Newmont Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 22, 2022

There are 12 speakers on the call.

Operator

Good morning, and welcome to Newmont's First Quarter 2022 Earnings Call. All participants will be in a listen only 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. Officer, please go ahead.

Speaker 1

Good morning, and thank you for joining Gearmott's Q1 2022 Earnings Call. Today, I'm joined by Rob Atkinson and Nancy Beattie, along with other members of our executive team, and we'll 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. Umont delivered on a challenging Q1 as our operations and the mining industry as a whole safely managed through the Omicron surge over the 3rd 3 months of this year. As we emerge on the other side of this wave, U Mite remains well positioned to deliver In 2022, leveraging our scale and proven operating model to deliver long term value from the world's best mining jurisdictions.

Speaker 1

The strength of our people and stability of our global portfolio not only allows us to endure short term disruptions, It is the foundation of Newmont's clear and consistent strategy to create value and improve lives through sustainable and responsible mining. Turning to our quarterly results, let's take a look at the highlights. During the Q1, Newmont produced 1,300,000 ounces of gold and 350,000 gold equivalent ounces from copper, silver, lead and zinc. And despite challenges from the Omicron surge and the knock on impact from this global pandemic, we remain on track to achieve our full year guidance ranges as we build momentum for a strong second half. I recently visited Ahafo and Achieving Ghana as As we look at our Bodycomb Mine in Australia, where I saw firsthand the significant efforts our teams are taking to Keep the health and safety in our workforce, while continuing to move critical projects forward.

Speaker 1

With $7,300,000,000 in total liquidity, we have a net debt to EBITDA ratio of 0.3x, preserving Yearmont's financial strength and flexibility to sustain and grow the business. We also continue to invest in and develop Our most profitable near term projects, including Ahafo North, the second expansion at Tanami and Yanacocha Sulfides. Just last week, we announced the acquisition of Sumitomo's interest in Anacocha, which will bring Nemo's ownership in this operation And the exciting Solsys project to 100%. And yesterday, we declared a 1st quarter dividend of $0.55 per share, Set within our established dividend framework and consistent with our last five quarters. Viewbot's core values of safety, sustainability, integrity, inclusion and responsibility are essential to creating long term value for our investors, host governments, communities and employees.

Speaker 1

Last week, Newmont launched its 18th Annual Sustainability Report, providing a transparent look at our ESG performance And the issues and metrics that matter most to our stakeholders. And in March, we committed $5,000,000 to provide relief medical supplies to the millions of people affected by the war in Ukraine. We take pride in being a value driven organization And our core values are fundamental to how we run our business and where we choose to operate. In line with the recent geopolitical events and the omicron surge that have impacted so many around the And our commitment to sustainable and responsible mining is more relevant today than ever before. During our Q4 earnings call in late February, we provided an update on how the Omicron surge and the lingering effects of the pandemic We're affecting our operations and the impacts that our stakeholders could expect in the Q1.

Speaker 1

As you can see here on the slide, Over the 1st 3 months of this year, we saw the largest spike in positive COVID cases at Newmont since the start of pandemic. This graph only shows positive cases and does not include absenteeism from adhering to close contact isolation protocols. As a rule of thumb, every positive case identified at site, approximately 2 co workers were sent home to isolate for a minimum of 7 days. In addition, many of our team also needed to take time off to care for sick children and family members As COVID cases spiked in surrounding communities. Fortunately, due to our 35 vaccination status, The severity of any positive cases has remained low.

Speaker 1

As of today, 8 of our 12 managed operations We have a fully vaccinated workforce of employees and contractors, positioning us to emerge strongly on the other side of this line and others that may come. However, as a consequence of managing through the Omicron surge, Our operations have been impacted during the Q1 by lower productivity from both contact isolation protocols, like capacity constraints and various other safety measures. We've also experienced pandemic related supply chain disruptions And the impacts from various state and national border restrictions. This has affected both labor availability And the delivery of equipment and critical spares. And although our operations were not directly impacted by the Russian invasion of Ukraine, It has resulted in new and developing complexities of global supply chain's steady foot costs.

Speaker 1

As we described in our guidance webcast last December, we assured that escalation factor in 2022 when we develop our business plan To account for higher inflation expected during this year. During the Q1, we remain in line with our inflation assumptions, But we are closely monitoring critical commodities and materials, such as natural gas and the ammonia used for the production of explosives and cyanide. And although difficult to predict at this stage, the cost pressures from these new supply chain disruptions may increase our unit costs by another 3% to 5% and toward the high end of our guidance range. We will be closely monitoring this to the 2nd quarter And we'll provide you with an update during our Q2 earnings call in July. On the production front, We are well positioned to land within our guidance and are tracking to around 100,000 ounces below our midpoint for gold.

Speaker 1

We continue to expect both production and unit cost to improve through the second half, with approximately 53% of our production weighted to the back half of the year, Driven by Tanami, Bahafo, Cerro Negro and our Canadian operations. And as we have demonstrated since the start of the pandemic, we will continue to be transparent as we can with our updates to the market As we leverage our proven operating model and balanced global portfolio to overcome the near term uncontrollable disruptions and deliver long term commitments. At Newmont, we have created a robust and diverse portfolio of operations, Along with a pipeline of more than 20 organic projects with the scale and mine life to deliver long term results. Gevalt will produce more than 60 ounces of gold each year and almost 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.

Speaker 1

And it is important to note that this is attributable production. Among our 12 operating mines and 2 joint ventures, Nearly 90% of the distributable gold production comes from top tier jurisdictions. And with the acquisition of the remaining 5% 11 of our 12 managed operations will be 100% earned, ensuring that our stakeholders receive the full benefit from Newmont's clear strategic focus and superior execution. We firmly believe that where we choose to invest and operate matters. We have a disciplined geopolitical risk program that ensures we routinely assess our jurisdictions and our risk tolerance to deliver long term results from established non jurisdictions.

Speaker 1

Underpinning our portfolio is a robust foundation of reserves and resources, which combined with the gold industry's best organic project Slide provides the pathway to steady production and cash flow well into the 2040s. We are entering a period of meaningful reinvestment as we continue to advance our near term projects, including the second expansion at Tanami in Australia's Northern Territory, The development of a half of wall in Ghana and the Yanacocha Sulfides project, the next exciting chapter in Yiremont's long and And with that, I'll turn it over to Rob and then Nancy for a more detailed look at our Q1 performance. Thank you, Rob. Thank you, Tom, and good morning, everyone. Turning to the next slide, let's dive into the operations and projects, Starting with Africa.

Speaker 1

Tom and I had the opportunity to separately visit Ghana recently, and we were impressed with the progress of both operations As they continue to advance important growth opportunities in this proven mining district, including sublevel shrinkage at Sobeiq Underground, the Achille layback And of course, Aghafel North. As indicated during our Q4 earnings call, Aghafel South has had a challenging start to the year. The site's Q1 performance was impacted by supply chain disruptions and global border closures, impacting labor availability and the delivery of new As an example, last year, the site ordered 4 new drills for the underground and open pit operations. We only received the 1st drill in March this year, with delivery of the remaining drills expected sometime in the 3rd quarter, In addition, the delay of replacement parts for existing drills is confounding the situation, Creating availability challenges with the equipment that we have on hand today. Improved mill performance has helped to offset these delays, But the impacts from the pandemic have affected our ability to ramp up mining rates in the Pacifica Underground.

Speaker 1

And as a consequence, we're evaluating ways to improve our mining rates, which may include adding a third production level to access higher grades in late 'twenty two and into 'twenty three, and we expect to have an update with our quarter 2 earnings in July. Achieve delivered a solid performance in the Q1 due to sustained throughput and strong recoveries. The team continues progress stripping of the next layback at the open pit, which will extend mine life by an additional 4 years and provide future optionality for both underground And finally, we continue the development of the Ahafo North project. Engineering is nearly 90% complete And procurement is 60% complete as we continue to work together with local communities, traditional leaders and regulators to gain full land access And just in the last few weeks, Tom and I met separately with key stakeholders and receive strong support for this important project. And last week, we also achieved an important milestone with the cabinet in Ghana Formally approving the diversion of the highway that currently passes through a section of the new mine site.

Speaker 1

When operations To begin, Ahafone North is expected to add approximately 300,000 ounces of gold per year, while creating lasting value for host communities Through enhanced local sourcing and hiring as we develop this political body. And now turning to Australia. At Ollington and Teramide, we experienced the impact from the Omicron surge in the Q1 as labor availability and close contact isolation protocols In addition, the West Australian border was reopened in early March, leading to an increase in on-site cases, but also allowing our teams, contractors and business partners to move more freely throughout the country and to Tanami for the first time in many months. At Bonnington, we reported lower production compared to the Q4 due to planned maintenance and COVID related absenteeism As we saw our 1st COVID cases on the site. These impacts were partially offset by improved grades and higher ore tons mined from Boardingtons Fleet of fully autonomous trucks.

Speaker 1

The team is diligently working multiple base positions in the South pit to access higher grade 1. And we expect tons by and grade to remain strong throughout the year as we continue to optimize consistency, Efficiency and productivity from our autonomous truck fleet, a key component to delivering a strong finish to the year. At TeraMine, the site delivered a strong performance despite the impacts from the Omicron surge in the Q1 and a very competitive labor market in Australia. The site also delivered lower ore grade than the 4th quarter due to mine sequencing and unplanned maintenance at our processing facilities. The team continues to progress the second expansion at Tanamiq, a project with As you can see here in the photo, the assembly of the head frame is nearing completion, which is an important milestone as we transition from the reman of the shaft to commencing the shaft lining activities.

Speaker 1

Nearly 85% of the project engineering and procurement has been completed. And over the coming months, The site will focus on the completion of the headframe installation and commencement of the shaft lining, bringing Tanami that much closer delivering significant pounds, cost and efficiency improvements. And now over to North America. Teva's Quito delivered another solid quarter, a strong mill performance that delivered higher coal production from lead and zinc Offset more gold production. Stripping has continued at both Penasco and Chile, Colorado With lower gold grade and hard ore coming from Chile, Colorado in the Q1.

Speaker 1

And looking ahead, due to efficient sequencing, gold production from this large polymetallic mine is expected to decrease in the 2nd quarter, but increase in the 3rd quarter due to higher grade delivered from the Penasco mine. Moving to Canada. Our operations in the country as a whole continue to be impacted by ongoing challenges Stemming from the global pandemic and a very competitive labor market. As indicated a couple of months ago, the Omicron surge reintroduced flight Capacity constraints, testing requirements and strict close contact isolation protocols. And working closely with the First Nations, We have maintained our stringent protocols and testing regimes even as restrictions have relaxed.

Speaker 1

Due to the remote locations, these impacts were particularly pronounced at Busselwhite and Illinois, where both sites delivered lower tons mined and processed compared to the Q4. As an example, we saw absenteeism rates As high as 15% to 20% during the peak of the Omicron surge at our Canadian operations. And at Basel Wind, we decided to place At Porcupine, our oil grade was offset by lower tons processed as a result of COVID related labor absenteeism And now the maintenance, in addition to challenging ground conditions and some ventilation constraints at oil pontoon. The Site continues to progress with Amel Leivanc, a project that will extend mining at Port of Pine through 2,035. Construction of the water treatment plant is well underway as the team prepares to dewater the pit and advance towards full funds approval in the second half of this year.

Speaker 1

And finally, at CC and V, the mine required a mill shutdown from a conveyor fire that occurred during the Q1. With the pending conclusion of our contract to supply concentrate from CC and Beam to Nevada Gold Mines, we are stepping back to assess our operating This work is underway and we expect to have an update with our quarter 2 earnings in July. Coming to South America. Marion delivered a solid performance despite very heavy rig and mill maintenance during the Q1 as the site continues to utilize an ore blending strategy to balance steady grade and strong mill performance. In Yanacocha, record grade All resulted in a federal emergency declaration of Peru, impacting the site as it continues to deliver leach only production While we work to develop the first phase of the sulfides project, which continues to advance towards an investment decision in late 2022, Engineering is approximately 50% complete and the early earthworks camp construction activities continue to progress at site.

Speaker 1

And once finished, the camp will allow the construction workforce to begin ramping up in 2023. And finally, Cerro Negro delivered a strong performance in the Q1 as a result of higher grade mite from Mariana Norte and Mariana Central And ongoing improvements with productivity despite disruptions from the Omicron surge. During the Q1, the We've successfully completed the tailings storage facility expansion project and we continue to progress the 1st wave of expansions at Terrainebro, including the development of the Marianas and Eastern Districts to extend existing operations beyond 2,030. The The team is currently advancing the development of the San Marcos D Flight. And as you can see in the photo, the construction of the roads, Infrastructure platforms and portal access are all well underway in the Eastern District.

Speaker 1

And with that, I'll turn it over to Nancy on the next slide.

Speaker 2

Thanks, Rob. Let's start with a look at the financial highlights. In the Q1, Newmont delivered $3,000,000,000 in revenue at a realized gold price of $18.92 per ounce adjusted net income of $546,000,000 or $0.69 per diluted share, adjusted EBITDA of $1,400,000,000 and solid free cash flow of $252,000,000 which includes unfavorable working capital movements of 4 $5,000,000 in the Q1, primarily driven by timing of cash collections and over $420,000,000 of tax Statements largely attributable to 2021. Free cash flow was also impacted by higher capital As Newmont enters a period of significant reinvestment, an essential component in growing production, improving margins and extending mine life. 1st quarter GAAP net income from continuing operations was $432,000,000 or $0.54 per share.

Speaker 2

Adjustments included $0.16 related to a non cash loss on a pension annuitization settlement, dollars 4, primarily related to a loss from the sale of La Zanja as part of the transaction to increase our ownership at Yanacocha. 0 point 5 related to the unrealized mark to market gains on equity investments, dollars 0.04 related to tax adjustments and valuation allowance and $0.04 of other charges. Taking these adjustments into account, we reported 1st quarter adjusted net income of $0.69 for diluted share. In our balanced global portfolio combined with our discipline provides significant leverage to higher gold prices from the largest production base in the world. For every $100 increase in gold prices above our base assumptions, Newmont delivers $400,000,000 of incremental attributable free cash flow per year.

Speaker 2

And Newmont is priorities and build from our position as the world's leading gold company. A year and a half ago, Newmont was the 1st in the gold industry to announce a clear dividend framework with a decisive strategy to provide stable and predictable returns. Yesterday, we declared a 1st quarter dividend of $0.55 per share or $2.20 per share on an annualized basis, calibrated at $1800 gold price assumption and a conservative 40% distribution with incremental free cash flow. We continue to review our dividend each quarter with our Board, assessing gold price performance along with our operational and financial outlook over the long term to determine the payout levels within our dividend framework. Since its introduction 18 months ago, Newmont has returned $2,500,000,000 to shareholders from dividends, demonstrating our confidence in the long term value of our business and our ability to maintain financial flexibility while steadily reinvesting in our future.

Speaker 2

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 flexibility on our balance sheet and to continue to provide industry leading returns to shareholders. In the Q1, 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, enhancing our ownership of world class assets proven mining jurisdictions through the acquisition of the remaining interest in Yanacocha and the sulfides project, Maintaining our industry leading dividend of $2.20 per share on an annualized basis and sustaining a strong balance sheet With $7,300,000,000 in liquidity and a net debt to EBITDA ratio of 0.3 times, Preserving Newmont's financial flexibility 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 maintaining our position as the world's leading gold company. With that, I'll hand it back to Tom on Slide 20.

Speaker 1

Thanks, Nancy. Yevo has a long history of leading change in our approach to ESG, And these practices have been embedded in our culture and strategy and are woven into the very fabric of our company. Last week, Newmont launched its 2021 Annual Sustainability Report. Part of the suite of reports on our company's ESG practices In the key areas that matter most to our stakeholders, including health, safety and security, human rights, the environment, Social acceptance, governance and inclusion and diversity. Some of the highlights from this year's report include 0 work related fatalities for the 3rd year in a row.

Speaker 1

With our focus on verifying the critical control Continuing to put the health, safety and well-being of our workforce and host communities at the heart of every decision we made And continue to make during this pandemic. A key part of this was adopting the requirement for all of our workforce to be fully vaccinated. With contributions to our global community support fund, we supported COVID testing facilities, Vaccine awareness campaigns and Vaccine rollouts in areas near our operations. We established the industry's 1st sustainability linked bond, a bond that holds you not to account for meeting our 2,030 initial reduction And also to reach Jennifer Perry in seed leadership polls by 20B. By linking the interest rate paid to our ESG performance, this represents the next important step in aligning our financial performance And finally, UBOC played an important role in creating economic value, Contributing $10,800,000,000 to our workforce, host communities and jurisdictions through wages and benefits, operating costs, Capital spend, royalties and taxes.

Speaker 1

Next month, we will launch our second Annual Climate Report, which will outline Neonat's climate related risks and opportunities, our strategic planning and the pathways we are taking to achieve our climate targets. We have been disclosing a non financial performance since 2004, Regularly ranking is one of the most transparent companies in the S and P 500 and positioning Newmont as the gold sector's Recognized sustainability leader. We understand strong ASG performance is an indicator of with local communities and demonstrate our ability to mine in a manner that protects the environment and creates opportunities for people. In order to address the critical global issues we face today, the mining industry will need leaders with scale, mine life, superior cash flow generation and an unwavering commitment to BDDSG practices. And we believe that Newmont is one of those leaders.

Speaker 1

We will continue to differentiate ourselves through our clear strategic focus and discipline, Our unmatched global portfolio of operations and projects and an integrated operating model with a deep edge of experienced leaders As we continue with our next 100 years of sustainable and responsible mining. And with that, I'll turn it over to the operator,

Operator

Our first question comes from Jackie Przybylski with BMO Capital Markets. Jackie, your line is now open.

Speaker 3

Thanks very much. I think I want to ask a question about Your cash flow statement, it looks like you had a pretty high working capital spend in the quarter. And I was wondering if you could give us some color on the reasons for And what you're doing with working capital? Thank you.

Speaker 1

Thanks, Jackie. Good morning. Nancy, do you want to pick up the Just passing across to Nancy to pick that question up for you, Jackie.

Speaker 2

So on working capital, really that was related Sorry, that was related to working capital changes were related to tax payments made in Q1 that were relatively tied to the income and revenue received in Q4 of 2021. So that was the biggest. We also had some inventory That had not yet been sold as of the end of the quarter. So those were the key drivers.

Speaker 3

Thanks, Nancy. And maybe just one other question. It looks like in some of your regions, your CapEx spending, I guess, specifically your development CapEx spending is A little bit below the run rate for the full year guidance. And I guess specifically that is South America and Africa, which makes sense because The major projects there haven't been greenlit yet, but can you give us some color because I'm thinking at least on Yanacocha The full funds decision isn't due until December, and I'm thinking it's probably the same in Africa. Can you give us some color in terms of like what the spending Well, look like do you expect to have a pickup in spending before full funds decision is reached?

Speaker 3

Or should we really expect to see those sort of 4th quarter weighted in terms of the spending?

Speaker 1

Thanks, Jackie. I'll pick up Yakocha first. You will see spending pickup Ahead of the full funds decision. So for Q1, it was certainly the largest in terms of spend. That builds up quite considerably.

Speaker 1

We We'll more than double that spend as we move into the remaining three quarters. So it's you'll build through the second quarter, but half to half weighting 42% spend in the first half versus 58% spend in the second. So we will be building that spend towards full fund approval at And you're right, a similar story with Arco North. We're spending the money now On engineering and procurement and doing the important work with the regulators and the traditional leaders around getting The areas of land cleared of structures and farms and the like to be able to do the highway diversion, Which has just been approved by cabinet and for us to come in and really start to break ground, which we expect will be moving through this Quarter to get all that in place. And so as you get once you really start to build up a workforce and get people on the ground doing the earthworks, you'll see that spend build 4.5 North in the second half.

Speaker 1

So I'd be seeing a similar weighting for half of North in the second half. If you're modeling, I'd look at something more like 45, 55 for H1 versus H2.

Speaker 3

That's perfect. That's all my questions. Thanks very much, Tom and Nancy.

Speaker 1

Okay. Thanks, Jackie.

Operator

Thank you, Jackie. Our next question comes from Josh Wolfson with RBC Capital Markets. Josh, your line is now open. Great.

Speaker 4

Thank you very much. Thank you for the additional color on the costs versus, I guess, what the guidance expectations were. I'm wondering that 3% to 5% upside that would take you towards the higher end of the guidance range, What does that incorporate? Is that assuming current spot prices continue for the duration of the year? Or are there other sort of factors at play?

Speaker 1

Yes. Thanks, Josh. I might just talk you through another level of detail in terms of what makes up our operating costs and how does looking towards that Top end of guidance. And if you were modeling off the back of that, if you think about Our unit cost on a gold basis is probably close to the 5% and the 3%. As we look across our portfolio on the total metal, it's somewhere between 35%.

Speaker 1

So If you look at the drivers of it, 50% of our spend is labor, and that's contracted labor as well as employees. So What we're seeing starting to come through with contracted services, whether it be specialized labor services or the general labor that you bring in for large maintenance shuts, We are starting to see both shortage of supply of labor as well as wage premiums Coming into the prices that were being quoted for specialized services or shutdowns. Also, for instance, Boddington did one of their major shuts through the 1st quarter, and we had to actually reduce scope for that shut because you simply couldn't get the arms and legs To the mine site, combination of labor availability in Western Australia and a time of the COVID being released into that community. So you're seeing, if you think about that 3% to 5%, 50% of your operating costs, A lot of it is being driven by what we're starting to see come through for some of that contracted services around our operations globally. And given the quantity of that money, then that 5% is sort of indicative of what we're seeing flow through.

Speaker 1

We want Watch it because it is a moving phase. We want to really see how that plays out through the Q2. And Josh, that will play through to And that will also flow through to some of the contracts contracted services we'll bring in for be bringing in for some of our capital projects. So we're watching that carefully. The next 30% is materials and consumables.

Speaker 1

The real driver in that space is ammonia, which Obviously, we use for explosives and cyanide and to an extent, grinding media due to the rising steel prices. We're seeing increasing pricing, probably increases of 20% to 30% for our landed You see that impact flow through. What we're monitoring more carefully on the materials and consumables It's what's happening in the global supply chain. And there's obviously higher freight costs, but it's also monitoring carefully to ensure That we're getting that cyanide and explosives to our mine sites and actually have those consumables that we need to keep our operations running. So our focus is Keeping a wary eye on cost, but more about actively monitoring our power supply level for some of those critical materials and consumables.

Speaker 1

Then the last one, 15% is energy and the driver of that's diesel. We issued $6 a barrel and we're obviously seeing prices over 100 So that's flowing through in terms of that operating cost. But Josh, I think what's going to drive That number will be labor as we look at our business through the remainder part of the year.

Speaker 4

Great. Thank you for that. Maybe one more question on the topic. There were some Disclosures there about supply chain challenges as well as I guess earlier commentary that I provided on some of the challenges in Ghana. Wondering, maybe I had some nightmares back from 2,008, 2009 of these issues as well.

Speaker 4

But Is this a jurisdiction or kind of localized item on the supply chain for specific Areas or is it specific components or is it across the board?

Speaker 1

Yes. It's more specific components, Josh. In the Africa example, It's getting drills in, that we need both the pit and underground To the opening up development front and it's the equipment supplies because it's like buying a motor car. You A lot of components together, but there are some components that are filled up, which means there is a delay in that equipment coming through. So the African example, it's drills, which will be impacting the mining industry globally.

Speaker 1

It's just a particularly Zabica underground needs drills at critical time in opening up sublevel shrinkage. So that's the specific piece of equipment and supply chain issues. And then The borders or the global border closures was specifically Western Australia and some of the key resource people They come out of Western Australia to operate some of that key equipment. And so we've had some challenges Navigating back and forth through some of those border restrictions that are now open. And so we've got that flow in.

Speaker 1

So that is less of an issue, but we're still seeing those Supply chain constraints are getting some critical pieces of equipment in order to do the work that we plan to do in our mining operations. Rob, do you want to go on that? Thanks, Tom. And just to add a little bit more color, as Tom said, it was Ghana really was specifically drilled. For the A half of North project, we're receiving our haul trucks, our graders, our water trucks.

Speaker 1

Those are coming through. But as Tom rightly said, it is specific types of year, specific types of parts. It isn't everything.

Speaker 4

Great. And is there anything else that you can think of beyond drilling equipment that has that level of tightness? Or Is that really kind of number 1, do we see item that would stand out?

Speaker 1

I think the type is on the equipment side, that's the one that's been a particular issue for us, Josh. I think the area that's going to be tight, both for supply and costs that we need to monitor, as I indicated earlier, was going to be labor. I think that's going to be a key driver. And obviously, some of the consumables, just ensuring that we're managing We lead into our global supply chain, those long term relationships and we're monitoring that very, very, very closely. It's also linked to decisions we're making to de risk some of our operations.

Speaker 1

Knowing that this issue is potentially going to be with the world and the mining industry for some time, That decision we're looking at around Sobeepa Underground to drop down and open up a third level and have more headings from which to be able to take ore It's derisking that operation. I was basically stepping back making investment now to derisk that operation To better manage some of this volatility and disruptions coming ahead. So we're starting to make decisions that help us manage some of these issues going forward.

Speaker 4

Great. Thank you very much.

Speaker 1

Thanks, Josh.

Operator

Thank you, Josh. Our next question comes from Tanya Jakusconek with Scotiabank. Tanya, your line is now open.

Speaker 5

Great. Good morning, everyone, and thank you for taking my questions. So many, but I'll keep it just as read if I could. Just wanted to just come back to the guidance that you provided and thank you for that. I just want to make sure I heard it correctly because there A little bit of static on the phone.

Speaker 5

Tom, did you say that we're looking at 100,000 ounces below 6,200,000 For this year?

Speaker 1

Yes. Good morning, Tanya. Yes, that's correct. And if I give you a little bit more color on that, About 70,000 ounces below the 6.2 midpoint that we're starting to see open up. It's managed operations that I'm referring to in that around about the 100,000 ounces.

Speaker 1

70% of that I will come from Sabita Underground and the work we do to step back, drop down, open up that third level and really, I was just Just commenting with Josh to really de risk that operation as we move forward. I think about 20% will come from Cripple Creek and Victor, as we again look to move towards that simpler operation, just mining a heap leach and incorporate some of the Delays that we've seen through both the impact of the Omicron surge through the latter part of last year and the start of this year, plus The very important decision we took to go to fully vaccinated at that site. So we've got some work to do now to get ahead of some of the waste movement to open And I think the move to a simpler longer life operation will contribute about 20%. And then the remaining 10% we've made up across the 3 Canadian operations that have been pretty significantly disrupted through the Q1. So Tanya, around about 100,000 ounces, 70% Savifra Underground, 20% CC and V about 10% Canadian operations.

Speaker 5

Okay. And does your guidance you mentioned the 53 second half and First half is going to be weaker. Does all of the asset breakdowns that you provided in your Q4 numbers still The only one I noticed that was a bit different was Penasquito. I think guidance had been equally weighted, but I think you mentioned Q2 is going to be weaker. Just wanted to make sure I understood that correctly.

Speaker 1

That's correct. You will see you got when you look at gold production with where we're mining at And it's good that you're going to see a bit of a seesaw through the course of the year. So you'll see on gold, you'll see a drop in the 2nd quarter, it will then climb again in the 3rd and it will drop again in the 4th, but it's about evenly weighted across the 2 parts With a bit of that seesaw effect. So you're just seeing the different metals come through as we're mining through the different phases of both mines, Kenya.

Speaker 5

Okay. And just my last question on the guidance. I just wanted to see how have your April performance And with respect to Omicron, like in these jurisdictions, have you seen an improvement in productivity and performance?

Speaker 1

Certainly coming out the other side, I might just quickly work through the 4 regions, Tanya. Coming out the other side, certainly in Canada, Except for, I'd say, Eleonore, where we are still very strict with our protocols of testing And isolating because of our close connections with the First Nation communities around that night. So we We've kept some pretty stringent controls in place at Elianor. But in general, certainly seeing Canada and in the U. S, Australia is where I think Australia in general is awash with the virus at the moment.

Speaker 1

So April is still being impacted Through Tanami and Boltington, but starting to come out the other side of that is you're really getting the herd immunity in the communities and around Australia. Penasquito is solid and pretty solid through the through Myriad, Yanacocha and

Speaker 5

So it looks like you're coming through it, which is good. And then I'll leave it to one more question just if I could. You mentioned that you're closely monitoring labor and obviously your consumables. Can I ask about your labor? Do you have any contracts, union contracts or other that come up For renewal this year that could put more pressure on your costs above and beyond?

Speaker 1

We've got contracts in negotiations in process Currently in Ghana, Mexico scheduled for July, cruising process and then Suriname, it's been And then we've got a number of sites that aren't covered by collective agreements. So they're active, but There's nothing that we're seeing unusual in terms of how those negotiations are proceeding, Okay.

Speaker 5

So that's within your guidance range you've assumed, whatever wage inflation is assumed in your guidance for these contracts?

Speaker 1

That's correct, Tanya.

Speaker 5

And what about your supply your global supply change? Do you have any renewals on cyanide and or other that's coming through?

Speaker 1

No, there's nothing coming through in the medium term on that front, Tanya. So for that one, it's More managing the landed cost from the input cost of gas and the logistics costs So getting it to where it needs to go.

Speaker 5

Okay. And nothing else within the supply chain that has to be renegotiated?

Speaker 1

Nothing think material, Tanya.

Speaker 5

Okay, perfect. Thank you so much. I'll let someone else ask.

Operator

Thanks, Tanya. Thank you, Tanya. Our next question comes from Lawson Linder with Bank of America. Lawson, your line is now open.

Speaker 6

Thank you, operator. Good morning, Tom, Nancy and Rob as well. Thanks for

Speaker 1

the update today. If I

Speaker 6

could maybe just And I'll go back to the cost guidance just one more time and sort of get some very specific clarity On the exposure to fuel and just verify that if we were to mark to market TI at $100 per barrel versus your $60 per barrel and all out sort of stayed within the assumption ranges that you still believe You failed to

Speaker 7

stay within your guidance. Is that correct?

Speaker 1

Good morning, Lawson, and congratulations on your new role. Yes. When we're talking about that guidance range, staying within our guidance range, but certainly seeing us push towards the top 5%, That is making assumptions around current fuel levels and incorporating that in our costs. And the probably the other piece of information to have at hand when looking at the Gimont portfolio is that every $10 Per barrel change in oil price, our free cash flow is impacted by $15,000,000 per year. But for every $100 increase in gold price, we generate an additional $400,000,000 of Free cash flow.

Speaker 1

So the revenue side is certainly compensating for the additional cost of diesel or oil. But the assumptions we're making around current oil prices and as we're thinking about what oil is going to do Going forward this year, that is being incorporated into that indication we're giving around the move to the top end of our guidance. Obviously, we want to understand this world a bit more through this quarter. And as I indicated In our remarks that we'll provide a further update with the Q2 earnings.

Speaker 6

Okay. That's excellent color. Thank you. And then on the cyanide cost, typically cyanide pricing is very regional. So I'd be curious to know if you're seeing inflation across all regions or are there particular regions where you're seeing that inflation more than Others?

Speaker 6

And particularly, I didn't reference the 20% to 30% increases in those prices that you're seeing.

Speaker 1

We're pretty much seeing that across the board. It's been driven by what's happening with the price of natural gas across So it's a little bit different driver than I guess normal because of the circumstances.

Speaker 6

Okay. That's great. And then also if I could follow-up on the working capital build. Nancy, you mentioned that There part of that is inventory build. I'd be curious to what extent might that inventory build be sort of structural or Supply chain related and in that same vein, to what extent might that build unwind through the rest of the year?

Speaker 2

Yes, that was truly just a quarter end convention that happens from time to time. So that will release all of those sales would have already Place into April and then sometimes we have a little bit

Speaker 1

of a build up at

Speaker 2

the end of the quarter and sometimes we don't. But yes, I wouldn't think of that as a consistent variable

Speaker 6

And so you would expect the typical unwind? Yes, absolutely. Great. Okay. And then just one final question then.

Speaker 6

Maybe just to get your latest thoughts on the buyback. Obviously, I understand you intend to be opportunistic with that. What are the indicators that tell you that it's a good time to repurchase your shares?

Speaker 2

We always look at a myriad of factors including current valuation, our own forecasts, trading amongst our peers and some of those kinds of things. So We'll always think about what's proper value and when is a good time to get out and buy shares. So in the volatility we're seeing today, we're certainly Just evaluating as we always do, but we do continue to use that as a tool at opportunistic times and appreciate that we still have some runway left on that current program.

Speaker 6

Okay, excellent. Thank you all very much.

Speaker 1

Thanks, Lawson.

Operator

Thank you, Lawson. Our next question comes from Greg Barnes with TD Securities. Greg, your line is now open.

Speaker 8

Thank you. Tom and Rob, all the talk about Supply chain issues and cost pressures across the board, are you seeing impacts on your capital projects timing and CapEx wise?

Speaker 1

Morning, Greg. I'll pick that up and maybe Rob might throw you for a little bit more color. So the key capital projects, so I might maybe just talk through the 3 of them, Greg, the 3 key ones that really drive that development capital spend. Dynamite 2, we are certainly seeing impacts on that specialized labor We will need to line that shaft and we are now only a matter of a month or 2 away from having completed the reaming of the 1 point Kilometers, the headframe is nearing completion as well and we set up then for the next couple of years to align that shaft In order to complete it, so getting that specialized labor to site set ready to go for what is a very specialized job in mining that shaft It's key. We have an important milestone as we finish the reaming and that shaft Pause and understand that program of work, both schedule and cost to fit that out.

Speaker 1

So I would say in The Q3, we're in a good position to say this is what the run to home looks like. I anticipate there will be some impacts, but we'll have a Very good view of that within a matter of a couple of months, but it's more going to be on the specialized labor that we need to get there. That's going to drive Tanami 2. Greg, I'll pause on H1. Bob, do you want to build any color on Tanami 2?

Speaker 1

I think the only other color, Greg, is that mode. We have done 85% of engineering and the procurement. So that just highlights the good planning work The borders are open. That helps. But these are very specialist skills and the rates that we are Then on Mahafo North, engineering is 90% complete and procurement 60% completeness, as Rob indicated in an earlier answer to a question, we've got a lot of the key heavy mobile equipment landed in Ghana now.

Speaker 1

So We are really, really getting into that, getting the land access. We're getting into the serious business of breaking ground and starting To do several words and then start to build the open up the mine, build the processing facility. So again, for that one, Getting that clear date where we have unfettered access to that land, which will happen through the Q2, that's the important milestone for us Then step back and understand what that schedule looks like to have that equipment that's there. The engineering gives us more definitive pricing So then they'd have a clear view of that project, both scheduling and costs. So probably similar timing to Tanamiq too.

Speaker 1

During the Q3, I think we'll be in a good position to give an update based upon those 2 key milestones. Rob, I'll get Paul to anything you add on the half and all. I think the only other one, Greg, that I'd add is just a significant milestone that I mentioned in my preamble about the road. That's a road that goes through the lease. We've got full cabinet approval to move that.

Speaker 1

So again, in terms of schedule, that was a very positive step. And then the third one is the agriculture side project. And I think given what we're seeing in the world, Fortuitously, the decisions we made that were driven by the pandemic to pause the or to delay the full funds approval, But to continue with committing to we committed to move forward with 23 major equipment packages. And we've locked in factory slots and in a lot of instances pricing for key pieces of equipment, oxygen plants, Mills, electric motors, the autoclave is a core part of the pressure oxidation circuit, the autoclave vessel We'll actually be on the ground at Yanacocha by the end of this year. So we've been able to derisk a number of elements Of that project by making the decision to commit to some of those packages of work.

Speaker 1

Engineering is around 50% complete. We've got care construction well advanced, so there's a bunch of stuff we're doing to de risk that project whilst we move towards Full funds, we're working very closely with Bechtel to understand the inflationary pressures around The other things that come with that project as we gear up with both our labor, our construction workforce and then all of the other pieces You need to build that facility, as we take that engineering, that detailed engineering and work out detailed costs. So that's Important input to the full price decision later this year. Rob, anything to add for that? You've covered the majority of it well, Tom.

Speaker 1

I think the only other thing, Greg, this is where you The construction of the camp continues to go on really well and obviously that's key to allow the workforce to come in and start the major construction of the autoclave and the rest Greg, does that give you the sort of color you're looking for?

Speaker 8

Yes, that's exactly it. So on the Anacostia Sulfides, do you think we're going to get a Q3 update on what that project looks like as well or that be

Speaker 1

More of Q4, Greg. We We'll flick as the engineers say, we'll flick the line on the engineering in the next month or so, drop out all of those details schedule Then you've got quite an extensive piece of work to do basically cost and schedule estimate to build towards the full funds decision. So That will consume the Q3, so it will be end of Q4 before you have all that come together, but certainly the other two projects for the Q3.

Speaker 8

Okay. And just to finish off, others, as it appears, talked about CapEx inflation in the range of 15% to 20%. Is that what you're seeing or do you think you've avoided the worst of that, at least on Tanami and Hapa North?

Speaker 1

There's certainly elements that the mining industry are talking about in terms of that cost escalation. We've been able to avoid because of the procurement we've got underway and the engineering that we've done and the like. However, so the issue for us is more that the pandemic has impacted the pace at which you And do the work. And so for us, it's going to be as we actually as we pause at those milestones and understand the work going forward, And you look at what the schedule is against what we assumed it to be, for us, it's probably going to be more an issue of The indirect costs that you carry for potentially a longer period of time than you'd assumed. So that's going to be a factor for us.

Speaker 1

And we'll see elements, I think we'll see elements for aligning in the shaft and that specialized labor that will have some cost escalation. So sort of Jumping around it a bit, Greg, I think there'll be an element of it. And there's an element that's pandemic related Given the we'll enter those projects. I don't know, Rob, if you want to I would just reinforce, Greg, that the biggest issue and obviously the cost of labor goes into our capital as well. That's the biggest risk that we've got is that I think we've been very good with our pre planning and the decision making around the long lead time items and the advancement of the engineering, But it's the cost of labor which is going to provide that risk to the upside.

Speaker 1

And as Tom mentioned before, Seeing it, in particular, in Australia. And there's no doubt that's something that we're managing closely and going to have to keep an eye on.

Speaker 8

I don't want to belabor this, but in terms of the specialized labor costs, can you give an idea of how much it's going up percentage wise? This is what perhaps you expected or is it too early to say yet?

Speaker 1

Greg, I think given the capital projects, We hit those milestones and have those definitive schedules and then costs, I think probably better to wait and give you the The significant numbers as they apply to those 2 projects rather than sort of just throw out a number that's a bit more generic.

Speaker 8

Fair enough. Thanks, Tom.

Speaker 1

Thanks, Greg.

Operator

Thank you, Greg. Our next question comes from

Speaker 1

Operator, we'll start on the line until we've exhausted So to every question everyone's question, so more than welcome to stay on, but we'll stay here until everyone's asked their question. Sorry about it.

Operator

Understood. Thank you. Our next question comes from Fahad Tariq of Credit Suisse. Fahad, your line is now open.

Speaker 9

Hi, thanks. My questions have been answered. Thank you.

Speaker 1

Thanks, Fahad.

Operator

Our next question comes from Anita Soni with CIBC World Markets. Anita, your line is now open.

Speaker 10

Hi. Good morning, Tom, Nancy and Rob. So I just wanted to follow-up on Greg's question related to CapEx. So like I was looking back through the transcript and previously you guys had said in Q4 that it would be a 50five-forty 5 split on capital this year. So what I'm sort of understanding and what I assumed was that if the spending is not happening, you only came in at 18%, it's kind of It's moved into the second half of the year now because that's the rate of spend.

Speaker 10

And is it safe to assume that Next, because of the rate of spend, because you can't get the labor or whatever delays that you have that next year and perhaps the year after, you might see the budgets Should we be thinking about perhaps a delay in the start up of Yanacocha Sulfides?

Speaker 1

Good morning, Anita. Yes, I think you're in terms of that spend profile, I think you're describing it well. I think you're still going to see that similar weighting first to 2nd half, the nature of these projects, that spend will just flow into the into the following year and the following year will flow forward into the year after that. So I think there will be an Element of maybe a bit more spend next year, but I think you'll also see that it will move into 2024 as well. So it's just that that way moving Still progressing towards the end of the year, full funds decision for sulfides.

Speaker 1

And once that full fund decision is taken, Camp will be complete, so we'll have beds for 4,000 people, back to a gearing up And we expect to hire the workforce directly for a lot of that work. And so we would with the assumption we get a full funds At the end of the year, we will gear up and start to ramp up into 'twenty three. So I wouldn't see a delay in us starting To break ground seriously on the HathiCapture software.

Operator

Okay. And then the second question is

Speaker 10

a bit Big picture as I look through all of the assets and operations. For the most part, The grades, like I would have thought it was more of an impact on tonnage with, omicron, but there are some assets where grades came in substantially below. And I was just Wondering if that do you expect that to rebound closer to reserve grade at most of the operations, like I'd name Eleonore as one of them, definitely a team in a So, Panasquito, the recovery rates were actually, quite low versus the prior quarter, but that may be a great weighted decision. And then the last one, CC and V, that heap leach, that grade is really low compared to what you had in the prior quarter. So if you could give a little bit of color about grades at some of these

Speaker 1

Thanks, Sarah. What I might do is give you a bit of a General overview on that, maybe get Rob just to give a bit of a color on some of those operations. But I think it's we talk about the direct impacts from The pandemic, the omicron surge in terms of labor availability in a particular quarter and costs and the like, But you're also seeing what I'd call the indirect impacts where this pandemic has been chronic and so your mine sequence So, is it different from what they would have otherwise been if you were able to just have unfettered Access to run your business as normal. So some of that grade discrepancies is the mine sequence and where you are in a particular month or quarter compared to You assumed you would be. But certainly, as we get the stronger second half of this year, part of that is linked to moving into higher grades.

Speaker 1

And Gaurav, I don't know if you wanted to pick up a Penasito or a Cripple Creek and Victor and or Amadea more than happy to go offline with you and Yes. I think, Tom, you covered the key things there. Anita, just to reinforce what Tom said, We're not seeing any major great challenges. It truly is the timing that with the challenges through COVID, some of our developments got behind. We haven't had the availability of the stops.

Speaker 1

And as Tom rightly said, we're out of sequence, In particular, those underground mines in Canada that you mentioned. In Penasquito, there's nothing major or nothing That's happened there, and you'll certainly see that rebound quite quickly in the coming months. And In CC and V, in terms of the heap leach, the heap leach is lower at the moment. But again, as we uncover the pressure ore, we'll see that So it is around the timing, it is around the sequence and we can underplay, especially in those underground mine sites that were affected by the Omicron, The lack of development has impacted getting to some of the stops at the time we expected, but no major issues. The grade is certainly still in the ground and you'll see that rebound later in the year.

Speaker 10

Okay. And so as we look at these assets, if we were Trying to compare where you would be, it's basically a 2 years culmination of slightly getting behind on development work on some of these things. So right.

Speaker 1

Yes, up to 2 years, there's other operations which have been relatively unaffected, But the worst is up to 2 years, there's so much may only be 6 months.

Speaker 10

All right. Okay. Thank you very much.

Speaker 1

Thanks, Anita.

Operator

Thank you, Anita. Our next question comes from Adam Josephson with KeyBanc. Adam, your line is

Speaker 1

now open.

Speaker 11

Good morning, everyone. Good morning, everyone. Thanks for taking my questions. Tom, a couple of questions for you on cost, if you don't mind. So if your gold CAS ends up being, Call it 8.50, 8.60 this year.

Speaker 11

Just given the general stickiness of inflation that you and many others are How, if at all, does that affect your thinking about your gold CAS guidance for next year, which would imply quite a healthy decline in cost Perhaps, just amid this highly inflationary environment.

Speaker 1

Good morning, Adam. When you look at our out year cost guidance, we don't assume any Inflation in those numbers, they're unescalated. So if it was a standard year that we were seeing before this pandemic, we would Typically have 2% to 3% escalation within to get built into that number as we build towards guiding for Next year, what we're seeing is unprecedented in terms of what's playing out in the world with the combination of the pandemic And the war in Ukraine. So in terms of what CAS might look like next year, I think we're going to see more of how a Few key events play out this year. What's going to happen with the pandemic?

Speaker 1

Other supply chain is going to settle down. It's what's going to play out in Ukraine. And as We start our work actually next week with our key leaders around the business starting to map out our business plan and we build towards In October, Board meeting to approve the plan and then we guide in December. So the coming months are ones in which we will step back, look at happening on a macroeconomic sense? What's structural?

Speaker 1

What's cyclical? What is 2023 looking like? And therefore, what are our unit costs going to look like next year. So

Speaker 9

that's

Speaker 11

Yes. And just relatedly, I mean, you said you as you said, this is unprecedented, no one none of us have seen inflation like this. Just drawing on past cycles that you've been through, How long would you expect this inflationary cycle to last for? Or is there no way to answer Question because we're seeing things that we've never seen and consequently drawing on past cycles is almost meaningless in this environment.

Speaker 1

I think we are in uncharted territories, Adam, and it's, as I think you're seeing throughout the in terms of what I'm observing in the mining Slacks are out reporting very, very similar commentary. So uncharted territory, I still As we look at macroeconomics and after the debate, still see it as more cyclical and a long cycle than structural, But we are in uncharted territory, so I would say that there's some caution.

Speaker 11

And what has the duration been

Speaker 1

Roughly speaking, a couple of years Inflationary cycles, but I'm really, really growing on straws here.

Speaker 11

Yes, no, I understand.

Speaker 1

And I'm growing on straws, It's just a circumstance that is unprecedented in modern history.

Speaker 11

Yes. No, understood. Thank you very much, Tom.

Speaker 1

Sorry, I can't help you, Adam.

Speaker 11

No, thank you.

Operator

Thank you, Adam. Our next question comes from Mike Parkin with National Bank. Mike, your line is now open.

Speaker 9

Thanks guys for taking my questions. Most have been asked. Just one on the follow-up in terms of delays And challenges with sourcing equipment. Can you just speak to is it a function of delays In manufacturing the equipment or is it more of a function of securing containers and getting it shipped Just say can you just get a bit more color in terms of where the underlying delay is situated?

Speaker 1

Good morning, Mike. The delay for some of that equipment drills that have been particularly problematic for us is manufacturing. So it's actually getting the drill in the queue and manufactured. So it's the labor availability within those shops And then having the materials that you need to fabricate those drills and then have them come So as Rob was indicating, we've got all of the heavy mobile equipment for Harper North on the ground in Ghana. So although there are challenges With logistics and freight, we can get from a manufacturer's warehouse to our facility, Albeit with some delays, but the key issue is within the manufacturing shop.

Speaker 1

Rob, do you want to build on that? I'll just add a couple of points Mike, I think it's very similar to what you hear in the automobile industry that we know that the significant delays from new cars, whether the microchips, whether it's capacitors, And each one of the equipment manufacturers, they can get some things, but not all things. And mode. They're managing their supply chains very, very carefully. So it's nothing different to what the car manufacturers are seeing.

Speaker 1

And again, one of the advantages in Newmont is that we are we have got a global supply chain. We've got excellent relationships with the equipment manufacturers, But it's just staying abreast of their challenges, whether they're from in China, whether it's from India,

Operator

Thank you, Meg. Our next question comes from Cleave Harkert with UBS. Please, your line is now open.

Speaker 9

Great. Thanks. And thanks everybody for staying on the line. I appreciate your generosity with the time. I have a

Speaker 1

couple of questions

Speaker 9

that hopefully we can work through pretty quickly. I want to just first ask the inflation question

Speaker 7

a little bit differently.

Speaker 9

At what point would you reevaluate the gold price assumed for budgeting? When could you possibly move from $1200 an ounce.

Speaker 1

Good morning, Cleve, and a very good question. We are actively debating that now. I think it We are now seeing, I think, the same way that we're working our way through the inflation piece as you indicated And Adam was trying to explore and understand, that inflationary piece is driving gold price. We're now seeing Gold price at current levels and as we start to get in amongst our macroeconomics and start to have our internal debate starts to do our business Planning work, where is gold price heading and what is the flaw of why the gold price is a debate that is active with us now and We'll be having that debate over the coming months as we think about whether we're getting into a zone where it's time To look at resetting the floor for gold price.

Speaker 9

So I guess just in terms of timing, that sort of it sounds like it would be a year end budgeting sort of

Speaker 1

It's certainly something we are actively debating around whether it's something we incorporate into Our planning processes this year. As you've unpack the macroeconomics around gold, you are seeing some fundamental shifts.

Speaker 9

Right. Okay. And then just following up on the CapEx, Tom, I think you said that Bechtel Is doing the Yanacocha work for you.

Speaker 1

I don't know if you can give

Speaker 9

us any color. Are those engineering and construction projects being done on fixed price basis at all or is it cost plus? I mean is there any shared risk on the cost side With your subcontractors?

Speaker 1

Yes, it's a bit I might just pass across to Rob who manages the very close relationships, does the VPC and contractors, but it's a bit variable across their projects, I suspect. It is, Cleen. Depending on what we're doing, there's some things that you lock in without a doubt and we must prefer making sure that we've got things we've got that But we've got other areas such as we've explained before where the labor costs The materials are capped, the manufacturing is capped, but it's the labor costs which are flexible. So We typically like to have full confidence and full knowledge of what we're planning, but it's a little bit variable depending on the work The big project, Dave, the Anacocha sulfide, our supply chain team and the Bechtel supply chain team are working hand in glove as we understand, Obviously, those 23 key work packages that are out there now, but as we look at all of the material all of the steel and the Fabrication of that steel and the other things to assemble a processing plant, working hand in glove in terms of understanding that all those elements, What around the world, what's the status of those workshops and their capacity to take work packages?

Speaker 1

So there are elements As Rob said, variable, but there are elements where you actually want to be working hand in glove with that contractor to get the best outcome to deliver The project on time and on budget and deliver the value that you're expecting from it. So, good horses for causes.

Speaker 9

Got it. That's very clear. And then just finally, again, a little bit unrelated, but I'm just wondering if You're able to kind of adapt your COVID protocols I guess the changing circumstances of the virus, I mean, Tommy, I think you said at the very beginning of the call that the severity of omicron that you So your sites was much lower than the previous variance. I'm just wondering if you're able to adapt the protocols that you use, the protocols that you have in place to

Speaker 1

Thanks, clearly. Very important decision we took and I think very few other companies have taken, but I'm so glad we took the decision is to require every person who works at Newmont to be fully vaccinated. We've lost 25 colleagues to this virus over the last two and a half years. And through the omicron surge, we had one person hospitalized With an underlying health condition and you saw the spike in those positive cases and us Having made that decision has saved lives. And that is going to put us in good stead going forward for future waves Because we have a workforce that is now highly resilient.

Speaker 1

So that is going to put us in a good position. Rob, did you want to maybe talk about how we think about managing the ability to open up Tighten up our protocols and obviously underlying workforce fully vaccinated gives us a lot of confidence in decisions we Certainly, Cleave, and it's a great question. We have a COVID committee, which we meet on a regular basis Exactly that. And it's to respond to make sure that as things open up, that we open The measures that we have and just as an example, when I was in Ghana a couple of weeks ago, for the last 2 years, everybody's been wearing masks, everybody's been sitting There's no longer the need for masks. There's no longer the need for people to sit separately at dinner and lunch, etcetera.

Speaker 1

And the same as at CC And at Penasquito, we've got a clear plan in terms of how do we start relaxing those metrics In Canada as well, we've relaxed at Porcupine. But then similarly, the likes of Eleonore because of the First Nation that Tom spoke about, we are Making sure that additional precautions are taken to protect those First Nations. But similarly, we are constantly monitoring through our health partners The different variants which are coming up, so we are very able to quickly ramp up those protocols as and when needed. But as because of the vaccination, it has allowed us to utilize less vehicles because we get more people on the vehicles. We can get back to more people on planes.

Speaker 1

We can get people back on to the buses, etcetera. So we're really responding So where the virus is at, but at all times we can quickly go back if need be and it's something that we assess on a very regular basis.

Speaker 9

Very clear. Thanks again for taking the questions, guys. Appreciate

Speaker 1

it. Thanks, Clay.

Operator

Thank you, Cleef. Our next question comes from Michael Dudas with Vertical Research. Michael, your line is now open.

Speaker 1

Good morning, gentlemen and Nancy. And you guys have done terrific jobs this morning of sharing your thoughts and being very frank of what's going on in the So my questions are all done and best of luck. Talk to you next quarter. Thanks, Mark.

Operator

Thank you, Michael. Our next question comes from Brian MacArthur with Raymond James. Brian, your line is now open.

Speaker 7

Good morning. And again, thank you for taking all the time today. Most of my questions have been answered on this cost thing and I think we've been sort of off. But can I just be check one thing, we're talking when you're saying 3% to 5 Percent, if I put it this way, is gross dollars up on the cost base? And where I'm going with this, maybe I guess it's the only silver lining in any of this.

Speaker 7

When you did your guidance, I mean, you used $1.15 for zinc and $3.25 for copper. So we're talking We're not talking on a per GEO basis or anything here because you should get a pretty big credit if zinc price Stay where we are and copper prices stay where we are. I mean, is there on a margin basis at least a $200,000,000 plus offset to all of this still? You're not Factoring that in your guidance when you talk 3% to 5% off.

Speaker 1

Thanks, Brian. You are honing in quite nicely. It is predominantly cost driven. And if you were to model on all in Australian cost per gold ounce, I'll probably use 5%. And I think we will get some benefit as we then come back to our total metal profile with a good another About 1.5 ounces of gold equivalent ounces of how those metal prices play out in terms of how you calculate a GEO, That will give you some benefit in the unit costs and maybe a bit lighter than the 5% as you are quite rightly pointing out.

Speaker 7

Great. Thanks very much.

Speaker 1

Thanks, Brian.

Operator

Thank you, Brian. Our next question comes from Tanya Dukosynek with Scotiabank. Tanya, your line is now open.

Speaker 5

Oh my god. Thank you so much for taking my another question from me. I'm just thinking as Listen to all of this on costs and I know at the beginning of the year when you gave guidance, Tom, in December, you were thinking an embedded 5% Within the cost structure, now we're looking more 8% to 10% in the structure. And I'm just kind of thinking as A lot of what we saw in Q1, we didn't really see the full impacts of the oil price come through the cost structure, I think, for most of the companies. And I know that yours is quite low.

Speaker 5

You've given guidance from $60 a barrel, and it's only a $2 per ounce move for a $10 per barrel move. I'm kind of just wondering at what point Do we get through that $2 Like when are we going to get to actual spot pricing? And when we do, am I looking more at a sensitivity of $6 per ounce or $10 barrel move. I'm just trying to see as we work through the hedges and get to full exposure, so I can kind of Look into my 2023 numbers. Thank you.

Speaker 1

Thanks, Ted. You're certainly seeing what we saw play out in the Q1 It was escalation or inflation at the levels that we'd assumed. So it's really as we so it's more of a production story related to the omicron surge that around Q1 and we now pivot into more of a cost story and additional inflation as we move into the In the remaining three quarters of the year. So you're starting to see in this quarter, those higher diesel prices flow through. Just to clarify, we don't hedge any of our oil.

Speaker 1

So it's spot price that you see flow through in our cost base. So You're certainly seeing that oil price in our costs as we're into the Q2 and moving forward.

Speaker 5

Okay. So that $2 per ounce is a good number to use going forward?

Speaker 4

Yes. That's it,

Operator

There are currently no further questions in queue.

Speaker 1

I think we might be good to finish up operator by the looks of it.

Operator

This concludes the Q and A answer session. I would now like to turn the conference back over to Tom Palmer for closing remarks.

Speaker 1

Thank you, operator, and thank you, everyone, for taking the extra time to work through our

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 Q1 2022
00:00 / 00:00