Newmont Corporation (NEM) Earnings Call Transcript & Summary

Good morning, everyone. This is Mike Jalonen of Bank of America Securities. And we're on to our next presentation, which is Newmont Corporation. We're very pleased to have Tom Palmer, President and CEO, here with -- for Newmont. He will speak for 5 to 10 minutes to a few slides, which please you move along yourself. And I want to say good evening to Tom because it is 10:00 p.m. his time in Perth. And good afternoon to our European callers, and good morning to North America. Tom, I'll pass it to you.

Thanks, Mike, and good morning and afternoon, everyone, and thank you all for joining this call. And I hope that wherever you are, you and your families are safe and staying healthy. Before I start, I'll point at our cautionary statement on Slide 2 in the deck that you have. And then move us on to Slide 3. To begin this presentation, I want to spend a little bit of time talking about how we're managing our response to the COVID-19 pandemic from a position of strength. And Newmont's core values of safety, sustainability, integrity, inclusion and responsibility are fundamental to creating long-term value for our investors, host governments, communities and employees. In light of the pandemic, our purpose to create value and improve lives through sustainable and responsible mining is more relevant today than ever before. At Newmont, we have a proven operating model and a very mature crisis management system, which are both guiding how we manage through these times. It is now over 2 months since we fully mobilized our global, regional and site-based rapid response teams and implemented our business continuity plans. And we continue to meet on a very regular basis to manage our response to this pandemic. We are working closely with our host and indigenous communities, regional and national governments and medical experts to ensure we are taking actions to protect our workforce and nearby communities. We've implemented wide range of controls across our operations and offices to put health, safety and well-being of our people and communities above all else. This has included significantly reducing the number of people working at our operating sites as well as closing our offices and implementing remote work arrangements in early March. We have established a global supply chain task force to assess and manage potential risks and develop viable contingency plans. We've established a $20 million global community support fund, which is focused on 3 areas: employee and community health, food security and local economic resilience. We are working in partnership with local governments, medical institutions, charities and nongovernmental organizations to address the greatest needs in and around our operations. And we have committed to maintain pay for all our employees through until at least the end of June to support them and their families and remove short-term uncertainty. Turning now to Slide 4 for a look at our global, diverse portfolio. Within our portfolio of 12 operating mines and 2 joint ventures, we have an unmatched 8 world-class assets, each of which deliver more than 500,000 ounces of consolidated production per year, an all-in sustaining costs of less than $900 per gold equivalent ounce and a mine life that exceeds 10 years. Importantly, particularly in the current context, all are located in top-tier jurisdictions that we define as countries classified in the A and B ratings ranges 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 and Merian. These emerging assets within our portfolio offer substantial upside through further optimization and development over the coming years. Now on to Slide 5, which highlights our production outlook over the next decade. Our stable production profile will generate more than 6 million ounces of gold per year for the next 10 years, underpinned by our world-class assets and further supported by an industry-leading exploration program and organic project pipeline. This profile is further enhanced with over $1.5 billion per year in additional revenue from producing between 1.2 million to 1.4 million gold-equivalent ounces from coproducts, with silver, lead and zinc from Peñasquito and copper from Boddington. Combined, we will deliver nearly 8 million gold equivalent ounces per year, the most of any company in our industry. Turning to our free cash flow generation potential on Slide 6. We expect to generate substantial free cash flow throughout the gold price cycle. To every $100 increase in gold price above our base assumption, Newmont delivers approximately $400 million of incremental attributable free cash flow per year. Using our conservative $1,200 gold price planning assumption, our free cash flow would still total more than $5 billion over the next 5 years. And at current gold prices, our portfolio will generate around $15 billion of free cash flow over the same 5-year time frame. In addition, we have the potential for further upside with tailwinds from favorable oil prices and foreign currency exchange rates. The excess free cash flow we generate will be used to reduce our net debt and provide additional returns to shareholders. Looking forward, we are well positioned to continue executing our capital priorities and staying focused on long-term value creation. Turning to Slide 7 for a look at our recent actions that support industry-leading returns to shareholders. Despite the near-term impacts from the COVID-19 pandemic, Newmont continues to respond from a position of strength, and there has been no change in our industry-leading capital allocation priorities, which include maintaining and strengthening our investment-grade balance sheet, growing our margins through the delivery of our full potential program, which drives incremental cost and efficiency improvements regardless of current gold prices, whilst also growing our reserves and resources through disciplined investment in our highest returning projects and returning excess cash to our shareholders. We ended the first quarter with total liquidity of $6.6 billion, including $3.7 billion of cash on hand and our undrawn and fully available $3 billion revolving credit facility. Our net debt-to-EBITDA ratio improved to 0.7x, and we proactively refinanced $1 billion of debt at an historically low coupon of 2.25%, allowing us to save approximately $17 million in annual interest payments and also improving the profile of our out-year maturity. We have continued to invest in profitable projects, such as Tanami Expansion 2, Musselwhite Materials Handling, and our study work to progress the next wave of profitable production at Ahafo North and Yanacocha Sulfides continues to advance. Newmont remains committed to sustainable shareholder returns across the cycles, and we continue to demonstrate this in the first quarter. In April, we declared a first quarter dividend increase of 79% to $0.25 per share, and we continue to execute on our share buyback program, repurchasing approximately $300 million during the first quarter. Since initiating the program in early December, we have completed 80% of our $1 billion authorization with nearly 19 million shares retired at an average price of $42 per share. Moving to Slide 8 for a review of our performance against our promises. Simply put, Newmont is delivering on its commitments. With world-class assets in top-tier jurisdictions, the gold industry's best production profile of more than 6 million gold ounces per year for the next decade and the industry's largest gold reserve base of 96 million ounces, we are firmly positioned for long-term success. In a little over a year since acquiring Goldcorp, we have already realized significant value. We originally committed $365 million per year in synergies by the end of 2021 but are now on track to realize $500 million of cash flow improvements in 2021, an increase of nearly 40% through accelerating G&A and exploration synergies along with higher-than-planned full potential improvements. It's worth noting that these cash flow improvements do not include our share of synergies from the Nevada Gold Mines joint venture. We have received $1.4 billion in total cash proceeds from the divestment of KCGM, Continental and Red Lake, meeting our target of $1 billion to $1.5 billion. And our commitment to leading shareholder returns remains stronger than ever as we returned our first quarterly dividend of $0.25 per share. Wrapping it all up on Slide 9. Newmont has a long and proud history 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 improving our ability to deliver differentiated, superior and sustainable shareholder returns. We will do this by developing our people, optimizing our assets, delivering our best projects, exploring the most prospective properties and strengthening our balance sheet. And I'm very excited to continue strengthening our position as the world's leading gold company with a workforce and a culture of determination that are second to none. Thank you for your time. And with that, I'll turn it back over to you, Mike.

Thank you, Tom, for the overview. Very comprehensive, and I think you've answered all my 16 questions in your presentation. That's how succinct it is, that was -- just as a reminder for our listeners on the line, if you'd like to send in a question, happy to take it.

Tom, I'll start off with a question first. Just you were appointed CEO of Newmont, October 1, 2019, so congratulations on being at our -- as a CEO at our conference for the first time. We hope we're in Barcelona live in 2021, of course. And -- but I should note you've been at Newmont since March 2014, and in increasingly senior management roles, have over 30 years' experience in the mining sector. But since you've been CEO, has there been any change in the Newmont corporate strategy under your leadership? Or is it just continuing on?

Thanks, Mike, and I certainly hope we can be in Barcelona this time next year. That would be lovely. My appointment to the CEO role was really the product of a robust governance process that's run by an Independent Board, and we have, as part of that Board, a very strong Leadership Development and Compensation Committee chaired by Ronee Hagen. And our Board and that committee put a lot of time in internal succession planning and following up and holding management accountable for that succession planning. That -- the CEO role, that goes very deep into our organization. When you've got that process in place, that leads to continuity in an organization, and the strategy that the Board develops with management is also able to remain continuous as you have a change in leader. I've been part -- as you flagged, I've been part of the senior leadership team at Newmont now for over 6 years, in fact, over 6 years before I moved into the CEO role. So I've been an active member in working with that senior leadership team and the Board in developing and implementing that strategy. So consequently, it remains consistent as I move into this role. And there are really 5 foundational principles that underpin our strategy. It's, first and foremost, keeping our people safe with a relentless commitment on our safety culture and our systems. It's working to grow our margins through the continued application of our operating, technical and financial discipline. It's leveraging our exploration program to grow our reserves and resources. It's optimizing a world-class project pipeline, and then it's maintaining our discipline around the allocation of capital to generate returns across the cycle. So those 5 foundational elements remain the same as the baton changes from Gary to me, and I suspect, as I ultimately move on the baton changes from me to my successor. And my discussions with the Board have already started on that process. That process, the discussion around talent development in an organization is a continuous discussion that's taking place in our organization.

Okay. You mentioned in your presentation, you've had a lot of major accomplishments, you and your team, since you became CEO, and even before that, like you mentioned, you're part of the senior leadership team. In the next year or so, what would be -- you'd like to see completed at Newmont, projects moving to the development stage, things like that?

Yes. Thanks, Mike. I think one of the things that I'm probably most proud about that we don't tend to talk about in a lot of our investor briefings is the senior leadership team that we have assembled at Newmont. And in my over 30 years in mining, it's easily the strongest and deepest team that I've worked with. And the combination of that and the work that we did during the early part of this year to simplify and strengthen our Board has really put us in a strong position as we enter into this year. Looking forward, one of the most pressing issues on my agenda and I think one of the things that I'm looking to ensure that we maximize the benefit from is our response to this COVID-19 pandemic and how we work to protect our people, our neighboring communities and our business from that pandemic, but more importantly, how we come through and out the other side of the pandemic having learned the lessons of going through what is unprecedented for our industry, for the globe, and come through and out the other side as a stronger, efficient and more effective business. And amongst that, some of the key things that we'll be working on this year is continuing to deliver on our promises. I'm very keen to get Peñasquito back up and running. I'm very excited about the value that we can deliver out of Peñasquito, particularly now that we've got the sustainable long-term agreement in place with the Cedros Community. So really demonstrating this year the value from the acquisition of Goldcorp starting with Peñasquito. Another important development for us this year is continuing to progress some of our important investments. So the layback at Boddington, we're just about into the high-grade gold and copper of Boddington, continuing to progress Tanami 2 expansion project and the work to bring on that shaft and have access to that ore at depth, and the work we're doing with our new mining method at the Subika Underground, the sublevel shrinkage mining method, ensuring that we are focusing on that investment so that we get the benefit from that in future years.

Okay. Just you touched on Peñasquito coming back, the Mexican government, their latest nonessential ban is May 30 when it ends. At that point, would Newmont be in a position to provide an updated 2020 guidance? And also maybe just a segue on that, on your Q1 call, you mentioned that the 2021 to 2024 guidance, 6.2 million to 6.7 million ounces was still in place. So maybe you could just touch on that also.

Yes. Thanks, Mike. There's certainly nothing as we manage through the impacts of this pandemic that impacts our guidance, '21 to '24, that still holds. We're cautiously optimistic in Mexico, and our approach in every jurisdiction has been not to get in front of the government, to respect the government restrictions and then to work with the government to ensure that they understand the protocols that we have in place to ensure that we can manage the risk of the infection spreading. We have had multiple engagements with the Mexican government. They fully understand our plans and protocols. And we've got very good support from them, but we also respect that they're managing, within their country, a health crisis that covers the whole country. So we're cautiously optimistic that we'll be able to start ramping up in the second half of May, and it will only take us a couple of weeks to get back up to the normal rates out of Peñasquito because of the work we do to put the operation into care and maintenance, keep all the systems ticking over so that it can ramp up very quickly. And then that puts us in a position to then revisit our 2020 guidance with that operation up and running. So we're really looking to get through and out the other side of Peñasquito, back up and running. And then that would just leave Musselwhite as our only operation in care and maintenance, and we've made the decision to put Musselwhite into care and maintenance because of the concerns of the neighboring First Nation communities, and that we want to work with and respect their concerns. We continue to engage with them regularly, but we don't want to run the risk of vulnerable communities being exposed to the virus in Northern Ontario. And Musselwhite wasn't predicted to be -- or forecast to be back up and running until the latter part of this year. So we -- with Peñasquito, we really have our production all back online, and that gives us the opportunity to revisit our guidance for this year.

Okay. You're probably aware that I live in Ontario, and what you're aware of is that Ontario coronavirus cases are in decline now, so that's good news for our province and obviously operations in our province. It's -- look, just moving to a bit of a different question, but still it involves coronavirus. Newmont has been at the forefront of use of -- developing and using new technologies in the gold sector since I've been covering Newmont now for 31 years, it's been quite evident to me that Newmont -- that's one of Newmont's core competencies. Do you think this pandemic will accelerate new technologies at Newmont mines, which you're already doing at Boddington, of autonomous haulage system and the robotic technology for diamond drilling at Tanami? Can these be exported to other Newmont operations?

Mike, the short answer is yes. I think the pandemic is going to accelerate. It's not just -- it's the broader definition of technology for me. And it's going to accelerate new ways of working at Newmont, and technology is an enabler for that. In responding to this pandemic, we deliberately took people off the operating sites. We have reduced the number of people on the operating sites just down to the essential numbers you need to operate and maintain the mine, the processing plant and your environmental control systems. And we've got everyone else working from home remotely. We've done the same thing with our offices. So we are -- we have people working at home, safe, respecting those restrictions and leading into our technology, to be able to very confidently work remotely. And we're learning a whole bunch of new things around how you can run a global mining business in that way and how technology can facilitate that. And I think we are able to change the way we're working as a result of this experience and what we're learning, and I think we can become a more efficient, a more effective and a stronger business. We are -- the other technology we're seeing, and we're starting to lean on it even more strongly, is the use of our operation support hubs that we have set up in Denver and Perth, and they are supporting our operations from a processing perspective, from a mining perspective and from an asset management perspective. And we are certainly seeing the value of having those support hubs in place to support our operations when we are at reduced staffing levels. And I can see us accelerating and leveraging that technology and that technology is both computer technology, but that technology is also the human beings that we have working with that technology. You will continue to see us investing in automation, both open pit and underground for particularly drilling and load and haul. Not only is it more efficient, it is fundamentally safer. But you're also going to see us talk a lot about and focus on getting the basics right and getting the consistency in the performance across our operations so that we can realize the global scale of our business that we're not inventing the wheel in every single one of our 12 operations, and that we have the foundation for technology to leverage off. If you don't have a solid foundation of basic operating discipline, you won't get the benefit from technology, and that's another key part of Newmont's approach to technology.

Okay. Actually, kind of another segue question with the new technologies, Newmont has interest in a number of substantial copper/gold projects, as you know, Galore Creek, Norte Abierto and Nueva Unión, sorry for the pronunciations. And on the last gold rally, when gold hit $1,900 in September of 2011, the gold companies were falling over themselves to develop more marginal assets. And certainly, there's more capital discipline now, but some of these projects had economic returns of $1,200 gold. So the company said years ago -- I don't think Newmont own any of these years ago, so I'm not saying Newmont did that. But just wondering, from an optionality point of view, where do these projects sit in Newmont's portfolio?

No change in our strategy, Mike. We run the business assuming gold price is at $1,200, and we run the business thinking about the business over the long term and having a sustainable business over the long term. So for the next decade, for the next 10 years, that 6 million-ounce production profile, a little bit more, is underpinned by 3 projects: Tanami 2, that's in execution; and then Ahafo North; and Yanacocha Sulfides, both that we'd expect to bring forward for full funds next year. They are the 3 projects in our pipeline that support that production profile for the next decade. And there's some exploration work to convert some inventory to resource to reserve to feed existing mills across our 12 operations. We are very disciplined around how we shepherd our projects through. So those 3 projects -- we'll only ever do one megaproject, something that's greater than $1 billion, at any one time. And we'll only ever do one megaproject in parallel with one major project, something that's between $500 million and $1 billion. So when you look at those 3 projects, Yanacocha Sulfides is a megaproject, and Tanami 2 and Ahafo North are major projects. So Ahafo North will follow Tanami 2, and the Yanacocha Sulfides will be done in parallel. And that takes us out for the rest of this decade. That has a nice, steady draw of about $500 million to $600 million of development capital, and it also manages the execution risk of those projects over that period of time. What that then allows us to do with those 3 big projects that currently sit at pre-feasibility study phase is do the work now to optimize them to understand the true value that we can extract from them, to apply Newmont's technical rigor. We've got some real skills around how we look at an ore body and our strategic mine planning processes to really unpack and understand the optimum path to develop those projects and to work with our joint venture partners with those projects and then to look to bring them on at the very end of this decade and into the next, and we'd only ever do one of those at any one time. They're all at the megaproject stage. So you picture a world where we come out of the execution of the 3 projects that I talked about in this decade, then you've got 3 -- potentially 3 megaprojects that can follow each other through the 2030s and into the 2040s to sustain that 6 million-ounce gold production profile, but those projects all have some nice, healthy copper in them as well. And as the globe is turning towards copper with the energy transition, we've got a nice organic exposure to copper. But our work right now is to optimize those projects, and we will not be changing our project sequencing as a result of the current elevated gold price.

Okay. I think we have time for one more question. Certainly, the $15 billion of free cash flow over the next -- over '20 to '24 period is an eye-watering number. Years ago, $15 billion might have been the market capital of the global gold sector and -- that's many years ago. Just wondering, how would M&A fit in that as Newmont being a buyer with this excess free cash flow? Or are you happy with your asset base?

Mike, we've completed in 2019 2 transformational transactions. You might see 1 of those in a generation, we saw 2 in a quarter with the acquisition of Goldcorp and the formation of joint venture in Nevada. And those 2 transactions have transformed Newmont into a business as -- we have just entered, with our 99th birthday last week, our centenary year. And we have now positioned Newmont to be able to play out the story that I just described to you in terms of our production profile. So first and foremost, for us, it is delivering on the value that we committed to from those 2 transactions that we get in, roll up our sleeves and ensure that we deliver that value. In the course of my career, I've been involved in several major transactions. And I understand that to truly integrate a business and to deliver that value, it takes several years. So we are focused on delivering that value from those transactions. However, we're not going to take our eye off the scene. And if out there in the marketplace something came along that fitted our world-class filter, so it's got to be greater than 500,000 ounces, $900 or less all-in sustaining cost, greater than 10-year mine life and in an A and B classified country as defined by Moody's, S&P and Fitch, absolutely, we'd have a good hard look at it. But that's not our main focus. Our main focus is to deliver on the value that we promised from those 2 major transactions last year.

Okay. And unfortunately, we're right at the end of the time. I would really appreciate you taking the time. Now it's 10:30 at night for you to -- for this presentation. And good luck to you and Newmont for this year, and I look forward to the 100th birthday party for Newmont next year. So thank you again.

Good. Thanks, Mike, and take care of yourself.