Newmont Corporation (NEM) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and thank you for all coming. As Jackie said, my name is Tom Palmer, and I'm the President and Chief Executive Officer at Newmont. By way of some background, I grew up in a mining family in Australia, and I'm the fourth generation of my family to work in mining. Over the course of my career, I've lived and worked in mining communities across the globe, including Australia, South Africa, Indonesia and the U.S. Before I joined Newmont, I spent more than 2 decades with Rio Tinto and most recently served as Newmont's Chief Operating Officer. 2019 was a transformational year for Newmont with the completion of 2 once-a-generation transactions that have established a stable and balanced foundation of world-class assets located in top-tier jurisdictions. It is from that foundation that we are focused on continuously improving every aspect of Newmont to be the clear gold industry leader in value creation and responsible business leadership. As Newmont enters its centenary year, I am deeply honored to serve as only the 10th CEO in our company's long history. And as we enter our 100th year, I'm as excited as I am honored to share our vision of Newmont's future with you. So before I start, I'll point out our cautionary statement shown here on Slide 2 and then step forward to look at some of Newmont's future. As the world's leading gold company, our shareholders now have exposure to a 100 million ounce reserve base, plus an additional 63 million ounces of gold equivalent reserves from other metals. These reserves sustain our portfolio of 12 managed operations and 2 joint ventures. Over 90% of our mines are located in top-tier jurisdictions, 8 of which are world-class assets producing over 5,000 ounces per annum, with all-in sustaining costs less than $900 per ounce. Each of our world-class assets have a reserve life in excess of 10 years, and all are located in countries classified in the A and B ratings ranges by Moody's, S&P and Fitch. As I will discuss in more detail later, we have reshaped our portfolio to a stable 6 million to 7 million ounces of gold per year for the next decade plus an additional 1.2 million to 1.4 million gold equivalent ounces from other metals. We have also repositioned our portfolio to benefit from a cost base that will steadily decline to a stable $800 to $900 per ounce by 2023, supported by our Full Potential program that has delivered over $2.7 billion in savings and efficiencies to date. We believe that mining companies must constantly work to improve environmental, social and governance standards and performance. Whilst we have many areas that we are striving to improve our ESG performance, we are working from a strong foundation and a history of responsible business practices. Last year, Newmont was recognized as the #1 ranked gold company in the Dow Jones Sustainability Index and in the Corporate Human Rights Index. We were also ranked third most transparent company in the entire S&P 500. Whilst we are proud of the recognition, we also know that we must remain vigilant in our efforts to keep raising our ESG standards and performance. Similarly, we remain intensely focused on continuously improving our ability to generate free cash flow and returns for our shareholders. And like our ESG platform, we have created a solid foundational pipeline of new opportunities to generate superior internal rates of return for our owners, with an average IRR of over 30% diluted from our last 10 development projects. We have positioned our portfolio of 12 operations and 2 joint ventures to deliver superior free cash flow, with over $400 million of incremental free cash flow generated for every $100 increase in gold price. From our ability to generate substantial free cash flow comes the capacity to deliver superior cash returns to our shareholders while strengthening our investment-grade balance sheet and continuing to invest $600 million to $700 million per year in our highest returning projects. Earlier this year, we announced a 79% increase in our regular dividend to $1 per share, offering our shareholders a highly competitive yield amongst the S&P 500. Late last year, we also announced a $1 billion share buyback program, reflecting our confidence in our business and the substantial unrecognized value upside in our portfolio. It is from the stable foundation I've just shared with you that we are focused on strengthening our position as the world's leading gold company. To guide us in our journey of continuous improvement, we have built our strategy based on the 5 foundational principles: keeping our people safe with a relentless commitment to our safety culture and systems; growing margins through a rigorous application of operating, technical and exploration discipline; leveraging our leading exploration program to grow our reserves and resources; optimizing our project pipeline of world-class assets in top-tier jurisdictions; and maintaining our discipline around capital allocation. And with that, I'd like to turn to the next slide to discuss our first foundational strategic principle, safety. As a company, and quite frankly, as a mining industry, we have an unacceptable safety record. Over the last 25 years, we have made significant progress improving our safety performance with most mining companies able to show an improvement in personal injury rates similar to Newmont's. In this measure, Newmont ranked as one of the best in the industry. However, we continue to experience fatalities and potential for fatal events and have seen no improvement in our fatality rates over the same period of time. Tragically, the same trend exists across our industry with ICMM member companies experiencing an average of 65 fatalities per year over the last 7 years. The taxonomies that result in fatalities are very different than those that result in a personal injury. And in order to address the fatality cycle, we need to make a significant change in how we operate. Having said that, the fatality risks in mining are very well understood as are the critical controls that need to be in place at all times to manage them. In addition to this, a critical issue that is often a causal factor in many of our potentially fatal events is fatigue, and fatigue is a significant contributor to mental health issues in our industry. As leaders in our industry, it is up to us to create a culture in which fatality risks are sustainably managed at all times. We can do this through our leadership behavior, the systems we put in place and the sharings of lessons learned across our business and across our industry. As part of this work, a key change that we have made at Newmont this year is to step away from using the lagging TRIFR measure in our short-term incentive or bonus programs. Going forward, we will be measured and held accountable for the following metrics: critical control verifications by leaders in the field, targeting key risk areas and times; implementation of fatigue, risk reduction action plans; potentially fatal event frequency rates; and repeat critical control failures in potentially fatal events. And I encourage management teams and boards in our industry to follow our lead and shift the focus away from personal injury rates to the measures that will lead to the creation of an injury, fatality and illness-free environment in our industry. Turning to Slide 5. I want to talk a little bit more about our focus on continuously strengthening our responsible business practices. In addition to safety, Newmont is committed to being a partner to the communities and stakeholders we serve through sound and leading ESG practices. In 2019, we achieved our public ESG targets and are working to establish our 2020 targets based on our new portfolio. With the recognition we have received comes a responsibility to openly share our targets. In the area of water management, we established and met a target of a 5% reduction in freshwater consumption over the past 3 years. We also established in a meeting a 7-year target to reduce our greenhouse gas emissions by 16.5% by 2020. In addition to these targets, we have fulfilled 90% of our planned reclamation activities to date and 100% of our local employment targets. As I noted earlier, from this foundation, we remain committed to raising our own standards of performance and are providing industry leadership in the areas of environmental stewardship, social responsibility and community engagement as well as fully transparent governance. Now I'd like to move to the next slide to talk about the promises we made last year and what we have delivered so far. With the completion of 2 historic transactions last year, we added substantial reserves across our top-tier gold jurisdictions. We committed to optimizing our portfolio to profitably produce between 6 million and 7 million ounces of gold per year over the next decade. We committed to provide our shareholders with the largest reserve base in the world's top-tier gold mining jurisdictions. We have done that with our 100 million ounce gold reserve base, of which 88% comes from the Americas and Australia. We committed to completing 4 projects on 4 continents. We did that, delivering each on time and within budget as well as recently approving full funds for our next expansion at Tanami. We committed to maintaining and strengthening our balance sheet. We did that by taking advantage of an industry low refinancing, reduced our net debt-to-EBITDA ratio to 1.2x and are on track to meet our optimal target of 1x this year. We committed to delivering higher free cash flow through cost and efficiency improvements. To date, we have generated more than $2.7 billion in value through Full Potential. And we are aggressively applying all of this knowledge and experience to Peñasquito, Cerro Negro and our 3 new mines in Canada, identifying over $240 million in value through Full Potential from these mines already. We committed to deliver $365 million per year in synergies by the end of 2021. I'm very pleased to say we are well on track to substantially exceed that commitment by nearly 40%. We now expect to realize $500 million of cash flow improvements in 2021 through accelerating G&A and exploration synergies, along with higher than planned Full Potential improvements at Peñasquito and Cerro Negro. This year alone, we'll deliver $340 million in cash flow improvements from that work, representing over 90% of the commitment that we made. We delivered on our commitment to maintain a disciplined approach to capital allocation. In January, we announced a 79% increase in our annualized dividend to $1 per share beginning in April this year. And last year, we also returned an unprecedented $1.4 billion to shareholders, with $900 million in dividends and $500 million in share buybacks executed so far. Now I'd like to turn to the next slide to talk a bit more about our capital allocation philosophy and the free cash flow that we generate. As I've mentioned, our top capital priorities include maintaining and strengthening our investment-grade balance sheet, growing our margins and our reserves and resources through disciplined investment in our highest returning projects and returning excess cash to shareholders. We have one of the strongest balance sheets in the gold sector with more than $5 billion in liquidity and manageable debt maturities with a weighted average cost of debt around 4.5%. Added to our balance sheet strength, we expect to generate substantial free cash flow through the gold price cycle. For every $100 increase in gold price above our base assumption, Newmont delivers over $400 million in incremental free cash flow per year. Using our conservative $1,200 gold price planning assumption, our free cash flow would still total approximately $5 billion over the next 5 years. At current gold prices, our portfolio would generate more than $13 billion of free cash flow over the same 5-year time frame. As we continue to develop our industry-leading project pipeline, we expect to invest a steady $600 million to $700 million per year in development capital. The excess free cash flow we generate will be used to reduce our outstanding debt and return further value to shareholders. Now I'd like to turn to the next slide to highlight our production outlook over the next decade. Here, you can see our stable production profile of more than 6 million ounces of gold for the next 10 years, building off our leading exploration program and project pipeline. This profile is further enhanced by over $1.5 billion per year in additional revenue from gold equivalent ounces. In addition to this, we remain intensely focused on improving our cost base. Our all-in sustaining costs are expected to improve from $975 an ounce this year to $850 an ounce in 2023. Now I'd like to share with you how Newmont looks at its global portfolio of mines. Among our 12 operating mines and 2 joint ventures, we offer our shareholders an unmatched 8 world-class assets, each of which delivers more than 500,000 ounces of consolidated production per year and all-in sustaining costs less than $900 per gold equivalent ounce and each with a mine life that exceeds 10 years. Importantly, all are located in top-tier jurisdictions, that is countries classified in the A and B rating range by each of Moody's, S&P and Fitch. In addition to our 8 existing world-class assets, Newmont has 2 emerging world-class assets in Yanacocha Sulfides in Peru and our Merian mine in Suriname. Each of these emerging assets within our portfolio offers substantial upside through further optimization and development over the coming years. Moving to Slide 10 to have a closer look at each of our world-class assets. Starting with Boddington. We recently announced that our Board of Directors approved the conversion to autonomous haulage of Boddington, making it the first autonomous gold mine in the world. At Tanami, we produced a record 500,000 ounces at $725 an ounce AISC last year. And we expect this world-class mine to continue to create substantial value for our shareholders for many years to come. At our Ahafo complex in Ghana, we recently completed our mill expansion and produced over 645,000 ounces at an AISC of $820 an ounce last year. The entirety of our Ahafo mines processing facilities represents a truly world-class asset. And at Peñasquito, our operating team remains firmly focused on optimizing the operation and generating substantial cost and efficiency improvements through Full Potential. We have already generated over $50 million in quick wins through the aggressive application of Full Potential, and we expect to generate at least another $100 million in additional value through cost efficiency and optimization improvements through next year. Newmont shareholders also benefit from exposure to our interest in the Pueblo Viejo joint venture in the Dominican Republic and in Nevada Gold Mine's joint venture, which hosts 3 world-class mines at Turquoise Ridge, Carlin and Cortez. Turning to Slide 11 for a closer look at our leading reserve profile. Exploration has and always will be our core competency and an investment priority for Newmont, and it serves as the foundation for growing our reserve and resource base. Earlier this month, we reported the industry's largest gold reserves of 100 million ounces in 2019 with 88% located in the Americas and Australia. This offers Newmont shareholders exposure to 124 gold reserve ounces per 1,000 shares. Our reserve base also provides significant exposure to copper, silver, zinc and lead, representing an additional 63 million gold equivalent ounces of reserves. Newmont offers substantial future potential value through our resource base. And earlier this month, we reported measured and indicated gold resources of nearly 77 million ounces. Through ongoing disciplined exploration, our combined reserves and resources will generate decades of stable gold production and cash flow generation. So in summary, Newmont has a long and proud legacy of safety leadership, ESG stewardship, developing the industry's best talent and focusing on operating discipline and profitable growth. From this foundation, we remain focused on continuously improving our ability to deliver differentiated, superior and sustainable shareholder returns. We will do this by developing our people, optimizing our assets, bringing on our best projects, exploring our most prospective properties and strengthening our balance sheet. As we head into our centenary year, Newmont is well positioned to generate increasing value for many decades to come. I'd like to thank you for your time. And Jackie, open the floor up for questions.

We'll start with any questions if there are any on the floor? I think given that you've recently taken over the CEO helm in October, maybe a good question to start with, Tom, would be how do you see your view of the company and your plan for the company going forward as maybe being similar or different to Gary Goldberg and where you started out with the company?

Thanks, Jackie. One of the benefits of having a robust governance process at Newmont and an independent Board is we spend a lot of time talking about succession, not just for the CEO role but for key leadership roles throughout our organization. So I was part of a process with our Board at Newmont that was a 4-year process. It started with me coming into the Chief Operating Officer role, which is seen as the role that feeds into the CEO role. So there's 4 years for me in that role for me to work with the Board and for them to make some judgments and assessments about me as Gary's successor. I mean I had an intensive process over the previous 2 years to put me through a number of different assessments to validate their judgment. So a very robust process takes place at Newmont. And one of the things that comes with a robust governance process and an internal succession plan is that we can stay the course with our strategy. So the Newmont strategy that's delivered significant value over the last 6 or 7 years will be the same Newmont strategy that we will take forward. And as I've described in our presentation today, the difference will be that my personality is different from Gary Goldberg. So the style of leadership and the way I lead my team to deliver value in the context of that consistent strategy will be different.

Thanks very much. We do have one on the app where I'll go to next. You mentioned Merian as a world-class asset. Do you have any comments or views on the Esperance asset across the border in French Guiana? Is it a lookalike to Merian? And when might the market expect an update on that asset?

Yes. We're -- they are really just across the river from each other, Merian and Esperance. So it's quite an arbitrary border between Suriname or French Guiana. So here around Merian, we've got great exploration potential in Suriname, which is our focus in terms of bringing Merian as an emerging world-class asset into our portfolio. And then it's early days for exploration at Esperance and in French Guiana, but it's the same country. So we're seeing some very similar things to what we saw at Merian. So early days but pretty excited about what we're seeing.

Are there any questions on the floor? I have another one on the app. Following the Goldcorp acquisition in 2019, is your focus on organic growth or further acquisitions? And maybe if we could put the poll results up because that will be relevant to that question to see what people want you to focus on. It's not too different from Barrick, actually, in terms of the preference being for a dividend.

What we have as a result of the transactions last year is an organic pipeline that's second to none in the industry. So underpinning that 10-year production profile I've put up is the ability for us to convert known inventory to resource to reserve and to implement the Tanami 2 expansion, Ahafo North and Yanacocha Sulfides through the course of this decade. Then we have sitting in our project pipeline a number of projects and 3 very significant projects in Nueva Union, Norte Abierto, and Galore Creek that we'll look to work with our joint venture partners to shepherd through at the right pace. So we have within our pipeline the ability to generate through organic growth a production profile that goes well beyond 2030 at current levels. Having said that, if the right opportunity came along, particularly an opportunity that met our definition of a world-class asset, we have an operating model that is scalable, and we have the financial flexibility to pursue that. But our focus is going to be on delivering value from our existing set of operations and to shepherding our organic pipeline through.