Amendmend #1 to Form 10Q for the Peroid Ending 06/30/2003

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Form 10-Q/A

(Amendment No. 1)

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2003

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number: 001-31240

 

NEWMONT MINING CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   84-1611629

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

1700 Lincoln Street   80203
Denver, Colorado   (Zip Code)
(Address of Principal Executive Offices)    

 

Registrant’s telephone number, including area code (303) 863-7414

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act).    x  Yes    ¨  No

 

There were 364,076,754 shares of common stock outstanding on July 30, 2003 (and 43,989,956 exchangeable shares).

 



Explanatory Note

 

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 filed on August 4, 2003. Newmont Mining Corporation has filed this amendment to provide additional information and to make certain corrections to Note 17, Segment Information, in the Consolidated Financial Statements. Other information contained herein has not been updated. Therefore, you should read this Amendment with other documents that we have filed with the Securities and Exchange Commission. Information in such reports and documents update and supersede certain information contained in this Amendment.


PART I—FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

NEWMONT MINING CORPORATION

 

STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME

 

     Three Months Ended
June 30,


 
     2003

    2002

 
     (unaudited, in thousands,
except per share)
 

Revenues

                

Sales—gold

   $ 724,026     $ 609,516  

Sales—base metals, net

     12,735       22,935  

Royalties

     10,461       11,202  
    


 


       747,222       643,653  
    


 


Costs and expenses

                

Costs applicable to sales (exclusive of depreciation, depletion and amortization shown separately below)

                

Gold

     423,700       383,515  

Base metals

     9,973       8,674  

Depreciation, depletion and amortization

     139,337       123,602  

Exploration and research

     30,247       18,788  

General and administrative

     31,292       27,652  

Write-down of long-lived assets

     1,794       ––    

Other

     2,454       (1,791 )
    


 


       638,797       560,440  
    


 


Other income (expense)

                

Gain on investments, net

     ––         47,298  

Gain (loss) on gold commodity derivative instruments, net

     16,644       (9,478 )

Gain on extinguishment of NYOL bonds, net

     94,414       ––    

Gain on extinguishment of NYOL derivatives liability, net

     76,578       ––    

Dividends, interest income, foreign currency exchange and other income

     32,318       14,843  

Interest expense, net of capitalized interest of $1,758 and $1,223, respectively

     (22,669 )     (35,101 )
    


 


       197,285       17,562  
    


 


Pre-tax income before minority interest, equity (loss) income and impairment of affiliates

     305,710       100,775  

Income tax expense

     (89,038 )     (29,821 )

Minority interest in income of subsidiaries

     (35,807 )     (19,284 )

Equity loss and impairment of Australian Magnesium Corporation

     (107,758 )     (688 )

Equity income of affiliates

     17,740       18,008  
    


 


Net income

     90,847       68,990  

Preferred stock dividends

     —         (1,869 )
    


 


Net income applicable to common shares

   $ 90,847     $ 67,121  
    


 


Net income

   $ 90,847     $ 68,990  

Other comprehensive income, net of tax

     19,130       29,828  
    


 


Comprehensive income

   $ 109,977     $ 98,818  
    


 


Net income per common share, basic and diluted

   $ 0.22     $ 0.17  
    


 


Basic weighted average common shares outstanding

     405,388       397,532  
    


 


Diluted weighted average common shares outstanding

     408,242       399,468  
    


 


Cash dividends declared per common share

   $ 0.04     $ 0.03  
    


 


 

See Notes to Consolidated Financial Statements

 

 

2


NEWMONT MINING CORPORATION

 

STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME

 

     Six Months Ended
June 30,


 
     2003

    2002

 
     (unaudited, in thousands,
except per share)
 

Revenues

                

Sales—gold

   $ 1,438,582     $ 1,091,750  

Sales—base metals, net

     32,168       32,305  

Royalties

     24,941       15,002  
    


 


       1,495,691       1,139,057  
    


 


Costs and expenses

                

Costs applicable to sales (exclusive of depreciation, depletion and amortization shown separately below)

                

Gold

     822,709       712,050  

Base metals

     25,335       19,379  

Depreciation, depletion and amortization

     269,930       225,788  

Exploration and research

     51,719       30,355  

General and administrative

     57,702       48,967  

Write-down of long-lived assets

     1,794       ––    

Other

     24,473       (921 )
    


 


       1,253,662       1,035,618  
    


 


Other income (expense)

                

Gain on investments, net

     84,337       47,298  

Gain (loss) on gold commodity derivative instruments, net

     71,669       (3,147 )

Gain on extinguishment of NYOL bonds, net

     94,414       ––    

Gain on extinguishment of NYOL derivatives liability, net

     76,578       ––    

Loss on extinguishment of debt

     (19,530 )     ––    

Dividends, interest income, foreign currency exchange and other income

     64,157       15,258  

Interest expense, net of capitalized interest of $3,048 and $2,294, respectively

     (52,615 )     (66,238 )
    


 


       319,010       (6,829 )
    


 


Pre-tax income before minority interest, equity (loss) income and impairment of affiliates and cumulative effect of a change in accounting principle

     561,039       96,610  

Income tax expense

     (151,601 )     (31,009 )

Minority interest in income of subsidiaries

     (73,596 )     (29,834 )

Equity loss and impairment of Australian Magnesium Corporation

     (119,485 )     (688 )

Equity income of affiliates

     26,278       19,412  
    


 


Net income before cumulative effect of a change in accounting principle

     242,635       54,491  

Cumulative effect of a change in accounting principle, net of tax of $11,188 and $(4,147), respectively

     (34,533 )     7,701  
    


 


Net income

     208,102       62,192  

Preferred stock dividends

     —         (3,738 )
    


 


Net income applicable to common shares

   $ 208,102     $ 58,454  
    


 


Net income

   $ 208,102     $ 62,192  

Other comprehensive income, net of tax

     60,159       57,706  
    


 


Comprehensive income

   $ 268,261     $ 119,898  
    


 


Net income per common share before cumulative effect of a change in accounting principle, basic

   $ 0.60     $ 0.15  

Cumulative effect of a change in accounting principle per common share, basic

     (0.08 )     0.02  
    


 


Net income per common share, basic

   $ 0.52     $ 0.17  
    


 


Net income per common share before cumulative effect of a change in accounting principle, diluted

   $ 0.60     $ 0.15  

Cumulative effect of a change in accounting principle per common share, diluted

     (0.09 )     0.02  
    


 


Net income per common share, diluted

   $ 0.51     $ 0.17  
    


 


Basic weighted average common shares outstanding

     403,648       339,817  
    


 


Diluted weighted average common shares outstanding

     406,305       341,262  
    


 


Cash dividends declared per common share

   $ 0.08     $ 0.06  
    


 


 

See Notes to Consolidated Financial Statements

 

3


NEWMONT MINING CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

     June 30,
2003


    December 31,
2002


 
     (unaudited, in thousands)  
ASSETS                 

Cash and cash equivalents

   $ 274,741     $ 401,683  

Marketable securities—short-term

     12,030       13,188  

Accounts receivable

     44,971       44,510  

Inventories

     170,458       169,324  

Stockpiles and ore on leach pads

     277,021       328,993  

Prepaid taxes

     19,318       28,335  

Deferred stripping costs—short term

     28,660       32,085  

Deferred income tax assets

     53,482       51,451  

Newmont Australia infrastructure bonds

     114,287       —    

Other current assets

     63,365       43,687  
    


 


Current assets

     1,058,333       1,113,256  

Property, plant and mine development, net

     2,343,102       2,287,030  

Mineral interests and other intangible assets, net

     1,405,066       1,415,348  

Investments

     695,059       1,206,705  

Marketable securities—long-term

     291,004       —    

Deferred stripping costs—long term

     39,336       23,302  

Long-term stockpiles and ore on leach pads

     282,537       199,761  

Deferred income tax assets

     879,324       761,428  

Other long-term assets

     89,208       123,112  

Goodwill

     3,068,657       3,024,576  
    


 


Total assets

   $ 10,151,626     $ 10,154,518  
    


 


LIABILITIES                 

Current portion of long-term debt

   $ 176,422     $ 115,322  

Accounts payable

     151,042       105,277  

Deferred income tax liabilities

     9,171       28,469  

Derivative instruments

     7,914       74,999  

Employee related benefits—short-term

     117,196       100,936  

Other current liabilities

     420,049       268,460  
    


 


Current liabilities

     881,794       693,463  

Long-term debt

     1,277,166       1,701,282  

Reclamation and remediation liabilities

     421,970       288,536  

Deferred revenue from sale of future production

     53,841       53,841  

Derivative instruments

     17,254       388,659  

Deferred income tax liabilities

     742,237       656,452  

Employee related benefits—long-term

     214,697       234,103  

Other long-term liabilities

     379,677       364,376  
    


 


Total liabilities

     3,988,636       4,380,712  
    


 


Commitments and contingencies (Note 18)

                

Minority interest in subsidiaries

     362,196       354,558  
    


 


STOCKHOLDERS’ EQUITY                 

Preferred stock—$5.00 par value;

                

Authorized—5.0 million shares

Issued and outstanding—none

     —         —    

Common stock—$1.60 par value;

                

Authorized—750 million shares at each period end, respectively

Issued and outstanding—

                

Common: 362.1 million and 353.2 million shares issued, less 90 thousand and 9 thousand
treasury shares, respectively

     579,733       565,019  

Exchangeable: 55.9 million shares, less 10 million and 7 million redeemed shares, respectively

                

Additional paid-in capital

     5,153,258       5,038,468  

Accumulated other comprehensive income (loss)

     (3,867 )     (64,026 )

Retained earnings (deficit)

     71,670       (120,213 )
    


 


Total stockholders’ equity

     5,800,794       5,419,248  
    


 


Total liabilities and stockholders’ equity

   $ 10,151,626     $ 10,154,518  
    


 


 

See Notes to Consolidated Financial Statements

 

4


NEWMONT MINING CORPORATION

 

STATEMENTS OF CONSOLIDATED CASH FLOWS

 

     Six Months Ended
June 30,


 
     2003

    2002

 
     (unaudited, in
thousands)
 

Operating activities:

                

Net income

   $ 208,102     $ 62,192  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation, depletion and amortization

     269,930       225,788  

Accretion of accumulated reclamation obligations

     11,320       ––    

Amortization of deferred stripping costs, net

     (14,114 )     8,903  

Deferred income taxes

     8,745       (10,403 )

Foreign currency exchange (gain) loss

     (34,019 )     10,504  

Minority interest, net of dividends

     44,406       27,134  

Equity loss (income) and impairment of affiliates, net of dividends

     99,309       (14,859 )

Write-downs of inventories, stockpiles and ore on leach pads

     17,941       15,897  

Cumulative effect of a change in accounting principle, net of tax

     34,533       (7,701 )

Gain on investments, net

     (84,337 )     (47,298 )

Gain on gold commodity derivative instruments, net

     (71,669 )     3,147  

Gain on extinguishment of NYOL bonds, net

     (94,414 )     ––    

Gain on extinguishment of NYOL derivatives liability, net

     (76,578 )     ––    

Loss on extinguishment of debt

     19,530       ––    

Gain on sale of assets and other

     (11,027 )     (9,704 )

(Increase) decrease in operating assets:

                

Accounts receivable

     8,000       14,413  

Inventories, stockpiles and ore on leach pads

     (25,574 )     (5,441 )

Other assets

     7,332       14,881  

Increase (decrease) in operating liabilities:

                

Accounts payable and other accrued liabilities

     54,156       (46,473 )

Derivative instruments

     (12,935 )     ––    

Early settlement of derivative instruments classified as cash flow hedges

     (120,993 )     ––    

Other liabilities

     (12,698 )     (42,896 )
    


 


Net cash provided by operating activities

     224,946       198,084  
    


 


Investing activities:

                

Additions to property, plant and mine development

     (215,301 )     (140,810 )

Advances to joint ventures and affiliates, net

     (46,203 )     (24,750 )

Proceeds from sale of short-term investments

     1,653       406,731  

Proceeds from the sale of TVX Newmont Americas

     180,000       ––    

Proceeds from sale of marketable securities of Lihir

     —         84,002  

Proceeds from sale of cross currency swaps

     —         50,816  

Early settlement of ineffective derivative instruments

     (29,148 )     ––    

Cash consideration for acquisition of Newmont NFM minority interest and other

     (11,195 )     ––    

Cash consideration for the acquisition of Normandy and Franco-Nevada, net of cash received and transaction costs

     —         (87,885 )

Proceeds from asset sales and other

     988       19,888  
    


 


Net cash (used) provided by investing activities

     (119,206 )     307,992  
    


 


Financing activities:

                

Proceeds from long-term debt

     115,000       489,131  

Repayment of long-term debt

     (322,360 )     (911,817 )

Dividends paid on common and preferred stock

     (32,308 )     (25,871 )

Proceeds from stock issuance and other

     24,851       62,898  

Other

     —         (691 )
    


 


Net cash used in financing activities

     (214,817 )     (386,350 )
    


 


Effect of exchange rate changes on cash

     (17,865 )     16,248  

Net change in cash and cash equivalents

     (126,942 )     135,974  

Cash and cash equivalents at beginning of period

     401,683       149,431  
    


 


Cash and cash equivalents at end of period

   $ 274,741     $ 285,405  
    


 


Supplemental information:

                

Accrual for NYOL bond extinguishment

   $ 98,398     $ —    

Interest paid, net of amounts capitalized of $3,048 and $2,294, respectively

   $ 67,297     $ 61,668  

Income taxes paid

   $ 110,467     $ 45,700  

 

See Notes to Consolidated Financial Statements

 

5


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1)    BASIS OF PREPARATION OF FINANCIAL STATEMENTS

 

The following interim Consolidated Financial Statements of Newmont Mining Corporation and its subsidiaries (collectively, “Newmont” or the “Company”) are unaudited and prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles as long as the statements are not misleading. In the opinion of management, all adjustments necessary for a fair presentation of these interim statements have been included. These adjustments are of a normal recurring nature, except for the effects of the February 2002 acquisitions. These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of Newmont included in its Annual Report on Form 10-K/A for the year ended December 31, 2002.

 

The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s Consolidated Financial Statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates and units-of-production depreciation, depletion and amortization calculations; environmental, reclamation and closure obligations; estimates of recoverable gold and other minerals in stockpile and leach pads inventories; asset impairments (including impairments of goodwill, long-lived assets, and investments); write-downs of inventory to net realizable value; post-employment, post-retirement and other employee benefit liabilities; valuation allowances for deferred tax assets; reserves for contingencies and litigation; and the fair value and accounting treatment of financial instruments. The Company bases its estimates on the Company’s historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.

 

References to “A$” refer to Australian currency, “CDN$” to Canadian currency and “$” or “US$” to United States currency.

 

Certain amounts for the three and six months ended June 30, 2002 and at December 31, 2002 have been reclassified to conform to 2003 presentation.

 

(2)    ACQUISITIONS

 

Newmont NFM Limited Scheme of Arrangement

 

On April 2, 2003, the shareholders of Normandy NFM Limited (an Australian corporation trading as “Newmont NFM” on the Australian Stock Exchange or “ASX”) voted to approve the proposed scheme of arrangement under which Newmont NFM would become a wholly-owned subsidiary of Newmont Australia Limited, a wholly-owned subsidiary of Newmont Mining Corporation, through the acquisition of the remaining minority interest of Newmont NFM. The Federal Court in Sydney, Australia approved the scheme on April 11, 2003 and the scheme became effective on April 14, 2003 after the orders of the Federal Court were filed with the Australian Securities and Investments Commission. Under the terms of the scheme, Newmont NFM shareholders could receive 4.40 ASX listed Newmont Mining Corporation CHESS Depositary Interests (“CDIs”) for each Newmont NFM share. Each CDI is equivalent to 0.1 Newmont Mining Corporation common shares. As an alternative to receiving Newmont Mining Corporation CDIs, shareholders could sell their Newmont NFM shares back to the company under a concurrent buy-back offer of A$16.50 per Newmont NFM share. On April 29,

 

6


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

2003, Newmont Mining Corporation issued 4,437,506 common shares to CHESS Depository Nominees Pty Ltd, and in turn, 44,375,060 CDIs were issued to former Newmont NFM shareholders. The market value of the issued Newmont Mining Corporation shares was approximately $105 million, based on the average quoted value of the shares of $23.58 two days before and after November 28, 2002, the date the terms of the transaction were announced. The market value of the issued shares, together with the cash consideration paid to those shareholders who elected to accept the buy-back offer of approximately $10 million (including transaction costs), gave rise to a total purchase price of approximately $115 million. The transaction was accounted for as a purchase of minority interest in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business Combinations” in the second quarter of 2003. Newmont NFM was delisted from the ASX in April 2003. Newmont has performed a preliminary purchase price allocation based on independent appraisals and valuations that gave rise to goodwill of $77.1 million. The final purchase price allocation is not expected to vary significantly from the preliminary allocation.

 

Normandy and Franco-Nevada

 

During the first quarter of 2002, Newmont acquired Franco-Nevada Mining Corporation Limited. (“Franco-Nevada”) and Normandy Mining Limited. (“Normandy”). The effective date for accounting purposes of the acquisitions was February 15, 2002. For more information on the acquisitions and the related purchase price allocation, see Note 3 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2002.

 

For information purposes only, the following unaudited pro forma data reflects the consolidated results of operations of Newmont as if the acquisitions of Franco-Nevada and Normandy had taken place on January 1, 2002 (unaudited, in millions, except per share data):

 

     Six Months
Ended
June 30, 2002


 

Revenues

   $ 1,368.8  

Net loss applicable to common shares before cumulative effect of a change in accounting principle

   $ (77.6 )

Net loss applicable to common shares

   $ (69.9 )

Basic and diluted loss per common share before cumulative effect of a change in accounting principle

   $ (0.20 )

Basic and diluted loss per common share

   $ (0.18 )

Basic and diluted weighted average common shares outstanding

     394.1  

 

On a pro forma basis during the six months ended June 30, 2002, the net loss includes mark-to-market losses on derivative instruments totaling $166.9 million, net of tax. The above pro forma amounts do not include the application of hedge accounting prior to the acquisitions to significant portions of the acquired derivative instruments, as hedge accounting documentation was not in place during those periods. The pro forma information is not indicative of the results of operations that would have occurred had the acquisitions been consummated on January 1, 2002. The information is not indicative of the combined company’s future results of operations.

 

7


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Goodwill

 

Changes in the carrying amount of goodwill allocated to reporting units during 2002 and for the first six months of 2003 are summarized in the following table (unaudited, in millions).

 

     Nevada

   Other
North
America


    Total
North
America


    Yanacocha

  

Other

South
America


   Total
South
America


 

Balance at January 1, 2002

   $ —      $ —       $ —       $  —      $      $ —    

Purchase price allocation for Normandy and Franco-Nevada acquisitions

     40.9      —         40.9       —        —        —    
    

  


 


 

  

  


Balance at December 31, 2002

     40.9      —         40.9       —        —        —    

Reversal of valuation allowances for acquired deferred tax assets

     —        —         —         —        —        —    
    

  


 


 

  

  


Balance at March 31, 2003

     40.9      —         40.9       —        —        —    

Purchase price allocation for Newmont NFM Scheme of Arrangement

     —        —         —         —        —        —    

Reversal of valuation allowances for acquired deferred tax assets

     —        —         —         —        —        —    
    

  


 


 

  

  


Balance at June 30, 2003

   $ 40.9    $ —       $ 40.9     $ —      $  —      $ —    
    

  


 


 

  

  


     Pajingo

   Other
Australia


    Total
Australia


   

Zarafshan-

Newmont


   Other
International
Operations


   Total
Gold


 

Balance at January 1, 2002

   $ —      $ —       $ —       $ —      $ —      $ —    

Purchase price allocation for Normandy and Franco-Nevada acquisitions

     56.9      140.8       197.7       —        —        238.6  
    

  


 


 

  

  


Balance at December 31, 2002

     56.9      140.8       197.7       —        —        238.6  

Reversal of valuation allowances for acquired deferred tax assets

     —        (18.5 )     (18.5 )     —        —        (18.5 )
    

  


 


 

  

  


Balance at March 31, 2003

     56.9      122.3       179.2       —        —        220.1  

Purchase price allocation for Newmont NFM Scheme of Arrangement

     —        77.1       77.1       —        —        77.1  

Reversal of valuation allowances for acquired deferred tax assets

     —        (14.5 )     (14.5 )     —        —        (14.5 )
    

  


 


 

  

  


Balance at June 30, 2003

   $ 56.9    $ 184.9     $ 241.8     $ —      $ —      $ 282.7  
    

  


 


 

  

  


 

8


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

     Base
Metals


   Exploration

   Merchant
Banking


   Corporate
and Other


   Consolidated

 

Balance at January 1, 2002

   $ —      $ —      $ —      $  —      $ —    

Purchase price allocation for Normandy and Franco-Nevada acquisitions

     31.5      1,129.5      1,625.0      —        3,024.6  
    

  

  

  

  


Balance at December 31, 2002

     31.5      1,129.5      1,625.0      —        3,024.6  

Reversal of valuation allowances for acquired deferred tax assets

     —        —        —        —        (18.5 )
    

  

  

  

  


Balance at March 31, 2003

     31.5      1,129.5      1,625.0      —        3,006.1  

Purchase price allocation for Newmont NFM Scheme of Arrangement

     —        —        —        —        77.1  

Reversal of valuation allowances for acquired deferred tax assets

     —        —        —        —        (14.5 )
    

  

  

  

  


Balance at June 30, 2003

   $ 31.5    $ 1,129.5    $ 1,625.0    $ —      $ 3,068.7  
    

  

  

  

  


 

During the six months ended June 30, 2003, the Company reversed valuation allowances for deferred tax assets related to capital loss carry-forwards in Australia due to capital gains generated by the sale of TVX Newmont Americas, the loss of tax attributes from the extinguishment of Newmont Yandal Operations Pty Ltd (“NYOL”) bonds (see Note 10 for discussion) and from tax benefits arising from the completion of the Newmont NFM Scheme of Arrangement. The valuation allowances were originally recorded as part of the purchase price allocation for the acquisition of Normandy and were therefore reversed against goodwill.

 

(3)    INVENTORIES

 

    

At June 30,

2003


   At December 31,
2002


     (unaudited, in thousands)

Current:

             

In-process

   $ 41,782    $ 46,435

Precious metals

     23,923      19,467

Materials and supplies

     104,753      103,310

Other

     —        112
    

  

     $ 170,458    $ 169,324
    

  

 

The Company recorded aggregate write-downs of $5.1 million and $0.8 million for the three months ended June 30, 2003 and 2002, respectively, to reduce the carrying value of inventories to net realizable value. Write-downs in 2003 included $0.8 million at Yanacocha, $0.3 million at Yandal, $0.5 million at Martha and $3.5 million at Golden Grove. Write-downs in 2002 related to $0.8 million at Nevada.

 

The Company recorded aggregate write-downs of $10.9 million and $2.3 million for the six months ended June 30, 2003 and 2002, respectively, to reduce the carrying value of inventories to net realizable value. Write-downs in 2003 include $0.8 million at Yanacocha, $1.0 million at Yandal, $1.3 million at Minahasa, $1.0 million at Martha and $6.8 million at Golden Grove. Write-downs in 2002 primarily related to $2.0 million at Nevada.

 

Inventory write-downs are classified as components of Costs applicable to sales.

 

9


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

(4)    STOCKPILES AND ORE ON LEACH PADS

 

    

At June 30,

2003


   At December 31,
2002


     (unaudited, in thousands)

Current:

             

Stockpiles

   $ 92,129    $ 104,997

Ore on leach pads

     184,892      223,996
    

  

     $ 277,021    $ 328,993
    

  

Long-term:

             

Stockpiles

   $ 164,830    $ 136,116

Ore on leach pads

     117,707      63,645
    

  

     $ 282,537    $ 199,761
    

  

 

Write-downs of inventories included in Costs applicable to sales totaled $5.1 million and $6.8 million for the three months ended June 30, 2003 and 2002, respectively, to reduce the carrying value of stockpiles to net realizable value. The 2003 stockpile write-downs included $1.4 million at Yandal, $2.1 million at Tanami, $1.0 million at Kalgoorlie, and $0.6 million at Martha. The 2002 stockpile write-downs primarily related to $6.6 million at Nevada.

 

Write-downs of inventories included in Costs applicable to sales totaled $6.8 million and $13.6 million for the six months ended June 30, 2003 and 2002, respectively, to reduce the carrying value of stockpiles to net realizable value. The Company also recorded a write-down in Nevada of $0.2 million for the six months ended June 30, 2003 to reduce the carrying value of ore on leach pads to net realizable value. Stockpile write-downs in 2003 include $0.8 million in Nevada, $1.4 million at Yandal, $2.1 million at Tanami, $1.0 million at Kalgoorlie and $1.5 million at Martha. $13.3 million of the stockpile write-downs in 2002 related to Nevada.

 

Stockpile and ore on leach pads write-downs are classified as components of Costs applicable to sales.

 

(5)    GAIN ON INVESTMENTS, NET

 

Gain on investment for the three and six months ended June 30, 2003 and 2002 was as follows:

 

     Three months
ended June 30,


   Six months ended
June 30,


     2003

   2002

   2003

   2002

     (unaudited, in thousands)

Gain on exchange of Echo Bay shares for Kinross marketable securities

   $  —      $ —      $ 84,337    $ —  

Gain on sale of marketable securities of Lihir Gold

     —        47,298      —        47,298
    

  

  

  

Total

   $ —      $ 47,298    $ 84,337    $ 47,298
    

  

  

  

 

Kinross Gold Corporation

 

On January 31, 2003, Kinross Gold Corporation (“Kinross”), Echo Bay Mines Ltd. (“Echo Bay”) and TVX Gold Inc. (“TVX Gold”) were combined, and TVX Gold acquired Newmont’s 49.9% interest in the TVX Newmont Americas joint venture. Under the terms of the combination and acquisition, Newmont received a 13.8% interest in the restructured Kinross in exchange for its then 45.67% interest in Echo Bay and $180 million for its interest in TVX Newmont Americas. Cash proceeds of $170.6 million were received immediately after the

 

10


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

close of the transaction. The remaining $9.4 million, originally held in escrow, were received subsequent to the end of the first quarter. Newmont recognized a pre-tax gain of $84.3 million on the transaction in Gain on investments, net in the Statement of Consolidated Operations.

 

Newmont classifies its investment in Kinross as a long-term, available-for-sale marketable security. At June 30, 2003, the fair value of the Kinross investment was $291 million. During the three months ended March 31, 2003, a loss of $45.3 million, net of tax, was recorded in Other comprehensive income, net of tax for the change in market value of the investment. During the second quarter of 2003, a loss of $3.2 million, net of tax, was recorded in Other comprehensive income, net of tax for the change in market value of the investment. Newmont will continue to monitor the market value of its investment in Kinross Gold Corporation. In the event that the decline in the market value of the Kinross shares continues in future periods, the Company will evaluate the need to recognize a loss for an other-than-temporary decline in the value of the investment.

 

Gain on Sale of Marketable Securities of Lihir Gold

 

At March 31, 2002, the Company held a 9.74% interest in Lihir Gold, which was accounted for as an investment in marketable securities. During the three months ended March 31, 2002, unrealized holding gains of $11.0 million were recorded in Other comprehensive income, net of tax to reflect the market value increase during the period. On April 12, 2002, Newmont sold its equity holding in Lihir Gold through a block trade to Macquarie Equity Capital Markets Limited in Australia for approximately $84 million, resulting in the recognition of a pre-tax gain of approximately $47.3 million in Gain on investments, net in the Statement of Consolidated Operations.

 

Sales of Debt Securities

 

As part of the Franco-Nevada acquisition in February 2002, the Company acquired significant investments in marketable debt securities. These debt securities are classified as available-for-sale and recorded at their fair values of $402.6 million under purchase accounting. All such securities were sold immediately after the Franco-Nevada acquisition for net proceeds of $402.9 million, resulting in the recognition of a pre-tax gain of $0.3 million, which is included in Dividends, interest income, foreign currency exchange, and other income for the six months ended June 30, 2002.

 

(6)    DEFERRED STRIPPING COSTS

 

Movements in the deferred stripping cost balance were as follows:

 

     Six months
ended
June 30,
2003


    Year ended
December 31,
2002


 
     (unaudited, in thousands)  

Opening balance

   $ 55,387     $ 91,631  

Additions

     84,238       65,371  

Amortization

     (71,629 )     (101,615 )
    


 


Closing balance

   $ 67,996     $ 55,387  
    


 


 

11


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

(7)    PROPERTY, PLANT AND MINE DEVELOPMENT

 

     At June 30, 2003

   At December 31, 2002

     Cost

   Accumulated
Depreciation and
Depletion


   

Net Book

Value


   Cost

   Accumulated
Depreciation and
Depletion


   

Net Book

Value


     (unaudited, in thousands)

Land

   $ 76,743    $ —       $ 76,743    $ 71,521    $ —       $ 71,521

Buildings and equipment

     4,156,356      (2,583,915 )     1,572,441      4,093,028      (2,371,017 )     1,722,011

Mine development

     1,158,455      (670,688 )     487,767      1,005,166      (580,594 )     424,572

Asset retirement cost

     131,649      (69,332 )     62,317      —        —         —  

Construction-in-progress

     143,834      —         143,834      68,926      —         68,926
    

  


 

  

  


 

Total

   $ 5,667,037    $ (3,323,935 )   $ 2,343,102    $ 5,238,641    $ (2,951,611 )   $ 2,287,030
    

  


 

  

  


 

Leased assets included above in property, plant and mine development

   $ 351,498    $ (153,600 )   $ 197,898    $ 361,889    $ (146,884 )   $ 215,005
    

  


 

  

  


 

 

12


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

(8)    MINERAL INTERESTS AND OTHER INTANGIBLE ASSETS

 

     At June 30, 2003

  At December 31, 2002

     Carrying
Value


  Accumulated
Amortization


    Net Book
Value


  Carrying
Value


  Accumulated
Amortization


    Net Book
Value


     (unaudited, in thousands)

Mineral Interests:

                                        

Production stage

                                        

Mineral interests

   $ 801,518   $ (373,726 )   $ 427,792   $ 712,098   $ (325,822 )   $ 386,276

Royalties—net smelter returns

     223,684     (19,387 )     204,297     222,614     (12,751 )     209,863

Royalties—net profit interest

     18,290     (3,639 )     14,651     17,340     (3,231 )     14,109
    

 


 

 

 


 

       1,043,492     (396,752 )     646,740     952,052     (341,804 )     610,248
    

 


 

 

 


 

Development stage

                                        

Mineral interests

     123,955           123,955     92,757           92,757

Royalties—net smelter returns

     1,542           1,542     1,321           1,321

Royalties—net profit interest

     6,911     (90 )     6,821     5,921     (50 )     5,871
    

 


 

 

 


 

       132,408     (90 )     132,318     99,999     (50 )     99,949
    

 


 

 

 


 

Exploration stage

                                        

Mineral interests

     548,433     (10,813 )     537,620     632,284     (8,449 )     623,835

Royalties-net smelter returns

     5,815     (351 )     5,464     5,700     (314 )     5,386
    

 


 

 

 


 

       554,248     (11,164 )     543,084     637,984     (8,763 )     629,221
    

 


 

 

 


 

Total mineral interests

     1,730,148     (408,006 )     1,322,142     1,690,035     (350,617 )     1,339,418
    

 


 

 

 


 

Oil and gas:

                                        

Producing property

                                        

Royalties—net refining returns

     44,293     (7,142 )     37,151     37,964     (3,842 )     34,122

Working interest

     21,510     (2,174 )     19,336     18,430     (1,400 )     17,030
    

 


 

 

 


 

       65,803     (9,316 )     56,487     56,394     (5,242 )     51,152
    

 


 

 

 


 

Non-producing property

                                        

Royalties—net refining returns

     5,545           5,545     4,751           4,751

Working interest

     8,280           8,280     7,090           7,090
    

 


 

 

 


 

       13,825           13,825     11,841           11,841
    

 


 

 

 


 

Total oil and gas

     79,628     (9,316 )     70,312     68,235     (5,242 )     62,993
    

 


 

 

 


 

Other

     12,937     (325 )     12,612     12,937           12,937
    

 


 

 

 


 

Total

   $ 1,822,713   $ (417,647 )   $ 1,405,066   $ 1,771,207   $ (355,859 )   $ 1,415,348
    

 


 

 

 


 

 

The Company’s intangible assets for mineral interests and oil and gas interests are subject to amortization. The aggregate amortization expense for the three months ended June 30, 2003 and 2002 was $39.6 million and $39.0 million, respectively. The aggregate amortization expense for the six-month periods ended June 30, 2003 and 2002 was $61.1 million and $54.4 million, respectively.

 

13


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

(9)    INVESTMENTS AND EQUITY INCOME OF AFFILIATES

 

Investments:

 

     At
June 30,
2003


   At
December 31,
2002


     (unaudited, in thousands)

Investments in affiliates:

             

Batu Hijau

   $ 684,905    $ 660,928

TVX Newmont Americas

          183,028

Echo Bay Mines

          210,643

Australian Magnesium Corporation

          44,244

AGR Matthey Joint Venture

     10,154      11,213
    

  

     $ 695,059    $ 1,110,056
    

  

Other:

             

Newmont Australia infrastructure bonds—long-term

          96,649
    

  

     $ 695,059    $ 1,206,705
    

  

Other:

             

Newmont Australia infrastructure bonds—short-term

   $ 114,287     
    

  

 

Equity Loss and Impairment of Australian Magnesium Corporation

 

     Three months ended
June 30,


    Six months ended
June 30,


 
     2003

    2002

    2003

    2002

 
     (unaudited, in thousands)  

Australian Magnesium Corporation

   $ (107,758 )   $ (688 )   $ (119,485 )   $ (688 )

 

Equity Income of Affiliates:

 

     Three months ended
June 30,


   Six months ended
June 30,


     2003

    2002

   2003

    2002

     (unaudited, in thousands)

Batu Hijau

   $ 18,397     $ 13,533    $ 25,750     $ 14,937

TVX Newmont Americas

           3,892      810       3,892

AGR Matthey Joint Venture

     (657 )     583      (282 )     583
    


 

  


 

Total

   $ 17,740     $ 18,008    $ 26,278     $ 19,412
    


 

  


 

 

Investment in Batu Hijau

 

The Company and an affiliate of Sumitomo Corporation (“Sumitomo”) are partners with economic interests of 56.25% and 43.75%, respectively, in the Nusa Tenggara Partnership (“NTP”), which holds 80% of P.T. Newmont Nusa Tenggara (“PTNNT”), the owner of the Batu Hijau copper/gold mine in Indonesia. Due to the significant participating rights provided to Sumitomo under the terms of the NTP partnership agreement, the Company uses the equity method to account for its investment in NTP. The Company and Sumitomo have an indirect 45% and 35% interest, respectively, in PTNNT. The remaining 20% interest is held by an unrelated Indonesian company. Because the Company and Sumitomo have carried the investment of the 20% owner, the

 

14


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Company and Sumitomo recognize 56.25% and 43.75% of PTNNT’s net income (loss), respectively, until recouping the bulk of the construction investment, including interest. Under the Contract of Work, a portion of PTNNT not already owned by Indonesian nationals must be offered for sale to the Indonesian government or to Indonesian nationals, beginning in the sixth year after mining operations commenced. The effect of this provision could potentially reduce the Company and Sumitomo’s ownership to 49% by the end of the tenth year after mining operations commenced.

 

The Company’s equity investment in PTNNT was $684.9 million and $660.9 million at June 30, 2003 and December 31, 2002, respectively, based on accounting principles generally accepted in the United States. At June 30, 2003, differences between 56.25% of PTNNT’s net assets of $266.5 million and Newmont’s investment included (i) $45.2 million for Newmont’s contribution prior to the formation of NTP; (ii) $106.9 million for the fair market value adjustment recorded by Newmont in conjunction with the purchase of a subsidiary minority interest, net of amortization; (iii) $395.6 million for the contributions and interest income recorded by Newmont classified as debt and interest expense by PTNNT; (iv) negative $120.6 million for contributions to PTNNT, through NTP, by Sumitomo disproportionate to its equity interest, net of amounts recorded; (v) negative $76.9 million for stockholders’ equity of the carried interest partner; (vi) $38.6 million for other intercompany charges; (vii) $30.9 million for capitalized interest; and, (viii) negative $1.3 million for other adjustments recorded by Newmont. At December 31, 2002, differences between 56.25% of PTNNT’s net assets of $257.6 million and Newmont’s investment included (i) $45.2 million for Newmont’s contribution prior to the formation of NTP; (ii) $109.1 million for the fair market value adjustment recorded by Newmont in conjunction with the purchase of a subsidiary minority interest, net of amortization; (iii) $391.2 million for the contributions and interest income recorded by Newmont classified as debt and interest expense by PTNNT; (iv) negative $122.6 million for contributions in PTNNT, through NTP, by Sumitomo disproportionate to its equity interest, net of amounts recorded; (v) negative $76.9 million for stockholders’ equity of the carried interest partner; (vi) $33.3 million for other intercompany charges; (vii) $30.9 million for capitalized interest; and, (viii) negative $6.9 million for other adjustments recorded by Newmont. Certain of these amounts are amortized or depreciated on a units-of-production basis based on proven and probable reserves. Below is a description of Newmont’s equity income (loss) in PTNNT, where the net income (loss) reflects the elimination of interest between PTNNT and NTP.

 

Newmont’s equity income in PTNNT for the six months ended June 30, 2003 was $25.8 million versus $14.9 million for the same period in 2002. Newmont’s equity income for the six months ended June 30, 2003 was based on 56.25% of PTNNT’s net income of $16.0 million, adjusted for the elimination of $3.6 million of inter-company interest, $4.2 million of inter-company management fees, the cumulative effect of reclamation and remediation liabilities of $8.0 million and other adjustments of $1.0 million. For the comparable 2002 period, Newmont’s equity income was based on 56.25% of PTNNT’s net income of $7.4 million, adjusted for the elimination of $3.6 million of inter-company interest, $5.1 million of inter-company management fees, and other adjustments of $2.0 million.

 

On May 9, 2002, PTNNT completed a restructuring of its $1.0 billion project financing facility (Senior Debt) that provides PTNNT the ability to defer up to $173.5 million in principal payments scheduled for 2002 and 2003. The restructuring was expected to provide a better match between the expected cash flows of the project and the maturities of the debt. Any deferred principal amounts were to be repaid between 2004 and 2010. Under this restructuring, Batu Hijau is not permitted to pay dividends or make other restricted payments to Newmont or Sumitomo as long as any amount of deferred principal is outstanding; however, there is no restriction on prepaying any of the deferred principal amounts. Amounts outstanding under the project financing were $783.2 million at June 30, 2003 and $913.3 million in December 31, 2002. The amount of deferred principal at June 30, 2003 was $43.3 million and at December 31, 2002 was $173.4 million. During the quarter ended June 30, 2003, PTNNT repaid $130.1 million of this facility all of which represented repayments

 

15


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

of the deferred principal. Newmont and its partner provide a contingent support line of credit to PTNNT. During the first half of 2003 and 2002, Newmont funded zero and $24.8 million, respectively under this contingent support facility as its pro-rata share of capital expenditures. Additional support from Newmont and its partner available under this facility amounts to $115.0 million, of which Newmont’s pro-rata share is $64.7 million.

 

The following is NTP summarized financial information based on accounting principles generally accepted in the United States. The results of operations and assets and liabilities are not reflected in the Company’s Consolidated Financial Statements. As described earlier, the Company accounts for NTP as an equity investment.

 

     Three months ended
June 30,


  

Six months ended

June 30,


     2003

   2002

   2003

   2002

     (unaudited, in thousands)

Revenues, net of smelting and refining costs

   $ 102,718    $ 94,083    $ 177,591    $ 165,988

Revenues from by-product sales credited to production costs

   $ 58,336    $ 37,342    $ 91,947    $ 59,475

Gross profit

   $ 40,271    $ 13,384    $ 50,426    $ 9,058

Net income before cumulative effect of a change in accounting principle

   $ 25,528    $ 13,181    $ 31,488    $ 8,751

Net income

   $ 25,528    $ 13,181    $ 17,270    $ 8,751

 

In the six-month period ended June 30, 2003, NTP recorded a charge of $14.2 million to reflect the cumulative effect of the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Obligations.”

 

     At June 30,
2003


   At December 31,
2002


     (unaudited, in thousands)

Current assets

   $ 254,748    $ 313,110

Property, plant and mine development, net

   $ 1,672,313    $ 1,658,912

Mineral interests

   $ 183,319    $ 188,294

Other assets

   $ 291,795    $ 282,133

Debt and related interest to partners and affiliates

   $ 261,640    $ 259,793

Other current liabilities

   $ 187,975    $ 103,117

Long-term debt—third parties (including current portion)

   $ 805,677    $ 935,771

Other liabilities

   $ 149,420    $ 163,346

 

For the six months ended June 30, 2003 and 2002, PTNNT recorded gross revenues, before smelting and refining costs, of $220 million and $212 million, respectively, which were subject to final pricing adjustments. The average price adjustment for copper was 2.38% and 5.2% for the six months ended June 30, 2003 and 2002, respectively. The average price adjustment for gold was 0.9% and 4.4% for the six months ended June 30, 2003 and 2002, respectively. At June 30, 2003, PTNNT had copper derivatives embedded in outstanding shipment contracts of 74.9 million pounds of copper recorded at an average price of $0.74 per pound. A one-cent movement in the average price used for these derivatives will have an approximate $0.5 million impact on PTNNT’s 2003 net income.

 

By-product commodities, gold and silver, represented 57% and 40% of sales, net of smelting and refining charges, and reduced production costs by 79% and 57% for the three-month periods ended June 30, 2003 and 2002, respectively, and 52% and 36% of sales, net of smelting and refining charges, and reduced production costs by 71% and 49% for the six-month periods ended June 30, 2003 and 2002, respectively.

 

PTNNT entered into a series of copper hedging transactions in March 2002. At March 31, 2002, 23,400 metric tons of copper were hedged. These contracts were settled during the second quarter of 2002. These

 

16


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

contracts allowed PTNNT to realize an average price of $1,619 per metric ton (approximately $0.73 per pound). In second quarter 2003, PTNNT entered into copper forward sales contracts covering 5,000 metric tonnes per month for each of August and September 2003 at a weighted average fixed price between $1,665 and $1,725 per metric tonne. Each contract is settled by cash on a monthly basis. These contracts had a positive fair value as at June 30, 2003 of US$0.4 million (US$0.3 million net of tax).

 

In 2001, PTNNT entered into two diesel hedging contracts for 360,000 barrels each at a fixed price of $27.39 per barrel and $27.98 per barrel, respectively. Each of these contracts cover purchases of 15,000 barrels monthly and expire in August and September of 2003, respectively. Each contract is settled monthly. In December 2002, PTNNT entered into an additional hedge contract for 60,000 barrels over the following 12 months at a fixed price of $27.50 per barrel. These contracts have all been designated as cash flow hedges and the fair value at June 30, 2003 and December 31, 2002 was $0.2 million and $0.6 million, respectively. At June 30, 2003, 140,000 barrels are outstanding for these contracts.

 

TVX Newmont Americas and Echo Bay Mines Ltd.

 

Newmont had a 49.9% interest and an equity investment of $183.0 million in TVX Newmont Americas joint venture at December 31, 2002. On January 31, 2003, Newmont sold its interest in TVX Newmont Americas for $180 million.

 

On January 31, 2003, Kinross, Echo Bay and TVX Gold were combined. Under the terms of the combination and acquisition, Newmont received a 13.8% interest in the restructured Kinross in exchange for its then 45.67% interest in Echo Bay. Newmont recorded a pre-tax gain on the transactions of $83.4 million (See Note 5).

 

Australian Magnesium Corporation (“AMC”)

 

At December 31, 2002, Newmont’s interest in AMC comprised a 22.8% equity and voting interest and a loan receivable in the amount of A$38 million (approximately $20.1 million) including interest capitalized since December 31, 2002. In addition, Newmont subsidiaries had obligations to contribute to AMC A$100 million in equity by January 31, 2003 and a further A$90 million in equity (reduced to A$75 million through a funding agreement reached in January 2003, though a condition required to bring the agreement into effect was not satisfied), contingent upon the Stanwell Magnesium Project not achieving certain specified production and operating criteria by December 2006. On January 3, 2003, Newmont purchased an additional 167 million shares at A$0.60 per share for a total of A$100 million (approximately $56.2 million) increasing its ownership to 40.9%, thereby satisfying its January 2003 equity contribution obligation. However, due to additional equity contributions by other shareholders on January 31, 2003, Newmont’s interest was decreased to 27.8%. As a result of this equity dilution in its interest in AMC, Newmont recorded an increase of $7.0 million to Additional paid-in-capital.

 

AMC’s primary asset is the Stanwell Magnesium Project (the “Project”), a proprietary chemical and dehydration process for producing anhydrous magnesium chloride as feed for an electrolytic cell to produce molten magnesium metal and magnesium alloys. The original funding arrangements for the Project amounted to approximately A$1.5 billion (approximately $1 billion), including contingencies and cost overrun reserves. Preliminary indications by AMC are that the project may now require A$150 million to A$200 million (approximately $100 million to $134 million) of funds in addition to the existing funding arrangements and potentially some form of third-party project financing support.

 

On April 17, 2003, AMC announced that it was unlikely that it would reach agreement with its independent engineering firm for a fixed price contract for the development of the Project. Following this announcement,

 

17


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

AMC’s share price declined substantially and was A$0.24 per share on May 8, 2003. As a result, Newmont wrote down the carrying value of its investment at March 31, 2003 to the quoted market price of the AMC shares at that date of $A0.43 per share and recorded a loss for an other-than-temporary decline in market value of $11 million.

 

On June 5, 2003, AMC requested suspension of its securities on the ASX. Subsequently, on June 12, 2003 AMC announced a restructuring agreement with the project’s major creditors including Newmont (the “Agreement”). The Agreement was designed to give AMC time to assess the Project development options and to search for either a corporate or project partner. Work on the Project has essentially ceased and the site is in a care and maintenance status. It is not known if or when the Project or any other magnesium project will be developed by AMC. In addition, as part of the Agreement, AMC (i) will settle outstanding obligations to its outside creditors from existing cash reserves, (ii) has cancelled the senior debt facilities associated with the Project and the associated foreign exchange and interest rate hedging contracts and (iii) has agreed to release Newmont from the above-mentioned A$90 million (approximately $60.1 million) contingent funding commitment. Newmont has agreed to forgive its A$38 million (approximately $24.8 million) loan receivable and provide support in the form of an A$10 million (approximately $6.6 million) contingent, subordinated credit facility and to maintain the existing guarantee in relation to the QMC finance facilities described below.

 

As a result of the agreement, Newmont recorded an additional write-down in the second quarter of $107.8 million reducing the carrying value of its investment in AMC to zero. The write-down is attributable to the following: (i) $72.7 million representing the book value of its investment at June 30, 2003, (ii) $24.8 million for the loan receivable from AMC, (iii) $10 million charge to settle Newmont’s guarantee of the Ford contract (see discussion below), (iv) $6.6 million relating to the contingent credit facility, and (v) $1.1 million for various other items offset by a $7.4 million income tax benefit.

 

Newmont had guaranteed a $30 million obligation payable by AMC to Ford Motor Company (“Ford”) in the event the Project did not meet certain specified production and operating criteria by November 2005. AMC indemnified Newmont for this obligation, but this indemnity was unsecured. As of June 30, 2003, Newmont and Ford agreed to settle the liability in relation to the guarantee for $10 million in exchange for a release of the guarantee. Newmont has agreed not to seek recovery of this amount from AMC.

 

Subsequent to June 30, 2003, Newmont’s ownership interest in AMC was further diluted to 26.9% (See Note 21, Subsequent Events).

 

Newmont is also the guarantor of an A$71 million (approximately $47 million) amortizing loan facility of AMC’s subsidiary, QMC Finance Pty Ltd (“QMC”), of which A$67.5 million (approximately $45.0 million) was outstanding as of June 30, 2003. The QMC loan facility, which is secured by the assets of the Queensland Magnesia Project, expires in November 2006.

 

QMC is also a party to hedging contracts, which have been guaranteed by Newmont. The contracts include a series of foreign exchange forward contracts and bought put options, the last of which expire in June 2006. As of June 30, 2003, the fair value of these contracts was a positive A$5.5 million (approximately $3.7 million).

 

The guarantees under the QMC loan facility and hedging contracts could be called in the event of a default by QMC. Newmont’s liability under QMC loan facility guarantee is limited to the total amount of outstanding borrowings under the facility at the time the guarantee is called. Newmont’s maximum potential liability under its guarantee of the QMC hedging contracts, however, would depend on the market value of the hedging contracts at the time the guarantee is called upon. The principal lender and counterparty under the QMC loan and hedging facilities also have a fixed and floating charge over certain assets of AMC. In the event the guarantees are called, Newmont would have a right of subrogation to the lender under Australian law.

 

18


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The Company is currently evaluating the impact of adoption of FIN 46, “Consolidation of Variable Interest Entities” on its investment in AMC and related entities, including QMC.

 

AGR Matthey Joint Venture

 

Newmont holds a 40% interest in a joint venture with the West Australian Mint and Johnson Matthey (Australia) Ltd. known as AGR Matthey Joint Venture (“AGR”). Newmont has no guarantees related to this investment. At June 30, 2003 and December 31, 2002, the difference between Newmont’s investment in AGR of $10.2 million ($11.2 million at December 31, 2002) and its share of AGR’s net assets consisted of a $2.4 million reduction in long-lived assets recorded by Newmont.

 

Newmont Australia Infrastructure Bonds

 

In June 1996, NP Finance Limited and GPS Finance Limited, wholly owned subsidiaries of Newmont Australia Limited (formerly Normandy), issued A$111.9 million (approximately $63.2 million) and A$21.9 million (approximately $12.4 million), respectively, of 7.906%, fifteen-year bonds at a premium to fund certain gas pipeline and power station projects. The bonds were issued at a premium due to unique tax-related benefits available to the bondholders and the issuer under Australian tax regulations. Interest is accrued and capitalized semi-annually in arrears in June and December of each year. Concurrently, with the issue of the Infrastructure Bonds described above, GMK Investments Pty Ltd (“GMKI”), a wholly owned subsidiary of Newmont Australia Limited (formerly Normandy), entered into an offsetting transaction, making payments to Deutsche Bank Aktiengesellschaft (“DBA”) equal to the face value of the bonds in return for DBA agreeing to purchase the bonds from each holder of the bonds in June 2004 and to sell those bonds to GMKI for a nominal amount at that time. The receivable from DBA also accrues interest receivable at 7.906% and such interest is capitalized semi-annually in arrears in June and December of each year. Because the arrangement does not technically qualify as a defeasance of debt, the receivable is presented in Investments at December 31, 2002. As of June 30, 2003, Newmont reclassified this investment as a current asset and the corresponding debt liability to Current portion of long-term debt (see Note 11, Long-Term Debt) since, as stated above, DBA is obligated to repurchase these bonds from each holder in June 2004. The repurchase of these bonds will effectively retire the outstanding liability and satisfy the receivable.

 

(10)    EXTINGUISHMENT OF NYOL OBLIGATIONS

 

On May 29, 2003, Newmont made an offer through its wholly owned subsidiary, Yandal Bond Company Limited (“YBCL”) to acquire all of the outstanding 8 7/8% Senior Notes due in April 2008 of its wholly owned Australian subsidiary, NYOL. On May 28, 2003, YBCL made a separate offer to acquire all of NYOL’s gold hedge contracts from the counterparties. The offer to acquire the Senior Notes was at a price of $500 per $1,000 of principal amount. The offer to acquire the gold hedge contracts was at $0.50 per $1.00 of the net mark-to-market hedge liability as of May 22, 2003. As of June 30, 2003, YBCL had received binding tenders for the Senior Notes totaling $196.8 million, representing 83% of the total $237.2 million outstanding principal amount. Six of the total of seven counterparties to the gold hedge contracts, representing 94% of the gold ounces in the NYOL hedge book and 76% of the mark-to-market May 22, 2003 hedge liability, had assigned their hedge contracts to YBCL as of June 30, 2003. The transactions gave rise to a Gain on extinguishment of NYOL bonds, net of $94.4 million, net of transaction costs, and a Gain on extinguishment of NYOL derivatives liability, net of $76.6 million, net of transaction costs. The cash payments of $98.4 million to settle the extinguishment of the bonds were accrued in Other current liabilities at June 30, 2003 and were made subsequent to that date. YBCL subsequently received additional binding tenders for a portion of the remaining outstanding Senior Notes and extended the offer deadline (see Note 21, Subsequent Events).

 

19


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

(11)    LONG-TERM DEBT

 

     June 30,
2003


    December 31,
2002


 
     (unaudited, in thousands)  

Sale-leaseback of refractory ore treatment plant

   $ 298,944     $ 307,880  

8 3/8% debentures, net of discount

     182,696       204,658  

8 5/8% notes, due May 2011, net of discount

     222,234       274,339  

Newmont Australia 7 5/8% notes, net of premium

     121,027       152,690  

Newmont Australia 7 1/2% notes, net of premium

     91,400       101,850  

NYOL 8 7/8% notes

     40,435       237,220  

6% convertible subordinated debentures

     99,980       99,980  

Medium-term notes

     17,000       32,000  

Newmont Australia infrastructure bonds

     116,933       99,680  

Prepaid forward sales obligation

     145,000       145,000  

Revolving credit facility

     19,000       —    

Interest rate swaps

     (8,086 )     (6,684 )

Project financing, capital leases and other

     107,025       167,991  
    


 


       1,453,588       1,816,604  

Current maturities

     (176,422 )     (115,322 )
    


 


     $ 1,277,166     $ 1,701,282  
    


 


 

Scheduled minimum long-term debt repayments are $23.6 million for the remainder of 2003, $177.4 million in 2004, $437.0 million in 2005, $109.8 million in 2006, $74.8 million in 2007 and $631.0 million thereafter.

 

During the six months ended June 30, 2003, the Company repurchased $23.0 million of 8 3/8% debentures, $52.4 million of 8 5/8% notes due in May 2011, $30.9 million of Newmont Australia 7 5/8% notes and $10.0 million of Newmont Australia 7 1/2% notes for total cash consideration of $135.8 million. As a result of these debt repurchases, the Company recognized a Loss on extinguishment of debt of $19.5 million.

 

In March 2002, Newmont, through an indirect, wholly-owned subsidiary, YBCL, made an offer to repurchase any and all of the outstanding 8 7/8% Senior Notes due 2008 of NYOL. As of the offer date, $300 million principal amount of notes was outstanding. The transaction resulted in redemption of $62.8 million of the outstanding notes at 101% of the principal amount of the notes, plus accrued and unpaid interest as of the repurchase date.

 

On May 27, 2003, Newmont Mining Corporation initiated an offer through YBCL to acquire all of the outstanding 8 7/8% Senior Notes due April 2008 issued by NYOL (see Note 10, Extinguishment of NYOL Obligations). At June 30, 2003, YBCL had acquired $196.8 million through this offer.

 

Newmont has extended its offer to acquire the remaining NYOL 8 7/8% Senior Notes and acquired amounts subsequent to June 30, 2003. NYOL also entered into Voluntary Administration (“VA,” a form of insolvency proceeding in Australia) subsequent to June 30, 2003 (see Note 21, Subsequent Events).

 

(12)    RECLAMATION AND REMEDIATION

 

The Company’s mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing

 

20


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements.

 

Effective January 1, 2003, the Company adopted SFAS No. 143 “Accounting for Asset Retirement Obligations.” As a result, Reclamation and remediation liabilities increased by $120.7 million for the fair value of the estimated asset retirement obligations, Other accrued liabilities increased by $2.3 million for worker participation bonuses in Peru (bonuses required by law at Minera Yanacocha based on net income), Deferred income tax assets increased by $6.9 million, Property, plant and mine development, net increased by $69.1 million, Minority interest in subsidiaries decreased by $16.2 million and a $34.5 million loss was recorded for the Cumulative effect of a change in accounting principle, net of tax. At June 30, 2003 and December 31, 2002, $379.8 million and $254.1 million, respectively, were accrued for reclamation obligations relating to currently or recently producing mineral properties.

 

In addition, the Company is involved in several matters concerning environmental obligations associated with former, primarily historic, mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. At June 30, 2003 and December 31, 2002, respectively, $62.5 million and $48.1 million were accrued for such obligations These amounts are also included in Reclamation and remediation liabilities.

 

The following is a reconciliation of the total liability for asset retirement obligations (unaudited, in thousands):

 

Balance December 31, 2002

   $ 302,229  

Impact of adoption of SFAS No. 143

     120,707  

Additions to liabilities

     21,460  

Liabilities settled

     (13,396 )

Accretion expense

     11,320  

Revisions

     —    
    


Balance June 30, 2003

   $ 442,320  
    


 

The current portions of Reclamation and remediation liabilities of $20.3 million and $13.7 million at June 30, 2003 and December 31, 2002, respectively, are included in Other accrued liabilities.

 

On a pro forma basis, the liabilities for asset retirement obligations would have been $420.0 million and $422.9 million at January 1, 2002 and December 31, 2002, respectively, if SFAS No. 143 had been applied at the beginning of 2002.

 

There were no assets that were legally restricted for purposes of settling asset retirement obligations at June 30, 2003.

 

21


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The table below presents the impact of the accounting change for the three- and six-month periods ended June 30, 2003 and the pro forma effect for the three- and six-month periods ended June 30, 2002 as if the change had been in effect for that period (unaudited, in thousands, except per share data):

 

     Three months ended
June 30,


    Six months ended
June 30,


 
     2003

    2002

    2003

    2002

 
           (pro forma)           (pro forma)  

Increase/(decrease) to net income

                                

Costs applicable to sales (exclusive of depreciation, depletion and amortization shown separately below)

                                

Gold

   $ 4,815     $ 1,752     $ 10,112     $ 1,905  

Base metals

     89             179        

Depreciation, depletion, and amortization

     (3,420 )     (3,307 )     (6,833 )     (6,614 )

Income tax (expense) benefit

     (519 )     544       (1,210 )     1,648  

Minority interest

     (995 )     577       (1,953 )     1,204  

Equity loss of affiliate

     (319 )     (201 )     (799 )     (541 )
    


 


 


 


Net loss before cumulative effect of a change in accounting principle

   $ (349 )   $ (635 )   $ (504 )   $ (2,398 )
    


 


 


 


Net loss before cumulative effect of a change in accounting principle per common share, basic and diluted

   $ 0.00     $ 0.00     $ 0.00     $ (0.01 )
    


 


 


 


 

The table below presents pro forma net income and earnings per share before cumulative effect of a change in accounting principle for the three- and six-month periods ended June 30, 2002 as if the Company had adopted the SFAS No. 143 as of January 1, 2002 (unaudited, in thousands, except per share data):

 

     Three months ended
June 30, 2002


   Six months ended
June 30, 2002


 
     Net income
applicable to
common shares


    Income per share

   Net income
applicable to
common shares


    Income per share

 

As reported

   $ 67,121       0.17    $ 50,753     $ 0.15  

Change in accounting method SFAS No. 143

     (635 )          (2,398 )     (0.01 )
    


 

  


 


Pro forma

   $ 66,486     $ 0.17    $ 48,355     $ 0.14  
    


 

  


 


 

(13)    SALES CONTRACTS, COMMODITY AND DERIVATIVE INSTRUMENTS

 

Newmont has a “no hedging” philosophy and generally sells its gold production at market prices. Newmont has, on a limited basis, entered into derivative contracts to protect the selling price for certain anticipated gold production and to manage risks associated with sales contracts, commodities, interest rates and foreign currency. In addition, at the time of Normandy’s acquisition, three of its affiliates had a substantial derivative instrument position. These three affiliates are now known as Newmont Gold Treasury Pty Ltd., Newmont NFM and NYOL. Newmont is not required to place collateral with respect to its commodity instruments and there are no margin calls associated with such contracts. A number of NYOL’s hedging positions pertaining to one counterparty are governed by agreements that confer on the relevant counterparties a right to terminate the position prior to its agreed scheduled maturity date. Such a termination would result in an immediate cash settlement of that contract based on the contract’s market value on the date of termination. Exercise of termination rights may result in a cash settlement obligation to NYOL hedge counterparties in excess of funds available to NYOL. NYOL obligations, however, are non-recourse to Newmont and its other subsidiaries.

 

22


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Gold Commodity Contracts

 

The tables below are expressed in thousands of ounces of gold, and prices for contracts denominated in A$ have been translated to US$ at the exchange rate at June 30, 2003 of US$0.67 per A$1.

 

On May 28, 2003, YBCL offered to acquire all of the gold hedge obligations owed by NYOL from the counterparties (see Note 10, Extinguishment of NYOL Obligations). The offer included two alternatives: the counterparties could elect to receive $0.50 for each dollar of net mark-to-market liability under their individual hedge contracts, as calculated by YBCL as of May 22, 2003; or, in lieu of cash, the counterparties could elect to assign all such contracts with NYOL to YBCL and enter into new hedging contracts with Newmont, such that Newmont would assume obligations equivalent to an undivided 40% of NYOL’s existing hedge obligations with such counterparty.

 

At the close of the offer YBCL had acceptances from six of the seven gold hedge book counterparties. All of the six counterparties elected to receive $0.50 for each dollar of net mark-to-market liability, as calculated by YBCL as of May 22, 2003. This resulted in a total cash payment from YBCL to the counterparties of approximately $77 million. A gain of $76.6 million was recorded in Gain on extinguishment of NYOL derivatives liability, net due to the extinguishment of the hedge book liability for the six NYOL hedge counterparties who accepted the offer.

 

NYOL was placed into VA on July 3, 2003 and deconsolidated from the Newmont group as of that date (see Note 21, Subsequent Events). Accordingly, the Company has reclassified to earnings as of June 30, 2003, $542,000 of Accumulated other comprehensive income (“OCI”) related to hedged forecasted sales designated against NYOL’s production scheduled to occur during the period ending September 30, 2003 (the period through which NYOL is expected to remain in VA). No similar reclassification has been made with respect to the amounts in OCI associated with sales expected to occur after September 30, 2003, as the Company believes that it is reasonably possible that those forecasted transactions will occur since the Company expects to regain control of NYOL or its assets by October 1, 2003. Accordingly, the balance deferred in OCI as of June 30, 2003 (a gain of approximately $43.8 million, net of taxes) relating to hedge contracts designated against forecasted sales of NYOL’s production beyond September 30, 2003, will continue to be deferred in OCI. The Company will continue to assess the probability of its regaining control of NYOL and making any necessary adjustments to the balance of OCI in future periods, if required.

 

For the three months ended June 30, 2003 and 2002, gains of $8.1 million and $1.4 million, respectively, were included in income in Gain (loss) on gold commodity derivative instruments, net for the ineffective portion of derivative instruments designated as cash flow hedges, and a gain of $8.5 million and a loss of $10.8 million, respectively, for the change in fair value of gold commodity contracts that do not qualify as hedges. For the half year ended June 30, 2003 and 2002, gains of $31.0 million and $5.9 million, respectively, were included in income in Gain (loss) on gold commodity derivative instruments, net for the ineffective portion of derivative instruments designated as cash flow hedges, and a gain of $40.6 million and a loss of $9.0 million, respectively, for the change in fair value of gold commodity contracts that do not qualify as hedges. The amount anticipated to be reclassified from Accumulated other comprehensive income (loss), to income for derivative instruments during the next 12 months is a gain of approximately $18.7 million. The maximum period over which hedged forecasted transactions are expected to occur is five years.

 

23


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Gold Forward Sales Contracts

 

Newmont had no gold forward sales contracts outstanding at June 30, 2003 (unaudited), although positions existed at December 31, 2002. The fair values of these contracts at December 31, 2002 were as follows:

 

Gold Forward Contracts


      
(A$ denominated)    US $ (000)  

Fixed Forwards

   $ (138,095 )

Floating Rate Forwards

     (37,401 )

Synthetic Forwards

     (34,222 )
    


Total:

   $ (209,718 )
    


 

Gold Put Option Contracts

 

Newmont had the following gold put option contracts at June 30, 2003 (unaudited):

 

     Expected Maturity Date or Transaction Date

   Fair Value

 

Put Option Contracts:


   2003

   2004

   2005

   2006

   2007

   Thereafter

   Total/
Average


   June 30,
2003


    December 31,
2002


 
                                        US$ (000)  

US$ Denominated Fixed Purchased Puts:

                                                                 

Ounces

     105      203      205      100      20           633    $ (7,591 )   $ (6,773 )

Average price

   $ 292    $ 292    $ 292    $ 338    $ 397    $  —    $ 303                 

A$ Denominated Fixed Purchased Puts:

                                                                 

Ounces

                                      $     $ (3,690 )

Average price

     ––      ––                                      

A$ Denominated Floating Forward Purchased Puts:

                                                                 

Ounces

                                      $     $ (12,140 )

Average price

                                                 

Total:

                                                                 
                                                     


 


Ounces

     105      203      205      100      20           633    $ (7,591 )   $ (22,603 )
                                                     


 


Average price

   $ 292    $ 292    $ 292    $ 338    $ 397    $    $ 303                 

Note:    Through December 31, 2002, the floating forward purchased put option contracts were accounted for as cash flow hedges as they were statistically proven to qualify as highly effective cash flow hedges through that date. However, due to changes in market conditions during the first quarter of 2003, these contracts were no longer considered highly effective cash flow hedges. The effect of this change was gains of $5.3 million and $10.7 million that were recorded in Gain (loss) on gold commodity derivative instruments, net in income during the three and six months ended June 30, 2003, respectively.

 

 

24


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Convertible Put Options and Other Instruments

 

Newmont had the following gold convertible put option contracts and other instruments outstanding at June 30, 2003 (unaudited):

 

    

Expected Maturity Date or Transaction Date


   Fair Value

 

Convertible Put Options

and Other Instruments


   2003

   2004

   2005

   2006

   2007

   Thereafter

   Total/
Average


   June 30,
2003


    December 31,
2002


 
(A$ denominated)                                       US$ (000)  

Floating Convertible Put Options:

                                                                 

Ounces

                                      $     $ (102,952 )

Average price

                                                 

Knock-out/knock-in Contracts:

                                                                 

Ounces

                                      $     $ (6,794 )

Average price

                                                 

Indexed Forward Contracts:

                                                                 

Ounces

               33      65      65      32      195    $ (4,937 )   $ (15,740 )

Average price

   $  —    $  —    $ 361    $ 361    $ 361    $ 361    $ 361                 

Total:

                                                                 
                                                     


 


Ounces

               33      65      65      32      195    $ (4,937 )   $ (125,486 )
                                                     


 


Average price

   $    $    $ 361    $ 361    $ 361    $ 361    $ 361                 

 

Sold Convertible Put Options

 

Newmont had no sold convertible put option contracts outstanding at June 30, 2003, although a position did exist at December 31, 2002. The fair value of the position at December 31, 2002 was positive $14.3 million.

 

Sold Put Options

 

Newmont had no sold put option contracts outstanding at June 30, 2003 or December 31, 2002. A sold put position was created during the first quarter of 2003 and was closed out as part of the YBCL transaction during the second quarter (see Note 10, Extinguishment of NYOL Obligations ).

 

Price-Capped Sales Contracts

 

Newmont had the following price-capped forward sales contracts outstanding at June 30, 2003 (unaudited):

 

     Expected Maturity Date or Transaction Date

   Fair Value

Price-capped Contracts:


   2003

   2004

   2005

   2006

   2007

   Thereafter

   Total/
Average


   June 30,
2003


   December 31,
2002


(US$ Denominated)                                       US$ (000)

Ounces

               500                1,850      2,350    N/A    N/A

Average price

   $  —    $  —    $ 350    $  —    $  —    $ 384    $ 377          

Note:    The fair value of the price-capped sales contracts of $53.9 million was recorded as deferred revenue in September 2001 and will be included in sales revenue as delivery occurs in 2005 through 2011. The forward sales contracts are accounted for as normal sales contracts under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.”

 

25


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

US$/Gold Swap Contracts

 

Newmont Australia entered into a US$/gold swap contract whereby principal payments on US$ bonds are swapped into gold-denominated payments of 600,000 ounces in 2008. Newmont Australia also receives US$ fixed interest payments and pays gold lease rates, which are indexed to market rates. This instrument was marked to market at each period end, with the change reflected in income up until the contract was closed out during the YBCL buy back transaction (see Note 10, Extinguishment NYOL Obligations). However, the indexed portion of the transaction was held with the one counterparty who did not take up the offer. As such this portion of the transaction continues to be marked-to-market at each period end, with the change reflected in income. As at June 30, 2003 and December 31, 2002 the instrument had a negative fair value of $6.2 million and $47.8 million, respectively.

 

Other Sales Contracts, Commodity and Derivative Instruments

 

Foreign Currency Contracts

 

Newmont acquired certain currency swap contracts in the Normandy transaction intended to hedge the currency risk on repayment of US$-denominated debt. These contracts were closed out during the quarter ended June 30, 2002 for net proceeds of $50.8 million. The contracts were accounted for on a mark-to-market basis until closed out, resulting in a loss of $10.9 million for the three months ended March 31, 2002.

 

Newmont also acquired currency swap contracts to receive A$ and pay US$ designated as hedges of A$ denominated debt. The A$-denominated debt was repaid during the quarter ended June 30, 2002 and the contracts are currently undesignated. The contracts are accounted for on a mark-to-market basis. At June 30, 2003 and December 31, 2002 they had a negative fair value of $2.7 million and $21.9 million, respectively.

 

Interest Rate Swap Contracts

 

During the last half of 2001, Newmont entered into contracts to hedge the interest rate risk exposure on a portion of its $275 million 8.625% notes and its $200 million 8.375% debentures. Newmont receives fixed-rate interest payments at 8.625% and 8.375% and pays floating-rate interest amounts based on periodic LIBOR settings plus a spread, ranging from 2.60% to 4.25%. The notional principal amount of these transactions (representing the amount of principal tied to floating interest rate exposure) was $200 million at both June 30, 2003 and December 31, 2002. Half of these contracts expire in July 2005 and half expire in May 2011. For the quarters ended June 30, 2003 and June 30, 2002, these transactions resulted in a reduction in interest expense of $1.9 million and $1.4 million, respectively, and $3.6 million ad $2.9 million for the first halves of 2003 and 2002, respectively. These transactions have been designated as fair value hedges and had a fair value of $21.1 million and $13.8 million at June 30, 2003 and December 31, 2002, respectively.

 

26


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

(14)    STATEMENT OF COMPREHENSIVE INCOME

 

    

Three Months Ended

June 30,


   

Six Months Ended

June 30,


 
     2003

    2002

    2003

    2002

 
     (unaudited, in thousands)  

Net income

   $ 90,847     $ 68,990     $ 208,102     $ 62,192  

Other comprehensive income, net of tax:

                                

Sale of marketable securities of Lihir, net of tax $17,053 and $10,732, respectively

     ––       (29,036 )     ––       (18,273 )

Unrealized (loss) gain on marketable equity securities, net of tax of $678, $(1,071), $12,655 and $(1,163), respectively

     (3,307 )     2,499       (49,068 )     2,714  

Foreign currency translation adjustments

     26,146       17,288       32,109       18,125  

Changes in fair value of cash flow hedge instruments, net of tax of $1,589, $(16,747), $(20,441) and $(23,631), respectively

     (3,709 )     39,077       72,546       55,140  

Exchange of Echo Bay shares for Kinross shares

     ––       ––       4,572        
    


 


 


 


Total other comprehensive income, net of tax

     19,130       29,828       60,159       57,706  
    


 


 


 


Comprehensive income

   $ 109,977     $ 98,818     $ 268,261     $ 119,898  
    


 


 


 


 

(15)    DIVIDENDS, INTEREST INCOME, FOREIGN CURRENCY EXCHANGE AND OTHER INCOME

 

     Three Months Ended
June 30,


    Six Months Ended
June 30,


 
     2003

   2002

    2003

   2002

 
     (unaudited, in thousands)  

Interest income

   $ 2,815    $ 5,102     $ 5,020    $ 7,898  

Foreign currency exchange gains (losses)

     27,178      6,144       51,884      (1,482 )

Gain on sale of exploration properties

     189      4,649       1,462      6,402  

Other

     2,136      (1,052 )     5,791      2,440  
    

  


 

  


Total

   $ 32,318    $ 14,843     $ 64,157    $ 15,258  
    

  


 

  


 

(16)    ACCOUNTING CHANGES

 

Depreciation, Depletion and Amortization

 

During the third quarter of 2002, Newmont changed its accounting policy, retroactive to January 1, 2002, with respect to depreciation, depletion and amortization (“DD&A”) of Property, plant and mine development to exclude future estimated development costs expected to be incurred for certain underground operations. Previously, the Company had included these costs and associated reserves in its DD&A calculations at certain of its underground mining operations. In addition, the Company further revised its policy such that costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are depreciated, depleted or amortized over the reserves associated with the specific ore area. These changes were made to better match DD&A with the associated ounces of gold sold and to remove the inherent uncertainty in estimating future development costs in arriving at DD&A rates. The cumulative effect of this change in accounting principle through December 31, 2001 increased net income during the six months ended June 30, 2003 by $7.7 million, net of tax of $4.1 million, and earnings per common share, basic and diluted, by $0.02 per share.

 

27


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Reclamation and Remediation

 

In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, which established uniform methodology for accounting for estimated reclamation and abandonment costs. The statement was adopted as required on January 1, 2003. See Note 12, Reclamation and Remediation, for complete disclosure of the impact of adopting SFAS 143.

 

(17)    SEGMENT INFORMATION

 

Financial information relating to Newmont’s segments is as follows:

 

Three Months Ended June 30, 2003

(Unaudited, in millions)

 

    North America

    South America

  Australia

 
    Nevada

    Other
North
America


    Total
North
America


    Yanacocha

  Other
South
America


 

Total

South
America


  Pajingo

  Other
Australia


    Total
Australia


 

Sales, net

  $ 185.6     $ 35.7     $ 221.3     $ 231.7   $ 19.2   $ 250.9   $ 32.7   $ 160.3     $ 193.0  

Gain on investments, net

  $     $     $     $   $   $   $   $     $  

Gain on extinguishment of debt and other obligations, net

  $     $     $     $   $   $   $   $     $  

Royalties

  $     $     $     $   $   $   $   $     $  

Interest income

  $     $     $     $ 0.1   $   $ 0.1   $   $ 2.3     $ 2.3  

Interest expense

  $ 0.1     $     $ 0.1     $ 1.0   $ 0.1   $ 1.1   $   $ 5.4     $ 5.4  

Exploration and research expense

  $ 5.5     $ ––     $ 5.5     $ 3.7   $ 0.1   $ 3.8   $ 1.2   $ 2.1     $ 3.3  

Depreciation, depletion and amortization

  $ 34.7     $ 8.0     $ 42.7     $ 40.4   $ 1.8   $ 42.2   $ 6.9   $ 20.5     $ 27.4  

Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect

  $ 6.3     $ 2.4     $ 8.7     $ 101.0   $ 5.3   $ 106.3   $ 12.0   $ 6.0     $ 18.0  

Equity loss and impairment of Australian Magnesium Corporation

  $     $     $     $   $   $   $   $     $  

Equity income (loss) of affiliates

  $     $     $     $   $   $   $   $ (0.7 )   $ (0.7 )

Cumulative effect of a change in accounting principal, net of tax

  $     $     $     $   $   $   $   $     $  

Amortization of deferred stripping, net

  $ (5.4 )   $ (0.2 )   $ (5.6 )   $   $   $   $   $ 0.1     $ 0.1  

Write-down of long-lived assets

  $     $     $     $ 1.2   $   $ 1.2   $   $ 0.6     $ 0.6  

Capital expenditures

  $ 29.6     $ 1.8     $ 31.4     $ 60.6   $ 0.1   $ 60.7   $ 4.8   $ 14.1     $ 18.9  

Deferred stripping costs

  $ 49.4     $ 6.6     $ 56.0     $   $   $   $   $ 9.2     $ 9.2  

Total assets

  $ 1,539.2     $ 142.0     $ 1,681.2     $ 1,208.0   $ 27.5   $ 1,235.5   $ 178.4   $ 1,591.1     $ 1,769.5  

 

28


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Three Months Ended June 30, 2003

(Unaudited, in millions)

 

    Zarafshan-
Newmont,
Uzbekistan


  Other
International
Operations


    Total
Gold


    Base
Metals


    Exploration

    Merchant
Banking


  Corporate
and Other


    Consolidated

 

Sales, net

  $ 21.4   $ 37.4     $ 724.0     $ 12.8     $     $   $     $ 736.8  

Gain on investments, net

  $   $     $     $     $     $   $     $  

Gain on extinguishment of debt and other obligations, net

  $   $     $     $     $     $ 171.0   $     $ 171.0  

Royalties

  $   $     $     $     $     $ 10.4   $     $ 10.4  

Interest income

  $   $     $ 2.4     $     $     $   $ 0.4     $ 2.8  

Interest expense

  $ 0.2   $     $ 6.8     $     $     $   $ 15.9     $ 22.7  

Exploration and research expense

  $   $ 2.1     $ 14.7     $ 1.0     $ 8.3     $   $ 6.2     $ 30.2  

Depreciation, depletion and amortization

  $ 2.9   $ 8.1     $ 123.3     $ 6.7     $ 0.9     $ 5.6   $ 2.8     $ 139.3  

Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect

  $ 9.0   $ 4.8     $ 146.8     $ (5.1 )   $ (9.7 )   $ 175.1   $ (1.4 )   $ 305.7  

Equity loss and impairment of Australian Magnesium Corporation

  $     $       $       $       $       $     $ (107.8 )   $ (107.8 )

Equity income (loss) of affiliates

  $   $     $ (0.7 )   $     $     $   $ 18.4     $ 17.7  

Cumulative effect of a change in accounting principal, net of tax

  $   $     $     $     $     $   $     $  

Amortization of deferred stripping, net

  $   $ (2.2 )   $ (7.7 )   $     $     $   $     $ (7.7 )

Write-down of long-lived assets

  $   $     $ 1.8     $     $     $   $     $ 1.8  

Capital expenditures

  $ 0.2   $ 6.1     $ 117.3     $ 3.6     $ 8.9     $   $ 4.2     $ 134.0  

Deferred stripping costs

  $   $ 2.8     $ 68.0     $     $     $   $     $ 68.0  

Total assets

  $ 101.7   $ 189.9     $ 4,983.1     $ 244.2     $ 1,217.4     $ 2,279.6   $ 1,427.3     $ 10,151.6  

 

Newmont has made corrections for certain misclassifications resulting from clerical errors that existed in the disclosure of Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect by segment for the three months ended June 30, 2003; the corrections resulted in an increase of $2.3 million in the Other Australia segment and a decrease of $2.3 million in the Corporate and Other category.

 

29


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Three Months Ended June 30, 2002

(Unaudited, in millions)

 

    North America

  South America

  Australia

    Nevada

    Other
North
America


    Total
North
America


  Yanacocha

  Other
South
America


 

Total

South
America


  Pajingo

  Other
Australia


  Total
Australia


Sales, net

  $ 186.6     $ 40.9     $ 227.5   $ 149.0   $ 23.5   $ 172.5   $ 23.1   $ 129.7   $ 152.8

Gain on investments, net

  $     $     $   $   $   $   $   $   $

Royalties

  $     $     $   $   $   $   $   $ ––   $ ––

Interest income

  $     $     $   $ 0.1   $   $ 0.1   $ 0.2   $ 4.0   $ 4.2

Interest expense

  $     $     $   $ 2.5   $ 0.1   $ 2.6   $   $ 10.0   $ 10.0

Exploration and research expense

  $ 3.9     $     $ 3.9   $ 2.5   $ 0.2   $ 2.7   $ 0.4   $ 2.5   $ 2.9

Depreciation, depletion and amortization

  $ 25.2     $ 9.1     $ 34.3   $ 26.2   $ 3.8   $ 30.0   $ 6.4   $ 23.3   $ 29.7

Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect

  $ (0.1 )   $ 7.7     $ 7.6   $ 47.7   $ 8.2   $ 55.9   $ 10.1   $ 7.5   $ 17.6

Equity income (loss) of affiliates

  $     $     $   $   $   $   $   $ 3.1   $ 3.1

Amortization of deferred stripping, net

  $ 3.2     $ (0.3 )   $ 2.9   $   $   $   $   $   $

Write-down of long-lived assets

  $ 7.4     $     $ 7.4   $   $   $   $   $ 0.1   $ 0.1

Capital expenditures

  $ 12.0     $ 3.7     $ 15.7   $ 43.3   $ 0.4   $ 43.7   $ 3.6   $ 16.3   $ 19.9

Deferred stripping costs

  $ 76.6     $ 6.1     $ 82.7   $   $   $   $   $   $

Total assets

  $ 1,895.7     $ 175.8     $ 2,071.5   $ 1,089.6   $ 41.4   $ 1,131.0   $ 209.8   $ 2,121.9   $ 2,331.7

 

     Zarafshan-
Newmont,
Uzbekistan


   Other
International
Operations


   Total
Gold


   Base
Metals


   Exploration

    Merchant
Banking


   Corporate
and Other


    Consolidated

Sales, net

   $ 22.2    $ 34.6    $ 609.6    $ 22.9    $     $    $     $ 632.5

Gain on investments, net

   $    $    $    $    $     $ 47.3    $     $ 47.3

Royalties

   $    $    $ ––    $    $     $ 11.2    $ ––     $ 11.2

Interest income

   $    $    $ 4.3    $    $     $ 0.3    $ 0.5     $ 5.1

Interest expense

   $ 0.2    $    $ 12.8    $    $     $    $ 22.3     $ 35.1

Exploration and research expense

   $    $ 0.6    $ 10.1    $ 1.1    $ 4.0     $    $ 3.6     $ 18.8

Depreciation, depletion and amortization

   $ 3.1    $ 10.6    $ 107.7    $ 6.7    $ 2.0     $ 6.0    $ 1.2     $ 123.6

Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect

   $ 9.1    $ 6.6    $ 96.8    $ 7.8    $ (5.9 )   $ 52.2    $ (50.1 )   $ 100.8

Equity income (loss) of affiliates

   $    $    $ 3.1    $    $     $ 1.2    $ 13.0     $ 17.3

Amortization of deferred stripping, net

   $    $    $ 2.9    $    $     $    $     $ 2.9

Write-down of long-lived assets

   $    $ ––    $ 7.5    $ 0.1    $     $    $     $ 7.6

Capital expenditures

   $ 0.8    $ 5.1    $ 85.2    $ 2.5    $ 0.0     $ 0.6    $ 0.7     $ 89.0

Deferred stripping costs

   $    $    $ 82.7    $    $     $    $     $ 82.7

Total assets

   $ 105.1    $ 530.1    $ 6,169.4    $ 488.9    $ 226.6     $ 2,073.9    $ 878.7     $ 9,837.5

 

Newmont has made corrections for certain misclassifications resulting from clerical errors that existed in the disclosure of Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect by segment for the three months ended June 30, 2002; the corrections resulted in a decrease of $47.3 million in the Corporate and Other category and an increase of $47.3 million in the Merchant Banking segment.

 

30


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Six Months Ended June 30, 2003

(Unaudited, in millions)

 

    North America

    South America

    Australia

 
    Nevada

    Other
North
America


    Total
North
America


    Yanacocha

    Other
South
America


    Total
South
America


    Pajingo

  Other
Australia


    Total
Australia


 

Sales, net

  $ 406.6     $ 76.0     $ 482.6     $ 461.2     $ 39.9     $ 501.1     $ 58.5   $ 284.9     $ 343.4  

Gain on investments, net

  $     $     $     $     $     $     $   $     $  

Gain on extinguishment of debt and other obligations, net

  $     $     $     $     $     $         $     $  

Royalties

  $     $     $     $     $     $     $   $     $  

Interest income

  $     $     $     $ 0.5     $     $ 0.5     $   $ 3.6     $ 3.6  

Interest expense

  $ 0.1     $     $ 0.1     $ 2.4     $ 0.1     $ 2.5     $   $ 14.3     $ 14.3  

Exploration and research expense

  $ 8.8     $     $ 8.8     $ 5.6     $ 0.1     $ 5.7     $ 1.5   $ 3.5     $ 5.0  

Depreciation, depletion and amortization

  $ 66.3     $ 18.2     $ 84.5     $ 75.9     $ 3.9     $ 79.8     $ 12.5   $ 40.3     $ 52.8  

Pre-tax income (loss) before minority interest, equity income and cumulative effect of a change in accounting principle

  $ 43.7     $ 5.4     $ 49.1     $ 205.1     $ 11.0     $ 216.1     $ 23.1   $ 2.5     $ 25.6  

Equity loss and impairment of Australian Magnesium Corporation

  $     $     $     $     $     $     $   $     $  

Equity income of affiliates

  $     $     $     $     $     $     $   $ 0.5     $ 0.5  

Cumulative effect of a change in accounting principal, net of tax

  $ (14.4 )   $ (3.4 )   $ (17.8 )   $ (32.4 )   $ (0.2 )   $ (32.6 )   $ 0.8   $ (1.1 )   $ (0.3 )

Amortization of deferred stripping, net

  $ (12.0 )   $ (0.3 )   $ (12.3 )   $     $     $     $   $ (0.9 )   $ (0.9 )

Write-down of long-lived assets

  $     $     $     $ 1.2     $     $ 1.2     $   $ 0.6     $ 0.6  

Capital expenditures

  $ 50.0     $ 2.2     $ 52.2     $ 96.0     $ 0.6     $ 96.6     $ 6.4   $ 24.2     $ 30.6  

Deferred stripping costs

  $ 49.4     $ 6.6     $ 56.0     $     $     $     $   $ 9.2     $ 9.2  

Total assets

  $ 1,539.2     $ 142.0     $ 1,681.2     $ 1,208.0     $ 27.5     $ 1,235.5     $ 178.4   $ 1,591.1     $ 1,769.5  

 

    Zarafshan-
Newmont,
Uzbekistan


    Other
International
Operations


    Total
Gold


    Base
Metals


    Exploration

    Merchant
Banking


  Corporate
and Other


    Consolidated

 

Sales, net

  $ 42.6     $ 68.9     $ 1,438.6     $ 32.2     $     $   $     $ 1,470.8  

Gain on investments, net

  $     $     $     $     $     $ 84.3   $     $ 84.3  

Gain on extinguishment of debt and other obligations, net

  $     $     $     $     $     $ 151.5   $     $ 151.5  

Royalties

  $     $     $     $     $     $ 24.9   $     $ 24.9  

Interest income

  $     $     $ 4.1     $     $     $ 0.1   $ 0.8     $ 5.0  

Interest expense

  $ 0.4     $     $ 17.3     $     $     $   $ 35.3     $ 52.6  

Exploration and research expense

  $     $ 3.9     $ 23.4     $ 1.7     $ 15.7     $   $ 10.9     $ 51.7  

Depreciation, depletion and amortization

  $ 5.5     $ 15.3     $ 237.9     $ 13.8     $ 1.7     $ 10.3   $ 6.2     $ 269.9  

Pre-tax income (loss) before minority interest, equity income and cumulative effect of a change in accounting principle

  $ 18.8     $ 7.0     $ 316.6     $ (8.9 )   $ (17.8 )   $ 248.6   $ 22.5     $ 561.0  

Equity loss and impairment of Australian Magnesium Corporation

  $     $     $     $     $     $   $ (119.5 )   $ (119.5 )

Equity income of affiliates

  $     $     $ 0.5     $     $     $   $ 25.8     $ 26.3  

Cumulative effect of a change in accounting principal, net of tax

  $ (1.3 )   $ (3.2 )   $ (55.2 )   $ (0.2 )   $     $   $ 20.9     $ (34.5 )

Amortization of deferred stripping, net

  $     $ (0.9 )   $ (14.1 )   $     $     $   $     $ (14.1 )

Write-down of long-lived assets

  $     $     $ 1.8     $     $     $   $     $ 1.8  

Capital expenditures

  $ 0.7     $ 12.4     $ 192.5     $ 5.8     $ 9.0     $   $ 8.0     $ 215.3  

Deferred stripping costs

  $     $ 2.8     $ 68.0     $     $     $   $     $ 68.0  

Total assets

  $ 101.7     $ 189.9     $ 4,983.1     $ 244.2     $ 1,217.4     $ 2,279.6   $ 1,427.3     $ 10,151.6  

 

Newmont has made corrections for certain misclassifications resulting from clerical errors that existed in the disclosure of Pre-tax income (loss) before minority interest, equity income (loss) and cumulative effect by segment for the six months ended June 30, 2003; the corrections resulted in increases of $7.6 million and $9.9 million for the Nevada and Other Australia segments, respectively, and a decrease of $17.5 million in the Corporate and Other category.

 

31


NEWMONT MINING CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Six Months Ended June 30, 2002

(Unaudited, in millions)

 

    North America

  South America

  Australia

 
    Nevada

    Other
North
America


    Total
North
America


  Yanacocha

  Other
South
America


  Total
South
America


  Pajingo

    Other
Australia


    Total
Australia


 

Sales, net

  $ 362.9     $ 76.5     $ 439.4   $ 289.2   $ 43.4   $ 332.6   $ 39.9     $ 185.9     $ 225.8  

Gain on investments, net

  $     $     $   $   $   $   $     $     $  

Royalties

  $     $     $   $   $   $   $     $     $  

Interest income

  $     $     $   $ 0.2   $   $ 0.2   $ 0.4     $ 5.4     $ 5.8  

Interest expense

  $ 0.1     $     $ 0.1   $ 5.4   $ 0.2   $ 5.6   $ 0.2     $ 15.9     $ 16.1  

Exploration and research expense

  $ 6.3     $     $ 6.3   $ 4.3   $ 0.6   $ 4.9   $ 0.6     $ 3.1     $ 3.7  

Depreciation, depletion and amortization

  $ 52.0     $ 17.7     $ 69.7   $ 61.2   $ 6.9   $ 68.1   $ 9.9     $ 35.3     $ 45.2  

Pre-tax income (loss) before minority interest, equity income and cumulative effect of a change in accounting principle

  $ (9.0 )   $ 10.1     $ 1.1   $ 75.4   $ 13.1   $ 88.5   $ 17.9     $ (3.8 )   $ 14.1  

Equity income (loss) of affiliates

  $     $     $   $   $   $   $     $ 3.1     $ 3.1  

Cumulative effect of a change in accounting principal, net of tax

  $ 0.9     $ 7.2     $ 8.1   $   $   $   $ (0.4 )   $     $ (0.4 )

Amortization of deferred stripping, net

  $ 9.5     $ (0.6 )   $ 8.9   $   $   $