Newmont Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 24, 2022

There are 8 speakers on the call.

Operator

Good morning, and welcome to Newmont's Full Year and 4th Quarter 2021 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 Palmer, President and Chief Executive Officer.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you for joining Newmont's full year and 4th quarter 2021 earnings call. Today, I'm joined by Rob Atkinson and Nancy Beattie along with other members of our executives team. And we will be available to answer questions at the end of the call. Before I begin, please note our cautionary statement and refer to our SEC filings, which can be found on our website. Newmont delivered a strong finish to the year and has maintained its position as the world's leading gold company With our unmatched portfolio of operations and projects in the most favorable mine jurisdictions.

Speaker 1

As we move into our next 100 years of sustainable and responsible mining, Newmont will continue to create long term value All of our stakeholders and differentiate ourselves through our clear strategic focus, superior operational performance And an unwavering commitment to leading ESG practices. Turning to our highlights for 2021. Yearmont continued to operate from a position of strength in 2021, leveraging our scale and mine life To deliver strong ESG, operational and financial performance. 1st and foremost, our focus has remained I'm protecting the health and well-being of our workforce and local communities as the world continues to grapple with the pandemic. We continue to be recognized for our leading ESG performance, building new pathways to decarbonization and publishing our first On a strategy report.

Speaker 1

And during the Q4, we safely commissioned the Gold Industries' 1st autonomous haul fleet at Boddington And formed an industry leading strategic alliance with Caterpillar to achieve 0 emissions mining and support Newmont's climate initiatives. We finished the year strongly, meeting our updated full year guidance and producing 16 ounces of gold All in sustaining costs of $10.62 per ounce and in addition produced 1,300,000 gold equivalent from copper, silver, lead and zinc. These results generated $4,300,000,000 in cash from continuing operations And $2,600,000,000 in free cash flow, more than 99% of which is attributable to Newmont and available to execute on our balanced and disciplined capital allocation priorities. We refinanced near term debt with the mining industry's 1st sustainability lease bond, preserving Newmont's financial strength and flexibility As we further align our financing strategy with our ESG commitments. In 2021, We returned $1,800,000,000 through our clear dividend framework and completed $525,000,000 of share repurchases, leading the gold sector in shareholder returns.

Speaker 1

We also completed the acquisition of GT Gold, continue to advance our most profitable near term projects. And 2 weeks ago, We announced the acquisition of Bonaventure's interest in Yanacocha, increasing Newmont's ownership in one of the largest and most productive gold mines in South America. We have successfully operated in Peru for more than 30 years, And we have a deep knowledge of Yanacocha and the value that it brings to Newmont stakeholders. Since 1993, Yanacocha has produced nearly 40,000,000 ounces of gold. And similar to our acquisition of GT Gold in British Columbia's Golden Triangle, This transaction is in line with Newmont's strategy of district consolidation, enhancing our ownership of world class assets in Proven mining jurisdictions.

Speaker 1

Increasing our ownership in Yanacocha also means that Newmont is increasing our stake in the sulfides project, which is the next exciting chapter in Yanacocha's long and profitable district. With a multi decade mine life from just the first phase, This project will generate profitable production of more than 500,000 gold equivalent ounces per year at attractive all in sustaining costs. Importantly, the metal produced from sulfides be approximately 45% gold, 45% copper and 10% silver, substantially increasing Newmont's copper position as the world transitions to a green economy. And looking ahead, we are already evaluating the 2nd and third phases of the Solsys project, which has a potential to both increase production and extend mine life well beyond 2,040. We are very fortunate to have had a strong partnership with Bonaventurea over several decades and look forward to continuing to work with the people of the Cajamarca region And local agencies to sustainably and responsibly develop the next phases of Yanacocha's long life.

Speaker 1

Turning now to the strategic value that differentiates our portfolio. Each year, Newmont's portfolio of operations will produce more than 16 ounces of gold along with nearly 2,000,000 gold equivalent ounces from copper, silver, lead and zinc. Combined, that is nearly 8,000,000 gold equivalent ounces per year for at least the next decade, The most of any company in our industry. At Newmont, we have created a robust and diverse portfolio Operations and projects around the globe with the scale and mine life to deliver strong long term results. Among our 12 operating mines and 2 joint ventures, over 90% of our attributable gold production comes from And with the opportunity to acquire the outstanding 5% ownership in Yanacocha, 11 of our 12 managed operations will be 100% owned, ensuring that our stakeholders receive the full benefit From Newmont's clear and strategic focus and superior execution.

Speaker 1

Underpinning our portfolio With a robust foundation of reserves and resources. Including our recent acquisition of an increased interest in Manacocha, U MOS reserve base now sits at 96,000,000 ounces of gold 68,000,000 gold equivalent ounces from other metals, predominantly copper. We also offer substantial upside through our resource base of about 112,000,000 ounces of gold And a further 112,000,000 gold equivalent ounces from other metals, which includes almost £30,000,000,000 of copper. Through our industry leading organic project pipeline, we have multiple opportunities to increase copper production Through the development of Yanacocha Sulfides, Saddle North, North Abieto, Niva Union and Galore Creek, providing natural exposure to a metal of growing importance for reducing carbon emissions and facilitating ongoing transition to a new energy economy. Reserve replacement is a long term process.

Speaker 1

And as Newmont has done for many years, we develop and implement plans that target replacing our annual depletion on average over time. In 2021, we replaced more than 80% of reserve depletion despite the challenges created by the pandemic. And it is important to note that this does not include the 3,000,000 ounces of gold reserves we just acquired through our purchase of Buenaventura's interest At Newmont, we firmly believe that the COVID-nineteen vaccine is Critical in combating the spread of the virus and preventing severe illness and death. As you can see in this slide, The vaccination rates at our managed operations exceed national rates in all of the jurisdictions in which we operate. Last September, We took the important step of deliberately moving towards a position where all of our global workforce will be required to be vaccinated.

Speaker 1

To support this, Newmont continues to deliver vaccination awareness programs, while also working with local communities and governments to both provide and improve access to the vaccines. And one of the most meaningful contributions that our leaders have made in the Fight against COVID-nineteen is the time that they have spent with their teams, following individual meetings, answering difficult questions, Coordinating facilitated sessions with health professionals and guiding our workforce as they make the important decision to protect themselves and their loved ones. We are very proud of the work we have done, and we will continue to be a values driven organization That makes decisions that prioritize the health and safety of our workforce and local communities above orders. Over the 1st 2 months of this year, the Omicron surge has impacted our operations and the mining industry as a whole. Fortunately, due to our high vaccination status, the severity of any positive cases has been low.

Speaker 1

Our workforce remains healthy and we are well positioned as we emerge on the other side of this current surge. However, as a consequence of safely managing through this surge, we expect that our production results in the Q1 of 2022 Could be impacted by as much as 150,000 ounces. Around 1 third of that impact is coming from our Canadian operations And Cripple Creek and Victor, as flight capacity constraints at our fly in, fly out operations and close contact isolation protocols The impact of productivity. Another third comes from Africa, where we are experiencing COVID related Supply chain disruptions and global border closures, which are impacting the availability of skilled workers from Australia and the delivery of critical spares and equipment. And the final third comes from our operations in Australia.

Speaker 1

We are seeing the impacts to productivity and labor availability as we adhere to interstate border closures and close contact isolation protocols. We are closely monitoring the reopening of the Western Australian border, which is currently planned for March 5. And this may lead to a Surrogative cases impacting the mining industry in that state. However, the reopening of this border will also allow 1 third of our team at Tanami who As we near the end of February, we are encouraged to see declining case counts and have reported only one hospitalization associated with the Omicron surge. Despite the challenges presented by managing the Omicron surge, we remain on track to end the year within our guidance ranges.

Speaker 1

We expect the production and unit costs will substantially improve each quarter with approximately 53% of our production weighted for the back half of this year, driven by Boynton, by half of Cerro Negro and our Canadian operations. And with that, I'll turn it over to Rob and then Nancy for a more detailed look at our 4 quarter performance. Over to you, Rob. Thank you, Tom, and good morning, everyone. To echo what Tom said, the pandemic continues to present challenges across our operations And the mining industry as a whole.

Speaker 1

I'm very proud of the resilience of our people and our systems and I'd like to recognize the very significant efforts That continue to be applied at all of our operations in order to keep our team safe and healthy. Turning to the next slide, let's take a deeper look Starting with Australia. Tanamine delivered another strong performance in the 4th quarter as higher grades and strong mill performance more than offsetting thanks to productivity from COVID. And despite the tightening labor market and heightened protocols, The team added more than 800,000 ounces in reserve additions through drilling. We expect Tanamine to remain a solid contributor Throughout the year due to steady production and higher grade as we progress our investment in the second expansion at Tanami, A project with the potential to extend mine life beyond 2,040.

Speaker 1

The team continues to advance the construction of the head frame. 80% of the nearly 1 mile deep shaft has now been reigned and more than 80% of the project engineering procurement has been completed, an important step in locking in long lead time materials and limiting exposure to rising costs. At Boddington, we delivered the site's best quarterly performance of 2021. Overcoming challenges encountered during the Q3 And reporting improved production and lower costs as the team reached higher gold and copper grades in the South Pit. We expect tons mined and grade to further improve starting in the second quarter with 52% of production expected in the second half of the year.

Speaker 1

And I'm very pleased to announce that the gold industry's 1st autonomous solid fleet at Boynton has reached full productivity, Increasing ore tons mined in the Q4 and positioning Boddington to deliver a strong performance this year. Early in 2020, our NeuMoD team came together with our partners at Caterpillar to plan, construct, test And deploy the gold sector's 1st fully autonomous oil truck fleet. And despite facing some challenges while fine Tuning this new technology to operate in a deep open pit mine for the first time, the Bonnington AHS project was completed on budget and in record time, a major accomplishment for Newmont and the industry as a whole. Today, our autonomous trucks are operating at parity with a conventional haul truck, and we have a deep pipeline of Project aimed at improving consistency, efficiency and productivity throughout the year. The introduction of this technology allowed the site to replace 41 conventional trucks with 36 autonomous vehicles, resulting in important safety improvements And substantial cost savings over the long term.

Speaker 1

Already our AHS fleet has moved over 45,000,000 tons of material And these trucks have traveled more than 1,000,000 kilometers, generating tremendous results so far. Vehicle damage has declined nearly 50% in 2021 compared to 2020 and tire damage decreased 93% from more controlled and efficient knowledge. But more importantly, we have reported 0 injuries in the mine since going live in October last year. In addition to improving productivity, an autonomous haul fleet is fundamentally safer, removing the exposure to potential vehicle interactions And the risks associated with the team. In November, we took another step forward in the use of technology to improve mining, Announcing a revolutionary strategic alliance with Caterpillar to deliver 1st of a kind battery electric autonomous vehicles at Tanami and at CC and D as we make progress towards achieving 0 emissions mining.

Speaker 1

We will look to leverage our team of within both Newmont and Caterpillar along with the lessons that we've learned at Bonnington as we continue to implement important improvements to safety And productivity throughout our portfolio, while also building pathways to decarbonization. Shifting to North America, Penasquito delivered another strong quarter with sustained mill performance and higher gold grade. The size is expected to deliver lower gold production Steady coal product production this year due to the planned 9 sequencing at the Penasco and the Chile Colorado pit, combined with lower grade and harder ore coming from the Chile, Colorado pit. Stripping in the Penasco pit will continue through 2022 And the site will also begin stripping the next phase of the Chile, Colorado pit in the second half of the year. And in the first half of this year, Penasquito will increase capital spend as the site expands CAM facilities, ensuring that our team members The appropriate privacy and accommodation to get proper rest as well as

Speaker 2

improving our ability to manage

Speaker 1

the spread of any future surges of COVID variants. Turning to our Canadian operations. Eleonore delivered solid 4th quarter results due to improved lower tons mined at mill. In addition, the site added more than 800,000 ounces in reserves from drilling and favorable revisions. Musselwhite generated the year's strongest quarterly performance from higher grade 9 and improved mill performance in the 4th quarter.

Speaker 1

And Porcupine delivered consistent 4th quarter results as higher throughput and recovery rates helped to offset less high grade ore being mined from Wild Pond. In addition, the site continues to advance the Pomor project just 10 kilometers from our existing plant infrastructure. This project involves a significant layback of the Pomor Pit and will extend mining at Parkbank through 2,035. The Permoor pit will need to be dewatered as part of this project and the concrete foundations for the associated water treatment plant have been completed. Study work is progressing as the project prepares for full funds approval in the second half of this year.

Speaker 1

And finally, at CCV, The mine continued to experience lower grades and recoveries in the 4th quarter in addition to lower labor availability due to COVID. Turning to Africa. Achieem delivered another solid performance in the 4th quarter from Higher grade sustained throughput and strong recoveries. The team has begun stripping the next layback, extending mine life and providing future optionality As we continue to evaluate under bed and open pit growth opportunities, Ahafo delivered a strong finish to the year, Adding more than 400,000 ounces in reserve additions from drilling and generating a 19% production improvement over the prior quarter Due to higher tons mined from the Soudica open pit coupled with strong mill performance, which more than offset challenges with labor And equipment availability at our SEDICA underground operation. These challenges were driven by COVID related supply chain disruptions And international border closures at a time that we are ramping up sublevel shrinkage at Subika Underground.

Speaker 1

Consequently, we are expecting production at a half hour to be weighted around 60% in the second half of this year as we increase underground tons and reach higher grade. And finally, in Africa, we continue to advance our Haapo North project. In the Q4, we received the tailings storage facility and water infrastructure permits from the EPA And we expect to gain full land access later this year as we work together with local communities and regulators to develop this political body. Now turning to South America. Marin remains a strong performer, Delivering higher throughput and steady grade in the Q4, while adding nearly 400,000 ounces in reserve additions, primarily from drilling at the Narada open pit.

Speaker 1

Production is expected to slightly increase this year As ore grade continues to improve through the first half and the site continues to utilize an ore blending strategy to maintain strong mill performance. Yanacocha continues to deliver leach only production, while we develop the first phase of the sulfides project. Early stage engineering continues to progress as the pandemic allows and accommodation facilities for Construction and full time workforce are expected to be completed in the first half of the year as the site prepares for an investment decision in late 2022. And finally, productivity and performance continues to improve at Cerro Negro As higher ore tons mined were partially offset by lower grades in the Q4. We expect production this year to remain in line with 2021 With around 55% weighted toward the second half of the year.

Speaker 1

Our team continues to advance the San Marcos decline And the first wave of district expansions, which includes the development of the Marianas and Eastern districts to extend operations beyond 2,030 and provide a platform for further exploration and future waves of expansion. The drilling and airports contracts have been put in place Anceta Nigro added more than 1,100,000 ounces to reserves for drilling in the Eastern District, more than offsetting revisions and reinforcing the growth potential in this highly prospective and underexplored goal district. We look forward to bringing you further updates about our progress at Cerro Negro as we bring this project with full funds approval next year. And with that, I'll turn it over to Nancy on the next slide.

Speaker 3

Thanks, Rob. Through the strength of our portfolio and proven operating model, Newmont is able to generate the highest levels of attributable free cash flow in the gold sector. And our disciplined approach to capital allocation allows us to maintain financial strength and flexibility, while balancing steady reinvestment into our future and industry leading returns to our shareholders. In 2021, we continue to strengthen our balance sheet, ensuring that we are well positioned to sustain our business and continue leading the industry for decades to come. Let's start with a look at the financial highlights.

Speaker 3

As you can see, Newmont delivered a strong finish to the year. In the Q4, Newmont achieved a record $3,400,000,000 in revenue, driven by higher sales volumes and strong gold prices. Adjusted net income of $624,000,000 or $0.78 per diluted share. Adjusted EBITDA of nearly $1,600,000,000 for the quarter and a record $6,000,000,000 for the full year And strong free cash flow of nearly $900,000,000 for the quarter, an amount entirely attributable to Newmont. Our unmatched cash flow generation enables Newmont to provide superior shareholder returns largely through our Clear and stable dividend framework.

Speaker 3

This week, we again declared a regular quarterly dividend of $0.55 per share, resulting in a dividend yield of approximately 3.5% and positioning Newmont among the top 10% in the S and P 500. In addition to our dividend, we continue to execute on our second $1,000,000,000 opportunistic share repurchase program, a separate and independent tool that does not impact our dividend payouts. Since December 2019, Newmont has repurchased over $1,500,000,000 in share buybacks at an average price of less than $49 per share, contributing significant value to shareholders. With an additional $475,000,000 left on the current program, We will look to execute on opportunities over the next 10 months to repurchase our shares. 4th quarter GAAP net loss from continuing operations was $61,000,000 or $0.08 per share.

Speaker 3

Adjustments included $1.10 primarily related to non cash reclamation adjustments at non operating sections of the Yanacocha site. Based on our ongoing studies of water management and closure activities, the liability was increased by $1,600,000,000 of which approximately 1 third relates to the estimated cost to construct 2 additional water treatment plants over the next 5 years and the remainder of the increase relates to ongoing closure operating costs, which we estimate include over a period of 50 years. Adjustments also include $0.21 related to the sale of the KCGM Power Business And the South Arturo Asset Exchange with Nevada Gold Mines. $0.05 related to unrealized mark to market gains on equity investments and $0.02 of other charges. Taking these adjustments into account, we reported 4th quarter adjusted net income of $0.78 Our balanced global portfolio combined with our discipline An integrated operating model provides significant leverage to higher gold prices from the largest production base in the world.

Speaker 3

And for every $100 increase in gold prices above our base assumption, Newmont delivers $400,000,000 of incremental attributable free cash flow per year. Nearly 18 months ago, we led the gold industry by mounting our dividend framework, differentiating ourselves with a clear and decisive strategy to provide stable and predictable returns to our shareholders. This framework provides a stable base dividend and returns 40% to 60% of the incremental attributable Free cash flow generated above a $1200 gold price. The 4th quarter dividend declared was consistent with the last four quarters, Calibrated at an $1800 bull price assumption and a 40% distribution of incremental free cash flow. Since introducing our framework, Newmont has returned more than $2,000,000,000 through dividends alone, demonstrating our confidence in the long term value of our business and our commitment to leading returns.

Speaker 3

Our capital allocation priorities remain unchanged with a clear strategy to reinvest in our business through exploration and organic growth projects, to maintain financial strength and optionality in our balance sheet and to continue to provide industry leading returns to shareholders. Throughout the year, We delivered on each of these priorities by progressing our profitable reinvestment into the business with the advancement of our near term projects and an ongoing commitment to our robust exploration strategy, delivering the 1st autonomous haulage fleet in the gold mining industry, Improving safety and productivity at Boddington, advancing district consolidations with the GT Gold transaction and increasing our ownership in Yanacocha returning $2,300,000,000 to shareholders through dividends and opportunistic share buybacks Issuing the industry's 1st sustainability linked bond, efficiently refinancing near term maturities and resulting in no debt due until in 2029. And maintaining a strong balance sheet with $8,000,000,000 in liquidity and a net debt to EBITDA ratio of 0 point 2 times, preserving Newmont's financial strength and flexibility to sustain the business across price cycles. As we look ahead, we are confident in our ability to deliver on our disciplined capital allocation priorities, creating long term value for the business and all of our stakeholders.

Speaker 3

With that, I'll hand it back to Tom to wrap up.

Speaker 1

Thanks, Nancy. Over the last year, as we celebrated our 100th anniversary, It has been an important milestone to pause and reflect on our company, our industry and the lessons we have learned. Our clear strategy lays the groundwork to truly differentiate Newmont as we position ourselves to continue leading the gold industry today and will into the future. And as we begin the New Year, I am confident that our clear strategic focus, Proven operating model, superior execution and leading ESG practices will enable Newmont to deliver long term value All of our stakeholders through sustainable and responsible mining. With that, I'll turn it over to the operator to open the line for questions.

Operator

Materially to assemble the roster.

Speaker 4

And our first question will come from Fahad Tariq of Credit Suisse. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking my two questions. First, Tom, you made a comment about 150,000 Fewer ounces in Q1, how should we be thinking about the rest of the year? Will those ounces be made up or should we be thinking that this is a Net negative to the midpoint guidance for the year. Thanks.

Speaker 1

Thanks Fahad. Good morning. We still expect to be within guidance, so we see opportunities to work to recover some or all of those ounces. Certainly, we're only at the coming to the latter end of February, so plenty of opportunity in front of us. We're going to be weighted to the second half of the year with a couple of our Big assets, Ahafo and Boddington in particular.

Speaker 1

So it's how those how the sequence of those mines shape up and how we move through and the grades it presents. But we certainly see ourselves firmly within guidance for production and costs. So 10 months in front of us, plenty of opportunity To work through from the Omicron surge.

Speaker 5

Okay. That's clear. And then my second question, We haven't heard much on full potential improvements in 2022. Could you maybe give an overview of any targets or guidance for the year end Whether or not the cash cost guidance that has been provided already incorporates that? Thanks.

Speaker 1

Thanks, Fahad. So The cash cost guidance does provide for about just under $300,000,000 of full potential improvement, dollars 290,000,000 across the board. And just to give you a highlight of some of our top initiatives, one of the biggest drivers will be Musselwhite, We're looking at getting early entry back into the mine after a blast and then increasing the underground shift length, so really basic operational things. We're seeing opportunities around drilling and the rate at which we do the swap raises at Eleonore. That's another significant one.

Speaker 1

Again, Penasquito is finishes firmly. You're looking at just use of availability use of available time on equipment. You're looking at recoveries within the sulfide plant. You're looking at the augmented feed circuit, particularly as we move that's the front end of the mill, Particularly as we move into some of the harder ores coming out of the Chile, Colorado pit. So there's some of the top initiatives.

Speaker 1

We've also just coming out of a refresh At Boddington, and this may represent an example of upside to some of the full potential work that's built into the plan. Yes. Boddington was the first site that we implemented full potential at back in 2014. So it's been through multiple refreshes over the last 8 years and continues to identify value. The real opportunities as We look into this year and next from Boddington is around the fact that we've now got an autonomous haul fleet.

Speaker 1

So with the predictability And the controllability of an autonomous haul fleet, there's 2 key areas that we're looking to leverage. 1 is the speed and the delays around AHS. That's all about keeping those trucks running and maximizing their speed. And because they present Every time to a shovel at exactly the location you ask it to spot up to, there's a real opportunity and significant value around the queue and hang times at shovels. So some real opportunities going forward at Boddington from a recent refresh that's not included in the out that we provided back in December.

Speaker 5

That's very clear. Thank you.

Speaker 1

Thanks, Fahad.

Speaker 4

Our next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.

Speaker 6

Good morning, everyone. Thank you for taking my questions and congrats on ending a strong year and great reserve base. I have a couple Just if I could start, Tom or Rob, just on the quarterly guidance, so I understand correctly. 50 3 percent weighted to the second half, you've given us Boddington, HAFO, Sierra Negro. How about the Canadian asset distribution and how should I think about Penasquito, another one of your big assets?

Speaker 1

Thanks, Tanya, and good morning. I might start Penasquito and then work backwards. So Penasquito on a gold basis is about fifty-fifty. So pretty consistent through the year when you look at gold. In the Canadian assets, Musselwhite is sixty-forty split, Very much seeing as a fly in, fly out operation at Musselwhite in this Q1 with the Omicron surge.

Speaker 1

You've seen those impacts that weighted to the second half forty-sixty. The other 2 Canadian sites are around 45-fifty 5. If you move into South America, Cerro Negro is about 45, 55. Boddington in Australia is following Folio, 47, 53 and Ahafo and it's particularly driven by 2 things, Both Sobeeka related both open pit and underground, we're moving to higher grades in the Sobeeka open pit as we move through that layback And as we start to get equipment and people back moving into the underground and start to get more access to broken stocks, you'll see more material move through from the underground mine. So half O is 4,060.

Speaker 1

The portfolio is 4,7.53.

Speaker 6

Okay. And then the only other one I think you mentioned was TripleClick, which is the second half weighted?

Speaker 1

That's right. Cripple Creek is 4,357, so Weighted sixty-forty to the second half. And that's linked to recoveries coming off the heap leach, so that the timing of The grades have been placed and the recovery is coming through in the second half.

Speaker 6

That's very, very helpful. And I don't know if Nancy could chime in on the capital distribution, if there's anything we should be aware of on the capital going through the year.

Speaker 1

I've got it here. The development capital, as we look through the year, It's sitting at about weighted to the first half, dollars 55,000,000,000, so slightly weighted to the first half. And if I look at our sustaining capital, it's about the same, 55, 45,000,000. So that's sustaining development capital weighted slightly to the first half, Tanya.

Speaker 6

All right. So we should see obviously better free cash flow coming out in the second half of the year as we get through the capital and better performance from the assets. Thank you. And maybe just going on to some other technical questions. I just wanted to ask about I'm intrigued about Yanacocha Phase 23.

Speaker 6

I don't know from a high level. Tom, if you can kind of give us some concepts of how You're seeing those two phases.

Speaker 1

Yes. Thanks, Tanya. So the Yanacocha Sulfides project is the bulk of the money is To put in place a concentrator and an oolaclide, a pressure oxidation facility, which really allows us to open up And to pay for that investment, we've got the layback in the Yanacocha Verde open pit, which The low grade ore we'll put through the concentrator and our 1st underground mine at Yanacocha, Chaquicocha. So it's we're punching in off the wall. In fact, we already Punching off the high wall of that pit to that start to develop the underground mine.

Speaker 1

And that mixes with the concentrate, and you've got you're going to produce, Obviously, copper, gold and silver coming out of that. 30 years of mining at Yanacocha, we've mined 30 years, 40,000,000 ounces of oxide ore. Just like we saw in Nevada a generation ago, sulfide ore sits underneath all that oxide ore. So All of those various deposits that we've mined or the vast majority of those various deposits that we mined have sulfide ore underneath the oxide. And so we're drilling programs and our study work is looking at which of those deposits come next in line To feed that processing facility.

Speaker 1

So that processing facility will process sulfides ore within the existing footprint of Yanacocha For literally decades, like we've seen in Nevada with the roaster at Mill 6. So which of those deposits Come through, we're working through, but we have a second phase of deposits and then we've got a 3rd phase of deposits that we are actively exploring. And we see as you see with many base metal projects, that the opportunity once you've got your facility up and running And I'm sure we'll see some more ounces come from both the Anacostia Verde open pit and Chucky Culture underground that will extend life at existing rates. But then the Phase 2 deposits, there will be opportunity for us to increase throughput as we optimize the processing And able to present ore in different grades and extend life further. So I certainly see the opportunity as we commission This processing facility second half of this decade start to see where there's opportunity to creep up in terms of £1,000,000 produced, extending life and then additional deposits coming in to further increase throughput and extend life well into the 2040s and beyond.

Speaker 1

Hopefully, that gives you some color.

Speaker 6

Yes. Thank you. And then is the 3rd phase the phase that do you think about Comvera and Kilis? Or

Speaker 1

Thanks. No. No, the 3rd phase is still existing sulfide deposits in the existing footprint of the Anacocha. So when we think strategically, it's about that foundation of a long term operation, all the things you can then do with the workforce and the Communities in around that operation then allow us to look very long term as to when does that conga then come in and when does Achilles then come in Over that long term time frame. So it's they are upside on top of phases 2 and 3.

Speaker 6

The phase 4 All right.

Speaker 1

Got it.

Speaker 6

I need another phase for you to work on. If I could just 2 other quick ones. I just To understand the reclamation obligation, understand the one at Yanacocha has a lot to do with water, but made me think about Just your overall portfolio and the industry in general. Tom or Rob, should I be thinking that these reclamation obligations, we will start to see Some bigger numbers come out of other assets within your portfolio, given all of the new legislations going through, like Can you give us any color on what you're seeing in terms of reclamation obligation?

Speaker 1

Sure, sure, Tanya, it's reclamation obligations dominated by Yanacocha. And it's the they've put a disturbed area of the 75% the size of the island of Manhattan and significant volumes of water with the rainfall you have up there. And by the way, the sulfides Our project doesn't add any additional reclamation. We are essentially working within that existing footprint. That dominates it.

Speaker 1

Same discipline we apply at Yanacocha, we apply across our business. So we apply 50 years To our reclamation obligation. So if you've got to treat water as we do at Yanacocha, then we are assuming we're treating that water for 50 years in our assumptions and we apply today's technology to those assumptions for 50 years. So the opportunity To have a long life operation such as Yanacocha and look for where there's technology to better manage, control and process water Represents upside to those numbers. But that is that methodology, that discipline is consistent across our portfolio.

Speaker 1

So and it's Yanacocha dominates. The next big operation is Penasquito, Which is a significant step down from the Anacocha obligation. And then you're into the Cripple Creek and Victors and the Porcupines And the Boddington, so but it's Yanacocha and then Daylight to Penasquito and then Daylight to those other operations in terms of the closure obligations.

Speaker 6

You're not seeing anything, Tom, that right now legislation that will make you change anything in your approach for additional money?

Speaker 1

No. I mean, we often it's about it's really your rehabilitation you're doing or it's capturing and treating mine affected water. And in terms of what we're doing and either the regulation requires that or Newmont requires that, We are treating the water to either drinking water standard or agricultural standard depending on the catchment area for that water that we're discharging.

Speaker 6

Thank you. I'll leave it to someone else for that question. Thank you so much for your insight.

Speaker 1

Thanks, Tanya.

Operator

The next question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Speaker 4

Thank you very much. I just sorry, I want to go back to the Yanukovych self isolate project just for a moment. On the change to your partnership Structure or the acquisition of One Overture stake. Now that you own nearly the entire project, does it Change your approach at all, whether that's timing or anything else? Does it remove any Limitations that you may have had with the partnership, like maybe Buenaventure's funding capability or anything like that?

Speaker 4

Or How are you approaching this similarly or differently now versus before you purchased the stake?

Speaker 1

Thanks, Jackie, and good morning. No change to the timetable we're working to. It's a late 'twenty two approval. It's pretty dominated by ensuring that we can clearly see that the pandemic will allow us To mobilize our workforce, we continue to do early work works. We continue to do the long lead time procurement.

Speaker 1

We'll have the autoclave vessel On the construction site location by the end of the year as we seek full funds, so that will significantly derisk the project. The other critical path that PI has been working on, which is important for these very large multibillion dollar projects, is to get the engineering To a level where you can have an accurate cost estimate, seek full funds and then derisk the execution of the project. And best practice in mining and oil and gas, the multibillion dollar is to get a high level of engineering done. And a lot of our spend this year is on that engineering work with both Bechtel and Hatch. So we will make sure that we have The pandemic allowing us to mobilize a workforce of 3,000 plus people, the engineering to a level that allows us to have accurate cost estimates, Continue the procurement and late 2022 is the optimum time frame for us to move forward and seek full funds.

Speaker 4

And you didn't mention anything about the government. There's nothing that you need to see or get assurances on the government side to make a Full Fund's decision, I think I heard you say earlier you're pretty comfortable, but is there anything on that side that you're waiting for?

Speaker 1

Nothing we're waiting for, Jackie. If anything, the I mean, the government is having a few changes, But the bureaucracy is still working well as it always has in Peru. The government has certainly made Signals that if there are any tax changes, if there are any, they would be modest. But we And certainly, the way the Congress is playing out, the opportunity for there to be change is diminished. So we look at as I was talking through with Tanya, we look at this as a multi decade investment.

Speaker 1

And we're confident that we can navigate through the current administration to seek full funds approval. So nothing we're waiting for on that front.

Speaker 4

Great. Thank you. One other question, just on a change of subject, I guess, on the share buyback. I know you've pushed back the expiry of your share buyback program, but you've now done over half The $1,000,000,000 is there any thought to expanding the program to raising the total buyback I guess, as you get closer to that $1,000,000,000 can you maybe just talk about how you think about how much of that you're planning to this year and if there is an opportunity to raise that? Thank you.

Speaker 1

Thanks, Jackie. We certainly look at share buybacks as we have done over the last, As Nancy was talking about in the prepared words, it's our 2nd program and we've bought back $1,500,000,000 at less than $49 a share in today's prices, that's a very significant return on investment. So we see it as a tool That is independent to our dividend framework. We believe in talking with our Board that the remaining Roughly $500,000,000 in the next 10 months of this year is adequate for us to be able to execute on that aspect of that capital allocation priority. And we will have the discipline as we've demonstrated to undergo back in and buy our stock where we see that that makes good sense.

Speaker 1

And as we near the end of the year and sit down and talk with our Board, we'll certainly debate whether it makes sense to Think about having another program as we move into 2023. So that will be part of an ongoing discussion with our Board as we look at our different capital allocation priorities. But To answer your question, we think there's ample opportunity with what we've got available to us over the next 10 months to do what we need to do. And we have the cash available to execute on both our dividend framework and on our share buyback.

Speaker 4

That's great. Thank you very much, Tom. That's all my questions.

Speaker 1

Thanks, Jamie.

Operator

Next question comes from Clive Rueckert of UBS. Please go ahead.

Speaker 5

Great. Thanks for taking my questions. Good morning, everybody. Tom and maybe Rob, I just wanted to come back to the autonomous haulage fleet. I think the Slide Since that's been ramped up, are you finding other opportunities to make similar investments across The portfolio, maybe give us a sense of like how much savings it's actually generating in terms of Reducing the wear and fewer operators and things like that.

Speaker 1

Thanks, Clive. I think that's a terrific question for Rob. And And he'll certainly make sure that he talks about our alliance with Caterpillar and Triple Creek and Victor and Tanami as well as other things. Over to you, Rob.

Speaker 2

Thanks, Tom, and thanks, Clive. If I start off with Borrington, certainly The performance is very, very pleasing. And as I mentioned in the script, we're now performing at the traditional level of the trucks, which is Terrific to see in such a short period of time. We have still got an abundance of opportunities, whether it be around The speed, whether it be around the sequencing to the shovels, about reducing the hang time, further improving hot seating, further improving refueling, Etcetera. So we are continuing to focus on that haul fleet at Boddington to really make sure that it doesn't just match Conventional hauling that exceeds it by a long, long way.

Speaker 2

And with the analytics that we've got and this is one of the key parts of the partnership with Caterpillar Is it we are sharing data like never been shared before and we're doing that in data analytics. And Autonomous Volley is all about improving second by second. And that's the opportunity we've got at Borington. So I think we're really At the start of a long process and it's going to be exciting. I look forward to talking about improvements as we go on.

Speaker 2

In terms of other opportunities, as Tom mentioned, The partnership and the strategic alliance with Caterpillar is incredibly exciting. And the 1st cab off the rank is going to be at CC and V And to make that automated and certainly we believe that the cost benefits of that We'll really enhance that operation. Now when we look at autonomous elsewhere, we're obviously looking at Tanami In the underground space, which is going to be key, but also as we look further ahead, the Pamor project, sublevel shrinkage It's Subika. We've spoken about that before and then at Yanacocha in the underground mines there. So, we've got a number of great opportunities to use this absolute proven technology.

Speaker 2

But again, the key between our relationship is One thing putting in the technology is how you use it and in particular the data and that's where the exciting part is and I think we've still got a long way sorry, not a long way to go, but a lot of improvements to come.

Speaker 5

Yes. That's very clear. Thanks for the color. Just one other question I wanted to follow-up on the dividend and capital allocation. It's nice to see what I think was a pretty positive outcome at Yanacocha after sort of a year, Maybe a year and a half of a little bit of uncertainty.

Speaker 5

But it does take up Newmont's CapEx obligation at the mine. So I was wondering if that Changes at all kind of where you fall in the 40% to 60% band of incremental Free cash flow returns, I think, Nancy, you said in your prepared remarks, you're sort of at the bottom at the 40% at 1800 Gold, I guess, does that change at all with more CapEx this year and next And then I guess just to finish it out, in terms of your use of cash, Would you be comfortable consuming cash to continue buying back stock? I think the cash balance declined very slightly for the year in 2021. But I mean, I guess, Ultimately, how are you thinking about the cash balance as it stands? Would you use more cash to buy back stock?

Speaker 5

Or are you anticipating it

Speaker 7

flat at the end of

Speaker 5

the year? Thanks very much.

Speaker 1

Thanks, Clive. Our dividend framework is predicated on the fact that at our base dividend of $1 a share, we pay for our reinvestment back in the business over the long term. So those projects are profitable and returning assuming gold is at $1200,000,000 and eddykochosulfides has got other metals associated with it. So Our dividend framework is reinvestment back in the business comes first and we pay a base dividend of $1 a share. And for every $100 increase above that, we're generating that $400,000,000 of free cash flow every year, of which we're returning 40%.

Speaker 1

So it is robust and independent of the decisions we've made to reinvest back in the business. Nancy, did you want to pick up in terms of our cash balances and how we think about dividends and share buybacks?

Speaker 3

Yes. Exactly as Tom said, as we can create opportunities on all fronts in terms of reinvestment in the business, the dividend structure and the share buyback. And as we ended the year with over $5,000,000,000 in cash on hand and $8,000,000,000 of liquidity, we do have the ability to do all of that. And so that's what you'll see us focus on is that reinvestment in the Yanacocha consolidation does not impact those numbers or limit us in any way. And you'll see us continue to work with our Board and evaluate opportunities for the dividend over time.

Speaker 3

So yes, we are pegged at the 1800 and 40% right now will always look at opportunities to consider raising that if appropriate.

Speaker 5

Okay. I guess, Nancy, just quickly, does the higher CapEx at Yanacocha change where you are relative to the 40%? Or Is it relatively

Speaker 1

I'll ask you, Clive, no. Absolutely not.

Speaker 5

Yes. Okay. Okay. Very clear. Thank you, guys.

Speaker 1

Thanks, Clive. Operator, I'm conscious that folks on this call will want to get to another call at the top of the hour. So if you maybe just take one more and we'll make sure

Operator

The next question comes from Adam Josephson of KeyBanc. Please go ahead.

Speaker 7

Thanks everyone. Good morning. Congratulations on a really good finish to your year. Tom or Nancy, just on your cost outlook for this year, you mentioned 150,000 ounce production impact you're expecting in the Q1. Obviously, Brent crude today is at $104 barrel because of Russia Ukraine.

Speaker 7

Are you thinking any differently about your gold CAS or ASIC guidance than you were 2, 3 months ago. And within that, are you thinking about any of the Components differently, energy, transport, labor, etcetera.

Speaker 1

Thanks, Adam. I'll pick that one up. In terms of both particularly there's probably two factors associated with what's happening in the Ukraine at the moment. We're certainly seeing oil prices go up, the diesel price for us. And natural gas prices are going up.

Speaker 1

The natural gas is used to make ammonia, which is then used to make our explosives, ammonium nitrate. Both our energy costs make up around 15% of our operating costs. So operating costs are much more dominated by labor at 50% And Materials and Consumables, that's about 30%. So it's only 15% of our cost base. And as we looked into this year, Understanding the volatility that was ahead of us, the uncertainty around COVID, we'd had factored in on an aggregated basis Escalation into our guidance.

Speaker 1

And so some of the things that we're seeing now, we've already accommodated in terms of how we thought about our cost Got it. So as we sit here today, we don't see that, that either the impact of the Omicron surge Some of these near term events are impacting our ability to land within our guided number for all in sustaining cost per ounce. To give you an idea of sensitivity, for every $100 increase in gold price, we generate $400,000,000 of free cash flow. So you're seeing with the current events gold price well over $1900 and we guided at an $1800 gold price. Every $10 increase in the barrel of oil represents only $15,000,000 of free cash flow.

Speaker 1

So there's a significant difference. And again, if I use the same words I was using with Tanya, there's daylight Between the sensitivity to gold price and the sensitivity to a barrel of oil.

Speaker 7

Yes. No, absolutely. Thank you for that. And then just One last one on the sequencing of costs. I know you mentioned that cost per ounce will decline for obvious reasons As the year progresses, but would you care to give us any more context in terms of the degree of change by Quarter, just in the event that we were perhaps underestimating the 1Q impact of the production loss or any other Sequencing that you would have us be mindful of in terms of our cost modeling?

Speaker 1

The cost will follow closely those production So it's very much cost is being driven by production as we look at those trends. So the trends we talk through at a portfolio level and the assets that we talked through over the course of the last few minutes, costs will flow follow that trend. So as production is increasing, the cost will decrease at similar percentages. The back

Speaker 7

half, thanks very much.

Speaker 1

Yes. Thank you. Thanks, Adam. I think that's probably it, operator.

Operator

This concludes our question and answer session. I'd like to turn the conference back over to Tom Palmer for any closing remarks.

Speaker 1

Thank you, operator, and thank you, everyone, for making the time to the call today. And please look after yourselves and continue to stay safe and healthy. Thank you everyone for your time.

Operator

The conference has now concluded. Thank you for attending today's

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Earnings Conference Call
Newmont Q4 2021
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