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UZBEKISTAN
Uzbekistan, the heart of the Silk Road |
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 Newmont Mining Corporation
Mr. Wayne W.Murdy,
President
Contacts:
DENVER, Colorado 80203
Tel: (303) 837 - 5814
Fax: (303) 837 - 6100
Website: www.newmont.com
Newmont Uzbekistan Ltd.
11B, Shevchenko str.
Tashkent, 700060 - Uzbekistan
Tel.: +998-71 136 77 60, 120 65 85
Fax: +998-71 120 60 94
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Wayne W. Murdy was elected Chief Executive Officer of Newmont Mining Corporation in November 2000, effective January 1, 2001. Previously, he served as President. He was elected to Newmont's board of directors September 15, 1999. Mr. Murdy is also a Director of Minera Yanacocha in Peru and the Zarafshan-Newmont Joint Venture in Uzbekistan.
Prior to joining Newmont in 1992, Mr. Murdy spent fifteen years in senior financial positions in the oil and gas industry, first with Getty Oil Company and later with Apache Corporation. He began his business career with Arthur Andersen LLC in their Los Angeles office from 1969 to 1978. A graduate of California State University at Long Beach, he has a Bachelor of Science Degree in Business Administration and is a Certified Public Accountant.
Mr. Murdy has been actively involved in Newmont's Uzbek activities since 1992. He was personally involved in negotiating many of the Zarafshan/Newmont project agreements and was responsible for arranging the financing through the EBRD.
| Newmont's vision |
Over the past decade, Newmont has grown from producing gold at a single location in Northern Nevada to become the world's second largest gold producer.
Today we operate in such diverse locales as Indonesia, Peru, and Uzbekistan, as well as the United States.
Entering a new millennium, the company is poised to realize its vision:
"To become the world's most valued mineral resource company, creating shareholder wealth through aggressive exploration, technological innovation, operating excellence, financial management and by employing people with intellect, integrity and energy."
To our Shareholders
We enter 2000 with a renewed sense of confidence and determination. Our business fundamentals are the strongest in recent memory, befitting our position as North America's largest gold producer.
Equally important, the sentiment toward gold has turned positive following an accord by European central banks to limit future gold sales, coupled with an improving supply/demand outlook. As the least hedged company among the major producers, we offer shareholders the greatest leverage to this rising gold price scenario.
1999 was a year of great success as we surpassed every operational target we set for ourselves. Production and reserves increased to record levels, operating costs and debt were reduced, and Batu Hijau, the largest project in our history, came into production in Indonesia ahead of schedule and under budget. Earnings, while still inadequate, exceeded Wall Street expectations and cash flow from operations increased despite a further decline in the gold price.
These achievements were reflected in our stock price, which rose 34 percent to $ 24.50 a share, making Newmont the only major North American gold producer to post a higher stock price in 1999.
Nevertheless, we have just begun to regain the ground lost in the past three years as the gold market was driven down by fears of central bank selling, extensive producer hedging and unbridled speculation by short sellers. The spot gold price dropped to a 20- year low of $ 253 an ounce in July, but began recovering in the fourth quarter following the central bank accord to end the year at $ 290 an ounce, up $ 2 from 1998. Our average realization for the year of $ 285 an ounce was $ 25 below that of 1998 and $ 110 below the realized price in 1996.
Our focus during this challenging period has been on cash flow as we have optimised mining and processing, reduced working capital and overhead, and deferred discretionary spending. In 1999, we initiated a new program to engage and energize our entire workforce, called "Gold Medal Performance."
It seeks to implement "best practices" at every location, thereby improving productivity and cash flow.
We are a stronger company today because of this effort. Reserves increased 4 million ounces to 56.6 million ounces, after we produced a record 4.2 million ounces, demonstrating the combined exploration, technological and operational skills that have become Newmont's hallmark of success. Furthermore we reduced total cash costs to $175 per ounce and total production costs, including depreciation, to $227 an ounce, one of the lowest in the industry.
Operating cash flow in 1999 of $402 million, or $2.40 per share, surpassed the prior year's $373.5 million, or $2.35 per share, despite an 8 percent decline in the realized gold price.
Operating earnings for the year were $56.8 million, or 34 cents per share, before non-recurring and non-cash items. Net income of $24.8 million, or 15 cents per share, included a non-cash mark-to-market loss of $29.1 million, or 17 cents per share, on call options sold during the year as part of our price protection program. In 1998, operating earnings were $73.4 million, or 46 cents per share, before non-recurring items, primarily an after-tax charge of $424.7 million, or $2.67 per share, to write down the carrying value of certain North American assets. The net loss for 1998 was $393.4 million, or $2.47 per share.
It is worth noting that for 2000, a $25 increase in the gold price will equate to a 50-cent per share increase in operating earnings and a 60-cent per share increase in cash flow.
The fundamentals of the gold market clearly support a higher price. According to the World Gold Council, record consumption in 1999 was seven percent above the previous record in 1997. The strong economy in the United States and improving economies in Asia point a further increase in 2000.
For the past decade, gold demand has exceeded world mine production. The shortfall has been met by government central banks as they have sold off a portion of their monetary reserves or, increasingly, lent gold to the market. Analysts estimate that the official sector sales and lending doubled in 1999 to 28 million ounces of gold, or almost one-quarter of total world consumption. While this amounted to only a small portion of official sector holdings, it fueled fears that all central bank gold was for sale. Profiting from this negative sentiment, speculators and bullion dealers drove the gold price down by nearly $40 an ounce from March to September.
To stabilize the market and restore confidence in
the metal, 15 European central banks that
collectively hold nearly half of all official gold,
announced in September that they will limit future
gold sales to approximately 13 million ounces
a year for the next five years and cap lending
at its then existing level. While still sizeable,
these sales will represent a declining percentage
of growing gold demand. Importantly, the accord
includes all previously announced bank sales and
is supported by the U.S.Treasury and other entities
controlling another 35 percent of world gold reserves. |
The accord followed efforts by a number of gold producers to engage central bankers in a dialog on the erosion in value of their reserves and a refocused mission by the World Gold Council to bring gold's important role as a monetary asset into the public debate.
Equally encouraging, producers, who for years have undermined the price of their product by selling gold short, have announced reductions in their hedging activity. Forward selling by the industry fueled the rapid rise in central bank lending as producers borrowed gold from the banks, sold it immediately, and invested the proceeds. In the past, hedging reduced risk and enhanced revenue, but, the rush to lock in prices in the falling price environment of 1999 brought a flood of borrowed metal to the market, further accelerating the price decline.
Such hedge transactions are coming under new scrutiny. As the gold price surged in response to the central bank announcement, investors realized that heavily hedged producers had capped their future revenue and would not fully benefit from the higher prices. Some hedging instruments contain cash margin call requirements, and two companies with exotic derivatives faced potential bankruptcy as a result.
While we cannot predict the market, reduced hedging and greater discipline by bankers, coupled with increasing demand, should put gold on a more rational footing in 2000 and beyond. Now is the time for a new initiative. Producers should join in a new marketing campaign to ensure gold is the metal of choice for jewelry makers, consumers and investors worldwide.
All of this reaffirms our strategy to remain largely unhedged in the belief that investors want maximum exposure to rising metal prices. Low-cost production gives us luxury of following this strategy. Only 4 percent of our reserves are subject to future sales contracts, at prices well above today's market. We have no lease rate or margin call exposure. At the bottom of the market in July, with no assurance that speculative forces wouldn't continue to depress the gold price, we initiated a limited price protection program. We bought puts, setting a floor under our near-term revenue stream, and paid for them by selling calls that may require us to deliver gold at fixed prices in the future. It was cost-effective insurance, but requires that we include in income the mark-to-market value of these options, which can move inversely to the gold price. Importantly, mark-to-market reporting has no impact on cash earnings and if these options are exercised in the future, it will be at a higher gold price that significantly increases the value of our gold reserves and production.
In addition to leverage, our strategy for shareholder value is simple and straight-forward. We believe that we add more value by discovering and developing reserves than by acquiring them. Therefore, we support a strong exploration team and back it with the best technology available. It is also critical that we achieve operating excellence. We believe this excellence is founded on good people properly motivated, a principle that our Gold Medal Performance initiative will continue to demonstrate. Finally, we believe in a disciplined approach to investment that commits capital only to projects that have acceptable returns.
Batu Hijau, which marks our return to the copper business for the first time in more than a decade, should generate good cash flow as it demonstrates its operating strength in a rising copper market. Like gold, the copper price is on the road to recovery and has risen 20 percent from year-end 1998. The 20-plus-year project is ramping up toward average annual production of 480,000 ounces of gold and 600 million pounds of copper. Located on the remote island of Sumbawa, Batu Hijau has not been affected by the social unrest that is accompanying Indonesia's progress toward greater democracy. Our commitment to environmental quality, local employment and community development, coupled with Indonesia's commitment to the Contract of Work system, should prove to be mutually beneficial.
As we look back on the past five years, much has been accomplished. Reserves have more than doubled, production has increased 150 percent and total production costs have been reduced $31 an ounce. We have strengthened our core asset base in Nevada with the acquisition of Santa Fe Pacific Gold, developed Yanacocha in Peru into into the largest gold mine in South America, proven our ability to operate successfully in the former Soviet Union, in Uzbekistan, and developed two projects in Indonesia. We expect the next five years to be equally rewarding.
We have targeted an increase in production to 4.5 million ounces in 2000, while keeping total cash costs at $175 an ounce.
Looking ahead, expansion of the Gold Quarry pit and development of new underground mines in Nevada will extend the life of operations that account for more than half of our reserves and annual production. Yanacocha will be a 2.5 million-ounce gold producer within a few years and is developing a significant silver reserve. Batu Hijau has the capacity to further increase mill throughput and reduce costs. We expect our success in Uzbekistan will lead to more endeavors there, and our exploration team is confident of finding new districts to add to our long-term growth.
| Zarafshan - Newmont, Uzbekistan |
1999 Production: 543,000 ounces
1999 Reserves: 6.1 million ounces
Newmont's interest: 50%
Gold production at the Zarafshan-Newmont Joint Venture in Uzbekistan rose 45 percent in 1999 to a record 543,000 ounces (271,500 equity ounces), while cash costs declined 22 percent to $ 161 per ounce. The joint venture, which began operation in 1995, reached a milestone in October, when it poured its fiftieth tonne (1,607,550 ounces) of gold. Newmont has a 50 percent interest in the project, with two agencies of the Uzbek government holding 25 percent each.
The four-stage crushing and heap leach operation extracts gold from low-grade stockpiles mined over the past 33 years from the adjacent Muruntau pit, the largest open pit gold mine in the world. Fifteen million tons of ore were placed on leach pads in 1999.
| Other operations world wide |
 Nevada
1999 Production: 2.5 million ounces
1999 Reserves: 28 million ounces
Newmont's interest: 100%
Minera Yanacocha, Peru
1999 Pruction: 1.66 million ounces
1999 Reserves: 32.9 million ounces of gold and 356 million ounces of silver
Newmont's interest: 51.35%
Batu Hijau, Indonesia
Initial Production in late 1999
1999 Reserves: 10.5 billion pounds of copper and 11.8 million ounces of gold
Newmont's economic interest: 56.25%
Minahasa, Indonesia
1999 Production: 344,000 ounces
1999 Reserves: 1.1 million ounces
Newmont's economic interest: 95%
Mesquite, California
1999 Production: 165,000 ounces
1999 Reserves: 488,000 ounces
Newmont's interest: 100%
La Herradura, Mexico
1999 Production: 91,000 ounces
1999 Reserves: 1.5 million ounces
Newmont's interest: 44% |
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© World INvestment NEws, 2001.
This is the electronic edition of the special country report on Uzbekistan published in Forbes Global Magazine.
August 6th, 2001 Issue.
Developed by AgeniaE.Tv |
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