Newmont Corporation — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning, and welcome to Newmont's First Quarter 2024 Earnings Call. [Operator Instructions] Please note, the event is being recorded.
Thank you, operator. Good morning, everyone, and thank you for joining our call. Today, I'm joined by my executive leadership team, including Natascha Viljoen and Karyn Overman and will all be available to answer your questions at the end of the call. Can I please ask you to note our cautionary statement and refer to our SEC filings, which can be found on our website.
Thank you, Tom, and good morning, everyone. After the loss of our colleagues at Ahafo North and Cerro Negro, Tom and I have spent time at these 2 sites. And with the project operational and investigations teams to get a firsthand understanding of the incidents to inform our global response to address our safety performance. In addition to Ahafo North and Cerro Negro, I had the privilege of visiting 5 of our 6 managed Tier 1 operations and spend time with our colleagues at Boddington, Penasquito, Akyem, Ahafo and Lihir as well as Yanacocha and Merian.
Thank you Natascha. Let's get started with a review of the financial highlights for the quarter. Newmont delivered solid first quarter earnings, driven by strong production volumes and favorable metal prices. And as a reminder, results included only 2 months of our equity investment in Lundin Gold, which is accounted for 1 quarter in arrears.
Thanks, Karyn. In closing, and as we look ahead to our priorities for the year, I'd like to reiterate our focus areas and key commitments. First, we will reinvigorate our established safety program and continue to strengthen Newmont's position as the gold industry's recognized sustainability leaders.
[Operator Instructions] Our first question comes from Lawson Winder of Bank of America.
Very nice quarterly results, and thanks for the update today. Can I start off by asking about asset sales. First of all, congratulations on realizing value from the sale of the lending stream and offtake. But with respect to that, first of all, when you receive that, when would you receive that cash, first of all?
I'll pick up the second part of your question and get Karyn to pick up the first in terms of the use of the proceeds from the Lundin transaction. So 6 high-quality non-core assets that are now held for divestment. So we've moved into that accounting classification, as Karyn talked to.
Yes. In terms of the use of proceeds, so the first payment second quarter, the second payment in the third quarter. Our capital allocation priorities are consistent as I discussed in my prepared remarks. And as we've indicated through 2024, the beginning part of the year, we will be drawing that cash as we go through the year. And so the first proceeds would be used to kind of replenish those cash balances as we go forward.
Our next question comes from Tanya Jakusconek of Scotiabank.
Natascha I wanted to ask you just on the year on the GEO side, you gave us the 47-53 on the gold front. Can you give us some guidance on the other metals, maybe just on the GEOs, how they progress at the year and particularly at Penasquito, please.
Tanya, thank you for that question. I think starting off just broadly -- we will see -- we see higher contribution from Penasquito on GEO this year because we are with -- we are mining predominantly in the Chile Colorado pit that we know is higher in GEOs. If we look at our GEO production across the last 4 quarters, we will see that the GEO collection for silver would be around 9 million ounces a quarter in the order of about 28 million ounces or lead -- sorry, 29,000 tonnes and 58,000 tonnes of zinc across the 4 quarters.
Just chipping in there, Tanya the -- getting the sort of coming out of Chile Colorado for the fourth quarter and the hit-back in Penasco, pretty flat on silver and lead, probably that's just a little bit more zinc maybe in the fourth quarter.
Okay. No that's helpful.
Copper is pretty steady through the year. Copper is pretty steady, Tanya, sorry.
And could I ask just still on the operational side, Natascha, you mentioned Lihir maintenance in Q3. Are there any other big maintenance that we should be aware of in your portfolio, particularly Nevada Gold Mines, Pueblo Viejo, Cadia?
The only other areas would be Ahafo South we will be replacing the girth here, as I mentioned in the prepared comments and that will happen now in the second quarter. And then after that, we should see a ramp up back to normal production levels for Ahafo. You might remember Tanya we did say that we've reduced production out of Ahafo to make sure that we see the 2 mill streams running, but that will then return to normal production rates after that shut.
Okay. That's very helpful. And then just finally on operations, and I'll leave it with someone else to ask. Just interested in as you -- the costs were quite good in Q1, even with the lower production level that you are going to expect better production going through the year. Anything on the inflationary front that you could flag for us any easing that you're seeing? Anything that you're seeing some benefits on?
We've certainly seen some easing in 3 areas. We've seen it in contractor costs, diesel and explosives. But then we've also seen some increase in our scalable cost related to steel price and being also cyanide costs. The other x actor would probably energy in certain areas, we see a reduction in energy. That is, I think, quite surprising for us from 2023.
And just a reminder [indiscernible] cost too. [indiscernible] cost is labor, and that's been pretty flat.
Yes.
So just as I understood because it faded in and out, and I apologize for that. Just on where you're seeing reductions or easing is in contractor costs diesel and some consumables and energy? Is that a correct statement?
Explosives specifically. And then the overall labor cost staying flat for own labor, that's about 50% of our cost makeup.
Our next question comes from Josh Wolfson of RBC Capital Markets.
The team has painted a fairly rosy picture here on what the prospects are for asset dispositions -- and then also what the free cash flow outlook will look like absent some of these working capital headwinds. In that context, I'm wondering how flexible is the company's buyback policy -- and I'm noticing the stock being a lot higher today than it was when the plans were announced for this at the fourth quarter results.
Thanks, Josh. Yes. As we go through the divestitures and as I've indicated, as our free cash flow picks up in the second half of the year. First priority is to ensure that we've got that -- our cash replenished on our balance sheet. And then there will be flexibility in terms of -- as long as we have line of sight in terms of debt reduction over the next 24 months, we would -- at that point in time, if we were in a position to start to think about executing on share buybacks.
As a reminder, Josh, we've got an approved $1 billion buyback program ready to go if and when that scenario, Karyn maps out takes place.
Okay. And then just sort of to clarify, when I look at even what a flat quarter would look like at much higher gold prices today. And again, without some of the larger working capital challenges, even maybe 1 or 2 of these asset dispositions would put you in line of sight of that.
Yes. The expectations for the divestitures is that those will be executed within the next 12 months, hence, the conspiration on the balance sheet as assets held for sale. So expectation is through first quarter of 2025 that we will have executed or made decisions around the divestitures. And so the timing has continued upon that.
Okay. And then sorry, just 1 question, if I can sneak in. I noticed the book value for the assets that are held for sale is $5.7 billion, which is quite a large number as compared to the $2 billion targeted. Any sort of comments there on how we should think about pricing or what the targets are effectively?
No, not necessarily. I think from an accounting convention perspective and how they're reported from a GAAP perspective, will be obviously considered, I would assume by potential buyers, but in essence, the process of going through the commercial view of the assets and the value to the potential buyers that will produce something most likely different, whether it's up or down and associate versus what is recorded on our book from a GAAP perspective.
Our next question comes from Jackie Przybylowski of BMO Capital Markets.
Maybe I'll ask the first question on the full potential program. So I had the privilege of visiting Penasquito in March and definitely the team did a great job of outlining how the full potential program has benefited there. .
Yes. Jackie. I'll kick off and Natascha you might want to build on that a little bit degearing in there as well, and I want to chip in as well. We're further -- most advanced at Lihir and Lihir was where we saw the most opportunity, which is why we jumped into the -- literally on day 1. 3 main productivity and cost opportunities at Lihir. The 1 I mentioned in the prepared remarks, it's really around consistent for the so that you can manage and address materials handling.
No, I think that was a really comprehensive answer.
Hopefully, Jackie, that gives you some sense of the excitement we have seen behind full potential and the confidence we have in that run rate through the end of this year, the run rate to the end of next year, why we've gone after the upside on top of that $500 million.
And that was a super-helpful answer. And maybe if I can ask a second question. Just going back to your divestment strategy, I know you have a number of assets that you're looking to sell in Canada specifically, but also, I guess, globally as well. Can you comment at all? Like do you have a preference of selling that that's in groups or bundles? Or are they all expected to be sold individually to different buyers? I don't know if you can make any comments on just how you're thinking about that?
Thanks, Jackie. As I mentioned in an earlier question. The process has started in all 6 assets. So we have engaged banks and are starting to process on all 6 assets. and we're in the process of price discovery through Phase 1, so an active interest. So we are getting a good feel for the level of interest in these assets and the competitive environment that we're hoping to enjoy.
Our next question comes from Mike Parkin of National Bank.
Just looking for a bit of additional color with Yanacocha and the water treatment plants. This might be a bit old, but -- just looking for what's the main driver there doing the 2 new plants versus the 5 existing one? Is it capacity or just the old ones don't have the technology kind of need to have been commented there.
Mike, it is both capacity and technology. So just to paint a picture for you, we've been operating a mine in the oxide ore at Yanacocha for the better part of the last 30 years and disturbed at the top of the Andes an area that is equivalent of 3/4 of Manhattan to give you a sense of the scale of the disturbed land at the top of Andes, significant rainfall every year and a watershed right into both the Atlantic and the Pacific Oceans.
And the cost of those, I get -- that's all kind of flowing through this year and next year. Is that in your capital budget? Or is that running through the income statement? You normally have the...
Sorry, Mike, I'll build on this. [indiscernible] capital or a sustaining capital.
That's correct. It's accrued on our balance sheet as a liability. And you'll see that the $600 million that we expect to spend in 2024 is considered a current liability, but that you will not see that, as Tom indicated, flowing through sustaining or development capital.
Okay. So is it more working capital changes as the current liability drops down?
Yes. Consistent with the first quarter, you'll see that flow through working capital.
Our next question comes from Anita Soni of CIBC.
Just a little bit of a follow-on to what Mike has just asked. So with Yanacocha, originally, you guys took the provision of $2 billion, and it was basically the cost of treating this water in perpetuity. So at least that's what I -- that's what we understood or that you previously talked about.
Soni, in terms of the provisions that we've had in our closure liabilities. That's all been there. So there's no new information there that's fully accounted for in terms of our closure liabilities for Yanacocha. And as part of that, there's always been the spend to build the water treatment plants, which takes place over '24, '25 to '26.
So what's that total closure liability now then?
For Yanacocha is sitting at -- just looking at my number, it is sitting at about $4.8 billion. But in the -- sorry, the liability pass across to Karyn to cover the liability rather than me trying to pedal the balance sheet.
Yes. It's just Thomas referred to, the total reclamation and remediation liabilities is around $6.6 billion. But for Yanacocha, it is the $1.7 billion that has been accrued for on our balance sheet.
Sorry. what are [indiscernible]...
Yes, for the water treatment plant, Anita, so this Yanacocha has a bunch of other closure activities. You've got to reshape the reshape leach pads and waste dumps and tailings facilities. So water treatment is comparative to that, the total closure liability for Yanacocha it's $4.8 billion.
Okay. Got it. And then you mentioned it's taking place at over '24, '25 and then '26? Can you tell us what the number that we would see in working capital outflow in '26 would be.
Yes. So as I indicated in my prepared remarks, the $600 million in terms of '24, peaking at $700 million in 2025 and then starting to come down from there in 2026.
Our final question comes from Daniel Major of UBS.
Sorry, I'll keep a quick on time. Two questions. One, just on following up on the working capital. and looking at your Slide 10 in the presentation, you've talked at length on the reclamation payments. But can you give us a sense of any other key moving parts we should expect in the coming quarters and where you would expect the net balance change year-on-year to be from a cash working capital perspective, including the stamp duty or excluding it whichever?
Sure. So the only additional stamp duty we'll have is in the third quarter of approximately $30 million. You'll see some additional seasonal changes as we head into second quarter as it relates to cash taxes as well as interest from a cash perspective, those will flow through in the second quarter as well and you'll see higher the reclamation liabilities, the cash outflow associated with that as we go through 2024.
So if you stand now, what would you expect the net change to be over the full year, Bill, in terms of that net build in working capital?
Yes. That really depends on the timing in terms of that as well as, of course, pricing as we go through 2024.
Okay. And then just second one, you talked -- detailed a lot of the progress you've made since the integration in Newcrest. And these kind of deals, I guess, there's always positives and negatives. What's the toughest part, what's been the most challenging or most difficult part of the integration so far?
I'll pick that one up. The things by far away, Daniel, is the tragic loss of Adam Kennedy's life at Brucejack on the 20th of December last year. And as you reflect upon the integration, you reflect upon what things could we have done differently, what decisions could we have made differently that would have effect to Adam being killed that day at Brucejack.
We've had a follow-up question from Anita Soni of CIBC.
Yes. Sorry, I got cut off there before the end of the question. But I was hoping -- I'm assuming that the 2026 spend for Yanacocha water treatment would be $400 million. I think you said it was $1.7 billion just for the buildup of those plants. So you're doing $600 million and then $700 million, so the remainder would be $400 million. Is that correct?
Yes. The expectation is that this will be commissioned in 2027, and there'll be obviously some continued as Tom said, continued approximately around $50 million a year associated with that going forward.
So we certainly see the step up through those 3 years. And then back to -- as best you can predict that far in the future back to the sort of normal long-run levels for closure and reclamation activities.
Okay. I'm going to -- so the second question that I wanted to ask was about Cerro Negro. So definitely unfortunate that 2 people lost their lives. I did want to ask a little bit about -- does it have anything to do with long-term structural support there? I mean these guys were a gentleman and a lady were within the Mine Technical Services group. So not -- a little bit unexpected for that group for that to happen. So I was just trying to find out if you had any color on that?
Thanks, Anita. I'd ask Natascha to comment.
It's absolutely not structural. So from a geotechnical point of view and from a quality of asset point of view, very high quality and no material geo tech challenges for us this was procedural by nature. So definitely not linked to any long-term predictions.
And as we close out our investigation, we will share those lessons widely with the industry so as we opportune, we will.
This concludes the question-and-answer session. I would like to turn the conference back over to Tom Palmer for closing remarks.
Thank you, operator. Thank you all for your time, and please enjoy the rest of your day. Thanks, everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.