Newmont has one mine in Southern California, Mesquite. Mining operations at
Mesquite ceased in the second quarter of 2001, with the depletion of the main
ore body. Production from residual heap leaching resulted in sales of 92,600
ounces of gold at a total cash cost of $205 per ounce in 2001. Mesquite
operations are transitioning to temporary shut-down and reclamation, and
declining amounts of gold will be recovered from the inventory of ores on the
heap leach pads. The permitting process for an expansion at Mesquite is
continuing, but such expansion is dependent on higher gold prices.
Canada
Newmont's Canadian operations include two underground mines. The Golden
Giant mine (100% owned), is located approximately 25 miles (40 kilometers)
east of Marathon in Ontario, Canada and has been in production since 1985. The
Holloway mine is located approximately 35 miles (56 kilometers) east of
Matheson in Ontario, and about 400 miles (644 kilometers) northeast of Golden
Giant. The Holloway mine is owned by a joint venture in which Newmont has an
84.65% interest. The remaining 15.35% interest is held by Teddy Bear Valley
Mines.
The Golden Giant and Holloway mines together sold 373,100 equity ounces of
gold in 2001 at a total cash cost of $192 per ounce.
Also see the TVX Normandy description on page 21 below for information on
other Newmont property interests in Canada.
Mexico
Newmont has a 44% interest in La Herradura, which is located in northwest
Sonora, Mexico, and operated by the Penoles group, Mexico's largest silver
producer. The mine is an open pit operation with a two-stage crushing circuit
and heap-leach recovery. Mine sales were 124,300 ounces of gold (54,700 equity
ounces) in 2001. Total cash costs were $173 per ounce.
South America
Peru
The properties of Minera Yanacocha S.R.L. are located approximately 375
miles (604 kilometers) north of Lima and 28 miles (45 kilometers) north of the
city of Cajamarca. Since the discovery of gold ores in 1986, the area has
become the largest gold district in South America. Minera Yanacocha began
production in 1993. Newmont holds a 51.35% interest in Minera Yanacocha. The
remaining interest is held by Compania de Minas Buenaventura, S.A.A. (43.65%)
and the International Finance Corporation (5%).
16
Minera Yanacocha has mining rights with respect to a large land position
that includes multiple deposits as well as other prospects. Minera Yanacocha's
mining rights were acquired through assignments of concessions granted by the
Peruvian government to a related entity. The assignments have a term of 20
years, beginning in the early 1990s, renewable at the option of Minera
Yanacocha for another 20 years. In October 2000, Newmont and Buenaventura
unitized their land holdings in northern Peru, folding them into Minera
Yanacocha. The unitization increased Minera Yanacocha's land position from 100
to 535 square miles.
Five open-pit mines, four leach pads, and two processing plants are in
operation at Yanacocha. Gold sales for 2001 totaled 1.91 million ounces
(983,100 equity ounces) at a total cash cost of $115 per ounce. Production
from the La Quinua deposit commenced in the fourth quarter of 2001. By 2003,
production from La Quinua is expected to reach one million ounces per year at
an average total cash cost of approximately $125 per ounce.
Exploration at Minera Yanacocha is focused on further definition of covered
oxide deposits and deeper copper/gold sulfide systems. Additional oxide
mineralization was found during 2001 at Corimayo, on the western edge of La
Quinua.
Bolivia
The Kori Kollo open pit mine is on the high plain in northwestern Bolivia
near Oruro, on government mining concessions issued to a Bolivian corporation,
Empresa Minera Inti Raymi S.A., of which Newmont has a 88% interest. The
remaining 12% is owned by Zeland Mines, S.A. Inti Raymi owns and operates the
mine. In 2001, the mine sold 312,300 ounces (274,800 equity ounces) of gold,
while total cash costs declined 21% from 2000 to $158 per ounce.
Brazil and Chile
Newmont also has interests in two operating mines in Brazil and one in
Chile. See the TVX Normandy discussion on page 21 below for more details.
Australia
Prior to our acquisition of Normandy, we owned a 50% interest in the Pajingo
(Vera/Nancy) Mine discussed below. The remaining 50% interest in Pajingo
(Vera/Nancy), and all other Australian properties described in this report,
were acquired as part of our acquisition of Normandy.
Kalgoorlie
The Kalgoorlie operations comprise the Fimiston open pit (commonly referred
to as the Super Pit) and Mt. Charlotte underground mine at Kalgoorlie-Boulder,
373 miles (600 kilometers) east of Perth. The mines are managed and run by
Kalgoorlie Consolidated Gold Mines Pty Ltd for the joint venture owners,
Newmont and Barrick, each of which holds 50%.
The Super Pit is Australia's largest gold mine, in terms of both gold
production and total annual mining volumes. Mt. Charlotte is a large
underground gold mine. In 2001, 768,700 ounces of gold (384,400 Normandy
ounces) were sold at the combined Kalgoorlie operations. Total cash costs of
production were $203 per ounce. The Mt. Charlotte operation closed in December
2001.
17
Boddington
Boddington, a large-scale open pit mining operation, is located 81 miles
(130 kilometers) southeast of Perth in Western Australia. Boddington is
operated by Worsley Alumina Pty Ltd on behalf of the joint venture owners,
Newmont (44.4%), AngloGold Limited (33.3%) and Newcrest Mining Limited
(22.2%). Mining operations ceased in November 2001, and facilities are being
placed on care and maintenance, as the facilities may be used for a proposed
expansion project pending the restructuring of current management arrangements
as a prerequisite to any development. In 2001, 234,000 ounces of gold (104,000
Normandy ounces) were sold. Total cash costs of production were $195 per
ounce.
Yandal
Newmont owns a 100% interest in Yandal, which consists of the Bronzewing,
Jundee and Wiluna mines situated approximately 435 miles (700 kilometers)
northeast of Perth in the Yandal Goldfields in Western Australia. The three
operations collectively sold 835,500 ounces of gold in 2001. Normandy
estimated that the average cash costs of production were $160 per ounce.
Tanami
The Tanami operations comprise The Granites treatment plant and associated
mining operations, which are located in the Northern Territory approximately
342 miles (550 kilometers) northwest of Alice Springs, adjacent to the Tanami
highway, and the Dead Bullock Soak mining operations, approximately 25 miles
(40 kilometers) west of The Granites. The Tanami operations are owned by
Normandy NFM Limited, a publicly listed, 87.45% owned subsidiary of Newmont.
The operation is predominantly focused on the Callie underground mine at
Dead Bullock Ridge with mill feed supplemented by production from the Dead
Bullock Ridge open pit and the Bunkers and Quorn pits at The Granites. Ore
from all of these operations is processed through The Granites plant. The
Tanami operations also include the Groundrush deposit, at which mining
commenced in mid-September 2001. Ore from Groundrush is processed through the
Tanami plant rather than The Granites plant.
In 2001, the Tanami operations sold 506,000 ounces of gold (442,500 Normandy
ounces). Total cash costs of production were $144 per ounce.
Pajingo (Vera/Nancy)
The Pajingo gold mine is an underground mine located approximately 93 miles
(150 kilometers) southwest of Townsville, Queensland and 45 miles (72
kilometers) south of the local township of Charters Towers. Prior to the
Normandy acquisition, Newmont owned a 50% interest in Pajingo. Following the
Normandy acquisition, Newmont owns 100% of Pajingo. In 2001, Pajingo sold
252,000 ounces of gold (126,000 equity ounces). Total cash costs of production
were $105 per ounce.
In respect to the Pajingo mine, royalties are paid to the Queensland
government at 4.0%-5.9% of revenues depending on the gold price. Royalties are
also paid to traditional land owners consisting of 0.2% of revenues and a
fixed payment upon exploration success.
Mt. Leyshon
The Mt. Leyshon open pit gold mine, near Charters Towers, Queensland, is
owned by Leyshon Resources Ltd, which is a publicly listed company, of which
Newmont owns 13.7%.
Mining ceased at Mt. Leyshon in February 2001. The operation is currently
producing gold by treating existing low-grade stockpiles. Treatment of
stockpiles is expected to be completed in early 2002, with operations expected
to be closed by mid-2002.
18
A comprehensive mine closure and rehabilitation plan covering remaining
operations, closure, rehabilitation, decommissioning, and post-closure
monitoring has been implemented. As part of a restructuring of Leyshon
Resources Ltd, Newmont will assume responsibility for mine closure and
rehabilitation costs, as well as ongoing environmental obligations.
Golden Grove
Newmont owns 100% of the Golden Grove operation in Western Australia,
approximately 217 miles (350 kilometers) north of Perth. The principal product
is zinc concentrate. A high precious metal lead concentrate and low precious
metal copper concentrate are also produced. Golden Grove has two underground
mines at the Scuddles and Gossan Hill deposits, with a combined mining rate of
1.2 million tonnes per year. Golden Grove produced 182,700 tonnes of zinc
concentrates containing 82,400 tonnes of payable zinc during the period July
1, 2000 to June 30, 2001. It also produced concentrates containing 242.5
million pounds of copper during the same period.
New Zealand
Newmont acquired an interest in the Martha gold mine as part of the Normandy
acquisition. This mine is located within the town of Waihi, located
approximately 68 miles (110 kilometers) southeast of Auckland, New Zealand. It
is a joint venture between Newmont and Otter Gold Mines Limited. Newmont
receives a management fee of 2% of gross revenues from Otter. The long term
future for the Martha operation is based on the recently discovered Favona
vein.
Normandy NFM Limited, an 87.45% owned subsidiary of Newmont, owns a 67.06%
interest in the Martha mine. Otter owns the remaining 32.94% interest. On
October 11, 2001, Normandy NFM announced a bid for Otter, and had received
acceptances from approximately 83% of the Otter shares as of the date of this
report. As a result, Newmont now has an approximate 90% interest in the Martha
mine.
The operation sold 109,300 ounces of gold (78,900 Normandy ounces) in 2001.
Total cash costs of production were $172 per ounce.
The Martha mine does not currently pay royalties. Under new royalty
arrangements, the Martha mine will be required to pay a royalty on new
discoveries such as Favona. The royalty rate is the greater of 1% of gross
revenues from silver and gold sales or 5% of accounting profit.
Indonesia
Newmont has two operating properties in Indonesia, Minahasa, a gold
operation, and Batu Hijau, a producer of copper/gold concentrates. Newmont
owns 80% of Minahasa. The remaining 20% interest is a carried interest held by
P.T. Tanjung Serapung, an unrelated Indonesian company. Newmont has a 45%
equity interest in Batu Hijau through a partnership with an affiliate of
Sumitomo Corporation, which holds a 35% interest. The remaining 20% is a
carried interest held by P.T. Pukuafu Indah, an Indonesian company. We account
for our investment in Batu Hijau as an equity investment due to each partner's
significant participating rights in the business. Newmont is entitled to
56.25% of production until Newmont recovers the bulk of its investment,
including interest.
Newmont's first project in Indonesia, Minahasa, on the island of Sulawesi,
approximately 1,500 miles (2,414 kilometers) northeast of Jakarta, was a
Newmont discovery and consisted of a multi-deposit operation. Production began
in 1996 and mining was completed in October 2001. It is expected, however,
that processing of stockpiled ore from this mine will continue through 2003.
In 2001, Minahasa sold 341,500 equity ounces at a total cash cost of $142 per
ounce.
Newmont's second project in Indonesia, Batu Hijau, is located on the island
of Sumbawa, approximately 950 miles (1,529 kilometers) east of Jakarta. Batu
Hijau is a large porphyry copper/gold deposit, which Newmont discovered in
1990. The mine contains reserves of 9.7 billion pounds of copper (5.5 billion
equity pounds) and
19
11 million ounces of gold (6.1 million equity ounces). Development and
construction activities began in 1997 and start-up took place in late 1999. In
2001, copper production increased 26% to 657 million pounds (370 million
equity pounds), while gold production increased 65% to 524,600 ounces (295,100
equity ounces). Total cash costs in 2001 declined 37% to $0.36 per pound of
copper after gold credits.
In Indonesia, rights are granted to foreign investors to explore for and to
develop mineral resources within defined areas through Contracts of Work
entered into with the Indonesian government. In 1986, Newmont entered into
separate Contracts of Work with the government covering Minahasa and Batu
Hijau, under which Newmont was granted the exclusive right to explore in the
contract area, construct any required facilities, extract and process the
mineralized materials, and sell and export the minerals produced, subject to
certain requirements including Indonesian government approvals and payment of
royalties to the government. Under the Contracts of Work, Newmont has the
right to continue operating the projects for 30 years from operational start-
up, or longer if approved by the Indonesian government.
Under Newmont's Contracts of Work, beginning in the sixth year after mining
operations commenced (and continuing through the tenth year), a portion of
each project not already owned by Indonesian nationals must be offered for
sale to the Indonesian government or to Indonesian nationals, thereby
potentially reducing Newmont's (and, in the case of Batu Hijau, Newmont's and
Sumitomo's) ownership in each project to 49% by the end of the tenth year. The
price at which such interest would be offered for sale to the Indonesian
parties would be the highest of the then-current replacement cost, the price
at which shares of the project company would be accepted for listing on the
Jakarta Stock Exchange, or the fair market value of such interest in the
project company as a going concern.
In April 1997, Newmont entered into a third Indonesian Contract of Work
granting rights to explore an area located on Sulawesi near the Minahasa mine.
Newmont owned 80% of this project, and P.T. Lebong Tandai, an Indonesian
company, held the remaining 20%, as a carried interest. After several years of
exploration, which resulted in the identification of mineralized areas but no
resources sufficient to support a large-scale gold mining operation, Newmont
solicited third party interest in this Contract of Work. As a result, in
January 2002, we sold all of our interest in this Contract of Work to Avocet
Mining Plc., a company based in London, which operates the Penjom gold mine in
Malaysia. In addition to cash consideration, Avocet has agreed to pay Newmont
the equivalent of a 4% NSR royalty on the first 500,000 ounces of gold
produced from this Contract of Work area, if any gold is produced.
Uzbekistan
Newmont has a 50% interest in Zarafshan-Newmont. Ownership of the remaining
50% interest is divided between the State Committee for Geology and Mineral
Resources and Navoi Mining and Metallurgical Combine, each a state entity of
Uzbekistan. The joint venture produces gold by crushing and leaching ore from
existing stockpiles of low-grade oxide ore from the nearby government-owned
Muruntau mine. The gold produced by Zarafshan-Newmont is sold in international
markets for U.S. dollars. Newmont provides technical and managerial support to
Zarafshan-Newmont.
The State Committee and Navoi guaranteed to furnish Zarafshan-Newmont with
242 million tons of ore with an average grade of 0.036 ounces of gold per ton,
containing approximately 8.6 million ounces of gold. In late 2000, the ore
supply agreement was amended to add an additional 220 million tons of ore with
an average grade of 0.05 ounces of gold per ton. To handle the additional ore,
the joint venture is extending the leach pad and conveyor system. For 2001,
the project sold 444,000 ounces of gold (222,000 equity ounces) at a total
cash cost of $136 per ounce.
20
Turkey
The Ovacik gold mine is located on the western Aegean coast of Turkey and
was acquired by Newmont through the acquisition of Normandy. Newmont owns 100%
of the mine. The first gold was produced in June 2001. In 2001, Ovacik sold
48,200 ounces of gold. Total cash costs of production were $153 per ounce. The
mine is the subject of lawsuits which could result in its closure.
Africa
The Ity gold mine is located in Cote d'Ivoire, West Africa. Normandy, prior
to being acquired by Newmont, accepted an offer for the sale of its interest
in the Ity gold mine. The sale was finalized on March 7, 2002, for $10.8
million paid at closing and an NSR royalty.
TVX Normandy
TVX Normandy was formed in June 1999 as a strategic alliance between
Normandy and TVX Gold. TVX Normandy is 49.9% owned by Normandy and 50.1% owned
by TVX Gold. TVX Normandy sold 857,500 ounces (192,400 Normandy ounces) in
2001. Total cash costs of production were $154 per ounce.
The principal assets of TVX Normandy are interests in the following
operating gold mines in South America and Canada:
.Paracatu (51% Rio Tinto Limited; 49% economic interest TVX Normandy)
Rio Tinto is the operator of the mine, which is located in Brazil, 149
miles (240 kilometers) southeast of Brasilia. In 2001, Paracatu sold
191,400 ounces of gold. Total cash costs of production were $193 per
ounce.
.Crixas (50% AngloGold; 50% economic interest TVX Normandy)
AngloGold is the operator of the mine, which is located in Brazil, 218
miles (350 kilometers) northwest of Brasilia. In 2001, Crixas sold
203,500 ounces of gold. Total cash costs of production were $109 per
ounce.
.La Coipa (50% Placer Dome; 50% TVX Normandy)
Placer Dome is the operator of the mine, which is located in Northern
Chile. In 2001, La Coipa's gold equivalent sold was 124,800 ounces.
Total cash costs of production were $88 per ounce.
.Musselwhite (68.1% Placer Dome; 31.9% TVX Normandy)
Placer Dome is the operator of the mine, which is located 311 miles
(500 kilometers) north of Thunder Bay in northwestern Ontario, Canada.
In 2001, Musselwhite sold 229,600 ounces of gold. Total cash costs of
production were $189 per ounce.
.New Britannia (50% High River Gold; 50% TVX Normandy)
TVX Normandy is the operator of the mine, which is located in Snow
Lake, Canada, 436 miles (700 kilometers) north of Winnipeg in central
Manitoba. In 2001, New Britannia sold 108,200 ounces of gold. Total
cash costs of production were $188 per ounce.
21
Newmont Mining Corporation Operating Statistics
Reflects only operations owned by Newmont Mining Corporation on December 31, 2001
North American Operations
Nevada Canada Other
------------------------- ------------------- --------------------
Twelve months ended
December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999
- ------------------------ ------- ------- ------- ----- ----- ----- ------ ------ ------
Tons Mined (000 dry
short tons):
Open-Pit............... 139,000 200,228 221,110 n/a n/a n/a 19,030 36,465 33,167
Underground............ 1,123 943 919 1,607 1,762 1,738 n/a n/a n/a
Tons
Milled/Processed (000):
Oxide.................. 5,395 5,739 6,757 1,605 1,720 1,727 n/a n/a n/a
Refractory............. 9,335 8,806 8,189 n/a n/a n/a n/a n/a n/a
Leach.................. 24,448 25,490 28,022 n/a n/a n/a 7,861 16,078 16,541
Average Ore Grade:
Oxide.................. 0.108 0.086 0.116 0.236 0.259 0.284 n/a n/a n/a
Refractory............. 0.226 0.288 0.200 n/a n/a n/a n/a n/a n/a
Leach.................. 0.033 0.036 0.031 n/a n/a n/a 0.028 0.018 0.018
Average Mill
Recovery Rate:
Oxide.................. 70.5% 81.0% 77.4% 95.2% 95.6% 94.4% n/a n/a n/a
Refractory............. 89.0% 90.2% 87.9% n/a n/a n/a n/a n/a n/a
Equity Ounces Produced
(000):
Oxide.................. 433.2 400.2 556.8 348.7 426.9 447.2 n/a n/a n/a
Refractory............. 1,749.3 2,072.6 1,337.6 n/a n/a n/a n/a n/a n/a
Leach.................. 514.4 571.2 604.3 n/a n/a n/a 147.3 180.9 204.8
------- ------- ------- ----- ----- ----- ------ ------ ------
Total.................. 2,696.9 3,044.0 2,498.7 348.7 426.9 447.2 147.3 180.9 204.8
------- ------- ------- ----- ----- ----- ------ ------ ------
Equity Ounces Sold
(000).................. 2,703.2 3,047.9 2,498.7 373.1 490.0 448.7 147.3 180.8 204.8
Nevada Canada Total N. American
------------------------- ------------------- --------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------- ------- ------- ----- ----- ----- ------ ------ ------
Production Costs Per
Ounce:
Direct mining and
production costs...... $ 207 $ 192 $ 212 $ 187 $ 155 $ 151 $ 204 $ 188 $ 198
Capitalized mining &
other costs........... 11 7 (5) 1 -- -- 9 4 (2)
------- ------- ------- ----- ----- ----- ------ ------ ------
Cash operating costs... 218 199 207 188 155 151 213 192 196
Royalties and
production taxes...... 4 4 4 4 5 5 4 5 5
------- ------- ------- ----- ----- ----- ------ ------ ------
Total cash costs....... $ 222 $ 203 $ 211 $ 192 $ 160 $ 156 $ 217 $ 197 $ 201
Reclamation and mine
closure costs......... 4 3 3 6 5 4 5 3 2
------- ------- ------- ----- ----- ----- ------ ------ ------
Total costs applicable
to sales.............. 226 206 214 198 165 160 222 200 203
Depreciation and
amortization.......... 43 52 49 65 77 79 46 57 53
------- ------- ------- ----- ----- ----- ------ ------ ------
Total production
costs................. $ 269 $ 258 $ 263 $ 263 $ 242 $ 239 $ 268 $ 257 $ 256
======= ======= ======= ===== ===== ===== ====== ====== ======
22
Overseas Operations
Zarafshan-Newmont
Yanacocha, Peru Kori Kollo, Bolivia Uzbekistan
------------------------- ---------------------- --------------------
Twelve months ended
December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999
- ------------------------ ------- ------- ------- ------ ------ ------ ------ ------ ------
Tons Mined (000 dry
short tons)............ 155,707 131,916 105,920 18,444 18,616 19,345 n/a n/a n/a
Tons Milled/Processed
(000):
Leach.................. 84,738 83,024 61,367 3,853 n/a n/a 15,354 15,540 14,996
Mill................... n/a n/a n/a 7,582 7,753 7,613 n/a n/a n/a
Average Ore Grade....... 0.030 0.031 0.037 0.046 0.055 0.057 0.044 0.046 0.056
Average Mill Recovery
Rate................... n/a n/a n/a 61.8% 62.4% 63.8% n/a n/a n/a
Ounces Produced (000)... 1,902.5 1,795.4 1,665.8 305.6 273.9 291.4 433.5 498.8 543.0
Equity Ounces Produced
(000).................. 976.9 921.9 850.3 269.0 241.0 256.4 216.7 249.4 271.5
Equity Ounces Sold
(000).................. 983.1 901.2 850.3 274.8 247.7 256.1 222.0 251.4 271.5
Production Costs Per
Ounce:
Direct mining and
production costs...... $ 113 $ 85 $ 100 $ 163 $ 200 $ 190 $ 133 $ 126 $ 159
Capitalized mining &
other costs........... (1) (2) (1) (5) -- -- 3 3 2
------- ------- ------- ------ ------ ------ ------ ------ ------
Cash operating costs... 112 83 99 158 200 190 136 129 161
Royalties and
production taxes...... 3 4 4 -- -- -- -- -- --
------- ------- ------- ------ ------ ------ ------ ------ ------
Total cash costs....... $ 115 $ 87 $ 103 $ 158 $ 200 $ 190 $ 136 $ 129 $ 161
Reclamation and mine
closure costs......... 3 3 3 5 15 14 1 1 1
------- ------- ------- ------ ------ ------ ------ ------ ------
Total costs applicable
to sales.............. 118 90 106 163 215 204 137 130 162
Depreciation and
amortization.......... 50 47 49 66 86 89 44 53 42
------- ------- ------- ------ ------ ------ ------ ------ ------
Total production costs.. $ 168 $ 137 $ 155 $ 229 $ 301 $ 293 $ 181 $ 183 $ 204
======= ======= ======= ====== ====== ====== ====== ====== ======
23
Newmont Mining Corporation Operating Statistics
Minahasa, Vera/Nancy,
Indonesia Australia Batu Hijau, Indonesia
------------------- ------------------- ------------------------
Twelve months ended
December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999
- ------------------------ ----- ----- ----- ----- ----- ----- ------- ------- ------
Tons Mined (000 dry
short tons)............ 5,586 6,766 8,449 736 650 404 183,991 156,223 87,903
Tons Milled/Processed
(000):
Leach.................. 1,572 1,732 448 n/a n/a n/a n/a n/a n/a
Mill................... 716 753 754 722 681 361 48,358 42,131 --
Average Ore Grade....... 0.176 0.193 0.334 0.351 0.350 0.387 0.013 0.010 --
Average Mill Recovery
Rate................... 91.4% 92.4% 92.5% 96.9% 96.8% 95.2% 80.3% 77.4% --
Ounces Produced (000)... 326.0 364.3 343.9 247.6 231.3 133.9 533.6 320.1 11.3
Equity Ounces Produced
(000).................. 323.7 364.3 343.9 123.8 115.7 67.0 300.2 180.1 6.3
Equity Ounces Sold
(000).................. 341.5 354.2 343.9 126.0 112.1 65.9 295.1 178.4 6.3
Minahasa, Vera/Nancy,
Indonesia Australia Total International
------------------- ------------------- ------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
----- ----- ----- ----- ----- ----- ------- ------- ------
Production Costs Per
Ounce:
Direct mining and
production costs...... $ 125 $ 111 $ 97 $ 97 $ 93 $ 120 $ 123 $ 112 $ 122
Capitalized mining &
other costs........... 14 19 3 1 -- -- 2 3 --
----- ----- ----- ----- ----- ----- ------- ------- ------
Cash operating costs... 139 130 100 98 93 120 125 115 122
Royalties and
production taxes...... 3 3 3 7 6 4 3 2 3
----- ----- ----- ----- ----- ----- ------- ------- ------
Total cash costs....... $ 142 $ 133 $ 103 $ 105 $ 99 $ 124 $ 128 $ 117 $ 125
Reclamation and mine
closure costs......... 3 2 2 1 1 2 3 5 4
----- ----- ----- ----- ----- ----- ------- ------- ------
Total costs applicable
to sales.............. 145 135 105 106 100 126 131 122 129
Depreciation and
amortization.......... 65 71 68 34 39 42 53 57 57
----- ----- ----- ----- ----- ----- ------- ------- ------
Total production
costs................. $ 210 $ 206 $ 173 $ 140 $ 139 $ 168 $ 184 $ 179 $ 186
===== ===== ===== ===== ===== ===== ======= ======= ======
Batu Hijau Copper Production
Twelve months ended Dec. 31, 2001 2000 1999
- ---------------------------- ------- ------- ------
Dry tons processed (000)................................. 48,358 42,131 5,727
Average copper grade..................................... 0.75% 0.72% 0.75%
Average recovery rate.................................... 89.2% 87.5% 60.9%
Copper pounds produced (000)............................. 656,954 520,781 48,837
Equity copper pounds produced (000)...................... 369,537 292,939 27,471
Equity copper pounds sold (000).......................... 359,955 294,182 10,220
24
Batu Hijau Costs
- ----------------
Twelve months ended Dec. 31, 2001 Co-Product Method
- --------------------------------- ---------------------------
By-
Product
Method Copper Gold Total
--------- -------- ------- --------
Revenue................................. $251,601 $251,601 $78,198 $329,799
Cash production costs................... 210,957 160,937 50,020 210,957
By-product credits...................... (81,709) (2,679) (832) (3,511)
--------- -------- ------- --------
Total Cash Costs....................... 129,248 158,258 49,188 207,446
Noncash costs........................... 53,680 40,952 12,728 53,680
--------- -------- ------- --------
Total Production Costs................. $ 182,928 $199,210 $61,916 $261,126
========= ======== ======= ========
Pounds of copper sold (000)............. 359,955
Ounces of gold sold (000)............... 295.1
Reported cash cost per lb./oz........... $ 0.36 $0.44 $167
Reported noncash cost per lb./oz........ 0.15 0.11 43
--------- -------- -------
Total costs per lb./oz.................. $ 0.51 $0.55 $210
========= ======== =======
Royalty Properties
The following is a description of Newmont's principal royalty interests, all
of which were acquired as a result of the Franco-Nevada acquisition. Newmont's
royalty interests are generally in the form of a net smelter return ("NSR")
royalty that provides for the payment either in cash or physical metal ("in
kind") of a specified percentage of production, less certain specified
transportation and refining costs. In some cases, Newmont owns a net profit
interest ("NPI") pursuant to which Newmont is entitled to a specified
percentage of the net profits, as defined in each case, from a particular
mining operation. The majority of NSR royalty revenue and NPI revenue can be
received in kind at the option of Newmont.
North America
Nevada
Goldstrike
Newmont holds various NSR and NPI royalties at the Goldstrike Properties
(Betze-Post and Meikle mines) located in the Carlin Trend gold mining area of
northern Nevada. The Betze-Post and Meikle mines are owned and operated by a
subsidiary of Barrick Gold Corporation.
The Betze-Post mine is a conventional open pit operation. The Betze-Post
property consists of various claim blocks and Newmont's royalty interest in
each claim block is different, ranging from 0% to 4% for the NSRs and 0% to 6%
for the NPIs.
The Meikle mine is an underground operation comprising the Meikle, Rodeo,
and Griffin deposits, located one mile north of the Betze-Post mine, which
shares the Goldstrike processing facilities with the Betze-Post mine. Newmont
holds a 4% NSR and a 5% NPI over 1,280 acres of the claims that cover the
Meikle, Rodeo, and Griffin deposits.
Newmont is not obligated to fund any portion of the cost associated with the
Betze-Post mine or the Meikle mine.
Barrick's mining sequence from various claim areas will cause fluctuations
in Newmont's royalty receipts. The NSR royalties are based upon gross
production from the mine, reduced only by the ancillary costs of smelter
charges and transportation costs of about $2 per ounce. The determinants of
the revenue received from
25
the NSRs covering the Betze-Post Mine are the number of ounces of gold
produced, the spot price of gold, and the cost of shipping and smelting. The
Betze-Post Goldstrike NPI began paying in October 1993, the month that the
cumulative net profit from the Betze-Post and Goldstrike claims exceeded
capital invested in those claims. Net profits are calculated as proceeds less
costs. Proceeds equal the number of ounces of gold produced from the Betze-
Post and Goldstrike claims and the Meikle mine, multiplied by the spot price
of gold on the date gold is credited to Barrick's account at the refinery.
Costs include operating and capital costs as incurred.
Montana
Stillwater
Newmont holds a 5% net smelter return royalty on a portion of the Stillwater
mine and all of the East Boulder mine located near Nye, Montana. The
Stillwater mine and East Boulder mine projects are owned and operated by
Stillwater Mining Company. Stillwater produces palladium, platinum, and
associated metals (platinum group metals or PGMs) from a geological formation
known as the J-M Reef. Stillwater is the only significant producer of PGMs
outside of South Africa and Russia. The J-M Reef is an extensive mineralized
zone containing PGMs, which has been traced over a strike length of
approximately 28 miles.
Newmont's royalty covers more than 80% of the combined reserves and
mineralized material of the deposit, but does not cover a portion of the
deposit at the Stillwater mine. The majority of production to date has been
from the Stillwater mine. For that reason, the percentage of ore mined from
the royalty lands has been lower than the 80% reserve percentage. For the
years 1995 through 2000, the average annual percentage of total production
from the royalty lands was 52.45%. The percentage of future production from
the royalty lands will vary from year to year.
The royalty encompasses all of the reserves at the East Boulder mine, which
is being developed approximately thirteen miles to the west of the Stillwater
mine. Once the East Boulder mine is producing, the percentage of total
production from the royalty lands will increase. Ultimately, the cumulative
rate is expected to equal the percentage of reserves covered by the royalty.
On November 8, 2001, Stillwater announced that in light of sharply lower
prices for palladium and platinum, it was modifying mine plans for both the
Stillwater and East Boulder mines.
Canada
Oil & Gas Interests
Newmont's oil and gas portfolio contains 1.8 million gross acres of
producing and non-producing lands located in western Canada and the Canadian
Arctic. The average royalty on these lands is 6%.
Investment Interests
Echo Bay Mines Limited
Newmont owns approximately $72.4 million principal amount of the 11% capital
securities due April 2027 of Echo Bay Mines Limited. Echo Bay is a gold
company, which produced 667,000 ounces in 2001 from four mines in the United
States and Canada.
At September 30, 2001, the principal plus accrued interest on the Echo Bay
capital securities owned by Newmont amounted to $115.3 million. It is
Newmont's intention to convert all its Echo Bay capital securities into Echo
Bay common shares, representing an approximate 49.5% equity interest in Echo
Bay. The conversion is subject to the approval of Echo Bay stockholders. A
stockholder meeting is currently scheduled for March 25, 2002.
26
Lihir Gold
Newmont owns 111.3 million shares of Lihir Gold, representing a 9.74%
interest and reflected in marketable securities of Lihir as a cost investment
available for sale. Lihir Gold operates a gold mine in Papua New Guinea.
Recent Dispositions
Prior to its acquisition by Newmont, Franco-Nevada disposed of its interests
in Aber Diamond Corporation and in warrants of Inco Limited, realizing
proceeds of approximately $112 million.
Proven and Probable Reserves
Newmont has a significant reserve base, having steadily increased its
economic reserves over the past decade through a combination of exploration
success, acquisitions, and lower production costs. In light of this, the
company reduced its exploration expenditures in 2001 and directed its drilling
program toward targets with a longer time horizon than the normal year-end
reserve calculation.
As a result, Newmont ended 2001 with equity reserves of 59.6 million ounces
of gold and 6 billion pounds of copper, representing declines of 10% and 2%,
respectively, from year-end 2000. Depletion of 6.8 million ounces from
production reflected an overall recovery rate of nearly 80%. As in 2000,
reserves were calculated at a long-term gold price of $300 per ounce.
Newmont's 2001 reserves would decline 6.9% to 55.5 million ounces if
calculated at a $275 per ounce gold price, while an increase in the gold price
to $325 per ounce would increase reserves by 5% to 62.6 million ounces.
At year-end, Newmont's North American gold reserves were 31.4 million equity
ounces (including 29.0 million ounces in Nevada) compared with 35.2 million
equity ounces (32.3 million ounces in Nevada) in 2000.
Overseas, year-end gold reserves of 28.2 million ounces compared with 31.1
million ounces a year earlier. In Peru, reserves at Minera Yanacocha decreased
6.5% to 34.2 million ounces (17.6 million equity ounces).
At Batu Hijau, gold reserves decreased 800,000 ounces to 10.9 million ounces
(6.1 million equity ounces). Copper reserves declined slightly to 9.75 billion
pounds (5.5 billion equity pounds).
With the acquisition in 2002 of Normandy Mining Limited, Newmont has
worldwide equity gold reserves of 86.0 million ounces (based on Normandy's
reported reserves as of June 30, 2001). Not included in reserves are Franco-
Nevada's royalty interests, equivalent to 2 million ounces of gold, or Franco-
Nevada's expected 49.5% interest in Echo Bay (equivalent to 1.9 million
ounces). Franco-Nevada's acquisition of an equity interest in Echo Bay is
subject to the approval of Echo Bay stockholders and is conditional on
regulatory approvals. For more information see Item 2, Properties, on page 26
above.
Proven and probable reserves are based on extensive drilling, sampling, mine
modeling and metallurgical testing from which economic feasibility has been
determined. The price sensitivity of reserves depends upon several factors
including grade, waste-to-ore ratio, and ore type. The reserves are estimated
based on information available at the time the reserves are calculated.
Included in Newmont's reserves are 680,794 ounces of gold committed under a
prepaid forward sales contract. Recovery rates vary depending on the
metallurgical properties of each deposit and the production process used. The
reserve tables list the average recovery rate for each deposit, which takes
into account the several different processing methods scheduled to be used.
The cutoff grade, or lowest grade of mineralized material considered economic
to process, varies with material type, metallurgical recoveries, and operating
costs.
27
The proven and probable reserves figures presented herein are estimates, and
no assurance can be given that the indicated levels of recovery of gold and
copper will be realized. Ounces of gold or pounds of copper in the proven and
probable reserves are prior to any losses during metallurgical treatment.
Reserve estimates may require revision based on actual production experience.
Market price fluctuations of gold, and copper, as well as increased production
costs or reduced recovery rates, could render proven and probable reserves
containing relatively lower grades of mineralization uneconomic to exploit and
might result in a reduction of reserves.
Reserves are published once each year and will be recalculated as of
December 31, 2002, for the entire company, taking into account depletion as
well as any additions to reserves based on results of exploration and
development work performed during 2002.
28
Newmont Mining Corporation
Gold Proven and Probable Reserves(/1/)--U.S. Units--$300/oz
Reflects only Gold Proven and Probable Reserves owned by Newmont Mining
Corporation on December 31, 2001
December 31, 2001
---------------------------------------------------------
Newmont
(100%) share
Newmont ------------------------------ -------
Share Tonnage(/2/) Grade Ounces(/3/) Ounces Metallurgical
Deposits/Districts (%) (000 tons) (oz/ton) (000) (000) Recovery
------------------ ------- ---------- ------- ------ ------- -------------
North America
Nevada(/4/)
Nevada Open Pit
Carlin North.... 100.00% 32,612 0.044 1,428 1,428 70%
Carlin South.... 100.00% 61,335 0.062 3,829 3,829 65%
Carlin Rain
District....... 100.00% 13,455 0.026 344 344 61%
Twin Creeks..... 100.00% 57,443 0.089 5,088 5,088 86%
Lone Tree
Complex........ 100.00% 29,247 0.065 1,893 1,893 75%
Phoenix......... 100.00% 174,177 0.034 5,991 5,991 82%
--------- ------ ------
Total Nevada
Open Pit........ 368,269 0.050 18,573 18,573
--------- ------ ------
Nevada
Underground
Chukar
Footwall....... 100.00% 278 0.49 138 138 90%
Carlin North
Area (incl.
Deep Post)..... 100.00% 10,854 0.56 6,097 6,097 93%
Carlin Rain
District....... 100.00% 21 0.24 5 5 83%
--------- ------ ------
Total Nevada
Underground..... 11,153 0.56 6,240 6,240
--------- ------ ------
Stockpiles and
In-Process...... 100.00% 75,378 0.055 4,143 4,143 76%
--------- ------ ------
Total
Nevada(/5/)...... 454,800 0.064 28,956 28,956
--------- ------ ------
Other North
America
Mesquite,
California(/6/).. 100.00% 8,424 0.014 118 118 61%
Golden Giant,
Ontario(/7/).... 100.00% 3,560 0.29 1,042 1,042 96%
Holloway,
Ontario(/8/).... 89.35% 3,775 0.19 718 641 94%
La Herradura,
Mexico(/9/)..... 44.00% 47,326 0.030 1,423 626 71%
--------- ------ ------
Total Other North
America.......... 63,085 0.052 3,301 2,427
--------- ------ ------
Total North
America.......... 517,885 0.062 32,257 31,383
========= ====== ======
South America
Minera
Yanacocha,
Peru............ 51.35% -- -- -- -- --
Carachugo/Chaquicocha.. 51.35% 76,987 0.039 2,993 1,537 69%
Maqui Maqui..... 51.35% -- -- -- -- --
San Jose........ 51.35% 6,484 0.021 139 71 75%
Cerro
Yanacocha...... 51.35% 486,001 0.027 13,045 6,699 72%
La Quinua (and
El Tapado)..... 51.35% 456,766 0.027 12,533 6,436 73%
Cerro Negro..... 51.35% 19,494 0.032 631 324 77%
Cerro Quilish... 51.35% 137,736 0.027 3,700 1,900 76%
In Process...... 51.35% 34,621 0.033 1,132 581 79%
--------- ------ ------
Total Minera
Yanacocha(/10/).. 1,218,089 0.028 34,173 17,548
--------- ------ ------
Kori Kollo,
Bolivia(/11/)... 88.00% 21,745 0.032 698 614 63%
--------- ------ ------
Total South
America.......... 1,239,834 0.028 34,871 18,162
========= ====== ======
December 31, 2001
---------------------------------------------------------
Newmont
(100%) share
Newmont ------------------------------ -------
Share Tonnage(/2/) Grade Ounces(/3/) Ounces Metallurgical
Deposits/Districts (%) (000 tons) (oz/ton) (000) (000) Recovery
------------------ ------- ---------- ------- ------ ------- -------------
Australia
Pajingo (Vera
Nancy)(/12/)..... 50.00% 2,304 0.39 907 453 97%
--------- ------ ------
Total Australia... 2,304 0.39 907 453
========= ====== ======
Asia
Zarafshan-
Newmont,
Uzbekistan(/13/).. 50.00% 154,934 0.042 6,523 3,261 55%
Minahasa,
Indonesia(/14/).. 94.00% 1,592 0.15 236 222 90%
Batu Hijau,
Indonesia-
Gold(/15/)....... 56.25% 1,000,118 0.011 10,920 6,143 81%
--------- ------ ------
Total Asia........ 1,156,644 0.015 17,679 9,626
========= ====== ======
Total Worldwide--
Gold(/16/)....... 2,916,667 0.029 85,714 59,624
========= ====== ======
December 31, 2000
-----------------------------------------
Newmont
(100%) Share
--------------------------------- -------
Tonnage(/2/) Grade Ounces(/3/) Ounces
Deposits/Districts (000 tons) (oz/ton) (000) (000)
- --------------------------- ------------ -------- ----------- -------
North America
Nevada(/4/)
Nevada Open Pit
Carlin North.... 33,856 0.041 1,402 1,402
Carlin South.... 75,168 0.059 4,426 4,426
Carlin Rain
District....... 13,455 0.026 344 344
Twin Creeks..... 75,199 0.086 6,436 6,436
Lone Tree
Complex........ 40,847 0.060 2,464 2,464
Phoenix......... 174,177 0.034 5,991 5,991
------------ ----------- -------
Total Nevada
Open Pit........ 412,702 0.051 21,063 21,063
------------ ----------- -------
Nevada
Underground
Chukar
Footwall.......
Carlin North
Area (incl.
Deep Post)..... 11,324 0.58 6,597 6,597
Carlin Rain
District....... 308 0.27 82 82
------------ ----------- -------
Total Nevada
Underground..... 11,632 0.57 6,679 6,679
------------ ----------- -------
Stockpiles and
In-Process...... 92,502 0.049 4,518 4,518
------------ ----------- -------
Total
Nevada(/5/)...... 516,836 0.062 32,260 32,260
------------ ----------- -------
Other North
America
Mesquite,
California(/6/).. 13,689 0.019 263 263
Golden Giant,
Ontario(/7/).... 4,779 0.29 1,369 1,369
Holloway,
Ontario(/8/).... 4,389 0.20 858 758
La Herradura,
Mexico(/9/)..... 49,754 0.026 1,306 575
------------ ----------- -------
Total Other North
America.......... 72,611 0.052 3,796 2,965
------------ ----------- -------
Total North
America.......... 589,447 0.061 36,056 35,225
============ =========== =======
December 31, 2000
-----------------------------------------
Newmont
(100%) Share
--------------------------------- -------
Tonnage(/2/) Grade Ounces(/3/) Ounces
Deposits/Districts (000 tons) (oz/ton) (000) (000)
- --------------------------- ------------ -------- ----------- -------
South America
Minera
Yanacocha,
Peru............
Carachugo/Chaquicocha.. 141,460 0.033 4,732 2,430
Maqui Maqui..... 7,589 0.025 192 98
San Jose........ 23,388 0.019 453 233
Cerro
Yanacocha...... 534,946 0.026 14,058 7,219
La Quinua (and
El Tapado)..... 455,522 0.026 12,039 6,182
Cerro Negro..... 23,976 0.028 682 350
Cerro Quilish... 118,888 0.027 3,251 1,669
In Process...... 29,749 0.039 1,146 588
------------ ----------- -------
Total Minera
Yanacocha(/10/).. 1,335,518 0.027 36,553 18,769
------------ ----------- -------
Kori Kollo,
Bolivia(/11/)... 30,348 0.038 1,148 1,010
------------ ----------- -------
Total South
America.......... 1,365,866 0.028 37,701 19,779
============ =========== =======
Australia
Pajingo (Vera
Nancy)(/12/)..... 2,126 0.45 959 480
------------ ----------- -------
Total Australia... 2,126 0.45 959 480
============ =========== =======
Asia
Zarafshan-
Newmont,
Uzbekistan(/13/).. 169,468 0.042 7,158 3,579
Minahasa,
Indonesia(/14/).. 4,625 0.15 699 670
Batu Hijau,
Indonesia-
Gold(/15/)....... 944,460 0.012 11,721 6,593
------------ ----------- -------
Total Asia........ 1,118,553 0.018 19,578 10,842
============ =========== =======
Total Worldwide--
Gold(/16/)....... 3,075,992 0.031 94,294 66,326
============ =========== =======
29
Newmont Mining Corporation
Copper Proven and Probable Reserves(/1/)--U.S. Units
Reflects only Copper Proven and Probable Reserves owned by Newmont Mining
Corporation on December 31, 2001
December 31, 2001 December 31, 2000
-------------------------------------------------------- -----------------------------------------
Newmont Newmont
(100%) share (100%) Share
----------------------------- -------- -------------------------------- --------
Newmont Tonnage(/2/) Grade Copper(/3/) Copper Tonnage(/2/) Grade Copper(/3/) Copper
Share (000 (million (million Metallurgical (million (million
Deposits/Districts (%) tons) (Cu%) pounds) pounds) Recovery (000 tons) (Cu%) pounds) pounds)
---------------- ------- --------- ----- -------- -------- ------------- --------- ----- ----------- --------
Phoenix,
Nevada......... 100.0% 156,323 0.17% 515 515 85% 156,323 0.17% 515 515
Batu Hijau,
Indonesia...... 56.25% 1,000,118 0.49% 9,749 5,484 92% 944,460 0.53% 9,964 5,605
--------- ------ ----- --------- ------ -----
Total
Worldwide--
Copper......... 1,156,441 0.44% 10,264 5,999 1,100,783 0.48% 10,479 6,120
========= ====== ===== ========= ====== =====
- --------
(1) The term "reserve" means that part of a mineral deposit which can be
economically and legally extracted or produced at the time of the reserve
determination.
The term "economically," as used in the definition of reserve, implies that
profitable extraction or production has been established or analytically
demonstrated to be viable and justifiable under reasonable investment and
market assumptions.
The term "legally," as used in the definition of reserve, does not imply
that all permits needed for mining and processing have been obtained or
that other legal issues have been completely resolved. However, for a
reserve to exist, there should be a reasonable certainty based on
applicable laws and regulations that issuance of permits or resolution of
legal issues can be accomplished in a timely manner.
The term "proven reserves" means reserves for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes; (b) grade and/or quality are computed from the result of detailed
sampling and (c) the sites for inspection, sampling and measurements are
spaced so closely and the geologic character is sufficiently defined that
size, shape, depth and mineral content of reserves are well established.
The term "probable reserves" means reserves for which quantity and grade
are computed from information similar to that used for proven reserves but
the sites for sampling are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of
observation.
Proven and probable reserves were calculated using different cutoff grades
depending on each deposit's properties. The term "cut-off grade" means the
lowest grade of mineralized rock that can be included in the reserve in a
given deposit. Cut-off grades vary between deposits depending upon
prevailing economic conditions, mineability of the deposit, amenability of
the ore to gold extraction, and milling or leaching facilities available.
(2) Tonnages are after allowances for losses resulting from mining methods.
(3) Ounces or pounds are estimates of metal contained in ore tonnages and are
before allowances for processing losses. Estimated losses from processing
are expressed as recovery rates and represent the estimated amount of
metal to be recovered through metallurgical extraction processes.
(4) Cutoff grades utilized in 2001 were as follows: oxide leach material not
less than 0.006 ounce per ton; oxide mill cutoffs varied; refractory
leach materials not less than 0.024 ounce per ton; refractory mill
material not less than 0.055 ounce per ton.
(5) These reserves are approximately 74.6% refractory in nature, which are
not amenable to the direct cyanidation recovery processes currently used
for oxide material. Such ore must be oxidized before it is subjected to
the normal recovery processes or concentrated for shipment to smelters.
(6) Mining completed in 2001. Remaining reserves are in-process on the leach
pad.
(7) Calculated using a cut-off grade of 0.15 ounce per ton.
(8) Percentage reflects Newmont's equity interest in remaining reserves. In
2000, this percentage was 88.3%. Reserves calculated using a cutoff grade
not less than 0.088 ounce per ton.
(9) Calculated using a cut-off grade of 0.010 ounce per ton. All ore is
oxidized.
(10) Calculated using variable cut-off grades not less than 0.006 ounce of
gold per ton. The cutoff grade is a function of both gold and silver
content. All ore is oxidized.
(11) Calculated using a cut-off grade of 0.010 ounce per ton for oxide leach
and not less than 0.023 for mill.
(12) Calculated using a cut-off grade of 0.12 ounce per ton.
(13) Material available to Zarafshan-Newmont for processing from designated
stockpiles or from other specified sources. Tonnage and gold content of
material available to Zarafshan-Newmont for processing from such
designated stockpiles or from other specified sources are guaranteed by
state entities of Uzbekistan. Material is crushed to liberate the gold
and leached.
(14) Percentage reflects Newmont's economic interest in remaining reserves.
In 2000, this percentage was 95.9%.
(15) Operations commenced in late 1999. Production is in the form of a copper-
gold concentrate. Cut-off grade and recoveries vary depending on the gold
and copper content. The cut-off grade used for reserve reporting is
equivalent to 0.33% copper. Percentage reflects Newmont's economic
interest in remaining reserves, unchanged from 2000.
(16) Included in the reserves are 680,794 ounces of gold committed under a
pre-paid forward sales contract.
30
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings Relating to Companies which Were Affiliated with Newmont as
of December 31, 2001
Idarado Mining Company: 80.1% Newmont Owned
In July 1992, Newmont and Idarado signed a consent decree with the State of
Colorado, which was agreed to by the U.S. District Court of Colorado, to
settle a lawsuit brought by the State under the Comprehensive Environmental
Response, Compensation and Liability Act, CERCLA, generally referred to as the
Superfund Act.
Idarado agreed in the consent decree to undertake specified remediation work
at its former mining site in the Telluride/Ouray area of Colorado. Remediation
work at this property is substantially complete. If the remediation does not
achieve specific performance objectives defined in the consent decree, the
State may require Idarado to implement supplemental activities at the site,
also as defined in the consent decree. Idarado and Newmont have obtained a
$5.8 million reclamation bond to secure their potential obligations under the
consent decree. In addition, Idarado settled natural resources damages and
past and future response costs, and agreed to habitat enhancement work, under
the consent decree.
Resurrection Mining Company: 100% Newmont Owned
Newmont, Resurrection and other defendants were named in lawsuits filed by
the State of Colorado under the Superfund Act in 1983, which were subsequently
consolidated with a lawsuit filed by the U.S. Environmental Protection Agency,
EPA, in 1986. These proceedings sought to compel the defendants to remediate
the impacts of pre-existing, historic mining activities near Leadville,
Colorado, which date back to the mid-1800's, and which the government agencies
claim are causing substantial environmental problems in the area.
In 1988 and 1989, the EPA issued administrative orders with respect to one
area on the site, and the defendants have collectively implemented those
orders by constructing a water treatment plant, which was placed in operation
in early 1992. Remaining remedial work for this area primarily consists of
water treatment plant operation and continuing environmental monitoring and
maintenance activities. Newmont and Resurrection are currently responsible for
50 percent of these costs; our share of such costs could increase in the event
other defendants become unable to pay their share of such costs.
The parties also have entered into a consent decree with respect to the
remaining areas at the site, which apportions liabilities and responsibilities
for these areas. The EPA has approved remedial actions for selected components
of Resurrection's portion of the site, which were initiated in 1995. The EPA
has not yet selected the final remedy for the site. Accordingly, we cannot yet
determine the full extent or cost of our share of the remedial action that
will be required. The government agencies may also seek to recover for damages
to natural resources. In March 1999, the parties entered into a Memorandum of
Understanding, MOU, to facilitate the settlement of natural resources damages
claims under CERCLA for the upper Arkansas River Basin. The MOU provides a
structure for evaluation of damages and possible restoration activities that
may be required if it is concluded such damages have occurred.
Dawn Mining Company LLC: 51% Newmont Owned
Dawn previously leased an open-pit uranium mine, currently inactive, on the
Spokane Indian Reservation in the State of Washington. The mine is subject to
regulation by agencies of the U.S. Department of Interior (the Bureau of
Indian Affairs and the Bureau of Land Management), as well as the EPA. Dawn
also owns a nearby uranium millsite facility, located on private land, which
is subject to federal and state regulation.
31
In 1991, Dawn's mining lease was terminated. As a result, Dawn was required
to file a formal mine closure and reclamation plan. The Department of Interior
commenced an analysis of Dawn's proposed plan and alternate closure and
reclamation plans for the mine. Work on this analysis has been suspended
indefinitely. In mid-2000, the mine was included on the National Priorities
List under CERCLA, and the EPA has initiated a remedial investigation and
feasibility study under CERCLA to study environmental conditions and
remediation options at the site.
The EPA has asserted that Dawn and Newmont are liable for future reclamation
or remediation work at the mine. Dawn does not have sufficient funds to pay
for the reclamation plan it proposed, for any alternate plan, or for any
future remediation work at the mine. Newmont will vigorously contest any
claims as to Newmont's liability. We cannot reasonably predict the likelihood
or outcome of any future action against Dawn or Newmont arising from this
matter.
In late 1999, Dawn initiated state approval for a revised mill closure plan
that, if implemented, would expedite the reclamation process at the mill. The
State of Washington has approved this revised plan. The currently approved
plan for the mill is secured by a $14.1 million bond, which is guaranteed by
Newmont.
San Luis, Colorado: 100% Newmont Owned
The San Luis open-pit gold mine in southern Colorado was operated by a
subsidiary of Battle Mountain (which was acquired by Newmont in 2001) and
ceased operations in November 1996. Since then, substantial closure and
reclamation work has been performed. In August 1999, the Colorado Department
of Public Health and Environment, CDPHE, issued a notice of violation of the
Water Quality Control Act, and in October 1999, amended the notice to
authorize operation of a water treatment facility and the discharge of treated
water. Battle Mountain has made all submissions required by CDPHE notice and
has conducted the required response activities. Battle Mountain negotiated a
settlement with CDPHE resolving alleged violations, which became effective
September 1, 2000. In October 2000, CDPHE received an Application for
Reconsideration of Order for Civil Penalty, filed by project opponents,
seeking to appeal the terms of the settlement. The application was denied by
CDPHE. Project opponents have filed a judicial appeal in the District Court
for Costilla County, Colorado, naming CDPHE as defendant. Battle Mountain has
intervened in the appeal to protect its interests in the settlement. We cannot
reasonably predict the likelihood or outcome of this or any future action
against Battle Mountain or Newmont relating to this site.
Minera Yanacocha: 51.35% Newmont Owned
In June 2000, a transport contractor of Minera Yanacocha spilled
approximately 151 kilograms of mercury near the town of Choropampa, Peru,
which is located 53 miles southwest of the mine. Mercury is a byproduct of
gold mining and was sold to a Lima firm for use in medical instrumentation and
industrial applications. A comprehensive health and environmental remediation
program was undertaken by Minera Yanacocha in response to the incident. In
August 2000, Minera Yanacocha paid under protest a fine of 1,740,000 soles
(approximately $500,000) to the Peruvian government. Minera Yanacocha has
entered into settlement agreements with a number of individuals impacted by
the incident. In addition, it has entered into agreements with three of the
communities impacted by this incident to provide a variety of public works as
compensation for the disruption and inconvenience caused by the incident.
On September 10, 2001, Minera Yanacocha, various wholly-owned subsidiaries
of Newmont, and other defendants were named in a lawsuit filed by over 900
Peruvian citizens in Denver District Court for the State of Colorado. This
action seeks compensatory and punitive damages based on claims associated with
the mercury spill incident.
Estimated costs of $10 million for public works, remediation efforts,
personal compensation and the fine were included in Other expense in 2000.
Neither Newmont nor Minera Yanacocha can reasonably predict the likelihood of
any additional expenditures related to this matter.
32
In addition to the matters listed above, Newmont is from time to time involved
in various legal proceedings related to our business. We do not believe that
adverse decisions in any pending or threatened proceeding or that amounts
which we may be required to pay by reason thereof will have a material adverse
effect on our financial condition or results of operations.
Legal Proceedings Relating to Companies Acquired by Newmont after December 31,
2001
As a result of our acquisitions of Normandy and Franco-Nevada, we are
currently analyzing pending and potential legal claims involving those
companies. Newmont will make the required disclosure regarding such matters as
required in future reports filed with the SEC. To date, Newmont is aware of
the following:
Normandy Mining Limited
In a Federal Court action brought by the Australian Securities and
Investment Commission, ASIC, against Yandal Gold Pty Ltd., a subsidary of
Normandy, the judge found that the defendants violated the Australian
Corporations Law and ordered payment by Edensor Nominees Pty Ltd to ASIC of
A$28.5 million for distribution to former Normandy Yandal Operations Limited
shareholders. An appeal by Edensor to the Full Court of the Federal Court, to
which Normandy became a party on the application of ASIC, was allowed on the
basis that the Federal Court lacked jurisdiction to make the order. This
decision was sucessfully appealed to the High Court, which decided that the
Full Federal Court was wrong. The High Court held that the Federal Court did
have jurisdiction to hear and determine the matter and make orders under the
Australian Corporations Law. The High Court sent the matter back to the Full
Federal Court, which rejected Edensor's appeal on the merits. Baring any
additional appeal, Edensor will be obligated to pay the A$28.5 million.
Normandy previously agreed to pay half of this amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Newmont's executive officers as of March 18, 2002 were:
Name Age Office
- ---- --- ------
Wayne W. Murdy.......... 57 Chairman and Chief Executive Officer
Pierre Lassonde......... 55 Director, President
John A. S. Dow.......... 56 Executive Vice President and Group Executive, Latin America
David H. Francisco...... 52 Executive Vice President, Operations
Bruce D. Hansen......... 44 Senior Vice President and Chief Financial Officer
Britt D. Banks.......... 40 Vice President, General Counsel and Secretary
Donald G. Karras........ 48 Vice President, Taxes
Linda K. Wheeler........ 48 Vice President and Controller
There are no family relationships by blood, marriage, or adoption among any
of the above executive officers of Newmont. All executive officers are elected
annually by the Board of Directors of Newmont to serve for one year or until
his or her respective successor is elected and qualified. The Arrangement
Agreement between Newmont and Franco-Nevada provided that Mr. Lassonde would
become the President of Newmont upon our acquisition of Franco-Nevada. There
is no arrangement or understanding between any of the above executive officers
and any other person pursuant to which he or she was selected as an executive
officer.
33
Mr. Murdy has been Chairman of the Board of Newmont Mining since January
2002 and Chief Executive Officer thereof since January 2001. Mr. Murdy was
President of Newmont Mining from July 1999 to February 16, 2002. He was
Executive Vice President and Chief Financial Officer thereof from July 1996 to
July 1999, and Senior Vice President and Chief Financial Officer thereof from
December 1992 to July 1996. Mr. Murdy was elected to the Board of Directors of
Newmont Mining in September 1999.
Mr. Lassonde became President of Newmont in February 2002 and was elected a
director in March 2002. Previously he served as President and Co-Chief
Executive Officer of Franco-Nevada from September 1999 to February 2002. He
also served as a director of Franco-Nevada from October 1982.
Mr. Dow was designated Executive Vice President and Group Executive, Latin
America of Newmont in January 2001. He served as Executive Vice President,
Exploration of Newmont from July 1999 to January 2001, as Senior Vice
President, Exploration of Newmont from July 1996 to July 1999, and Vice
President, Exploration from April 1992 to July 1996.
Mr. Francisco was elected Executive Vice President, Operations of Newmont in
July 1999. He served as Senior Vice President, International Operations of
Newmont from May 1997 to July 1999. Previously, he served as Vice President,
International Operations of Newmont from July 1995 to May 1997.
Mr. Hansen was elected Senior Vice President and Chief Financial Officer of
Newmont in July 1999. He served as Vice President, Project Development of
Newmont from May 1997 to July 1999. Previously, he served as Senior Vice
President, Corporate Development of Santa Fe Pacific Gold Corporation from
April 1994 to May 1997.
Mr. Banks was elected Vice President and General Counsel in May 2001. Mr.
Banks was elected Secretary in April 2001. He served as Associate General
Counsel of Newmont from 1996 to May 2001.
Mr. Karras has served as Vice President, Taxes of Newmont since November
1992.
Ms. Wheeler was elected Vice President of Newmont in November 1998 and
Controller of Newmont in May 1997. Previously, she served as Controller of
Santa Fe Pacific Gold Corporation from May 1994 to May 1997.
34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Newmont's Common Stock is listed and principally traded on the New York
Stock Exchange (under the symbol "NEM") and is also listed in the form of
CDI's (under the trading symbol "NEM") on the Australian Stock Exchange.(/6/)
Newmont's Canadian exchangeable shares are listed on the Toronto Stock
Exchange (under the symbol "NMC"). The exchangeable shares were issued in
connection with the acquisition of Franco-Nevada. The following table sets
forth, for the periods indicated, the high and low sales prices per share of
Newmont's common stock as reported on the New York Stock Exchange Composite
Tape.
2001 2000
------------ -------------
High Low High Low
------ ----- ------ ------
First quarter........................................ $19.24 14.00 $25.94 $19.13
Second quarter....................................... $24.60 15.16 $28.38 $20.88
Third quarter........................................ $24.80 17.97 $21.69 $16.38
Fourth quarter....................................... $25.23 18.76 $18.25 $12.75
On March 18, 2002, there were outstanding 335,019,544 shares of Newmont's
common stock (including shares represented by CHESS depositary interests),
which were held by approximately 26,193 stockholders of record. A dividend of
$0.03 per share of common stock outstanding was declared in each quarter of
2000 and 2001 or a total of $0.12 per share per year.
On March 18, 2002, there were outstanding 2,299,980 shares of Newmont's
preferred stock, which was held by approximately 184 stockholders of record. A
dividend of $0.8125 per share of common stock outstanding was declared in each
quarter of 2000 and 2001 or a total of $3.25 per share per year.
On March 18, 2002, there were outstanding 55,873,669 Canadian exchangeable
shares, which were held by approximately 66 holders of record. The
exchangeable shares are exchangeable at the option of the holders into Newmont
common stock. Holders of exchangeable shares are therefore entitled to receive
any dividends that Newmont declares on its common stock in the future.
The determination of the amount of future dividends, however, will be made
by Newmont's Board of Directors from time to time and will depend on Newmont's
future earnings, capital requirements, financial condition and other relevant
factors.
- --------
(6) In Australia Newmont is referred to as "Newmont Mining Corporation ARBN
099 065 997 organized in Delaware with limited liability."
35
ITEM 6. SELECTED FINANCIAL DATA
The following statistics are for Newmont before our acquisition of Normandy
and Franco-Nevada. They do not include any Normandy or Franco Nevada
information.
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In millions, except per share)
For the Years Ended
December 31,
Sales...................... $1,656.1 $1,809.5 $1,627.1 $1,730.5 $1,917.7
Income (loss) before
cumulative effect of
change in accounting
principle................. $(23.3) $(89.8) $(102.0) $(608.6) $55.2
Net income (loss)
applicable to common
shares(/1/)............... $(30.8) $(102.3) $(102.0) $(641.5) $51.5
Income (loss) per common
share:
Before cumulative effect of
change in accounting
principle................. $(0.16) $(0.47) $(0.53) $(3.32) $0.31
Net income (loss) per
common share, basic and
diluted(/1/).............. $(0.16) $(0.53) $(0.53) $(3.50) $0.29
Dividends declared per
common share.............. $0.12 $0.12 $0.12 $0.12 $0.12
At December 31,
Total assets............... $4,062.4 $3,916.8 $3,951.9 $4,022.0 $4,707.2
Long-term debt, including
current portion........... $1,281.9 $1,169.8 $1,216.8 $1,489.8 $1,512.6
Stockholders' equity....... $1,480.0 $1,500.0 $1,570.3 $1,687.3 $2,097.1
- --------
(1) Net loss includes the cumulative effect of changing the accounting method
for start-up costs of $32.9 million ($0.18 per share), net of tax, in
1998, and for revenue recognition of $12.6 million ($0.07 per share) in
2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following provides information that management believes is relevant to
an assessment and understanding of the consolidated results of operations and
financial condition of Newmont Mining Corporation and its subsidiaries
(collectively, Newmont). The discussion should be read in conjunction with the
consolidated financial statements and accompanying Notes. Results for 2000 and
1999 have been restated to reflect the merger with Battle Mountain Gold
Company in Janaury 2001 on a pooling-of-interests basis. Results do not
reflect the February 2002 acquisitions described below.
On February 13, 2002, Newmont stockholders approved adoption of an Agreement
and Plan of Merger that provided for a restructuring of Newmont to facilitate
the February 2002 acquisitions described below and to create a flexible
corporate structure. Newmont merged with an indirect wholly-owned subsidiary
that resulted in Newmont becoming a direct wholly-owned subsidiary of a new
holding company. The new holding company, previously a direct, wholly-owned
subsidiary of Newmont, was renamed Newmont Mining Corporation. There is no
impact to the consolidated financial statements of Newmont as a result of this
restructuring and former stockholders of Newmont became stockholders of the
new holding company.
Summary
Newmont recorded a net loss to common shares of $30.8 million ($0.16 per
share) for the year ended December 31, 2001, compared with net losses of $102
million ($0.53 per share) for both 2000 and 1999. Results for 2001 included,
after-tax, $43.7 million ($0.22 per share) for restructuring and Battle
Mountain merger expenses, $26.7 million ($0.14 per share) for asset write-
downs, $24.8 million ($0.13 per share) for prior-period income tax benefits,
$3.3 million ($0.02 per share) for foreign currency exchange losses and $1.1
million for a gain on written call options.
36
Results in 2000 included after-tax noncash charges of $44.4 million ($0.23
per share) for asset write-downs primarily on Battle Mountain properties,
$27.4 million ($0.14 per share) for expenses associated with an acquisition
settlement, $23.9 million ($0.12 per share) for losses on marketable
securities, $12.6 million ($0.07 per share) for the cumulative effect of
accounting changes for revenue recognition, $12.4 million ($0.06 per share)
for amortization of put option premiums and $4.0 million ($0.02 per share) for
foreign currency exchange losses. Also included were after-tax charges of $6.9
million ($0.04 per share) for merger expenses and a noncash unrealized mark-
to-market gain on call option contracts of $17.4 million ($0.09 per share).
For 1999, results included after-tax noncash charges for impairment of an
equity investment in Lihir Gold of $46.8 million ($0.24 per share, also net of
minority interest), for asset write-downs of $38.3 million ($0.20 per share),
for an unrealized mark-to-market loss on call options of $29.1 million ($0.15
per share) and for amortization of put option premiums of $12.0 million ($0.06
per share), partially offset by gains from the sale of exploration properties
of $13.6 million ($0.07 per share) and by foreign currency exchange gains of
$5.3 million ($0.03 per share).
As a largely unhedged company, Newmont's realized gold price of $271, $281,
and $284 per equity ounce sold in 2001, 2000 and 1999, respectively, closely
tracked the declining spot market price. In this environment, Newmont's focus
has been to maximize cash flow through cost efficiencies and disciplined
capital spending. Newmont's Gold Medal Performance program, a company-wide
employee-driven effort to systematically reduce costs and improve productivity
and cash flow by implementing best practices, has driven this focus over the
past two years and was extended to each Battle Mountain operation.
In 2001, gold sales were 5.43 million equity ounces, compared to 5.73
million and 4.95 million equity ounces in 2000 and 1999, respectively. Total
cash costs of production were $184 per ounce in 2001, $170 per ounce in 2000
and $173 per ounce in 1999. As a result of lower production and average
realized prices, cash flow from operations declined to $381 million in 2001
from $568 million in 2000. Long-term debt, net of cash balances, remained at
$1.1 billion at December 31, 2001, compared with December 31, 2000.
Gold reserves at December 31, 2001 totaled 59.6 million contained equity
ounces compared with 66.3 million ounces at December 31, 2000. Reserve
calculations for 2001 and 2000 were based on a long-term price assumption of
$300 per ounce. A long-term gold price of $275 per ounce could lower reserves
approximately 7%, while a $325 per ounce price could increase reserves
approximately 5%.
In 2001, copper sales totaled 360 million equity pounds for 2001, compared
with 294 million equity pounds in 2000. Total cash costs were $0.36 and $0.57
per equity pound, after gold sales credits, for 2001 and 2000, respectively.
The average realized price in 2001 was $0.70 per pound, compared with $0.82
per pound in 2000. Proven and probable reserves totaled 6.0 billion contained
equity pounds of copper at December 31, 2001.
Mergers and Acquisitions
Normandy Mining Limited and Franco-Nevada Mining Corporation Limited
In November 2001, Newmont announced proposed acquisitions of Normandy Mining
Limited, an Australian company, and Franco-Nevada Mining Corporation Limited,
a Canadian company. On February 16, 2002, Newmont completed the acquisition of
Franco-Nevada pursuant to a Plan of Arrangement. On February 20, 2002, Newmont
gained control of Normandy through an off-market bid for all of the ordinary
shares in the capital of Normandy. On February 26, 2002, when Newmont's off-
market bid for Normandy expired, Newmont had a relevant interest in more than
96% of Normandy's outstanding shares. Newmont is exercising compulsory
acquisition rights under Australian law to acquire all of the remaining shares
of Normandy and expects this process to be completed by April 2002. The
consideration for Normandy included 3.85 shares of Newmont common stock for
every 100 shares of Normandy (including ordinary shares represented by
American depositary receipts) plus A$0.50 per Normandy share, or the U.S.
dollar equivalent of that amount for stockholders outside
37
Australia, net to the seller in cash. Pursuant to a Canadian Plan of
Arrangement, Franco-Nevada was acquired in a stock-for-stock transaction in
which Franco-Nevada common stockholders received 0.80 shares of Newmont common
stock or 0.80 of an exchangeable share, exchangeable for Newmont common stock,
for each common share of Franco-Nevada held. Newmont will issue approximately
194 million shares (or share equivalents) in conjunction with these
acquisitions, which, including the cash compensation paid, reflect a fair
value of approximately $4.3 billion.
Normandy is Australia's largest gold producer, with over 2 million ounces of
gold production annually, and with operations in Australia, the United States,
New Zealand, Turkey, Chile, Brazil and Canada. Normandy is also a producer of
zinc concentrates and owns interests in companies producing cobalt and
magnesium.
Franco-Nevada has a portfolio of royalty interests covering producing and
non-producing mineral properties located in the United States, Canada,
Australia, South Africa, Indonesia and various South American countries.
Franco-Nevada also has a portfolio of oil and gas interests in western Canada
and various direct and indirect interests through investments in resource
properties in Canada, Nevada, Central and South America, Australia, South
Africa, Indonesia and the Dominican Republic.
The acquisitions are being accounted for using the purchase method whereby
assets and liabilities will be recorded at fair market value as of the date of
acquisition. The excess of the purchase price over such fair value will be
recorded as goodwill. Pursuant to Statement of Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," goodwill will be assigned to
assets acquired and will not be amortized. Goodwill is subject to a
determination of fair value at least annually and at such times as events or
circumstances indicate impairment has occurred. Newmont expects to incur at
least an estimated $90 million of incremental direct costs associated with the
acquisitions, which will be capitalized. As of December 31, 2001, Newmont had
spent approximately $4.1 million of such acquisition costs. Subsequent to the
completion of the acquisitions, it is expected that approximately $70 million
of after-tax synergies will be realized in the first full year of operations,
increasing to approximately $90 million by the end of the second full year.
Such synergies will be obtained from the rationalization of corporate overhead
and exploration and development budgets as well as operating efficiencies and
costs reductions associated with procurement, interest and tax benefits.
Battle Mountain Gold Company
On January 10, 2001, Newmont completed a merger with Battle Mountain Gold
Company pursuant to an agreement and plan of merger, dated June 21, 2000,
under which each share of common stock of Battle Mountain and each
exchangeable share of Battle Mountain Canada Ltd. (a wholly-owned subsidiary
of Battle Mountain) was converted into the right to receive 0.105 share of
Newmont, or approximately 24.1 million shares. Newmont also exchanged 2.3
million shares of newly issued $3.25 convertible preferred stock for all
outstanding shares of Battle Mountain $3.25 convertible preferred stock. The
merger was accounted for as a pooling of interests, and as such, consolidated
financial statements include Battle Mountain's financial data as if Battle
Mountain had always been part of Newmont.
During 2001, Newmont successfully integrated the former Battle Mountain
operations in Canada and Bolivia, the Phoenix development project in Nevada,
and its interest in the Pajingo joint venture operation in Australia.
Synergies in excess of the estimated $25 million, pre-tax, were achieved
during 2001 from consolidation of administrative and exploration staffs,
purchasing economies and application of Gold Medal Performance. The Phoenix
project will provide an opportunity for additional synergies in future years
from utilization of existing nearby processing facilities.
Market Conditions and Risks
Metal Price
Changes in the market price of gold significantly affect Newmont's
profitability and cash flow. Gold prices can fluctuate widely due to numerous
factors, such as demand; forward selling by producers; central bank sales,
38
purchases and lending; investor sentiment and production levels. Based on
estimates of Newmont stand-alone 2002 production and expenses, a $10-per-ounce
change in the gold price would result in an increase or decrease of
approximately $71 million in cash flow from operations and approximately $42
million (about $0.21 per share) in net income. Changes in the market price of
copper also affect Newmont's profitability and cash flow from its equity
investment in Batu Hijau. Copper is traded on established international
exchanges and copper prices generally reflect market supply and demand, but
can also be influenced by speculative trading in the commodity or by currency
exchange rates. Based on estimates of Newmont stand-alone 2002 production and
expenses, a $0.10-per-pound change in the copper price would result in an
increase or decrease in net income of approximately $13 million (about $0.07
per share).
Newmont has generally sold its gold production at market prices; however, it
had forward sales contracts (1) from its Golden Giant operations for 31,000
ounces in 2001 at an average price of $314 per ounce and 34,000 ounces in 2000
at an average price of $316 per ounce, and (2) for 125,000 ounces in each of
2000 and 1999 from its Minahasa mine in Indonesia at an average price of $454
per ounce. In December 2001, Newmont entered into offsetting positions to
effectively close out the combination matched put and call options and the
flat forward sales contracts at its Golden Giant operations.
Following a decline in spot market prices to $253 per ounce in July 1999,
Newmont entered into two put and call option contracts to provide a measure of
price protection, as described in Note 9. The call options, covering 2.35
million ounces, were replaced with a series of sales contracts requiring
physical delivery of the same quantity of gold over slightly extended future
periods. Under the terms of the contracts, Newmont will realize the lower of
the spot price on the delivery date or the capped price ranging from $350 per
ounce in 2005 to $392 per ounce in 2011. The value of the sales contracts was
recorded as deferred revenue and will be included in sales revenue as delivery
occurs.
Newmont is not required to place collateral with respect to its commodity
instruments and there are no margin calls associated with such contracts.
Credit risk is minimized by contracting only with major financial
institutions/counterparties.
At December 31, 2001, the following offsetting commodity instruments were
outstanding:
Fair
Ounces Value
------- -----
(in millions)
Combination, matched put and call options, expiring 2002-2004... 193,067 $3.2
Offsetting combination, matched put and call options, expiring
2002-2004...................................................... 193,067 (3.2)
Flat forward sales contracts, 2002-2004......................... 64,067 2.0
Forward purchase contracts, 2002-2004........................... 64,067 (2.0)
At December 31, 2001 the Normandy hedge position consisted of derivative
contracts covering approximately 8.6 million ounces of gold at an average
price of $283 per ounce. At that time, the Normandy hedge position included
forward sales, purchased put and convertible put contracts covering 5.8, 1.3
and 1.5 million ounces at net contract prices of $286, $267 and $283,
respectively. At December 31, 2001, the mark-to-market value of the combined
Normandy hedge position (which includes subsidiaries) represented an
approximate liability of $239 million. All prices and values noted above were
converted to US dollars at the December 31, 2001, closing exchange rate of
A$1.9543/US$.
Foreign Currency
In addition to the U.S., Newmont operates in Canada, Peru, Bolivia,
Uzbekistan and Indonesia and has interests in joint ventures in Australia and
Mexico. Gold produced at these operations is sold in the international markets
for U.S. dollars. The cost and debt structures at these operations are
primarily U.S. dollar-denominated, except for the Canadian and Australian
operations where such structures are primarily denominated in local
39
currencies. To the extent there are fluctuations in local currency exchange
rates against the U.S. dollar, the devaluation of a local currency is
generally economically neutral or beneficial to the operation because local
salaries and supply contracts will decrease against the U.S. dollar revenue
stream. Foreign currency exchange rate losses primarily related to Canadian
and Australian operations were $5.1 million and $6.2 million in 2001 and 2000,
respectively, and gains were $8.2 million in 1999.
Interest Rates
At December 31, 2001, Newmont's long-term debt of $1,281.9 million included
$334.6 million of variable-rate debt (which included $200 million of principal
tied to fixed-for-floating-interest rate swaps) with an average interest rate
of 6.7%, and fixed-rate debt of $947.3 million, with an average interest rate
of 7.6% and an estimated fair value of $954.3 million. Newmont's public debt
has investment-grade credit ratings from Moody's Investors Service (Baa3) and
Standard & Poor's Ratings Services (BBB).
During the last half of 2001, Newmont entered into contracts to hedge the
interest rate risk exposure on a portion of its $275 million 8 5/8% notes and
its $200 million 8 3/8% debentures. Newmont receives fixed-rate interest
payments at 8 5/8% or 8 3/8% and pays floating-rate interest amounts based on
periodic LIBOR settings plus a spread, ranging from 2.60% to 4.25%. The
notional principal amount of these transactions (representing the amount of
principal tied to floating interest rate exposure) was $200 million at
December 31, 2001. Half of these contracts expire in July 2005 and half expire
in May 2011. At December 31, 2001, these transactions resulted in a reduction
in interest expense of $0.8 million. These transactions have been designated
as fair value hedges and at December 31, 2001, had a negative fair value of
$0.6 million.
Fuel Hedges
Newmont uses certain derivative instruments to hedge a portion of its
exposure to fuel price market fluctuations, from time to time. At December 31,
2001, Newmont had contracts expiring September 2002 covering approximately 8.6
million gallons of diesel fuel at its Nevada operations at prices ranging from
approximately $0.61 to $0.69 per gallon. These transactions have been
designated as cash flow hedges and at December 31, 2001, had a negative fair
value of $1.3 million.
Critical Accounting Policies
The preparation of Newmont's financial statements in conformity with
accounting principles accepted in the United States requires management to
make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, as well as the
reported amount of revenues and expenses during the reporting period. The most
critical accounting principles upon which Newmont's financial status depends
are those requiring estimates of proven and probable reserves, recoverable
ounces therefrom, and/or assumptions of future gold prices. Such estimates and
assumptions affect the value of inventories (which are stated at the lower of
average cost or net realizable value), the potential impairment of long-lived
assets and the ability to realize income tax benefits associated with deferred
tax assets. These estimates and assumptions also affect the rate at which
depreciation and amortization are charged to earnings. As noted above,
commodity prices significantly affect Newmont's profitability and cash flow.
In addition, management estimates costs associated with reclamation of mining
properties as well as remediation costs for inactive properties as described
below. On an ongoing basis, management evaluates its estimates and
assumptions; however, actual amounts could differ from those based on such
estimates and assumptions.
40
Results of Operations
Total Cash
Cost Per
Equity Ozs. Sold (000) Equity Oz.
------------------------- --------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ---- ---- ----
North American operations:
Nevada operations..................... 2,703.2 3,047.9 2,498.7 $222 $203 $211
Mesquite, California.................. 92.6 130.3 164.6 205 221 167
La Herradura, Mexico.................. 54.7 50.5 40.2 173 131 159
Golden Giant, Canada.................. 283.7 406.6 356.0 187 146 144
Holloway, Canada...................... 89.4 83.4 92.7 209 229 197
South American operations:
Yanacocha, Peru....................... 983.1 901.2 850.3 115 87 103
Kori Kollo, Bolivia................... 274.8 247.7 256.1 158 200 190
Zarafshan-Newmont, Uzbekistan.......... 222.0 251.4 271.5 136 129 161
Minahasa, Indonesia.................... 341.5 354.2 343.9 142 133 103
Vera/Nancy, Australia.................. 126.0 112.1 65.9 105 99 124
Batu Hijau, Indonesia 295.1 178.4 6.3 n/a n/a n/a
Less prepaid forward ozs. delivered... (35.9) (35.9) --
------- ------- -------
Total/Weighted average............... 5,430.2 5,727.8 4,946.2 $184 $170 $173
======= ======= =======
Total cash costs include charges for mining ore and waste associated with
current period gold production, processing ore through milling and leaching
facilities, production taxes, royalties and other cash costs. Total cash costs
per ounce for Golden Giant, Holloway, Yanacocha, Kori Kollo and Vera/Nancy in
2000 and Golden Giant and Holloway in 1999 have been restated to reflect
consistent categorization of expense types included in cash costs for all
mines.
North American Operations
Newmont's Nevada operations (along the Carlin Trend near Elko and in the
Winnemucca region, where Twin Creeks and the Lone Tree Complex are located)
include production from nine open-pit and four underground mines. Oxide ores
are processed by milling or heap leaching, depending upon ore grade. The
Carlin roaster and Winnemucca region autoclaves process higher-grade
refractory ores. The Lone Tree flotation plant processes lower-grade
refractory ores. A developed linear program is utilized to determine the best
mix of ores for each processing plant to maximize recoveries and economic
returns.
Nevada's sales of 2.7 million ounces in 2001 were 11% lower than in 2000,
with the depletion of the Deep Post surface deposit early in 2001 resulting in
approximately 300,000 less high-grade, low-cost open pit ounces produced
during 2001 than during 2000. This also caused total cash costs to increase to
$222 per ounce in 2001. Approximately 139 million tons of material were mined
from surface open pits in 2001, down 31% and 37% from 2000 and 1999,
respectively. Refractory ore treatment facilities, with higher processing
costs than oxide ore mills, generated 65% of Nevada's production in 2001, as
compared to 68% and 54% in 2000 and 1999, respectively. Production and total
cash costs in 2002 are expected to remain consistent with 2001 levels.
Production from the Deep Post underground mine commenced in the first
quarter of 2001 and approximately $10 million has been allocated for capital
equipment and mine development during 2002. By 2003, Deep Post is expected to
reach an annual production rate of approximately 380,000 ounces at an
estimated average total cash cost of approximately $150 per ounce over the
life of the mine. While permitting and metallurgical work will continue on the
Phoenix project, minimal capital will be allocated for mine construction
during 2002 under the current market gold price environment.
Gold sales at the Mesquite heap-leach mine in southern California decreased
29% to 92,600 ounces in 2001. Total cash costs per ounce also decreased 7% to
$205 per ounce. Mining activities ceased in the second quarter
41
of 2001 with the depletion of the ore body. Final gold production from
continued declining recovery of gold from heap-leach pads is expected in 2003.
Selected equipment from the Mesquite mine has been transferred to operations
in South America and in Nevada.
At La Herradura, a 44%-owned, nonoperated heap-leach operation in Sonora,
Mexico, Newmont's equity share of 2001 sales totaled 54,700 ounces at a total
cash cost of $173 per ounce. Production in 2002 is expected at approximately
65,000 equity ounces at a total cash cost of $178 per ounce.
Production sold from the Golden Giant underground mine in Ontario, Canada
was 284,000 ounces at a total cash cost of $187 per ounce compared with
407,000 ounces at $146 per ounce and 356,000 ounces at $144 per ounce in 2000
and 1999, respectively. The maturing mine has experienced lower average ore
grades over the past three years and in 2002, production is expected to be
approximately 280,000 ounces at $166 per ounce.
The Holloway underground mine in Ontario, Canada is an 84.65%-owned joint
venture with Teddy Bear Valley Mines. In 2001, sales totaled 89,000 equity
ounces at a total cash cost of $209 per ounce and in 2002 are expected to
increase to approximately 100,000 equity ounces at $196 per ounce.
Overseas Operations
Minera Yanacocha in Peru is 51.35%-owned and includes five open pit mines,
four leach pads, two gold recovery plants and a crushing agglomeration
facility. In 2001, Yanacocha achieved record sales of 1.91 million ounces
(983,000 equity ounces), a 9% increase from 2000 and 16% more than in 1999.
Total cash costs of $115 per ounce are comparatively low because of low waste-
to-ore ratios and porous ore that yields high gold recoveries without crushing
prior to heap leaching for most ore types.
Production at Yanacocha has grown annually through the discovery and
development of reserves and increased mining and processing capacity. During
2001, approximately 156 million tons of material were mined (85 million ore
tons and 71 million waste tons), an 18% increase from 2000 and 47% more than
in 1999. In late 1999, Yanacocha terminated its contract mining agreement and
improved productivity and efficiency by conducting mine operations with its
own employees. Yanacocha's first crushing and agglomeration facility, for the
La Quinua deposit, started up late in the third quarter of 2001 and will
continue to undergo commissioning adjustments through the first half of 2002,
gradually stepping up to its design rate of 132,000 tons per day (120,000
metric tons per day) by the end of June. Production in 2001 was slightly lower
than targeted due to slower leach cycle recoveries for gold and short-term
bottlenecks in mining fleet utilization and availability during the
commissioning of the new crushing facility. In 2002, production is expected to
exceed 2.3 million ounces (1.2 million equity ounces) with a full year of
production from the La Quinua mine. Total cash costs at Yanacocha are expected
to increase to approximately $125 per ounce as the processing of La Quinua
ore, which requires crushing and agglomeration before heap leaching, will
impact overall costs. By 2003, production from La Quinua is expected to reach
over one million ounces annually at a total cash cost of approximately $129
per ounce over the life of the deposit.
The Kori Kollo open-pit mine in Bolivia is held by Empresa Minera Inti Raymi
S.A., in which Newmont has an 88% interest and Zeland Mines, S.A. has a 12%
interest. Production sold in 2001 was 275,000 equity ounces, up from 248,000
and 256,000 equity ounces in 2000 and 1999, respectively, reflecting ore
placements on the new heap leach pad that commenced operation in the third
quarter of 2001. Total cash costs decreased to $158 per ounce, a result of
increased production. For 2002, production is expected at approximately
264,000 equity ounces with cash costs of $146 per ounce.
The Zarafshan-Newmont Joint Venture, in the Central Asian Republic of
Uzbekistan, is a 50/50 joint venture between Newmont and two Uzbekistan
government entities. Zarafshan-Newmont produces gold by crushing and heap
leaching low-grade oxide ore from existing stockpiles at the government-owned
Muruntau mine. Gold sales in 2001 totaled 444,000 ounces (222,000 equity ounces)
compared with 502,800 ounces (251,400 equity ounces) in 2000 and 542,900 ounces
(271,500 equity ounces) in 1999. Total cash costs increased to $136 per ounce
from
42
$129 per ounce in 2000 and decreased from $161 per ounce in 1999. The leach
pad expansion construction is underway following the signing of an amended ore
supply agreement under which the joint venture will purchase 150 million
metric tons of ore from the Uzbek government at an average grade of 1.44 grams
per metric ton. This agreement extends the operation's life to at least 2012.
The leach pad expansion project is scheduled for completion by the end of the
first quarter of 2002. Production in 2002 is expected to be consistent with
2001 at approximately 450,000 ounces (225,000 equity ounces), with total cash
costs increasing to approximately $169 per ounce primarily from lower foreign
exchange gains and higher utility and supply costs associated with the
operation of the expanded leach pad.
At Minahasa, in Indonesia, Newmont has an 80% interest but receives a
greater percent of the gold production until recouping the bulk of its
investment including interest. Prior to November 2001, Newmont received 100%
of Minahasa's gold production and subsequently received 94%, as Newmont
recouped some of its investment through the collection of funds in accordance
with existing loan agreements. Production decreased to 341,500 equity ounces
with total cash costs of $142 per ounce, 7% higher than 2000, primarily from
lower grade ore. Mining activities ceased late in 2001; however, it is
expected that processing will continue until 2003. Production in 2002 is
expected at approximately 120,000 equity ounces, with total cash costs of
approximately $236 per ounce.
At Pajingo (Vera/Nancy), a 50%-owned joint venture with Normandy, the
operator of the underground mine in Queensland, Australia, Newmont's equity
share of 2001 sales totaled 126,000 ounces at a total cash cost of $105 per
ounce. Increased sales from 2000 and 1999 resulted from production increases
from the completion of a mill expansion project in 1999. Total production in
2002 is expected at approximately 290,000 ounces with cash costs of $82 per
ounce.
The Batu Hijau copper/gold mine in Indonesia completed its first full year
of production in 2000 following start-up in the fourth quarter of 1999.
Newmont holds an indirect 45% equity interest in the mine, but receives 56.25%
of production until recouping the bulk of its investment. Concentrate sales in
2001 included 360.0 million equity pounds of copper and 295,100 equity ounces
of gold. In 2000, sales totaled 294.2 million equity pounds of copper and
178,400 equity ounces of gold. Total cash costs, after gold sales credits, of
$0.36 per pound in 2001 compared to $0.57 per pound in 2000. Production in
2002 is expected at between 550 million to 600 million pounds of copper (310
million to 340 million equity pounds) and between 360,000 and 400,000 ounces
of gold (200,000 to 225,000 equity ounces). Total cash costs are expected to
be approximately $0.43 per pound, after gold sales credits.
Financial Results
Consolidated sales include 100% of Yanacocha and Kori Kollo production and
Newmont's ownership share of production elsewhere, except for Batu Hijau,
which is accounted for as an equity investment. Variances in sales revenue are
illustrated in the following table:
Years ended December 31,
--------------------------
2001 2000 1999
-------- -------- --------
Consolidated sales (in millions).................... $1,656.1 $1,809.5 $1,627.1
Consolidated production ozs. sold (in thousands).... 6,104.0 6,437.0 5,780.3
Average price received per ounce.................... $ 271 $ 281 $ 284
Average market price received per ounce............. $ 271 $ 279 $ 280
2001 2000
vs vs
2000 1999
------- ------
Increase (decrease) in consolidated sales due to (in
millions):
Consolidated production..................................... $ (91.2) $191.2
Average gold price received................................. (62.2) (8.8)
------- ------
Total...................................................... $(153.4) $182.4
======= ======
43
Dividends, interest and other for 2001 included interest income of $3.0
million, down from $10.5 million and $15.4 million in 2000 and 1999,
respectively, reflecting lower interest rates during the year. Also included
were foreign currency exchange losses of $5.1 million and $6.1 million in 2001
and 2000, respectively, and foreign currency exchange gains of $8.2 million in
1999. Sales of exploration properties generated gains of $3.7 million, $1.6
million and $20.6. million in 2001, 2000 and 1999, respectively.
Costs applicable to sales include total cash costs and provisions for
estimated final reclamation expenses related to consolidated production. The
increase in costs primarily related to higher operating costs at Yanacocha
from higher tonnage moved and greater processing and administration costs,
partially offset by cost-reduction efforts at all locations.
Years ended December 31,
--------------------------
2001 2000 1999
-------- -------- ------
(In millions)
Costs applicable to sales:
North American operations:
Nevada operations................................. $ 610.9 $ 625.6 $534.1
Mesquite.......................................... 20.4 29.4 27.5
La Herradura...................................... 9.6 6.8 6.4
Golden Giant...................................... 54.8 61.8 55.3
Holloway.......................................... 19.1 19.4 19.6
South American operations:
Yanacocha......................................... 234.0 165.0 183.8
Kori Kollo........................................ 50.8 67.1 68.1
Zarafshan-Newmont.................................. 30.4 32.8 44.1
Minahasa........................................... 49.7 47.6 36.1
Vera/Nancy......................................... 13.4 11.6 8.4
Other.............................................. (0.1) (1.6) (2.1)
-------- -------- ------
Total............................................ $1,093.0 $1,065.5 $981.3
======== ======== ======
Certain mining costs associated with deposits that have diverse grades and
waste-to-ore ratios over the mine life are capitalized. In 2001, 2000 and
1999, such costs were capitalized for certain deposits at the Nevada
operations ($10.8 million in 2001, $25.0 million in 2000 and $26.0 million in
1999). These costs are charged to operating expenses as the related gold is
sold. Reduced mining rates led to lower capitalized mining costs in 2001 and
2000.
44
Depreciation and depletion decreased in 2001 primarily as a result of
decreased gold production at Nevada, partially offset by the impact of 2000
capital expenditures at Yanacocha. The increase in 2000 primarily resulted
from increased gold production in Nevada and Yanacocha.
Years ended December
31,
--------------------
2001 2000 1999
------ ------ ------
(In millions)
Depreciation and depletion:
North American operations:
Nevada operations........................................ $117.2 $160.7 $123.8
Mesquite................................................. 4.3 9.9 7.0
La Herradura............................................. 3.7 3.2 2.0
Golden Giant............................................. 17.9 26.5 23.2
Holloway................................................. 6.5 10.9 12.2
South American operations:
Yanacocha................................................ 85.6 73.1 66.8
Kori Kollo............................................... 20.7 24.0 25.6
Zarafshan-Newmont......................................... 9.8 13.3 11.2
Minahasa.................................................. 22.3 25.0 23.0
Vera/Nancy................................................ 4.2 4.4 2.8
Other..................................................... 7.9 8.5 6.2
------ ------ ------
Total................................................... $300.1 $359.5 $303.8
====== ====== ======
Exploration and research expenses in 2001 were $55.5 million, compared with
$77.4 million in 2000 and $74.2 million in 1999. The decrease in 2001
reflected planned reductions as a result of lower gold prices than in previous
years and the increased focus on exploration activities at or around existing
operations.
Interest expense, net of amounts capitalized was $86.4 million, $94.6
million and $77.7 million in 2001, 2000 and 1999, respectively. Net interest
expense in 2001 decreased because of lower average interest rates and higher
capitalized interest for Yanacocha.
Expenses for acquisition settlement of $42.2 million in 2000 related to the
resolution of a dispute regarding Newmont's purchase of an additional 13.35%
interest in Minera Yanacocha as described in Note 15.
Write-down of assets in 2001 of $41.0 million pre-tax consisted of a
reduction in the carrying value of long-lived assets, and inventory reductions
and were primarily related to Minahasa ($18.9 million), Nevada ($11.7
million), Kori Kollo ($4.8 million) and the San Luis property in Colorado
($3.5 million). As described in Note 16, the write-down of long-lived assets
represents the excess carrying value of assets compared to fair value, with
fair value determined using discounted future cash flow analyses. Such cash
flows are based on estimated recoverable ounces, future production and capital
costs, and gold price assumptions. Gold price assumptions were $285 per ounce
in 2002 and $300 per ounce thereafter. The Minahasa write-down reduced fixed
assets by $12.1 million, increased reclamation liabilities by $3.7 million,
and reduced ore stockpile and materials and supply inventories by $1.8 million
and $1.3 million, respectively. The Nevada write-down reduced ore and in-
process inventory by $7.3 million and fixed assets by $4.4 million. The Kori
Kollo write-down reduced fixed assets by $4.8 million. The San Luis write-down
reduced fixed assets by $2.0 million and materials and supply inventory by
$1.5 million. The write-downs had no impact on the scope of these operations
and will reduce future pre-tax Costs applicable to sales by $16.9 million and
Depreciation and depletion by $24.1 million based on remaining production as
of December 31, 2001, with no impact on future cash flows.
In 2000, the write-down of assets was $58.4 million pre-tax and related to
Holloway ($30.8 million), Mesquite ($14.8 million), Kori Kollo ($5.6 million),
the Mezcala property in Mexico ($6.5 million) and to inventory at the Battle
Mountain Complex ($0.7 million). For 2000, gold price assumptions were $285
per ounce in 2001 and $300 per ounce thereafter. The Holloway write-down
reduced fixed assets by $30.8 million. The
45
Mesquite write-down reduced leach pad inventory by $9.7 million, capitalized
mining by $1.4 million and fixed assets by $3.7 million. The Kori Kollo write-
down reduced inventory by $4.9 million and fixed assets by $0.7 million. The
write-downs reduced future pre-tax Costs applicable to sales by $16.0 million
and Depreciation and depletion by $35.2 million. The acquisition cost of the
Mezcala property was written off as no future cash flows from the property
were anticipated as of December 31, 2000.
In 1999, Battle Mountain's Crown Jewel project in Washington was written-off
($35.9 million) and Nevada stockpile inventories were written down ($3.5
million). The Crown Jewel write-down related to mine development costs and the
remaining carrying value as a result of permitting uncertainties arising from
a January 2000 decision from the Washington Pollution Control Hearings Board
that reversed its water rights permits and vacated its Clean Water Act
certification. In 2001, Newmont disposed of its interest in the Crown Jewel
property, but retained a royalty on future production.
Merger and restructuring expenses of $60.5 million in 2001 included $28.1
million of transaction and related costs associated with the Battle Mountain
merger and $32.4 million of restructuring expenses that included $22.1 million
for voluntary early retirement pension benefits and $10.3 million for employee
severance and office closures.
Other expenses in 2001, 2000 and 1999 included $1.0 million, $12.3 million
and $7.9 million, respectively, for environmental obligations associated with
former mining activities. The year 2000 also included $13.2 million to
increase the remediation liability for San Luis, Colorado and $10.0 million
for costs associated with a mercury spill at Yanacocha, both described below.
In 1999, $9.5 million was included for San Luis and $5.4 million for costs
associated with terminating the contract mining agreement at Yanacocha.
Gain (loss) on written call options reflected the change in fair value of
the contracts at the end of each year. In September 2001, Newmont entered into
transactions that closed out the call options. These options were replaced
with a series of sales contracts requiring physical delivery of the same
quantity of gold over slightly extended future periods. The call options were
marked to the market value of $53.8 million immediately prior to close,
resulting in a noncash gain of $1.8 million in 2001. The value of the new
sales contracts was recorded as Deferred revenue from sale of future
production and will be included in sales revenue as delivery occurs. In 2000,
the noncash gain on the written call options was $26.8 million and in 1999
there was a noncash loss of $44.8 million.
Loss on marketable securities of Lihir reflected a noncash write-down of
$23.9 million as of December 31, 2000, resulting from an other than temporary
decline in market value based on the length of time and the extent to which
such value had been less than cost basis. During 2001, the valuation of the
marketable securities of Lihir significantly increased, resulting in an $18.3
million gain charged to Other comprehensive income (loss). As described in
Note 1, Lihir Gold operates a gold mine in Papua New Guinea and prior to 2000
the investment was accounted for on an equity basis.
Income tax benefit of $52.8 million in 2001 included benefits of tax
depletion, utilization of tax loss carry forwards, utilization of foreign tax
credits and resolution of tax issues provided for prior to 2001. In 2000,
income tax expense was $1.2 million, with an effective tax rate of 6%,
including benefits from tax depletion and a reduction in deferred tax
liabilities associated with undistributed earnings of foreign subsidiaries,
partially offset by an increase in the deferred tax asset valuation allowance.
In 1999, income tax expense was $21.8 million with an effective rate of 37%.
Equity income (loss) and impairment of affiliates included income of $33.0
million from Batu Hijau in 2001, and losses of $9.9 million and $10.7 in 2000
and 1999, respectively, reflecting the ramp-up in production that commenced in
the fourth quarter of 1999. Also included in 1999 were impairments for the
equity investment in Lihir Gold of $76.2 million.
Other comprehensive income (loss), net of tax, in 2001 included an $18.3
million gain for temporary changes in the market value of Lihir Gold securities,
$3.2 million for losses associated with foreign currency
46
translation adjustments and $1.6 million for the effective portion of changes
in fair value of cash flow hedge instruments. For 2000, other comprehensive
loss, net of tax, included a loss of $1.8 million for foreign currency
translation adjustments and a $1.3 million minimum pension liability
adjustment.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") Nos. 141 and 142,
"Business Combinations" and "Goodwill and Other Intangible Assets,"
respectively. The adoption of these standards on January 1, 2002 did not
impact Newmont's historical financial statements or results of operations. As
previously noted, the 2002 acquisitions of Normandy and Franco-Nevada are
being accounted for as purchases and a significant portion of the $4.3 billion
purchase price will represent goodwill, resulting from the excess of the
purchase price over the fair value of net assets acquired. Such goodwill will
not be amortized, but will be subject to impairment testing at least annually,
as prescribed by SFAS No. 144.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," that established uniform methodology for accounting
for estimated reclamation and abandonment costs. The statement will be adopted
January 1, 2003, when Newmont will record the estimated present value of
reclamation liabilities and increase the carrying amount of the related asset.
Subsequently, reclamation costs will be allocated to expense over the life of
the related assets and will be adjusted for changes resulting from the passage
of time and revisions to either the timing or amount of the original present
value estimate. Newmont is in the process of quantifying the effect of
adoption on January 1, 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which established a single accounting
model, based on the framework of SFAS No. 121 ("Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), for long-
lived assets to be disposed of by sale. The statement is effective for fiscal
years beginning after December 15, 2001, and there was no impact upon
adoption.
Effective January 1, 2000, Newmont changed its method of accounting, in
accordance with the U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101, to recognize revenue when third-party refined gold is
delivered to the customer rather than upon the completion of the production
process, or when gold was poured into dore at the mine. As discussed in Note
18, the cumulative effect of the accounting change was a $12.6 million charge
to net income, net of tax and minority interest, and included $3.9 million for
the Canadian operations, $3.2 million for Minahasa, $2.2 million for
Yanacocha, $1.6 million for Zarafshan-Newmont, $1.4 million for Nevada, $0.2
million for Kori Kollo and $0.1 million for Pajingo (Vera/Nancy).
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," to recognize derivative
instruments on the balance sheet as either assets or liabilities at fair
value. As a result, the Company increased Other comprehensive income by $1.7
million, net of tax, for the cumulative effect of the accounting change.
Liquidity and Capital Resources
For the year 2001, cash flow from operating activities of $381.3 million,
restricted cash of $40.0 million and net debt borrowings of $70.0 million
funded capital expenditures of $401.6 million and dividends of $31.0 million.
On a stand-alone basis, Newmont expects to generate approximately 35% to 40%
more cash from operations in 2002 at current gold prices. Following the
Normandy and Franco-Nevada acquisitions, Newmont expects to have increased
financial liquidity at current gold prices with an estimated net-debt to
total-capitalization ratio of 24% and sufficient cash flows to fund capital
expenditures, dividends and debt reduction.
Investing Activities
Batu Hijau
As discussed above and in Note 5, Newmont has an indirect 45% interest in
the Batu Hijau mine in Indonesia and its partner, an affiliate of Sumitomo
Corporation, has an indirect 35% interest. Because Newmont
47
and Sumitomo carried the interest of the 20% Indonesian partner, Newmont
recognizes 56.25% of Batu Hijau's income until recouping the bulk of its
investment. At December 31, 2001 and 2000, Newmont's investment in Batu Hijau
was $559.8 million and $527.6 million, respectively.
Newmont and Sumitomo have a contingent obligation to provide a $125 million
support facility on a pro-rata basis, if required. During 2001, Newmont
advanced approximately $9.0 million to Batu Hijau under the contingent support
facility and received $8.4 million in principal repayments associated with an
existing shareholder loan. Newmont and Sumitomo will be required to provide
additional funds under the contingent support facility during 2002. The amount
of this contingent support will depend upon copper and gold prices, necessary
capital expenditures at Batu Hijau, and required principal and interest
payments. The US$1.0 billion project financing facility entered into in July
1997 ("Senior Debt") was fully utilized as of December 31, 2000, and the
balance outstanding at December 31, 2001 was $913 million. This loan became
non-recourse to Newmont when project completion tests were met in October
2000. Semi-annual debt repayments of $43.5 million commenced in May 2001.
Australian Magnesium Corporation (AMC)
Normandy has a 22.8% voting interest in AMC, which has recently raised A$525
million of equity to support the development of a A$1.3 billion project
involving a proprietary chemical and dehydration process for producing
anhydrous magnesium chloride as feed for an electrolytic cell to produce
molten magnesium metal. Normandy has an obligation to contribute to AMC A$100
million in equity between October 31, 2002 and January 31, 2003. Additionally,
Normandy is guarantor of AMC's foreign exchange hedging position of
approximately A$204 million, with a fair value of negative US$10.4 million at
December 31, 2001, as well as AMC's A$72 million corporate facility. Normandy
also has provided a A$90 million contingency equity commitment in the event
that the project does not achieve certain specified production and operating
criteria by September 2006.
Capital Expenditures
Capital expenditures decreased in 2001 from 2000 primarily from the
completion of the development of the Deep Post underground mine in early 2001
and reduced stripping activity in Nevada.
Years Ended December
31,
--------------------
2001 2000 1999
------ ------ ------
(In millions)
Capital expenditures:
North American operations:
Nevada operations........................................ $ 58.5 $ 90.6 $ 65.0
Mesquite................................................. 0.4 4.2 1.2
La Herradura............................................. 1.8 6.5 5.2
Golden Giant............................................. 7.1 14.9 9.7
Holloway................................................. 1.5 5.5 3.9
South American operations:
Yanacocha (100%)......................................... 276.9 276.9 126.3
Kori Kollo............................................... 10.5 7.8 7.0
Zarafshan-Newmont......................................... 20.4 4.3 3.2
Minahasa.................................................. -- 2.2 10.8
Vera/Nancy................................................ 7.3 4.9 10.2
Other projects and capitalized interest................... 17.2 3.1 27.7
------ ------ ------
Total................................................... $401.6 $420.9 $270.2
====== ====== ======
In 2001, capital expenditures in Nevada included deferred mine development
($15.7 million, primarily for the Deep Post underground mine), mine facilities
at Deep Post ($9.9 million), capitalized mining costs ($10.8 million), mining
equipment ($6.3 million), development of the Phoenix project ($4.1 million)
and other replacement capital. Yanacocha capital expenditures included the La
Quinua mine ($128.4 million), Yanacocha
48
leach pad operations ($44.9 million), mining equipment ($44.3 million),
Carachugo leach pad operations ($19.3 million) and other replacement capital.
Capital expenditures at Zarafshan-Newmont included $19 million for heap leach
pad expansion and associated conveyor support facility.
In 2000, capital expenditures in Nevada included deferred mine development
($27.5 million, primarily for the Deep Post underground mine), capitalized
mining costs ($25.0 million), development of the Phoenix project ($9.8
million), mining equipment ($10.1 million) and other replacement capital.
Yanacocha capital expenditures included the La Quinua mine ($144.2 million),
unitization of regional properties ($45.7 million), leach pad expansion ($30.8
million), mine development ($30.0 million) and other replacement capital.
During 1999, capital expenditures in Nevada included capitalized mining
costs ($26.0 million), deferred mine development ($15.1 million), development
of the Phoenix project ($12.8 million), refractory leach pads ($5.8 million)
and other ongoing capital requirements. Yanacocha capital expenditures
included costs to convert to owner mining ($58.3 million), leach pad expansion
($41.2 million) and development drilling and mine development ($18.0 million).
Capital requirements for 2002 will be determined following completion of the
acquisitions of Normandy and Franco-Nevada. Newmont expects to spend
approximately $210 million at Yanacocha (primarily for leach pad construction
at the La Quinua and Carachugo sites, surface mine development, and a site
water management plan), $95 million in Nevada (primarily for development of
the Leeville underground mine, further development of the Deep Post
underground mine, the Gold Quarry expansion and capitalized mining) and $10
million at Zarafshan-Newmont (primarily for leach pad expansion and waste
stripping).
Other
In 2000, Battle Mountain received shares of Lihir Gold as a result of its
merger with Niugini Mining as described in Note 1, a portion of which were in
exchange for Niugini's $54.7 million in cash. In 1999, Newmont's affiliates
received $14.1 million from the sale of two exploration properties and $11.9
million from the sale of an investment in First Toronto Investments Limited,
and paid an $11.0 million liquidating dividend related to the sale of the New
World project in Montana.
Financing Activities
Newmont's $1.0 billion revolving credit facility, entered into June 1997,
was replaced in October 2001 with two unsecured multicurrency revolving credit
facilities with a consortium of banks: a $200 million facility with an initial
term of 364 days, which may be extended annually to October 2006; and a $400
million revolving facility which matures in October 2006. Interest rates and
facility fees vary based on Newmont's credit rating. Borrowings under the
facilities bear interest equal to either the London Interbank Offered Rate
(LIBOR) plus a margin ranging from 0.77% to 1.25% or the greater of the
federal funds rate or the lead bank's prime rate. Annual fees vary from 0.10%
to 0.30%. At December 31, 2001, the fees were 0.15% and 0.175% of the
commitment for the $200 million and the $400 million facility, respectively.
The facilities contain customary affirmative and negative covenants including
financial covenants requiring the maintenance of specified limitations on
debt-to-capitalization, debt-to- "earnings before interest, taxes,
depreciation and amortization," incurring liens and transactions with
affiliates. There were no borrowings under the new facilities at December 31,
2001. Newmont is in compliance with all financial debt covenants.
In May 2001, Newmont issued $275 million of public unsecured notes due May
2011 bearing an annual interest rate of 8.625%. Proceeds of $272 million,
after transaction costs, were used to repay debt outstanding under Newmont's
revolving credit facility, with the remainder for general corporate purposes.
Interest is payable semi-annually in May and November and the notes are
redeemable prior to maturity under certain conditions. The costs related to
the issuance of the notes were capitalized and are amortized to interest
expense over the term of the notes.
In December 2000, Zarafshan-Newmont obtained a $30 million additional
facility, expiring in 2007, with the European Bank for Reconstruction and
Development to be used to expand leach pad capacity. The interest
49
rate on this facility is based on the three-month LIBOR plus 3.25%. At
December 31, 2001, $30 million ($15 million Newmont's share) was outstanding
and no borrowings were outstanding at December 31, 2000. Newmont guarantees
50% of borrowings under this facility.
Battle Mountain Canada had $87.1 million outstanding at December 31, 2000
under a loan agreement with the Canadian Imperial Bank of Commerce. In January
2001, subsequent to the merger with Battle Mountain, Newmont repaid this loan
with $40 million of restricted cash and with borrowings from its revolving
credit facility.
Scheduled minimum long-term debt repayments associated with stand-alone
Newmont financing facilities at December 31, 2001 are $192.2 million in 2002.
Newmont expects to fund maturities of its debt from operating cash flow, by
refinancing the debt as it becomes due, and subsequent to the acquisitions of
Normandy and Franco-Nevada, from combined cash balances.
On March 18, 2002, Newmont, through an indirect, wholly-owned subsidiary,
made an offer to repurchase any and all of the outstanding 8-7/8% Senior Notes
due 2008 of Normandy Yandal Operations Limited, an indirect wholly-owned
subsidiary of Newmont. As of the offer date, $300 million principal amount of
notes was outstanding. The repurchase offer was made pursuant to the terms of
an Indenture dated as of April 7, 1998, between Normandy Yandal and the Bank
of New York, as Trustee. The Indenture requires that Normandy Yandal,
following a "Change of Control" as defined in the Indenture, make an offer (a
"Change of Control Offer") to repurchase the notes at a repurchase price of
101% of the principal amount of the notes, plus accrued and unpaid interest to
the repurchase date. Although the applicable provisions of the Indenture can
be read to the contrary, Newmont is taking the position that a Change of
Control occurred on February 20, 2002 when Newmont acquired control of
Normandy Mining Limited of which Normandy Yandal is an indirect, wholly-owned
subsidiary. The Indenture provides that Normandy Yandal is not required to
make the Change of Control Offer if a third party makes the offer. Newmont's
offer, however, should not be construed as a commitment by Newmont to provide
ongoing financial or credit support to Normandy Yandal. The Change of Contol
Offer is open until May 14, 2002, unless extended. At this time, Newmont
cannot reasonably predict the outcome of the Change of Control Offer or the
amount Newmont will be required to pay under the Change of Control Offer.
In conjunction with the Battle Mountain merger in January 2001, Newmont
issued 24.1 million shares of Newmont common stock and 2.3 million shares of
$3.25 convertible preferred Newmont stock. The preferred stock is convertible
into shares of Newmont common stock at any time at a conversion ratio of 0.5
share of Newmont common stock. Holders of Newmont convertible preferred stock
are entitled to receive, when, as and if declared by Newmont's board of
directors, an annual cash dividend of $3.25 per share, or $7.5 million for all
shares, payable in equal quarterly installments.
In conjunction with the acquisitions of Franco-Nevada and Normandy, Newmont
will issue approximately 194 million shares (including share equivalents). The
A$0.50 per share cash portion of the Normandy purchase price will total
approximately $465 million. Following the acquisitions, combined debt, net of
cash balances, is expected to total approximately $2.2 billion.
Developments in Indonesia
Newmont operates the Minahasa mine on the island of Sulawesi and the Batu
Hijau mine on the island of Sumbawa. Both are in remote locations and have
been largely unaffected by civil unrest coinciding with the recent period of
political and social change in Indonesia. Both mines operate under Contracts
of Work issued by the central government. Indonesia's government has publicly
expressed its intention to uphold existing Contracts of Work. Newmont
continues to work with the local government and community leaders during this
period of change.
Environmental
Included in 2001 capital expenditures was approximately $12.1 million to
comply with environmental regulations. Expenditures of $27.8 million are
anticipated in 2002 on a Newmont stand-alone basis. Ongoing
50
costs to comply with environmental regulations have not been a significant
component of cash operating costs. Estimated future reclamation costs relating
to currently producing mines are accrued over each mine life and at December
31, 2001, $128.4 million had been accrued.
Newmont spent $8.1 million, $18.7 million and $20.3 million in 2001, 2000
and 1999, respectively, for environmental obligations related to former mining
sites discussed in Note 21, and expects to spend approximately $8.5 million in
2002 on a Newmont stand-alone basis. In 2000 and 1999, the remediation
liability associated with the San Luis property in Colorado was increased
$13.2 million and $9.5 million, respectively. At December 31, 2001, $57.3
million was accrued for total estimated future costs associated with all such
obligations. It is reasonably possible that the ultimate liability may be as
much as 50% greater or 30% lower than the amount accrued at December 31, 2001.
Environmental obligations are continuously monitored and reviewed and,
although Newmont believes that its reserves are adequate, as additional facts
become known, further provisions may be required.
In June 2000, a transport contractor of Minera Yanacocha spilled
approximately 151 kilograms of mercury near the town of Choropampa, Peru,
which is located 53 miles southwest of the mine. Mercury is a byproduct of
gold mining and was sold to a Lima firm for use in medical instrumentation and
industrial applications. A comprehensive health and environmental remediation
program was undertaken by Minera Yanacocha. In August 2000, Minera Yanacocha
paid under protest a fine of 1,740,000 soles (approximately US$500,000) to the
Peruvian government. Minera Yanacocha has entered into settlement agreements
with a number of individuals impacted by the incident. In addition, it has
entered into agreements with three of the communities impacted by this
incident to provide a variety of public works as compensation for the
disruption and inconvenience caused by the incident.
On September 10, 2001, Minera Yanacocha, various wholly-owned subsidiaries
of Newmont, and other defendants were named in a lawsuit filed by over 900
Peruvian citizens in Denver District Court for the State of Colorado. This
action seeks compensatory and punitive damages based on claims associated with
the mercury spill incident.
Estimated costs of $10 million for public works, remediation efforts,
personal compensation and the fine were included in Other expense in 2000.
Neither the Company nor Minera Yanacocha can reasonably predict the likelihood
of any additional expenditures related to this matter.
Safe Harbor Statement
The foregoing discussion and analysis, as well as certain information
contained elsewhere in this Annual Report, contain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and are intended to be covered by the safe harbor created
thereby. These forward-looking statements involve certain risks and
uncertainties. Actual results may differ materially from those contemplated by
these forward-looking statements. Forward-looking statements involve certain
factors that are subject to change including, but not limited to, the price of
gold and copper; interest and currency exchange rates; 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 and mining; domestic and international economic
and political conditions; the ability of joint venture partners to meet their
obligations; the ability of Newmont to obtain or maintain necessary financing;
and other risks and hazards associated with mining operations. More detailed
information regarding Newmont, its operations and factors that could
materially affect its financial position and results of operations are
discussed in Item 1, Business, and Item 1A, Risk Factors, as well as other
filings with the Securities and Exchange Commission. Many of these factors are
beyond Newmont's ability to control or predict. Readers are cautioned not to
put undue reliance on forward-looking statements, which relate only as of the
date of this document. All subsequent written and oral forward-looking
statements attributable to Newmont or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained
or referred to in this section. Newmont does not undertake any obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date of the document or to reflect the
occurrence of unanticipated events, except as may be required under applicable
securities law.
51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders of Newmont Mining Corporation:
We have audited the accompanying consolidated balance sheets of Newmont
Mining Corporation (a Delaware corporation) and subsidiaries (the "Company")
as of December 31, 2001 and 2000, and the related consolidated statements of
operations and comprehensive income (loss), changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newmont Mining Corporation
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.
As explained in Notes 2, 9 and 18 to the consolidated financial statements,
the Company changed its method of accounting for revenue recognition effective
January 1, 2000 and its method of accounting for derivative instruments and
hedging activities on January 1, 2001.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 5, 2002.
52
NEWMONT MINING CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
----------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands, except per share)
Sales and other income
Sales..................................... $1,656,116 $1,809,450 $1,627,083
Dividends, interest and other income...... 7,985 10,281 47,985
---------- ---------- ----------
1,664,101 1,819,731 1,675,068
---------- ---------- ----------
Costs and expenses
Costs applicable to sales................. 1,092,959 1,065,514 981,279
Depreciation and depletion................ 300,096 359,453 303,777
Exploration and research.................. 55,528 77,377 74,213
General and administrative................ 61,153 63,657 68,330
Interest, net of amounts capitalized...... 86,415 94,567 77,654
Expenses for acquisition settlement....... -- 42,181 --
Write-down of assets...................... 40,999 58,415 39,484
Merger and restructuring.................. 60,510 6,897 --
Other..................................... 11,466 34,606 25,980
---------- ---------- ----------
1,709,126 1,802,667 1,570,717
---------- ---------- ----------
Operating income (loss).................... (45,025) 17,064 104,351
Gain (loss) on written call options........ 1,797 26,796 (44,821)
Loss on marketable securities of Lihir..... -- (23,863) --
---------- ---------- ----------
Pre-tax income (loss) before minority
interest, equity income (loss) and
cumulative effect of a change in
accounting principle...................... (43,228) 19,997 59,530
Income tax benefit (expense)............... 52,817 (1,206) (21,777)
Minority interest in income of affiliates.. (65,849) (91,170) (40,691)
Equity income (loss) and impairment of
affiliates................................ 32,981 (9,923) (91,627)
---------- ---------- ----------
Net loss before cumulative effect of a
change in accounting principle............ (23,279) (82,302) (94,565)
Cumulative effect of a change in accounting
principle, net............................ -- (12,572) --
---------- ---------- ----------
Net loss................................... $ (23,279) $ (94,874) $ (94,565)
Preferrred stock dividends................. (7,475) (7,475) (7,475)
---------- ---------- ----------
Net loss applicable to common shares....... $ (30,754) $ (102,349) $ (102,040)
========== ========== ==========
Net loss................................... $ (23,279) $ (94,874) $ (94,565)
Other comprehensive income (loss).......... 13,934 (526) (3,988)
---------- ---------- ----------
Comprehensive loss......................... $ (9,345) $ (95,400) $ (98,553)
========== ========== ==========
Net loss before cumulative effect of a
change in accounting principle per common
share, basic and diluted.................. $ (0.16) $ (0.47) $ (0.53)
Cumulative effect of a change in accounting
principle per common share, basic and
diluted................................... -- (0.06) --
---------- ---------- ----------
Net loss per common share, basic and
diluted................................... $ (0.16) $ (0.53) $ (0.53)
========== ========== ==========
Basic and diluted weighted average common
shares outstanding........................ 195,059 192,218 191,602
========== ========== ==========
The accompanying notes are an integral part of these statements.
53
NEWMONT MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
At December 31,
------------------------
2001 2000
----------- -----------
(In thousands, except
ASSETS shares and per share)
Cash and cash equivalents............................ $ 149,431 $ 77,558
Short-term investments............................... 8,185 7,084
Accounts receivable.................................. 19,088 29,281
Inventories.......................................... 384,202 361,040
Prepaid taxes........................................ 29,229 46,307
Marketable securities of Lihir....................... 66,918 37,879
Current portion of deferred income tax assets........ 9,627 9,624
Other current assets................................. 42,780 43,395
----------- -----------
Current assets....................................... 709,460 612,168
Property, plant and mine development, net............ 2,207,048 2,190,504
Investment in Batu Hijau............................. 559,809 527,568
Long-term inventory.................................. 92,689 163,782
Deferred income tax assets........................... 398,391 294,939
Restricted cash...................................... -- 41,968
Other long-term assets............................... 95,008 85,837
----------- -----------
Total assets......................................... $ 4,062,405 $3,916,766
=========== ===========
LIABILITIES
Short-term borrowings................................ $ -- $ 10,000
Current portion of long-term debt.................... 192,151 70,447
Accounts payable..................................... 80,884 87,757
Current portion of deferred income tax liabilities... 7,914 10,223
Other accrued liabilities............................ 204,862 220,175
----------- -----------
Current liabilities.................................. 485,811 398,602
Long-term debt....................................... 1,089,718 1,129,390
Deferred revenue from sale of future production...... 191,039 137,198
Reclamation and remediation liabilities.............. 176,934 160,548
Fair value of written call options................... -- 55,638
Deferred income tax liabilities...................... 133,621 104,649
Payroll and related benefits......................... 156,834 132,485
Other long-term liabilities.......................... 96,921 106,899
----------- -----------
Total liabilities.................................... 2,330,878 2,225,409
----------- -----------
Commitments and contingencies (See Note 9 and 21)
Minority interest in affiliates...................... 251,479 191,314
----------- -----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $5.00 par value, 2.3
million authorized and issued....................... 11,500 11,500
Common stock--$1.60 par value; 250 million shares au-
thorized; 196.3 million and 195.2 million shares is-
sued, less 150 thousand and 157 thosuand treasury
shares, respectively................................ 313,881 312,107
Additional paid-in capital........................... 1,458,369 1,463,318
Accumulated other comprehensive loss................. (11,854) (25,788)
Retained deficit..................................... (291,848) (261,094)
----------- -----------
Total stockholders' equity........................... 1,480,048 1,500,043
----------- -----------
Total liabilities and stockholders' equity........... $ 4,062,405 $ 3,916,766
=========== ===========
The accompanying notes are an integral part of these statements.
54
NEWMONT MINING CORPORATION
STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Convertible Common Stock Additional Other Retained
Preferred ---------------- Paid-In Comprehensive Earnings
Amount Shares Amount Capital Income (Loss) (Deficit)
----------- ------- -------- ---------- ------------- ---------
(In thousands)
Balance at December 31,
1998................... $11,500 190,759 $305,213 $1,448,548 $(21,274) $ (56,705)
Shares issued under
retirement savings
plans................. -- 384 614 7,186 -- --
Shares issued under
stock compensation
plans................. -- 69 110 1,230 -- --
Shares exchanged....... -- 329 527 (527) -- --
Net loss............... -- -- -- -- -- (94,565)
Common stock
dividends............. -- -- -- (20,097) -- --
Preferred stock
dividends............. -- -- -- -- -- (7,475)
Other.................. -- -- -- 26 (3,988) --
------- ------- -------- ---------- -------- ---------
Balance at December 31,
1999................... 11,500 191,541 306,464 1,436,366 (25,262) (158,745)
Shares issued under
retirement savings
plans................. -- 408 825 9,547 -- --
Shares issued under
stock compensation
plans................. -- 216 193 2,195 -- --
Shares exchanged....... -- 263 420 (420) -- --
Shares issued for
acquisition
settlement............ -- 2,628 4,205 35,795 -- --
Net loss............... -- -- -- -- -- (94,874)
Common stock
dividends............. -- -- -- (20,165) -- --
Preferred stock
dividends............. -- -- -- -- -- (7,475)
Other.................. -- -- -- -- (526) --
------- ------- -------- ---------- -------- ---------
Balance at December 31,
2000................... 11,500 195,056 312,107 1,463,318 (25,788) (261,094)
Shares issued under
retirement savings
plans................. -- 401 640 6,918 -- --
Shares issued under
stock compensation
plans................. -- 708 1,134 11,630 -- --
Net loss............... -- -- -- -- -- (23,279)
Common stock
dividends............. -- -- -- (23,497) -- --
Preferred stock
dividends............. -- -- -- -- -- (7,475)
Unrealized gain on
marketable equity
securities ........... -- -- -- -- 18,290 --
Other.................. -- -- -- -- (4,356) --
------- ------- -------- ---------- -------- ---------
Balance at December 31,
2001................... $11,500 196,165 $313,881 $1,458,369 $(11,854) $(291,848)
======= ======= ======== ========== ======== =========
The accompanying notes are an integral part of these statements.
55
NEWMONT MINING CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended December 31,
-----------------------------
2001 2000 1999
--------- -------- --------
(In thousands)
Operating Activities
Net loss....................................... $ (23,279) $(94,874) $(94,565)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion..................... 300,096 359,453 303,777
Amortization of capitalized mining costs....... 49,048 103,079 38,334
Deferred tax benefit........................... (85,036) (69,234) (62,895)
Noncash merger and restructuring expenses...... 14,667 -- --
(Gain) loss on written call options............ (1,797) (26,796) 44,821
Loss on marketable securities of Lihir......... -- 23,863 --
Stock issued for acquisition settlement........ -- 40,000 --
Write-down of assets........................... 40,999 58,415 39,384
Amortization of put option premiums............ -- 19,149 18,465
Cumulative effect of change in accounting
principle..................................... -- 12,572 --
Foreign currency exchange (gain) loss.......... 5,088 6,177 (8,214)
Minority interest, net of dividends............ 60,504 61,366 1,857
Undistributed (gains) losses of affiliated
company....................................... (32,743) 9,923 91,627
(Gain) loss on asset sales and other........... (5,402) (3,015) (24,502)
(Increase) decrease in operating assets:
Accounts receivable........................... 5,278 (8,337) 32,482
Inventories................................... 35,547 (21,249) (21,733)
Other assets.................................. 16,128 (20,256) (1,947)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued
liabilities.................................. (16,638) 54,676 57,323
Other liabilities............................. 18,848 62,857 37,001
--------- -------- --------
Net cash provided by operating activities....... 381,308 567,769 451,215
--------- -------- --------
Investing Activities
Additions to property, plant and mine
development................................... (401,602) (420,939) (270,240)
Advances to Batu Hijau, net.................... (209) (100,389) (158,878)
Repayments from joint ventures and affiliates.. -- 21,562 19,873
Proceeds from sale of future production........ -- -- 137,198
Cash effect of affiliate merger................ -- (54,700) --
Proceeds from asset sales and other............ 5,146 10,480 42,689
--------- -------- --------
Net cash used in investing activities........... (396,665) (543,986) (229,358)
--------- -------- --------
Financing Activities
Proceeds from short-term debt.................. -- 10,000 --
Repayments of short-term debt.................. (10,000) -- (14,850)
Proceeds from long-term debt................... 1,021,650 497,000 177,000
Repayments of long-term debt................... (941,644) (543,631) (431,744)
Dividends paid on common and preferred stock... (30,972) (27,640) (27,572)
Decrease (increase) in restricted cash......... 40,000 ( 2,146) (31,045)
Other.......................................... 6,052 1,035 (1,017)
--------- -------- --------
Net cash provided by (used in) financing
activities..................................... 85,086 (65,382) (329,228)
--------- -------- --------
Effect of exchange rate changes on cash......... 2,144 (3,675) (5,795)
--------- -------- --------
Net change in cash and cash equivalents......... 71,873 (45,274) (113,166)
Cash and cash equivalents at beginning of year.. 77,558 122,832 235,998
--------- -------- --------
Cash and cash equivalents at end of year........ $ 149,431 $ 77,558 $122,832
========= ======== ========
See Note 19 for cash flow information.
The accompanying notes are an integral part of these statements.
56
NEWMONT MINING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
Newmont Mining Corporation and its subsidiaries (collectively, "NMC" or the
"Company") is a worldwide company engaged in the production of gold,
exploration for gold and acquisition of gold properties. The Company also has
an interest in a copper/gold mine that commenced production in late 1999.
These consolidated financial statements give effect to the NMC/Battle Mountain
merger in January 2001. Results do not reflect the February 2002 acquisitions
described below.
On February 13, 2002, NMC stockholders approved adoption of an Agreement and
Plan of Merger that provides for a restructuring of the Company to facilitate
the February 2002 acquisitions described below and to create a flexible
corporate structure. NMC merged with an indirect, wholly-owned subsidiary that
resulted in NMC becoming a direct wholly-owned subsidiary of a newly formed
holding company. The new holding company, previously a direct, wholly-owned
subsidiary of NMC, was renamed Newmont Mining Corporation. There is no impact
to the Consolidated Financial Statements of NMC as a result of this
restructuring and former stockholders of NMC became stockholders of the new
holding company.
Normandy Mining Limited and Franco-Nevada Mining Corporation Limited
Acquisitions
In November 2001, the Company announced proposed acquisitions of Normandy
Mining Limited ("Normandy"), an Australian company, and Franco-Nevada Mining
Corporation Limited ("Franco-Nevada"), a Canadian company. On February 16,
2002, the Company completed the acquisition of Franco-Nevada pursuant to a
Plan of Arrangement. On February 20, 2002, Newmont gained control of Normandy
through an off-market bid for all of the ordinary shares in the capital of
Normandy. On February 26, when the Company's off-market bid for Normandy
expired, the company had a relevant interest in more than 96% of Normandy's
outstanding shares. The Company is exercising compulsory acquisition rights
under Australian law to acquire all of the remaining shares of Normandy and
expects this process to be completed in April 2002. The consideration for
Normandy included 3.85 shares of NMC common stock for every 100 ordinary
shares of Normandy (including ordinary shares represented by American
depositary receipts) plus A$0.50 per Normandy share, or the U.S. dollar
equivalent of that amount for Normandy stockholders outside Australia, net to
the seller in cash. Pursuant to a Canadian Plan of Arrangement, the Company
acquired Franco-Nevada in a stock-for-stock transaction in which Franco-Nevada
common stockholders received 0.80 shares of NMC common stock or 0.80 of a
Canadian exchangeable share, exchangeable for Newmont common, for each common
share of Franco-Nevada held. The exchangeable shares are substantially
equivalent to NMC common shares. The Company will issue approximately 194
million NMC shares (or equivalents) and pay approximately $465 million in cash
in conjunction with these acquisitions, reflecting a fair value of
approximately $4.3 billion.
The acquisitions are being accounted for using the purchase method whereby
assets and liabilities will be recorded at fair market value as of the date of
acquisition. The excess of the purchase price over such fair value will be
recorded as goodwill. Pursuant to Statement of Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," goodwill will be assigned to
assets acquired and will not be amortized. Goodwill is subject to a
determination of fair value at least annually and at such times as events or
circumstances indicate that an impairment has occurred.
The Company expects to incur at least an estimated $90 million (unaudited)
of direct costs associated with the acquisitions, which that will be
capitalized. As of December 31, 2001, the Company had spent approximately $4.1
million of such acquisition costs. Subsequent to the completion of the
acquisitions, it is expected that approximately $70 million (unaudited) of
after-tax synergies will be realized in the first full year of operations,
increasing to approximately $90 million (unaudited) by the end of the second
full year. Such synergies will be obtained from the rationalization of
corporate overhead and exploration and development budgets, as well as
operating efficiencies and costs reductions associated with procurement,
interest and tax benefits.
57
Battle Mountain Merger
On January 10, 2001, the Company completed a merger with Battle Mountain
Gold Company ("Battle Mountain") pursuant to an agreement and plan of merger,
dated as of June 21, 2000, under which each share of common stock of Battle
Mountain and each exchangeable share of Battle Mountain Canada Ltd. (a wholly-
owned subsidiary of Battle Mountain) was converted into the right to receive
0.105 shares of NMC, resulting in the issuance of approximately 24.1 million
shares. The Company also exchanged 2.3 million shares of newly issued $3.25
convertible preferred stock for all outstanding shares of Battle Mountain
$3.25 convertible preferred stock. The merger was accounted for as a pooling
of interests, and as such, the consolidated financial statements include
Battle Mountain's financial data as if Battle Mountain had always been part of
NMC.
The Company incurred merger expenses totaling $35 million, of which $20
million related to investment advisory and professional fees and $15 million
to employee benefit and severance costs. The majority of such expenses were
charged to income in 2001.
The following table sets forth results of operations of the previously
separate companies for the periods before the combination:
Years Ended
December 31,
------------------
2000 1999
-------- --------
(In millions)
Sales
Pre-merger:
NMC...................................................... $1,554.9 $1,398.9
Battle Mountain.......................................... 254.5 228.2
-------- --------
Post-merger:.............................................. $1,809.4 $1,627.1
======== ========
Net income (loss) applicable to common shares:
Pre-merger:
NMC...................................................... $ (18.9) $ 24.8
Battle Mountain.......................................... (83.4) (126.8)
-------- --------
Post-merger: $ (102.3) $ (102.0)
======== ========
Niugini Mining and Lihir Gold Merger
Battle Mountain held a 50.45% interest in Niugini Mining and, through this
interest at December 31, 1999, held a 7.52% in Lihir Gold that operates a gold
mine in Papua New Guinea. In February 2000, Lihir Gold merged with Niugini
Mining whereby Niugini Mining shareholders received one share of Lihir Gold
for each share of Niugini Mining, together with one additional share of Lihir
Gold for each A$1.45 of Niugini Mining's net cash balance of $54.7 million. As
a result of the merger, Battle Mountain received 111.3 million shares of Lihir
Gold, representing a 9.74% interest reflected in Marketable securities of
Lihir as a cost investment available for sale. Prior to 2000, Niugini Mining
was consolidated into the Company's results and its interest in Lihir Gold was
accounted for as an equity investment. At December 31, 2000, Lihir securities
were written down by $23.9 million as an other than temporary loss resulting
from the length of time and extent to which their market value had been less
than their cost basis. During 2001, unrealized holding gains of $18.3 million,
net of tax, were credited to Other comprehensive income (loss) to reflect the
market value increase throughout the year.
Operations
The Company's sales result from operations in the United States, Canada,
Mexico, Peru, Bolivia, Uzbekistan, Indonesia and Australia. Gold mining
requires the use of specialized facilities and technology. The Company relies
heavily on such facilities to maintain its production levels. Also, the cash
flow and profitability of the Company's current operations are significantly
affected by the market price of gold and copper. These commodity prices can
fluctuate widely and are affected by numerous factors beyond the Company's
control.
58
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Newmont Mining
Corporation and the more-than-50%-owned subsidiaries that it controls. The
Company also includes its pro-rata share of assets, liabilities and operations
for unincorporated joint ventures in which it has an interest. All significant
intercompany balances and transactions have been eliminated. The functional
currency for all subsidiaries is the U. S. dollar, except for Canadian and
Australian operations where the functional currency is the Canadian and
Australian dollar, respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of the
short maturity of these investments, the carrying amounts approximate their
fair value. Cash and cash equivalents are invested in United States Treasury
bills and high-quality commercial paper and time deposits.
Investments
Short-term investments that are intended to be held to maturity are carried
at cost, which approximates market, and include Eurodollar, government and
corporate obligations rated AA or higher.
Investments in marketable securities available for sale are marked to market
at each period end. Changes in value on such securities are recorded, net of
tax, as a component of Other comprehensive income (loss). If declines in value
are deemed other than temporary, losses are reflected in Net income (loss).
Investments in incorporated entities in which the Company's ownership is
greater than 20% and less than 50%, or which the Company does not control, are
accounted for by the equity method and are included in long-term assets.
Income or loss from such investments is included in Equity income (loss) and
impairment of affiliates. Other investments in nonmarketable securities in
which the Company's ownership interest is less than 20% and in which the
Company has no significant influence are recorded at cost in long-term assets.
Unrealized gains or losses on these investments are included in Other
comprehensive income (loss), while realized gains or losses are included in
Net income (loss).
Inventories
Precious metals, ore and in-process inventories, and materials and supplies
are stated at the lower of average cost or net realizable value. Prior to the
change in accounting method for revenue recognition discussed below, precious
metals inventory was stated at market value.
Property, Plant and Mine Development
Expenditures for new facilities or expenditures that extend the useful lives
of existing facilities are capitalized and depreciated using the straight-line
method at rates sufficient to depreciate such costs over the estimated
productive lives of such facilities. Productive lives range from 2 to 21
years, but do not exceed the related estimated mine life based on proven and
probable reserves.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a result
of establishing proven and probable reserves, future costs incurred to develop
such property, including costs to further delineate the ore body and remove
overburden to initially expose the ore body, are capitalized. Such costs, and
estimated development costs for the current year, are amortized using the
unit-of-production method over the estimated life of the ore body based on
proven and probable reserves. Ongoing development expenditures to maintain
production are generally charged to operations as incurred.
59
Significant payments related to the acquisition of land and mineral rights
are capitalized. If a mineable ore body is discovered, such costs are
amortized when production begins using the unit-of-production method based on
proven and probable reserves. If no mineable ore body is discovered or such
rights are otherwise determined to have no value, such costs are expensed in
the period in which it is determined the property has no future economic
value.
Interest expense allocable to the cost of developing mining properties and
to constructing new facilities is capitalized until assets are ready for their
intended use.
Gains or losses from sales or retirements of assets are included in
Dividends, interest, and other income.
Asset Impairment
The Company reviews and evaluates its long-lived assets for impairment when
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. An impairment loss is measured as the amount by which
the asset carrying value exceeds fair value. Fair value is determined using
estimated future cash flow analysis. An impairment is considered to exist if
total estimated future cash flows on an undiscounted basis are less than the
carrying amount of the asset. An impairment loss is measured and recorded
based on discounted estimated future cash flows. Future cash flows include
estimates of recoverable ounces, gold prices (considering current and
historical prices, price trends and related factors), production levels,
capital and reclamation costs, all based on detailed engineering life-of-mine
plans. In estimating future cash flows, assets are grouped at the lowest level
for which there are identifiable cash flows that are largely independent of
cash flows from other asset groups. Generally, all assets at a particular mine
are used together to generate cash flow. At the Nevada operations, with a
number of ore types and processing facilities, assets are grouped according to
the processing facility at which ores will be processed. Assumptions
underlying future cash flow estimates are subject to risks and uncertainties.
Any differences between significant assumptions and market conditions and/or
the Company's performance could have a material effect on the Company's
financial position and results of operations (See Note 16).
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," that established a single accounting model,
based on the framework of SFAS No. 121 ("Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), for long-
lived assets to be disposed of by sale. The statement was adopted on January
1, 2002, and there was no impact upon adoption.
Revenue Recognition
The Company changed its accounting method for revenue recognition in
accordance with the U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101, such that revenue is recognized upon delivery of third-party
refined gold to the customer. Previously, revenue was recognized when the
production process was complete or when gold was poured in dore form at the
mine (See Note 18). Initial proceeds from prepaid forward sales contracts are
recorded as deferred revenue and are recognized in income when the related
gold is delivered.
Mining Costs
In general, mining costs are charged to operations as incurred. However,
certain of the Company's deposits have diverse grade and waste-to-ore ratios
over the mine's life. Mining costs for these deposits, to the extent they do
not relate to current gold production, are capitalized and then charged to
operations when the applicable gold is produced.
Reclamation and Remediation Costs
Estimated future reclamation costs are based principally on legal and
regulatory requirements. Such costs related to active mines are accrued and
charged over the expected operating lives of the mines using the unit-of-
production method. Future remediation costs for inactive mines are accrued
based on management's best estimate
60
at the end of each period of the undiscounted costs expected to be incurred at
a site. Such cost estimates include, where applicable, ongoing care,
maintenance and monitoring costs. Changes in estimates are reflected in
earnings in the period an estimate is revised.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which established a uniform methodology for
accounting for estimated reclamation and abandonment costs. The statement will
be adopted January 1, 2003, when the Company will record the estimated present
value of reclamation liabilities and increase the carrying amount of the
related asset. Subsequently, the reclamation costs will be allocated to
expense over the life of the related assets and will be adjusted for changes
resulting from the passage of time and revisions to either the timing or
amount of the original present value estimate. The Company is in the process
of quantifying the effect of adoption.
Income and Mining Taxes
The Company accounts for income taxes using the liability method,
recognizing certain temporary differences between the financial reporting
basis of the Company's liabilities and assets and the related income tax basis
for such liabilities and assets. This method generates a net deferred income
tax liability or net deferred income tax asset for the Company as of the end
of the year, as measured by the statutory tax rates in effect as enacted. The
Company derives its deferred income tax charge or benefit by recording the
change in the net deferred income tax liability or net deferred income tax
asset balance for the year. Mining taxes represent Canadian provincial taxes
levied on mining operations and are classified as income taxes since such
taxes are based on a percentage of mining profits.
The Company's deferred income tax assets include certain future tax
benefits. The Company records a valuation allowance against any portion of
those deferred income tax assets that it believes will more likely than not
fail to be realized.
Foreign Currency
Assets and liabilities of foreign affiliates in Canada and Australia are
translated at exchange rates in effect at each period end. Revenues and
expenses are translated at the average exchange rate for the period.
Accumulated currency translation adjustments are included in Other
comprehensive income (loss). Foreign currency transaction gains or losses are
included in the statement of operations in the period of the transaction.
Commodity and Financial Instruments
On a limited basis the Company has entered into commodity contracts to
protect the selling price for certain anticipated gold production. The Company
does not acquire, hold or issue commodity instruments for trading or
speculative purposes.
Put option contracts purchased by the Company provide the right, but not the
obligation, to sell a specified number of ounces of gold at a specified strike
price. Put options qualify for deferral accounting such that gains or losses
on the contracts are recognized as the designated production is delivered or
as the options expire. The initial fair value of put options is recorded as an
asset and is amortized over the term of the options.
Call option contracts sold by the Company provide the contract holder the
right, but not the obligation, to buy a specified number of ounces of gold at
a specified strike price. The call option contracts are recorded at fair value
and are marked to market at each reporting date.
Certain combination, time-matched written call and purchased put options
(known as "collars") together provide a minimum and maximum potential price
for contract ounces of gold. Premiums paid or received are included in sales
revenue in the period such collars expire. The change in the intrinsic value
of such instruments is deferred in accumulated other comprehensive income and
the change in the time value is recorded currently in the statement of
operations.
61
Forward sales contracts enable the Company to deliver to a counterparty a
specified number of ounces of gold at a specified price and date. Gains and
losses realized on these contracts, as well as any cost or revenue associated
therewith, are recognized in sales when the related gold is delivered. To the
extent these contracts provide for (and the Company contemplates) physical
delivery of gold, these contracts are not considered derivative instruments.
Interest rate swaps are utilized by the Company to reduce interest rate
risks. The swaps are recorded at fair value and are recognized as a component
of interest expense at each reporting date.
The Company hedges its exposure to market fluctuations in fuel prices from
time to time. These transactions have been designated as cash flow hedges and
as such, gains or losses on the effective portion of these contracts are
deferred until the fuel is delivered.
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires recognition of
all derivative instruments on the balance sheet as either assets or
liabilities and measurement at fair value. Changes in the derivative's fair
value are required to be recognized currently in earnings unless specific
hedge accounting criteria are met. Gains and losses on derivative hedging
instruments must be recorded in either other comprehensive income (loss) or
current earnings (loss), depending on the nature of the instrument. The
Company made no substantive changes to its risk management strategy as a
result of adopting SFAS No. 133. Derivative documentation policies were
revised as necessary to comply with the new standard.
Earnings Per Common Share
Earnings or loss per share are presented for basic and diluted net income
(loss) and, if applicable, for net income or loss before the cumulative effect
of a change in accounting principle. Basic earnings per share is computed by
dividing net income or loss (the numerator) by the weighted-average number of
outstanding common shares (the denominator) for the period. The computation of
diluted earnings per share includes the same numerator, but the denominator is
increased to include the number of additional common shares that would have
been outstanding if potentially dilutive common shares had been issued (such
as the common share equivalents for employee stock options).
Comprehensive Income
In addition to net income, comprehensive income includes all changes in
equity during a period (such as adjustments to minimum pension liabilities,
foreign currency translation adjustments, the effective portion of changes in
fair value of derivative instruments that qualify as cash flow hedges and
cumulative unrecognized changes in fair value of marketable securities held
for sale or other investments), except those resulting from investments by and
distributions to owners.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the 2001
presentation.
62
NOTE 3 INVENTORIES
At December 31,
------------------
2001 2000
--------- --------
(In thousands)
Current:
Ore and in-process inventories............................. $ 280,419 $241,181
Precious metals............................................ 10,302 23,452
Materials and supplies..................................... 92,556 95,395
Other...................................................... 925 1,012
--------- --------
$ 384,202 $361,040
========= ========
Ore-in-stockpiles classified as Long-term inventory......... $ 92,689 $163,782
========= ========
NOTE 4 PROPERTY, PLANT AND MINE DEVELOPMENT
At December 31,
-----------------------
2001 2000
----------- ----------
(In thousands)
Land and mining claims................................. $ 281,359 $ 277,356
Buildings and equipment................................ 3,491,231 3,138,645
Mine development....................................... 1,054,725 927,516
Construction-in-progress............................... 97,854 304,846
----------- ----------
4,925,169 4,648,363
Accumulated depreciation and depletion................. (2,809,752) (2,582,191)
Capitalized mining costs............................... 91,631 124,332
----------- ----------
$ 2,207,048 $2,190,504
=========== ==========
NOTE 5 INVESTMENT IN BATU HIJAU
The Company and an affiliate of Sumitomo Corporation ("Sumitomo") are
partners in the Nusa Tenggara Partnership ("NTP") that holds 80% of P.T.
Newmont Nusa Tenggara ("PTNNT"), the owner of the Batu Hijau copper/gold mine
in Indonesia. PTNNT obtained rights to conduct mining operations under a
Contract of Work with the government of Indonesia. Batu Hijau production began
in the fourth quarter of 1999, with a projected mine life in excess of 18
years and a development cost of approximately $1.83 billion.
The Company and Sumitomo have an indirect 45% and 35% interest,
respectively, in PTNNT. The remaining 20% interest is held by an unrelated
Indonesian company. Because the Company and Sumitomo have carried the
investment of the 20% owner, the Company and Sumitomo recognize 56.25% and
43.75% of Batu Hijau's net income (loss), respectively, until recouping the
bulk of its construction investment, including interest. Under the Contract of
Work, a portion of PTNNT not already owned by Indonesian nationals must be
offered for sale to the Indonesian government or to Indonesian nationals,
beginning in the sixth year after mining operations commenced. The effect of
this provision could potentially reduce the Company's and Sumitomo's ownership
to 49% by the end of the tenth year.
The Company accounts for its investment in Batu Hijau as an equity
investment due to each partner's significant participating rights in the
business and the unanimous approval required for major partnership decisions.
At December 31, 2001 and 2000, such investment was $559.8 million and $527.6
million, respectively. Differences between 56.25% of NTP's net assets and the
Company's investment include (i) $205 million for the fair market value
adjustment recorded by NTP in conjunction with the Company's initial
contribution, net of amortization, (ii) $26 million for inter-company charges,
(iii) $114 million for the fair market value adjustment recorded by the
Company in conjunction with the acquisition of a prior minority interest in
the Company, net of
63
amortization, and (iv) $140 million for contributions recorded by the Company
that were classified as debt by NTP. Certain of these amounts are amortized or
depreciated on a unit-of-production basis. The Company's investment also
reflects $42 million for exploration expenditures incurred prior to the
formation of NTP. (See Note 17 for a description of the Company's equity loss
in Batu Hijau. Batu Hijau's Net income (loss) reflects the elimination of
interest between PTNNT and NTP).
Batu Hijau development was funded by $1.0 billion from third party loans
("Senior Debt") and $0.83 billion from the Company and Sumitomo. The Senior
Debt was guaranteed by the Company and Sumitomo, 56.25% and 43.75%,
respectively, until project completion tests were met in October 2000, at
which time the debt became non-recourse to the Company. Repayment of
borrowings under the Senior Debt is scheduled for semi-annual installments of
$43.5 million from May 2001 through November 2010. The semi-annual
installments will be reduced to $22.1 million from May 2011 through November
2013. The interest rate is based on blended fixed and floating rates. The
weighted average interest rates were 6.7% and 6.6% during 2001 and 2000,
respectively, and 5.1% and 7.0% at December 31, 2001 and 2000, respectively.
In May 2001, PTNNT entered into a non-recourse term loan for $22.5 million,
maturing May 15, 2005. Interest on the term loan is paid semi-annually in May
and November and is based on the six-month LIBOR plus 2%. At December 31,
2001, the term loan interest rate was 4.2% and the effective interest rate was
5.7% for 2001. Newmont and Sumitomo have a contingent obligation to provide a
$125 million support facility on a pro-rata basis, if required, and as of
December 31, 2001, $9 million had been provided by the Company under this
facility. The Company and Sumitomo will be required to provide additional
funds under this contingent support facility during 2002. The amount of this
contingent support will depend on copper and gold prices, necessary capital
expenditures at Batu Hijau, and required principal and interest payments.
Following is summarized financial information for NTP based on U.S.
generally accepted accounting principles. The results of operations and assets
and liabilities of NTP are not reflected in the Company's
consolidated financial statements. As described above, the Company accounts
for NTP as an equity investment.
Years Ended December 31,
--------------------------
2001 2000 1999
-------- -------- -------
(In thousands)
Sales and other income.............................. $448,425 $431,893 $15,224
Net income (loss)................................... $ 9,325 $(70,761) $11,846
At December 31,
---------------------
2001 2000
---------- ----------
(In thousands)
Current assets.......................................... $ 164,723 $ 209,011
Property, plant and mine development, net............... $1,921,568 $2,020,386
Other assets............................................ $ 241,173 $ 135,674
Debt and related interest to partners and affiliates.... $ 254,891 $ 283,504
Other current liabilities............................... $ 201,884 $ 198,455
Long-term debt--third parties (including current
portion)............................................... $ 935,771 $1,000,000
Other liabilities....................................... $ 5,758 $ 2,013
64
NOTE 6 OTHER ACCRUED LIABILITIES
At December 31,
-----------------
2001 2000
-------- --------
(In thousands)
Payroll and related benefits................................. $ 70,866 $ 67,129
Interest..................................................... 32,062 29,989
Taxes other than income...................................... 11,796 9,249
Reclamation and remediation.................................. 8,754 11,884
Utilities.................................................... 8,237 6,448
Income and mining taxes...................................... 4,474 11,372
Deferred revenue............................................. 966 14,850
Royalties.................................................... 602 1,624
Other........................................................ 67,105 67,630
-------- --------
$204,862 $220,175
======== ========
NOTE 7 INCOME TAXES
The Company's income tax benefit (expense) consisted of:
Years Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Current:
United States................................... $ 6,280 $(31,774) $ (7,072)
Foreign......................................... (38,499) (59,131) (75,428)
-------- -------- --------
(32,219) (90,905) (82,500)
-------- -------- --------
Deferred:
United States................................... 92,889 33,501 69,693
Foreign......................................... (7,853) 56,198 (8,970)
-------- -------- --------
85,036 89,699 60,723
-------- -------- --------
Total income tax benefit (expense)............... $ 52,817 $ (1,206) $(21,777)
======== ======== ========
The Company's pre-tax income (loss) before minority interest and equity
income (loss) consisted of:
Years Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
(In thousands)
United States................................. $(233,670) $(186,040) $(149,153)
Foreign....................................... 190,442 206,037 208,683
--------- --------- ---------
Total pre-tax income (loss)................... $ (43,228) $ 19,997 $ 59,530
========= ========= =========
65
The Company's income tax benefit (expense) differed from the amounts computed
by applying the United States statutory corporate income tax rate for the
following reasons:
Years Ended December 31,
---------------------------
2001 2000 1999
-------- ------- --------
(In thousands)
Pre-tax income (loss) before minority interest,
equity income (loss) and cumulative effect of
change in accounting principle................... $(43,228) $19,997 $ 59,530
United States statutory corporate income tax
rate............................................. 35% 35% 35%
-------- ------- --------
Income tax benefit (expense) computed at United
States statutory corporate income tax rate....... 15,130 (6,999) (20,835)
Reconciling items:
Percentage depletion............................. 11,740 13,616 11,353
Change in valuation allowance on deferred tax
assets.......................................... (1,378) (17,986) (30,925)
Utilization of foreign tax credits............... 25,968 1,834 7,631
Foreign (earnings) losses........................ (6,804) 19,297 18,959
Other............................................ 8,161 (10,968) (7,960)
-------- ------- --------
Total income tax benefit (expense)................ $ 52,817 $(1,206) $(21,777)
======== ======= ========
Components of the Company's consolidated deferred income tax assets
(liabilities) are as follows:
At December 31,
------------------
2001 2000
-------- --------
(In thousands)
Deferred tax assets:
Depletion of the cost of land and mining claims............ $230,847 $230,824
Exploration costs.......................................... 77,311 76,266
Depreciation............................................... 55,128 43,922
Alternative minimum tax credit carry forward............... 50,614 51,214
Net operating loss carry forwards.......................... 39,282 52,182
Retiree benefit and vacation accrual costs................. 39,250 19,341
Capitalized inventory costs................................ 25,874 22,360
Remediation and reclamation costs.......................... 25,228 23,915
Mine development costs..................................... 6,601 4,826
Other...................................................... 14,028 11,488
-------- --------
564,163 536,338
Valuation allowance for deferred tax assets................ (192,495) (191,117)
-------- --------
Deferred tax assets--net of valuation allowance............ 371,668 345,221
-------- --------
Deferred tax liabilities:
Net undistributed earnings of subsidiaries................. (45,767) (66,008)
Capitalized mining costs................................... (14,599) (40,550)
Capitalized interest....................................... (30,061) (30,813)
Other...................................................... (14,758) (18,159)
-------- --------
Deferred tax liabilities................................... (105,185) (155,530)
-------- --------
Net deferred tax assets..................................... $266,483 $189,691
======== ========
66
The breakdown of the Company's net deferred tax assets (liabilities) between
the United States and foreign taxing jurisdictions is as follows:
At December 31,
------------------
2001 2000
-------- --------
(In thousands)
United States............................................... $393,887 $300,004
Foreign..................................................... (127,404) (110,313)
-------- --------
Total net deferred tax assets............................... $266,483 $189,691
======== ========
NOTE 8 DEBT
Long-Term Debt
At December 31,
----------------------
2001 2000
---------- ----------
(In thousands)
Sale-leaseback of refractory ore treatment plant........ $ 318,092 $ 327,125
Credit facilities....................................... -- 147,000
Canadian Imperial Bank of Commerce loan................. -- 87,120
8 3/8% debentures, net of discount...................... 200,583 199,916
8 5/8% notes (2002)..................................... 150,000 150,000
8 5/8% notes, net (2011), net of discount............... 272,386 --
6% convertible subordinated debentures.................. 99,980 99,980
Medium-term notes....................................... 32,000 32,000
Interest rate swaps..................................... 588 --
Project financings...................................... 208,240 156,696
---------- ----------
1,281,869 1,199,837
Current maturities...................................... (192,151) (70,447)
---------- ----------
$1,089,718 $1,129,390
========== ==========
Scheduled minimum long-term debt repayments are $192.2 million in 2002,
$77.3 million in 2003, $81.9 million in 2004, $340.4 million in 2005, $47.1
million in 2006 and $543.1 million thereafter.
Sale-Leaseback of the Refractory Ore Treatment Plant
In September 1994, the Company entered into a sale and leaseback agreement
for its refractory ore treatment plant located at Carlin, Nevada. The
transaction was accounted for as debt and the cost of the refractory ore
treatment plant was recorded as a depreciable asset. The lease term is 21
years and aggregate future minimum lease payments, which include interest,
were $489.7 million and $519.4 million at December 31, 2001 and 2000,
respectively. Principal payments are $29.7 million annually over the next four
years, increasing to $35.5 in the fifth year and beyond. The lease includes
purchase options during and at the end of the lease at predetermined prices.
The interest rate on this sale-leaseback transaction is 6.36%. In connection
with this transaction, the Company entered into certain interest rate hedging
contracts that were settled for a gain of $11 million, which is recognized as
a reduction of interest expense over the term of the lease. Including this
gain, the effective interest rate on the borrowing is 6.15%. Because this
asset is specialized, it is not practicable to estimate the fair value of this
debt.
Credit Facilities
The Company's $1.0 billion revolving credit facility, entered into June
1997, was replaced in October 2001 with two unsecured multi-currency revolving
credit facilities with a consortium of banks: a $200 million facility
67
with an initial term of 364 days, which may be extended annually to October
2006; and a $400 million revolving facility, which matures in October 2006.
Interest rates and facility fees vary based on the Company's credit rating.
Borrowings under the facilities bear interest equal to either the London
Interbank Offered Rate (LIBOR) plus a margin ranging from 0.77% to 1.25% or
the greater of the federal funds rate or the lead bank's prime rate. Annual
fees vary from 0.10% to 0.30%. At December 31, 2001, the fees were 0.15% and
0.175% of the commitment, for the $200 million and the $400 million facility,
respectively. The facilities contain customary affirmative and negative
covenants including financial covenants requiring the maintenance of specified
limitations on debt-to-capitalization, debt-to-"earnings before interest,
taxes, depreciation and amortization," incurring liens and transactions with
affiliates. There were no borrowings under the new facilities as of December
31, 2001. The Company is in compliance with all financial debt covenants.
8 3/8% Debentures
Unsecured debentures in an aggregate principal amount of $200 million
maturing July 1, 2005, bearing an annual interest rate of 8.375% were
outstanding at December 31, 2001 and 2000. Interest is payable semi-annually
in January and July and the notes are not redeemable prior to maturity. The
costs related to the issuance of the debentures were capitalized and are
amortized to interest expense over the term of the debentures. Using
prevailing interest rates on similar instruments, the estimated fair value of
these debentures was approximately $205.9 million and $202.6 million at
December 31, 2001 and 2000, respectively.
8 5/8% Notes
Unsecured notes with a principal amount of $150 million due April 1, 2002,
bearing an annual interest rate of 8.625% were outstanding at December 31,
2001 and 2000. Interest is payable semi-annually in April and October and the
notes are not redeemable prior to maturity. Using prevailing interest rates on
similar instruments, the estimated fair value of these notes was $151.2
million and $153.9 million at December 31, 2001 and 2000, respectively.
In May 2001, Newmont issued unsecured notes with a principal amount of $275
million due May 2011 bearing an annual interest rate of 8.625%. Proceeds of
$272 million, after transaction costs, were used to repay debt outstanding
under the Company's revolving credit facility, with the remainder for general
corporate purposes. Interest is payable semi-annually in May and November and
the notes are redeemable prior to maturity under certain conditions. The costs
related to the issuance of the notes were capitalized and are amortized to
interest expense over the term of the notes. Using prevailing interest rates
on similar instruments, the estimated fair value of these notes was $275.9
million at December 31, 2001.
6% Convertible Subordinated Debentures
Unsecured debentures in an aggregate principal amount of $100 million
maturing January 2005 bearing an annual interest rate of 6% were outstanding
at December 31, 2001 and 2000. Interest is payable annually in January and the
debentures are convertible at the option of the holders into shares of common
stock at any time on or after January 10, 2001 and prior to maturity, unless
previously redeemed at the option of the Company. The conversion rate is 25.45
shares for each $5,000 principal amount of debentures converted. Approximately
509,000 shares of common stock have been registered for issuance upon
conversion of these debentures. Using prevailing interest rates on similar
instruments, the estimated fair value of these debentures was approximately
$100.0 million and $82.0 million at December 31, 2001 and 2000, respectively.
Medium-Term Notes
Unsecured notes with a principal amount of $32 million maturing on various
dates beginning early 2003 to late 2004, bearing an annual weighted average
interest rate of 7.68%, were outstanding at December 31, 2001 and 2000.
Interest is payable semi-annually in March and September and the notes are not
redeemable prior to maturity. Using prevailing interest rates on similar
instruments, the estimated fair value of these notes was $32.7 million and
$31.5 million at December 31, 2001 and 2000, respectively.
68
Canadian Imperial Bank of Commerce (CIBC) Loan
Battle Mountain Canada entered into a $145.0 million loan with CIBC in
conjunction with its purchase of Niugini Mining that was secured by Niugini
Mining stock. In January 2001, the loan was paid in full with a $40 million
collateral cash account and from the Company's revolving credit facility. The
interest rates were variable and the weighted average interest rate was 7.6%
for 2000.
Interest Rate Swaps
During the last half of 2001, the Company entered into contracts to hedge
the interest rate risk exposure on a portion of its $275 million 8 5/8% notes
and its $200 million 8 3/8% debentures. The Company receives fixed-rate
interest payments at 8 5/8% or 8 3/8% and pays floating-rate interest amounts
based on periodic LIBOR settings plus a spread, ranging from 2.60% to 4.25%.
The notional principal amount of these transactions (representing the amount
of principal tied to floating interest rate exposure) was $200 million at
December 31, 2001. Half of these contracts expire in July 2005 and half expire
in May 2011. These transactions have been designated as fair value hedges and
at December 31, 2001, had a negative fair value of $0.6 million. The fair
value of the related debt was also adjusted to reduce the liability by a
corresponding amount. At December 31, 2001, these transactions resulted in a
reduction in interest expense of $0.8 million.
Project Financings
Minera Yanacocha
Trust Certificates: Minera Yanacocha issued debt through the sale of $100
million 8.4% Series A Trust Certificates to various institutional investors.
At December 31, 2001 and 2000, $64.0 million and $78.0 million, respectively,
was outstanding under the financing. Interest on the Certificates is fixed at
8.4% and repayments are required quarterly through 2004. The Certificates are
secured by certain of Minera Yanacocha'a assets, certain restricted funds and
also are specifically secured by future gold sales, through a trust agreement
with the Bank of New York. Because these Certificates are specialized, it is
not practicable to estimate the fair value of this debt.
$100 million Credit Facility: In December 1999, Minera Yanacocha entered
into a $100 million credit facility with the International Finance
Corporation. The two-tier facility (a $20 million A Tranche and a $80 million
B Tranche) is revolving and converts into term loans. The A Tranche has a
five-year revolving availability period and converts to a five-year term loan.
The B Tranche has a three-year revolving availability period and converts to a
four-year term loan. Initial drawdowns under the loan were used for
development of the La Quinua project; however, the loan accommodates
repayments during the revolving availability period and any subsequent
borrowings may be used for other development purposes. Interest applicable to
the A Tranche is based on LIBOR plus 2.375%. Interest applicable to the B
Tranche is based on LIBOR plus 2.0% through the second anniversary of the
agreement, LIBOR plus 2.25% from year two to year four and after the fourth
anniversary LIBOR plus 2.5%.
The A Tranche interest rate was 5.5% and 8.3% at December 31, 2001 and 2000,
respectively. The weighted average rate was 7.7% and 8.3% for 2001 and 2000,
respectively. The B Tranche interest rate was 5.2% and 8.3% at December 31,
2001 and 2000, respectively. The weighted average rate was 7.3% and 8.3% for
2001 and 2000, respectively. The outstanding amount under this credit line was
$100.0 million and $45.0 million at December 31, 2001 and 2000, respectively.
Using prevailing interest rates on similar instruments, the estimated fair
value of this debt approximated the carrying value at December 31, 2001 and
2000.
$20 million Credit Facility: Minera Yanocaha has a $20 million line of
credit with Banco de Credito del Peru that expires in July 2004. The interest
rate is LIBOR plus 2% and is adjusted annually to current market rates. The
interest rate was 4.6% and 8.6 % at December 31, 2001 and 2000, respectively.
The weighted average interest rate was 6.5% and 8.6% for 2001 and 2000,
respectively. The outstanding amount under this credit line was $13.0 million
and $8.0 million at December 31, 2001 and 2000, respectively. The estimated
fair value of this debt approximated the carrying value at December 31, 2001
and 2000.
69
Leases: In December 1999, Minera Yanacocha assumed certain lease and
purchase agreements for mining equipment that expire at various dates from
December 2002 to June 2006. The net present value of future minimum payments
was $6.3 million and $8.3 million, at December 31, 2001 and 2000,
respectively, with an interest component of 8.7% and 11.1% for 2001 and 2000,
respectively. Because these assets are specialized, it is not practicable to
estimate the fair value of this debt.
All Minera Yanacocha debt is non-recourse to the Company and is secured by
substantially all of Minera Yanacocha's property, plant and equipment; see
above for specific security on the Trust Certificates.
Zarafshan-Newmont
The Company, through a wholly-owned subsidiary, is a 50% participant in the
Zarafshan-Newmont joint venture ("Zarafshan-Newmont") in the Republic of
Uzbekistan. The other participants are two Uzbek government entities.
Zarafshan-Newmont has a loan with the European Bank for Reconstruction and
Development ("EBRD") secured by the assets of the project. The outstanding
amount was $12.0 million and $18.0 million at December 31, 2001 and 2000,
respectively. The loan is to be repaid in semi-annual installments of $6.0
million, which began in July 2001. The interest rate is based on the three
month LIBOR plus 4.25%. The weighted average interest rates were 8.7% and
10.9% for 2001 and 2000, respectively, and the interest rates at December 31,
2001 and 2000 were 6.1% and 11.0%, respectively. Using prevailing interest
rates on similar instruments, the estimated fair value of this debt
approximated the carrying value at December 31, 2001 and 2000.
In December 2000, Zarafshan-Newmont completed an additional $30 million loan
under the EBRD facility that will be used primarily for capital expansion. The
outstanding amount on this loan was $30.0 million at December 31, 2001, of
which $15 million was the Company's share. No amounts were outstanding at
December 31, 2000. The loan facility will be available through December 15,
2002 and will be repaid in eight equal semi-annual payments of $3.75 million,
beginning July 2003 and ending January 2007. The interest rate is based on the
three-month LIBOR plus 3.25%. The interest rate was 5.1% at December 31, 2001
and the weighted average interest rate was 8.3% for 2001. Using prevailing
interest rates on similar instruments, the estimated fair value of this debt
approximated the carrying value at December 31, 2001.
The assets of Zarafshan-Newmont secure both loans and in addition, the
Company has guaranteed 50% of the loans and the Uzbek partners have guaranteed
the remaining 50%.
Inti Raymi
In conjunction with the development of its Kori Kollo mine in Bolivia, Inti
Raymi arranged a term credit facility with various international lending
institutions with a fixed interest rate of 10.25%. The loan was paid in full
in June 2001.
In 2001, Inti Raymi entered into a capital lease for mining equipment that
expires in May 2003. The net present value of the lease payments was $2.5
million at December 31, 2001, with an interest component of 10.25%. Because
these assets are specialized, it is not practicable to estimate the fair value
of this debt.
Capitalized Interest
Capitalized interest was $10.6 million, $5.5 million and $23.3 million in
2001, 2000 and 1999, respectively.
NOTE 9 SALES CONTRACTS, COMMODITY AND FINANCIAL INSTRUMENTS
Option Contracts and Price-Capped Sales Contracts
In late July and early August 1999, the Company purchased put option
contracts for 2.85 million ounces of gold, with a strike price of $270 per
ounce. This purchase was paid for by selling call option contracts for 2.35
70
million ounces at the strike prices noted below. Put option contracts for one
million ounces were subject to termination if the market price reached $270
per ounce at any time prior to such contracts' expiration dates, which were
August 2000 through July 2001. These put option contracts were thus terminated
in September 1999. The put options qualified for deferral accounting such that
gains and losses on the contracts were recognized as the designated production
was delivered or as the options expired. The initial fair value of the options
of $37.6 million was recorded as put option premiums and was amortized over
the term of the options. In 2000 and 1999, $19.1 million and $18.5 million,
respectively, was amortized in Sales, including the premiums associated with
terminated put options. The call option contracts, with an initial fair value
of $37.6 million, were marked to market at each reporting date. Noncash gains
of $1.8 million and $26.8 million were recorded in 2001 and 2000,
respectively, and a loss of $44.8 million was recorded in 1999.
In September 2001, the Company entered into transactions that closed out
these call options. The options were replaced with a series of sales contracts
requiring physical delivery of the same quantity of gold over slightly
extended future periods. Under the terms of the contracts, Newmont will
realize the lower of the spot price on the delivery date or the capped price
ranging from $350 per ounce in 2005 to $392 per ounce in 2011. The value of
the sales contracts was recorded as deferred revenue and will be included in
sales revenue as delivery occurs.
As of December 31, 2001, the following price-capped sales contracts were
outstanding:
Sold Call Options
-----------------
Price-
Ozs Cap
--------- -------
2005.......................................................... 500,000 $ 350
2008.......................................................... 1,000,000 $ 384
2009.......................................................... 600,000 $ 381
2011.......................................................... 250,000 $ 392
Prepaid Forward Sales Contracts
In July 1999, the Company entered into a prepaid forward sale contract for
approximately 483,000 ounces of gold, with initial proceeds of $137.2 million,
for delivery in June 2005, 2006 and 2007. Such proceeds were recorded as
deferred revenue and will be recognized in income when the related gold is
physically delivered. Any additional proceeds will be determined at each
delivery date based on the excess of the then existing market price (not to
exceed $380 per ounce) over $300 per ounce. The prepaid forward sale contract
also included semi-annual delivery requirements of approximately 17,950 ounces
beginning June 2000 through June 2007. Newmont entered into forward purchase
contracts at prices increasing from $263 per ounce in 2000 to $354 per ounce
in 2007 to coincide with these semi-annual delivery commitments. These
contracts have been designated as cash flow hedges and at December 31, 2001
had a negative fair value of $3.7 million.
Commodity Instruments
In December 2001, the Company entered into a series of equal and offsetting
positions to its commodity instruments for certain Battle Mountain operations
that were outstanding at that time. These contracts effectively closed out its
combination matched put and call options and flat forward contracts.
71
The offsetting positions were designated as fair value hedges and are marked
to market in current earnings. As a result, the following were outstanding as
of December 31, 2001:
2002 2003 2004 Total/Average
------ ------ ----- -------------
Combination call and put options:
Written call options:
Ounces...................................... 92,752 92,752 7,563 193,067
Average strike price per ounce.............. $ 348 $ 348 $ 359 $ 348
Purchased call options:
Ounces...................................... 92,752 92,752 7,563 193,067
Average strike price per ounce.............. $ 348 $ 348 $ 359 $ 348
Purchased put options:
Ounces...................................... 92,752 92,752 7,563 193,067
Average strike price per ounce.............. $ 286 $ 286 $ 296 $ 286
Written put options:
Ounces...................................... 92,752 92,752 7,563 193,067
Average strike price per ounce.............. $ 286 $ 286 $ 296 $ 286
Flat forward contracts:
Ounces...................................... 31,252 31,252 1,563 64,067
Average price per ounce..................... $ 314 $ 314 $ 323 $ 314
Forward purchase contracts:
Ounces...................................... 31,252 31,252 1,563 64,067
Average price per ounce..................... $ 314 $ 314 $ 323 $ 314
The Company is not required to place collateral with respect to its
commodity instruments and there are no margin calls associated with such
contracts. Credit risk is minimized by contracting only with major financial
institutions/counterparties. These instruments had offsetting fair values at
December 31, 2001. The combination call and put options contracts had a fair
value of $2.7 million at December 31, 2000. The flat forward contracts had a
negative fair value of $2.0 million at December 31, 2000.
Fuel Contracts
The Company uses certain derivative instruments to hedge a portion of its
exposure to fuel price market fluctuations, from time to time. At December 31,
2001, the Company had contracts expiring September 2002 covering approximately
8.6 million gallons of diesel fuel at its Nevada operations at prices ranging
from approximately $0.61 to $0.69 per gallon. These transactions have been
designated as cash flow hedges and at December 31, 2001, had a negative fair
value of $1.3 million.
NOTE 10 STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Net loss........................................ $(23,279) $(94,874) $(94,565)
-------- -------- --------
Other comprehensive income (loss), net of tax:
Unrealized gain on marketable equity
securities..................................... 18,290 -- --
Foreign currency translation adjustments........ (3,241) (1,792) (2,346)
Cumulative effect of change in accounting method
for
derivative instruments......................... 1,723 -- --
Minimum pension liability adjustments........... 453 1,266 (1,642)
Changes in fair value of cash flow hedge
instruments.................................... (3,291) -- --
-------- -------- --------
Total other comprehensive income (loss)......... 13,934 (526) (3,988)
-------- -------- --------
Comprehensive loss.............................. $ (9,345) $(95,400) $(98,553)
======== ======== ========
72
NOTE 11 STOCKHOLDERS' EQUITY
NMC Common Stock. As discussed in Note 1, NMC issued 24.1 million shares in
exchange for Battle Mountain common stock and Battle Mountain exchangeable
shares in January 2001. The Company paid dividends of $0.12 per common share
of NMC stock in each of 2001, 2000 and 1999.
Convertible Preferred Stock: At December 31, 2001 and 2000, 2.3 million
shares of $3.25 convertible preferred stock were outstanding, with a
liquidation preference of $50 per share. In conjunction with the NMC/Battle
Mountain merger, NMC issued 2.3 million shares of $3.25 convertible preferred
stock in exchange for Battle Mountain preferred stock. The preferred stock is
convertible into shares of NMC at any time at a conversion ratio of 0.5 share
of NMC common stock and is redeemable at the option of the Company solely for
shares of NMC common stock. Pursuant to the restructuring of the Company
described above, preferred stockholders were granted voting rights. Holders of
NMC convertible preferred stock are entitled to receive, when, as and if
declared by the Company's board of directors, an annual cash dividend of $3.35
per share, payable in equal quarterly installments. The Company paid $7.5
million in preferred stock dividends in each of 2001, 2000 and 1999.
Stock Rights. In September 2000, the Company paid a dividend of one series A
junior participating preferred stock purchase right ("PSPR") for each
outstanding share of NMC common stock. These rights replaced NMC's existing
PSPRs that expired in September 2000. The rights agreement works by imposing a
significant penalty upon any person or group, which acquires 15% or more of
NMC's outstanding common stock without the approval of its board of directors.
Each PSPR entitles the holder to purchase from NMC one one-thousandth of a
share of NMC participating preferred stock for $100 (subject to adjustment)
once such rights become exercisable. Until exercised, holders of PSPRs have no
stockholder rights. The PSPRs become exercisable only if a defined acquiring
person has acquired 15% or more of NMC common stock or has begun a tender or
exchange offer that would result in such person owning 15% or more of NMC
common stock. If such events occur, PSPR holders (other than the acquiring
person) may, for $100, purchase shares of NMC common stock (or in certain
circumstances common stock of the acquiring company) with a market value of
$200, based on the market price of NMC common stock prior to such acquisition
(or the market price of the acquiring corporation's stock). NMC may redeem the
PSPRs for $0.01 each prior to an announcement that a defined acquiring person
exists. The PSPRs remain in place following the restructuring described in
Note 1.
NOTE 12 STOCK OPTIONS
Employee Stock Options
Under the Company's stock option plans, options to purchase shares of stock
have been granted to key employees at the fair market value of such shares on
the date of grant. The options under these plans vest over a two-year period
and, for certain options granted to key employees, over a four-year period,
and are exercisable over a period not exceeding ten years. At December 31,
2001, 5,472,645 shares were available for future grants under the Company's
plans. In conjunction with the Battle Mountain merger, 850,000 shares of NMC
common stock were authorized for issuance in connection with outstanding
Battle Mountain stock options that were assumed by the Company.
73
The following table summarizes annual activity for all stock options for
each of the three years in the period ended December 31:
2001 2000 1999
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
All Stock Options ---------- -------- ---------- -------- ---------- --------
Outstanding at beginning
of year................ 12,671,674 $29 11,511,797 $30 6,559,745 $38
Granted................. 1,439,548 $22 1,502,325 $19 5,253,469 $19
Exercised............... (403,673) $19 (110,500) $25 (1,625) $22
Forfeited............... (1,393,392) $33 (231,948) $37 (299,792) $36
---------- --- ---------- --- ---------- ---
Outstanding at end of
year................... 12,314,157 $28 12,671,674 $29 11,511,797 $30
========== === ========== === ========== ===
Options exercisable at
year end............... 9,448,459 $29 7,501,483 $33 4,233,780 $42
Weighted average fair
value of options
granted during the
year................... $ 12.98 $ 12.55 $ 11.90
========== ========== ==========
The following table summarizes information about stock options outstanding
at December 31, 2001, with exercise prices equal to the fair market value on
the date of grant with no restrictions on exercisability after vesting
(included in the "All Stock Options" table):
Options Outstanding Options Exercisable
----------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
$13 to $19 4,243,657 6.8 years $18 3,543,689 $18
$20 to $24 2,782,732 8.2 years $22 1,257,896 $22
$25 to $29 1,863,649 6.4 years $27 1,502,091 $28
$30 to $35 479,613 5.9 years $32 492,330 $32
$36 to $44 1,465,952 4.2 years $39 1,454,848 $39
$45 to $59 767,610 4.1 years $54 723,301 $54
$60 to $79 86,388 2.9 years $70 86,388 $70
$80 to $108 121,202 4.1 years $99 121,202 $99
- ----------- ---------- --------- --- --------- ---
$13 to $108 11,810,803 6.5 years $27 9,181,745 $29
=========== ========== ========= === ========= ===
Certain key executives were granted options that, although the exercise
price was equal to the fair market value on the date of grant, cannot be
exercised when otherwise vested unless the market price of NMC's common stock
is a defined amount above the option exercise price. In addition, the same
executives were granted options with exercise prices in excess of the fair
market value on the date of grant. Generally, these key executive options vest
over a period of one to five years and are exercisable over a ten-year period.
At December 31, 2001, 503,354 of these options were outstanding and 266,714
were exercisable. Information about these stock options outstanding (included
in the "All Stock Options" table) at December 31, 2001 is summarized below:
Options Outstanding Options Exercisable
----------------------- --------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
---------- ----------- ----------- -------- ----------- --------
Options with exercise
prices in excess of the
fair market value on
the date of the grant
....................... $40 to $56 266,714 1.5 years $ 50 266,714 $ 50
Options that cannot be
exercised until the
market price exceeds a
fixed amount above the
exercise price......... $30 to $41 236,640 1.6 years $ 37 -- $ --
74
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock options. Accordingly, because stock
option exercise prices equal the market value on the date of grant, no
compensation cost has been recognized for its stock options. Had compensation
cost for the options been determined based on market value at grant dates in
2001, 2000 and 1999 as prescribed by SFAS No. 123, the Company's net income
and earnings per share would have been the pro forma amounts indicated below
(in thousands, except per share):
Years Ended December 31,
------------------------------
2001 2000 1999
-------- --------- ---------
Net loss applicable to common shares
As reported................................... $(30,754) $(102,349) $(102,040)
Pro forma..................................... $(32,199) $(129,719) $(129,086)
Net loss per share, basic and diluted
As reported................................... $ (0.16) $ (0.53) $ (0.53)
Pro forma..................................... $ (0.16) $ (0.67) $ (0.67)
For purposes of determining the pro forma amounts, the fair value of each
option grant was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following assumptions for 2001, 2000 and 1999,
respectively: weighted average risk-free interest rates of 4.9%, 6.4% and
6.4%; dividend yield of 0.6% for all three years; expected lives of nine
years, nine years and eight years; and volatility of 49%, 56% and 52%.
Compensation costs included in the pro forma amounts reflect only fair
values of options granted after January 1, 1995. These amounts may not be
indicative of actual results had the Company used fair-value-based accounting
for stock options.
Other Stock-Based Compensation
In 1997, the Company adopted an intermediate term incentive plan ("ITIP")
under which restricted stock may be granted to certain key employees. These
shares are granted upon achievement of certain financial and operating
thresholds at fair market value on the grant date. ITIP stock grants are
subject to certain restrictions related to ownership and transferability that
currently lapse two years (for ownership) and, in some cases, five years (for
transfer) from the date of the grant. In 2001, 2000 and 1999, 248,601, 95,814
and 62,800 shares of restricted stock, respectively, were issued under ITIP,
of which 254,491 shares remain restricted at December 31, 2001. Compensation
expense recorded for these grants was $3.3 million, $2.4 million and $1.1
million in 2001, 2000 and 1999, respectively.
In 2001, the Company adopted a deferred stock award plan under which
deferred stock awards are granted to employees. The employees vest in the
awards after two years, at which time the related shares are issued free of
any restrictions. In 2001, deferred stock awards were granted equivalent to
214,000 shares of stock, of which 210,287 remain outstanding at December 31,
2001. Compensation expense recorded for these grants was $ 0.8 million in
2001.
NOTE 13 EMPLOYEE PENSION AND OTHER BENEFIT PLANS
Pension Plans
The Company's pension plans include: (1) two qualified non-contributory
defined benefit plans (for salaried employees and substantially all domestic
hourly employees); (2) two non-qualified plans (for salaried employees whose
benefits under the qualified plan are limited by federal legislation); and (3)
a non-qualified cash balance international plan (for select employees who are
not eligible to participate in the U.S.-based plans because of citizenship).
The vesting period for each plan is five years of service. The plans' benefit
formulas are based on an employee's years of credited service and either (1)
such employee's last five years average pay (salaried plan), (2) a percentage
of annual pay (international plan) or (3) a flat dollar amount adjusted by a
service-weighted multiplier (hourly plan).
75
Pension costs are determined annually by independent actuaries and pension
contributions to the qualified plans are made based on funding standards
established under the Employee Retirement Income Security Act of 1974.
Other Benefit Plans
The Company provides defined medical benefits to qualified retirees (and to
their eligible dependents) who were salaried employees and defined life
insurance benefits to qualified retirees who were salaried employees. In
general, participants become eligible for these benefits upon retirement
directly from the Company if they are at least 55 years old and the
combination of their age and years of service with the Company equals 75 or
more.
Defined medical benefits cover most of the reasonable and customary charges
for hospital, surgical, diagnostic and physician services and prescription
drugs. Life insurance benefits are based on a percentage of final base annual
salary and decline over time after retirement commences.
The following tables provide a reconciliation of changes in the plans'
benefit obligations and assets' fair values for the two-year period ended
December 31, 2001 and a statement of the funded status as of December 31 of
both years:
Pension Benefits Other Benefits
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In thousands) (In thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of
year................................. $189,346 $181,743 $ 45,062 $ 49,322
Service cost-benefits earned during
the year............................. 8,075 7,530 2,422 2,570
Interest cost......................... 14,545 13,631 3,700 3,209
Amendments............................ -- 2,860 -- --
Actuarial loss (gain)................. 12,396 5,406 8,166 (8,573)
Benefit enhancements for early
retirement........................... 15,682 -- 1,311 --
Settlement gain....................... -- (333) -- --
Foreign currency exchange gain........ (112) (289) (105) (36)
Settlement payments................... (6,802) (12,431) -- --
Benefits paid......................... (16,890) (8,771) (1,532) (1,430)
-------- -------- -------- --------
Benefit obligation at end of year..... $216,240 $189,346 $ 59,024 $ 45,062
======== ======== ======== ========
Change in Fair Value of Assets:
Fair value of assets at beginning of
year................................. $163,249 $182,666 $ -- $ --
Actual return (loss) on plan assets... 904 (1,588) -- --
Employer contributions................ 10,543 3,802 1,531 989
Foreign currency exchange loss........ (408) (567) -- --
Settlement payments................... (6,802) (12,293) -- --
Benefits paid......................... (16,181) (8,771) (1,531) (989)
-------- -------- -------- --------
Fair value of assets at end of year... $151,305 $163,249 $ -- $ --
======== ======== ======== ========
Funded status......................... $(64,935) $(26,097) $(59,024) $(45,062)
Unrecognized prior service cost....... 9,041 11,499 1,364 1,528
Unrecognized net loss (gain).......... 25,537 2,754 (16,115) (25,372)
Unrecognized net (asset) obligation... (120) 143 -- --
-------- -------- -------- --------
Accrued cost.......................... $(30,477) $(11,701) $(73,775) $(68,906)
======== ======== ======== ========
The Company's qualified pension plans are funded with cash contributions in
compliance with Internal Revenue Service ("IRS") rules and regulations. The
Company's non-qualified and other benefit plans are not funded, but exist as
general corporate obligations. The information contained in the above tables
indicates the
76
combined funded status of qualified and non-qualified plans, in accordance
with accounting pronouncements. Assumptions used for IRS purposes differ from
those used for accounting purposes. The funded status shown above, prepared in
accordance with accounting pronouncements, compares the projected benefit
obligation of all plans, which is an actuarial present value of obligations
that takes into account assumptions as to future compensation levels of plan
participants, to the fair value of the assets held in trust for the qualified
plans. Accounting pronouncements also prescribe a computation for the plans'
accumulated benefit obligation ("ABO"), which is an actuarial present value of
benefits (whether vested or nonvested) attributed to employees based on
employee service and compensation prior to the end of the period presented.
The following plans have an ABO in excess of the market value of plan assets:
(1) qualified and non-qualified pension plans for salaried employees, (2) the
qualified pension plan for hourly employees and (3) the non-qualified
international pension plan. At December 31, 2001 and 2000, respectively, the
ABO was $149.2 million and $100.2 million for the qualified pension plan for
salaried employees, $17.4 million and $14.4 million for the qualified pension
plan for hourly employees, $15.8 million and $15.7 million for the non-
qualified pension plan for salaried employees, and $2.4 million and $2.2
million for the non-qualified international pension plan.
The following table provides amounts recognized in the consolidated balance
sheets as of December 31:
Pension Benefits Other Benefits
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In thousands) (In thousands)
Amounts recognized in the consolidated
balance sheets:
Accrued benefit cost................. $(38,555) $(21,923) $(73,775) $(68,906)
Intangible asset..................... 5,014 6,357 -- --
Accumulated other comprehensive
income.............................. 3,064 3,865 -- --
-------- -------- -------- --------
Net amount recognized................ $(30,477) $(11,701) $(73,775) $(68,906)
======== ======== ======== ========
In accordance with the provisions of SFAS No. 87, an adjustment was required
to reflect a minimum liability for the non-qualified pension plan in 2001,
2000 and 1999, and one of the hourly pension plans and the international plan
in 2001. As a result of such adjustment, an intangible asset was recorded and
(to the extent the minimum liability adjustment exceeded the unrecognized net
transition liability) Stockholders' equity was reduced $2.0 million, $2.4
million and $3.5 million (net of related deferred income tax benefits) at
December 31, 2001, 2000 and 1999, respectively.
The following table provides components of net periodic pension benefit cost
for the indicated fiscal years:
Pension Benefits Other Benefits
------------------------- ----------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------ ------ ------
(In thousands) (In thousands)
Components of net periodic
pension benefit cost:
Service cost.............. $ 8,075 $ 7,530 $ 9,358 $2,422 $2,569 $4,022
Interest cost............. 14,545 13,631 12,723 3,700 3,209 3,511
Expected return on plan
assets................... (15,513) (16,742) (14,824) -- -- --
Amortization of prior
service cost............. 1,044 729 730 146 148 148
Amortization of loss
(gain)................... 128 (393) 151 (1,102) (1,273) (262)
Amortization of net
obligation (asset)....... 143 (93) (204) -- -- --
Benefit enhancement for
early retirement......... 20,811 -- -- 1,328 -- --
------- ------- ------- ------ ------ ------
Total net periodic
pension benefit cost.... $29,233 $ 4,662 $ 7,934 $6,494 $4,653 $7,419
======= ======= ======= ====== ====== ======
For the pension plans, prior-service costs are amortized on a straight-line
basis over the average remaining service period of active participants. Gains
and losses in excess of 10% of the greater of the benefit obligation or the
market-related value of assets are amortized over the average remaining
service period of active participants. Postretirement benefits other than
pensions are accrued during an employee's service to the Company.
77
Assumptions used in measuring the Company's benefit obligation were as
follows:
Pension Other
Benefits Benefits
---------- ----------
2001 2000 2001 2000
---- ---- ---- ----
Weighted-average assumptions as of December 31:
Discount rate.......................................... 7.25% 7.75% 7.25% 7.75%
Expected return on plan assets......................... 9.25% 9.25% N/A N/A
Rate of compensation increase.......................... 4.00% 4.00% 4.00% 4.00%
The assumed health care cost trend rate to measure the expected cost of
benefits was 8% for 2002, 7% for 2003, 6% for 2004 and 5% each year
thereafter. Assumed health care cost trend rates have a significant effect on
amounts reported for the health care plans. A 1% change in assumed health care
cost trend rates would have the following effects (in thousands):
1% 1%
Increase Decrease
-------- --------
Effect on total of service and interest cost components of
net periodic postretirement health care benefit cost....... $1,409 $(1,109)
Effect on the health care component of the accumulated
postretirement benefit obligation.......................... $8,367 $(6,360)
Savings Plan
The Company has four qualified defined contribution savings plans, two that
cover salaried employees and two that cover substantially all hourly
employees. In addition, the Company has two non-qualified supplemental savings
plans for salaried employees whose benefits under the qualified plan are
limited by federal regulations. When an employee meets eligibility
requirements, the Company matches 100% of employee contributions of up to 6%
and 4% of base salary for the salaried and hourly plans, respectively.
Matching contributions are made with NMC stock; however, no holding
restrictions are placed on such contributions, which totaled $9.9 million in
both 2001 and 2000, and $9.7 million in 1999.
NOTE 14 DIVIDENDS, INTEREST AND OTHER INCOME
Years Ended December 31,
------------------------
2001 2000 1999
------ ------- -------
(In thousands)
Interest income....................................... $2,976 $10,542 $15,424
Foreign currency exchange gain (loss), net............ (5,088) (6,100) 8,200
Gain on sale of exploration properties................ 3,696 1,640 20,604
Other................................................. 6,401 4,199 3,757
------ ------- -------
Total............................................... $7,985 $10,281 $47,985
====== ======= =======
NOTE 15 EXPENSES FOR ACQUISITION SETTLEMENT
In the third quarter of 2000, the Company resolved a long-standing legal
dispute regarding the acquisition of an additional interest in Minera
Yanacocha, a gold mining operation located in Peru. The Company issued $40
million of NMC common stock, 2.6 million shares, under terms of the
settlement, and charged $42.2 million, including expenses, to income.
NOTE 16 WRITE-DOWN OF ASSETS
In 2001, the Company reduced the carrying value of its long-lived assets by
$41.0 million pre-tax. The write-down related to Minahasa ($18.9 million),
Nevada ($11.7 million), Kori Kollo ($4.8 million) and the San
78
Luis property in Colorado ($3.5 million). This write-down of long-lived assets
represented the excess carrying value of assets compared to fair value, with
fair value determined using discounted future cash flow analyses. Such cash
flows are based on estimated recoverable ounces, future production and capital
costs, and gold price assumptions. Gold price assumptions were $285 per ounce
in 2002 and $300 per ounce thereafter. The Minahasa write-down reduced fixed
assets by $12.1 million, increased reclamation liabilities by $3.7 million,
and reduced ore stockpile and materials and supply inventories by $1.8 million
and $1.3 million, respectively. The Nevada write-down reduced ore and in-
process inventory by $7.3 million and fixed assets by $4.4 million. The Kori
Kollo write-down reduced fixed assets by $4.8 million. The San Luis write-down
reduced fixed assets by $2.0 million and materials and supply inventory by
$1.5 million. The write-downs had no impact on the scope of the these
operations and will reduce future pre-tax Costs applicable to sales by $16.9
million and Depreciation and depletion by $24.1 million based on remaining
production as of December 31, 2001, with no impact on future cash flows.
In 2000, the write-down of $58.4 million related to the Holloway mine in
Canada ($30.8 million), the short-lived Mesquite mine in California ($14.8
million), the Kori Kollo mine in Bolivia ($5.6 million), the acquisition cost
of the Mezcala property in Mexico ($6.5 million) and the Battle Mountain
Complex in Nevada ($0.7 million). The Holloway write-down reduced fixed assets
by $30.8 million. Mesquite's write-down reduced leach pad inventory by $9.7
million, capitalized mining by $1.4 million and fixed assets by $3.7 million.
The Kori Kollo write-down reduced inventory by $4.9 million and fixed assets
by $0.7 million.
In 1999, the write-down of $39.5 million related to the Crown Jewel project
in Washington ($36.0 million) and to Nevada stockpile inventories ($3.5
million). The Crown Jewel write-down related to mine development costs and
represented the remaining carrying value of the property as a result of
permitting uncertainties resulting from a January 2000 decision from the
Washington Pollution Control Hearings Board decision that reversed its water
rights permits and vacated its Clean Water Act certification.
NOTE 17 EQUITY INCOME (LOSS) AND IMPAIRMENT OF AFFILIATES
Years ended December 31,
-------------------------
2001 2000 1999
------- ------- --------
(In thousands)
Equity income (loss) in Batu Hijau.................. $32,981 $(9,923) $(10,675)
Equity (loss) in Lihir Gold......................... -- -- (4,782)
Lihir Gold impairment............................... -- -- (76,170)
------- ------- --------
Total............................................. $32,981 $(9,923) $(91,627)
======= ======= ========
Financial information relating to the Company's equity investment in Batu
Hijau was as follows:
Years Ended December 31,
----------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands)
Sales....................................... $ 447,291 $ 431,323 $ 15,213
Interest income............................. $ 1,007 $ 546 $ 11
Interest expense............................ $ 120,389 $ 139,722 $ 17,145
Depreciation and amortization............... $ 101,012 $ 81,623 $ 8,846
Net income (loss)........................... $ (16,215) $ (98,644) $ 10,274
Capital expenditures........................ $ 49,334 $ 158,783 $ 607,868
Total assets at December 31,................ $2,194,476 $2,228,487 $2,107,614
The equity income in Batu Hijau was $33.0 million in 2001 (based on 56.25%
of Batu Hijau's net loss of $16.2 million plus $26.4 million of eliminated
inter-company interest, $10.8 million for eliminated management fees, and $4.9
million for other items). In 2000, the Company's equity loss in Batu Hijau was
$9.9 million (based on 56.25% of Batu Hijau's net loss of $98.6 million plus
$29.2 million of eliminated inter-company interest, $12.5 million for
eliminated management fees, and $3.9 million for other items). In 1999, the
equity loss in Batu
79
Hijau was $10.7 million (based on 56.25% of Batu Hijau's net income of $10.3
million plus $5.2 million of eliminated intercompany interest, reduced by
$20.6 million to reclassify deferred tax benefits and increased by $1.2
million for other items).
As described in Note 1, Lihir Gold was accounted for as an equity investment
prior to 2000. The Company recorded $76.2 million in 1999 for impairment
losses resulting from declines in Lihir Gold's market value. Beginning in
2000, Lihir Gold stock was carried as marketable equity securities held for
sale and as of December 31, 2000, was written down $23.9 million as an other
than temporary loss resulting from the length of time and extent to which
their market value had been less than their cost basis. During 2001,
unrealized holding gains of $18.3 million were charged to Other comprehensive
income (loss) to reflect market value increases throughout the year.
NOTE 18 ACCOUNTING CHANGES
As described in Note 2, the Company changed its method of accounting for
revenue recognition in the fourth quarter of 2000, effective January 1, 2000,
to record sales upon delivery of third-party refined gold to the customer.
Previously, revenue was recognized upon the completion of the production
process, or when gold was poured into dore at the mine site. The cumulative
effect of the change in accounting principle as of January 1, 2000 was $12.6
million, net of tax and minority interest.
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," to recognize derivative
instruments on the balance sheet as either assets or liabilities at fair
value. As a result, the Company increased Other comprehensive income by $1.7
million as the cumulative effect of the change in accounting method.
NOTE 19 SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities included the following cash
payments:
Years Ended December
31,
-----------------------
2001 2000 1999
------- ------- -------
(In thousands)
Income taxes, net of refunds........................... $76,020 $86,608 $28,500
Interest, net of amounts capitalized................... $81,952 $91,510 $73,422
In the third quarter of 2001, NMC entered into transactions that closed out
certain written call option contracts with a series of price-capped contracts
as described in Note 9. These transactions resulted in a non-cash increase of
$53.8 million to Deferred revenue from sale of future production for the
initial fair value of these contracts.
In 2001 and 2000, Kori Kollo and Minera Yanacocha, respectively, entered
into certain leases (see Note 8) that resulted in a non-cash increase to
Property, plant and mine development and Long-term debt ($3.4 million and $2.3
million, respectively).
In 2000, NMC issued 2.6 million shares of common stock in conjunction with
the acquisition settlement described in Note 15 that resulted in non-cash
increases to Common stock ($4.2 million) and additional paid-in capital ($35.8
million).
In December 1999, Minera Yanacocha assumed certain equipment lease and
purchase agreements (see Note 8) that resulted in a non-cash increase to
Property, plant and mine development and Long-term debt ($12.4 million).
In the third quarter of 1999, NMC entered into two put and call option
contracts described in Note 9. As a result, non-cash increases to put option
premiums and Fair value of written call options ($37.6 million) were recorded
for the initial fair value of these contracts.
80
NOTE 20 SEGMENT AND RELATED INFORMATION
The Company predominantly operates in a single industry as a worldwide
corporation engaged in gold production, exploration for gold and acquisition
of gold properties. The Company has operations in North America, South
America, Indonesia, Uzbekistan and Australia, and its reportable segments are
based on the geographic location of these operations. Earnings from operations
do not include general corporate expenses, interest (except project-specific
interest) or income taxes (except for equity investments).
Financial information relating to the Company's consolidated segments is as
follows (in millions):
North South Zarafshan-
Year Ended December 31, American American Newmont, Minahasa, Corporate
2001 Operations Operations* Australia Uzbekistan Indonesia* and Other Consolidated
- ----------------------- ---------- ----------- --------- ---------- ---------- --------- ------------
Sales................... $ 866.8 $ 602.3 $ 34.2 $ 60.2 $ 92.6 $ -- $1,656.1
Interest income......... $ 0.1 $ 0.9 $ -- $ 0.3 $ 0.2 $ 1.5 $ 3.0
Interest expense........ $ 0.2 $ 6.6 $ -- $ 0.8 $ -- $ 78.8 $ 86.4
Depreciation and
depletion.............. $ 149.6 $ 106.3 $ 4.2 $ 9.8 $ 22.3 $ 7.9 $ 300.1
Pre-tax income (loss)
before minority
interest and equity
income (loss).......... $ (75.9) $ 179.4 $ 14.3 $ 19.9 $ (2.4) $ (178.5) $ (43.2)
Significant non-cash
items:
Amortization of
capitalized mining.... $ 44.9 $ -- $ -- $ -- $ 4.1 $ -- $ 49.0
Write-down of assets... $ 11.7 $ 5.6 $ -- $ 0.5 $ 18.9 $ 4.3 $ 41.0
Capital expenditures.... $ 69.3 $ 287.4 $ 7.3 $ 20.4 $ -- $ 17.2 $ 401.6
Total assets at December
31, 2001............... $1,688.0 $1,073.7 $ 46.6 $108.6 $ 65.7 $1,079.8 $4,062.4
North South Zarafshan-
Year Ended December 31, American American Newmont, Minahasa, Corporate
2000 Operations Operations* Australia Uzbekistan Indonesia and Other Consolidated
- ----------------------- ---------- ----------- --------- ---------- ---------- --------- ------------
Sales................... $1,011.1 $ 572.9 $ 31.5 $ 70.2 $120.9 $ 2.9 $1,809.5
Interest income......... $ -- $ 3.6 $ -- $ -- $ 0.1 $ 6.8 $ 10.5
Interest expense........ $ 0.3 $ 5.1 $ -- $ 1.7 $ -- $ 87.5 $ 94.6
Depreciation and
depletion.............. $ 211.2 $ 97.1 $ 4.4 $ 13.3 $ 25.0 $ 8.5 $ 359.5
Pre-tax income (loss)
before minority
interest, equity loss
and cumulative effect
of a change in
accounting principle... $ 22.7 $ 214.8 $ 15.5 $ 23.1 $ 45.5 $ (301.6) $ 20.0
Cumulative effect of a
change in accounting
principle.............. $ (5.2) $ (5.2) $ (0.1) $ (2.4) $ (2.1) $ 2.4 $ (12.6)
Significant non-cash
items:
Amortization of
capitalized mining.... $ 95.4 $ -- $ -- $ -- $ 7.7 $ -- $ 103.1
Write-down of assets... $ 45.5 $ 5.6 $ -- $ -- $ -- $ 7.3 $ 58.4
Capital expenditures.... $ 121.7 $ 284.7 $ 4.9 $ 4.3 $ 2.2 $ 3.1 $ 420.9
Total assets at December
31, 2000............... $1,849.7 $ 881.7 $ 30.8 $ 97.3 $ 96.8 $ 960.5 $3,916.8
- --------
* Not reduced for minority interest
81
North South Zarafshan-
Year Ended December 31, American American Newmont, Minahasa, Corporate
1999 Operations Operations* Australia Uzbekistan Indonesia and Other Consolidated
- ----------------------- ---------- ----------- --------- ---------- --------- --------- ------------
Sales................... $ 865.8 $549.2 $18.5 $ 75.3 $118.3 $ -- $1,627.1
Interest income......... $ -- $ 3.8 $ -- $ -- $ 0.1 $ 11.5 $ 15.4
Interest expense........ $ 0.4 $ 7.5 $ -- $ 2.7 $ -- $ 67.1 $ 77.7
Depreciation and
depletion.............. $ 168.2 $ 92.4 $ 2.8 $ 11.2 $ 23.0 $ 6.2 $ 303.8
Pre-tax income (loss)
before minority
interest and equity
loss................... $ 49.0 $184.9 $ 7.3 $ 17.2 $ 58.5 $(257.4) $ 59.5
Significant non-cash
items:
Amortization of
capitalized mining.... $ 30.6 $ -- $ -- $ -- $ 7.2 $ 0.5 $ 38.3
Write-down of assets... $ 3.5 $ -- $ -- $ -- $ -- $ 36.0 $ 39.5
Capital expenditures.... $ 85.0 $133.3 $10.2 $ 3.2 $ 10.8 $ 27.7 $ 270.2
Total assets at December
31, 1999............... $1,998.7 $677.8 $36.0 $107.4 $132.6 $ 999.4 $3,951.9
- --------
* Not reduced for minority interest
Revenues from export and domestic sales, denominated in US dollars, were as
follows:
Years Ended December 31,
--------------------------
2001 2000 1999
-------- -------- --------
(In millions)
Europe............................................... $1,453.0 $1,446.6 $1,350.8
Canada............................................... 102.1 141.6 124.7
United States........................................ 3.5 6.6 5.0
Bolivia.............................................. -- 81.1 84.9
Other................................................ 107.5 162.2 80.2
-------- -------- --------
Total*............................................. $1,666.1 $1,838.1 $1,645.6
======== ======== ========
- --------
* Excludes $10.0 million and $9.6 million for gold delivery requirements
associated with the pre-paid forward sale contract in 2001 and 2000,
respectively, and $19.1 million and $18.5 million for put option premium
amortization in 2000 and 1999, respectively.
Long-lived assets in the United States and other countries are as follows:
At December 31,
-----------------
2001 2000
-------- --------
(in millions)
United States................................................. $1,666.8 $1,806.8
Canada........................................................ 98.9 119.2
Indonesia..................................................... 588.1 590.7
Peru.......................................................... 837.2 619.5
Bolivia....................................................... 23.4 34.8
Other......................................................... 138.5 133.6
-------- --------
$3,352.9 $3,304.6
======== ========
The Company is not economically dependent on a limited number of customers
for the sale of its product because gold can be sold through numerous
commodity market traders worldwide. In 2001, sales to two customers totaled
$816 million and $326 million or 49% and 20% of total sales, respectively. In
2000, sales to one customer totaled $1.1 billion or 62% of total sales. In
1999, sales to two customers totaled $771 million and $531 million or 47% and
32%, respectively.
82
NOTE 21 COMMITMENTS AND CONTINGENCIES
Environmental Obligations
The Company's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect the public health and environment and believes its operations are
in compliance with all applicable laws and regulations. The Company has made,
and expects to make in the future, expenditures to comply with such laws and
regulations, but cannot predict the amount of such future expenditures.
Estimated future reclamation costs are based principally on legal and
regulatory requirements. At Decemer 31, 2001 and 2000, $128.4 million and
$108.9 million, respectively, were accrued for reclamation costs relating to
currently producing mineral properties.
In addition, the Company is involved in several matters concerning
environmental obligations associated with former mining activities. Generally,
these matters concern developing and implementing remediation plans at the
various sites involved. The Company believes that the related environmental
obligations associated with these sites are similar in nature with respect to
the development of remediation plans, their risk profile and the compliance
required to meet general environmental standards. Based upon the Company's
best estimate of its liability for these matters, $57.3 million and $63.5
million were accrued for such obligations at December 31, 2001 and 2000,
respectively. These amounts are included in Other accrued liabilities and
Reclamation and remediation liabilities. Depending upon the ultimate
resolution of these matters, the Company believes that it is reasonably
possible that the liability for these matters could be as much as 50% greater
or 30% lower than the amount accrued at December 31, 2001. The amounts accrued
for these matters are reviewed periodically based upon facts and circumstances
available at the time. Changes in estimates are charged to Costs and expenses,
Other in the period estimates are revised.
Details about certain of the more significant sites involved are discussed
below.
Idarado Mining Company ("Idarado")--80.1% owned
In July 1992, the Company and Idarado signed a consent decree with the State
of Colorado ("State"), which was agreed to by the U.S. District Court of
Colorado, to settle a lawsuit brought by the State under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), generally
referred to as the "Superfund Act."
Idarado agreed in the consent decree to undertake specified remediation work
at its former mining site in the Telluride/Ouray area of Colorado. Remediation
work at this property is substantially complete. If the remediation does not
achieve specific performance objectives defined in the consent decree, the
State may require Idarado to implement supplemental activities at the site,
also as defined in the consent decree. Idarado and the Company have obtained a
$5.8 million reclamation bond to secure their potential obligations under the
consent decree. In addition, Idarado settled natural resources damages and
past and future response costs, and agreed to habitat enhancement work, under
the consent decree.
Resurrection Mining Company ("Resurrection")--100% owned
The Company, Resurrection and other defendants were named in lawsuits filed
by the State of Colorado under the Superfund Act in 1983, which were
subsequently consolidated with a lawsuit filed by the U.S. Environmental
Protection Agency ("EPA") in 1986. These proceedings sought to compel the
defendants to remediate the impacts of pre-existing, historic mining
activities near Leadville, Colorado, which date back to the mid-1800's, and
which the government agencies claim are causing substantial environmental
problems in the area.
In 1988 and 1989, the EPA issued administrative orders with respect to one
area on the site, and the defendants have collectively implemented those
orders by constructing a water treatment plant, which was placed
83
in operation in early 1992. Remaining remedial work for this area primarily
consists of water treatment plant operation and continuing environmental
monitoring and maintenance activities. The Company and Resurrection are
currently responsible for 50 percent of these costs; their share of such costs
could increase in the event other defendants become unable to pay their share
of such costs.
The parties also have entered into a consent decree with respect to the
remaining areas at the site, which apportions liabilities and responsibilities
for these areas. The EPA has approved remedial actions for selected components
of Resurrection's portion of the site, which were initiated in 1995. The EPA
has not yet selected the final remedy for the site. Accordingly, the Company
cannot yet determine the full extent or cost of its share of the remedial
action that will be required. The government agencies may also seek to recover
for damages to natural resources. In March 1999, the parties entered into a
Memorandum of Understanding ("MOU") to facilitate the settlement of natural
resources damages claims under CERCLA for the upper Arkansas River Basin. The
MOU provides a structure for evaluation of damages and possible restoration
activities that may be required if it is concluded such damages have occurred.
Dawn Mining Company LLC ("Dawn")--51% owned
Dawn previously leased an open-pit uranium mine, currently inactive, on the
Spokane Indian Reservation in the State of Washington. The mine site is
subject to regulation by agencies of the U.S. Department of Interior (the
Bureau of Indian Affairs and the Bureau of Land Management), as well as the
EPA. Dawn also owns a nearby uranium millsite facility, located on private
land, which is subject to federal and state regulation.
In 1991, Dawn's mining lease at the mine was terminated. As a result, Dawn
was required to file a formal mine closure and reclamation plan. The
Department of Interior commenced an analysis of Dawn's proposed plan and
alternate closure and reclamation plans for the mine. Work on this analysis
has been suspended indefinitely. In mid-2000, the mine was included on the
National Priorities List under CERCLA, and the EPA has initiated a remedial
investigation/feasibility study under CERCLA to determine environmental
conditions and remediation options at the site.
The EPA has asserted that Dawn and the Company are liable for reclamation or
remediation work and costs at the mine. Dawn does not have sufficient funds to
pay for the reclamation plan it proposed or for any alternate plan, or for any
additional remediation work or costs at the mine. The Company will vigorously
contest any claims as to its liability. The Company cannot reasonably predict
the likelihood or outcome of any future action against Dawn or the Company
arising from this matter.
In late 1999, Dawn initiated state approval for a revised mill closure plan
that, if implemented, would expedite the reclamation process at the mill. The
State of Washington has approved this revised plan. The currently approved
plan for the mill is secured by a $14.1 million bond, which is guaranteed by
the Company.
San Luis, Colorado--100% owned
The San Luis open-pit gold mine in southern Colorado was operated by a
subsidiary of Battle Mountain and ceased operations in November 1996. Since
then, substantial closure and reclamation work has been performed. In August
1999, the Colorado Department of Public Health and Environment ("CDPHE")
issued a notice of violation of the Water Quality Control Act, and in October
1999 amended the notice to authorize operation of a water treatment facility
and the discharge of treated water. Battle Mountain has made all submittals
required by the CDPHE notice and has conducted the required response
activities. Battle Mountain negotiated a settlement with CDPHE resolving
alleged violations, which became effective September 1, 2000. In October 2000,
the CDPHE received an "Application for Reconsideration of Order for Civil
Penalty," filed by project opponents, seeking to appeal the terms of the
settlement. The application was denied by CDPHE. Project opponents have filed
a judicial appeal in the District Court for Costilla County, Colorado, naming
the CDPHE as defendant. Battle Mountain has intervened in the appeal to
protect its interests in the settlement. The Company
84
cannot reasonably predict the likelihood or outcome of this or any future
action against Battle Mountain or the Company relating to this site.
Guarantee of Third Party Indebtedness
The Company guaranteed a former subsidiary's $35.7 million Pollution Control
Revenue Bonds, due 2009. The former subsidiary is BHP Copper Inc., formerly
known as Magma Copper Company. It is expected that the Company will be
required to remain liable on this guarantee as long as the bonds remain
outstanding; however, the Company has not been required to pay any of these
amounts, nor does it expect to have to pay any in the future.
Other Commitments and Contingencies
In June 2000, a transport contractor of Minera Yanacocha spilled
approximately 151 kilograms of mercury near the town of Choropampa, Peru,
which is located 53 miles southwest of the mine. Mercury is a byproduct of
gold mining and was sold to a Lima firm for use in medical instrumentation and
industrial applications. A comprehensive health and environmental remediation
program was undertaken by Minera Yanacocha. In August 2000, Minera Yanacocha
paid under protest a fine of 1,740,000 soles (approximately US$500,000) to the
Peruvian government. Minera Yanacocha has entered into settlement agreements
with a number of individuals impacted by the incident. In addition, it has
entered into agreements with three of the communities impacted by this
incident to provide a variety of public works as compensation for the
disruption and inconvenience caused by the incident.
On September 10, 2001, Minera Yanacocha, various wholly-owned subsidiaries
of the Company, and other defendants were named in a lawsuit filed by over 900
Peruvian citizens in Denver District Court for the State of Colorado. This
action seeks compensatory and punitive damages based on claims associated with
the mercury spill incident.
Estimated costs of $10 million for public works, remediation efforts,
personal compensation and the fine were included in Other expense in 2000.
Neither the Company nor Minera Yanacocha can reasonably predict the likelihood
of any additional expenditures related to this matter.
In a 1993 asset exchange, a wholly-owned subsidiary transferred a coal lease
under which the subsidiary had collected advance royalty payments totaling
$484 million. From 1994 to 2018, remaining advance payments under the lease to
the transferee total $390 million. In the event of title failure as stated in
the lease, this subsidiary has a primary obligation to refund previously
collected payments and has a secondary obligation to refund any of the $390
million collected by the transferee, if the transferee fails to meet its
refund obligation. The subsidiary has no direct liability to the lessor and
has title insurance on the leased coal deposits of $240 million covering the
secondary obligation. The Company and the subsidiary regard the circumstances
entitling the lessor to a refund as remote. The Company has agreed to maintain
the subsidiary's net worth at $108 million until July 1, 2025.
The Company has minimum royalty obligations on one of its producing mines in
Nevada for the life of the mine. Amounts paid as a minimum royalty (where
production royalties are less than the minimum obligation) in any year are
recoverable in future years when the minimum royalty obligation is exceeded.
Although the minimum royalty requirement may not be met in a particular year,
the Company expects that over the mine life, gold production will be
sufficient to meet the minimum royalty requirements.
At December 31, 2001, there were $131.8 million of outstanding letters of
credit and surety bonds primarily for bonding reclamation plans and
reinsurance agreements. The surety bonds and letters of credit reflect fair
value as a condition of their underlying purpose and are subject to fees
competitively determined in the marketplace.
NMC is from time to time involved in various legal proceedings related to
its business. Management does not believe that adverse decisions in any
pending or threatened proceeding or that amounts which may be required to be
paid by reason thereof will have a material adverse effect on the Company's
financial condition or results of operations.
85
NOTE 22 UNAUDITED SUPPLEMENTARY DATA
Quarterly Data
The following is a summary of selected quarterly financial information (in
millions except per share amounts):
2001
-----------------------------------------------------------
Three Months Ended
----------------------------------------------
Year Ended
March 31, June 30, September 30, December 31, December 31,
--------- ------- ------------- ------------ ------------
Sales................... $ 424.1 $ 362.4 $ 424.4 $ 445.2 $1,656.1
Gross profit(/1/)(/2/).. $ 81.1 $ 31.0 $ 71.1 $ 79.9 $ 263.1
Net income (loss)
applicable to common
shares................. $ (39.2) $ (33.4) $ 21.6 $ 20.2 $ (30.8)
Net income (loss) per
common share, basic and
diluted ............... $ ( 0.20) $ (0.17) $ 0.11 $ 0.10 $ (0.16)
Basic weighted average
shares outstanding..... 192.6 195.6 195.9 196.1 195.1
Dividends declared per
NMC common share....... $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.12
Closing price of NMC
common stock........... $ 16.12 $ 18.61 $ 23.60 $ 19.11 $ 19.11
2000
-----------------------------------------------------------
Three Months Ended
----------------------------------------------
Year Ended
March 31, June 30, September 30, December 31, December 31,
--------- ------- ------------- ------------ ------------
Sales................... $ 453.2 $ 411.1 $ 419.4 $ 525.8 $1,809.5
Gross profit(/1/)....... $ 105.8 $ 87.3 $ 74.4 $ 117.0 $ 384.5
Net income (loss) before
cumulative effect of a
change in accounting
principle applicable to
common
shares(/3/)(/4/)....... $ 6.1 $ (25.9) $(36.5) $ (33.5) $ (89.8)
Net loss applicable to
common shares.......... $ (6.5) $ (25.8) $ (36.5) $ (33.5) $ (102.3)
Net income (loss) before
cumulative effect of a
change in accounting
principle per common
share, basic and
diluted................ $ 0.03 $ (0.13) $ (0.19) $ (0.18) $ (0.47)
Net loss per common
share, basic and
Diluted ............... $ (0.03) $ (0.13) $ (0.19) $ (0.18) $ (0.53)
Basic weighted average
shares outstanding..... 191.9 192.0 192.2 192.8 192.2
Dividends declared per
NMC common share....... $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.12
Closing price of NMC
common stock........... $ 22.44 $ 21.63 $ 17.00 $ 17.06 $ 17.06
- --------
(1) Sales less costs applicable to sales, and depreciation and depletion.
(2) Included an after-tax charge of $43.7 million for merger and restructuring
expenses in the quarter ended March 31 and an after-tax impairment charge
of $26.7 million in the quarter ended December 31.
(3) In the quarter ended December 31, 2000, the Company changed its method of
accounting for revenue recognition, as described in Note 18. The
accounting principle was applied retroactively to January 1, 2000, and
2000 quarterly information was restated.
(4) Included an after-tax charge of $0.4 million, none, $1.4 million and $1.3
million in the quarters ended March 31, June 30, September 30 and
December 31, respectively, for expenses related to the change in
accounting principle and an after-tax impairment charge of $21.3 million,
in the quarter ended December 31.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges was 0.9, 1.4, 0.5, (5.2), and 1.9 for
the years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
The ratio of earnings to fixed charges represents income before income taxes
and interest expense divided by interest expense. Interest expense includes
amortization of capitalized interest and the portion of rent expense
representative of interest. Earnings in 2001, 1999 and 1998 were inadequate to
cover fixed charges, with deficiencies of $14 million, $51 million and $706
million, respectively. The Company guarantees certain third party debt;
however, it has not been and does not expect to be required to pay any amounts
associated with such debt. Therefore, related interest on such debt has not
been included in the ratio of earnings to fixed charges.
86
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information is in the Market Conditions and Risks Section of Item 7,
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations commencing on page 38 above, and Notes 2 and 9 of Item
7, commencing on page 59 and 70 respectively are incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in the Notes of Item 7, Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations, commencing on
page 57 above, are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with Arthur Andersen LLP, Newmont's
independent public accountants, regarding any matter of accounting principles
or practices or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Newmont's directors will be contained in Newmont's
definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934 for the 2002 Annual Meeting of
Stockholders and is incorporated herein by reference. Information concerning
Newmont's executive officers is set forth under Item 4A in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be contained in Newmont's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 2002 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in Newmont's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 2002 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this item will be contained in Newmont's definitive
Proxy Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 for the 2002 Annual Meeting of Stockholders
and is incorporated herein by reference.
87
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)The following documents are filed as a part of this report:
Financial Statements
The financial statements, together with the report thereon of Arthur
Andersen LLP dated February 5, 2002, are included as part of Item 7,
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, commencing on page 36 above.
Page
----
Report of Independent Public Accountants................................... *
Statements of Consolidated Income.......................................... *
Consolidated Balance Sheets................................................ *
Statements of Consolidated Changes in Stockholders' Equity................. *
Statements of Consolidated Cash Flows...................................... *
Notes to Consolidated Financial Statements................................. *
- --------
* See Item 7.
Financial Statement Schedules
Page
----
Financial Statements of Nusa Tenggara Partnership, V. O. F................. NT-1
Exhibits
Reference is made to the Exhibit Index beginning on page E-1 hereof.
(b) A report was filed on Form 8-K Item 5 on November 14, 2001, with respect
to the solicitation of proxies for Normandy and Franco-Nevada
acquisitions. The November 14, 2001, Form 8-K was amended via a Form 8-K/A
Item 5 on November 16, 2001. On November 27, 2001, a report was filed on
Form 8-K Item 5 with respect to filing The Plan of Arrangement between
Franco-Nevada and Newmont.
88
NUSA TENGGARA PARTNERSHIP V.O.F.
STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands of United States dollars)
Years Ended December 31,
---------------------------
2001 2000 1999
-------- -------- -------
Sales and other income
Copper sales................................... $447,291 $431,325 $15,213
Interest and other............................. 1,134 568 11
-------- -------- -------
448,425 431,893 15,224
-------- -------- -------
Costs and expenses
Costs applicable to sales...................... 252,027 321,501 15,618
Depreciation and depletion..................... 104,580 85,319 9,310
Exploration.................................... 255 768 24
Interest expense, net of amounts capitalized... 89,013 98,302 11,967
Other.......................................... 405 33 14,130
-------- -------- -------
446,280 505,923 51,049
-------- -------- -------
Net income (loss) before tax and cumulative
effect of a change in
accounting principle............................ 2,145 (74,030) (35,825)
Income tax benefit............................... 7,207 3,269 47,671
-------- -------- -------
Net income (loss) before cumulative effect of a
change in accounting principle.................. 9,352 (70,761) 11,846
Cumulative effect of a change in accounting
principle, net.................................. (27) -- --
-------- -------- -------
Net income (loss)................................ $ 9,325 $(70,761) $11,846
======== ======== =======
Other comprehensive income (loss)................ (2,340) -- --
-------- -------- -------
Comprehensive income (loss)...................... $ 6,985 $(70,761) $11,846
======== ======== =======
The accompanying notes are an integral part of these financial statements.
NT-1
NUSA TENGGARA PARTNERSHIP V.O.F
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of United States dollars)
At December 31,
----------------------
2001 2000
---------- ----------
ASSETS
Cash and cash equivalents.............................. $ 7,184 $ 10,395
Accounts receivable from affiliates.................... 242 100
Metal sales receivables................................ 38,515 53,529
Value added taxes receivable........................... 18,474 52,638
Inventories............................................ 94,693 86,251
Other.................................................. 5,615 6,098
---------- ----------
Current assets....................................... 164,723 209,011
Ore inventory.......................................... 136,410 57,116
Property, plant and mine development--net.............. 1,921,568 2,020,386
Debt issuance costs.................................... 36,304 21,360
Deferred income tax assets............................. 67,975 57,098
Other.................................................. 484 100
---------- ----------
Total assets......................................... $2,327,464 $2,365,071
========== ==========
LIABILITIES
Current portion of long-term debt...................... $ 86,732 $ 86,732
Related party debt and interest........................ 254,891 268,469
Working capital loan and accrued interest to
affiliates............................................ -- 15,035
Accounts payable and accrued expenses.................. 109,248 113,612
Accounts payable--affiliates (see Note 12)............. 89,159 72,636
Deferred revenue....................................... -- 6,587
Taxes payable.......................................... 3,477 5,620
---------- ----------
Current liabilities.................................. 543,507 568,691
Long-term debt......................................... 849,039 913,268
Reclamation liabilities................................ 5,758 2,013
---------- ----------
Total liabilities.................................... 1,398,304 1,483,972
---------- ----------
Commitments and contingencies (see Notes 2, 12, 13 and
14)
PARTNERS' EQUITY
Capital account--Newmont Indonesia Limited ("NIL")..... 523,968 495,618
Capital account--Nusa Tenggara Mining Corporation
("NTMC").............................................. 407,532 385,481
Accumulated other comprehensive loss................... (2,340) --
---------- ----------
Total partners' equity............................... 929,160 881,099
---------- ----------
Total liabilities and partners' equity............... $2,327,464 $2,365,071
========== ==========
The accompanying notes are an integral part of these financial statements.
NT-2
NUSA TENGGARA PARTNERSHIP V.O.F.
STATEMENTS OF CONSOLIDATED CHANGES IN PARTNERS' EQUITY
(Amounts in thousands of United States dollars)
NIL NTMC
56.25% 43.75% Total
-------- -------- --------
Balance at December 31, 1998.................... $417,312 $324,576 $741,888
Cash contributions.............................. 51,566 40,106 91,672
Net income...................................... 6,663 5,183 11,846
-------- -------- --------
Balance at December 31, 1999.................... 475,541 369,865 845,406
Cash contributions.............................. 59,880 46,574 106,454
Net loss........................................ (39,803) (30,958) (70,761)
-------- -------- --------
Balance at December 31, 2000.................... 495,618 385,481 881,099
Cash contributions.............................. 8,989 6,991 15,980
Return of capital............................... (124) (96) (220)
Amounts transferred to equity related to accrued
interest....................................... 14,240 11,076 25,316
Net income...................................... 5,245 4,080 9,325
-------- -------- --------
Balance at December 31, 2001.................... $523,968 $407,532 $931,500
======== ======== ========
The accompanying notes are an integral part of these financial statements.
NT-3
NUSA TENGGARA PARTNERSHIP V.O.F.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Amounts in thousands of United States dollars)
Years Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Operating Activities
Net income (loss)........................... $ 9,325 $ (70,761) $ 11,846
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation and depletion................ 104,580 85,319 9,310
Amortization of debt issuance costs....... 6,198 4,023 163
Amortization of capitalized mining costs.. 43,628 21,619 --
Deferred tax benefit...................... (9,530) (6,360) (50,738)
Decrease (increase) in operating assets:
Accounts and other receivables.......... 8,202 (60,770) (2,155)
Inventories............................. (84,919) (57,803) (100,980)
Other assets............................ 6,642 2 177
Increase in operating liabilities:
Accounts payable........................ 3,144 69,213 86,264
Other liabilities....................... 3,032 2,439 13,725
--------- --------- ---------
Net cash provided by (used in) operating
activities................................... 90,302 (13,079) (32,388)
--------- --------- ---------
Investing Activities
Value added taxes........................... 40,834 54,317 (35,928)
Additions to property, plant and mine
development................................ (49,391) (212,349) (576,067)
--------- --------- ---------
Net cash used in investing activities......... (8,557) (158,032) (611,995)
--------- --------- ---------
Financing Activities
Equity contributions from Newmont Indonesia
Limited.................................... 8,989 59,880 51,566
Equity contributions from Nusa Tenggara
Mining Corporation......................... 6,991 46,574 40,106
Amounts returned to Newmont Indonesia
Limited.................................... (124) -- --
Amounts returned to Nusa Tenggara Mining
Corporation................................ (96) -- --
Proceeds from long-term debt................ 426,250 -- 360,000
Repayment of senior debt.................... (490,479) -- --
Senior debt reserve account................. (345) -- --
Proceeds from Partners (NIL & NTMC)......... -- 56,747 191,827
Proceeds from working capital loan from
affiliates................................. -- 35,000 --
Repayment of working capital loan to
affiliates................................. (15,000) (20,000) --
Debt issuance costs......................... (21,142) (102) (1,403)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (84,956) 178,099 642,096
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. (3,211) 6,988 (2,287)
Cash and cash equivalents at beginning of
year......................................... 10,395 3,407 5,694
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 7,184 $ 10,395 $ 3,407
========= ========= =========
The accompanying notes are an integral part of these financial statements.
NT-4
NUSA TENGARRA PARTNERSHIP V.O.F.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 GENERAL
Nusa Tenggara Partnership V.O.F. ("NTP" or the "Partnership") is a general
partnership organized under the laws of The Netherlands. NTP is 56.25%-owned
by Newmont Indonesia Limited ("NIL"), a subsidiary of Newmont Mining
Corporation ("NMC"), both Delaware, U.S.A. corporations, and 43.75%-owned by
Nusa Tenggara Mining Corporation ("NTMC"), a Japanese corporation owned by
Sumitomo Corporation ("Sumitomo") (74.3%), Sumitomo Metal Mining Co., Ltd.
(14.3%), Mitsubishi Materials Corporation (7.1%) and Furukawa Co., Ltd.
(4.3%). Both NMC and Sumitomo have significant participating rights in the NTP
business and unanimous approval is needed for various NTP decisions.
NTP was formed to develop and mine the Batu Hijau copper/gold deposit
located in Sumbawa, Nusa Tenggara Barat, Indonesia. Proven and probable
reserves totaled 9.7 billion (unaudited) and 10.0 billion (unaudited) pounds
of copper and 10.9 million (unaudited) and 11.7 million (unaudited) ounces of
gold, at December 31, 2001 and 2000, respectively. Operations commenced in the
fourth quarter of 1999, with initial sales of concentrate in December 1999.
Copper sales totaled 639.9 million and 523.0 million pounds and gold sales
totaled 524,700 ounces and 317,100 ounces for 2001 and 2000, respectively. The
cost for the initial development of the open-pit mine, mill and
infrastructure, including employee housing, a port, electrical generation
facilities, interest during construction and working capital was approximately
US$1.83 billion.
NTP holds an 80% interest in P.T. Newmont Nusa Tenggara ("PTNNT"), an
Indonesian corporation that holds the Contract of Work ("COW") issued by the
Indonesian government, granting PTNNT sole rights to develop the Batu Hijau
mine. The remaining 20% interest in PTNNT is held by P.T. Pukuafu Indah
("PTPI"), an unrelated Indonesian company. PTPI's interest is a "carried
interest" such that at the request of PTPI, NTP funds PTPI's share of capital
contributions to PTNNT. Contributions made on behalf of PTPI are recoverable
by NTP from 70% of PTPI's share of future dividends from PTNNT. (See Note 9)
Substantially all Partnership transactions relate to its 80% interest in
PTNNT. Certain NTP and PTNNT actions and transactions require unanimous
approval of NTP partners.
Copper and gold mining requires the use of specialized facilities and
technology. PTNNT relies heavily on such facilities to reach and maintain its
production levels. Also, the cash flow and profitability of PTNNT's operations
are significantly affected by market prices of copper and gold. Such commodity
prices fluctuate widely and are affected by numerous factors beyond PTNNT's
control.
Over the past five years, Indonesia has experienced significant fluctuations
of its currency, the Rupiah. The country also faces political and social
challenges. NTP's cost and debt structure is primarily U.S. dollar-
denominated. To the extent that there are fluctuations in the Rupiah, its
devaluation is generally economically neutral or beneficial to NTP since local
salaries and supply contracts will decrease against the U.S. dollar. Excluding
certain tax receivables described in Note 2, PTNNT activities have not been
materially affected by the economic, social and political situation in
Indonesia, primarily because they are located in a remote location.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statements
The financial statements have been prepared using generally accepted
accounting principles of the United States ("U.S. GAAP").
NT-5
Principles of Consolidation
The financial statements reflect the consolidated financial position and the
results of operations of NTP and PTNNT. Because PTPI's interest in PTNNT is a
"carried interest", PTNNT is consolidated on a 100% basis with no minority
interest as PTPI has not earned into its 20% interest. All significant
intercompany balances and transactions have been eliminated.
Foreign Currency Transactions and Balances
NTP maintains its accounting records in U.S. dollars ("USD" or "US$"). The
USD is the functional currency of NTP. Transactions in other currencies are
recorded in USD based on exchange rates prevailing at the time of such
transactions. Monetary assets and liabilities denominated in other currencies
are translated into USD at exchange rates prevailing at the balance sheet
dates, and any resulting gains or losses are reflected in current earnings.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of the
short maturity of these investments, the carrying amounts approximate their
fair value. Cash and cash equivalents are primarily invested in money market
accounts.
Taxes Receivable
Value added taxes ("VAT") are paid on the PTNNT's purchases of goods and
services. Commencing January 1, 2001, VAT paid during each month is fully
refundable without restriction. VAT payments and refunds are local currency
transactions and consequently, are subject to fluctuations in the exchange
rate between the local currency and the US$. Provisions are made to adjust the
value of the VAT receivable to its estimated recoverable value as of the
balance sheet date.
Inventories
Current and non-current ore inventory and concentrate inventory are stated
at the lower of average cost or net realizable market value. Included in the
valuation of these inventories is all direct cost associated with the mining
of the ore as well as an allocable portion of mine support costs. The carrying
value for concentrate inventory also includes related processing costs.
Depreciation and depletion costs are not included in the inventory valuation.
Materials and supplies inventories are valued at cost including tax and inland
freight.
Property, Plant and Mine Development
Expenditures for new facilities or expenditures that extend the useful lives
of existing facilities are capitalized and depreciated over the estimated
productive lives of the facilities. Depreciation for mining and milling life-
of-mine assets is determined using the unit-of-production method based on
estimated life-of-mine tonnage. Other assets are depreciated on a straight-
line basis over the estimated productive lives, ranging from 3 to 20 years but
do not exceed mine life based on proven and probable reserves.
The excess of the agreed fair value of the assets contributed to NTP when it
was initially funded over the historical cost basis was recorded as deferred
mineral rights. Such costs are amortized by the unit-of-production method
during the production life-of-mine.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a result
of establishing proven and probable reserves, future costs to be incurred to
develop such property, including costs to further delineate the ore body and
remove overburden to initially expose the ore body, are capitalized. Such
costs, and estimated future development costs, are amortized
NT-6
using the unit-of-production method over the estimated life of the ore body
based on proven and probable reserves. Ongoing development expenditures to
maintain production are charged to operations as incurred.
Interest expense allocable to the cost of developing mining properties and
to constructing new facilities is capitalized until assets are ready for their
intended use.
Gains or losses from normal sales or retirements of assets are included in
other income.
Asset Impairment
The Partnership reviews and evaluates its long-lived assets for impairment
when events or changes in circumstances indicate that the related carrying
amounts may not be recoverable. An impairment loss is measured as the amount
by which asset carrying value exceeds its fair value. Fair value is generally
determined using estimated future cash flow analysis. An impairment is
considered to exist if total estimated future cash flows on an undiscounted
basis are less than the carrying amount of the asset. An impairment loss is
measured and recorded based on discounted estimated future cash flows. Future
cash flows include estimates of recoverable pounds and ounces, metal prices
(considering current and historical prices, price trends and related factors),
production, capital and reclamation costs, all based on detailed engineering
life-of-mine plans. In estimating future cash flows, assets are grouped at the
lowest level for which there are identifiable cash flows that are largely
independent of cash flow from other asset groups. The assets related to the
Batu Hijau mine are used in the computation. Assumptions underlying future
cash flow estimates are subject to risks and uncertainties. Any differences
between significant assumptions and actual market conditions and/or the
Partnership's performance could have a material effect on the Partnership's
financial position and results of operations.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" that established a single
accounting model, based on the framework of SFAS No. 121 ("Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"),
for long-lived assets to be disposed of by sale. The statement was adopted on
January 1, 2001 and there was no impact upon adoption.
Debt Issuance Costs
Costs incurred to arrange and refinance the third party senior debt for
development of PTNNT's Batu Hijau mine, including financial advisory fees,
legal fees, loan origination and commitment fees, accounting and tax advisory
services, etc., were capitalized as deferred debt issuance costs. Such costs
are amortized over the term of the loan which started at the beginning of
commercial production using the effective interest method. Amortization of
debt issuance costs is included as a component of interest expense.
Revenue Recognition
Copper sales are recognized when the title of the concentrates is
transferred to the buyer which coincides with the transfer of the risk of loss
that passes to the buyer when the concentrates are moved over the vessel's
rail at the Port. Certain conditions are met prior to recognizing revenue.
Such conditions are (1) loading of concentrates, (2) issuance of an initial
assays and weight certificate and, (3) issuance of provisional invoice.
Concentrate sales are recorded based on 100% of a provisional sales price that
is in accordance with terms specified in customer contracts. Factors entering
into the calculation of the provisional sales price are (1) metals prices,
pursuant to the terms of related contracts, calculated using the price from
the second calendar week prior to shipment and based on London Metals Exchange
prices and (2) treatment and refining charges. In accordance with contract
terms, 90% of the revenue is collected within three business days after
concentrate arrives at the smelter. The balance is received at final
settlement and is based on the average copper price in the third month after
the month of arrival. Until final settlement occurs, adjustments to the
provisional sales price are made to take into account metal price changes,
based upon month-end market prices, and metal quantity upon receipt of the
final assay and weight certificate, if different from the initial certificate.
Final delivery to purchasers in Japan,
NT-7
Korea, Australia and China takes approximately 14 days and to purchasers in
Europe approximately 30 days. Over the three-year period presented, the
maximum average price adjustment was 4% for copper and 3% for gold. Risks
associated with recognition of sales on a provisional basis include metal
price fluctuations between the date recorded and the date of final settlement.
Deferred Revenue
Cash has been received by NTP on certain concentrates prior to shipment.
Proceeds received from such advance sales are recorded as deferred revenue and
are recognized in income when shipped.
Mining Costs
Due to the diverse grade and waste-to-ore ratios over the mine life, mining
costs are capitalized or deferred and are charged to operations on the basis
of the average life-of-mine grade and waste-to-ore ratios per equivalent unit
of copper recovered.
Reclamation Costs
Estimated future reclamation costs are based principally on legal and
regulatory requirements. Such costs are accrued and charged over the expected
operating life of the mine using the unit-of-production method.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" which established a uniform methodology for accounting
for estimated reclamation and abandonment costs. The statement will be adopted
on January 1, 2003, when NTP will record the estimated present value of
reclamation liabilities and increase the carrying amount of the related asset.
Subsequently, the reclamation costs will be allocated to expense over the life
of the related assets and will be adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the original
present value estimate. NTP is in the process of quantifying the effect of
adoption.
Income Taxes
PTNNT accounts for income taxes using the liability method, recognizing
certain temporary differences between the financial reporting basis of its
assets and liabilities and the related income tax basis of such assets and
liabilities. This method generates a net deferred income tax asset or net
deferred income tax liability as of the end of the year, as measured by the
statutory tax rates in effect as enacted. PTNNT derives its deferred income
tax benefit or charge by recording the change in the net deferred income tax
asset or net deferred income tax liability balance for the year.
PTNNT's deferred income tax assets include certain future tax benefits.
PTNNT records a valuation allowance against any portion of those deferred
income tax assets that it believes may more likely than not fail to be
realized.
NTP is not subject to income taxes. The taxable income or loss of the
Partnership, which may vary substantially from income or loss reported for
financial reporting purposes, is passed through to NTP partners. NTP is
subject to withholding taxes on certain payments made from Indonesia. Such
withholding taxes are included in Income tax benefit.
Derivative Instruments
PTNNT does not acquire, hold or issue financial instruments for trading or
speculative purposes. Financial instruments are used to manage certain market
risks resulting from fluctuations in commodity prices (mainly copper and
diesel fuel) and foreign currency exchange rates. Copper is an internationally
traded commodity, and its prices are effectively determined by the London
Metals Exchange ("LME"). On a limited basis, PTNNT
NT-8
hedges sales commitments by entering into copper swap contracts. Swap
contracts are settled at the LME average monthly price in accordance with the
terms of the contracts. Currently, PTNNT has put in place derivative
instruments against the Australian dollar and some of its diesel purchases.
These derivative instruments on the Australian dollar relate to Australian
denominated purchases. During 2001, PTNNT also hedged the Rupiah to protect
certain VAT receivables.
Effective January 1, 2001, NTP adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," that requires recognition of
all derivative instruments on the balance sheet as either assets or
liabilities and measurement at fair value. Changes in the derivative's fair
value are recognized currently in earnings unless specific hedge accounting
criteria are met. Gains and losses on derivative hedging instruments were
recorded in either Other comprehensive income (loss) or Net income (loss),
depending on the nature of the instrument. NTP made no substantive changes to
its risk management strategy as a result of adopting SFAS No. 133. Derivative
documentation policies were revised as necessary to comply with the new
standard. Upon the adoption of SFAS No. 133 on January 1, 2001, $27 thousand
was recorded as Cumulative effect of a change in accounting principle, net for
an Australian currency exchange contract that was not designated a cash flow
hedge. In addition, upon adoption, an asset of US$357 thousand was recorded
for the fair value of copper swap contracts that qualify as cash flow hedges,
with an offsetting benefit of US$232 thousand to Other comprehensive income
(loss), net of US$125 thousand in Deferred income tax assets.
Comprehensive Income
In addition to net income, comprehensive income includes all changes in
equity during a period, except those resulting from investments by and
distributions to owners. The Partnership had no comprehensive income items
prior to 2001. In 2001, the US$2.3 million Other comprehensive income (loss)
represents the change in the fair value of derivative instruments that qualify
as cash flow hedges.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amount of
revenues and expenses during the reporting period. Actual amounts could differ
from these estimates.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the 2001
presentation.
NOTE 3 INITIAL FUNDING OF THE PARTNERSHIP
The Partnership agreement, executed on July 2, 1996, provided for initial
contributions from its partners. The date of such contributions (referred to
as the "Initial Funding Date") was June 10, 1997. NIL contributed its 80%
interest in PTNNT in exchange for a 56.25% interest in NTP. NIL also
contributed rights to its shareholder loan receivable of US$77.2 million and a
PTPI loan receivable of US$2.2 million. The agreed upon value of NIL's initial
contributions was US$306.2 million. NTMC contributed approximately US$164
million, as defined in the agreement, in exchange for a 43.75% interest in
NTP. NTMC and NIL contributed proportionately 43.75% and 56.25%, respectively,
after the US$164 million was paid.
PTNNT's losses up to the Initial Funding Date, of US$41.4 million were
allocated to the capital accounts of NIL and NTMC in proportion to their
respective Partnership interests.
NT-9
NOTE 4 INVENTORIES
At December 31,
----------------
2001 2000
-------- -------
(in thousands of
US$)
Current:
Ore inventory.............................................. $ 8,007 $ 6,932
Concentrate inventory...................................... 1,431 3,090
Materials and supplies..................................... 85,255 76,229
-------- -------
Total inventories.......................................... $ 94,693 $86,251
======== =======
Non-Current:
Ore inventory.............................................. $136,410 $57,116
======== =======
NOTE 5 PROPERTY, PLANT AND MINE DEVELOPMENT
At December 31,
----------------------
2001 2000
---------- ----------
(in thousands of US$)
Deferred mineral rights............................. $ 219,509 $ 219,509
Machinery and equipment............................. 1,316,319 98,684
Buildings and infrastructure........................ 445,887 1,488,244
Mine development.................................... 157,102 157,102
Construction-in-progress............................ 45,362 174,363
---------- ----------
2,184,179 2,137,902
Accumulated depreciation and depletion.............. (213,239) (108,659)
Capitalized (deferred) mining costs................. (49,372) (8,857)
---------- ----------
Property, plant and mine development--net........... $1,921,568 $2,020,386
========== ==========
NOTE 6 ACCOUNTS PAYABLE--AFFILIATES
At December 31,
---------------
2001 2000
------- -------
(in thousands
of US$)
Technology and Know How Agreement Royalties--NTL........... $46,641 $37,222
Technology and Know How Agreement Royalties--Sumitomo...... 36,276 28,951
Consulting Services Agreement--NISL........................ 524 1,687
Payroll Agency Agreements--NIIL and NGELP.................. 4,667 3,979
Consulting Services Agreement--NPN......................... 1,047 894
Other...................................................... 4 (97)
------- -------
Total...................................................... $89,159 $72,636
======= =======
NOTE 7 INCOME TAXES
NTP's Indonesian income tax benefit consisted of:
Years Ended December 31,
--------------------------
2001 2000 1999
------- ------- --------
(in thousands of US$)
Current......................................... $ 2,323 $ 3,091 $ 3,067
Deferred........................................ (9,530) (6,360) (50,738)
------- ------- --------
Total benefit................................... $(7,207) $(3,269) $(47,671)
======= ======= ========
NT-10
NTP's income tax benefit differed from the amounts computed by applying the
COW corporate income tax statutory rate for PTNNT for the following reasons:
Years Ended December 31,
---------------------------
2001 2000 1999
------- -------- --------
(in thousands of US$)
Indonesian corporate income tax benefit at
COW rate.................................... $(9,011) $(36,752) $(14,162)
Valuation allowance on deferred tax assets... (3,235) 286 (36,576)
Non-deductible interest expense.............. -- 27,221 --
Other........................................ 2,716 2,885 --
------- -------- --------
Income tax benefit........................... (9,530) (6,360) (50,738)
Income withholding tax....................... 2,323 3,091 3,067
------- -------- --------
Total benefit................................ $(7,207) $ (3,269) $(47,671)
======= ======== ========
Other comprehensive income (loss) is net of $1.3 million of deferred income
taxes which is not reflected above.
Components of NTP's net deferred income tax assets are as follows:
At December 31,
--------------------
2001 2000
--------- ---------
(in thousands of
US$)
Deferred tax assets:
Net operating loss carry-forward.................... $ 254,537 $ 149,218
Capitalized start-up costs.......................... 15,773 18,586
Capitalized mining costs............................ 17,280 3,100
Exploration costs................................... 9,145 11,806
Capitalized interest................................ -- 1,168
Reclamation......................................... 1,759 --
Other............................................... 2,125 2,743
--------- ---------
Gross deferred tax assets:............................ 300,619 186,621
Valuation allowance for deferred tax assets......... (2,428) (5,663)
--------- ---------
Net deferred tax assets............................... 298,191 180,958
--------- ---------
Deferred tax liabilities:
Depreciation........................................ (206,771) (115,904)
Inventories......................................... (10,125) (5,598)
Capitalized Interest................................ (13,320) --
Other............................................... -- (2,358)
--------- ---------
Deferred tax liabilities.............................. (230,216) (123,860)
--------- ---------
Net deferred tax assets............................... $ 67,975 $ 57,098
========= =========
Primarily based on estimates of future sources of taxable income, NTP
believes that it, more likely than not, will utilize US$298.2 million of the
US$300.6 million of deferred income tax assets at December 31, 2001.
NOTE 8 DEBT
Senior Debt
On July 30, 1997, PTNNT entered into a US$1.0 billion project financing
facility for the Batu Hijau project ("Senior Debt"). US$913.2 million and
US$1.0 billion were outstanding as of December 31, 2001 and 2000,
respectively. The Senior Debt includes commitments from three export-credit
agencies with participation by
NT-11
various commercial banks. The completion tests associated with this debt were
satisfied during the fourth quarter of 2000 making the Senior Debt non-
recourse to NMC and Sumitomo. The assets of PTNNT secure the debt. The fair
market value cannot be practicably determined due to the lack of available
market information for this type of debt.
Repayment of borrowings under the Senior Debt are in semi-annual
installments of US$43.4 million from May 2001 through November 2010 and the
first repayment occurred on May 15, 2001. The semi-annual installments will be
reduced to US$22.1 million from May 2011 through November 2013. The interest
rate is based on blended fixed and floating rates and at current market rates
on December 31, 2001, the weighted average interest rate would be
approximately LIBOR plus 1.2%. The weighted average interest rates were 6.8%,
6.6% and 6.4 % during 2001, 2000 and 1999, respectively, and the interest
rates were 5.0% and 7.0% at December 31, 2001 and 2000, respectively.
The Chase Manhattan Bank ("Chase") portion of the Senior Debt was refinanced
in May 2001. US$403.75 million was borrowed from Export-Import Bank of the
United States ("US Exim") and the Chase tranche of the Senior Debt was repaid
in full.
Senior Debt covenants, conditions, warranties and representations include
among others:
Limitation on Indebtedness--PTNNT shall not incur any indebtedness, other
than the US$1 billion Senior Debt, except for "Permitted Indebtedness", which
includes the unsecured debt from Chase, subordinated debt from NTP, sponsor
loans and second sponsor loans discussed below, unsecured working capital debt
with maturity not in excess of one year and not exceeding US$35 million, and
other indebtedness with aggregate principal not to exceed US$5 million at any
one time.
"Restricted Payments"--Restricted Payments include dividends or return of
capital and payment of principal or interest on subordinated loans to NTP, its
partners or their affiliates. Restricted Payments can be made provided certain
conditions and financial ratios are met. No restricted payments have been made
to date.
Chase
On May 14, 2001, PTNNT borrowed US$22.5 million to fund a credit financing
fee for the Senior Debt transaction with US Exim as described above. This
borrowing is unsecured and is due in May 2005. The loan maturity can be
extended to May 2006 provided certain covenants and debt service coverage
ratios are met. The interest rate is based on the semi-annual LIBOR rate, and
the weighted average interest rate would be approximately LIBOR plus 2%. The
weighted average interest rate was 5.7% during 2001, and at December 31, 2001,
the interest rate was 4.0%.
Scheduled minimum long-term third party debt repayments are US$86.7 million
in 2002, US$86.7 million in 2003, US$86.7 million in 2004, US$109.2 million in
2005, US$86.7 million in 2006 and US$479.8 million thereafter.
Loans and Accrued Interest To Partners
In 1999, PTNNT entered into separate shareholder subordinated loan
agreements with NIL and NTMC ("Sponsor Loans") under which US$195.6 million of
principal and US$5.0 million and US$16.5 million of accrued interest were
outstanding at December 31, 2001 and 2000, respectively. US$ 20.8 million of
the accrued interest was converted to Partners' equity during 2001. Borrowings
under Sponsor Loans are guaranteed by NTP and are payable on demand, subject
to Senior Debt subordination terms. The interest rate is based on the annual
SIBOR rate and the interest rate on any unpaid interest is based on the annual
SIBOR rate plus 1%. The weighted average interest rates during 2001 and 2000
were 5.1% and 6.8% and at December 31, 2001 and 2000 were 2.0% and 6.2%,
respectively. Payments of Sponsor Loan principal and interest are Restricted
Payments under provisions of the Senior Debt.
NT-12
On January 5, 2000, PTNNT entered into separate shareholder subordinated
loan agreements ("Second Sponsor Loans") with NIL and NTMC under which US$53
million of principal and US$1.3 million and US$3.4 million interest were
outstanding at December 31, 2001 and 2000, respectively. US$4.5 million of the
accrued interest was converted to Partners' equity during 2001. The terms of
the Second Sponsor Loans are similar to the Sponsor Loans described above
where; (i) borrowings are guaranteed by NTP and are payable on demand, subject
to Senior Debt subordination terms, (ii) interest rates are based on the
annual SIBOR rate for principal and the annual SIBOR rate plus 1% for unpaid
accrued interest and (iii) loan repayments and interest are Restricted
Payments under provisions of the Senior Debt. The weighted average interest
rate during 2001 and 2000 was 4.7% and 6.8%, respectively, and at December 31,
2001 and 2000 the interest rates were 2.0% and 6.2%, respectively.
On June 27, 2000, PTNNT entered into a working capital loan agreement with
NMC and Sumitomo Corporation Capital Asia Pte. Ltd. The loan totaled US$35
million and repayments of principal and interest are not considered Restricted
Payments under terms of the Senior Debt discussed above. The balances at
December 31, 2000 and 2001 were $15 million and zero, respectively. The period
of the loan is for a one, two or three month period at the option of PTNNT.
The final maturity date was extended to June 26, 2002. The interest rate is
based on the three-month SIBOR plus 2%. However, if any principal amount is
not paid by the due date, the interest rate is based on the three-month SIBOR
plus 4%. The weighted average interest rate during 2001 and 2000 was 7.1% and
8.7%, respectively, and at December 31, 2000 the interest rate was 7.4%. It is
expected this facility will be renewed in 2002.
Capitalized Interest
Capitalized interest was US$0.1 million, US$2.1 million and US$35.8 million
in 2001, 2000 and 1999, respectively.
NOTE 9 PTPI CARRIED INTEREST IN PTNNT
As described in Note 1, PTPI owns a 20% carried interest in PTNNT. PTNNT's
total paid-in capital was US$639.4 million and US$283.7 million at December
31, 2001 and 2000, respectively. PTPI's share of such capital was funded with
loans from NIL and NTMC, through NTP, and totaled US$127.9 million and
US$56.7 million at December 31, 2001 and 2000, respectively. These loans are
subject to interest at the six-month SIBOR plus two percent. PTPI agreed to
assign 70% of its rights to dividends from PTNNT to repay such loans,
including interest, pursuant to an Acknowledgement of Indebtedness and
Assignment of Dividends agreement with NIL. Interest accrued under these loans
is fully covered by an allowance until recoverability of such interest is
determined.
NOTE 10 MAJOR CUSTOMERS AND EXPORT SALES
PTNNT sells its concentrates primarily pursuant to long-term sales
agreements. As a percentage of total sales, 95% of total sales were pursuant
to such contracts during 2001. Two of these agreements each accounted for more
than 10% of sales in 2001 and were US$81.9 million and US$71.6 million and
together accounted for 35% of total sales. As a percentage of total sales,
100% were pursuant to such long-term sales agreements during 2000, and two
customers accounted for US$83.4 million and US$53.9 million of total sales,
each of which accounted for more than 10% of total sales, and together
accounted for 32% of total sales.
NOTE 11 SUPPLEMENTAL CASH FLOW INFORMATION
Excluded from the consolidated statements of cash flows were the effects of
non-cash transactions wherein PTNNT purchased spare parts inventory, but
defers payment until such inventory is used. The amount so purchased was
US$26.4 million at December 31, 2001, US$23.6 million at December 31, 2000 and
US$12.5 million at December 31, 1999.
NT-13
In May 2001 the interest that was accrued on the Sponsor Loans and Second
Sponsor Loans between PTNNT and NIL and NTMC that totaled US$25.3 million was
transferred to NTP partners' equity.
Interest paid net of amounts capitalized totaled US$71.0 million, US$68.6
million, and US$6.1 million in 2001, 2000 and 1999, respectively.
Taxes paid consisting of withholding taxes on interest earned, were US$2.3
million, US$3.1 million and US$3.1 million in 2001, 2000 and 1999,
respectively.
NOTE 12 OTHER SIGNIFICANT AGREEMENTS
Technology and Know-How Agreements
On July 2, 1996, PTNNT entered into a Technology and Know-How Agreement with
Newmont Technologies Limited ("NTL"), a subsidiary of NMC, whereby NTL agreed
to provide proprietary information, technology, know-how and related
intellectual property rights. Under the terms of this agreement, PTNNT pays
NTL a royalty of 1.6875% of the preceding month's aggregate capital
expenditures determined in accordance with U.S. GAAP, and US$3.9375 per
equivalent ounce of gold produced by PTNNT.
A similar Technology and Know-How Agreement was executed with Sumitomo
Corporation on the same date, providing a royalty of 1.3125% of aggregate
capital expenditures and US$3.0625 per equivalent ounce of gold produced.
Charges under these agreements totaled US$16.7 million, US$21.6 million and
US$15.7 million during 2001, 2000 and 1999, respectively. The associated
liabilities at December 31, 2001 and 2000 were US$82.9 million and US$66.2
million, respectively, and were included in Accounts payable--affiliates (Note
6).
Consulting Services Agreements
In July 1996, PTNNT entered into a Consulting Services Agreement with
Newmont International Services Limited ("NISL"), a subsidiary of NMC, whereby
NISL agreed to provide certain support; advisory and consulting services
related to general project engineering, control and development; procurement
advice and implementation; contract negotiation support; general construction
advice and support; operations management support; tax and legal planning;
general and administrative services; and management and business support
services. NISL provides these services primarily outside of the Republic of
Indonesia. Under the terms of this agreement, PTNNT reimburses NISL for its
actual payroll costs, including related employee benefits, incurred to provide
these services, other out-of-pocket costs, and an administrative fee. Charges
totaled US$5.5 million in 2001, US$10.4 million in 2000 and US$6.1 million in
1999 and Accounts payable--affiliates included US$0.5 million and US$1.7
million at December 31, 2001, and 2000, respectively (Note 6).
PTNNT has a similar Consulting Services Agreement with NTMC. Pursuant to
this agreement, charges totaled US$0.4 million in 2001, US$0.4 million in 2000
and US$0.7 million in 1999. Accounts payable--affiliates included no amount at
December 31, 2001 and US$27 thousand at December 31, 2000 (Note 6).
In June 1999, PTNNT entered into a Consulting Services Agreement with
Newmont Pacific Nusantara ("NPN"), a subsidiary of NMC, whereby NPN agreed to
provide certain support; legal, tax, government relations and public relations
support. NPN provides these services primarily in the Republic of Indonesia.
Under the terms of this agreement, PTNNT reimburses NPN for its actual payroll
costs, including related employee benefits, incurred to provide these
services, other out-of-pocket costs, and an administrative fee. Charges
totaled US$3.6 million, US$2.9 million and US$0.8 million in 2001, 2000 and
1999, respectively. Accounts payable--affiliates included US$ 1.0 million and
US$0.9 million at December 31, 2001, and 2000, respectively for this agreement
(Note 6).
NT-14
Payroll Agency Agreements
PTNNT entered into Payroll Agency Agreements with Newmont Indonesia
Investment Limited ("NIIL") and Newmont Global Employment Limited Partnership
("NGELP"), wholly-owned subsidiaries of NMC, whereby NIIL and NGELP agreed to
act as agents of PTNNT to handle personnel, payroll and benefits management of
non-Indonesian employees assigned to work for PTNNT in Indonesia. NIIL manages
expatriates from the U.S. and NGELP manages expatriates from countries other
than the U.S.
Under the terms of these agreements, PTNNT reimburses the agents for
salaries, related employee benefits and other reasonable expenses and pays a
fee of US$20 for each salary payment made. Agency payments totaled US$9.5
million in 2001, US$16.5 million in 2000 and US$15.1 million in 1999, and
Accounts payable--affiliates included US$4.7 million and US$3.9 million at
December 31, 2001 and 2000, respectively (Note 6).
Batu Hijau Project Engineering and Construction Agreements
PTNNT entered into an On-Shore Agreement with P.T. Fluor Daniel Indonesia
("FDI"), an unrelated entity, whereby FDI agreed to construct PTNNT's
processing facilities and related infrastructure, and to provide project
management, procurement, engineering and construction management. Such
services were performed in Indonesia and related payments were made in USD on
a cost reimbursable basis. No charges under this agreement were made during
2001. During 2000 and 1999, charges under this agreement were US$3.8 million
and US$301 million, respectively, and no amounts were payable at December 31,
2001, and 2000. The services under this agreement were completed in 2000.
PTNNT entered into an Off-Shore Agreement with Fluor Daniel Engineers and
Constructors, Ltd. ("FDEC"), an unrelated entity, whereby FDEC agreed to
perform the engineering design and procurement of equipment for PTNNT's
processing facilities and related infrastructure, and provide project
management, procurement, engineering and construction management. Such
services were performed outside Indonesia and related payments were made in
USD on a cost reimbursable basis with an additional discretionary fee payable
as determined by the Partnership. No charges occurred under this agreement
during 2001. Charges for such services were US$0.5 million and US$91 million
during 2000 and 1999, respectively, and no amounts were payable at December
31, 2001, and 2000. The services under this agreement were completed in 2000.
Maintenance and Repair Cost Agreements
During 1999, PTNNT entered into a long-term Maintenance and Repair Cost
agreements ("MARC") with P.T. Trakindo Utama ("Trakindo"), an unrelated
Indonesian company, to provide maintenance on PTNNT's Caterpillar equipment at
a fixed cost per operating hour. Under the terms of the MARC agreements,
Trakindo will provide all normal "wear and tear" parts and labor necessary to
perform maintenance and repairs on such equipment. Inception-to-date contract
expenditures charged for such services were US$48.3 million with the future
value of the contracts amounting to US$290.2 million. The contracts are
effective through December 31, 2007. Either party can cancel the contracts
with one year written notice.
NOTE 13 HEDGING PROGRAMS
Diesel Hedging--In August and September 2001, PTNNT entered into diesel
hedging contracts for 360,000 barrels in each month at a fixed price of
US$27.39 per barrel and US$27.98 per barrel, respectively. Each of these
contracts covers purchases of 15,000 barrels monthly and will expire in August
and September of 2003, respectively. Each contract is settled monthly. The
average price of the contracts was US$27.34 per barrel versus an average
realized price of US$23.48 per barrel. These contracts have been designated as
cash flow hedges and the fair value as of December 31, 2001 was a liability of
US$3.7 million.
Australian Dollar Hedging--In 2001, PTNNT settled on a monthly basis the
purchase of 24 million Australian dollars that were bought at an average price
of US$0.5465 under a contract entered into in 2000 and
NT-15
settled at an average price of US$0.5148. These Australian dollars were used
to pay Australian dollar vendors. In March, July and October of 2001, PTNNT
also purchased 15 million Australian dollars at an average price of US$0.4971.
These contracts cover 1.5 million Australian dollars each month and have been
designated as cash flow hedges. These contracts had a fair value at December
31, 2001 of a positive US$ 0.2 million based on a market rate of US$0.5115.
The net loss from these contracts at December 31, 2001 was tax effected at
35% and that net amount is recorded in Accumulated other comprehensive income
(loss).
NOTE 14 COMMITMENTS AND CONTINGENCIES
NTP's exploration, development and mining activities are subject to various
Indonesian laws and regulations governing the protection of the environment.
These laws and regulations are continually changing and are generally becoming
more restrictive. NTP conducts its operations so as to protect the public
health and environment and believes its operations are in compliance with all
applicable laws and regulations. NTP has incurred, and in the future expects
to incur, expenditures to comply with such laws and regulations; however, NTP
cannot predict the amount of such future expenditures.
NTP is from time to time involved in various legal proceedings of a character
normally incident to its business. It does not believe that adverse decisions
in any pending or threatened proceedings or that any amounts it may be
required to pay by reason thereof will have a material adverse effect on its
financial condition or results of operations.
In 2000, a new Indonesian statute required the payment of termination,
gratuity and compensation benefits in the event of involuntary as well as
voluntary employment termination, for which PTNNT accrued and charged to
expense US$141 thousand and US$593 thousand in 2001 and 2000, respectively.
NT-16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Newmont Mining Corporation
/s/ Britt D. Banks
By: _________________________________
Britt D. Banks
Vice President, General Counsel
and Secretary
March 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 2002.
Signature Title
--------- -----
Director
_________________________________
Glen A. Barton
/s/ Vincent A. Calarco Director
_________________________________
Vincent A. Calarco
/s/ Ronald C. Cambre Director
_________________________________
Ronald C. Cambre
/s/ James T. Curry, Jr. Director
_________________________________
James T. Curry, Jr.
/s/ Britt D. Banks
________________________
Britt D. Banks
/s/ Joseph P. Flannery Director Attorney-in-Fact
_________________________________
Joseph P. Flannery
/s/ M. Craig Haase Director
_________________________________
M. Craig Haase
/s/ Michael S. Hamson Director
_________________________________
Michael S. Hamson
Director
_________________________________
Leo I. Higdon, Jr.
/s/ Pierre Lassonde Director
_________________________________
Pierre Lassonde
S-1
Signature Title
--------- -----
/s/ Robert J. Miller Director
_________________________________
Robert J. Miller
/s/ Wayne W. Murdy Chairman of the Board
_________________________________ and Chief Executive
Wayne W. Murdy Officer (Principal
Executive Officer)
/s/ Robin A. Plumbridge Director
_________________________________
Robin A. Plumbridge
/s/ John B. Prescott Director
_________________________________
John B. Prescott
/s/ Moeen A. Qureshi Director
_________________________________
Moeen A. Qureshi
/s/ Michael K. Reilly Director
_________________________________
Michael K. Reilly
/s/ Seymour Schulich Director
_________________________________
Seymour Schulich
/s/ Britt D. Banks
________________________
Britt D. Banks
Attorney-in-Fact
/s/ James V. Taranik Director
_________________________________
James V. Taranik
/s/ Bruce D. Hansen Senior Vice President
_________________________________ and Chief Financial
Bruce D. Hansen Officer (Principal
Financial Officer)
/s/ Linda K. Wheeler Vice President and
_________________________________ Controller (Principal
Linda K. Wheeler Accounting Officer)
S-2
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2(a) -- Arrangement Agreement, dated as of November 14, 2001, by and
between Franco-Nevada Mining Corporation Limited and Newmont
Mining Corporation (now known as "Newmont USA Limited").
Incorporated by reference to Exhibit 2.1 to the Issuer's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on March 1, 2002.
2(b) -- Deeds of Undertaking, dated as of November 14, 2001, November 14,
2001, and December 10, 2001, by and between Newmont Mining
Corporation (now known as "Newmont USA Limited"). Incorporated by
reference to Exhibit 2.2 to the Issuer's Current Report on Form 8-
K filed with the Securities and Exchange Commission on March 1,
2002.
2(c) -- Agreement and Plan of Merger, dated as of January 8, 2002, by and
among Newmont Mining Corporation (now known as "Newmont USA
Limited"), the Issuer and Delta Acquisitionco Corp. Incorporated
by reference to Exhibit 2.3 to the Issuer's Current Report on Form
8-K filed with the Securities and Exchange Commission on March 1,
2002.
3(a) -- Certificate of Incorporation of Issuer. Incorporated herein by
reference to Appendix F to the Issuer's Registration Statement on
Form S-4 (File No. 333-76506), filed with the Securities and
Exchange Commission on January 10, 2002.
3(b) -- Certificate of Elimination of Series A Junior Participating
Preferred Stock of Registrant. Incorporated herein by reference to
Exhibit 3.2 to the Issuer's Registration Statement on Form 8-A
relating to the registration of its common stock, filed with the
Securities and Exchange Commission on February 15, 2002.
3(c) -- Certificate of Designations of Special Voting Stock. Incorporated
herein by reference to Exhibit 3.3 to the Issuer's Registration
Statement on Form 8-A relating to the registration of its common
stock, filed with the Securities and Exchange Commission on
February 15, 2002.
3(d) -- Certificate of Amendment to the Certificate of Incorporation of
Issuer. Incorporated herein by reference to Exhibit 3.4 to the
Issuer's Registration Statement on Form 8-A relating to the
registration of its common stock, filed with the Securities and
Exchange Commission on February 15, 2002.
3(e) -- Certificate of Designations of $3.25 Convertible Preferred Stock
of Issuer. Incorporated herein by reference to Exhibit 3.6 to the
Issuer's Registration Statement on Form 8-A relating to the
registration of its $3.25 convertible preferred stock, filed with
the Securities and Exchange Commission on February 15, 2002.
3(f) -- Certificate of Designations of Series A Junior Participating
Preferred Stock of Issuer. Incorporated herein by reference to
Exhibit 3.1 to the Issuer's Registration Statement on Form 8-A,
relating to the registration of its preferred stock purchase
rights, filed with the Securities and Exchange Commission on
February 15, 2002.
3(g) -- By-laws of the Issuer, filed herewith.
4(a) -- Rights Agreement, dated as of February 15, 2002, between the
Issuer and Mellon Investor Services LLC (which includes the form
of Certificate of Designations of Series B Junior Preferred Stock
of the Company as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred Shares
as Exhibit C). Incorporated herein by reference to Exhibit 4.1 to
the Issuer's Registration Statement on Form 8-A, relating to the
registration of its preferred stock purchase rights, filed with
the Securities and Exchange Commission on February 15, 2002.
E-1
Exhibit
Number Description
------- -----------
4(b) -- Indenture dated March 23, 1992 between Newmont Mining Corporation
(now known as "Newmont USA Limited") and Bank of Montreal Trust
Company. Incorporated by reference to Exhibit 4 to Newmont Mining
Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
4(c) -- First Supplemental Indenture dated May 15, 2000, between Newmont
Mining Corporation (now known as "Newmont USA Limited") and The
Bank of New York (as successor to Bank of Montreal Trust Company).
Incorporated by reference as Exhibit 4(c) to Newmont Mining
Corporation's Annual Report on Form 10-K for year ended December
31, 2000.
4(d) -- Pass Through Trust Agreement dated as of July 15, 1994, between
Newmont Gold Company (now known as "Newmont USA Limited") and The
First National Bank of Chicago relating to the Pass Through
Certificates, Series 1994-A1. (The front cover of this Exhibit
indicates the material differences between such Exhibit and the
substantially similar (except for price-related information) Pass-
Through Agreement between Newmont Gold Company (now known as
"Newmont USA Limited") and The First National Bank of Chicago
relating to the Pass-Through Certificates, Series 1994-A2.)
Incorporated by reference to Exhibit 4.1 to Newmont Gold Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
4(e) -- Lease dated as of September 30, 1994, between Newmont Gold Company
(now known as "Newmont USA Limited") and Shawmut Bank Connecticut,
National Association relating to Trust No. 1 and a 75% undivided
interest in Newmont Gold Company's refractory gold ore treatment
facility. (The front cover of this Exhibit indicates the material
differences between such Exhibit and the substantially similar
(except for price-related information) entered into on the same
date relating to the remaining 25% undivided interest in the
facility.) Incorporated by reference to Exhibit 4.2 to Newmont
Gold Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
4(f) -- Trust Indenture and Security Agreement dated as of July 15, 1994,
between Shawmut Bank Connecticut, National Association and The
First National Bank of Chicago relating to Trust No. 1 and a 75%
undivided interest in Newmont Gold Company's (now known as
"Newmont USA Limited") refractory gold ore treatment facility.
(The front cover of this Exhibit indicates the material
differences between such Exhibit and the substantially similar
(except for price-related information) entered into on the same
date relating to the remaining 25% undivided interest in the
facility). Incorporated by reference to Exhibit 4.3 to Newmont
Gold Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
4(g) -- See footnote (1).
10(a) -- 1982 Key Employees Stock Option Plan. Incorporated by reference to
Exhibit to Newmont Mining Corporation's Registration Statement on
Form S-8 (No. 33-10141).
10(b) -- 1987 Key Employees Stock Option Plan as amended as of October 25,
1993. Incorporated by reference to Exhibit 10(e) to Newmont Mining
Corporation's Annual Report on Form 10-K for year ended December
31, 1993.
10(c) -- 1992 Key Employees Stock Plan as amended as of October 25, 1993.
Incorporated by reference to Exhibit 10(p) to Newmont Mining
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993.
10(d) -- 1996 Employees Stock Plan amended and restated effective as of
March 17, 1999. Incorporated by reference to Exhibit 10(d) to
Newmont Mining Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998.
E-2
Exhibit
Number Description
------- -----------
10(e) -- 1999 Employees Stock Plan. Incorporated by reference to Exhibit
10(e) to Newmont Mining Corporation's Annual Report on Form 10-K
for the year ended December 31, 1998.
10(f) -- Agreement dated October 15, 1993, effective November 1, 1993,
among Newmont Mining Corporation, Newmont Gold Company and Ronald
C. Cambre. Incorporated by reference to Exhibit 10 to Newmont
Mining Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10(g) -- Amendment No. 1, dated June 24, 1997, to Agreement dated October
15, 1993, effective November 1, 1993, among Newmont Mining
Corporation, Newmont Gold Company and Ronald C. Cambre.
Incorporated by reference to Exhibit 10 to Newmont Mining
Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
10(h) -- Amendment No. 2, dated November 28, 2000, to Agreement dated
October 15, 1993, effective November 1, 1993, among Newmont Mining
Corporation, Newmont Gold Company and Ronald C. Cambre.
Incorporated by reference as Exhibit 10(h) to Newmont Mining
Corporation's Annual Report on Form 10-K for year ended December
31, 2000.
10(i) -- Employment Agreement dated January 1, 2001, by and between Newmont
Mining Corporation and Ronald C. Cambre. Incorporated by reference
as Exhibit 10(i) to Newmont Mining Corporation's Annual Report on
Form 10-K for year ended December 31, 2000.
10(j) -- Agreement dated September 8, 1998, effective August 6, 1998,
between Newmont Gold Company and Lawrence T. Kurlander.
Incorporated by reference to Exhibit 10 to Newmont Gold Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10(k) -- Agreement dated as of February 1, 1999, among Newmont Mining
Corporation, Newmont Gold Company and Ronald C. Cambre.
Incorporated by reference to Exhibit 10(b) to Newmont Mining
Corporation's Current Report on Form 8-K, dated July 12, 1999.
10(l) -- Newmont Mining Corporation Annual Incentive Compensation Plan
(Effective as of January 1, 2001), filed herewith.
10(m) -- Newmont Mining Corporation Intermediate Term Incentive
Compensation Plan (Amended and Restated Generally Effective as of
January 1, 2001), filed herewith.
10(n) -- Executive Change of Control Severance Plan dated as of February 1,
1999. Incorporated by reference to Exhibit 10(n) to Newmont Mining
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998.
10(o) -- Newmont Mining Corporation 2000 Non-Employee Directors Stock Plan,
as Amended and Restated as of May 17, 2000. Incorporated by
reference to Exhibit 10 to Newmont Mining Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
10(p) -- Agreement dated September 15, 1999, among Newmont Mining
Corporation, Newmont Gold Company and Bruce D. Hansen.
Incorporated by reference to Exhibit 10(a) to Newmont Mining
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
10(q) -- Agreement dated August 20, 1999, between Newmont Gold Company and
John A. S. Dow, as Executive, and Executive's Spouse. Incorporated
by reference to Exhibit 10(b) to Newmont Mining Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.
10(r) -- Agreement dated February 1, 1999, among Newmont Mining
Corporation, Newmont Gold Company and Lawrence T. Kurlander.
Incorporated by reference to Exhibit 10(a) to Newmont Mining
Corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
E-3
Exhibit
Number Description
------- -----------
10(s) -- Agreement dated February 1, 1999, among Newmont Mining
Corporation, Newmont Gold Company and certain executive officers.
Incorporated by reference to Exhibit 10(b) to Newmont Mining
Corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10(t) -- Letter Agreement dated May 6, 1993, between Newmont Gold Company
and Wayne W. Murdy. Incorporated by reference to Exhibit 10 to
Newmont Gold Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
10(u) -- Letter Agreement dated March 23, 2001, between Wayne W. Murdy and
Newmont Mining Corporation. Incorporated by reference as Exhibit
10(v) to Newmont Mining Corporation's Annual Report on Form 10-K
for year ended December 31, 2000.
10(v) -- Consulting Agreement dated April 1, 1999, between Newmont
International Services Limited and Robert J. Miller. Incorporated
by reference to Exhibit 99 to Newmont Mining Corporation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
10(w) -- First Amendment to Consulting Agreement dated June 26, 2000,
between Newmont International Services Limited and Robert J.
Miller. Incorporated by reference as Exhibit 10(x) to Newmont
Mining Corporation's Annual Report on Form 10-K for year ended
December 31, 2000.
10(x) -- Agreement and Plan of Merger, dated as of June 21, 2000, by and
among Newmont Mining Corporation, Bounty Merger Corp. and Battle
Mountain Gold Company. Incorporated by reference to Appendix A of
the proxy statement/prospectus included in Newmont Mining
Corporation's Registration Statement on Form S-4 filed on November
22, 2000.
10(y) -- Arrangement Agreement, dated June 21, 2000, by and among Newmont
Mining Corporation (now known as "Newmont USA Limited"), Bounty
Merger Corp., Battle Mountain Gold Company and Battle Mountain
Canada Ltd. Incorporated by reference to Appendix B of the proxy
statement/prospectus included in Newmont Mining Corporation's
Registration Statement on Form S-4 filed on November 22, 2000.
10(z) -- Escrow Agreement dated as of November 14, 2001, among Seymour
Schulich and Nevada Capital Corporation Limited and Gowling
Lafleur Henderson LLP and Newmont Mining Corporation, filed
herewith.
10(aa) -- Escrow Agreement dated as of November 14, 2001, among Pierre
Lassonde and Lassonde Family Trust and Firelight Investments, Inc.
and Gowling Lafleur Henderson LLP and Newmont Mining Corporation,
filed herewith.
12 -- Statement re Computation of Ratio of Earnings to Fixed Charges,
filed herewith.
21 -- Subsidiaries of Newmont Mining Corporation, filed herewith.
23 -- Consent of Arthur Andersen LLP, filed herewith.
24 -- Power of Attorney, filed herewith.
- --------
(1) In reliance upon Item 601(b)(4)(iii) of Regulation S-K, various
instruments defining the rights of holders of long-term debt of the
Newmont Mining Corporation are not being filed herewith because the total
of securities authorized under each such instrument does not exceed 10%
of the total assets of Newmont Mining Corporation. Newmont Mining
Corporation hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
E-4