Newmont debt totals $1.2 billion despite asset sales in 1988

Expansion of the company’s gold mining operations near Carlin, Nev., involved additional borrowings which partially offset the sale of Magma Copper, most of its shares in Du Pont, its southern African interests, a copper mine in Canada, and its interests in Foote Mineral Company and Sherritt Gordon Mines, said Newmont.

“This debt level, however, is not one with which Newmont remains at all content, and every effort is being made to reduce it further to a magnitude appropriate for a natural resource company of Newmont’s size,” Gordon Parker, president, said in the company’s annual report.

Parker said the keystone of Newmont’s borrowing program is a one million ounce gold loan which was monetized at $448(US) per oz, giving it an effective hedge in a period of lower gold prices. To protect the company further from low prices, a wholly-owned subsidiary, Newmont Sales Corp., hedged another 800,000 oz or about 60% of planned production from Newmont Gold, a 90%-owned subsidiary of Newmont Mining. The contract price of the forward sales average $418 per oz and the exercise price of the put options is $400, he noted.

Net income for the year was $174.9 million compared to $341 million a year earlier. Major expenditures last year included $307.2 million for the expansion at Newmont Gold’s Carlin operations which represented 90% of the parent’s capital needs. Capital outlays are expected to drop to $190 million this year as that expansion program is completed.

“The corporation anticipates that it will begin generating positive cash flows in the third quarter of this year, assuming no further significant decline in the price of gold,” said Parker in the annual report.

Newmont Gold produced a record 895,500 oz last year, 52% more than in 1987. Proven and probable reserves in the Carlin area increased to 16.3 million oz, the largest reserve base reported by any company in North America. Newmont Mining’s 75%-owned Newmont Australia also had a record year of production. Sales were 237,000 oz in 1988 and are expected to rise to 300,000 oz in 1989.

Parker said that Newmont’s future will be heavily dependent on exploration which now consumes about $50 million per year. The company’s exploration efforts are not confined to the Carlin belt but take in Australasia as well. A gold resource of 770,000 oz has been found in Papua New Guinea and promising results have been returned from Indonesia where exploration expenditures will be doubled to $4.5 million this year.

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