Newmont Announces Full Year and Fourth Quarter 2016 Results

Newmont Announces Full Year and Fourth Quarter 2016 Results

Newmont Mining Corporation (NYSE: NEM) (Newmont or the Company) announced full year 2016 results that demonstrated improved operational and financial performance. Excluding Newmont’s share of PTNNT which was sold last November, the Company:

• Net income (loss): Delivered GAAP net income (loss) attributable to shareholders from continuing operations of $(220) million or $(0.41) per diluted share and adjusted net income¹ of $619 million or $1.16 per diluted share
• EBITDA: Generated $2.4 billion in adjusted EBITDA², up 25 percent from the prior year
• Cash flow: Increased net cash from continuing operations to $1.9 billion and more than doubled free cash flow³ to $784 million
• Gold costs applicable to sales (CAS): Reported slightly higher CAS of $682 per ounce⁴ reflecting lower grades at Yanacocha and higher non-cash inventory costs at Yanacocha and Ahafo
• Gold all-in sustaining costs (AISC) ⁵ : Lowered gold AISC for the fourth consecutive year to $912 per ounce, or two percent lower than 2015
• Attributable gold production: Produced 4.9 million ounces of gold, up seven percent from the prior year
• Portfolio improvements: Built Merian and Long Canyon $200 million below budget; delivered expansions and the investment case at Cripple Creek & Victor; progressed profitable expansions at Tanami and Northwest Exodus; generated $920 million in gross cash proceeds from the sale of Newmont’s stake in PTNNT; and added 10 million ounces of higher grade reserves and resources by the drill bit
• Financial strength: Reduced net debt to $1.9 billion, ending the year with $2.8 billion cash on hand and an industry leading financial profile
• Outlook: Updating guidance to include profitable gold production of between 4.5 and 5.4 million ounces over the next five years and a leading project pipeline that supports long-term value creation

“We continued to make Newmont a safer and more profitable business in 2016, with differentiated cash flow, financial strength and growth prospects,” said Gary Goldberg, President and Chief Executive Officer. “We increased adjusted EBITDA by 25 percent to $2.4 billion and more than doubled free cash flow to nearly $800 million on the back of superior operational performance. We invested these proceeds with an eye to long-term value creation – building two mines, advancing profitable expansions in the Americas and Australia, and adding higher grade ounces to our reserve base. Work to optimize our portfolio culminated in the sale of our PTNNT stake for $920 million. These proceeds helped us retire more than $1.3 billion in debt, improve our liquidity and increase dividends. Our plans for 2017 and beyond remain focused on improving our underlying business, strengthening our portfolio and creating value for shareholders.”

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¹ Non-GAAP measure. See end of release for reconciliation to Net income (loss) attributable to Newmont stockholders.
² Non-GAAP measure. See end of release for reconciliation to Net income (loss) attributable to Newmont stockholders.
³ Non-GAAP measure. See end of release for reconciliation to Net cash provided by operating activities.
⁴ Non-GAAP measure. See end of release for reconciliation to Costs applicable to sales.
⁵ Non-GAAP measure. See end of release for reconciliation to Costs applicable to sales.

Fourth quarter 2016 results represented significant improvements from the prior year quarter excluding non-recurring costs associated with increased Yanacocha closure liability estimates and a related non-cash impairment charge announced on December 13, 2016:

• Net income (loss): Delivered GAAP net income (loss) attributable to shareholders from continuing operations of $(391) million, or $(0.73) per share, due to higher closure liability and impairment charges at Yanacocha and adjusted net income of $133 million, or $0.25 per share, up from $(0.03) in the prior year quarter;
• EBITDA: Doubled adjusted EBITDA to $629 million
• Cash flow: More than doubled net cash from continuing operations to $590 million and increased free cash flow to $289 million
• Gold CAS: Reduced gold CAS by five percent to $681 per ounce
• Gold AISC: Reduced AISC by 11 percent to $918 per ounce
• Attributable gold production: Increased gold production by 17 percent to 1.3 million ounces
• Shareholder returns: Doubled the fourth quarter dividend to $0.05 per share, in line with Newmont’s improved gold price-linked dividend policy

Full Year and Fourth Quarter 2016 Summary Results

GAAP Net income (loss) attributable to Newmont stockholders from continuing operations was $(220) million, or $(0.41) per share for the year, down from $(1) million for the prior year. GAAP Net income (loss) was $(391) million, or $(0.73) per share for the fourth quarter, down from $(276) million or $(0.54) per share in the prior year quarter.

Adjusted net income improved 89 percent to $619 million or $1.16 per diluted share for the year with higher gold production and favorable pricing more than offsetting slightly higher CAS (see below). This excludes a non-cash impairment charge at Yanacocha of $970 million related to the increased closure costs which extend over decades of reclamation. Newmont continues to study further oxide and sulfide developments to defer or potentially lower these costs. Fourth quarter adjusted net income of $133 million, or $0.25 per diluted share was up from $(0.03) in the prior year quarter and also excluded the closure liability and impairment charges at Yanacocha.

Revenue rose ten percent to $6.7 billion for the year and 23 percent to $1.8 billion for the quarter on higher gold sales and improved pricing.

Average realized gold price ⁶ improved around $100 to $1,243 per ounce for the full year and $1,193 per ounce for the fourth quarter, respectively.

Attributable gold production increased seven percent to 4.9 million ounces for the year supported by new production from Merian and Long Canyon; a full year of production at Cripple Creek & Victor and Carlin’s Turf Vent Shaft; and productivity improvements at Kalgoorlie. These ounces offset the impacts of declining production at Yanacocha and geotechnical issues at Carlin. Fourth quarter production improved 17 percent to 1.3 million ounces with production at Merian, Long Canyon and Cripple Creek & Victor offsetting grade reduction at Yanacocha.

Gold CAS totaled $3.5 billion for the year and $976 million for the quarter. Gold CAS per ounce rose three percent to $682 per ounce for the year and five percent to $681 per ounce for the quarter due primarily to lower grades and higher non-cash inventory costs at Yanacocha and Ahafo. These impacts were partially offset by lower-cost ounces from Long Canyon, Merian and Cripple Creek & Victor; and favorable oil prices and exchange rates.

Gold AISC improved two percent to $912 per ounce for the year, on lower sustaining capital and non-cash asset retirement costs, and 11 percent to $918 per ounce for the quarter on lower sustaining capital and advanced projects spend.

Attributable copper production from Phoenix and Boddington decreased five percent to 54,000 tonnes for the year; fourth quarter production of 13,000 tonnes was largely unchanged from the prior year.

Copper CAS totaled $225 million for the year and $60 million for the quarter. Copper CAS per pound rose eight percent to $1.95 per pound for the year, and rose eleven percent to $1.88 per pound for the quarter on lower volumes.

Copper AISC rose seven percent to $2.30 per pound for the year, and 11 percent to $2.31 per pound for the quarter, on increased unit CAS and lower volumes.

Capital expenditures ⁷ decreased 14 percent from the prior year and 29 percent from the prior quarter as growth projects such as Merian and Long Canyon moved into commercial production.

Consolidated operating cash flow from continuing operations rose 21 percent to $1.9 billion for the year and more than doubled to $590 million for the quarter on increased sales and improved gold pricing. Free cash flow more than doubled to $784 million for the year with lower capital expenditures more than offsetting increases in working capital, and increased to $289 million for the quarter on improved production and pricing, CAS efficiencies and lower capital.

Balance Sheet improved through $1.3 billion of debt repayment. Newmont ended the year with $2.8 billion cash on hand, a leverage ratio of 0.8x net debt to adjusted EBITDA and one of the best credit ratings in the mining sector. The Company is committed to maintaining an investment grade credit profile.

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⁶ Non-GAAP measure. See end of release for reconciliation to Sales.
⁷ Capital expenditures refers to Additions to property plant and mine development from the statements of consolidated cash flows.

Projects update

Newmont’s capital-efficient project pipeline supports stable production with improving margins and mine life. Near-term projects are presented below. Funding for the Tanami Expansion Project has been approved. The remaining projects represent incremental improvements to production and cost guidance.

• Tanami Expansion (Australia) includes a second decline in the mine and incremental capacity in the plant to increase profitable production and serve as a platform for future growth. The project is on track to reach commercial production in mid-2017 and will maintain Tanami’s annual gold production at 425,000 to 475,000 ounces at AISC of between $700 and $750 per ounce for the first five years of production. Capital costs are estimated at between $100 and $120 million with expenditure of $30 to $50 million in 2017.
• Subika Underground (Africa) leverages existing infrastructure and an optimized approach to develop Ahafo’s most promising underground resource. A project decision is expected in the first half of 2017 with first production in the second half of 2017 and commercial production beginning in late 2018. The expansion would increase average annual gold production by between 150,000 and 200,000 ounces per year for the first five years beginning in 2019, with an initial mine life of approximately 11 years. Capital costs for the project are estimated at between $150 and $200 million with expenditure of $80 to $90 million in 2017.
• Ahafo Mill Expansion (Africa) is designed to maximize resource value by improving production margins and accelerating stockpile processing. The project also supports profitable development of Ahafo’s highly prospective underground resource. A project decision is expected in the first half of 2017 with first production beginning in 2019. The expansion would increase average annual gold production by between 75,000 and 100,000 ounces per year for the first five years beginning in 2020. Capital costs for the project are estimated at between $140 and $180 million with expenditure of approximately $40 to $50 million in 2017.
• Quecher Main (South America) would add oxide production at Yanacocha, and serve as a bridge to development of Yanacocha’s considerable sulfide deposits. A project decision is expected in the second half of 2017 with first production in 2019. Quecher extends the life of the Yanacocha operation to 2025 with average annual gold production of approximately 200,000 ounces per year between 2020 and 2025 (100 percent basis). Capital costs for the project are estimated at between $275 and $325 million with expenditure of $5 to $10 million in 2017.
• Twin Underground (North America) is a portal mine beneath Twin Creek’s Vista surface mine with similar mineralization. A project decision is expected in the second half of 2017 with first production in 2018. The expansion would add about 30,000 ounces per year for the first five years. Capital costs for the project are estimated at between $10 and $20 million.

Outlook

Newmont’s outlook reflects steady gold production and ongoing investment in its current assets and best growth prospects. Investments to explore and develop promising expansions and to address previously announced geotechnical issues at Carlin and changes to cost allocation between gold and copper are expected to slightly increase the Company’s 2017 and 2018 gold cost outlook. Newmont does not include potential cost and efficiency improvements in its outlook beyond 2017, nor does it include projects that have not yet been funded or reached the execution stage – both of which represent upside to guidance. Economic assumptions include $1,200 per ounce gold, $2.25 per pound copper, $55 per barrel WTI and $0.75 AUD-USD exchange rate.

Attributable gold production — Outlook is in line with previously published five-year guidance and expected to increase to between 4.9 and 5.4 million ounces in 2017 as full year production at Merian and Long Canyon more than offsets declines at Twin Creeks and Yanacocha. Longer-term production of between 4.5 and 5.0 million ounces is expected with production from Long Canyon and Ahafo partly offsetting declines at maturing assets. Expansion projects at Ahafo, Yanacocha and Twin Creeks represent upside to both production and cost guidance.

• North America production increases to between 2.0 and 2.2 million ounces in 2017 with a full year of operations at Long Canyon offsetting the impact of higher planned stripping at Twin Creeks. Production declines slightly to between 1.9 and 2.1 million ounces in 2018 and between 1.8 and 2.0 million ounces in 2019 due to planned stripping at Carlin and continued stripping at Twin Creeks. Both sites return to higher production levels in 2020.
• South America production is expected to increase from between 630,000 and 690,000 ounces in 2017 to between 625,000 and 725,000 ounces in 2018 with full production at Merian and then to decrease to between 500,000 and 600,000 ounces in 2019 due to declining production from Yanacocha and higher stripping at Merian. Quecher Main at Yanacocha represents additional upside currently not captured in guidance. The Company continues to advance oxide and sulfide potential at Yanacocha.
• Australia production is expected to remain relatively stable in 2017 and 2018 at between 1.5 and 1.7 million ounces dropping slightly to between 1.4 and 1.6 million ounces in 2019 as Boddington stripping results in lower grades and lower production before returning to higher production levels in 2020. The Company is studying a further expansion at Tanami which represents additional upside not currently captured in guidance.
• Africa production is expected to decrease from between 715,000 and 775,000 ounces in 2017 to between 650,000 and 750,000 ounces in 2018 as softer ores and higher grade stockpiles are depleted at Akyem. Production is then expected to increase to between 825,000 and 925,000 ounces in 2019 as Ahafo reaches higher grade ore in the Subika pit. The Company continues to advance the Subika Underground and Ahafo Mill Expansion projects that represent additional upside currently not captured in guidance. A decision on these projects is expected in the first half of 2017.

Gold cost outlook – CAS is expected to be between $700 and $750 per ounce in 2017 and between $700 and $800 per ounce in 2018, before any portfolio improvements. We expect longer term CAS to improve to $650 and $750 per ounce. AISC is expected to be between $940 and $1,000 per ounce in 2017 and between $950 and $1,050 per ounce in 2018, excluding further cost and efficiency improvements expected through the Company’s ongoing Full Potential program. Longer-term AISC is forecast to improve to between $880 and $980 per ounce as increased production from Ahafo and Long Canyon – combined with ongoing productivity, cost and capital improvements – is expected to more than offset inflation and partially counter the effects of lower grades.

• North America CAS per ounce is expected to increase from between $705 and $755 to between $750 and $850 in 2018 and 2019. North America AISC per ounce is expected to increase from between $905 and $980 in 2017 to between $950 and $1,050 in 2018 before lowering to between $930 and $1,030 in 2019. The cost increases are a result of planned stripping at Carlin combined with lower grades at Twin Creeks and CC&V.
• South America CAS per ounce is expected to decrease from between $675 and $725 in 2017 to between $650 and $750 in 2018 and decrease again to between $575 and $675 in 2019. AISC per ounce is expected to decrease from between $880 and $980 in 2017 to between $850 and $950 for 2018 and to between $810 and $910 in 2019. Costs decrease as lower cost production from Merian replaces higher cost production from Yanacocha. Yanacocha reaches higher grade ore in Tapado Oeste in 2019.
• Australia CAS per ounce is expected to increase from between $660 and $710 in 2017 to between $675 and $775 in 2018 and 2019. AISC per ounce is expected to increase from between $820 and $880 to between $850 and $950 in 2018 and 2019. Higher costs are a result of lower grades at Tanami, lower grades as a result of stripping at Boddington and treatment of additional lower grade stockpile ore at Kalgoorlie in 2019.
• Africa CAS per ounce is expected to increase from between $780 and $830 in 2017 to between $800 and $900 in 2018 before falling to between $475 and $575 in 2019. AISC per ounce is expected to increase from between $950 and $1,010 in 2017 to between $1,000 and $1,100 in 2018 before falling to between $680 and $780 in 2019. Costs increase due to Akyem processing harder, lower-grade ore. This is more than offset as Ahafo reaches higher-grade ore in the Subika pit in 2019.

Copper — Together, Boddington and Phoenix are expected to produce between 40,000 and 60,000 tonnes of copper per year in line with previous guidance excluding Batu Hijau. In 2017, copper costs are expected to be between $1.45 and $1.65 per pound CAS and between $1.85 and $2.05 per pound AISC. Longer term, copper CAS is expected to average between $1.50 and $1.90 per pound and AISC is expected to average between $1.85 and $2.15 per pound, well below previous guidance due to a shift in allocation of costs between copper and gold.

Capital — Total capital is expected to be between $800 and $900 million in 2017, covering the remaining capital for Northwest Exodus and the Tanami Expansion Project. 2017 sustaining capital outlook of between $600 and $700 million represents a 24 percent reduction from previously published guidance due to cost savings and deferrals. Newmont expects to reach development decisions on Ahafo Mill Expansion, Subika Underground, Quecher Main and Twin Underground projects later this year. These projects are currently excluded from outlook. Longer-term sustaining capital is expected to be approximately $600 to $700 million per year.

Outlook ^a

^a 2017 Outlook in the table above are considered “forward-looking statements” and are based upon certain assumptions, including, but not limited to, metal prices, oil prices, certain exchange rates and other assumptions. For example, 2017 Outlook assumes $1,200/oz Au, $2.25/lb Cu, $0.75 USD/AUD exchange rate and $55/barrel WTI; AISC and CAS estimates do not include inflation, for the remainder of the year. Production, AISC and capital estimates exclude projects that have not yet been approved, (Twin Underground, Ahafo Mill Expansion and Subika Underground). The potential impact on inventory valuation as a result of lower prices, input costs, and project decisions are not included as part of this Outlook. Such assumptions may prove to be incorrect and actual results may differ materially from those anticipated. See cautionary note at the end of the release.
^b All-in sustaining costs or AISC as used in the Company’s Outlook is a non-GAAP metric defined as the sum of costs applicable to sales (including all direct and indirect costs related to current gold production incurred to execute on the current mine plan), remediation costs (including operating accretion and amortization of asset retirement costs), G&A, exploration expense, advanced projects and R&D, treatment and refining costs, other expense, net of one-time adjustments and sustaining capital. See reconciliation at the end of the release.
^c Includes Lone Tree operations.
^d Includes TRJV operations.
^e Consolidated production for Yanacocha is presented on a total production basis for the mine site; attributable production represents a 51.35% interest. Yanacocha CAS and AISC guidance adjusted for La Quinua leach pad revision.
^f Both consolidated and attributable production are shown on a pro-rata basis with a 50% ownership for Kalgoorlie.
^g Production outlook does not include equity production from stakes in TMAC (29.2%) or La Zanja (46.94%).
^h Consolidated expense outlook is adjusted to exclude extraordinary items. For example, the tax rate outlook above is a consolidated adjusted rate, which assumes the exclusion of certain tax valuation allowance adjustments. Beginning in 2016, regional general and administrative expense is included in total general and administrative expense (G&A) and community development cost is included in CAS.

(1) Excludes Depreciation and amortization and Reclamation and remediation.

Non-GAAP Financial Measures

Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by U.S. generally accepted accounting principles (“GAAP”). These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Unless otherwise noted, we present the Non-GAAP financial measures of our continuing operations in the tables below.

Adjusted net income (loss)

Management uses Adjusted net income (loss) to evaluate the Company’s operating performance and for planning and forecasting future business operations. The Company believes the use of Adjusted net income (loss) allows investors and analysts to understand the results of the continuing operations of the Company and its direct and indirect subsidiaries relating to the sale of products, by excluding certain items that have a disproportionate impact on our results for a particular period. The net income (loss) adjustments are generally presented net of tax at the Company’s statutory effective tax rate of 35% and net of our partners’ noncontrolling interests when applicable. The impact of the adjustments through the Company’s valuation allowance is included in Tax adjustments. Valuation allowance is recorded for items such as foreign tax credits, alternative minimum tax credits, capital losses and disallowed foreign losses. Management’s determination of the components of Adjusted net income (loss) are evaluated periodically and based, in part, on a review of non-GAAP financial measures used by mining industry analysts. Net income (loss) attributable to Newmont stockholders is reconciled to Adjusted net income (loss) as follows:

Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA)

Management uses Earnings before interest, taxes and depreciation and amortization (“EBITDA”) and EBITDA adjusted for non-core or certain items that have a disproportionate impact on our results for a particular period (“Adjusted EBITDA”) as non-GAAP measures to evaluate the Company’s operating performance. EBITDA and Adjusted EBITDA do not represent, and should not be considered an alternative to, net income (loss), operating income (loss), or cash flow from operations as those terms are defined by GAAP, and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. Although Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements by other companies, our calculation of Adjusted EBITDA is not necessarily comparable to such other similarly titled captions of other companies. The Company believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Management’s determination of the components of Adjusted EBITDA are evaluated periodically and based, in part, on a review of non-GAAP financial measures used by mining industry analysts. Net income (loss) attributable to Newmont stockholders is reconciled to EBITDA and Adjusted EBITDA as follows:

Free Cash Flow

Management uses Free Cash Flow as a non-GAAP measure to analyze cash flows generated from operations. Free Cash Flow is Net cash provided by operating activities less Net cash provided by operating activities of discontinued operations less Additions to property, plant and mine development as presented on the Statements of Consolidated Cash Flows. The Company believes Free Cash Flow is also useful as one of the bases for comparing the Company’s performance with its competitors. Although Free Cash Flow and similar measures are frequently used as measures of cash flows generated from operations by other companies, the Company’s calculation of Free Cash Flow is not necessarily comparable to such other similarly titled captions of other companies.

The presentation of non-GAAP Free Cash Flow is not meant to be considered in isolation or as an alternative to net income as an indicator of the Company’s performance, or as an alternative to cash flows from operating activities as a measure of liquidity as those terms are defined by GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. The Company’s definition of Free Cash Flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, the Company believes it is important to view Free Cash Flow as a measure that provides supplemental information to the Company’s Statements of Consolidated Cash Flows.

The following table sets forth a reconciliation of Free Cash Flow, a non-GAAP financial measure, to Net cash provided by operating activities, which the Company believes to be the GAAP financial measure most directly comparable to Free Cash Flow, as well as information regarding Net cash used in investing activities and Net cash provided by (used in) financing activities.

Costs applicable to sales per ounce/pound

Costs applicable to sales per ounce/pound are non-GAAP financial measures. These measures are calculated by dividing the costs applicable to sales of gold and copper by gold ounces or copper pounds sold, respectively. These measures are calculated on a consistent basis for the periods presented on a consolidated basis. Costs applicable to sales per ounce/pound statistics are intended to provide additional information only and do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. Other companies may calculate these measures differently.

The following tables reconcile these non-GAAP measures to the most directly comparable GAAP measures.

Costs applicable to sales per ounce

Costs applicable to sales per pound