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Derivative Instruments
 9 Months Ended
Sep. 30, 2013
Derivative Instruments [Abstract]  
DERIVATIVE INSTRUMENTS

NOTE 15    DERIVATIVE INSTRUMENTS

The Company's strategy is to provide shareholders with leverage to changes in gold and copper prices by selling its production at spot market prices. Consequently, the Company does not hedge its gold and copper sales. The Company continues to manage certain risks associated with commodity input costs, interest rates and foreign currencies using the derivative market. All of the derivative instruments described below were transacted for risk management purposes and qualify as cash flow hedges.

Cash Flow Hedges

The foreign currency, diesel and forward starting swap contracts are designated as cash flow hedges, and as such, the effective portion of unrealized changes in market value have been recorded in Accumulated other comprehensive income(loss) and are reclassified to earnings during the period in which the hedged transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings.

Foreign Currency Contracts

 

Newmont utilizes foreign currency contracts to reduce the variability of the US dollar amount of forecasted foreign currency expenditures caused by changes in exchange rates. Newmont hedges a portion of the Company's A$ and NZ$ denominated operating expenditures which results in a blended rate realized each period. The hedging instruments are fixed forward contracts with expiration dates ranging up to five years from the date of issue. The principal hedging objective is reduction in the volatility of realized period-on-period $/A$ and $/NZ$ rates, respectively.

 

Newmont had the following foreign currency derivative contracts outstanding at September 30, 2013:

    Expected Maturity Date 
                Total/ 
    2013 2014 2015 2016 2017 2018 Average 
 A$ Operating Fixed Forward Contracts:                       
  A$ notional (millions)    323  1,118  848  564  273  44  3,170 
  Average rate ($/A$)    0.95  0.93  0.92  0.92  0.91  0.89  0.93 
  Expected hedge ratio  87% 71% 55% 37% 18% 7%   
 NZ$ Operating Fixed Forward Contracts:                       
  NZ$ notional (millions)    22  59  14  -  -  -  95 
  Average rate ($/NZ$)    0.80  0.80  0.77  -  -  -  0.80 
  Expected hedge ratio  73% 54% 16% -  -  -    

In order to reduce derivative exposure to a lower Australian dollar, in October 2013 the Company began closing out certain foreign currency contracts. As of October 25, 2013 the Company settled approximately A$2,100 in notional contracts for a net gain of approximately $46. These gains will be held in Other Comprehensive Income “OCI” as the hedged transactions, A$ denominated operating costs, are still probable of occurring over the original time period.  The amount deferred in OCI will be recognized in earnings over a period of five years as the original hedge transactions occur. From time to time and depending upon business considerations and market conditions, the Company may consider closing out additional Australian dollar hedging contracts, or conversely, may enter into new Australian dollar hedging contracts.

 

Diesel Fixed Forward Contracts

Newmont hedges a portion of its operating cost exposure related to diesel consumed at its Nevada operations to reduce the variability in realized diesel prices. The hedging instruments consist of a series of financially settled fixed forward contracts with expiration dates up to three years.

Newmont had the following diesel derivative contracts outstanding at September 30, 2013:

 

    Expected Maturity Date 
              Total/ 
    2013 2014 2015 2016  Average 
 Diesel Fixed Forward Contracts:                  
  Diesel gallons (millions)    7  24  13  3   47 
  Average rate ($/gallon)    2.90  2.87  2.77  2.69   2.84 
  Expected hedge ratio  70% 62% 33% 10%    

Forward Starting Swap Contracts

During 2011, Newmont entered into forward starting interest rate swap contracts with a total notional value of $2,000. These contracts hedged movements in treasury rates related to a debt issuance that occurred in the first quarter of 2012. On March 8, 2012, Newmont closed its sale of $2,500 senior notes consisting of 3.5% senior notes due 2022 in the principal amount of $1,500 (10-year notes), and 4.875% senior notes due 2042 in the principal amount of $1,000 (30-year notes). As a result, the forward-starting interest rate swaps were settled for $362, of which $349 represented the effective portion of the hedging instrument included in Accumulated other comprehensive income (loss). The net proceeds from the debt issuance were adjusted by the settlement amount of the swap contracts and included as a financing activity in the Condensed Consolidated Statements of Cash Flow.

Derivative Instrument Fair Values

Newmont had the following derivative instruments designated as hedges at September 30, 2013 and December 31, 2012:

   Fair Value 
   At September 30, 2013 
   Other Current Assets Other Long-Term Assets Other Current Liabilities Other Long-Term Liabilities 
 Foreign currency exchange contracts:            
  A$ operating fixed forwards  $26 $18 $42 $84 
  NZ$ operating fixed forwards 2  -  -  - 
 Diesel fixed forwards 1  -  1  1 
 Total derivative instruments (Notes 19 and 21)$29 $18 $43 $85 
               
   Fair Value 
   At December 31, 2012 
   Other Current Assets Other Long-Term Assets Other Current Liabilities Other Long-Term Liabilities 
 Foreign currency exchange contracts:            
  A$ operating fixed forwards  $108  143  -  1 
  NZ$ operating fixed forwards   2  -  -  - 
 Diesel fixed forwards 2  1  1  1 
 Total derivative instruments (Notes 19 and 21)$112 $144 $1 $2 

The following tables show the location and amount of gains (losses) reported in the Company's Condensed Consolidated Financial Statements related to the Company's cash flow hedges.

   Foreign Currency Diesel Forward  Forward Starting
   Exchange ContractsContracts Swap Contracts
   2013 2012 2013 2012 2013 2012
 For the three months ended September 30,                 
 Cash flow hedging relationships:                 
  Gain recognized in other comprehensive income (loss) (effective portion)  $77 $70 $3 $14 $- $-
  Gain (loss) reclassified from Accumulated other comprehensive income into income (loss) (effective portion) (1)   8  40  1  2  (5)  (3)
                    
 For the nine months ended September 30,                 
 Cash flow hedging relationships:                 
  Gain (loss) recognized in other comprehensive income (loss) (effective portion)  $(291) $156 $(1) $10 $- $36
  Gain (loss) reclassified from Accumulated other comprehensive income into income (loss) (effective portion) (1)   68  125  1  6  (14)  (7)
  Gain reclassified from Accumulated other comprehensive income into income (loss) (ineffective portion) (2)   -  -  0  -  -  2

(1) The gain (loss) recognized for the effective portion of cash flow hedges is included in Cost Applicable to Sales, Write-downs and Interest expense, net.

(2) The ineffective portion recognized for cash flow hedges is included in Other income, net.

 

The amount to be reclassified from Accumulated other comprehensive income(loss), net of tax to income for derivative instruments during the next 12 months is a loss of approximately $22.

 

Provisional Copper and Gold Sales

 

The Company's provisional copper and gold sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the gold and copper concentrates at the prevailing indices' prices at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is marked to market through earnings each period prior to final settlement.

 

London Metal Exchange (“LME”) copper prices averaged $3.21 per pound during the three months ended September 30, 2013, compared with the Company's recorded average provisional price of $3.16 per pound before mark-to-market adjustments and treatment and refining charges. LME copper prices averaged $3.35 per pound during the nine months ended September 30, 2013, compared with the Company's recorded average provisional price of $3.30 per pound before mark-to-market adjustments and treatment and refining charges. During the three and nine months ended September 30, 2013, changes in copper prices resulted in a provisional pricing mark-to-market gains of $14 ($0.25 per pound) and loss of $10 ($0.06 per pound), respectively. At September 30, 2013, Newmont had copper sales of 59 million pounds priced at an average of $3.31 per pound, subject to final pricing over the next several months.

 

The average London P.M. fix for gold was $1,326 per ounce during the three months ended September 30, 2013, compared with the Company's recorded average provisional price of $1,330 per ounce before mark-to-market adjustments and treatment and refining charges. The average London P.M. fix for gold was $1,456 per ounce during the nine months ended September 30, 2013, compared to the Company's recorded average provisional price of $1,452 per ounce before mark-to-market adjustments and treatment and refining charges. During the three and nine months ended September 30, 2013, changes in gold prices resulted in a provisional pricing mark-to-market gains of $9 ($6 per ounce) and loss of $13 ($3 per ounce), respectively. At September 30, 2013, Newmont had gold sales of 50,000 ounces priced at an average of $1,327 per ounce, subject to final pricing over the next several months.