Newmont Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2024

There are 11 speakers on the call.

Operator

Good morning, and welcome to Newmont's 2nd Quarter 20 24 Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tom Palma, President and Chief Executive Officer.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining our call. Today, I'm joined by my executive leadership team, including Natasha Bouillon and Karen Overman, and we'll all be available to answer your questions at the end of the call. Turning to the next slide, please note our cautionary statement and refer to our SEC filings, which can be found on our website. Before I cover our results for the quarter, I'd like to take a moment to provide an update on the important work we are doing to reinvigorate our safety systems.

Speaker 1

Following the tragic loss of 4 of our colleagues over the last year, we initiated a comprehensive systematic review of our safety and risk management systems in order to better understand the key challenges and opportunities we have to improve our safety performance going forward. Our enhanced approach includes a heightened level of diligence across our entire fatality risk management assurance model, bolstering our leadership work in the field to ensure we have a balanced approach between both the quantity and quality our critical control verifications and an increased focus on leaders, coaching leaders and their teams aimed at building and strengthening capability through all levels of our organization. With this reinvigorated approach, we are actively driving improvements in safety performance and strengthening operational effectiveness across all of our managed operations. Turning now to our 2nd quarter highlights. We delivered solid operational performance as planned, keeping us firmly on track to achieve our 2024 guidance and positioning us to deliver improving financial results.

Speaker 1

These solid results have also enabled us to progress our capital allocation priorities, which I'll touch on in a moment. With a continued focus on safely delivering, we've also made meaningful progress on the 4 key commitments we made to our shareholders at the start of the year. First, we continue to strengthen Newmont's position as the gold industry's recognized sustainability leader. During the Q2, and as I just mentioned, we launched a safety refresh across our managed operations globally and are leveraging this important work to reinvigorate our safety systems, tools, standards and in field leadership work. Supported by this approach, we restarted operations at Cerro Negro in late May, returning our focus to safe and efficient mining in this highly prospective district in Argentina.

Speaker 1

In May, we also published our annual climate report, summarizing our performance for the sites managed by Newmont throughout 2023. Moving to our second commitment, Dearborn has created a world class portfolio focused on Tier 1 and emerging Tier 1 operations and districts. From this portfolio, in the second quarter, we produced 1.16,000,000 ounces of gold and 477,000 gold equivalent ounces from copper, silver, lead and zinc. Notably, this included 38,000 tons of copper for the quarter. We generated 1 point $4,000,000,000 of cash flow from operations and $594,000,000 in free cash flow in the 2nd quarter.

Speaker 1

And yesterday, we announced the monetization of our Batahijal deferred payment obligations, And we expect to receive $153,000,000 upon closing by September 30. It is also worth noting that Yumont received $44,000,000 associated with contingent payments from production of Batahedale, bringing total proceeds that we will receive this year from our former operation to $197,000,000 In addition, we received the first $180,000,000 payment from the sale that we announced last quarter at London Gold Financing Facilities. From these two transactions, we will receive nearly 5 $30,000,000 by the end of this year. With this progress and with the confidence we have in our divestiture program, we now expect to reach at least $2,000,000,000 from the sale of our 7 high quality non core assets alone. Taking all of this into account, we continue to build momentum, enabling us to advance our capital allocation priorities.

Speaker 1

Since our last call, we continue to safely progress the projects we have in execution for the industry leading organic project pipeline, including the second expansion at Tanami, our new mine at Harpo North and the 2 new block caves at Cadia. We have retired $250,000,000 in debt and we have returned approximately $540,000,000 to shareholders in the form of regular dividends and share repurchases, which Karen will discuss in the more detail in a few minutes. Turning now to synergies, we remain firmly on track to deliver above and beyond our initial commitment of $500,000,000 In the Q2, we achieved $100,000,000 in synergies, bringing our run rate to $205,000,000 since we closed our acquisition of Newcrest only 8 months ago. With this solid momentum, we have now disbanded our back office integration team and remain firmly on track to achieve a $335,000,000 run rate by the end of this year, well ahead of our initial estimates. Looking at the 3 components of our synergy delivery and starting with full potential, we are now advancing into the delivery stage for the initiatives we have identified at Lihir, Cadia and Red Chris, with the largest value drivers coming from our 2 new Tier 1 assets in Lihir and Cadia.

Speaker 1

On our call last quarter, we provided an update on the opportunities we have identified at Lihir. In this quarter, I'll briefly describe some of the opportunities we see in front of us at Cadia. We recently completed our full potential diagnosis phase at Cadia, from which we have identified a series of initiatives that are expected to deliver more than $100,000,000 of value by the end of next year. During this first phase, we had a team of experts from Newmont's Global Technical Services Group working to support the site to identify opportunities to high production and improved cash flows. As one example of this and through collaboration with Boddington, Cadia is working to optimize the output from its high pressure riding roll circuit in the mill.

Speaker 1

With these HPGR improvements, Cadia will be able to lift its mill feed by approximately 80 tons an hour or more than 600,000 tons a year. Implementing the initiatives we have identified and leveraging the experience we have gained over the last 10 years with our full potential program, we are working with the team at Cadia to increase average mill throughput to 34,000,000 tons per annum, representing a meaningful step up in productivity from this world class gold and copper asset. With Lihir, Cadia and Red Chris all now entering the delivery phase of full potential, we are on track to meet our initial $200,000,000 commitment. Moving to supply chain synergies. We continue to leverage our combined scale to drive improved commercial outcomes for both pricing and terms.

Speaker 1

In the Q2, we realized $60,000,000 in synergies from around 40 initiatives in contracted services, mining equipment, energy, information technology among other categories. And we have a clear line of sight to reach $140,000,000 run rate by the end of this year as we progress our commercial work across several spend categories, including chemicals, explosives, grinding media, tires, fuel, as well as spare parts and ratables. And finally turning to G and A synergies. We have now achieved 95% of our initial $100,000,000 commitment with an additional $15,000,000 realized during the Q2. The latest G and A synergies have primarily been coming from continued labor rationalization and ongoing reductions in our contractor spend.

Speaker 1

Taking these synergies into account, combined with the high production volumes anticipated in the second half of this year, we expect to deliver lower unit costs in the 3rd and 4th quarters. And with that, I'll now turn it over to Natasha and then on to Karen for an update on our operational and financial performance for the quarter. Over to you, Natasha.

Speaker 2

Thank you, Tom, and good morning, everyone. Our managed operations delivered solid 2nd quarter results in line with our expectations and outlook for the year. With a focus on safe and efficient production at each of our managed operations, we are heading into the second half of the year with confidence in our ability to deliver on our business plan and the commitments Tom reiterated earlier. And similar to the first half of the year, our operational results in the 3rd and 4th quarters will be largely driven by production from our fixed managed Tier 1 operations. Reflecting on these and beginning with Tanami, we delivered higher production in the Q2 as planned, while effectively progressing the 2nd underground expansion.

Speaker 2

Tanami continues to be a reliable performer and remains well positioned to access higher grade stopes in the second half of the year from the Liberator ore body. Moving to Boddington, we reported consistent results as stripping in the north and south bids continued ahead of plan in the Q2. And with plant, plant and crusher maintenance now behind us, Boddington is expected to deliver strong mold throughput and slightly higher gold and copper production in the 3rd quarter. At Penasquito, we delivered higher gold and zinc production due to higher grades from the Chile, Colorado pit and strong mill performance in the 2nd quarter. Production levels are expected to remain steady in the 3rd quarter with significant increase in gold production in the 4th quarter as we return to mining ore from the Penasco pit to win the end of the year.

Speaker 2

Turning now to Ohafo. The GirthGear replacement was safely completed ahead of schedule, and I'm really proud of the half home team for completing this significant body of work so efficiently. The challenge out spanned over 12 months and involves the fabrication of a new 6.5 meter diameter growth gear along with a transport with more than 50 tons of steel all the way from Australia to Ghana. During this entire time, the team continued to optimize the processing circuit, ensuring our most productive milling circuit was able to run as efficiently as possible. Beginning in the Q3, we expect a meaningful step up in production from Ahafo as we will improve mill throughput, deliver consistently strong mining rights from Subika Underground and access higher grades from the Subika open pit.

Speaker 2

At Cadia, we delivered solid gold and copper production as planned due to steady grades and strong gold performance in the 2nd quarter. As plugged into our guidance, production at Cadia is expected to gradually decline through the rest of the year as we transition mining to the next panel cave, and we expect these lower grades to continue until the next panel cave is fully ramped up. And finally at the hip, 2nd quarter production decreased from the Q1, primarily due to heavy rainfall, which contributed to soft ground conditions that in turn impacted mine sequencing. Production levels are expected to remain consistent in the Q3 as the site commences a planned 120 day shutdown of the primary autoclave. And just to bring the autoclave shutdown into perspective, the process includes not only shutting down the autoclave itself, but also removing the prick layer and Pyrosflex membrane, inspecting the 5.5 meter diameter steel shell, applying a high temperature tolerant membrane and re breaking the 48 meter long structure, which is nearly the length of an Olympic swimming pool.

Speaker 2

Once complete, we anticipate gold production will return to normal levels in the 4th quarter, positioning the year for a strong finish to the year. Taking everything into account, we anticipate an increase in gold production next quarter, setting us up to deliver the year's higher production in the 4th quarter. Our performance in the second half of the year will be driven by higher grades at Penasquito, Ohafo and San Amay, improved throughput from Lihir and Boddington along with an expected improvement from our non managed operations. During the Q2, we continue to progress the 4 key projects we currently have in execution. At our Hawthorne North, the construction of the crusher and mill are advancing well.

Speaker 2

We have poured the concrete foundations for the SAG and Ball Mills and has erected all fixed carbon in leach tanks. Earthworks continue for the tiling storage facilities along with the pre mine development activities for this very exciting new mine in West Africa. At the second expansion at Tanami, our team remains focused on the concrete liner of the lower section of the shaft and we continue to advance construction activities both underground and on surface. Underground, we are progressing the crusher and conveyor systems and have just safely and successfully completed pouring nearly 200 cubic meters of concrete for the underground Prussia Chamber. On surface, we are working to complete the winder building, which will house the wasting operations for many decades to come.

Speaker 2

Turning to Cadia, the 2 blockades are each progressing well. We are continuing to commission 2 new draw points at Panel Caves 23 and we are anticipating that initial cabling is expected to commence by the end of the year. For Panel Cave 1, 2, we are advancing underground development and the engineering work needed to design the crushing and material handling systems at this Tier 1 gold and copper operation. With that, I'll turn over to Karen to cover our financial performance and the progress we are making on our capital allocation priorities.

Speaker 3

Thank you, Natasha. Turning to the next slide, let's begin with a review of the financial highlights for the quarter. Building upon Tom and Natasha's remarks, Newmont delivered strong operational and financial results in the 2nd quarter. We reported $4,400,000,000 of revenue at an average realized gold price of $2,347 per ounce and cost applicable to sales of $11.52 per gold ounce and all in sustaining cost of $15.62 an ounce, which were higher over the Q1, primarily due to lower production volumes, higher royalties from a stronger gold price environment and increased sustaining capital this quarter due to spend on tailings work at Acadia and the planned purchase of additional trucks at Marriott. Taking everything into account, we reported adjusted EBITDA of approximately $2,000,000,000 driven by solid production volumes and higher gold prices.

Speaker 3

Adjusted net income was $0.72 per diluted share and was more than 30% higher than the Q1. The most notable adjustment to net income for the quarter was an approximately $0.20 add back related to a non cash impairment to reflect our progress at the conclusion of Phase 1 in the divestment process for North America. As a reminder, assets that are classified as hold for sale require a specific evaluation under U. S. GAAP and need to be recorded at the lower to carrying value or fair value plus cost to sell.

Speaker 3

And we will continue to assess the current carrying value of all assets held for sale each quarter, which may result in future adjustments until the assets are divested. It is important to note that this impairment does not reflect the future potential at these operations in their entirety or what the ultimate purchase price might be. We also generated $1,400,000,000 of cash flow from operations and $594,000,000 of free cash flow, which does not include the first $180,000,000 payment received from the sale of the Lundin Gold Financing Facilities announced last quarter, but does include $263,000,000 of unfavorable working capital changes largely due to a build in stockpiles of $185,000,000 primarily attributed to Lihir and Telfer a build in trade and other receivables of $140,000,000 due to higher grade concentrate produced at Penasquito and the timing of sales at Acadia and $107,000,000 of reclamation spend, primarily related to the construction of the Anacocha water treatment facilities. With $166,000,000 in reclamation spent to date, we expect that payments will continue ramping up in the second half of the year, which will be a working capital headwind in the 3rd and 4th quarters. And while we are pleased with the improvement in free cash flow, we are still not satisfied and are working to further improve margins.

Speaker 3

Looking ahead, we anticipate higher free cash flows in the second half of the year, driven by increased production volumes and lower unit costs, as Tom and Natasha just mentioned.

Speaker 2

Heading into the second half

Speaker 3

of the year, we remain firmly on track to achieve our full year guidance for production, costs and capital spend. And as Natasha mentioned, production is expected to increase in the 3rd quarter with the year's strongest performance anticipated in the Q4. Unit cost will be closely correlated to production with the added benefit of full potential improvements and additional synergies realized in the latter part of the year. Today, we announced 2 divestments, including the monetization of our Atahiju deferred payment obligations and the sale of our Lending Gold Financing Facilities. In total, these divestitures are expected to generate nearly $530,000,000 in gross proceeds by the end of the year.

Speaker 3

With this momentum, the benefit of higher commodity prices contributing to enhanced free cash flows and the confidence in our asset divestiture program, we were able to prioritize shareholder returns sooner than anticipated, while concurrently executing on debt reductions. Since our last earnings call, we repurchased 5,700,000 shares at an average price of $43 per share for a total cost of $250,000,000 including $104,000,000 repurchased during the Q2 and $146,000,000 in July. And we purchased $250,000,000 in nominal debt for $227,000,000 or $0.90 on the dollar. Additionally, we maintained an investment grade balance sheet and ended the quarter with $6,800,000,000 in total liquidity. And we declared a fixed common second quarter dividend of $0.25 per share in line with the dividend declared for the past 2 quarters.

Speaker 3

Looking ahead to the remainder of the year, we will continue to execute our balanced capital allocation strategy, focused on maintaining a strong balance sheet, steadily funding cash generative capital projects and returning capital to shareholders. With that, I'll pass it back to Tom for closing remarks.

Speaker 1

Thanks, Karen. At the start of this year, I outlined the 4 key commitments that we have made to our shareholders. And I'd like to end today's call with a recap of the progress we have made against them in the Q2. 1st and most importantly, we commenced a systematic review of our safety and risk management systems. We safely delivered solid production as planned, keeping us firmly on track to meet our full year guidance for both ounces and costs.

Speaker 1

We announced meaningful progress on our portfolio optimization commitments with the monetization of our data hedged out deferred payment obligations. We realized $100,000,000 in synergies, bringing the total delivered to $205,000,000 since we closed our acquisition of Newcrest in November last year. We've demonstrated our commitment to shareholder returns, delivering $540,000,000 through both regular dividends and share repurchases. And we strengthened our balance sheet with $250,000,000 of debt reduction. As we enter the second half of this year, I am confident in our ability to deliver high production or potential improvements and additional synergies, all of which will contribute to lower unit costs in the 3rd and 4th quarters.

Speaker 1

We execute on our portfolio optimization strategy through the divestment of our non core assets and to progress our capital allocation priorities, all positioning Newmont for a strong finish to this year. And with that, I'll thank you for your time today and turn it back over to the operator to open the line for questions.

Operator

Thank you. We will now begin the question and answer session. We ask that you please limit inquiries The first question comes from Lawson Winder from Bank of America Securities. The line is now open. Please go ahead.

Speaker 4

Great. Thank you, operator, and good morning, Tom and team. Nice quarterly results and thanks for the update. I also like to just acknowledge the congratulations for realizing value on the deferred payments from Batuhija, which I think most of us have forgotten about. But I wanted to ask about the larger asset sales process, Achim, Telfer and the North American assets, what is your latest thinking on timing of each?

Speaker 4

And with the stronger gold price, are you seeing upward pressure on offer prices? Thanks very much.

Speaker 1

Good morning, Lawson, and thanks for your question. And it's a chapter that we closed in our relationship with Banda Hijel and an asset I've been associated with for my 10 years at Newmont and was an active part of the original divestment process. So in some ways, it's a sad moment to close that chapter on what is still a great copper mine and one that Newmont built a generation ago. So it's nice to be able to clean up our non core portfolio and realize that sort of value. In terms of our broader portfolio optimization, rationalization process, is firmly on track and we continue to follow a very rigorous process to ensure we get full and fair value for these assets and that these assets are sold to operators that can continue to operate them and maintain them with the principles that we have at Nearmont.

Speaker 1

Maybe just covering the program. We've had 4 parallel streams running. The first one is we've just talked about is the cleaning up the opportunities around our non core equity portfolio. The 2 major items there were the London Gold transaction and Batahedgell, but we'll continue to look for any opportunities there might be in that non core equity portfolio. At ACHIM, we're well advanced and processed with ACHIM.

Speaker 1

So we completed Phase 1 some time ago. We had 20 parties through that process who made bids and we've taken 7 parties into Phase 2 and we're at the end of the Phase 2 process. So we've had all those parties visit site and participate in management presentations, and they are now preparing their Phase 2 bids for us to consider. So we're at that stage where really by the time you get into Phase 3, you're down to 1 or 2 parties starting to finalize that transaction. So that is progressing very well.

Speaker 1

It's progressing on track, and we're certainly seeing a competitive process and some good value coming through. The North American process, we are just concluding Phase 1. So we've had some 67 parties actively participate in Phase 1 and we had around 24 bids submitted And we had everything from bids for a single asset. If you remember, North America is Cripple Creek and Victor, Elianore, Porcupine, Musselwhite and our coffee project up in the Yukon. So we've had a range of bids from a single asset to a bundle of assets to the full portfolio.

Speaker 1

And we are busily now having received those bids just in recent days, working through a process of assessing those and determining which parties we'll take into Phase 2. Again, that's progressing well and there's very nice competition in that process. So pretty more than pleased with how both the Chimp and North America are progressing. And then Telfer continues to progress well. We continue to actively work that process and also slightly confident around how that process is progressing also.

Speaker 1

So everything is on track and pretty pleased with what we're seeing in terms of bids coming through and the type of organizations that are looking to make offers and ultimately acquire these non core assets. Karen, do you want to build on that?

Speaker 3

Yes. And just as a reminder, the accounting treatment under U. S. GAAP requires that, there's an advanced process, it's auditable, there's viable buyers and the probability that the divestitures will be completed in 12 months, which for us would then be March of 2025.

Speaker 4

Thanks for clearing up that timing. And just one follow-up on Telfer. Thank you for clarifying a lot of, I think, folks' thoughts around Telfer in terms of both timing and value. But one bit of feedback we've been getting is just some concerns around the tailings dam issues and whether or not that might have impacted the ability to monetize that asset for value. Do you have any thoughts on that?

Speaker 4

Or is there any feedback you may have received from potential interested parties that might help calm some of those concerns?

Speaker 1

Yes. Thanks, Lawson. The approach we took with Telfer and certainly talked to this a number of times over the last few months is ultimately being radically transparent around those tailings issues. So since we saw the first of the sinkholes developed on Christmas Eve, have been very transparent with the regulators, with our workforce and with any potential buyers around what the issue is and what the work is to remediate those issues. So the issues are well understood and the remediation well understood and we have been completely transparent around what that looks like and the pathway to remediate.

Speaker 1

So there is a clear pathway to remediate and I might just get Natasha to get a little bit more detail as to what that looks like and maybe a bit of the timing around that because that then serves to understand with that transparency what any potential buyer is looking at it in terms of the ability to acquire Telfer and to be able to run the operation for some time to come. I should add before I pass to Natasha, we continue to operate the mine. So we're building stockpiles in front of the mill. So as soon as the tailings facilities have through their remediation work, the tank can start up and we can continue to process ore and produce gold again. Thanks, Ritesh.

Speaker 2

Thanks, Tom. Good morning, Daniel. Firstly, just want to reiterate the point that we've been transparent with all parties involved throughout the process. Secondly, want to reiterate that both the TSS7 and 8 DAPs are stable. We're progressing the TSS7 rehabilitation as planned, And it is all around how do we fall in the sinkholes, placing membranes and preventing in that way any further erosion in those areas.

Speaker 2

So whilst we're working on the stability on remediating the sinkholes in TSS7, TSF8, we've completed the rehabilitation and we have authorization to continue with a lift on TSF-eight that we are required to do before we can do any more depositioning on that dam. It is on schedule and we are planning to start up Telfer in the Q4 when the rehabilitation and the lift would have been done. And apologies, I realized we're still talking to Lawson and we haven't progressed to Daniel, my apologies.

Speaker 4

Quite all right. Thank you very much for those responses.

Speaker 1

Thanks, Lawson.

Operator

Thank you. The next question is from Daniel Major from UBS. The line is now open. Please go ahead.

Speaker 5

Hi, thanks so much. Can you hear me okay?

Speaker 1

Yes, we can. Thanks, Daniel.

Speaker 5

Great. Thanks.

Speaker 3

Yes, my question

Speaker 5

is focused on the decision to start the buyback and sort of comes in 2 parts. Firstly, from a perspective of kind of run rate of cash returns relative to debt reduction going forward? How should we look at that? You've sort of indicated around half of the free cash flow would be allocated to debt reduction and buybacks. Is that what we should be considering for the second half?

Speaker 5

That's the first part of the question.

Speaker 1

Thanks, Dan. I'll get Karen maybe to pick that one up.

Speaker 3

Sure. Yes, we have time on the debt. So we purposely put out the $1,000,000,000 tranche for 2026, and so our commitment was over a 24 month period when we put that in place. So we do have time on the debt. The Batu as well as the Lundin allowed us to be able to opportunistically in the market do some open market purchases.

Speaker 5

Hello? Sorry.

Speaker 1

Daniel, we didn't miss the we missed the second part. Did you want to build?

Speaker 5

Yes. Sorry. Well, the other part was the run rate of the buyback going forward, what we should be thinking? And then just to add to that, I mean, what gave you the confidence to initiate the cash returns earlier? Is it the gold price environment, the operational visibility for the second half or the certainty on or narrowing in on the proceeds for divestments?

Speaker 3

All three of those. Daniel provided that opportunity for us. In terms of the pace of the share buybacks as we go forward, that will be driven by our free cash flow realization and proceeds from the divestitures. So, as we've just mentioned, we're proceeding very well and are very confident in the ultimate execution on those divestments. But we'll pace our share buybacks as we realize those proceeds as well as

Speaker 1

the free cash flow. And maybe just to build on the debt side, Daniel, there was opportunistically during the Q2 with those proceeds coming through. We've got that tranche sitting out there 2 years and we'll look to be opportunistic in terms of where there might be some good buying whilst we manage that period out to when that tranche is due.

Speaker 5

Great. Thanks very much.

Speaker 1

Thanks, Dan.

Operator

Thank you. The next question is from Tanya Jakusconek from Scotiabank. The line is now open. Please go ahead.

Speaker 6

Good morning. I think that's me. Thank you, everyone. I want to have just ask a question on the technical side. Maybe Natasha to you, just on Penasquito, you did mention and thank you that Q3 should be similar to Q2 on the gold side, strong Q4 driven by grades as we get into the new pit.

Speaker 6

But the production from the non gold metals did very well in Q2. A previous guidance had been that they would be evenly distributed throughout the year. How should I think about Penasquito on the non gold side as we go through Q3 and Q4?

Speaker 2

Thank you, Tania. I think as we've spoken about before, we are mining predominantly in Serendip in really Colorado, but this 1st 3 quarters of the year as we are progressing a pushback in the NASCO fit. Telecolorado, as you would remember, is higher in zinc lead and the other metals. And therefore, our production in those other metals in the 1st 3 quarters are higher. We have been progressing this step back in Penasco Bid faster than expected.

Speaker 2

So we do expect to be back in the 4th quarter in Penasco Bid giving us the advantage of higher gold grades in that 4th quarter. And we'll probably see about a 25% increase in gold grade in that Q4.

Speaker 1

And Natasha, maybe just building on that. I think the Q2 with ore coming from Chile, Colorado, good performance through the mill cadence. So we're getting good throughputs and recoveries. So as we and it's a third quarter that's also got feed primarily coming from Chile, Colorado. So if the mill can perform and the grades present, then we could potentially see some better lead some things because the oil is coming from Chile, Colorado, but it was a bit higher than maybe you're expecting was due to really good mill performance by Dave Meadeau and the team down there.

Speaker 6

Okay. As I think about the second half and I think you mentioned that there'll be a step up in production, so volume and then stronger volumes in Q4. And I think about this cost structure because in order for us to get these costs down, we do need the volume, number 1, and obviously the $130,000,000 in synergies that you mentioned. I'm just trying to picture for myself, should I be thinking that the step up into Q3 like almost like 26% of production coming out of the year and then 28% in Q4 and $130,000,000 majority of those savings coming in Q4. I'm just trying to understand how I'm going to get to your guidance on the costing side with the volume and the synergies and also where these $130,000,000 in synergies are coming from, if I can have a breakdown of those.

Speaker 1

And if we think about I'll paint the picture this way, and I think you're not too far off the mark. You're certainly going to see the synergies kicking through, particularly those coming from Full Potential in the 4th quarter as those programs get their momentum up. You're certainly going to see the highest quarter for gold ounces in the 4th quarter. That's from some of our key assets that Natasha covered in the comments. The 2 non managed joint ventures, so NGMPV need to deliver on their commitments and they've got that strong 4th quarter.

Speaker 1

Our direct costs are pretty stable across the year and certainly what we're seeing in the first half flowing through the second half pretty stable. So I think the picture you're painting in terms of that 3rd quarter waiting to the 4th quarter waiting is a reasonable position to be thinking about in terms of that between the 3rd Q4. You will see a step up in the 3rd and then a step up into the 4th to get to our numbers.

Speaker 6

And maybe just if I could have an understanding, thank you, Fatima. Maybe just an understanding of the $130,000,000 in synergies. Can you just give me a breakdown of what's coming from? Is it like what's very little is left in G and A? Is it supply chain like $30,000,000 of it and $100,000,000 in the operations?

Speaker 6

I'm just trying to understand how I should think about that $130,000,000 coming in yet.

Speaker 1

Yes. Certainly, when you think about G and A, and it's the same we saw for Goldcorp similar size companies, that's around about the mark. So we've largely seen that come through. Still pushing hard on we've got a strong commercial team working hard on all those fronts. So you're going to see a good amount come from that supply chain work.

Speaker 1

And then you'll start to see, both E and C, a bit of reg risk in the Q4. So not much from G and A, good percentage coming from supply chain as that work started to kick in. And then you'll start to see in the Q4 some of the full potential of the operations starting to kick through. Really they start to show up in 2025. But again, the split you're articulating is not too far off the mark.

Speaker 6

Okay, great. Thank you so much. I appreciate you taking my question.

Speaker 1

Thanks, Daniel.

Operator

Thank you. The next question is from Mathur Mathi from Jefferies. Your line is now open. Please go ahead.

Speaker 7

Hi. Just a follow-up on the share repurchases. Just margins are good. They're getting better. You still have asset disposals ahead and you're out pretty early and strong out of the gate on the buyback.

Speaker 7

So how should we think about what happens when you hit the $1,000,000,000 mark?

Speaker 8

I think that's the total

Speaker 7

allowed right now through 2026. So should we be thinking the Board will reevaluate that potentially earlier than then? Or should we think about once you hit the $1,000,000,000 do you start picking up CapEx again?

Speaker 1

Good morning, Matt. Certainly, the $1,000,000,000 was our initial commitment and it was $1,000,000,000 so we committed to $2,000,000,000 of proceeds from divestments of the 7 non core assets and $1,000,000,000 going to share repurchase and $1,000,000,000 going to debt reduction. So that's how that comes together. Now as we start to see the divestment process come through and as I was talking earlier in terms of what we see coming now in terms of offers, both Phase 2 and Phase I offers and get a view as to what the proceeds are plus the cash that we'll generate in this price environment. As we near the end of that $1,000,000,000 program, we'll sit down with our Board and discuss what another tranche may look like.

Speaker 1

But certainly, as we think about our return of capital, it's through buybacks or be the vehicle that we'll use. So you would expect that we would look to extend that program if that would everything would play out as we expect going forward with the conversation we have with the Board with our Board at the appropriate time. Carrie, do you want

Speaker 3

to build on that? Absolutely. As I already indicated, the free cash flow realization and the divestitures will be what drives the share buyback. And administratively, as Tom said, we'll work with the Board if we have to re up the authorization to meet that as the proceeds as well as the free cash flow question. Do

Speaker 7

you view an increasing question. Do you view an increase in CapEx down the line? Is that kind of like a timeline related thing where you integrate Newcrest for a number of years and kind of focus on capital returns and then eventually get back into potentially higher development CapEx?

Speaker 1

No, Matt. We've been something that hasn't been seen before in the gold industry. I think for the first time, something that hasn't been seen before in the gold industry. I think for the first time, we have a long life, very long life gold mining business with Tier 1 assets. Key to running a long life portfolio is your discipline around capital allocation.

Speaker 1

So we think about this portfolio going forward and our pipeline of projects that sit at 6 big projects sitting in our pipeline, our discipline around the amount of capital we put towards sustaining capital for that portfolio and the $1,300,000,000 towards development capital doesn't change. It's the discipline around managing a long life portfolio, having a view on capital that's 2 decades out and thinking about what that means is key to what we've built. So we will demonstrate that over time, but the expectation you should expect from us is that $1,300,000,000 is the amount of money that we allocate to reinvest back in the business each and every year.

Speaker 7

Okay, great. That's clear. Thanks, Tom.

Speaker 8

Thanks,

Operator

Matt. Thank you. The next question is from Anita Soni from CIBC World Markets. Your line is now open. Please go ahead.

Operator

Hi, Tom

Speaker 9

and team. So a lot of the questions have been asked and answered. I'm going to ask about the working capital as it evolves over the back half of the year. So I think you said you had about $166,000,000 of the $600,000,000 reclamation spend set to date. So at least around $434,000,000 So that would is it an even split for that spending in the in Q3 and Q4?

Speaker 9

And then also the other aspect would be the Telfer spend. Are you going to continue to mine at that rate? And how much was that spend again? I thought I heard $185,000,000 but I could be wrong about that. Thanks.

Speaker 1

Morning, Anita. Thanks. I'll get Cara to pick up the working capital question and then Natasha on the approach to Telfer.

Speaker 3

Thanks, Anita. The first half of the year traditionally tends to produce adverse working capital changes. So we expect the free cash flow generation to improve in the second half of the year. And as I mentioned in my prepared remarks, we do have some unfavorable impact. So the Yanacocha water treatment, and as you said, yes, we've spent 166 today.

Speaker 3

And you're right, it's about 400 to 450 to be spent in the second half of the year with more of that weighted towards the Q4 than the 3rd. And just and then also just a reminder, the other kind of one time is the remaining stamp duty, just about $30,000,000 that will be expected to be paid in the 3rd quarter.

Speaker 2

And then, Jen, Anita from the ITALF production facility, we will continue to mine as we know that the solution for the tiling stamps and as we're working through those solutions. And then we do have capacity in the plant to catch up to get that production through. And as we get that production through and declare the ounces, we'll also declare our unit loss.

Speaker 3

Okay. And then what was the other one that I

Speaker 9

think there was another asset that had some working capital change. It was it Lihir that should unwind in Q4, I guess, when you ramp up, but perhaps draw down again in Q3?

Speaker 3

The buildup in Q2 from earlier here, about a $75,000,000 impact. So the average carrying cost per ounce of the stockpiles increasing from the initial low value that we had on the acquisition and a lot of that has to do with purchase price accounting adjustments.

Speaker 9

Okay. If I can ask just one more question. You reiterated your target of $2,000,000,000 from asset sales. Would you include the $500,000,000 or so $1,000,000 you realized from these non core within that $2,000,000,000 or is that excluding those two assets Lundin and the Batu Huiju?

Speaker 1

Thanks Aneta. The $2,000,000,000 that we're committed to excludes proceeds from Lundin and Barda Hijal. So we're committing to at least $2,000,000,000 from the divestment of the 7 non core assets.

Speaker 9

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

Speaker 1

Thanks, Anita.

Operator

Thank you. The next question is from Paul Brackett from Bernstein Research. Your line is now open. Please go ahead.

Speaker 10

Yes, good morning. Thanks for taking my question. A bit in the weeds around Lihir. I'm trying to understand the cadence of the shutdown and the guidance. So there's roughly 5 months left in the year.

Speaker 10

The shutdown is 4 months, but we should think about volumes as being sort of evenly split first half and second half. Are all 4 auto claims being shut down? Or is it in series or parallel? Or how

Speaker 1

do I think about that cadence? Yes. Paul, AutoClay 4 is the largest of the 4 auto claims, represents 40% of the throughput. So still with the other 3 autoclaves running, you get some lower recoveries running through those other 3 autoclaves. So the guidance for the year reflected that large the largest of the autoclaves being down for 120 days shut.

Speaker 1

And then that you're obviously going to see that impact through predominantly the Q3 and into the start of 4th. So we're certainly reflecting the impact of that shutdown further here this year. It's I think Natasha said in prepared remarks, the Q3 is similar to the Q2 and then you'll see a 4th quarter higher as you get that order client take up and running again with the year. It's not too far off being fifty-fifty waiting for the year as a consequence of that.

Speaker 10

Okay. That's great color. Thanks for the color.

Speaker 1

Thanks, Paul.

Operator

Thank you. The next question is from Brian MacArthur from Raymond James. Your line is now open. Please go ahead.

Speaker 10

Good morning and thank you for taking my question. It has to do with reclamation and obviously there's some significant money going into Yanacocha. But as we think longer term and you talk about your $1,300,000,000 sustainable capital, are there other assets that I think at 3 to 5 years that could have significant capital requirements, I. E, cash out the door as opposed to book accounting that I need to think about in my long term cash flow analysis?

Speaker 1

Good morning, Brian. Certainly, when we think about as a summary earlier on our capital allocation, whether it be development capital or sustaining capital, we think about this portfolio going forward having a reliable, predictable spend on sustaining capital to manage our business going forward, tailings dams and the like. And in terms of your broader part of that question as it relates to reclamation remediation and the like, Karen, why don't you pick that one up?

Speaker 3

Yes. Just to clarify, that comes out of working capital, but those are actual payments for accruals that have already been recorded on the book. So the expense has already been taken for those and so it's truly just cash outflow that has been for accruals that are already recorded on the balance sheet. The Anacocha water treatment facility is the big one. No expectation of any significant changes to what we've been outlining as we go through.

Speaker 3

And as we've indicated, the spend will be approximately around $600,000,000 in total 2024, it goes up higher in 2025, and that's above our historical outflow, which was annually around $200,000,000 to $300,000,000 So yes, specific to the Anacocha liability. But don't expect any other significant increases in that. If anything, we would expect that to go back to historical levels beginning in 'twenty eight, 'twenty nine time period.

Speaker 1

And then Brian, thanks Karen, in terms of our portfolio, certainly our go forward portfolio, Ganucocha is an order of magnitude larger in that reclamation liability than any other of operations. So the other big mines, Penasquito, the bottingtons, the Nevada Gold Mines complex, order of magnitude lower. So it's Yanacocha is quite unique in that respect.

Speaker 10

Great. That's what I thought, but I just figured I'd check. And the second part, I think you've been very careful you talk about when you're selling these assets, you want them to go to operators to maintain them going forward. Can I assume, I'm going to assume that you're going to sell the reclamation liabilities to the buyers of this? And the second part of that, I guess, within those assets, the one that's highlighted in the 10 Q is maybe Porcupine has potentially there are studies going on there about reclamation.

Speaker 10

Again, I'm just trying to I know you're very careful at this and reclamation is very important in the overall analysis. But I'm just trying to figure out how I should think about that.

Speaker 1

Yes. Thanks, Brian. Yes, the expectation is that as we divest these assets and particularly when you're in competitive environment, which is what we're seeing is that reclamation liability passes on to the new owner. And I'd also look to our track record as we've sold and rationalized and optimized our portfolio over the last 10 years. So that has been part of how we've gone about it.

Speaker 1

So what you've seen in terms of a Casa GM or Red Lake or Waihi, Batuhijiao, similar prices going forward.

Speaker 10

Great. Thanks very much.

Speaker 1

Thanks, Brad.

Operator

Thank you. The next question is from Mike Parking from National Bank. Your line is now open. Please go ahead.

Speaker 8

Hi, guys. Thanks for taking my questions. Just a couple of follow ups. One, Natasha, can you just give me an idea of when we should expect that 4th autoclave to go down and edit service for the reline?

Speaker 2

Mike, on the 1st August, that is 120 days.

Speaker 8

Okay, perfect. And then a couple of questions for Karen. Depreciation for ounce rates on Newcrest assets, I'm assuming they're not quite stable yet or have you finalized your purchase price accounting? And is it fair to kind of use Q2 rates on a go forward basis? Or should we still expect those to kind of bounce around a bit?

Speaker 3

Yes, there should there'll be slight variability as we go through and adjust from a purchase price accounting perspective, but they should be, generally speaking, well set. I think we've had some there's some ups and downs in depreciation. They're higher a bit, ounces mined at Penasquito, higher ounces mined in asset additions at AHPO and increased as a result of the drawdown in new winter at Yanacocha. And all of that partially offset by the decrease that we as you report things as assets held for sale, you cease depreciation and amortization on those assets once you put that into that class indication. So those will be the big variances, as you go forward.

Speaker 3

But generally speaking, the Newcrest from a purchase price accounting perspective has been pretty settled.

Speaker 8

Okay. And then a question on taxes. Are you making payments in installments based off your budget gold price or given that we're sitting up closer to what was 2,400 12 hours ago, a little lower now. But obviously, a much more robust metal price environment. Are you truing up your payments?

Speaker 8

Or should we this metal price environment sustains? Should we start to think about catch up payments in Q1, Q2 of next year to make up for the difference between budget and realized?

Speaker 3

Yes. It will start accruing in arrears as we go forward.

Speaker 8

Okay. Thank you. That's it for me.

Speaker 1

Thanks, Buck.

Operator

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

Speaker 1

Thank you, operator. We're just at the top of the hour. So thank you all for your time over the last hour and have a good day and we'll now look forward to catching up with you soon. Thanks everyone.

Operator

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

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Earnings Conference Call
Newmont Q2 2024
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