Bruised but not broken, Newmont vows to cut debts

Financially bruised by an unsuccessful takeover battle, New York- based Newmont Mining has promised to take more steps this year to reduce its heavy debt load.

One of North America’s largest gold producers, Newmont encumbered its balance sheet with over $1.9 billion in long term debt after paying a $33 per share dividend ($2.2 billion) while fending off a hostile takeover bid by Texas oilman T. Boone Pickens. At the close of fiscal 1986 the company’s long term debt stood at $170 million.

In the name of debt reduction, the company sold 4.1 million shares of E.I. Du Pont de Nemours for $353.2 million, an 82% interest in Foote Mineral Co. for $74.1 million and its South African minority interests for $125 million.

In May, the company took an additional bite out of its debt load by announcing the sale of its 34% stake in Sherritt Gordon (TSE) for approximately $40.8 million, and more assets are expected to follow. Also on the selling block as part of the debt reduction strategy is 100% of Newmont Oil, Newmont’s remaining interest in Magma Copper Co. and a 100% interest in Newmont Mines Ltd. in British Columbia.

In an effort to save around $25 million in annual interest payments, the company negotiated a one million oz gold loan from The Bank of Nova Scotia. The interest rate on the gold loan is approximately 2.5% compared with 8% for bank financing, Newmont said. Before the Sherritt Gordon sale was announced, Newmont had lowered its debt by $390 million to $1.56 billion.

“Within a reasonable time, Newmont fully expects to reduce its debt to acceptable levels for a resource based company of its size,” said Chairman Gordon Parker in the company’s 1987 annual report.

While Parker doesn’t say how much an acceptable level would be, the interest rate on the company’s bank and gold loans declines by 1% when Newmont’s total debt falls below $1.25 billion.

On Dec 31, 1987 Newmont reported net income of $341 million ($5.30 per share) compared to $74.2 million or $1.22 per share at the same time the previous year.

The company’s operating profit also increased to $179.4 million for the 12 months ended Dec 31 from $51.8 million in 1986.