Item 3 -- "Legal Proceedings" and Notes 10 and 14 to Item 8 -- "Financial Statements and Supplementary Data."
NEVADA OPERATIONS
NGC's Nevada gold mining and processing operations generate solid waste which is subject to regulation under the federal Resource Conservation and Recovery Act ("RCRA") and similar laws of the State of Nevada. Solid waste that is considered "hazardous" is subject to extensive regulation by the U.S. Environmental Protection Agency (the "EPA") and the State of Nevada under Subtitle C of RCRA, while non-
hazardous solid waste is governed by a less stringent program under Subtitle D of RCRA and solid waste management regulations of the State of Nevada.
In 1986, the EPA determined that the regulation of "extraction" and "beneficiation" wastes from mining operations under Subtitle C of RCRA was not warranted and these wastes have been exempted from RCRA pursuant to the Bevill Amendment. However, the EPA began to develop specific regulations for such wastes under Subtitle D. NGC is participating in that process. Currently, there is not a sufficient basis to predict the potential impact of such regulations on NGC.
Wastes from the "processing" of ores and minerals (including refining wastes) at NGC's Nevada operations is subject to regulation under Subtitle C of RCRA. NGC recycles substantially all of the potentially hazardous secondary materials generated during refining operations in compliance with Subtitle C. Such compliance has not had, and is not expected to have, any material impact on NGC's operations.
NGC's Nevada operations are subject to stringent state permitting regulations for protection of surface and groundwater, as well as wildlife. These regulations may require additional capital and operating expenditures for expansion of current operations and development of new projects and may increase closure and reclamation costs for pits, tailing impoundment and leaching facilities.
Mining operations have the potential to produce fugitive dust emissions which are subject to regulation under the laws of the State of Nevada. The EPA's current regulations under the federal Clean Air Act exclude fugitive dust from surface mines in determining whether new or expanded sources need permits for construction under the regulations for prevention of significant deterioration of air quality. The 1990 amendments to the federal Clean Air Act could ultimately increase NGC's compliance costs for air pollution permitting and/or control, but the impact on NGC's mining operations is so dependent on future regulations and other contingencies that it cannot reasonably be predicted at this time.
ITEM 3. LEGAL PROCEEDINGS
In December 1983, the State of Colorado filed a lawsuit in the U.S. District Court for the District of Colorado under the Comprehensive Environmental Response Compensation and Liability Act of 1980 "CERCLA", 42 U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural resources due to releases of hazardous substances into the environment. This case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388), was consolidated with another action, United States of America v. Apache Energy & Minerals, et al. (Civil Action No. 86-C-1676), which was filed August 6, 1986. Both cases involve allegations of environmental impairment in the vicinity of Leadville, Colorado, including the area of the operations and property of the Res-ASARCO Joint Venture which owns the Black Cloud Mine, the Yak Tunnel, and adjacent property, and seek remedial actions and damages from a number of defendants, including Newmont and NGC's wholly owned subsidiary, Resurrection Mining Company ("Resurrection"), which is a partner with ASARCO in the Res-ASARCO Joint Venture. In August, 1994, the Court entered a Partial Consent Decree between and among the United States, Newmont, Resurrection and certain defendants. The Partial Consent Decree obligates Resurrection to pay for and perform the cleanup of sources of contamination in various areas, pursuant to the Superfund administrative process. The precise cleanup remedy is subject to further investigation and study, EPA selection in accordance with Superfund and public comment. At this time, the precise remedy and cost have not been fixed. The proposed settlement also requires Resurrection to reimburse the governments for their past response costs. Further, Resurrection's cleanup and reimbursement obligations are subject to certain sharing percentages with at least one other defendant. The Partial Consent Decree does not resolve certain other potential liabilities, including liability for any natural resource damage and any groundwater or surface water contamination. See Note 14 to Item 8 -- "Financial Statements and Supplementary Data."
On March 6, 1995, a class action complaint was filed in the U.S. District Court for the Southern District of Ohio against Newmont, Cyprus Foote Mineral Company and others. The complaint alleges that the named plaintiffs (Sue Ann Malernee and seven other individuals) and the putative class members have been exposed to certain allegedly radioactive or otherwise hazardous waste materials produced at a ferroalloy production plant in Guernsey County, Ohio. That plant was owned until 1987 by Foote Mineral Company, a former
subsidiary of Newmont and predecessor to defendant Cyprus Foote. The complaint seeks recovery of response costs and establishment of a medical monitoring fund under CERCLA, 42 U.S.C. 9601 et seq. It also seeks compensatory damages under various tort law theories for, inter alia, diminution in property values, increased risk of physical injury and emotional distress. The amount of such damages are alleged to be $500 million. Punitive damages are sought against Newmont in the amount of approximately $63 million. Injunctive relief requiring defendants to remove the allegedly hazardous materials from the property of the plaintiffs is also requested. The Corporation is investigating this newly-filed action, and intends to vigorously contest all alleged liability in this matter.
ITEM 4.
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, 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Newmont's executive officers as of March 9, 1995 were:
---------------
(1) Elected officer of NGC only.
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 or until their respective successors are chosen and qualify. 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 officer. Each executive officer of Newmont also serves as an executive officer of NGC.
Mr. Cambre was elected Chairman of Newmont on November 16, 1994 (effective January 1, 1995), President on June 1, 1994 and Chief Executive Officer on September 23, 1993 (effective November 1, 1993). He served as Vice Chairman of Newmont from November 1, 1993 through December 31, 1994. Previously, he served as Vice President and Senior Technical Advisor to the office of the Chairman of Freeport-McMoRan Inc., a natural resources company, since 1988. He is also Chairman, President and Chief Executive Officer of NGC.
Mr. Clark was elected a Senior Vice President of Newmont on September 11, 1991. He was designated General Counsel on October 26, 1988 (effective May 1, 1989) and elected a Vice President on December 17, 1986. Prior to his designation as General Counsel, Mr. Clark was Vice President and Western Regional Counsel of Newmont. He is also Senior Vice President and General Counsel of NGC.
Mr. Kurlander was elected Senior Vice President, Administration of Newmont on March 16, 1994 (effective April 1, 1994). Previously, he served as Senior Vice President, Public Affairs and Government Affairs, for Nabisco International Inc. of RJR Nabisco, Inc., a consumer products company, since 1992. Prior to that he managed worldwide communications, state government affairs and worldwide security functions for American Express Company, a financial services company. He is also Senior Vice President, Administration of NGC.
Mr. Murdy was elected Senior Vice President and Chief Financial Officer of Newmont on December 16, 1992 (effective December 31, 1992). Previously, he served as Senior Vice President and Chief Financial Officer of Apache Corporation, an oil and gas exploration and production company, since May 1991. Prior to that he had been Chief Financial Officer of Apache Corporation since December 1987 and a Vice President since February 1987. He is also Senior Vice President and Chief Financial Officer of NGC.
Mr. Baker was elected Vice President, Environmental Affairs of NGC on April 24, 1991 (effective March 11, 1991). Previously, he held various environmental positions with Newmont and NGC.
Mr. Brunk was elected Vice President, Business Development of NGC on May 14, 1994. He had served as Vice President, Project Development of Newmont from April 24, 1991 (effective March 11, 1991) through May 13 1994. Previously, he was Vice President of NGC since December 16, 1987 serving in various senior capacities in operations and administration.
Mr. DeGuire was elected a Vice President of NGC on May 14, 1994. He was designated Vice President, Project Development and Regional Director, Commonwealth of Independent States, in 1995. Previously, he served as Vice President, Project Development and Metallurgical Research since May 14, 1994. Prior to that he held various senior metallurgical research and environmental positions with Newmont and NGC for more than five years.
Ms. Donnelly was elected Vice President, Government Relations of NGC on June 12, 1990. Prior to that date, she held various other government relations positions with Newmont and NGC.
Mr. Dow was elected a Vice President of NGC on May 18, 1994 and subsequently was designated Regional Director, Indonesia and Southeast Asia. Previously he held various senior exploration positions with Newmont and its subsidiaries for more than five years.
Mr. Farmar was elected a Vice President of Newmont on December 16, 1992 and Controller on October 30, 1991. He had served as Assistant Controller from January 28, 1989 through October 29, 1991. Previously, he served as Controller of Petro-Lewis Corporation, an independent oil and gas producer. He is also Vice President and Controller of NGC.
Mr. Hamer was designated Vice President, Indonesian Projects, of NGC on January 1, 1994. Previously, he served as Vice President, Project Development from January 1, 1993 through December 31, 1993. He also served as Vice President and General Manager from October 30, 1991 to December 31, 1992 and as Vice President and Resident Manager since March 11, 1991 and as Vice President, Operations from October 31, 1988 to March 10, 1991.
Mr. Harris was elected a Vice President, of NGC on May 18, 1994 and subsequently was designated Regional Director, South America. Previously he held various senior metallurgical and operations positions with NGC and NMC for more than five years.
Mr. Karras has served as Vice President, Taxes of Newmont since November 9, 1992. Previously, he served as Director of Taxes of Kennecott Corporation, a natural resources company, for four years. He is also Vice President, Taxes of NGC.
Mr. Krol has served as Vice President, Exploration of NGC since September 14, 1994. Previously, he served as Director of Foreign Exploration of NGC since May 1992. Prior to that he served as Director of Metallurgical Services of NGC since 1990.
Mr. Moran was elected Vice President, Engineering Services of NGC on December 15, 1993 (effective January 17, 1994). Previously, he was employed by BHP Minerals International Inc., a natural resources company, for more than five years where he was responsible for the development and management of major construction projects.
Mr. Morris was elected Vice President, Corporate Relations of NGC on March 16, 1994 (effective April 1, 1994). Previously, he served as Director of Investor Relations and Corporate Communications for Inland Steel Industries from 1990 to 1993.
Mr. Mullin was designated Vice President and Regional Director, Nevada Operations, on May 14, 1994. Previously, he served as Vice President and General Manager of NGC since December 15, 1993. He also served as Acting General Manager of NGC from January 1, 1993 to December 14, 1993. Prior to that he held various senior operating positions with NGC.
Mr. Rendu was designated Vice President, Technical Services, on January 19, 1995. Previously, he served as Vice President, Information Systems since November 26, 1991 and Vice President, Mine Engineering since March 11, 1991 having previously served as Vice President, Technical and Scientific Systems since October 31, 1988.
Mr. Schmitt was elected a Vice President of Newmont on December 17, 1986 and was elected Secretary on May 25, 1988. He was designated Assistant General Counsel on October 30, 1991. He served as Controller from March 31, 1983 through October 29, 1991. He is also Vice President, Secretary and Assistant General Counsel of NGC.
Ms. Flanagan was elected Treasurer of Newmont on December 16, 1992. Previously, she served as an Assistant Treasurer from November 1, 1988 through December 15, 1992. She was appointed Assistant Secretary on June 24, 1992. She is also Treasurer and Assistant Secretary of NGC.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Newmont's common stock is traded on the New York Stock Exchange. Newmont's stock prices in 1994 and 1993 (restated where applicable for the stock split, payable in the form of a stock dividend, declared on March 21, 1994) were:
On March 9, 1995, the approximate number of holders of record of Newmont's common stock was 6,040.
A dividend of $0.12 per share of common stock outstanding was declared in each quarter of 1994 and 1993, or a total of $0.48 per share in each such year (in 1993 restated for the stock split). 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 the Corporation's future earnings, capital requirements, financial condition and other relevant factors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
---------------
(1) Includes the effect of the issuance of 2.875 million shares of $5.50 convertible preferred stock.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Effective January 1, 1994, Newmont Gold Company ("NGC"), the principal producing operating subsidiary of Newmont Mining Corporation ("Newmont"), acquired essentially all of Newmont's assets (except for approximately 86 million shares of common stock of NGC held by Newmont) and assumed essentially all of Newmont's liabilities which it did not already own or have an interest in. In that the transaction occurred within Newmont's consolidated group, it had minimal impact on consolidated results of operations, liquidity and capital resources. Newmont's consolidated group is referred to hereafter as the "Corporation."
RESULTS OF OPERATIONS
Before the cumulative effect of changes in accounting principles, the Corporation earned $76.1 million, or $0.70 per share, $94.7 million, or $0.92 per share, and $90.6 million, or $1.04 per share, in 1994, 1993 and 1992, respectively. The results for 1994 reflect an anticipated decline in production from the Carlin Trend area of Nevada and $36.1 million in charges related to environmental obligations, which were partially offset by a full year of equity income from NGC's 38% interest in Minera Yanacocha, S.A. ("Minera Yanacocha"), a Peruvian entity, and a $16.2 million tax benefit for the resolution of certain tax issues associated with prior years. During 1993, the Corporation sold its remaining interest in Newcrest Mining Limited for $67.0 million and recognized an after-tax gain of $19.3 million ($29.6 million before-tax) or $0.22 per share. The Corporation recognized the cumulative effect of a change in accounting principle in 1993 and 1992. In 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which resulted in a cumulative benefit of $38.5 million, or $0.45 per share. Further information about this change in accounting for income taxes can be found in Note 6 to Item 8
Item 8 -- "Financial Statements and Supplementary Data." Included in the 1994 amount is a valuation allowance of
$20.0 million that was made against receivables from insurance companies for recoveries related to such environmental obligations. The Corporation recorded the valuation allowance after discussions with new lead counsel regarding its review of the litigation with the insurance companies and due to the absence of expected settlement discussions. The valuation allowance resulted in a net receivable balance from insurance companies of approximately $17 million at December 31, 1994. Subsequent to December 31, 1994, settlement in the insurance litigation was reached enabling the Corporation to realize the receivable. Settlement discussions continue with respect to some of the litigation. The Corporation intends to vigorously pursue its claims under the remaining litigation and believes that it is reasonably possible that additional amounts will be recovered. Since the actual cash payments for the environmental obligations are expected to occur over a number of years, such cash requirements are not expected to have a significant negative impact on the Corporation's liquidity. The Corporation made payments of $14.5 million, $12.6 million and $13.7 million in 1994, 1993 and 1992, respectively, with respect to these environmental obligations and expects to pay approximately $16 million of such costs in 1995. For these liabilities, $64.3 million had been accrued at December 31, 1994. Because of the uncertain nature of these liabilities, the Corporation estimates that it is reasonably possible that the ultimate liability may be as much as 65% greater or 15% lower than the amount accrued at December 31, 1994. Absent concurrent insurance recoveries, on-going cash payments will be funded out of operating cash flows and/or borrowings. The Corporation continuously monitors and reviews its environmental obligations, and although the Corporation believes that it has adequately accrued for such costs, as additional facts become known, additional provisions may be required. Other expenses in 1993 also reflect $3.5 million of costs of the transaction with NGC discussed in Note 2 to Item 8 -- "Financial Statements and Supplementary Data."
In 1994, the Corporation recognized an income tax benefit of $16.2 million resulting from the resolution of certain tax issues associated with prior years. This, in addition to the benefits of percentage depletion on significantly lower pre-tax financial income, contributed to an overall effective tax rate benefit for 1994 compared to effective tax rate charges recognized in 1993 and 1992.
General inflation over the past three years has not had a material effect on the Corporation's cost of doing business and is not expected to have a material effect in the foreseeable future. Changes in the price received for gold will impact the Corporation's revenue stream, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Corporation's cash outlays included $402.0 million for capital expenditures, of which $178.0 was for the refractory ore treatment plant, $62.6 million was for Zarafshan-Newmont and $24.6 million was for the Minahasa projects. In addition, $57.3 million in common and preferred stock dividends were paid. These outlays were funded through $401.6 million of net borrowings (of which $349.1 million was from the sale and leaseback of the refractory ore treatment plant) and $137.1 million of cash provided by operating activities.
Approximately $300 million is expected to be spent on capital projects in 1995. Carlin Trend expenditures of approximately $170 million will represent increases in capitalized mining costs and underground development. Capital funds of approximately $25 million and $90 million will also be required for the completion of the Zarafshan-Newmont and Minahasa projects, respectively.
Cash on hand at December 31, 1994 of $160.6 million, operating cash flow, unused bank credit lines of $400 million and expected additional borrowings by Zarafshan-Newmont ($15 million to the Corporation's share) will be used to fund the Corporation's capital investment programs and other cash requirements. Newmont and NGC have also filed shelf registration statements with the Securities and Exchange Commission covering the issuance of $300 million in equity securities and $150 million in non-convertible debt securities, respectively. There are no present plans to issue these securities. The Corporation expects to fund maturities of its debt through operating cash flow and/or by refinancing the debt as it becomes due.
Of the Corporation's $402.0 million in capital expenditures in 1994, it is estimated that approximately $94 million was required to comply with environmental regulations. The Corporation estimates that in 1995 approximately $25 million to $30 million will be spent for capital expenditures to comply with environmental regulations. A significant portion of these 1994 expenditures are related to the refractory ore treatment plant.
After 1995, environmental capital expenditures are not expected to be more than approximately $20 million, annually. The ongoing costs to comply with environmental regulations are not a significant portion of the Corporation's operating costs. The Corporation provides for future reclamation and mine closure costs on a unit-of-production basis. The annual accrual for costs associated with current operations has not been significant. The Corporation reviews the adequacy of its reclamation and closure reserves in light of current laws and regulations and makes provisions as necessary. In addition, periodic internal environmental audits are conducted to evaluate environmental compliance. Cash flow from the Corporation's operations and salvage values are expected to provide funding for reclamation and closure costs. The Corporation believes that its current operations are in compliance with applicable laws and regulations designed to protect the public health and environment.
Accounts receivable increased by $30.2 million between December 31, 1993 and December 31, 1994 primarily as a result of reclassifying $16.7 million from non-current other assets for insurance recoveries related to environmental obligations associated with former mining activities and recording a receivable for business interruption insurance related to start-up problems of the refractory ore treatment plant discussed in "Results of Operations." Collections on both receivables were made in early 1995. Other current assets increased between December 31, 1993 and December 31, 1994 by $16.7 million due primarily to increases in prepaid taxes.
Accounts payable increased between December 31, 1993 and December 31, 1994 by $14.8 million primarily due to timing of vendor payments. Other accrued liabilities increased over the same time period due primarily to a $16.5 million increase in accruals for exploration and capital projects in Indonesia and an increase of $8.8 million for current expenditures for remediation work related to former mining activities.
The decrease in minority interest in subsidiaries is primarily a result of the transaction with NGC discussed in Note 2 to Item 8 -- "Financial Statements and Supplementary Data." In that approximately $203 million of net liabilities were assumed by NGC, this decrease was partially offset by the minority interest in NGC increasing from 9.9% to 10.8%. The net decrease was offset by a like increase to retained earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newmont Mining Corporation:
We have audited the accompanying consolidated balance sheets of Newmont Mining Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, effective January 1, 1993, the Corporation changed its method of accounting for income taxes. In addition, as discussed in Note 9 to the consolidated financial statements, effective January 1, 1992, the Corporation changed its method of accounting for postretirement benefits other than pensions.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP
Denver, Colorado, March 14, 1995.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (IN THOUSANDS, EXCEPT PER SHARE)
The accompanying notes are an integral part of these statements.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE)
The accompanying notes are an integral part of these statements.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE)
The accompanying notes are an integral part of these statements.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)
See Note 13 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont Mining Corporation and its more than 50% owned subsidiaries (collectively, the "Corporation"). The Corporation also includes its pro rata share of assets, liabilities and operations for joint ventures in which it has an interest. All significant intercompany balances and transactions have been eliminated. The Corporation's principal subsidiary is Newmont Gold Company ("NGC"), which is approximately 89% owned.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid investments with a maturity of three months or less. Excess cash balances are primarily invested in U.S. Treasury bills with lesser amounts invested in high quality commercial paper and time deposits.
INVESTMENTS
Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." There was no impact on the Corporation's financial position as the related investments are considered to be classified as held to maturity.
Short-term investments are carried at cost, which approximates market, and include Eurodollar government and corporate obligations rated AA or higher. At December 31, 1994 and 1993, approximately $6.9 million and $8.0 million, respectively, of such investments were secured by letters of credit.
Investments in companies in which the Corporation's ownership is 20% to 50% are accounted for by the equity method of accounting.
Investments in companies owned less than 20% are recorded at the lower of cost or net realizable value and income from such investments is recorded when dividends are paid.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at the lower of average cost or net realizable value. Precious metals are stated at market value.
Non-current inventories are stated at the lower of average cost or net realizable value and represent ore-in-stockpiles from which no material is expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which 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, which range from two to twenty-one years.
Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed, the 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 future development costs, are amortized using a unit-of-production method over the estimated life of the ore body. On-going development expenditures to maintain production are generally charged to operations as incurred.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant payments related to the acquisition of exploration interests are capitalized. If a mineable ore body is discovered, such costs are amortized using a unit-of-production method. If no mineable ore body is discovered, 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 operations commence.
Gains or losses from normal sales or retirements of assets are included in other income or expense.
MINING COSTS
In general, mining costs are charged to operations as incurred. Due to the diverse waste-to-ore ratios encountered in mining certain of the Corporation's deposits, mining costs for the deposits, to the extent they do not relate to current production, are capitalized and then charged to operations when the applicable gold is produced.
RECLAMATION AND MINE CLOSURE COSTS
Estimated future reclamation and mine closure costs are based principally on legal and regulatory requirements and are accrued and charged over the expected operating lives of the Corporation's mines using a unit-of-production method.
INCOME TAXES
Prior to 1993, the Corporation recorded deferred income taxes under Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" ("APB 11"). Under the deferred method of APB 11, the Corporation recognized certain revenues and expenses for financial reporting purposes at different times than it recognized such amounts for income tax purposes, generating a deferred income tax charge or benefit for the year.
Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the liability method of SFAS 109, the Corporation recognizes certain temporary differences between the financial reporting basis of the Corporation's liabilities and assets and the related income tax basis for such liabilities and assets.
This generates a net deferred income tax liability or net deferred income tax asset for the Corporation for the year, as measured by the statutory tax rates in effect as enacted. The Corporation then 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 Corporation for the year.
GOLD HEDGING ACTIVITIES
The Corporation may enter into gold loans, options contracts and forward sales contracts to hedge the effect of price changes on the gold it produces. Gains and losses realized on such instruments, as well as any cost or revenue associated therewith, are recognized in sales when the related production is delivered.
EARNINGS PER COMMON SHARE
Earnings per common and common equivalent share are based on the sum of the weighted average number of common shares outstanding during each period and the assumed exercise of stock options having exercise prices less than the average market prices of the common stock during the period using the treasury stock method. The convertible preferred shares are not common stock equivalents and were anti-dilutive for
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994, 1993 and 1992. The weighted average number of shares used in the earnings per share calculations were 86.1 million, 85.5 million and 85.0 million in 1994, 1993 and 1992, respectively.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the 1994 presentation.
(2) TRANSACTION WITH NEWMONT GOLD COMPANY
Effective January 1, 1994, NGC acquired essentially all of the Corporation's non-NGC assets and assumed essentially all of the Corporation's non-NGC liabilities. As part of the transaction, the Corporation transferred 8,649,899 shares of NGC stock to NGC, reducing the Corporation's interest in NGC to 89.2% from 90.1%. The result of the transaction is that the common shareholders of both entities have interests in the same assets and liabilities. Furthermore, the Corporation declared a 1.2481 shares to 1 share stock split on March 21, 1994 which resulted in per share earnings of the two entities being comparable. All relevant share and per share information reflects this split.
The transfer of assets, NGC common stock and liabilities to NGC was recorded at historical cost since the transaction was between entities under common control. As a result of the transaction, consolidated retained earnings increased approximately $14 million and the minority interest in NGC decreased by a like amount since net liabilities with a historical cost of approximately $203 million were transferred to NGC, offset partially by the Corporation's decrease in ownership of NGC.
(3) INVENTORIES
(4) PROPERTY, PLANT AND MINE DEVELOPMENT
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) OTHER ACCRUED LIABILITIES
(6) INCOME TAXES
SFAS 109 requires that, effective January 1, 1993, the Corporation account for income taxes under the liability method, rather than the deferred method required previously under APB 11. The cumulative effect of this change in accounting for income taxes was to increase the Corporation's 1993 earnings $38.5 million, or $0.45 per share, attributable to fiscal years prior to 1993.
Under SFAS 109, the Corporation must establish deferred income tax liabilities and deferred income tax assets when temporary differences arise between the financial reporting basis and the income tax basis of the Corporation's liabilities and assets as measured by the statutory rates in effect as enacted.
The Corporation's deferred income tax assets include certain future tax benefits such as net operating losses or tax credit carryforwards. The Corporation must record a valuation allowance against any portion of those deferred income tax assets which it believes it will more likely than not fail to realize.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Worldwide components of the Corporation's resulting deferred income tax (liabilities) and assets are as follows (in thousands):
Based upon its estimate of future operations and tax planning strategies, the Corporation believes that it more likely than not will utilize $111.2 million of the $120.0 million of gross deferred income tax assets at December 31, 1994, reflecting a valuation allowance of $8.8 million and a net increase of $1.1 million from December 31, 1993's valuation allowance.
The Corporation gives no outright assurance that it will generate sufficient taxable income to fully realize the $111.2 million of gross deferred income tax assets at December 31, 1994. Rather, the Corporation's future levels of taxable income will depend, in part, upon gold prices, general economic conditions and other factors beyond the Corporation's control.
The Corporation's pre-tax financial statement income (loss) before minority interest in NGC and the cumulative effect of changes in accounting principles consists of (in thousands):
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation's provisions (benefits) for income taxes before the cumulative effect of changes in accounting principles consist of (in thousands):
In accordance with APB 11, the Corporation's deferred income tax provisions (benefits) for 1992, before the cumulative effect of a change in accounting principle, consisted of (in thousands):
On August 10, 1993, President Clinton signed into law the Revenue Reconciliation Act of 1993, raising the U.S. federal corporate income tax rate from 34% to 35% (retroactive to January 1, 1993). The Corporation's resulting provisions (benefits) for income taxes before the cumulative effect of changes in accounting principles differ from the amounts computed by applying the U.S. corporate income tax statutory rate for the following reasons (in thousands):
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation's prepaid income taxes were $9.1 million at December 31, 1994. The Corporation's other long-term liabilities included $23.7 million and $36.8 million of income taxes payable at December 31, 1994 and 1993, respectively.
(7) DEBT
LONG-TERM DEBT
Long-term debt consists of (in thousands):
Scheduled minimum long-term debt repayments are zero in 1995, $14.0 million in 1996, $19.3 million in 1997, $25.0 million in 1998 and $17.9 million in 1999. Actual payments may be greater due to actual operating cash flows realized.
Sale-leaseback of the Refractory Ore Treatment Plant
In September 1994, the Corporation entered into a sale and leaseback agreement for its refractory ore treatment plant located in Carlin, Nevada for $349.1 million. The transaction has been accounted for as debt for financial statement purposes, with the cost of the refractory ore treatment plant recognized as an asset and depreciated. The lease is for 21 years and the aggregate future minimum lease payments, which include interest, as of December 31, 1994 were $667.9 million. These payments begin in January 1996 and are $29.7 million annually in 1996 through 1999. Principal payments are included in these amounts beginning in 1998. The lease has purchase options during and at the end of the lease at predetermined prices.
In connection with this transaction, the Corporation entered into certain interest rate contracts to hedge the interest cost of the financing. These contracts were settled for a gain of $11.0 million which will be recognized as a reduction of interest expense over the term of the lease. As a result of this gain, the effective interest rate is 6.15%.
8 5/8% Notes
In April 1992, the Corporation issued unsecured notes with a principal amount of $150 million due April 1, 2002 bearing an annual interest rate of 8 5/8%. Interest is payable semi-annually in April and October and the notes are not redeemable prior to maturity. Using interest rates prevailing on similar instruments at December 31, 1994 and 1993, this debt was estimated to have a fair value of $151.5 million and $170.7 million, respectively.
Medium-term Notes
Beginning in May 1992, the Corporation began issuing notes under its $150 million medium-term notes program. Notes totalling $42.0 million, with a weighted average interest rate of 7.7% maturing on various dates ranging from mid-1999 to late 2004 were outstanding as of December 31, 1994 and 1993. Using the interest rates prevailing on similar instruments at December 31, 1994 and 1993, this debt was estimated to have a fair value of $40.4 million and $45.6 million at those respective dates.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Project Financing Facility
The Corporation, through a wholly-owned subsidiary, is a 50% participant in the Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont"), in the Republic of Uzbekistan. The other 50% participants are two entities of the Uzbekistan government. Zarafshan-Newmont was established to construct and operate a leaching facility to produce gold from low-grade ore previously mined and stockpiled at the Muruntau mine in the Republic of Uzbekistan.
Zarafshan-Newmont has secured $105.0 million of project financing from a consortium of banks. The loan is payable out of the proceeds of the project, beginning the earlier of three months after the first interest payment date after completion tests are satisfied or July 20, 1996, in semi-annual installments over three years. The average interest rate on the loan is 2.25 percentage points over the three month London Interbank Offered Rate prior to satisfaction of project completion tests and 3.75 percentage points over the three month London Interbank Offered Rate after satisfaction of project completion tests. The weighted average interest rate for 1994 was 6.9% and the interest rate at December 31, 1994 was 7.8%. The full amount under the facility had been drawn down in 1994 and is outstanding as of December 31, 1994. The Corporation expects that the facility will be amended to allow Zarafshan-Newmont to draw down an additional $30 million under the facility in 1995.
The Corporation has guaranteed one-half of the payment of any amounts due under such loan until the requirements of the project completion tests have been satisfied, at which time the loan will become non-recourse debt. Such completion tests must be satisfied no later than October 1996. The Corporation has obtained political risk insurance coverage and loan guarantee.
Revolving Credit Facility
The Corporation has a $400.0 million revolving credit facility with a consortium of banks. The facility expires in April 1998. No amounts were outstanding under the facility as of December 31, 1994 or December 31, 1993. Interest rates are variable and adjust subject to changes in the Corporation's long-term debt ratings and to usage of the facility in terms of borrowings as a percentage of commitments. Currently, the Corporation's interest rate is the lenders' base rate plus 0.25%. The Corporation has the option to fix the rate for up to six months. There is an annual facility fee which will also adjust subject to the Corporation's debt ratings. This fee is presently 0.15% of the lenders' total commitment.
The revolving credit facility contains covenants that limit consolidated indebtedness, as defined, to 67% of total capitalization; require minimum net worth, as defined, of $250 million in 1994, which then increases $25.0 million annually through 1997; and require an interest coverage ratio, as defined, of not less than 2.5 to 1.
SHORT-TERM DEBT
All short-term debt at December 31, 1994 and 1993 consisted of bank debt. The Corporation currently has unsecured demand bank lines of credit aggregating $16.0 million, of which $15.7 million was outstanding at December 31, 1994 and 1993. These facilities bear interest at customary short-term rates for borrowers with similar credit ratings. The interest rates on this short-term bank debt had a weighted average of 6.5% and 6.0% in 1994 and 1993, respectively, and were 8.5% and 6.0% at December 31, 1994 and 1993, respectively.
CAPITALIZED INTEREST
Capitalized interest was $19.7 million, $8.5 million and $2.4 million in 1994, 1993 and 1992, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCKHOLDERS' EQUITY
PREFERRED STOCK
In the fourth quarter of 1992, the Corporation issued 2.875 million shares of $5.00 par value Convertible Preferred Stock at a price of $100 per share, which netted approximately $280 million after offering expenses. The $5.50 annual dividend per share is cumulative from the original issue date and is payable quarterly commencing March 15, 1993. The shares are convertible at any time at the option of the holder into shares of common stock of the Corporation at a conversion price of $36.395 for each share of common stock, subject to certain adjustments. The Convertible Preferred Stock is not redeemable prior to November 15, 1995. On and after such date it is redeemable, in whole or in part, at the option of the Corporation, at a beginning redemption price of $103.85 per share. Such redemption price then declines $0.55 per share annually until it reaches $100 per share on November 15, 2002, which is also the liquidation preference per share. The Convertible Preferred Stock ranks senior to the participating preferred stock (see "Preferred Share Purchase Rights" in this note) and, in general, does not have voting rights.
The Convertible Preferred Stock was offered under Rule 144A and Regulation S under the U.S. Securities Act of 1933 and is therefore not registered under such Act. The Convertible Preferred Stock is held by shareholders through depositary shares, each of which represents one-half of a share of the Convertible Preferred Stock and entitles the holder to all proportional rights and preferences of the Convertible Preferred Stock.
COMMON STOCK RIGHTS
Equal Value Rights
In September 1987, the Board of Directors declared a dividend distribution of one Equal Value Right ("EVR") on each share of common stock outstanding on October 5, 1987. Each share issued subsequent to such date automatically receives an EVR. The EVRs, which are non-voting, expire in September 1997 unless redeemed earlier by the Corporation, and separate from the common shares effective with the public announcement (the "Control Date") that a person or group has acquired more than 50% of the common stock. Until an EVR is exercised, the holder thereof has no rights as a stockholder of the Corporation. Until the Control Date, the EVRs will be evidenced by the Corporation's common stock and will be transferred with and only with such certificates. In the event of a subsequent merger or other specified transaction by the Corporation, each EVR would entitle the holder, under certain circumstances, to receive from the Corporation an amount in cash equal to the amount by which the highest price per share paid by such acquirer within 91 days prior to and including the Control Date exceeds the fair market value of the consideration paid for each share of the Corporation's common stock in connection with the merger or other transaction. At any time prior to the Control Date, the Corporation may (but only with the concurrence of continuing directors) redeem the EVRs at a price of $0.02 per EVR.
Preferred Share Purchase Rights
In August 1990, the Board of Directors declared a dividend distribution of one preferred share purchase right ("PSPR") on each share of common stock outstanding on September 11, 1990. Each share issued subsequent to September 11, 1990 and prior to the "Distribution Date" referred to below (and in certain limited circumstances thereafter) will be issued with a PSPR. Each PSPR entitles the holder to purchase from the Corporation one five-hundredth of a share of participating preferred stock of the Corporation for $150, subject to adjustment. Prior to the Distribution Date, the PSPRs are not exercisable, will be evidenced by the Corporation's common stock certificates and will be transferred with and only with such certificates. The PSPRs expire in September 2000 unless earlier redeemed. Until a PSPR is exercised, the holder thereof has no rights as a stockholder of the Corporation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Distribution Date, which is the date on which the PSPRs separate from the common stock and become exercisable, is the earlier of (i) ten days after the public announcement that a person or group (other than the Corporation's present shareholder groups subject to a standstill agreement dated as of December 7, 1990, as amended and certain related entities and their transferees, but only to the extent of their current share ownership) (an "Acquiring Person") has acquired 15% or more of the common stock (the date of such first public announcement being the "Stock Acquisition Date"), or (ii) ten business days after the commencement of a tender or exchange offer that would result in a person or group owning 15% or more of the common stock. If after the Distribution Date a person shall become an Acquiring Person (other than pursuant to certain offers approved by the Board of Directors) each holder of a PSPR (other than the Acquiring Person and, in certain circumstances, transferees of the Acquiring Person) will have the right to receive, upon exercise, common stock (or, in certain circumstances, cash, property or other securities of the Corporation) having a value equal to two times the purchase price of the PSPR. In addition, if after a Stock Acquisition Date the Corporation is not the surviving entity in certain business combinations, or 50% or more of the Corporation's assets or earning power is sold or transferred, each holder of a PSPR shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the PSPR. Prior to the earlier of a Stock Acquisition Date or the expiration date of the PSPR, the Corporation, in certain circumstances with the approval of continuing directors, may redeem the PSPRs at a price of $0.01 per PSPR.
Each one five-hundredth share of preferred stock is designed to have similar rights to one share of common stock. The preferred shares have a preferential quarterly dividend that is 500 times the dividends on the common stock, but in no event less than one dollar. The liquidation preference per preferred share is the greater of $500 (plus accrued dividends to the date of distribution) or an amount equal to 500 times the aggregate amount of dividends to be distributed per share to holders of the Corporation's common stock. In the event of a business combination in which shares of the Corporation's common stock are exchanged, each preferred share will be entitled to receive 500 times the amount and type of consideration received per share of common stock. Each preferred share will have 500 votes and vote together with the common stock. The preferred shares are not redeemable.
(9) EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
Under the Corporation's stock option plans, options to purchase shares of the Corporation are granted to key employees at the fair market value of such shares on the date of grant. The options under these plans are subject to certain restrictions, vest over a two year period and are exercisable over a period not exceeding ten years. At December 31, 1994, 996,053 shares were available for future grants under the Corporation's stock option plans.
In 1994, 1993 and 1992 certain key executives were granted options that, although the exercise price is generally equal to the fair market value on the date of grant, cannot be exercised when vested until the market price of the Corporation's common stock is a defined amount above the option exercise price. In addition, the same executives were granted options in 1994, 1993 and 1992 whose exercise prices are 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, 1994, 846,909 of these options were outstanding.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes annual stock option activity for the three years ended December 31, 1994:
At December 31, 1994, 1,007,998 options were exercisable.
PENSION BENEFITS
The Corporation has two qualified non-contributory defined benefit pension plans, one which covers salaried employees and the other which covers substantially all hourly employees. In addition, the Corporation has a non-qualified supplemental pension plan for salaried employees whose benefits under the qualified plan are limited by federal legislation. The vesting period is five years of service for each plan. The plans' benefit formulas are based on an employee's years of credited service and either such employee's last five years average pay (salaried plan) or a flat dollar amount (hourly plan).
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 ("ERISA"). The Corporation maintains a trust for the purpose of funding the supplemental pension plan as well as death benefits for officers of the Corporation. This trust is funded at the discretion of the Corporation and had a balance of $1.9 million and $5.0 million (which approximated market) at December 31, 1994 and 1993, respectively. Although the trust's assets can be used to pay benefits for the supplemental pension plan, they cannot be used in determining the net pension liability for the supplemental pension plan. The qualified plans' assets consist of stocks, bonds and cash.
The components of pension expense for these three plans, in the aggregate, consist of (in thousands):
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the funded status of the Corporation's pension plans and the amounts recognized in the Corporation's consolidated balance sheets at December 31, 1994 and 1993, respectively (in thousands):
In accordance with the provisions of Statement of Financial Accounting Standards No. 87, an adjustment was required to reflect a minimum liability for the supplemental pension plan in 1994, 1993 and 1992. Such adjustment resulted in recording an intangible asset and, to the extent the minimum liability adjustment exceeded the unrecognized net transition liability, a reduction of $2.5 million, $3.7 million and $2.7 million in stockholders' equity, which is net of related deferred income tax benefits, for 1994, 1993 and 1992, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In measuring the projected benefit obligation for the plans, the following actuarial assumptions were used:
The weighted average expected long-term rate of return on plan assets was assumed to be 8.25% for 1994, 8.25% for 1993 and 9.25% for 1992.
RETIREE BENEFITS OTHER THAN PENSIONS
The Corporation provides defined medical benefits to qualified retirees who were salaried employees and their eligible dependents, and it provides defined life insurance benefits to qualified retirees who were salaried employees. In general, participants become eligible for these benefits upon retirement directly from the Corporation if they are at least 55 years old and the combination of their age and years of service with the Corporation equals 75 or more.
The 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 Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), effective January 1, 1992. The statement requires that postretirement benefits other than pensions be accrued during an employee's service to the Corporation. Previously, the Corporation recorded the expense when benefit payments were made for retirees.
The actuarially-determined accumulated postretirement benefit obligation ("APBO") calculated in accordance with SFAS 106 at January 1, 1992 was $17.6 million. This amount was expensed, net of related income tax benefits of $6.0 million, as a cumulative effect of a change in accounting principle.
The components of expense for postretirement benefits other than pensions for 1994, 1993 and 1992, exclusive of the cumulative effect of adopting SFAS 106 as of January 1, 1992, are shown in the table below (in thousands):
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of the liability for the Corporation's plans for postretirement benefits other than pensions recognized in its balance sheet (in thousands):
At December 31, 1994 and 1993, $3.0 million and $3.4 million of assets, respectively, with market values of approximately the same amounts, were designated in a trust to pay postretirement benefits other than pensions. Since these assets could be used to pay other employee benefits, they cannot be used for the postretirement benefit calculations. The Corporation has no formal policy for funding postretirement benefit obligations.
Weighted average discount rates of 8.5% and 7.5% were used in calculating the APBO at December 31, 1994 and 1993, respectively. The assumed health care cost trend rates to measure the expected cost of benefits at December 31, 1994 start at a 10% annual increase for coverage before the age of 65 and a 9% annual increase for coverage after the age of 64. These rates were assumed to decrease one percentage point each year until a 6% annual rate of increase was reached, at which point a 6% annual rate of increase was assumed thereafter. The effect of a one percentage point annual increase in the assumed cost trend rates would increase the aggregate of service and interest costs and the APBO for 1994 by approximately 22%.
SAVINGS PLAN
The Corporation has two qualified defined contribution savings plans, one which covers salaried employees and the other which covers substantially all hourly employees. In addition, the Corporation has a non-qualified supplemental savings plan for salaried employees whose benefits under the qualified plan are limited by federal regulations.
After six months or one year of service for the salaried and hourly plans, respectively, the Corporation generally matches 100% of employee contributions of up to 6% and 4% of base salary for the salaried and hourly plans, respectively.
The Corporation's matching contributions to such plans were $3.3 million, $2.4 million and $2.3 million in 1994, 1993 and 1992, respectively.
(10) OTHER EXPENSE
The Corporation is involved in several matters concerning environmental obligations primarily associated with former mining activities, as discussed in Note 14. Included in other expenses for 1994 and 1993 are provisions of $36.1 million and $6 million, respectively, related to these matters.
In December 1993, the Corporation announced that effective January 1, 1994, NGC would combine its operations with the Corporation by NGC acquiring all of the Corporation's non-NGC assets and liabilities. See Note 2 for additional information about this transaction. Costs related to the transaction of $0.6 million and $3.5 million were expensed in 1994 and 1993, respectively. Also during 1994, the Corporation incurred
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$4.1 million of costs associated with defeating a referendum placed on the Oregon ballot which would have effectively prevented open pit mining.
The Corporation expensed $0.7 million, $2.8 million and $3.8 million in 1994, 1993 and 1992, respectively, when it wrote down the carrying value of certain assets.
(11) GAIN ON SALE OF SECURITIES
In May 1993, the Corporation sold its remaining 14% interest in Newcrest Mining Limited for $67 million and recognized a gain of $29.6 million.
(12) MAJOR CUSTOMERS AND EXPORT SALES
The Corporation is not economically dependent on a limited number of customers for the sale of its product, primarily gold, because gold commodity markets are well-established worldwide. During 1994, there were three customers which accounted for $125.2 million, $99.6 million and $88.5 million of total sales, each of which represented more than 10% of total sales and together accounted for 52% of the annual sales. In 1993, sales to three such major customers accounted for $105.0 million, $97.3 million and $78.3 million, or 44% of total sales. In 1992, sales to two such major customers accounted for $126.8 million and $65.3 million, or 31% of total sales.
Export sales were $497.2 million, $269.3 million and $267.5 million in 1994, 1993 and 1992, respectively.
(13) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash payments (in thousands):
Excluded from the statements of consolidated cash flows are the effects of certain non-cash transactions. In 1994, the Corporation recognized an income tax benefit of $16.2 million resulting from the resolution of certain tax issues associated with prior years and in 1992 NGC exchanged $10.6 million of employee housing property for $7.7 million of notes receivable and $2.9 million in cash.
(14) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Corporation'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 Corporation 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 Corporation has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Corporation cannot predict such future expenditures.
The Corporation is involved in several matters concerning environmental obligations primarily associated with former mining activities.
Based upon the Corporation's best estimate of its liability for these matters, $64.3 million and $62.7 million were accrued at December 31, 1994 and 1993, respectively, excluding $18.4 million and $16.8 million at December 31, 1994 and 1993, respectively, of reclamation costs relating to currently producing mineral properties. The amounts are included in reclamation liabilities and other current liabilities. The $64.3 million
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at December 31, 1994 includes charges of $16.1 million taken in 1994 as a result of the Corporation revising its estimates of the costs associated with these matters. Depending upon the ultimate resolution of these matters, the Corporation believes that it is reasonably possible that the liability for these matters could be as much as 65% greater or 15% lower than the amount accrued at December 31, 1994.
A discussion of the environmental obligations and related insurance receivables associated with former mining activities as of December 31, 1994 follows.
Idarado Mining Company ("Idarado") -- 80.1% owned by NGC
In July 1992, the Corporation 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 settled natural resources damages, past and future response costs and provided habitat enhancement work. In addition, Idarado agreed in the consent decree to undertake specified remediation work related to its former mining activities in the Telluride/Ouray area of Colorado. The Corporation's best estimate of the cost of this work is included in the gross liability, as previously discussed. If the remediation work does not meet certain measurement criteria specified in the consent decree, the State and court reserve the right to require Idarado to perform other remediation work. Idarado and the Corporation have obtained a $16.3 million letter of credit to secure their obligations under the consent decree.
Resurrection Mining Company ("Resurrection") -- 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act which involves a joint venture mining operation near Leadville, Colorado in which Resurrection is a joint venturer. This action was subsequently consolidated with a lawsuit filed by the U. S. Environmental Protection Agency ("EPA") in 1986. The EPA is taking the lead role on cleanup issues. The proceedings sought to compel the defendants to remediate the impacts of pre-existing mining activities which the government agencies claim are causing substantial environmental problems in the area. The mining operations of the joint venture are operated by ASARCO, the other joint venturer. The lawsuits have named the Corporation, Resurrection, the joint venture and ASARCO defendants in the proceedings. They are also proceeding against other companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses a drainage and access tunnel owned by the joint venture -- the Yak Tunnel. Phase II addresses the remainder of the site.
In 1988 and 1989, the EPA issued administrative orders with respect to Phase I work for the Yak Tunnel. The joint venture, ASARCO, Resurrection and the Corporation have collectively implemented those orders by constructing a water treatment plant which was placed in operation in early 1992. The joint venture is in negotiations regarding remaining remedial work for Phase I, which primarily consists of monitoring and environmental maintenance activities.
The parties have entered into a consent decree with respect to Phase II which apportions liabilities and responsibilities for the site among the various parties. The EPA has not yet completed work to define the remedies for Phase II. Accordingly, the Corporation cannot yet determine the full extent or cost of its share of remedial action which will be required under Phase II. Moreover, in addition to such action, the government agencies may seek to recover for damages to natural resources.
Although the ultimate amount of Resurrection's and the Corporation's share of such costs for Phase I and Phase II cannot be presently determined, the Corporation's best estimate of its potential exposure for these costs is included in the gross liability for these matters, as previously discussed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dawn Mining Company ("Dawn") -- 51% owned by NGC
Dawn leased a currently inactive open-pit uranium mine 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.
In 1991, Dawn's lease was formally terminated. As a result, Dawn was required to file a formal reclamation plan. Dawn does not have sufficient funds to pay for such a reclamation plan or to pay for the closure of its mill. The Corporation's best estimate for the future costs related to these matters is included in the gross liability for environmental matters, as previously discussed. Dawn has developed and has received a license for a mill closure plan which could potentially generate the necessary funds to reclaim the mine and the mill. The plan, however, is currently being challenged administratively by third parties.
The Department of Interior previously notified Dawn that when the lease was terminated, it would seek to hold Dawn and the Corporation (as Dawn's 51% owner) liable for any costs incurred as a result of Dawn's failure to comply with the lease and applicable regulations. The Corporation would vigorously contest any such claims. The Corporation cannot reasonably predict the likelihood or outcome of any future action against Dawn or the Corporation arising from this matter.
Insurance Receivables
Included in accounts receivable at December 31, 1994 was a net $16.7 million and in other non-current assets at December 31, 1993 and 1992 was a net $42.2 million and $41.2 million, respectively, attributable to insurance companies for both a portion of the costs previously expended and for estimated future costs associated with environmental obligations covered by insurance policies associated with former mining activities. The amount is net of a $20.0 million valuation allowance established in 1994.
Prior to 1993, three of the insurance companies commenced actions against the Corporation seeking judgments that they had no liability. In the fall of 1993, the Corporation instituted a comprehensive lawsuit against its carriers. In addition, in 1993, the Corporation designated new lead counsel for all the insurance recovery actions.
Based on the views of prior lead counsel, the Corporation had believed that significant progress in certain settlement discussions would have been achieved by mid-summer 1994, but that expectation was not realized. The absence of such anticipated progress in settlement discussions, as well as the Corporation's discussions with new lead counsel for the insurance recovery actions regarding its review of such actions, caused the Corporation in the second quarter of 1994 to provide a $20.0 million valuation allowance on its insurance receivables resulting in the net balance outstanding at December 31, 1994. Subsequent to December 31, 1994, settlement in the insurance litigation was reached enabling the Corporation to realize the December 31, 1994 receivable. Settlement discussions continue with respect to some of the litigation. The Corporation will continue to vigorously pursue recovery in the remaining litigation and believes that it is reasonably possible that additional amounts will be recovered.
CLASS ACTION COMPLAINT
In March 1995, a class action complaint was filed against the Corporation and others in which the plaintiffs allege exposure to certain allegedly radioactive or otherwise hazardous waste materials produced at a ferroalloy production plant in Guernsey County, Ohio. This plant was owned until 1987 by Foote Mineral Company, a former subsidiary of the Corporation. The complaint seeks $500 million of compensatory damages jointly and severally against all defendants, $63 million in punitive damages against the Corporation, the recovery of response costs and the establishment of a medical monitoring fund under CERCLA.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Injunctive relief requiring defendants to remove the allegedly hazardous materials from the property of the plaintiffs is also requested.
The Corporation is investigating this recently filed action and intends to vigorously contest all alleged liability in this matter.
GUARANTEE OF THIRD PARTY INDEBTEDNESS
The Corporation guaranteed $35.7 million of Magma Copper Corporation's (a former subsidiary) Pollution Control Revenue Bonds due 2009. It is expected that the Corporation will be required to remain liable on this guarantee so long as the bonds relating thereto are outstanding.
GOLD PRICE HEDGING CONTRACTS
In 1994, the Corporation entered into several hedging transactions that begin in January 1996 and continue through December 2000 for future production from its Indonesian property, Minahasa. These transactions consist of forward sales of 125,000 ounces per year at an average floor price of $454 an ounce, plus the Corporation will receive 40% of the difference in the market price above the forward sale price. The Corporation may enter into additional hedging transactions in the future. No production in 1994 had been hedged.
GUARANTEE OF PROJECT FINANCING INDEBTEDNESS
NGC has a 38% interest in Minera Yanacocha S.A. ("Yanacocha"), a Peruvian gold operation which commenced operations in 1993. During 1994, Yanacocha secured project financing of $23.5 million from a consortium of banks. NGC agreed to guarantee approximately $8.9 million of this amount until the earlier of the repayment of all amounts due pursuant to the project financing or the satisfaction of a project completion test. Yanacocha expects that the project completion test will be satisfied in mid-1995.
OTHER COMMITMENTS AND CONTINGENCIES
In December 1992, NGC finalized an agreement with Barrick Goldstrike Mines, Inc. ("Barrick") which provides for Barrick to mine NGC's Post deposit which extends beyond NGC's property boundaries onto Barrick's property. NGC and Barrick share the costs so that each ounce of gold mined bears the same mining cost. NGC is obligated to pay Barrick for such costs as Barrick mines the deposit. In addition, NGC is obligated to share dewatering costs which are associated with the deposit. NGC incurred $39.0 million and $26.6 million of such mining and dewatering costs in 1994 and 1993, respectively, and expects to incur $50 million to $60 million annually for the next two years.
The Corporation has minimum royalty obligations on one of its producing mines of 80,000 ounces of gold in 1995, 55,000 ounces of gold in 1996 and no more than 40,000 ounces of gold per year thereafter for the life of the mine. The amount to be paid to meet the royalty obligations is based upon a defined average market gold price. Any amounts paid due to the minimum royalty obligation not being met in any year are recoverable in future years when the minimum royalty obligation is exceeded. The Corporation expects the mine's production will meet the minimum royalty requirements.
The Corporation 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 any amounts which it may be required to pay by reason thereof will have a material adverse effect on its financial condition or results of operations.
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) UNAUDITED SUPPLEMENTARY DATA
QUARTERLY DATA
The following is a summary of selected quarterly financial information (amounts in millions except per share amounts):
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(1) Sales less costs applicable to sales and depreciation, depletion and amortization.
(2) Includes a $17.6 million after-tax charge related to environmental obligations associated with former mining activities and an income tax benefit of $16.2 million resulting from the resolution of certain tax issues associated with prior years, with a net effect charge of $0.01 per share.
(3) Includes after-tax gain related to the sale of Newcrest Mining Limited interest of $19.3 million, or $0.22 per share.
(4) Cumulative effect of change in accounting for income taxes (see Note 6).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges were 1.7, 6.3, 6.5, 10.3 and 6.6 for the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively. The ratio of earnings to fixed charges and preferred stock dividends were 1.1, 3.4, 5.9, 10.3 and 6.6 for the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively. The Corporation guarantees certain third party debt which had total interest obligations of $1.0 million, $0.8 million, $3.3 million, $4.0 million and $4.5 million for the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively. The Corporation has not been required to pay any of these amounts, nor does it expect to have to pay any amounts; therefore, such amounts have not been included in the ratio of earnings to fixed charges.
ITEM 9.
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.
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 1995 annual meeting of stockholders and is incorporated herein by reference. Information concerning Newmont's executive officers is set forth under Part I of this report.
ITEM 11.
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 1995 annual meeting of stockholders and is incorporated herein by reference.
ITEM 12.
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 1995 annual meeting of stockholders and is incorporated herein by reference.
ITEM 13.
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 1995 annual meeting of stockholders and is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
All schedules have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes.
3. Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter ended December 31, 1994.
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
By /s/ TIMOTHY J. SCHMITT ----------------------------------- Timothy J. Schmitt Vice President, Secretary and Assistant General Counsel March 30, 1995
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 and on the date indicated.
Appendix I
The following is a narrative description of certain maps in image form which have been included in the paper version of the Form 10-K but which have been excluded from the EDGAR version of the Form 10-K.
1. Map of Location of the Carlin Trend Operations in Nevada -- Page 3 of the Form 10-K.
On page 3 of the Form 10-K, the registrant has included a map of Nevada with an enlargement of the geographical location of its operations on the Carlin Trend discussed on pages 1 through 5 of the Form 10-K. The map also includes a chart indicating the location of various deposits with proven and probable reserves.
2. Map of Location of the Yanacocha Project in Peru -- Page 7 of the Form 10-K.
On page 7 of the Form 10-K, the registrant has included a map of the Country of Peru showing the geographical location of the Yanacocha project discussed on pages 5 and 6 of the Form 10-K. The map also includes a notation that Minera Yanacocha S.A., the Peruvian corporation which owns the Yanacocha project, is 38% owned by the registrant.
3. Map of Location of the Zarafshan-Newmont Project in Uzbekistan -- Page 8 of the Form 10-K.
On page 8 of the Form 10-K, the registrant has included a map of the Republic of Uzbekistan showing the geographical location of the Zarafshan-Newmont project discussed on pages 7 and 8 of the Form 10-K. The map also includes a notation that the Zarafshan-Newmont joint venture, which owns the project, is 50% owned by the registrant.
4. Map of Locations of the Minahasa Project and the Batu Hijau Project in Indonesia -- Page 9 of the Form 10-K. On page 9 of the Form 10-K, the registrant has included a map of the Republic of Indonesia showing the geographical location of the Minahasa project and the Batu Hijau project, each of which is discussed on pages 8 and 9 of the Form 10-K. The map also includes a notation that each of the Indonesian companies that own the Minahasa project and the Batu Hijau project is 80% owned by the registrant.
INDEX TO EXHIBITS
INDEX TO EXHIBITS