Newmont Corporation (NEM) Earnings Call Transcript & Summary

Good morning, everyone. My name is Tom Palmer, and I'm Newmont's Chief Executive. It's a beautiful autumn day here today in Denver, and I hope that by this time next year, we'll be able to see you all back here again for the Denver Gold Forum. At Newmont, our purpose is to create value and improve lives through responsible and sustainable mining. Through our unprecedented COVID-19 -- through our response to the unprecedented COVID-19 pandemic, this purpose and our values that underpin it have guided every decision we have made and continue to make. At the core of every decision has been the health, safety and well-being of our workforce and local communities. I am incredibly proud of how our teams in 8 countries across the world have responded to this pandemic, and the sacrifices people have made to support our company and the communities in which we live and work. They have set a standard for leadership in our industry. As I close in on my first year as Chief Executive, I'm very excited to share with you how we are leading the gold industry and creating value for all of our stakeholders. Before moving on, I'll point out our cautionary statement on Slide 2. And then moving across to Slide 3. 2019 was a transformational year for Newmont. As we enter our 100th year, we have established the gold industry's leading portfolio of world-class assets that, most importantly, are located in top-tier jurisdictions around the globe. We have reshaped and rightsized our portfolio to generate more than 7 million gold equivalent ounces per year for the next decade with significant leverage to higher gold prices. Our capability to generate substantial free cash flow across the price cycle, underpins our ability to deliver and continue to deliver industry-leading returns to shareholders. It is from this foundation that we are focused on continuously improving every aspect of our business to maintain and extend our position as the world's leading gold company. We have all experienced unprecedented times this year, but this period has also clearly revealed the differentiated strengths of Newmont, which include: a geographically diverse and balanced portfolio across top-tier jurisdictions; our proven leadership team, operating model and highly capable workforce; and our leading ESG performance. I cannot emphasize how much this matters to our employees who want to work for a company that upholds these values, to the communities where we live and work, and to our shareholders who are putting their golds to work. It is only through responsible, ethical and effective governance that mining companies can survive and thrive over the coming years and decades. Turning to Slide 4. At Newmont, we have a fundamental belief. The strong ESG performance is essential for delivering sustainable long-term value for all of our stakeholders. This starts with our people and the work we are doing to sustainably improve health and safety as well as inclusion and diversity. As a mining industry, we must continue to improve our health and safety performance. We are still experiencing fatalities, and that is unacceptable by any standard. As leaders, it is up to us to create a culture in which fatality risks are clearly understood and sustainably managed at all times. We can do this through our leadership behavior, the systems we put in place and the sharing of lessons learned across our business and across our industry. In response to eliminating fatalities and supporting an injury-free workplace, Newmont made a symbolic change this year, stepping away from our industry's traditional use of a lagging personal injury rate in our bonus programs to measures that are focused on managing the critical controls that must be in place, at all times, to prevent fatalities. I would note, however, that having made this change and in the context of significant leadership distractions, due to managing the COVID, we are tracking to our best ever performance in our lagging injury rates. It is no coincidence that visible felt leadership, focused on fatality prevention, is driving an improvement in our other safety metrics. On inclusion and diversity, setting an example at the very top of our organization, is fundamental for sustaining the cultural change. Last month, we achieved gender parity amongst our nonexecutive directors, a first in the mining industry. We also continue to perform well against our public sustainability targets to source from local supplies, hire within the community's newer operations, respond to community complaints in a timely manner, reduce our water consumption and complete planned reclamation activities. We are on track to meet a 7-year target to reduce our carbon emissions by 16.5% by the end of this year and are also working to develop longer-term site-based targets for emissions, which we plan to release later this year. We are the second most transparent company in the S&P 500 Index, and place 12th out of more than 200 companies on the Corporate Human Rights Benchmark. These achievements are the result of relentless hard work from generations of leaders, lessons learned and purpose made that formed the very DNA of Newmont. Taking a look at our history of corporate responsibility on Slide 5. Newmont has had the opportunity to learn many lessons from the things we have done well and the things we have not done well. The challenges we experienced and the lessons we learned a generation ago are simultaneously going into Uzbekistan, Indonesia and Peru, have informed our systems and culture and have influenced our strategy around the jurisdictions we are prepared to operate in. We have developed a proven operating model, underpinned by robust governance that is focused on leveraging our collective experience and bringing best practice to the locations where change and improvement is needed. This was most evident over the last 12 months in Mexico, where we were able to work with local communities, state and federal governments and the union representing our workforce to reach a sustainable solution at Peñasquito. We now have sustainable relationships with all stakeholders that not only allows us to deliver the full potential of a world-class asset in Peñasquito, but importantly, also provides access to land, where we can use our exploration capability and proprietary technology to search for the next Peñasco-style deposit. At Newmont, we firmly believe that sustainable environmental and social performance could only be achieved from a foundation of robust governance. We are governed by an independent board that holds management accountable for developing and implementing the policies and standards that underpin our performance. We have had a sustainability leader sitting on the executive team since 2007, and have been holding ourselves to account publicly through transparent performance reporting since 2004. We have a disciplined country risk program that ensures we routinely assess our jurisdictions and our own risk tolerance. We monitor and manage the potential for resource nationalization. We evaluate human rights risks, environmental issues and community relationships, all with an eye to preserve in our ability to successfully manage an operation over the long term. And we have a robust succession planning process, of which I am a product, to continually develop the next-generation of leaders across our businesses. Turning now to a look at the industry's best portfolio on Slide 6. Among our 12 operating mines and 2 joint ventures, we have 8 world-class assets, each of which delivers more than 500,000 gold equivalent ounces per year, at all-in sustaining costs of less than $900 per ounce, and with a mine life that exceeds 10 years. Importantly, 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. We firmly believe that we have the right-sized portfolio to generate sustainable returns from our world-class responsibly managed assets located in the best gold mining jurisdictions. In addition to our existing 8 world-class assets, Newmont has 2 emerging world-class assets with Yanacocha in one of the world's great gold districts in Peru; and Merian in Suriname, giving us a firm footprint in the very prospective Guiana Shield. These emerging assets within our portfolio offer upside through further optimization and development over the coming years. Underpinning our asset base are the largest gold reserves in the world, with nearly 96 million ounces of gold and 63 million gold equivalent ounces from copper, silver, zinc and lead. Importantly, almost 90% of our reserves are in the Americas and Australia. We also offer substantial future upside through our resource base with nearly 75 million ounces of measured and indicated gold resources. Exploration always has been and will continue to be a core competency at Newmont. Our disciplined exploration program lays the groundwork for growing our reserve and resource base to sustain stable, steady gold production and cash flows for decades to come. Turning to Slide 7 to highlight our production profile. Our portfolio will generate more than 6 million ounces of gold per year through to 2029. This stable production profile is underpinned by our 8 world-class assets, our industry-leading exploration program and our next 3 development projects: Tanami Expansion 2, which is in execution; and then Ahafo North and Yanacocha Sulfides, both of which are in the late stages of definitive feasibility studies. As we can see here, our portfolio provides steady production over the next decade, balanced across each of our 4 regions. This profile is also further enhanced by more than 1 million gold equivalent ounces from silver, lead and zinc at Peñasquito; and copper at Boddington and Yanacocha. Combined, we will deliver more than 7 million gold equivalent ounces per year for the next decade, the most of any company in our industry. Turning to our unrivaled project pipeline on Slide 8. Our project pipeline is unmatched in the gold industry and is one of the best in the entire mining industry. There is significant value to unlock as we optimize and advance our longer-term projects and lay the pathway to steady production and cash flow, well into the 2040s. Now nearer-term projects include: Ahafo North, which is the best unmined gold deposit in West Africa and for which we expect to reach a full fund's decision early in the new year; and Yanacocha Sulfides, which is progressing towards a full funds decision next year and has the potential to extend Yanacocha's life well into the 2030s. Looking at the earlier stage projects in our pipeline. We had significant organic exposure to gold-copper porphyries, including Norte Abierto, Nueva Unión and Rural Creek, along with highly prospective gold projects across our portfolio. We will continue to apply our disciplined and rigorous approach to advancing these projects to ensure that Newmont is well-positioned to generate superior value throughout the price cycle. Turning now to our free cash flow generation potential on Slide 9. Our balanced portfolio, combined with our disciplined and operating model, provides significant leverage to higher gold prices from the largest production and reserve base in the world. For every $100 increase in gold prices above our base assumption, Newmont delivers approximately $400 million of incremental attributable free cash flow per year. Using our conservative $1,200 gold price assumption, our base free cash flow would still total more than $5 billion over the next 5 years. And at current gold prices, our portfolio will generate more than $19 billion of free cash flow over that same time frame. To be clear, this is free cash flow that is entirely attributable to Newmont's account, enabling us to return additional capital to our shareholders, predominantly in the form of higher sustainable dividends. It's easy to get excited about the gold industry today, but I am confident that true industry leadership will be demonstrated through solid operating discipline, prudent capital allocation and exceptional environmental, social and governance performance. Turning to Slide 10. Over the last decade, Newmont has been focused on embedding mining best practice with rigor and discipline across our business, ensuring that we are profitable and working to improve margins at the bottom of the price cycle. We define growth in terms of value improving margins and extending mine life. We do this by utilizing conservative $1,200 gold price assumptions for our reserves and baseline plans, and ensuring that they are underpinned on robust resource models. We advance only the most valuable and risk-adjusted projects and only pursue opportunistic M&A that is clearly aligned to our strategy, and meets our definition of world-class assets. We remain focused on maintaining financial strength and flexibility that allows us to create value through the cycle and deliver industry-leading shareholder returns. Underpinning all of this is robust governance, which is critical and a key differentiator. Our Chief Technology Officer is accountable for our resource models, providing a clear separation of church and state for the development of our mine plans. Our Chief Financial Officer is accountable for our internal value assurance process, which provides an independent review of value and risk for all of our potential investments. This gives us the confidence in our ability to deliver projects that meet our hurdle rates, which we have clearly demonstrated by delivering our last 12 projects on time and budget with an average internal rate of return greater than 30%. The gold industry is typically faced with shorter mine lives. So historically, there has been a push to grow volume with high gold prices. For Newmont, we have a business that is underpinned by 96 million ounces of reserves that can sustain a production profile of more than 6 million ounces per year for this decade, and a project pipeline that can sustain that profile into the 2030s and 2040s. Put simply, we don't need to and will not be chasing volume. Turning to Slide 11. Our capital allocation philosophy has always been focused on balancing -- returning our cash to our shareholders, predominantly in the form of sustainable dividends; maintaining and strengthening our investment-grade balance sheet; and investing in organic projects to grow our margins, reserves and resources. Our industry-leading annual dividend of $1 per share is affordable and was set using a base gold price assumption of $1,200 per ounce, which assumed an investment of approximately 50% of our cash flow back into the business and 50% percent back to shareholders over the next 5 years. In this current gold price environment, we are actively assessing an increase to our sustainable dividend. Turning to Slide 12 for a look at a track record and commitment to delivering industry-leading returns to shareholders. Over the last 6 quarters, we have returned more than $2 billion to shareholders through dividends and share buybacks, an amount that is more than our next 8 competitors combined. Going forward, our philosophy remains the same. We will maintain and strengthen our balance sheet, continue to advance our most profitable projects and provide our investors with industry-leading returns. That said, and at current gold prices and with our portfolio, there is a clear opportunity for further returns to shareholders. We are assessing how best to reward our long-term holders and attract new long-term investment using the significant excess cash we'll generate over this period of time. Wrapping up on Slide 13. We have remained intensely focused on creating value and improving lives through sustainable and responsible mining. Over the last 18 months, Newmont has assembled the gold industry's leading portfolio of world-class operations and projects in top-tier jurisdictions, and will deliver more than 6 million gold ounces per year for the next decade and beyond. We are generating significant value from our acquired assets and are on track to realize $500 million of cash flow improvements in 2021, an increase of nearly 40% from our initial commitment. We have generated $2.4 billion of free cash flow, received $1.4 billion in cash proceeds from divestments, meeting our target, and have returned over $2 billion through dividends and share buybacks. And most recently, we responded to COVID from a position of strength, putting the health and safety of our workforce and local communities above all else. As we continue in our 100th year, Newmont is leading the gold mining industry with a foundation that is stronger than ever and a proven strategy to deliver long-term value while improving lives. I'm very excited about what the future holds at Newmont, and look forward to keeping you updated on our performance. Thank you. And with that, I'll turn it over for questions.

Hi, Tom. We've got a first question in and it's, "Are you thinking about other projects in South America?"

Our key project in South America is Yanacocha Sulfides, which is -- if you think about Yanacocha, we've been mining there for over 25 years of fabulous oxide deposit that were just about depleted. And sitting underneath all that oxide, our sulfide deposits that we need a different processing technique to liberate the gold, copper and silver. So that's our main focus. One of the significant projects is at Yanacocha. It's really the transition at Yanacocha over the next 3 to 5 years processing sulfides from oxides that we made many years ago in the '90s in Nevada with Carlin as we moved from oxide to sulfide. So that's our main focus in South America. Merian is a mine that we're really getting into the rock -- the hard rock now. So it's really getting to the mature stage of that mine and delivering value. We're actively exploring across the river from Merian in French Guiana, Espérance. So that's a longer-term opportunity in the Guiana Shield. And down at Cerro Negro, our real focus is on exploration. We've doubled our land position down there. Very excited about the exploration potential around Cerro Negro. It's really about the work we can do through applying Newmont's exploration capability to extend the life of Cerro Negro. So the real South American project for us in the near to medium-term is Yanacocha Sulfides.

Thanks, Tom. We'll just give everyone a minute to see if they want to submit more questions through the webcast function.

Thanks, Jess. [indiscernible] Seeing other questions, Jess?