Newmont Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2023

There are 9 speakers on the call.

Operator

Good morning, and welcome to Newmont's Second Quarter 2023 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Tom Palmer, President and Chief Executive Officer. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining Newmont's 2nd quarter earnings call. Today, I'm joined by my executive leadership team, including our Chief Operating Officer, Rob Atkinson, and we'll all be available to answer your questions at the end of the call. I'd also like to introduce our recently appointed Chief Financial Officer, Karen Oberman. Karen is a highly experienced financial professional She will serve both CFO roles and Board seats in the resource and energy sectors.

Speaker 1

She brings a breadth of global experience, And we are very pleased that she has joined the Newmont team. Before I begin, please note our cautionary statement and refer to our SEC filings, Our focus is on running a safe and sustainable mining business to generate long term value. Our business It's underpinned by a strong balance sheet and a global portfolio with the size and scale to make decisions that deliver on our strategy. And while I'm not happy with our ultimate financial results for the Q2, I am very comfortable with the prudent decisions that we made during the quarter to safeguard our workforce, Protect long term value and position Newmont to deliver strong performance in the second half of this year and beyond. During the Q2, Newmont produced 1,200,000 ounces of gold and 256,000 Gold equivalent ounces from copper, silver, lead and zinc, generating nearly $1,000,000,000 in adjusted EBITDA And more than $650,000,000 in cash from our continuing operations.

Speaker 1

There were 4 important decisions that we made during the Q2. First, We decided to suspend operations at Penasquito to focus on finding an appropriate and sustainable resolution To the current dispute with the union representing our workforce in Mexico. This dispute is associated with a profit sharing agreement That we made with the union leadership only 12 months ago. And in May, we paid our employees Their profit sharing bonus for the 2022 year calculated in strict accordance with this agreement. The union leadership are now demanding more than double the agreed amount and have taken strike action through the withdrawal of labor.

Speaker 1

At Newmont, Penasquito sits within a strong, balanced global portfolio of operations, A portfolio that is supported by the industry's strongest balance sheet. During this important time for Penasquito, We will remain firm in our resolve and continue to make decisions that protect the long term value of the operation And benefit our employees, our contracting partners, our host communities, our customers And all of our stakeholders. We strongly encourage the union leadership up to and including Senator Napoleon Gomez To cease the strike action and return their members to work. The second decision we made during the quarter was associated with protecting our workforce at Eleonore from the unprecedented wildfires Being experienced this summer in Canada, evacuating the mine and placing the operation on care and maintenance. 3rd, at Cerro Negro, we made the decision to pause mining for 2 weeks and complete important safety inspections to ensure That we had the appropriate control environment in place at this remote underground mine and to protect the health and safety of our mining teams working there.

Speaker 1

And finally at Chim, we made the decision to process lower grade stockpiles That were originally planned for the Q4 in order to optimize the mine plan, ensuring that we are in a position to safely extract the maximum amount of ore As we complete the current layback in the Achim pit over the next few months. As planned, higher gold production is expected in the second half of the year and will be driven by Higher grades and tonnes mined from both Savica Underground and Open Pitadalajafo. Higher grades and tonnes mined at Cerro Negro as the first wave of our district expansions comes online in the 3rd quarter. Higher tonnes mined and processed at Tanami, where we will mine the highest grades for the year in the Q4. High grade run of mine ore processed at Achim as we return and complete the current layback.

Speaker 1

And when combined with the higher production that we expect from our 2 non managed joint ventures, Nevada Gold Mines and Pet La Viejo, We remain on track to deliver on our full year guidance. We ended the quarter With $6,200,000,000 in total liquidity and maintained an investment grade balance sheet, Preserving financial flexibility as we continue through a period of meaningful reinvestment and return a stable dividend to our shareholders. Consistent with our 2023 dividend payout range, we declared a second quarter dividend of $0.40 per share, Demonstrating both our ongoing commitment to shareholder returns and our confidence in the long term strength of our business. We remain on track to close on our acquisition of Newcrest in the 4th quarter And are leveraging the lessons we learned from the successful integration of Goldcorp 4 years ago as we build out our integration plans. We have also commenced the portfolio optimization work associated with this transaction, making the important decision in June To defer the Anacocha Sulfides project.

Speaker 1

This is the first step in delivering significant value through portfolio optimization, And we will continue to evaluate opportunities to resequence project capital and rationalize the portfolio of the combined company Over the next couple of years. At Newmont, we recognize that a strong Safety and sustainability culture is not only an indicator of a reliable, well run business, It is fundamental to delivering on our commitments to employees, contracted partners, host communities and all of our stakeholders. As we position ourselves to safely integrate Newcrest and enter this next chapter in Newmont's 102 year history, We made an important decision in the Q2 to further strengthen our commitment to responsible gold leadership And increase our focus on safety and sustainability. In June, we promoted Susie Ritalik For the role of Chief Safety and Sustainability Officer reporting directly to me. Susie is an industry leader With more than 20 years of experience in driving values based decisions.

Speaker 1

Over the last 5 years, As our Senior Vice President, Health, Safety and Security, Susie has been instrumental in leading the delivery of a step change In Newmont's safety performance, in particular, in the area of fatality risk management. Susie will apply the lessons we have learned from our significant improvement in health, safety and security To further improve our performance in the areas of environment and social responsibility. In this new role, Susie will also support me and my leadership team in the work we need to do as a company and as an industry To create workplaces that are free from harassment, assault, bullying and discrimination. I'll now turn it over to Rob and then to Karen to take us through each of our operations and projects along with a review of our quarterly financial highlights. Thank you, Rob.

Speaker 1

Thank you, Tom, and good morning, everyone. Turning to the next slide, let's begin in Australia. Boddington delivered another strong performance in the Q2, increasing both gold and copper production from sustained grades mode. As part of our multi decade life of asset strategy for Boddington, we have increased our autonomous haulage fleet With 5 additional trucks as we increase the plant waste movement in both the North and the South pits. This investment into the next laybacks at Boddington will support stable gold and copper production for many years to come.

Speaker 1

We remain clearly on target to hit our 2023 production guidance and we are well positioned to deliver more than 1,000,000 Gold equivalent ounces from this cornerstone asset. Moving to Tanami, the site has recovered Extremely well following the record wet weather and extensive flooding experienced in the Northern Territory during the Q1. We doubled our quarterly gold production in the Q2 and remain firmly on track to land within our full year guidance ranges And we'll mine the year's highest grades in the Q4. In addition, we continue to progress the second expansion at Tanami With nearly 50% of the concrete lining of our 1.5 kilometer deep shaft installed, the lining And the furnishing of the shaft continued to be on the critical path as our project team works to deliver significant ounce and cost improvements to our Tier 1 operation At Tanami. Moving up to Africa.

Speaker 1

In June, I visited both the Ahafo South and Achim As well as our Rahafo North project in Ghana. At Achieve, I spent time with the team as we work through the decision Tom covered earlier To prioritize safety, optimize the mine plan and maximize the ore extracted as we close out the current layback in the coming months. As a consequence of this work, we expect grades to improve by 35% during the Q3, positioning the site deliver significantly higher production in the second half of the year and land within our 2023 guidance ranges. At Ahafo South, we delivered higher production as we access the 3rd mining level and additional draw points in the Subika underground ahead of plan. Fine with access to higher grades from the open pit, the Ahafo mill will process higher grade from both underground and surface In the second half.

Speaker 1

Ahafo is also on track to commission a replacement conveyor in the 3rd quarter, And it remains on target to hit guidance for the year. And finally, it was great to see firsthand The progress we are making on the Ahafo North project. The highway reallocation and bulk airports continue to progress very well. And with the new mining fleet in place, the project team is preparing to commence pre stripping in the second half of the year. Moving across to North America.

Speaker 1

As Tom described, Canada has been impacted by unprecedented wildfires, With Quebec particularly impacted during the Q2. And in the 2nd week of June, as the fire fronts approach the property, We made the swift and proactive decision to evacuate our workforce and place Eleonore on care and maintenance to protect our employees And contractors. During this time, our first priority was and will always be the safety and well-being of our workforce And local communities. We're now safely ramping up production activities as the forest fire threat continues to abate. And we will continue to monitor the situation in Quebec very closely as we work with the provincial government agencies to assess fire progress And air quality on a daily basis.

Speaker 1

Moving to Porcupine, we delivered another steady performance in the second quarter And remain well positioned to deliver improved production in the second half of the year, driven by higher grades from the Hollinger pit in Q3 And from Boardman Underground in Q4. We continue to progress the Tomor project and are preparing for a full funds investment Later this year, we will complete commissioning of a new water treatment plant in the coming weeks, which will accelerate dewatering of the Timor pit And allow us to commence pre stripping during the Q4 with first ore expected in 2024. At Musselwhite, we delivered consistent gold production as we progress planned development activities that will increase stope availability in the second half of the year, Including access to another double lift stall. As a consequence, we expect tonnes mined to increase by more than 30% And grades to increase by around 15%, supporting a strong 3rd and 4th quarter. And finally, Cripple Creek and Victor Delivered solid results due to higher grade and strong recoveries from our heap leach facilities.

Speaker 1

And now moving down to South America. Yanacocha delivered a strong second quarter as we begin to realize the benefits from applying our injection leaching technology. At Merian, we continued the planned stripping of the next layback in the Merian pit and the site is on track to deliver 40% higher grade from the Merava pit In the Q3, putting Marion on target to hit full year guidance. Moving to Cerro Negro. In the 3rd quarter, Tons mined is expected to increase nearly 30% as the underground ramps up to full productivity following the safety pause that Tom referred to.

Speaker 1

And grade is expected to increase by 50% as we begin to access the higher grade stopes from San Marcos, The first of 6 new deposits associated with the exciting underground district expansion at Cerro Negro. San Marcos will continue to ramp up throughout the year and is expected to reach commercial production in late 2023. Finally, as Tom discussed, we made the decision to suspend operations at Penasquito on June 7th, As we focus on finding a resolution to the dispute with the union leadership, we have and will continue To abide by the fair and equitable agreement that is currently in place and that was importantly fully agreed to only a year ago with the union. We will continue to communicate directly with our employees and engage with the union leaders and government officials to find a fair, Appropriate and sustainable resolution to this very disappointing dispute. You can expect that we will provide a fulsome update to the market Once an agreement has been reached and we look forward to returning our focus to safe and sustainable mining at Penasquito.

Speaker 1

And now I'll wrap up in the next slide with our 2 non managed joint ventures. Our share in Nevada Gold Mines and interest in Pueblo Viejo Contributed 338,000 ounces of attributable gold production in the second quarter, and we look forward to Both joint ventures delivering on their expected strong second half. And with that, I'll pass it over to Karen to cover our financial results.

Speaker 2

Thank you, Rob, and good morning, everyone. I'm happy to be joining the call today and look forward to presenting our Q2 financial results And answering any questions you might have. Before I get started, I wanted to talk briefly about what brought me to Newmont. When I was doing my due diligence on Newmont, I was excited to learn about the company's clear and consistent strategy, leading approach to safety and sustainability, It's global diverse portfolio of assets and deep project pipeline to position Newmont for long term success. Joining in May, I've had the pleasure to meet Newmont's senior leaders and the Board and spend time with my very talented finance team.

Speaker 2

And I can say that the strength of our people and capabilities have already far surpassed my initial expectations. Over the coming months, my team and I will be focused on building upon the strong foundation that we have today, partnering with the business to improve our overall financial performance And driving our disciplined capital allocation strategy with a balance sheet that can support our strategic initiatives throughout the commodity cycle. Turning to the next slide, let's get started with a look at the financial highlights. In the Q2, Newmont delivered $2,700,000,000 in revenue At a realized gold price of $19.65 per ounce, adjusted EBITDA of $910,000,000 Cash from operations of $656,000,000 which includes over $100,000,000 of unfavorable working capital changes. Included in working capital changes were nearly $250,000,000 in tax payments in the 2nd quarter, partially offset by draw on receivables.

Speaker 2

We would expect the draw on receivables to reverse in future quarters, the tax payments to decrease in the 3rd Q4 as they have in previous years. In total, we generated $40,000,000 of free cash flow for the quarter, which is net of more than $600,000,000 of capital spend As we continue to progress our most profitable near term projects and position the portfolio for growth both in ounces and margins in future years. We maintained a strong cash position with $3,200,000,000 and an attractive leverage ratio of 0.7 times net debt to adjusted EBITDA. We also maintained solid margins in the 2nd quarter driven by higher realized gold prices and steady direct costs. 2nd quarter GAAP net income from continuing operations was $155,000,000 or $0.19 per diluted share.

Speaker 2

Adjustments included $0.05 related to unrealized mark to market losses and equity investments, $0.03 related to transaction costs associated with our pending acquisition of Newcrest and $0.06 related to tax adjustments and other items. Taking these into account, we reported 2nd quarter adjusted net income of $0.33 per diluted share. And it is also important to note that this number has not been adjusted for the $46,000,000 in operating costs and depreciation at Penasquito since the strike commenced And at Eleonore, while the site was proactively shut down due to the wildfires. As Tom and Rob noted, Newmont remains well positioned to deliver a strong performance in the second half of the year and achieve our full year guidance. 2nd quarter, we declared a dividend of $0.40 per share or $1.60 per share on an annualized basis, consistent with the last two quarters And calibrated within our 2023 dividend payout range of $1.40 to $1.80 per share.

Speaker 2

We have now maintained a dividend yield above 3% for 11 consecutive quarters and this continues to be the highest dividend per share in the gold sector. With that, I'll turn it over to Tom for an update on the timeline from today through to the close of our acquisition of Blue Crest.

Speaker 1

Thanks, Karen. Over the last 2 months since we announced the binding agreement to acquire Newcrest, My team and I have engaged with many of our important stakeholders, including employees, shareholders, local communities and government leaders. These conversations were aimed at listening to and answering questions, whilst also ensuring that the benefits of the transaction And Newmont's strategic rationale are well understood. Over the next couple of months, We will continue to progress the various regulatory approvals ahead of closing the transaction, primarily in Australia and Papua New Guinea. And I'm pleased to advise we've already received clearance from the Canadian government.

Speaker 1

Earlier this month, I visited Papua New Guinea for the 2nd time, meeting with various government officials, including Prime Minister James Morape Deputy Prime Minister John Russo And Mining Minister, Sir Anupala. As we continue this engagement, we remain excited for the opportunity to operate Lihir And develop the world class Wafi Golpu project. We are diligently working towards lodging a scheme booklet And filing a proxy statement this quarter with shareholder votes expected in October. We then expect to close the transaction in November and begin the important work to safely integrate the Newcrest teams and operations Into our portfolio. We'll be in a position to provide 2024 guidance for the combined company in February of next year Along with our Q4 and 2023 results.

Speaker 1

With that, I'll thank you for your time today And turn it over to the operator to open the line for questions.

Operator

Thank you. We will now begin the question and answer session. And the first question today goes to Greg Barnes of TD Securities. Greg, please go ahead. Your line is open.

Speaker 2

Yes. Thank you very much. Tom, I

Speaker 3

just want to ask about inflationary pressures and how you see them evolving into The second half of twenty twenty three and twenty twenty four, ex any volume improvements you're going to get, which obviously will help on a gold per ounce basis.

Speaker 1

Yes. Thanks, Greg, and good morning. What we're seeing in our direct costs is largely Assisted with what we expected as we guided this year, and I might just step through that in a little bit more detail, that half of our cost base is labor, About 50% is labor, made up pretty evenly between employees and contractors. Employees largely stable and expect that to remain largely stable through the rest of this year and into next. Certainly seeing some settling down in Australia, Canada, United States.

Speaker 1

Contracted services also have stabilized. So still at a higher cost That we saw with the inflation coming through last year, but largely stabilized, maybe a little bit of easing into the second half of this year, but certainly seeing The volatility come out of that and that's at 50%, that's a pretty important driver. 30% materials and consumables. So it's the various reagents, particularly cyanide explosive, steel for grinding media and the like. We're seeing those largely consistent with what we expected.

Speaker 1

Natural gas prices have come off, which is then flowing through to The prices that we're seeing for both cyanide explosives, so a little bit of relief, a few tailwinds with those consumables and would expect that To flow through the second half of this year, we'll see supply of natural gas maybe tighten a bit, which may put A bit more tension on those prices, but certainly expecting to see that stable or a little bit of an improvement and still Pretty much holding its own as we look at the grinding menu. We move around the place. And then the next big category is fuel and energy, 15%, and that's driven by diesel. And we've certainly seen Some relief in oil prices relative to what we've assumed, and we would expect to see that carry on through the second half of this year, but a volatile commodity and one that will continue to be conservative as we think about our assumptions for that. So A few tailwinds, Greg, some stability And consistent with what we expected for 2023.

Speaker 3

Great. That's very helpful, Tom. And just a follow on. In the presentation, you talked about the guidance you're going to provide in February. I'm just wondering how detailed do you expect to be in February around Newcrest And your expectations for how that's going to fold into the company in 2024?

Speaker 1

We're certainly working towards being in Position where we can give you a view of 2024 for the combined portfolio, which would include our view of The 5 new Crest assets being folded into our operations. So we'll if things continue to go to plan in terms of regulatory approval, shareholder votes and close, integration planning, busily being done. We'll Received the keys to the car, so to speak, in early November, I would hope. And that gives us time to work through those mine plans, apply The new model ends on those mine plans and the assumptions we make for some of the key input assumptions and certainly working towards being in a position to Provide the 2024 guidance for the combined portfolio in the February timeframe.

Speaker 3

And what about the 3 to 5 year guidance beyond that? Will that wait?

Speaker 1

We will monitor that And see how those numbers come together. We'll certainly be looking in the 2024 time frame to provide As much information as we think appropriate certainly for 2024 in that February time frame and then and look for a logical time for Capital Markets Day to share some more information on the combined portfolio and maybe even look to try and include some sort of soft visit with that. So that's Still work in progress, Greg, but certainly 2024 is in our sights for that February timeframe.

Speaker 3

Great. Okay. Thank you, Tom. That's it for me.

Speaker 1

Thanks, Greg.

Operator

Thank you. And our next question goes to Anita Soni of CIBC Markets. Anita, please go ahead. Your line is open.

Speaker 4

Hi, good morning, Tom and team. My first question with regard to the transaction, could you tell me, did the independent advisor or the independent expert for Newcrest reached our conclusion yet?

Speaker 1

Good morning, Anita, and thank you for dialing in. I think what might be a little vacation period for you, so good to hear your voice and hopefully you can get off this call And back to some better use of time. They're still working through that process. So that's they're working. It's in train working through but not finished yet.

Speaker 1

So it's but it's on schedule in terms of when we need that information In order to be able to proceed for the time line we had in the deck.

Speaker 4

Okay. And then the second question and then I'll go back into the queue. I'm just trying to get some of the grades that Rob quickly went through In terms of so let's start with Musselwhite. I think they said 30% Improvement in tons mined and then grades by 40%. Is that a Q3 or a Q4?

Speaker 4

If I do that in Q3, I get well above your guide?

Speaker 1

Certainly starting to see a step up in grade in both Q3 and Q4, pretty consistent across Q3 and Q4 for Musselwhite, Aneta. We're opening up, got a nice double lift stope coming on, which going to give us both some improvement in grade and volume. And then we've got some dates and some high grade material also coming on as a result of the work in the first half. So Pretty consistent grade, Rob, through the second half and certainly seeing a step up in volume coming out. That will ramp up over the 3rd and 4th quarter, so the highest volume through the mill in the 4th quarter, right, pretty consistent.

Speaker 4

Okay. And then just in terms of, I think it was a Hoffa where you were talking or maybe it was Hashim, 35% uptick in grades in Q3, is that correct?

Speaker 1

That's right, Anita. So in a chain, We stepped out in the stockpiles, got the I mean, if those of you who know ACHIM, it's a long narrow pit. And so As we're getting the last of the ore from the bottom of the current pit and the current layback and wanting to bring down the next layback, we want to make sure that We maximized that ore, so we stepped out of the pit, made sure catch benches and the like were all in good shape and swung into the stockpiles we would have been in, in Q4 and now we're back in that ore. And so we're basically got run of mine, high grade ore from the bottom of the pit coming through. You'll see most of that through the Actually, you'll see a good portion of that build through the 3rd Q4 now.

Speaker 1

So highest grades in the 4th quarter building up through the 3rd.

Speaker 4

Okay. And then lastly, at Cerro Negro, I just want to make sure I heard you correctly. It says 30% Increase in tons mined and 50% increase in grade, but I don't think Rob said which quarter it was. Is that does that start in Q3 or is it Q4

Speaker 1

We'll see the step up in grade at Cerro Negro pretty consistent through the 3rd and 4th quarter At Cerro Negro. And then you'll actually see quite a step up in tonnes mined as we've got More ability to access ore, particularly as we start to extract ore from the San Marcos for the first time. So Pretty consistent second half across Q3 and Q4 in terms of material coming through the mill And the grades looking pretty consistent through those 2 quarters, Rob. No, that's correct.

Speaker 4

Okay. All right. Thanks. I'll leave that there. Thank you.

Speaker 1

Anita, probably one other on Ahafo. We've got We've got the stars really lining up in terms of the real sweet spot in the Sobeeka open pit as well as now having the 3rd level of Subika Underground open, more than 20 draw points open. So we've got both the combination of high grades and tonnes coming out of Open pit and underground at Ahafo. So it's another important one to be thinking about as you think about second half of the year. But that's certainly Q4 weighted as that comes Through.

Speaker 1

Building through the 3rd or the 4th quarter is a strong one out of the harbor with those stars lining up above that basin and underground with mine sequences.

Speaker 4

Okay. Thank you

Speaker 1

very much. Thanks, Anita.

Operator

Thank you. The next question goes to Mike Parkin of National Bank. Mike, please go ahead. Your line is open.

Speaker 5

Yes, thanks. Guys, can you just give a bit more color in terms of the background on pausing at Sierra Negro The mining and does it have with what you've kind of investigated and decided on a go forward basis, does it have any material impact on the cost Sure of that asset going forward.

Speaker 1

Good morning, Mike. Certainly, absolutely no impact on cost structure going forward. It was From time to time, certainly my experience and Rob's experience, you'll get We had a significant potential event in the underground mine involved a loader that we weren't happy that we had the control environment in to be managing At the standard that we'd expect around basically it was a piece of equipment involved in an incident. It's a remote mine. As you know, Cerro Negro is in a very remote part of Argentina in Patagonia.

Speaker 1

And we wanted to ensure That the standards that we expect were clear across the 4 crews that were there and that we went through the underground mine and did The appropriate inspections to make sure that equipment and conditions underground were well understood. You're obviously working underground in a remote location, so it's Really important that we can be satisfied that the expectations are well understood and the conditions underground are well understood. We're also entering into a second half, which is a step up In both grade and tonnes, so we're moving into a period of time where we're going to be asking the team to step up and be working more fronts. So we took the time to ensure that conditions were clear and expectations were set. There's nothing in terms of additional cost base.

Speaker 1

It's more about just ensuring that The leaders at all levels and their mining teams are understanding the standards that we expect and that we can confidently Move forward with mining, what will be a strong second half for Cerro Negro.

Speaker 5

Okay. So Pretty much to sum up, it's more kind of ensuring operational best practices of Newmont are being executed at that site.

Speaker 1

That's right, Michael. We will do that from time to time. In my experience, there are times when You must always maintain a chronic unaestry safety, and there will be events that come from time to time. And part of maintaining solid safety performance is recognizing when you may need to just pause and ensure everyone's got their mind on the game, Understand what's expected and then move forward with confidence. And so that's something we do from time to time.

Speaker 1

Certainly, Cerro Negro, we've decided that this needed a couple of weeks down. I'd expect as we do our integration planning for Newcrest and think about 5 new operations coming into our portfolio, Think about the work we might do through November December, that's certainly one of the debates we're having in terms of how do we ensure that the standards that we expect Newmont are there in place in day 1 at those Newcrest operations. So it's something that certainly both Rob and I have done In our careers from time to time when we see a need to reset expectations.

Speaker 5

Okay. Excellent. And just one question on Penasquito. With respect to the stream, Is there any minimum delivery of silver that you tie to or are you fully free To shut down and not deliver silver when you're not producing?

Speaker 1

That's correct. That's my understanding, Mike. We'll get the team to just run that to ground and If it's different from that, we'll let you know, but that's our understanding.

Speaker 5

Okay. That's it for me, guys. Thanks so much.

Speaker 1

Thanks, Michael.

Operator

Thank you. The next question goes to Tanya Jakusconek of Scotiabank. Tanya, please go ahead. Your line is open.

Speaker 6

Great. Good morning, everyone. Thank you so much for taking my questions. I wanted to ask about Penasquito just to get some clarification just from so many news articles that Keep coming out. I'm just trying to understand, you know, with the union being on June 8th, I just want to make sure that I understood some of the articles that came out.

Speaker 6

Has the union gone to paying the workers? Because, you know, my understanding was the workers aren't being paid, Being on strike that the union has gone in to pay the workers, do we know if that's a correct statement from some of the papers I was reading?

Speaker 1

Andrea, that's correct. The members, the union members who are on strike are not being paid by the union that they're members of. And as part of our position at the negotiating table, we're not paying back pay.

Speaker 6

Okay. So the union is not paying and you're not paying. So they haven't been paid since June 8?

Speaker 1

That's right. So workforce of some 2,000 people aren't being paid. You've got a much Bigger contract workforce that aren't being paid. You've got an extended community to some 28,000 people that rely upon those wages To receive some benefits, they're not being paid. We're the biggest taxpayer in the state of Zacatecas.

Speaker 1

They're not getting taxes. And our contributions are close to $2,000,000,000 a year to the Mexican government through both taxes and royalties Are not currently being paid. So our message to the union leadership is we have a fair and equitable agreement. We paid in accordance with that, and we strongly encourage them to get their members back to work so that we can start paying wages again.

Speaker 4

Okay. Yeah. It's just there

Speaker 6

was an article, Tom, that's saying that the union leaders the union was taking money from their Coffers and paying the workers, I just wanted to clarify that. And just how should we think about the cost Of the on a monthly basis, being on care and maintenance as we go into July, how should I think, number 1, What sort of cost should I be thinking about you incurring on care and maintenance? And number 2, would that be coming through the operating costs or would you take that out and put it under other? Thank you.

Speaker 1

Yes. Thanks, Anita. So we you'll see and I'll get Daniel to Catch up with you after the call, but we've got something in our earnings release. If you think about those costs through the month of June, At Penasquito, we incurred $23,000,000 of operating costs, another $15,000,000 of depreciation Due to the suspension of operations, so it's down for most of June. That's a pretty good indicator of what that's going to look like.

Speaker 6

Okay. And I would run that through the costs. You're not going to take it out separately. Sometimes you've taken it out and excluded it out of operating costs into other items.

Speaker 1

No. We don't plan to do that, Tanya. So what you described is how best to model it.

Speaker 6

Okay. Thank you for that. And then if I could just go back to Anita's question on Just the second half performance with some of the mines that, I think you said would be evenly distributed, a half of And muscle are going to get higher Q4. Is there any other operation that's going to have a higher Q4? Because when I looked at the Numbers, you're looking at a production profile of Q4 being significantly stronger than Q3.

Speaker 6

Is that how I should think about it?

Speaker 1

That's right, Daniel. We're building towards a strong 4th quarter. You've got you'll have some across some of the parts of the world in which we operate, you tend to get a bit more wet weather In the Q3, so you typically see us have those dryer locations that really bring it home in the Q4. Pep La Viejo ramping up with 40% of Pep La Viejo, that's an important part of H2. Nevada Gold Mines Got into a strong second half.

Speaker 1

That's an important part of our H2. Tanami, we have got pretty consistent Ton through the mill in the second half, but we move into our highest grade stopes in the Q4. So that's an important story. And I think we've probably covered the most of the Myriad certainly got a stronger second Pretty consistent across Q3 and Q4. So I think we've covered the sort of the key drivers H1 versus H2 and where the higher 4th quarter would come from.

Speaker 6

Okay. No, I appreciate that. It's just when you look at the production profile excluding Panasquito depending on what happens there. It is looking at the 4th quarter is the one that is going to carry quite a bit of weight for your in order to get your guidance.

Speaker 1

That's right, Tanya.

Speaker 6

And where we've got a question from. If I could just do one final question.

Speaker 1

Go for it, Tanya.

Speaker 4

Okay. Sorry, I thought you were able

Speaker 6

to say something else. Just another follow-up on Greg's Questions on the inflationary reliefs that you are seeing. I just wanted to confirm because some companies are not seeing exactly the same thing. Would be also fair to say that you are seeing cyanide pricing coming down relative to what you have. And I just kind of wonder in your agreement To restock your inventories on these lower level prices that are out there.

Speaker 6

Some contracts or some come up in 3 months, 6 months. I'm just wondering how when we are expecting you to renegotiate at these lower levels, so we can see when those would go through your cost structure.

Speaker 1

Yes. Tanya, we I mean, our supply chain strategy, particularly with our Our key commodities is to have strategic contracts that are long term based upon the size of our portfolio, and we build into those Rise and fall calculation. So we pretty much then become a price taker, but at a competitive price. And And then we'll have flowed through the as you see, prices go up and down. We have some relief in terms of the volatility of our price increases or price decreases.

Speaker 1

And then with the inventories we have at sites, it takes a little while for that to flow through. So we are on the back of natural gas prices coming off, We are seeing ammonia prices down, caustic soda prices are also down and we are seeing improvement in both cyanide Cost and explosive costs. So that is flowing through, and it's linked to linked back to that key commodity Price, and it's flowing through our contracts as it will wash through our inventories, and we just continue to, Through those contracts, take the prices as we've agreed in those contracts and that then takes normally a month or 2 or 3 to flow through our inventories.

Speaker 6

Okay. And so those we could see then coming in, in Q3 and into Q4?

Speaker 1

Yes, yes. Yes, we'll see some of that benefit in Q3 and Q4, absolutely.

Speaker 6

Okay, great. Thank you. I will get back in the queue. Thank you.

Speaker 1

All right. Thanks, Dave.

Operator

Thank you. The next question goes to Brian MacArthur of Raymond James. Brian, please go ahead. Your line is open.

Speaker 7

Good morning. Can I just follow-up on Penasquita? Tanya covered the ongoing costs, but where is the concentrate situation? Is there Concentrate in transit that's off-site, that's provisionally priced and you're going to have some sales in Q3 if nothing happens there. I was looking at your sales versus your production, and I know it varies quarter by quarter and lead versus zinc.

Speaker 7

Where are we on that? Is there actually a cash Out or inflow to you from concentrate or

Speaker 1

is it all stuck at cider or

Speaker 7

where is that situation at the moment?

Speaker 1

Good morning, Brian. So there's nothing left at port and all the sales have been recognized in the Q2. So there's nothing in the Supply chain from the mine site to the smelters that hasn't been sold and recognized. And then we have a small amount of concentrate Stockpiled on-site, but not much. Sites in been put into care and maintenance in very good, Nick, And everything is safe and secure on-site.

Speaker 1

So the expectation that common sense prevails and we've got The workforce back at work, we can wrap up very quickly with a lot of experience and being able to ramp up from the pandemic days. So we know how to get that big mine back up and running concentrate very quickly. So it's pretty clean in terms of where we sit with the concentrates.

Speaker 7

Great. Thanks very much, Tom.

Speaker 1

Thanks, Brock.

Operator

Thank you. We have a follow-up question from Anita Soni of CIBC Markets. Anita, please go ahead. Your line is open.

Speaker 4

Sure. Thanks for taking my follow-up. So a few more questions in terms of the details. At Tanami, could you just go over what you're looking for in terms of grades and tonnes in the Q4, Q3?

Speaker 1

No problems, Tanya. The Q3 pretty Yes. I did it. Daniel was writing me a note to say this. Daniel, if you're still listening, my apologies and in need of my apologies.

Speaker 1

Obviously, I need a holiday. I'm sorry. I'm embarrassed. I'm embarrassed. The high grades are in the 4th quarter.

Speaker 1

You'll actually see a little bit of a step up in the Q3 from what we're able to see in the second. And then we get into some nice high grade in the Q4. So pretty consistent through the mill and a step up In the 3rd Q4, as we clear some of the disruption from the weather in the first half, so you'll see a step up in volume through the mill, But the real grades flow in the Q4. Nothing outrageous, certainly well within the grades that we've seen historically.

Speaker 4

Okay. And then in terms of the projects, I was noticing the spend at the different projects. And Tanami I don't really we don't really have sort of like the or maybe I've lost track of the amount of time that it's going to take To build out these projects, we are in the process like a percentage just from a time standpoint. But at Haakon North, it seems like The spend is not it's got the same start up as Tanami expansion, and I only see about 30% of the 30% of the spend and whereas Tanami is about half the spend. So could you just give us a little color on the time frames and the cadence of spending at both 10.5% on line.

Speaker 1

Sure. I'll start off, Anita, and my thought might want To build on this, but Bahafo North has really been a first half for a quarter of just getting the work fronts opened up. So a lot of clearing of land, bringing equipment in and so gearing up with positioning ourselves to really get stuck into Doing the pre strip work and then the civil works will then start constructing the processing plant and other infrastructure. So It's in a process of gearing up and then be able to accelerate up in terms of an open pit mine with a processing plant. Tanami, we're in that serious process of stepping through the shaft, Doing those doing the concrete lining and then bringing in the various facilities that get attached to that concrete wall.

Speaker 1

So that's in and out to get a pretty steady state for that critical path item. The other thing that's largely the surface work in terms of most infrastructure is largely done. So clearly, there's a whole bunch of winding equipment to install at the appropriate time on service and not completely done. But at Tanami, we've got the underground excavations all done, but you're really in that process now of mobilizing those construction crews underground to start building out The conveyors and the crushers and all the supporting infrastructure for that. So gearing up to get that work front really, really going ahead.

Speaker 1

So Quite different projects in terms of infrastructure underground, a sharp lining and then building an open pit Mine and the associated infrastructure. Robert, any deal on that? Anita, I would just emphasize what Tom said. The number of fronts That we are actively working on at Tanami Mine is far larger than at Aihafo North. So every part

Speaker 8

of that project is getting worked on. As Tom said at A half of North and seeing it just a month or so ago, the civil works is progressing Very, very well. And in the coming months, that's when we will see significant spend, whether it be the contractors coming in, It's a steel getting erected. It's the hiring of cranes. It's the digging of trenches, etcetera.

Speaker 8

It's the construction of the tailings dams. So As the next few months passes, the number of fronts that we start working on at the Haafel North significantly increases. And As such, we'll see that increase in spend as well.

Speaker 4

And then in terms of That work, how much has been sort of like, I guess, committed? Or how much of that work in the next in the back half of this year and early next Do you have a visibility on the cost level?

Speaker 1

In terms of any

Speaker 4

I guess I'm just trying to understand If you haven't yes.

Speaker 6

What I was

Speaker 4

trying to understand is if you haven't really started getting into the guts of it, how Certain are you that, that the CapEx guidance range is still good?

Speaker 1

The key thing, which I'd certainly say, Anita, is that So on the procurement side of things that we have basically secured just about all the supplies for both the projects, and

Speaker 8

I think that protects us Enormously. The engineering that we've also done on both projects is at a significant level As well. So we've got a large degree of confidence. The biggest thing is always is that with shaft building, We progressed down there. And at the moment, we're aligning that very well.

Speaker 8

We've got patches of over break, which we'll deal with. But at the moment, because of the engineering, the procurement, we're still very much on track.

Speaker 4

Okay. Thank you. That's it for my questions.

Speaker 1

Thanks, Haneda.

Operator

Thank you. This concludes the question and answer session. I would like to turn the conference back over to Tom Palmer for closing remarks.

Speaker 1

Thanks, operator. Just a quick one for Mike Parkin's question. Just to confirm, there's no minimum payment on the Silverstream, Mike, if you're still listening on the call. Thank you all for making the time for the call this quarter, and please enjoy the rest of your day, and thank you for your time. Thanks, everyone.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your

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Earnings Conference Call
Newmont Q2 2023
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