Newmont Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Tom Palmer, President and Chief Executive Officer
• Rob Atkinson, Executive Vice President and Chief Operating Officer
• Nancy Buese, Executive Vice President and Chief Financial Officer

Analysts

• Jackie Przybylowski, BMO Capital Markets
• Josh Wolfson, RBC Capital Markets
• Tanya Jakusconek, Scotiabank
• Lawson Winder, Bank of America Co.
• Greg Barnes, TD Securities
• Fahad Tariq, Credit Suisse Group AG
• Anita Soni, CIBC World Markets
• Adam Josephson, KeyBanc
• Mike Parkin, National Bankshares, Inc.
• Cleve Rueckert, UBS Group AG
• Michael Dudas, Vertical Research
• Brian MacArthur, Raymond James

Presentation

[Operator]

Good morning and welcome to Newmont's First Quarter 2022 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Tom Palmer, President and Chief Executive Officer. Please go ahead.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Good morning and thank you for joining Newmont's first quarter 2022 earnings call. Today I am joined by Rob Atkinson and Nancy Buese, along with other members of our executive team and 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 on a challenging first quarter as our operation and the mining industry as a whole slightly managed through the Omnicron surge over the first three months of this year. As we emerge on the other side of this wave, Newmont remains well-positioned to deliver solid performance in 2022, leveraging our scale and proven operating model to deliver long-term value from the world's best mining jurisdictions. The strength of our people and stability of our global portfolio, not only allowed 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 first quarter, Newmont produced 1.3 million 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 Akyem in Ghana as well as our Boddington mine in Australia, where I felt fulfilled with significant efforts in obtaining the taking to the health and safety in our workforce while continuing to move critical projects forward.

The $7.3 billion in total liquidity, we have a net debt to EBITDA ratio of 0.3x times preserving Newmont'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 Yanacocha, which will bring Newmont's ownership in this operation and the exciting Sulfides project to 100%, and yesterday we declared a first quarter dividend of $0.55 per share, set with an established dividend framework and consistent with the last five quarters.

Newmont's core values of safety, sustainability, integrity, inclusion, and responsibility are essential to creating long-term value for our investors, governments, communities, and employees. Last week Newmont launched it's 18th Annual Substantially 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 million to provide relief and 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 the way we choose to operate. In light of the recent geopolitical events and the Omicron surge that have impacted so many around the world, our commitment to sustainable and responsible mining is more relevant today than ever before.

During our fourth quarter earnings call in late February, we provided an update on how the Omicron's surge and the lingering effects of the pandemic were affecting our operations and the impacts that our stakeholders could expect in the third quarter. As you can see here on the slide, on to the first three months of this year, we saw the largest spike of positive COVID cases at Newmont since the start of the pandemic. And this graph only shows positive cases and does not include absenteeism from the period of post-contract hospitalization protocols. As a rule of thumb, every positive case identified at site approximately two coworkers were sent home to isolate for a minimum of seven 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 very high vaccination status, the severity of any positive cases has remained low. As of today eight of our 12 managed operations are fully vaccinated workforce of employees andcontractors positioning us to emerge strongly on the other side of this wave and others that may come. So as a consequence of managing through the Omicron surge, our operations have been impacted during the first quarter on our 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, global supply chains and the input costs.

As we described in our guidance webcast last December, we issued an escalation factor in 2022 when we developed our business plan to account for how inflation is expected during this year. During the first quarter, we remain in line with our inflation assumptions, but we are closely monitoring critical commodities and materials such as natural gas and the ammonium used for production of explosives, and cyanide. It is very difficult to predict at this stage the cost pressures from these new supply chain disruptions may increase our unit cost by another 3% to 5% and towards the high end of our guidance range. We will be closely monitoring this to the second 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. We are tracking to around 100,000 ounces below 90 points for gold. 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, Ahafo, 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 update to the market as we leverage our proven operating model and balanced global portfolio to overcome near-term uncontrollable disruption and deliver on our long-term commitments. At Newmont, we have created a robust and diverse portfolio of operations along with a top line of more than 20 organic projects with the style and model off to deliver long-term results.

Newmont will produce more than 15 ounces of gold each year, and almost 2 million gold equivalent ounces from copper, silver, lead, and zinc. Combined that is nearly 8 million gold equivalent ounces per year for at least for the next decade, the most of any company in our industry. And it is important to note that this is attributable production. Among our 12 operating mines and two joint ventures, maybe 90% of the attributable gold production comes from top-tier jurisdictions, and with the acquisition of the remaining 5% ownership at Yanacocha, 11 of our 12 managed operations will be 100% owned ensuring that our stakeholders receive the full benefit from Newmont's clear strategic focus and superior execution. We certainly believe that where we choose to invest and operate matters. We have a disciplined geopolitical lift program that ensures we retain safer jurisdictions and our risk tolerance to deliver long-term results from established mining jurisdictions.

Underpinning our portfolio, is a robust foundation of reserves and resources combined with the gold industry's best organic project pipeline derives a pathway to steady production and cash flow well into the 2040s. We are entering a period of late to reinvest as we continue to advance our near-term projects including the second expansion at Tanami in Australia's Northern territory, the development of Ahafo North in Ghana and Yanacocha Sulfides project, the next exciting chapter in Newmont's long and profitable history improve.

And with that, I'll turn it over to Rob and then Nancy for a more detailed look at our first quarter performance. Over to you, Rob.

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

Thank you, Tom, and good morning everyone. Turning to the next slide, let's dive into the operations and projects starting with Africa. Tom and I had the opportunity to separately visit Ghana recently, and we were impressed with the progress at both operations as we continue to advance important growth opportunities in this proven mine industry, including sublevel shrinkage at Subika Underground, the Akyem layback and of course Ahafo North.

As indicated during our fourth quarter earnings call, Ahafo South has had a challenging start to the year. The sites first quarter performance was impacted by supply chain disruptions and global border closures, impacting labor availability and the delivery of new equipment and critical spares. As an example, last year the site ordered four new drills for the underground pit operations and we only received the first drill in March this year with delivery of the remaining drills expected sometime in the third quarter, much later than originally planned.

In addition, the delay in of replacement parts for existing drills, as compounding the situation creating availability challenges with the equipment that we have on hand to date. Improved drill performance has helped to offset these delays, but the impacts from the pandemic have affected our ability to ramp up mining rates in the Subika Inderground, and as a consequence, we are evaluating ways to improve our mining rates which may include adding a third production level to access higher rates in late '22 and into '23 and we expect to have an update with our quarter two earnings in July.

Akyem delivered a solid performance in the first quarter due to sustained throughput and strong recoveries. Akyem continues to progress stripping of the next layback and new pit, which will extend mine life by an additional four years and provide future optionality for both underground and open-pit growth. And finally, we continue the development of the Ahafo North project. Engineering is nearing 90% complete and procurement is 60% complete as we continue to work together with local communities, traditional leaders, and regulators to get full land access and commence construction.

And just in the last few weeks, Tom and I met separately with key stakeholders and received 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. When operations begin, Ahafo 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 its prolific ore body.

And now coming to Australia. At Boddington and Tanami, we experienced the impact from the Omicron surge in the first quarter as labor availability and close contact isolation protocols impacted the region. 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 through the country and to Tanami for the first time in many months.

At Boddington, we reported lower production compared to the fourth quarter due to planned maintenance and COVID-related absenteeism as we saw our first COVID cases on the site. These impacts were partially offset by improved grades and higher ore tons mines from Boddington's fleet at fully autonomous trucks. The team is diligently working multiple phase positions in the circle to access higher grade ore and we expect some mine in grade to remain strong for the year as we continue to optimize consistency, efficiency, and productivity on our autonomous truck fleet, a key component to delivering a strong finish to the year.

At Tanami, the site delivered a strong performance despite the impacts from the Omicron surge in the first quarter and a very competitive labor market in Australia. The site also delivered more ore grade than in the fourth quarter due to mine sequencing and unplanned maintenance at our processing facilities. The team continues to progress to the second expansion at Tanami, a project with the potential to extend mine life beyond 2040. As you can see here in the photo, the assembly with the headframe is nearing completion, which is an important milestone as we transition from the rewind of the shaft to commencing the shaft winding activities. 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 not much closer to delivering significant ounce, cost and efficiency improvements.

And now over to North America. Penasquito delivered another solid quarter, a strong mill performance that delivered higher core product production from lead and zinc to offset lower gold production. Stripping has continued at both Penasco and Chile Colorado pits, with lower gold grade and harder ore coming from Chile Colorado in the first quarter. And looking ahead due to efficiency, gold production from this large polymetallic mine is expected to decrease in the second quarter, but increase in the third quarter due to higher grades delivered from the Penasco mine.

Moving to Canada. Our operations in the country as a whole continues 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. Due to the remote locations, these impacts were particularly pronounced in Musselwhite and Eleonore where both sites delivered lower tonnes mined and process compared to the fourth quarter. As an example, we saw absenteeism rates as high as 15% to 20% during the peak of the Omicron surge in our Canadian operations. And at Musselwhite, we decided to play safe and care maintainance for seven days in February to reduce the spread of the virus and protect the health of our workforce and communities.

At Porcupine, our ore grades were offset by lower tons processed as a result of COVID-related labor absenteeism and now maintenance in addition to challenging rent conditions and some ventilation constraints at Hoyle Pond. The site continues to progress Pamour layback project that will extend mining occupancy through 2035. Construction of the water treatment plant is well underway to dewater the pit and advance toward full funds approval in the second half of this year.

And finally, at CC&V the mine required a mill shutdown from a conveyer fire that occurred during the first quarter. With the pending conclusion of our contracts like concentrates from CC&V to the valley gold mines, we are stepping back to assess our operating strategy at the site to determine if there is the potential for a simpler, higher value over the life reach only operation that does not carry the complexity and cost of running a mill to process a relatively small amount of ore mine. This work is underway and we expect to have an update with our quarter two earnings in July.

Coming to Central America. Merian delivered a solid performance despite very heavy rain and no maintenance during the first quarter as the site continues to utilize an ore binding strategy to balance heavy grade and strong mill performance. At Yanacocha, record rainfall resulted in a federal emergency declaration of Peru impacting the site as it continues to deliver leach only production, while we've worked 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 and construction activities continue to progress at site. 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 first quarter as a result of higher grade mine from Marianas North and Marianas Central and ongoing improvements for productivity, despite disruptions from the Omicron surge. During the first quarter, the team successfully completed the tailings storage facility expansion project, and they continued to progress the first wave of expansions at Cerro Negro, including the development of the Marianas and Eastern districts to extend existing operations beyond 2030. The team is advancing the development of the San Marcos decline. And as you can see in the quarter, the construction of the roads, infrastructure platforms and portal access are all well underway in the Eastern district. And with that, I'll turn it over to Nancy on the next slide.

[Nancy Buese, Executive Vice President and Chief Financial Officer at Newmont]

Thanks, Rob. Let's start with a look at the financial highlights. In the first quarter, Newmont delivered $3 billion in revenue at a real life gold price of $1,892 per ounce, adjusted net income of $546 million or $0.69 per diluted share. Adjusted EBITDA of $1.4 billion and solid free cash flow of $252 million, which includes unfavorable working capital movements of $465 million in the first quarter, primarily driven by timing of cash collections and over $420 million of tax payments, largely attributable to 2021. Free cash flow was also impacted by higher capital spend as Newmont enters a period of significant reinvestment and essential component in growing production, improving margins and extending mine life.

First-quarter GAAP net income from continuing operation was $432 million or $0.54 per share. Adjustments included $0.16 related to a non-cash loss on a pension annuitization settlement, $0.04 primarily related to a loss from the sale of La Zanja as part of the transaction to increase our ownership at Yanacocha. $0.05 related to the unrealized mark to market gains on equity investments, $0.04 related to tax adjustments and evaluation allowance, and $0.04 of other charges. Taking these adjustments into account, we reported first quarter adjusted net income of $0.69 per 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 assumption, Newmont delivers $400 million of incremental attributable free cash flow per year. And Newmont is the only company in the gold mining industry with the ability to generate these levels of attributable free cash flow, allowing us to confidently execute our capital allocation priorities and build from our position as the world's leading gold company.

A year and a half ago, Newmont was the first in the gold industry to announce a clear dividend framework with a decisive strategy to provide stable and predictable returns. Yesterday, we declared first quarter dividend of $0.55 per share, or $2.20 per share on an annualized basis, calibrated at an $1,800 gold price assumption and a conservative 40% distribution at 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 $2.5 billion 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. 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 sheets and to continue to provide industry-leading returns to shareholders. In the first quarter, 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 strategies, enhancing our ownership of world class asset and improving 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 $7.3 billion in liquidity and a net debt to EBITDA ratio of 0.3x, 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.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Nancy. Newmont have 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 and 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 zero work-related fatalities for third year in a row with our focus on verifying the critical controls that prevent fatalities and coaching frontline leaders to provide visible self leadership.

Continuing to put the health, safety and wellbeing 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 first sustainability linked bond, a bond that holds Newmont to account for meeting our 2030 initial reduction targets, and also to reach gender equality and see leadership bonds by 2030.

By linking the interest rate paid to our ESG performance, this represents the next important step in aligning our financial performance with our sustainability performance. And finally, Newmont played an important role in creating economic value, contributing $10.8 billion to our workforce, host communities and jurisdictions through wages of benefits, operating costs, capital spend, royalties and taxes. Next month, we will launch our second annual climate report, which will outline Newmont's climate related risks and opportunities, our strategic planning and the pathways we are taking to achieve our climate targets.

We've been disclosing a non-financial performance since 2004, regularly ranking as one of the most transparent companies in the S&P 500 and positioning Newmont as the gold sectors recognized sustainability leader. We understand the strong ESG performance is an indicator of a world run organization, and we will only be successful if we forge and maintain strong partnerships with local communities and demonstrate our ability to mine and matter 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 to scale mine life, superior cash flow generation, and an unwavering commitment for leading ESG practices. And we believe that Newmont is one of those leaders.

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 in our next 100 years of sustainable and responsible mining. And with that, I will turn it over to the operator to open the line for questions.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question comes from Jackie Przybylowski with BMO Capital Markets. Jackie, your line is now open.

[Jackie Przybylowski, Analyst at BMO Capital Markets]

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 that and what you're doing with working capital? Thank you.

[Tom Palmer, President and Chief Executive Officer at Newmont]

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

[Nancy Buese, Executive Vice President and Chief Financial Officer at Newmont]

So in 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.

[Jackie Przybylowski, Analyst at BMO Capital Markets]

Thanks, Nancy. And maybe just one other question. 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 American-Africa, which makes sense because the major projects there haven't been green lit yet. But can you give us some color because I'm thinking at least on Yanacocha Sulfides the full fund 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 will look like? Do you expect to have pickup in spending before full funds decisions reached? Or should we really expect to see those sort of fourth quarter weighted in terms of the spending?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Jackie. I'll pick up Yanacocha first. You will see spending pick up ahead of the full funds decision. So the first quarter was certainly the largest in terms of spend that builds up quite considerably. We'll more than double that spend as we move into the remaining three quarters. So you'll build through the second quarter the half to half waiting 42% spend in the first half versus 58% spend in the second. So we will be building that spend towards full fund approval at the end of the year for Yanacocha. And you are right, a similar story with Ahafo North. We are 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 will -- which we are expecting will be moving through this quarter to get all that in place. And so as you get --as you really start to build up a workforce and get people on the ground doing the earthworks, you'll see that spend build for Ahafo North in the second half. So I'd be seeing a similar waiting for Ahafo North in the second half. So if you're modeling, I'd look at something more like 45%, 55% for H1 versus H2.

[Jackie Przybylowski, Analyst at BMO Capital Markets]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Okay. Thanks, Jackie.

[Operator]

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

[Josh Wolfson, Analyst at RBC Capital Markets]

Great. Thank you very much. Thank you for the additional color on the costs versus, I'm wondering that 3% to 5% upside that could take you towards the high end of the guidance range. What does that incorporated? Is that assuming current spot prices continue for the duration of the year or are there other sort of factors at play?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes. Thanks Josh. I might just talk you through another level of detail in terms of what makes up our operating costs ahead us looking towards that top end of guidance. And if you are modeling off the back of that, if you think about our unit cost on a gold basis, it's probably closer to 5% than the 3% as we look across our portfolio on the total metal, it's somewhere between 3% and 5%. But 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 are 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.

If 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 shutdown. Also, for instance, Boddington one of their major shuts through the first 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 are seeing, if you think about that 3% to 5%, 50% of the operating costs, a lot of it is being driven by what we are starting to see come through for some of that contracted services around our operations globally. And given that the quantity of that money then that 5% is sort of indicative of what we're seeing flow through. But we want to watch it because it is a moving feast. We want to really see how that plays out through the second quarter.

And Josh, that will play through to exploration, 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. The real driver in that space is ammonia, which we obviously were used 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 cost per cyanide. That's flowing through to really representing a small proportion of our operating cost, probably less than 3% of our operating costs when you see that impact flow through.

What we're monitoring more carefully on the materials and consumables is what's happening in the global supply chain. And there's obviously a higher freight cost, 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 supply level for some of those critical materials and consumables. And then the last one, 15% is energy and the driver of that's diesel. We assured $6 a barrel, and we obviously see prices over $100 a barrel. So that's flowing through in terms of the operating cost. But Josh, I think what's going to drive that number will be labor, as we look at our business through the remaining part of the year.

[Josh Wolfson, Analyst at RBC Capital Markets]

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 comments all provided on some of the challenges in Ghana. Wondering maybe, I had some major stocks from 2008, 2009 of these years as well. 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?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes, it's more specific components, Josh. In the Africa example, it's getting drills in, but we need both the open pit and underground to the opening up development fronts. And it's the equipment suppliers. I guess [indecipherable] you might have. You can get 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 drill, which will be impacting the mining industry globally. It's just particularly a bigger underground, needs drills at a critical time in opening up sublevel shrinkage. So that's the specific type of equipment and supply chain issues. And then the boarders or the global boarder closures with specifically Western Australia and some of the key resource people that come out of Western Australia to operate some of that key equipment. 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 flowing. So that is less of an issue, but we're still seeing those supply chain constraints getting some critical pieces of equipment in order to do the work that we plan to do in our mining operations. Robert, do you want to build on that?

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

Yes. Thanks, Tom. And just to add a little bit more color. As Tom said, it was Ghana really was specifically drilled for the Ahafo North project, we're receiving our haul trucks, our graders, our water trucks, those are coming through. But as Tom rightly says, it is specific types of gears, specific types of parts. It isn't everything.

[Josh Wolfson, Analyst at RBC Capital Markets]

Great. And is there anything else that you can think of beyond on equipment that had that level of tightness? Or is that really kind of number one item that would stand out?

[Tom Palmer, President and Chief Executive Officer at Newmont]

I think the type -- 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, but for supply and costs that we need to monitor, as I indicated earlier, is 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 our -- 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 derisk some of our operations. Knowing that this issue is potentially going to be weak, the world and the mining industry for some time, that decision we're looking at around the deeper underground to drop down and open up a third level and have more headings from which to be able to take ore, is derisking that operation stepping back making investment now to the recent 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.

[Josh Wolfson, Analyst at RBC Capital Markets]

Thank you, very much.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Josh.

[Operator]

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

[Tanya Jakusconek, Analyst at Scotiabank]

Great. Good morning everyone and thank you for taking my questions. So many, but I'll keep it just to three, 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 was a little bit of static on the phone. Tom, did you say that we're looking at 100,000 ounces below 6.2 million for this year?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes. Good morning, Tanya. Yes, that's correct. And if I give you a little bit more color on that, about 70 -- so it's 100,000 ounces below the 6.2 million midpoint that we're starting to see open up. It's managed operations that I'm referring to that are around about 100,000 ounces. 70% of that will come from Subika Underground and the work we do to step back, drop down, open up that third level and really, I was just commenting with Josh to really derisk that operation as we move forward. I think about 20% will come from Cripple Creek and Victor. As we, again, look to move to that simpler operation, just mining and 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 more to open up the ore to get them onto heap-leach pads. 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 three Canadian operations that have been pretty significantly disrupted through the first quarter. So Tanya, around about 100,000 ounces. 70% will be underground 20%, CC&V, about 10% Canadian operations.

[Tanya Jakusconek, Analyst at Scotiabank]

Okay. And does your guidance -- you mentioned the 53 second half and obviously, first half is going to be weaker. Does all of the asset breakdown that you provided in your Q4 numbers still stand? 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.

[Tom Palmer, President and Chief Executive Officer at Newmont]

That's correct. You'll see when you look at gold production, with where we're mining and kind of see 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 it dropped in the second quarter. We will then climb again in the third, and it will drop again in the fourth, but it's about evenly weighted across the two halves with a bit of that seesaw effect. So you're just seeing the different the different metals come through as we're mining through the different phases of both mines Tanya.

[Tanya Jakusconek, Analyst at Scotiabank]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Certainly coming out the other side, I might just quickly work through the four regions, Tanya. Coming out the other side, certainly in Canada, except for, I'd say, Elenore, 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 mine. So, we have kept some pretty stringent controls in place at Elenore. But in general, certainly see Canada and in the US Cripple Creek and Victor open up. Ghana is common as it's progressing well. Australia is where --I think Australia, in general, is a wash with the virus at the moment. So April is still being impacted through Tanami and Boddington, but starting to come out the other side of that is you're really getting to mill in the communities in around Australia. Penasquito is solid and pretty solid through Merian, Yanacocha and Cerro Negro in terms of being the other side of the Omicron surge.

[Tanya Jakusconek, Analyst at Scotiabank]

Okay. 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, unit contracts or other that come up for renewal this year that could put more pressure on your costs above and beyond?

[Tom Palmer, President and Chief Executive Officer at Newmont]

We've got contract negotiations in process currently in Ghana. Mexico is scheduled for July, Peru is in process and then Surinam, it's been delayed, 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.

[Tanya Jakusconek, Analyst at Scotiabank]

Okay. So that's within your guidance range you've assumed. Whatever wage inflation is assumed in your guidance for these contracts.

[Tom Palmer, President and Chief Executive Officer at Newmont]

That's correct, Tanya.

[Tanya Jakusconek, Analyst at Scotiabank]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

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 of getting it to where it needs to go.

[Tanya Jakusconek, Analyst at Scotiabank]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Nothing material, Tanya.

[Tanya Jakusconek, Analyst at Scotiabank]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Tanya.

[Operator]

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

[Lawson Winder, Analyst at Bank of America]

Thank you, operator. Good morning, Tom, Nancy and Rob as well. Thanks for the update today. If I could maybe just 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 to verify that if we were to mark-to-market WTI at $100 per barrel versus your $60 per barrel, and all else sort of stayed within the assumption ranges that you still believe you'd be able to stay within your guidance. Is that correct?

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

Good morning. 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 probably, the other piece of information to have at hand, but looking at the Newmont portfolio due to that every $10 per barrel change in oil price, our free cash flow is impacted by $15 million per year. But for every $100 increase in gold price, we generate an additional $400 million of free cash flow. 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. But obviously, we want to understand that this world a bit more through this quarter. And as I indicated in our remarks, but we'll provide a further update with the Q2 earnings.

[Lawson Winder, Analyst at Bank of America]

Okay. That's excellent color. And then on the cyanide costs, 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? And particularly, in reference to the 20% to 30% increases in those prices that you're seeing?

[Tom Palmer, President and Chief Executive Officer at Newmont]

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

[Lawson Winder, Analyst at Bank of America]

Okay. That's great. And then also, if I could follow up on the working capital build. Nancy, you mentioned that the -- 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?

[Nancy Buese, Executive Vice President and Chief Financial Officer at Newmont]

Yes. That was truly just a quarter-end convention that happens from time to time. So that will release all of those sales that have already taken place into April. And then sometimes, we have a little bit of a buildup at the end of the quarter and sometimes, we don't. But yes, I wouldn't think of that as a consistent variable for modeling throughout the year.

[Lawson Winder, Analyst at Bank of America]

And so you would expect a typical unwinding?

[Nancy Buese, Executive Vice President and Chief Financial Officer at Newmont]

Yes, absolutely.

[Lawson Winder, Analyst at Bank of America]

Great. Okay. And then just one final question then. 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?

[Nancy Buese, Executive Vice President and Chief Financial Officer at Newmont]

Yes. We always look at a myriad of factors, including current valuation, our own forecast, 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. 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.

[Lawson Winder, Analyst at Bank of America]

Okay. Excellent. Thank you all very much.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Lawson.

[Operator]

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

[Greg Barnes, Analyst at TD Securities]

Thank you. Tom and Rob, I want to talk about supply chain issues and cost pressures across the board. Are you seeing impacts on your capital projects timing and capex-wise?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Good morning, Greg, I'll pick that up and maybe, Rob, I'll throw to you for a little bit more color. So the key capital projects -- so maybe, just talk through the three of them, Greg, the three key ones that really drive that development capital spend. Tanami 2, we are certainly seeing impacts on that specialized labor that we will need to line that shaft. And we are now in a matter of a month or two away from having completed the reading of the 1.5 kilometers, the air frame is nearing completion as well. And we set up then for the next couple of years to line 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 line in that shaft is key. We have an important milestone as we finish the reaming and that shaft to the pause and understand that program of work, both schedule and cost to fit that out. So I would say in the third quarter in a good position to say, this is what the run to home looks like. There will be some impacts but we'll have a pretty 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 each one. Rob, did you want to build any color on Tanami 2?

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

I think the only other color Greg is that, we have done 85% in engineering and the procurement, so that just highlights the good planning work and the good supply work that we've done. But as Tom said, it really is around that labor availability in particular in Australia. We're pleased that the borders are open that helps that these are very specialist skills and the rates that we are seeing being creeping up a third of that.

[Tom Palmer, President and Chief Executive Officer at Newmont]

And then Ahafo North engineering is 90% complete and procurement 60% [phonetic] completeness as Rob indicated earlier answer to a question. We've got a lot of the key heavy mobile equipment landed in Ghana now. So we are really getting into that, getting the land access. We're getting into the serious business of breaking ground and starting to do the civil works. And then start to build them, open up the mind build a processing facility. So again for that one getting that clear date where we have unfettered access to that land, which will happen through the second quarter, that's the important milestone for us to then step back and understand what that schedule looks like to have that equipment that's there. The engineering gives us more definitive pricing to then have a clear view of that project by schedule and cost. So probably similar timing to Tanami 2 during the third quarter, I think we'll be in a good position to give an update based upon those two key milestones. Rob, getting there anything you add on Ahafo.

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

I think the only other one, Greg, that is just a significant milestone that 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. So again, in terms of schedule that was a very positive step.

[Tom Palmer, President and Chief Executive Officer at Newmont]

And then the third one is Yanacocha Sulfides, 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 a lot of instances pricing for key pieces of equipment, oxygen plants, mills, electric motors, the autoclave, the core part of the pressure oxidation circuit. The autoclave vessel will actually be on the ground 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. Engineering is around 50% complete. We've got camp construction well advanced. So there's a bunch of stuff we're doing to de-risk that project whilst we move towards full funds. And we are 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 a labor, a construction workforce, and then all of the other pieces that 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 front decision later this year. Rob, anything add for that?

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

You covered the majority of it. Well, Tom, I think the only other thing, Greg, this is where you update the construction of the camp continues to go along 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 of the process plant facilities but that is proceeding very well. Greg, does that give you the sort of color you're looking for?

[Greg Barnes, Analyst at TD Securities]

Yes, I think we're going to get the Q3 update on what that product looks like as well or would that be [Technical Issues]

[Tom Palmer, President and Chief Executive Officer at Newmont]

Q4, Greg, we [Technical Issues] we will flip as the engineer side, we'll flip the line on the engineering in the next month or so, dropout all of those detailed scheduled and then you've got quite an extensive piece of work to do both the cost and schedule estimate to build towards the full funds decision. So that will consume the third quarter, so at the end of the fourth quarter before you have all that come together. But certainly, the other two projects for the third quarter.

[Greg Barnes, Analyst at TD Securities]

Okay. And just to finish off, others -- 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 Ahafo North?

[Tom Palmer, President and Chief Executive Officer at Newmont]

There is certainly elements [Technical Issues] avoid the procurement we've got underway and the engineering that we've done in the line. However, so the issue for us is more that the pandemic had impacted the pace at which you can do the work and so for us it's going to be as we -- actually as we pause at our milestones and the indirect costs that you carry for, so that's going to fully effect for us and we will see elements I think, we will see elements for lying in the shaft and that specialized line that we'll have some cost escalation there. So jumping around would be great. I think there will be an element of it and it's an element that's pandemic related given we were into those projects. I don't know, Rob, if you wanted to...

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

I would just reinforce, Greg, the biggest issue and obviously the cost of labor goes into our capital is where all that's the biggest risk that we've got is, 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. And we're -- as Tom mentioned before, we're 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.

[Greg Barnes, Analyst at TD Securities]

Labor costs, can you give an idea of how much it's going up percentage wise? This is what perhaps you expect it or is too early to say.

[Tom Palmer, President and Chief Executive Officer at Newmont]

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 definitive numbers as they apply to those two projects rather than sort of just throw out a number that's a bit more generic.

[Greg Barnes, Analyst at TD Securities]

Okay. Fair enough. Thanks Tom.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks Greg.

[Operator]

Thank you, Greg. Our next question comes from...

[Tom Palmer, President and Chief Executive Officer at Newmont]

Just before you move on, we'll stay on the line until we're exhausted until everyone's question, so more than welcome to stay on. But we'll stay here until everyone's asked their question. Sorry operator.

[Operator]

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

[Fahad Tariq, Analyst at Credit Suisse Group]

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

[Operator]

CIBC World Marets. Anita your line is now open.

[Anita Soni, Analyst at CIBC World Markets]

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 55:45 split on capital this year. So what I'm sort of understanding, and what I assumed was that if the spending's 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. 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 a year after you might see the budgets go up a little, but because the work has been moved out and as we think about Yanacocha Sulfides, like reasonably, if you're saying that the timelines might be impacted by this, should we be thinking about perhaps a delay in the startup of Yanacocha Sulfides?

[Tom Palmer, President and Chief Executive Officer at Newmont]

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 or second half, the nature of these projects that spend will just flow into the following year and the following year, we'll flow forward into the year after that. So I think it'll be an element of maybe a bit more spend next year. But I think you'll also see that it'll move into '24 as well. So it's just that felt like moving forward. Still progressing towards the end of the year, full funds decision for sulfides. And once that full funds decision is taken, camp will be complete. So it'll have beds for 4,000 people, Bechtel are gearing up. And we basically Bechtel higher the workforce directly for a lot of that work. And so with the assumption we get a full funds decision at the end of the year, we will gear up and start to ramp up into '23. So I wouldn't see a delay in us starting to break ground seriously on Yanacocha Sulfides.

[Anita Soni, Analyst at CIBC World Markets]

Okay. And then the second question is a bit big pictures. I look through all of the assets and operations. For the most part, the grades, like I would've 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, most of the operations, like I name Eleonore as one of them, definitely a team in Ahafo, kind of the recovery rates were actually quite low versus the prior quarter, but that may be a grade weighted decision. And then the last one CC&V that heat bleach, 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 operations, that'd be great?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks. I will try to give you a bit of a general overview on that, maybe get Rob just to give you a bit of color on some of those operations, but I think, we talk about the direct impacts from the pandemic as they are chronic and so the demand sequences are different from what they would have otherwise been if you were -- I would just have unfettered access to run the business as normal. So, some of that grade discrepancy, in a particular month or quarter compared to where you assume you would be. We certainly as we get a stronger second half of this year, part of that is linked to moving into the higher grades, and Rob, I don't know if you wanted to pick up Penasquito or Cripple Creek & Victor. Happy to go offline with you and stick through some of that detail for you as well.

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

Yes, I think I need to just to reinforce what Tom said, we're not seeing any major rate challenges, it truly is the timing with the challenges to call with some of our developments go. We haven't had the availability of the stopes, and as Tom rightly said we are at a sequence, in particular, those underground mines in Canada that you mentioned. At Penasquito, there is nothing major or nothing different that's happened there and you will certainly see that in the coming months. In terms of the heap leach, the heap leach again as we uncover the pressure ore we'll see that heap leach feed raise. So it is around the timing, it is around the sequence, and we can't underplay, especially those underground mines spaces that were affected by the Omicron just the lack of development has impacted getting to some of the stopes at the time we expected, but no major issues, the grade is still in the ground and you'll see that rebound later in the year.

[Anita Soni, Analyst at CIBC World Markets]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes. Up to two years, there's other operations which have been relatively unaffected, but the worst is up to two years. There's so much may only be six months.

[Anita Soni, Analyst at CIBC World Markets]

All right, thank you very much.

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

Thanks, Anita.

[Operator]

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

[Adam Josephson, Analyst at KeyBanc]

Hi, good morning, everyone. Thanks for taking my question. Tom, couple of questions for you on cost, if you don't mind. So if your gold cash ends up being, call it $850, $860 this year just given the general stickiness of inflation that you and many others are experiencing how if at all does that affect your thinking about your gold guidance for next year, which would imply quite a healthy decline in cost per ounce amid this highly inflationary environment?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes. Good morning, Adam. When you look at our yearly 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 with them to get built into that number as we built towards guiding for next year. What we are 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 look like next year, I think we've got to see more of how a few key events play out this year. What's going to happen with the pandemic, other supply chains going to settle down is 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 regarding in December. So the coming months are ones in which we will step back, look at what's happening on a macroeconomic sense. What's structural, what's cyclical, what is 2023 looking like? And therefore what are our unit costs going to look like next year? So that's how and we look at...

[Adam Josephson, Analyst at KeyBanc]

I appreciate it. Yes, and just relatedly, when 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 just or is there no way to answer that question because we're seeing things that we've never seen and consequently drawing on past cycles is almost meaningless in this environment?

[Tom Palmer, President and Chief Executive Officer at Newmont]

I think we are in unchartered territories, Adam, and it's -- I think you've seen throughout the -- in terms of what I'm observing in the mining industry as folks are out reporting a very, very similar commentary, so an unchartered 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 unchartered territories, so I would say that there's some caution.

[Adam Josephson, Analyst at KeyBanc]

And what -- how long -- what has the duration been of those previous inflationary cycles, just for you, just roughly speaking?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Roughly speaking, a couple of years inflationary cycles, but really drawing on straw here.

[Adam Josephson, Analyst at KeyBanc]

Yes, I know, I...

[Tom Palmer, President and Chief Executive Officer at Newmont]

It's just a circumstance that is unprecedented in modern history.

[Adam Josephson, Analyst at KeyBanc]

Yes. Understood. Thank you very much, Tom.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Sorry, I can't help you out.

[Adam Josephson, Analyst at KeyBanc]

No, no, thank you.

[Operator]

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

[Mike Parkin, Analyst at National Bankshares]

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 to site. Can you just give a bit more color in terms of where the underlying delay is situated?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Good morning, Mike. The delay of some of the key equipment drills that have been particularly problematic for us is manufacturing. So it's actually getting the drill in the queue and manufacturer, so it's the labor availability within those shops and then having the materials you need to fabricate those drills and then have them come out of the door. So, what Rob is indicating, we've got all of the heavy mobile equipment for Ahafo 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 facilities, albeit with some delays, but the key issue is within the manufacturing shop. Rob, do you want to build on that?

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

I will just add a couple of points there, Mike. And 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 its microchips, whether its capacitors, etc, and each one of the equipment manufacturers, they can get some things, but not all things and they're managing their supply chains very, very carefully. So it's nothing different to what the car manufacturers are seeing and again one of the advantages in Newmont is that we have a global supply chain, we've got excellent relationships with equipment manufacturers that it's just staying abreast of their challenges whether it's from China, whether it's from India, etc and those key electrical components as well as those ones which are manufactured elsewhere.

[Mike Parkin, Analyst at National Bankshares]

Great, thanks, guys. Really appreciate the color.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Mike.

[Operator]

Thank you, Mike. Our next question comes from Cleve Rueckert with UBS. Cleve, your line is now open.

[Cleve Rueckert, Analyst at UBS Group]

Great, thanks, and thanks everybody for staying on the line. Appreciate your generosity with the time. I have a couple of questions, and hopefully, we can work through pretty quickly. I wanted to just first ask the inflation question a little bit differently. At what point would you reevaluate the gold price assumed for budgeting, when could you possibly move from $1,200 an ounce?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Good morning, Cleve, and a very good question. We are actively debating that now. I think it is, we are now seeing, I think the same way that inflationary piece is driving gold price, we're now seeing gold price at current levels and as we start bidding amongst our macroeconomics and start to have our internal device stops do a business planning work, where is gold price heading and what is the flow of life of gold price is a, into the base 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 prices.

[Cleve Rueckert, Analyst at UBS Group]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

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

[Cleve Rueckert, Analyst at UBS Group]

Right. Okay. And then just following up on the capex. Tom, I think you said that Bechtel is doing the Yanacocha work for you. I don't know if you can give us any color. Are those engineering and construction projects being done on a fixed price basis at all? Or is it cost plus? I mean, is there any shared risk on the cost side with your subcontractors?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes. It's a bit -- I might just pass across to Rob who manages the very close relationships with those key EPCM contractors, but -- it's a bit variable across the projects, so to speak. It is clear, depending on what we're doing, there's some things that you lock in without a doubt. And we much prefer making sure that we've got things -- we've got that confidence in clarity. But we've got other areas such as we've explained before, where the labor costs have gone up, 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 bearable, and depending on the work that we're doing.

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

The big project is the Yanacocha Sulfides, our supply chain team, and the Becchtel supply chain team are working hand in glove as we understand, but obviously, those 23 key work packages that are out there now that as we look at all of the steel, fabrication of that steel, and the other things to assemble a processing plant, working hand in glove in terms of understanding all of those elements work around the world, what's the status of those workshops and the capacity to type work packages. So there are elements of 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 they are expecting from us. So -- for causes.

[Cleve Rueckert, Analyst at UBS Group]

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 to I guess the changing circumstances of the virus. I mean Tom, I think you said it very -- at the very beginning of the call that the severity of Omicron that you saw in 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 varying severity?

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Cleve. A very important decision we took and I think very few other companies have taken, but I'm so glad, we took the decision. This required every person who works at Newmont to be fully vaccinated. We lost 25 colleagues to this virus over the last 2.5 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 state going forward for future wise because we have a workforce that is now highly resilient. So that is going to put us in a good position. Rob, did you want to, maybe talk about how we think about managing our ability to open up or tighten up our protocols and obviously underlying workforce fully vaccinated gives us a lot of confidence in decisions we make.

[Rob Atkinson, Executive Vice President and Chief Operating Officer at Newmont]

Certainly Cleve, it's a great question. We have a COVID committee, which we meet on a regular basis for exactly that and it's to respond to make sure that as things open up that we open up the measures that we have. And just as an example, when I was in Ghana a couple of weeks ago, for the last two years, everybody has been wearing masks, everybody has been sitting separately for lunch, there is no longer the need for masks, there is no longer the need for people to sit separately at dinner and lunch etc. And the same it is at CC&V 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 Nation, 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. As -- because of the vaccination, it has allowed us to utilize less vehicles because we can get more people in the vehicles, we can get back to more people in planes, we can get people back on to the buses, etc. So we're really responding to where the virus is at, but at all times we can quickly go back, if need be and is something that we assess on a very regular basis.

[Cleve Rueckert, Analyst at UBS Group]

Very clear. Thanks again for taking the questions guys. I appreciate it.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Cleve.

[Operator]

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

[Michael Dudas, Analyst at Vertical Research]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Mike.

[Operator]

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

[Brian MacArthur, Analyst at Raymond James]

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 spent a lot, but can I just check one thing, we're talking when you're saying 3% to 5% if I put it this way in gross dollars up on the cost base and where I'm going with that, maybe I guess it's the only silver lining in any of this. When you did your guidance, I mean you used to $1.15 for zinc and $3.25 for copper. So we're talking -- we're not talking on a per GO base or anything here because you should get a pretty big credit if zinc prices stay where they are and copper prices stay where they are, I mean is it there on it, I mean on a margin basis at least $200 million-plus offset all of this still, you're not factoring that in your guidance when you talk 3% to 5% up.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Brian. You are hoarding in quite nicely. It is predominantly cost-driven, and if I -- if you want a model on all-in sustaining cost per gold ounce, it will probably use 5%. And I think we will get some benefit as we then come back to our title middle profile with a good another 1.5 million ounces for gold equivalent ounces of how that metal prices play out in terms of calculated GEO that will give you some benefit in the unit costs and maybe a bit lighter than 5% as you are quite rightly pointing out.

[Brian MacArthur, Analyst at Raymond James]

Great, thanks very much.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Brian.

[Operator]

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

[Tanya Jakusconek, Analyst at Scotiabank]

Thank you so much for taking my -- another question from me. I was just thinking as I listened to all of the costs and I know at the beginning of the year when you gave guidance Tom in December, you were thinking and embedded 5% within the cost structure. Now, we're looking more 8% to 10% in the structure. And I'm just kind of thinking, a lot of that 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, 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 actual spot pricing and when we do, am I looking more at a sensitivity of $6 per ounce for a $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.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Tanya. You've certainly seen, what will still play out in the first quarter was a discretionary levels that we assume. So it's really as we -- so it's more of a production story related to the Omicron surge that is around Q1 and we now pivot into more of a cost story and additional inflation as we move into the remaining three quarters of the year. So you're starting to see in this quarter those higher days of process flow through. I just clarified we don't hedge any of our oil. So its spot price that you see flow through in our cost base so you are certainly seeing that oil price in our costs as we enter the second quarter moving forward.

[Tanya Jakusconek, Analyst at Scotiabank]

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

[Tom Palmer, President and Chief Executive Officer at Newmont]

Yes.

[Tanya Jakusconek, Analyst at Scotiabank]

Okay. Great. Okay, great, thank you so much.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thanks, Tanya.

[Operator]

Thank you, Tanya. There are currently no further questions in queue. [Operator Instructions]

[Tom Palmer, President and Chief Executive Officer at Newmont]

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

[Operator]

Let's see. Okay, if you would like to close out the Q&A session, we can do that. One moment. This concludes the Q&A answer session. I would now like to turn the conference back over to Tom Palmer for closing remarks.

[Tom Palmer, President and Chief Executive Officer at Newmont]

Thank you, operator and thank you everyone for taking the extra time to work through our call with us today, and please have a lovely weekend and I look forward to catching up with you on our next analyst roundtable in a couple of weeks time. Thanks everyone.

[Operator]

[Operator Closing Remarks]