ITEM 3. LEGAL PROCEEDINGS
In December 1983, the State of Colorado filed a lawsuit in the U.S. District Court for the District of Colorado under the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural resources due to releases of hazardous substances into the environment. This case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388), was consolidated with another action, United States of America v. Apache Energy & Minerals, et al. (Civil Action No. 86-C-1676), which was filed in August 1986. Both cases involve allegations of environmental impairment in the vicinity of Leadville, Colorado, including the area of the operations and property of the Res-ASARCO Joint Venture, the Yak Tunnel, and adjacent property, and seek remedial actions and damages from a number of defendants, including Newmont and Resurrection Mining Company ("Resurrection") which is a partner with ASARCO Incorporated in the Res-ASARCO Joint Venture. In August 1994, the Court entered a Partial Consent Decree between and among the U.S., Newmont, Resurrection and certain defendants. The Partial Consent Decree obligates Resurrection to pay for and perform the cleanup of sources of contamination in various areas, pursuant to the CERCLA administrative process. During 1995 and 1996, Resurrection implemented and completed remedial action at selected locations, and development of feasibility studies were sent to the EPA for approval in 1997. Remedial activities were conducted in 1998 and will continue in 1999. The precise nature of the final remedial activities is subject to EPA and State of Colorado review and selection and public comment. At this time, the precise remedy and cost have not been fixed. The proposed settlement also requires Resurrection to reimburse the EPA and the State of Colorado for their response costs. Further, Resurrection's cleanup and reimbursement obligations are subject to certain sharing percentages with at least one other defendant. The Partial Consent Decree does not resolve certain other potential liabilities, including liability for any natural resource damage and any groundwater or surface water contamination. See also Note 18 to the financial statements in the 1998 Annual Report to Stockholders on page 39 therein which is incorporated herein by reference.
In December 1996, Santa Fe entered into a definitive merger agreement with Homestake Mining Company ("Homestake") and a subsidiary of Homestake, subsequent to discussions during November 1996 with both Homestake and the Corporation regarding potential business combinations. In January 1997, the Corporation announced a proposal for a business combination with Santa Fe. Santa Fe commenced discussions with the Corporation in January 1997 and in March 1997, the merger agreement between Homestake and Santa Fe was terminated and Santa Fe entered into a merger agreement with the Corporation. In December 1996, six Santa Fe stockholders filed class action complaints against Santa Fe and Santa Fe's Board of Directors (collectively, "Defendants"). The complaints alleged, among other things, that members of the Santa Fe Board of Directors breached their fiduciary responsibilities to Santa Fe's stockholders by failing to consider fully the Corporation's proposal to acquire Santa Fe and the Santa Fe Board of Directors approved the Homestake merger transaction to ensure that certain of the defendants would retain their positions. Subsequent to the consummation of the Santa Fe Merger, the plaintiffs dismissed the complaints but sought to have the Delaware Court of Chancery retain jurisdiction for the purpose of determining whether plaintiffs' counsel were entitled to an award of attorneys' fees. On November 30, 1998, plaintiffs voluntarily withdrew their complaints and the Court ordered the litigation dismissed without prejudice.
For a description of the litigation involving Newmont's ownership interest in Minera Yanacocha, see Note 4 to the financial statements in the 1998 Annual Report to Stockholders at page 26 therein which is incorporated herein by reference.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Corporation's executive officers as of March 4, 1999 were:
There are no family relationships by blood, marriage or adoption among any of the above executive officers of the Corporation. All executive officers are elected annually by the Board of Directors of the Corporation to serve for one year or until their respective successors are elected and qualify. There is no arrangement or understanding between any of the above executive officers and any other person pursuant to which he or she was selected as an officer.
Mr. Cambre was elected Chairman of the Corporation in November 1994 (effective January 1995), President in June 1994 and Chief Executive Officer in September 1993 (effective November 1993). He served as Vice Chairman of the Corporation from November 1993 through December 1994.
Mr. Murdy was elected Executive Vice President of the Corporation in July 1996 and designated Chief Financial Officer effective in December 1992. He served as a Senior Vice President of the Corporation from December 1992 to July 1996.
Mr. Dow was elected Senior Vice President, Exploration of the Corporation in July 1996. He served as Vice President, Exploration of the Corporation from April 1992 to July 1996.
Mr. Francisco was elected Senior Vice President, International Operations of the Corporation in November 1998. He also has served as Senior Vice President, International Operations of NGC since May 1997. Previously, he served as Vice President, International Operations of NGC from July 1995 to May 1997. Prior thereto, he served as Executive Vice President and General Manager of P.T. Freeport Indonesia Co., a natural resources company, from August 1992 to May 1995.
Mr. Kurlander was elected Senior Vice President and Chief Administrative Officer of the Corporation in May 1997. Previously, he served as Senior Vice President, Administration of the Corporation from March 1994 to May 1997. Prior thereto, he served as Senior Vice President, Public Affairs and Government Affairs, of Nabisco International Inc. of RJR Nabisco, Inc., a consumer products company since 1992.
Mr. Mullin was elected Senior Vice President, North American Operations of the Corporation in November 1998. He also has served as Senior Vice President, North American Operations of NGC since 1997. Previously, he served as Vice President and Regional Director, Nevada Operations of NGC from May 1994 to May 1997, and prior thereto he served as Vice President and General Manager of NGC from December 1993 to May 1994.
Mr. Baker was elected Vice President, Government and Environmental Affairs of the Corporation in November 1998. He also has served as Vice President, Environmental Affairs of NGC since 1991 and Vice President, Governmental Affairs of NGC since November 1998.
Ms. Flanagan was elected a Vice President of the Corporation in March 1995 and was elected Treasurer in December 1992. She was appointed Assistant Secretary in June 1992.
Mr. Hansen was elected Vice President, Project Development of the Corporation in November 1998. He also has served as Vice President, Project Development of NGC since May 1997. Previously, he served as Senior Vice President, Corporate Development of Santa Fe from April 1994 to May 1997 and prior thereto held various senior positions with Santa Fe since 1982.
Ms. Hansen was elected Vice President and General Counsel of the Corporation in September 1996. She also has served as Vice President and General Counsel of NGC since July 1996. Previously, she served as Vice President and Associate General Counsel of NGC from March 1995 to July 1996 and prior to that she served as Associate General Counsel of NGC.
Mr. Karras has served as Vice President, Taxes of the Corporation since November 1992.
Ms. Wheeler was elected Vice President of the Corporation in November 1998 and Controller of the Corporation in May 1997. Previously, she served as Controller of Santa Fe from May 1994 to May 1997, and prior thereto held various management positions with Santa Fe.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed and principally traded on the New York Stock Exchange (under the symbol NEM) and is also listed on the Paris Bourse, the Brussels Stock Exchange, the Swiss Stock Exchange and the Lima Stock Exchange. The following table sets forth, for the periods indicated, the high and low sales prices per share of the Corporation's common stock as reported on the New York Stock Exchange Composite Tape.
On March 4, 1999, there were approximately 26,064 stockholders of record of the Corporation's common stock. A dividend of $0.03 per share of common stock outstanding was declared in each quarter of 1998, or a total of $0.12 per share for such year. In 1997, a dividend of $0.12 per share of common stock outstanding was declared in the first three quarters and $0.03 per share in the fourth quarter, or a total of $0.39 per share for such year. The determination of the amount of future dividends, however, will be made by the Corporation's Board of Directors from time to time and will depend on the Corporation's future earnings, capital requirements, financial condition and other relevant factors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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(1) Net loss in 1998 includes the cumulative effect of changing the accounting method for start-up costs of $32.9 million ($0.21 per share), net of tax.
(2) In the years 1994 through 1996, Newmont declared dividends of $0.48 per Newmont common share. Santa Fe declared dividends of $0.05 per Santa Fe common share in 1996 an 1995. Prior to 1995, Santa Fe paid dividends to another company as its then wholly-owned subsidiary.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and Analysis" in the 1998 Annual Report to Stockholders on pages 10 through 17 therein is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the caption "Market Conditions and Risks" in Management's Discussion and Analysis in the 1998 Annual Report to Stockholders on page 10 therein is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth in the 1998 Annual Report of Stockholders on pages 17 through 42, 46 and 47 therein is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with Arthur Andersen LLP, the Corporation's independent public accountants, regarding any matter of accounting principles or practices or financial statement disclosure.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Corporation's directors will be contained in the Corporation's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1999 annual meeting of stockholders and is incorporated herein by reference. Information concerning the Corporation's executive officers is set forth under Part I of this Report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be contained in the Corporation's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1999 annual meeting of stockholders and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in the Corporation's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1999 annual meeting of stockholders and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS
The financial statements, together with the report thereon of Arthur Andersen LLP dated January 27, 1999, included as Exhibit 13, are incorporated by reference in this Form 10-K Annual Report. The report of Price Waterhouse LLP dated February 1, 1997, except for the fifth paragraph of Note 1, which is as of March 10, 1997 is included herein as Exhibit 13(a).
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* See Exhibit 13.
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes.
3. EXHIBITS
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEWMONT MINING CORPORATION
By /s/ TIMOTHY J. SCHMITT ----------------------------------- Timothy J. Schmitt Vice President, Secretary and Assistant General Counsel
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
NUSA TENGGARA PARTNERSHIP V.O.F. (A GENERAL PARTNERSHIP IN THE DEVELOPMENT STAGE) STATEMENTS OF OPERATIONS (Amounts in thousands of United States dollars)
The accompanying notes are an integral part of these financial statements.
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NUSA TENGGARA PARTNERSHIP V.O.F. (A GENERAL PARTNERSHIP IN THE DEVELOPMENT STAGE) BALANCE SHEETS (Amounts in thousands of United States dollars)
The accompanying notes are an integral part of these financial statements.
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NUSA TENGGARA PARTNERSHIP V.O.F. (A GENERAL PARTNERSHIP IN THE DEVELOPMENT STAGE) STATEMENTS OF CHANGES IN PARTNERS' EQUITY (Amounts in thousands of United States dollars)
The accompanying notes are an integral part of these financial statements.
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NUSA TENGGARA PARTNERSHIP V.O.F. (A GENERAL PARTNERSHIP IN THE DEVELOPMENT STAGE) STATEMENTS OF CASH FLOWS (Amounts in thousands of United States dollars)
The accompanying notes are an integral part of these financial statements.
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NUSA TENGGARA PARTNERSHIP V.O.F. (A GENERAL PARTNERSHIP IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------- 1. GENERAL
Nusa Tenggara Partnership ("NTP" or the "Partnership") is a general partnership organized under the laws of The Netherlands. NTP is 56.25%-owned by Newmont Indonesia Limited ("NIL"), an indirect subsidiary of Newmont Mining Corporation ("NMC"), both Delaware, U.S.A. corporations, and 43.75%-owned by Nusa Tenggara Mining Corporation ("NTMC"), a Japanese corporation owned by Sumitomo Corporation (74.3%), Sumitomo Metal Mining Co., Ltd. (14.3%), Mitsubishi Materials Corporation (7.1%) and Furukawa Co., Ltd. (4.3%).
NTP was formed to develop and mine the Batu Hijau copper/gold deposit located in Sumbawa, Nusa Tenggara Barat, Indonesia, through P.T. Newmont Nusa Tenggara ("PTNNT"). Batu Hijau contains proven and probable reserves of 10.6 billion pounds of copper and 11.8 million ounces of gold and is scheduled to commence operation in the fourth quarter of 1999, with a projected mine life in excess of 20 years. The estimated cost for the development of the open-pit mine, mill and infrastructure, including employee housing, a port, electrical generation facilities, interest during construction and working capital is expected to approximate US$1.9 billion.
NTP holds an 80% interest in PTNNT, an Indonesian corporation that holds the Contract of Work ("COW") issued by the Indonesian government, granting PTNNT sole rights to develop the Batu Hijau project. The remaining 20% interest in PTNNT is held by P.T. Pukuafu Indah ("PTPI"), an unrelated Indonesian company. PTPI's interest is a "carried interest" such that at the request of PTPI, NTP funds PTPI's capital contributions to PTNNT. Contributions made on behalf of PTPI will be recovered by NTP from 70% of PTPI's share of future dividends from PTNNT.
NTP was formed in July 1996, but partner funding did not occur until June 1997 and no material Partnership transactions occurred until after such date. Substantially all Partnership transactions relate to its 80% interest in PTNNT. Certain NTP and PTNNT actions and transactions, as described in the Partnership agreement, require unanimous approval of NTP partners.
Copper and gold mining requires the use of specialized facilities and technology. Future cash flow and profitability of NTP will significantly depend upon its ability to successfully complete the development and construction of such facilities and, upon commencement of production, will be significantly affected by market prices of copper and gold. Such commodity prices fluctuate widely and are affected by numerous factors beyond NTP's control.
Over the past two years, Indonesia has experienced significant devaluation of its currency, the Rupiah. This and other factors have also led to political and social problems in the country. NTP's cost and debt structure is primarily U.S. dollar-denominated. To the extent that there are fluctuations in the Rupiah, its devaluation is generally economically neutral or beneficial to NTP since local salaries and supply contracts will decrease against the U.S. dollar. Excluding certain tax receivables described in Note 2, NTP's activities have not been materially affected by the economic, social and political situation in Indonesia, since its project is in a remote location.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statements
The financial statements have been prepared on the historical cost basis of accounting, except as described in Note 3, using generally accepted accounting principles of the United States ("U.S. GAAP").
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Principles of Consolidation
The financial statements reflect the consolidated financial position and the results of operations of NTP and PTNNT. Because PTPI's interest in PTNNT is a "carried interest", PTNNT is consolidated on a 100% basis and PTPI's carried equity contribution is reflected as a minority interest. All significant intercompany balances and transactions have been eliminated.
Foreign Currency Transactions and Balances
NTP maintains its accounting records in U.S. dollars ("USD" or "US$"). Transactions in other currencies are recorded in USD based on exchange rates prevailing at the time of such transactions. Monetary assets and liabilities denominated in other currencies are translated into USD at exchange rates prevailing at the balance sheet dates, and any resulting gains or losses are credited or charged to property, plant and mine development.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Cash and cash equivalents are primarily invested in money market accounts.
Inventories
Materials and supplies are stated at the lower of average cost or net realizable value.
Property, Plant and Mine Development
Expenditures for equipment and plant facilities are capitalized at historical cost. Depreciation of assets placed in service is computed on the straight-line method over estimated lives ranging from four to 10 years or the mine life.
The Partnership adopted AICPA Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") effective January 1, 1998. Under this accounting method, certain costs, such as organization, training and pre-feasibility expenses, incurred in the start-up phase of the project are expensed as incurred. (Notes 4 and 5).
The excess of the agreed value of the assets contributed to NTP when it was initially funded over the historical cost basis was recorded as deferred mineral rights (Note 3). Such costs will be amortized when production commences over the estimated mine life of the Batu Hijau mine.
Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed, the subsequent costs incurred to develop such property, including costs to further delineate the orebody and remove overburden to initially expose the orebody for mining, are capitalized as mine development costs. Mine development costs are amortized using the unit-of-production method over the life of the orebody.
Interest costs related to developing mining properties and constructing new facilities are capitalized until operations commence.
Asset Impairment
The Partnership reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment loss is measured as the amount by which an asset's carrying value exceeds its fair value. Fair value is generally determined using estimated future cash flow analysis. An impairment is
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considered to exist if total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows include estimates of recoverable ounces, metal prices (considering current and historical prices, price trends and related factors) and production, capital and reclamation costs. Assumptions underlying future cash flow estimates are subject to risks and uncertainties. Any differences between significant assumptions and actual market conditions and/or the Partnership's performance could have a material effect on the Partnership's financial position and results of operations. As of December 31, 1998, NTP does not believe that impairment has occurred.
Debt Issuance Costs
Costs incurred to arrange the third party project financing facility, including financial advisory fees, legal fees, loan origination and commitment fees, accounting and tax advisory services, were capitalized as debt issuance costs. Such costs will be amortized over the life of the loan upon commencement of commercial production.
Taxes Receivable
Value added taxes ("VAT") are paid on PTNNT's purchases of goods and services. VAT paid during each year is legally refundable in the following year upon submission of a refund claim to the government of Indonesia. NTP reports its VAT receivable as a non-current asset because such taxes have not been received until one year after refund claim submissions.
VAT payments and refunds are measured in Rupiah and consequently, are subject to exchange rate fluctuations. VAT receivable balances are adjusted to reflect the Rupiah/USD exchange rate as of the balance sheet dates.
Mining Costs
Because of diverse grade and waste-to-ore ratios each year over the mine's life, mining costs incurred are capitalized and will be charged to operations on the basis of the average life-of-mine-grade and waste-to-ore ratios per equivalent unit of copper.
Reclamation and Remediation Costs
Estimated future reclamation and remediation costs are based principally on legal, regulatory and contractual requirements and will be accrued and charged to operating expense over the expected mine life using the units-of-production method.
Income Taxes
PTNNT accounts for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of its liabilities and assets and the related income tax basis of such liabilities and assets. This method generates a net deferred income tax liability or net deferred income tax asset as of the end of the year, as measured by the statutory tax rates in effect as enacted. PTNNT is in the development stage and will not record benefits for its deferred tax assets until commencement of operations.
Such benefits, resulting from tax loss carryforwards, were approximately US$20 million and US$14 million at December 31, 1998 and 1997, respectively. Realization of these deferred tax assets is dependent on PTNNT's ability to generate sufficient income from its operations before expiration of the eight-year tax loss carryforward period. In addition, income taxes are measured in Rupiah; consequently, certain tax benefits may be subject to Rupiah/USD exchange rate fluctuations.
NTP is not subject to income taxes. The taxable income or loss of the Partnership, which may vary substantially from income or loss reported for financial reporting purposes, is passed through to NTP partners.
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Commodity Instruments
In June 1998, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activity. SFAS No. 133 is effective for all periods in fiscal years beginning after June 15, 1999 and requires recognition of derivative instruments, at fair value, on the balance sheet as either assets or liabilities. Changes in the derivative's fair value will be recognized currently in earnings unless specific hedge accounting criteria are met, upon which gains and losses will be recorded in either other comprehensive income or current earnings, depending on the nature of the instrument. To date the Partnership has not utilized derivatives and does not expect a material effect from adopting SFAS No. 133, planned for January 2000.
Comprehensive Income
In the first quarter of 1998, the Partnership adopted SFAS No 130 "Reporting Comprehensive Income" that established standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. In addition to net income, comprehensive income includes all changes in equity during a period, except those resulting from investments by and distributions to owners. The Partnership has no material comprehensive income items.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from these estimates.
Reclassifications
Certain amounts in the prior year have been reclassified to conform to the 1998 presentation.
3. INITIAL FUNDING OF THE PARTNERSHIP
The Partnership agreement, executed on July 2, 1996, provided for initial contributions from its partners. The date of such contributions (referred to as the "Initial Funding Date") was June 10, 1997. NIL contributed its 80% interest in PTNNT in exchange for a 56.25% interest in NTP. NIL also contributed rights to its shareholder loan receivable of US$77.2 million and a PTPI loan receivable of US$2.2 million. The agreed upon value of NIL's initial contributions was US$306.2 million. NTMC contributed approximately US$164 million and subsequent deferred cash contributions, as defined in the agreement, in exchange for a 43.75% interest in NTP.
PTNNT's losses up to the Initial Funding Date of US$41.4 million were allocated to the capital accounts of NIL and NTMC in proportion to their respective Partnership interests.
Assets contributed to NTP on the Initial Funding Date were recorded at historical cost with the excess of the agreed value of NIL's contributions over such historical cost, US$219.5 million, recorded as deferred mineral rights.
4. PROPERTY, PLANT AND MINE DEVELOPMENT
Property, plant and mine development consisted of the following (in thousands of US$):
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Construction-in-progress primarily consisted of engineering, design and construction-related costs for development of the Batu Hijau copper/gold project. As described in Note 2, the Partnership adopted "SOP 98-5" effective January 1, 1998. This change resulted in expensing certain start-up costs that totaled US$17.6 million in 1998 (included in other expense). Previously capitalized start-up costs (incurred prior to January 1, 1998) of US$50.1 million were expensed as the cumulative effect of the accounting change.
5. DEFERRED PARTNERSHIP ORGANIZATION COSTS
As of December 31, 1997, NTP had incurred costs totaling US$984 thousand related to organizing the partnership. Such costs were primarily for legal and accounting services. In 1998, these costs were expensed as start-up costs and included in the cumulative effect of the accounting change.
6. ACCOUNTS PAYABLE AFFILIATES
Accounts payable to affiliates consisted of the following (in thousands of US$) which are described in Note 12.
7. MINORITY INTEREST IN PTNNT
As described in Note 1, PTPI owns a 20% carried interest in PTNNT, whose paid-in capital and deposits for future stock subscriptions totaled US$85.6 million and US$11.0 million at December 31, 1998 and 1997, respectively. PTPI's share of such capital, reflected on the balance sheet as Minority interest in PTNNT, was funded with loans from NIL and NTMC, through NTP, and totaled US$17.1 million and US$2.2 million at December 31, 1998 and 1997, respectively. These loans are subject to interest at the six-month Singapore Interbank Offering Rate ("SIBOR") plus two percent. PTPI agreed to assign 70% of its rights to dividends from PTNNT to repay such loans, including interest, pursuant to an Acknowledgment of Indebtedness and Assignment of Dividends agreement with NIL. Interest accrued
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under these loans will not be recorded by NTP until commencement of operations and recoverability of such interest is determined.
On February 25, 1998, PTNNT's shareholders amended its articles of association to increase its authorized capital by US$172.3 million to US$177.3 million. Pursuant to Indonesian law, 25% of such capital, or US$44.3 million, had to be paid by the shareholders before the revised articles of association can be registered with the Ministry of Mines and Energy and the Ministry of Justice. Payment occurred on April 13, 1998.
8. TAXES PAYABLE
Taxes payable consisted of the following (in thousands of US$):
9. LOAN AGREEMENTS
SHAREHOLDER LOAN AGREEMENT
PTNNT entered into a shareholder loan agreement with NIL on April 20, 1993, wherein PTNNT borrowed funds from NIL to finance its COW activities. The loan, initially for a maximum of US$50 million and subsequently amended to increase the maximum borrowing to US$150 million, was contributed by NIL to the Partnership as part of NIL's initial funding. The loan agreement was amended in November 1997, to subordinate PTNNT's liabilities under this loan to those under the project financing facility discussed below, and in early 1999, to reduce the maximum loan amount to US$77.5 million. The outstanding loan balance at December 1998 was US$77.2 million.
Interest does not accrue on the loan until PTNNT commences commercial mining operations, as defined by the loan agreement. Interest then accrues at the 180-day SIBOR rate of interest plus three percent. The loan and accrued interest becomes payable on demand by the Partnership after commencement of operations.
PARTNERSHIP LOAN AGREEMENT
NTP entered into a Partnership loan agreement with PTNNT on June 10, 1997 (the "Initial Funding Date"), that was amended on October 15, 1997 to subordinate PTNNT's liabilities under this loan to those under the project financing facility discussed below.
This agreement provided for borrowings up to US$500 million for the Batu Hijau project (referred to as "Sponsor Funding"). Such borrowings were payable on demand and bore interest generally at the 180-day SIBOR interest rate plus three percent. Any interest that was not paid on designated dates was assessed interest at the 180-day SIBOR interest rate plus 4%. The weighted average interest rates on the Sponsor funding during 1998 and 1997 were 8.9% and 8.9%, respectively, and the interest rate at December 31, 1997 was 8.9%. Sponsor funding interest and principal payments are Restricted Payments under the provisions of the project financing facility and no payments can be made prior to project completion. At December 31, 1997, outstanding Sponsor Funding principal was US$314.9 million and the related accrued interest was US$9.7 million
The Sponsor Funding was refinanced on July 27, 1998 and replaced with a Subordinated Loan Agreement. The principle terms and conditions of the Subordinated Loan Agreement are consistent with the previous agreement and the
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outstanding principal and interest under the previous agreement were repaid to NTP with borrowings from the Subordinated Loan Agreement. The weighted average interest rate on the replacement loan during 1998 was 8.7% and the interest rate at December 31, 1998 was 8.1%. At December 31, 1998, outstanding Sponsor Funding principal was US$500.0 million and the related accrued interest was US$17.6 million. Transactions related to Sponsor Funding have been eliminated in the consolidated financial statements.
10. PROJECT FINANCING FACILITY
On July 30, 1997, PTNNT entered into a US$1.0 billion project financing facility for the Batu Hijau project. The facility includes commitments from three export-credit agencies with participation by various commercial banks. The facility is guaranteed by an NMC subsidiary and Sumitomo Corporation ("Sumitomo"), 56.25% and 43.75%, respectively, until certain project completion tests are met at which time the facility becomes non-recourse to the NMC subsidiary and Sumitomo.
As of December 31, 1998, US$640 million was outstanding under this facility. The fair value cannot practicably be determined due to the lack of available market information for this type of debt.
The facility will be repaid in semi-annual installments over a 13-year period beginning with earlier of six months after project completion or June 15, 2001. Accordingly, unless project completion tests are satisfied more than six months before June 15, 2001, no repayments will occur in 1999 and 2000, and US$86.7 million will occur in each of 2001, 2002 and 2003. The facility bears interest at blended fixed and floating rates. Based on interest rates at December 31, 1998, the weighted-average interest rates would be approximately 6.6% and 7.1% pre-completion and post-completion, respectively. The weighted average interest rate on the facility during 1998 was 6.2% and the interest rate on December 31, 1998 was 5.5%.
The facility includes a number of covenants, conditions, warranties and representations that include:
a. Concentrate Sales Agreements - During each year after completion, PTNNT shall sell not less than 455,000 tonnes of annual copper concentrate production for export to non-Indonesian buyers for U. S. Dollars, and shall commit not less than 480,000 tonnes under long-term sales agreements.
b. Limitation on Indebtedness - PTNNT shall not incur any indebtedness, other than the US$1.0 billion project financing, except for "Permitted Indebtedness", which includes subordinated debt from NTP, unsecured working capital debt with a maturity not in excess of one year and not exceeding US$35 million, and other indebtedness with aggregate principal not to exceed US$5 million at any time.
c. Senior Loans/Sponsor Funding Ratio - The ratio of outstanding funds under the project financing facility to the aggregate Sponsor Funding shall not exceed 55 to 45.
d. Restricted Payments - Prior to the later of operational completion or the first scheduled principal repayment date under the project financing facility, PTNNT is prohibited from making Restricted Payments. Restricted Payments include dividends or return of capital and payment of principal or interest on subordinated loans to NTP, its partners or their affiliates. Subsequent to such restricted period, PTNNT can make Restricted Payments provided certain conditions and financial ratios are met.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Excluded from the statements of consolidated cash flow was the effect of a non-cash transaction wherein PTNNT purchased US$6.8 million in inventory, but deferred payment until the inventory is used. Prior to January 1, 1997, PTNNT incurred approximately US$20 million of short-term debt, pending Initial Funding, which was primarily used for plant, property and mine development. This debt, which totaled US$100 million on the Initial Funding Date, was repaid on the Initial
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Funding Date and such repayment was reflected in the consolidated financial statements. All interest incurred during 1998 and 1997 was capitalized.
12. OTHER SIGNIFICANT AGREEMENTS
Technology and Know-How Agreements
On July 2, 1996, PTNNT entered into a Technology and Know-How Agreement with Newmont Nevada Holdings Incorporated ("NNHI"), an indirect subsidiary of NMC, whereby NNHI agreed to provide proprietary information, technology, know-how and related intellectual property rights. Under the terms of this agreement, PTNNT pays NNHI a royalty of 1.6875% of the preceding month's aggregate capital expenditures determined in accordance with U.S. GAAP, and US$3.9375 per equivalent ounce of gold produced by PTNNT in such month upon commencement of production.
A similar Technology and Know-How Agreement was executed with Sumitomo on the same date, providing a royalty of 1.3125% of aggregate capital expenditures and US$3.0625 per equivalent ounce of gold produced.
Obligations under these agreements totaled US$25.5 million and US$9.9 million during 1998 and 1997, respectively. The associated liabilities at December 31, 1998 and 1997 were US$32.6 million and US$9.6 million, respectively and were included in Accounts payable affiliates (Note 6).
Consulting Services Agreements
In July 1996, PTNNT entered into a Consulting Services Agreement with Newmont International Services Limited ("NISL"), an indirect subsidiary of NMC, whereby NISL agreed to provide certain support, advisory and consulting services related to general project engineering, control and development; procurement advice and implementation; contract negotiation support; general construction advice and support; operations management support; tax and legal planning; general and administrative services; and management and business support services. NISL provides these services primarily outside of Indonesia. Under the terms of this agreement, PTNNT reimburses NISL for its actual payroll costs, including related employee benefits, incurred to provide these services, other out-of-pocket costs, and an administrative fee. Charges totaled US$4.6 million in 1998 and US$14.5 million in 1997 and Accounts payable affiliates included US$1.3 million and US$12.5 million at December 31, 1998 and 1997, respectively (Note 6).
PTNNT has a similar Consulting Services Agreement with NTMC. Pursuant to this agreement, charges totaled to US$1.2 million in 1998 and US$1.4 million in 1997 and Accounts payable affiliates included US$0.5 million at December 31, 1997 (Note 6).
Payroll Agency Agreements
PTNNT has entered into Payroll Agency Agreements with Newmont Indonesia Investment Limited ("NIIL") and Newmont Global Employment Limited Partnership ("NGELP"), indirect subsidiaries of NMC, whereby NIIL and NGELP agreed to act as agents of PTNNT for personnel, payroll and benefits management of non-Indonesian employees assigned to work for PTNNT in Indonesia. NIIL manages expatriates from the U.S. and NGELP manages expatriates from countries other than the U.S.
Under the terms of these agreements, PTNNT reimburses these agents for salaries, related employee benefits and other reasonable expenses and pays a fee of US$20 for each salary payment. Agency payments totaled US$9.0 million in 1998 and US$3.3 million in 1997 and Accounts payable affiliates included US$2.9 million and US$3.0 million at December 31, 1998 and 1997, respectively (Note 6).
NT - 12
Batu Hijau Project Engineering and Construction Agreements
PTNNT has entered into an On-Shore Agreement with P.T. Fluor Daniel Indonesia ("FDI") whereby FDI agreed to construct PTNNT's processing facilities and related infrastructure, and to provide project management, procurement, engineering and construction management. Such services are performed in Indonesia and related payments are made in USD on a cost reimbursable basis. During 1998 and 1997, US$437 million and US$121 million, respectively, were charged to construction-in-progress for such services and Accounts payable and accrued expenses included US$72 million and US$6.2 million at December 31, 1998 and 1997, respectively.
PTNNT has entered into an Off-Shore Agreement with Fluor Daniel Engineers and Constructors, Ltd. ("FDEC") whereby FDEC agreed to perform engineering design and equipment procurement for PTNNT's processing facilities and related infrastructure, and to provide project management, procurement, engineering and construction management. Such services are performed outside Indonesia and related payments are made in USD on a cost reimbursable basis with an additional discretionary fee payable as determined by the Partnership. During 1998 and 1997, US$609 million and US$174 million, respectively, were charged to construction-in-progress for such services and Accounts payable and accrued expenses included US$37 million and US$41.8 million at December 31, 1998 and 1997, respectively.
13. COMMITMENTS AND CONTINGENCIES
NTP's exploration, development and mining activities are subject to various Indonesian laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. NTP conducts its operations so as to protect the public health and environment and believes its activities are in compliance with all applicable laws and regulations. NTP has incurred, and in the future expects to incur, expenditures to comply with such laws and regulations, however, NTP cannot predict the amount of such future expenditures.
PTNNT has made significant commitments related to the construction and development of its Batu Hijau copper/gold project. Such commitments are principally for engineering and construction-related services.
NTP is from time to time involved in various legal proceedings of a character normally incident to its business. It does not believe that adverse decisions in any pending or threatened proceeding or that any amounts it may be required to pay by reason thereof will have a material adverse effect on its financial condition or results of operations.
NT - 13 Appendix I
The following is a narrative description of the map in image form which has been included in the paper version of the Form 10-K but has been excluded from the EDGAR version of the Form 10-K.
Map of Nevada Operating Properties and Principal Area of Land Holdings -- Page 5 of Form 10-K.
On Page 5 of the Form 10-K, the registrant has included a map of Nevada with an enlargement of the geographical location of its operations on the Carlin Trend, Lone Tree Complex, Twin Creeks Mine and Rosebud Mine discussed on Pages 2 through 4 of the Form 10-K. The map also includes the registrant's principal area of land holdings in the gray shaded areas.
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