11/5/2019

speaker
Operator
System Operator

Good morning and welcome to the Newmont Gold Corp's third quarter 2019 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Jessica Largent, Vice President of Investor Relations. Please go ahead.

speaker
Jessica Largent
Vice President of Investor Relations

Thank you and good morning everyone. Welcome to Newmont Gold Corp's third quarter 2019 earnings conference call. Joining us on the call today are Tom Palmer, President and Chief Executive Officer, Rob Atkinson, Chief Operating Officer, and Nancy Beese, Chief Financial Officer. They will be available to answer questions at the end of the call along with other members of our executive team. Turning to slide two. Please take a moment to review the cautionary statements shown here and refer to our SEC filings which can be found on our website at newmontgoldcorp.com. And now I'll turn it over to Tom on slide three.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks Jess and thank you all for joining our call. It has been just over a month since I moved into the CEO role and I'm very honored to be only the tenth CEO in Newmont Gold Corp's almost 100 year history. And I'm very excited about the strength of our portfolio, the capability of our people, and the opportunities we have in front of us to safely deliver superior value for all our stakeholders. Turning to the third quarter. We delivered solid performance and have made excellent progress in delivering on the value we promised to establish Newmont Gold Corp as the world's leading gold business. Recent highlights include completing three profitable projects on schedule and within budget, exceeding our commitments of value delivery from the Gold Corp acquisition through an acceleration of synergies and full potential improvements, closing the Nevada Goldmine's joint venture and contributing our Newmont Nevada assets in good order, and continuing to improve our safety performance and advancing our reputation for sustainability. Turning to the details on slide four. In the third quarter, we produced 1.6 million ounces of gold and all in sustaining cost of $987 per ounce, generating $1.1 billion in adjusted EBITDA and $365 million in free cash flow. We completed site visits to support the sales process for our Red Lake operation. We commissioned three projects in Borden, the Halfamil expansion and Ketchamane, and we approved the Tanami expansion two project. I'm pleased to report that we are exceeding our synergy targets from the Gold Corp acquisition, with run rate improvements expected to reach $240 million by the end of this year, including $60 million in quick wins from Penasquito and Cerro Negro alone. We also continue to lead the gold sector in stewardship. We declared a quarterly dividend of 14 cents per share, putting us on course to return approximately $900 million to shareholders this year. We maintain a strong balance sheet with over $5 billion of liquidity, and we were recognized as the top gold miner by the Dow Jones Sustainability Index for our leading ESG performance. Leading mining companies have at their core an unwavering commitment to safety and sustainability, turning to slide five. As Chief Executive Officer, you can expect from me a relentless focus on ensuring that everyone who works in our business can do so safely. Through our leadership and through the systems and processes we put in place to manage risk, there is nothing more important. My expectation is that everyone who works in our business understands the fatality risks associated with their work and are ensuring that the critical controls that are required to manage them are in place at all times. A robust safety culture is one that constantly reinforces key systems, safe behavior, and actively shares lessons learned from serious incidents. This is fundamental to the well-being of our people and underpins our operating performance. Turning to a look at our global portfolio on slide six. We have the strongest and most sustainable portfolio in the industry. Our assets are located in the most balanced and favorable jurisdictions in the world with 14 operated mines and two non-operated joint ventures. With more than 90% of our reserves in the Americas and Australia, our global position provides an unmatched platform for near mine, brownfields, and greenfield exploration. As announced in September, we have initiated a sales process for Red Lake and interested parties have now completed their site visits. We have also divested our position in the Nimba Iron Ore Project in Guinea and are strategically reviewing our equity investment portfolio. Turning to our industry-leading project pipeline on slide seven. We have the deepest pipeline of world-class projects in the gold industry, giving us significant project sequencing flexibility. We will continue to apply a disciplined and rigorous approach to optimize these projects and advance them through our investment system. Consistent project delivery and disciplined operational execution remain the cornerstones of our business and are central to creating long-term shareholder value. This year, we have successfully delivered four projects on four continents and in the past month alone declared commercial production for three of these projects, Ketchamaine, the Half O'Mill expansion, and Borden. Ketchamaine was safely delivered on schedule and under budget and is on track to generate an internal rate of return of 15%, an improvement from 10% when we approved the project just two years ago. Our Half O'Mill expansion was also brought online within budget for approximately $175 million, increasing mill capacity to nearly 10 million tons per annum, whilst adding 75 to 100,000 ounces per year of annual gold production from 2020 to 2024. And at Borden, we are extending the life of the porcupine complex and leading the advancement of safe and sustainable underground mining globally through -the-art health and safety controls, digital mining technologies and processes, and low-carbon emission vehicles. We have also continued to advance profitable growth. Last month, Outboard unanimously approved moving the Tanami expansion 2 project into the execution phase. We are very excited about this project's ability to extend life beyond 2040 at our world-class Tanami mine in our core Newmont region. This project also provides a platform for us to further explore a prolific mineral endowment at Tanami. We will provide further details on this project in the context of our long-term guidance at our webcast in December. For our two mid-term projects, Yanacocha Sulphides and a Half O'North, we continue to advance and optimize them through our definitive feasibility study work. Finally, looking at the earlier stage projects in our pipeline, we are taking a patient and deliberate approach to optimizing and sequencing our larger projects, including Neve Union, Galore Creek and Norte Avieto. These projects will compete for future capital investment, so we are proactively engaging with our joint venture partners to ensure that the projects only advance after specific hurdles are achieved. Our robust project pipeline is a key differentiator in the gold industry and provides us with a solid pathway to steady production and cash flow generation for decades to come. Turning to slide 8 for a look at progress on the gold corp integration, I am very pleased with the pace at which we are delivering value from this acquisition. On the GNA front, we have both accelerated and increased the total synergies to $120 million per annum. This is $35 million and more than 40% higher than our initial $85 million commitment. For supply chain, our team is actively targeting value across several fronts, including quick wins through the extension of best pricing and rebates and leveraging our increased scale and volume to reduce our input costs. Our world-class exploration team has identified over $25 million of annual program efficiencies, a figure that wasn't considered in our initial commitment. Our full potential program is well and truly underway at the former Gold Corp operations. We are seeing the same improvement opportunities at these new operations to those that we have delivered from Newmont's efforts over the last seven years. And we are able to accelerate value delivery by leveraging this experience. We launched full potential at Penasquito at the start of June and have had Newmont's strongest team on the ground supporting the site during their diagnosis and design work. We have made excellent progress and the site is tracking to achieve $50 million in quick win improvements this year alone. Full potential has now moved into the deliver phase at Penasquito. At Serenegro, full potential was kicked off in July and the site is tracking to achieve $10 million in improvements that we also expect to achieve this year. In just six months since we acquired Gold Corp, we are exceeding our commitments and are tracking towards delivering $240 million in annual run rate improvements by the end of this year. This is two-thirds of the commitment we made for the end of 2021 after only six months. With that, I'll turn it over to our Chief Operating Officer, Rob Atkinson, on slide nine to review our operational performance. Tom.

speaker
Rob Atkinson
Chief Operating Officer

Since June, I have had the opportunity to visit all of our sites and the observations and discussions I had as a result have informed my immediate priorities. My highest priority is a renewed and relentless focus on safety, followed by ensuring that we are demonstrating a high level of visible and felt leadership in the field. Secondly, it will be about focusing on the basics to ensure we not only hit our plan but we better it. Thirdly, we need to collaborate more across our regions to learn from each other, as the whole is worth more than the sum of the parts. And finally, a strong focus on improving productivity day in and day out. As COO, I am very much looking forward to investing in our people and local communities and raising our performance to drive greater value from what I believe to be an exceptional asset base. Before reviewing our third quarter operational performance, I would like to congratulate Dan Janey, our new regional senior vice president of the North America region. Dan is an accomplished miner with 27 years of global mining operations experience and most recently was a key Newmont leader in Nevada. He has successfully led teams to deliver step change improvements in safety, efficiency and productivity and his appointment reflects our intention to safely improve costs and accelerate operational and efficiency improvements at our six mines in North America. I will now provide an overview of the North America sites on slide 10. In North America, our teams are focusing on safety and operational execution, as we work to overcome headwinds and deliver a strong end to 2019 and, importantly, to set ourselves up for long-term success. At Penasquito, an illegal blockade began on September 14, resulting in a third quarter production shortfall of 11,000 gold ounces and 51,000 gold equivalent ounces from silver, lead and zinc. The blockade was lifted on October 8 and we started shipping concentrate immediately after the blockade was lifted. I am pleased to say that progress has been made with both the federal and state governments to help ensure that the rule of law is upheld to enable a sustainable operating environment. On October 22, we began restarting operations. Yesterday, we also restarted government-sponsored discussions with members of the Cedrus community exclusively and I look forward to reaching a sustainable and long-term win-win solution to this local issue. The site is now safely back to full operation. The stripping campaign in the main Penasco pit is nearing completion and we expect to maintain higher grades in the fourth quarter and into 2020. As Tom mentioned, our full potential work at Penasquito has firmly moved into the deliver phase, with the $50 million of quick-win improvements. I am very excited about the team's work to progress the incremental $200 million of cost and productivity initiatives. Similar to Boddington six years ago, the majority of the improvements are expected to come from the mill, with a focus on increasing throughput and reducing maintenance downtime. At Porcupine, we achieved commercial production at the Borden Underground Mine on October 1. War from Borden is processed at the existing Porcupine mill and will extend profitable production at the mining complex in Timmons, Ontario. We also see exploration upside at Borden as the deposit remains open at depth. At Musselwhite, rehabilitation work is nearing completion and we recently executed contracts for engineering, construction and the installation of the new conveyor system. Whilst the replacement of the conveyor is under way, we are getting ahead on development in building inventory to sustainable levels. As we head into next year, we plan to have three or four stoats available at any one time and going forward, very importantly, our plan is to be 18 months ahead on development work. Musselwhite is currently operating in a mining area halfway down the mine as we also continue to push the main decline and exploration drift at the Borden Mine in order to improve and ensure mining and ore flexibility in the future. We expect to begin recognising production and sales in the second quarter of 2020 once the mill is processing the stockpile material we are currently trucking to surface. We will be back to normal operations in early October when we bring the conveyor back online. The Musselwhite Materials Handling Project is tracking to be fully operational by mid-2020 with the shaft installation nearing completion and dry commissioning of the new crushing and conveyor systems well under way. At Eleanor, mining continues on Horizon 5 and we expect to reach higher grades in the fourth quarter. However, third quarter production was slightly lower than expected due to mine sequence. The operation is developing an integrated geotechnical and mine planning system to determine the optimal approach for safely and sustainably progressing through the lower zones to minimise mining-induced stresses. Full potential has now commenced at Eleanor and we are progressing the key diagnose phase of this programme. We are leveraging our experience from all of our other underground mines to identify the highest value improvement opportunities. At Red Lake, operations fully resumed in October after we completed work to install additional safety controls at lower levels of the mine and we recently recommenced mining of Kochenor. As the sales process progresses, we continue to focus on the safe and efficient operation of this mine. Finally, at CC&V, we expect to finish the year strongly as we recover deferred ounces from the VLF1 leach pad. Now to discuss our South America operations on slide 11. At Merion, we delivered steady third quarter performance with sustained improvements in mine productivity and mill performance. We are now transitioning into harder rock, which will present higher grade and improved mine productivity. Yanacocha delivered solid production with drawdown of ounces from our existing Lockheed One leach pad. With Ketcher main reaching commercial production in October, we expect to see recovery of ounces from the new Caratugo leach pad in 2020. I'd like to congratulate our South America team for safely delivering this important project that will sustain Yanacocha's mine life and serve as a bridge to the future growth opportunities in the years ahead. At Serenegro, we kicked off our full potential process, which has been in full swing since July, and our team has identified $10 million of quick wins, mainly from improving mine development rates while setting a course to design and implement opportunities such as shift optimization, maintenance scheduling and basic operational improvements. And I'm looking forward to providing an update on our progress during our guidance webcast. We are tracking to a strong fourth quarter as we mine an average grade of 13.8 grams per tonne. Turning now to our Australia operations on slide 12. At Tannemine, we delivered another solid quarter and expect the fourth quarter to reflect the operation's lowest costs and highest production for the year as we access higher grade stoats. At Bordington, our planned stripping campaign in the South pit is progressing very well, and during the third quarter we safely completed mill maintenance activities. Unit costs have improved with higher ore tons mined and a favorable foreign exchange rate. And at KCGM, we continue to strongly focus on increasing mine productivity whilst managing within the constraints of current geotechnical challenges and the associated remediation work in the Femison pit. We are optimizing mill recoveries as the Morrison Starter Pit starts to present higher grade ore. As a result of the exclusion zones we put in place to safely manage the east and the west walls of the pit, 2019 production will be impacted by 40,000 ounces and we have adjusted our regional outlook accordingly. But above all else, we will always ensure that our workforce is safe whilst we proactively manage through these geotechnical challenges with pragmatic mine plans and a high level of monitoring of all of our high walls. We also continue to determine the most appropriate design for a layback to further manage risk and access the gold ounces which remain in the pit. Underground operations are progressing well. On the project front, we are excited that Tanamayan Expansion 2 was unanimously approved by our board for execution. The team is progressing development work and shaft sinking has advanced beyond 210 meters and we expect to commence raise boring in quarter one 2020. This is a terrific project which will deliver significant value, increase mine life and provide a platform for further exploration. Now to our Africa operations on slide 13. AHAFL delivered another quarter of solid performance as we continued mining higher grades from Sabaika open pit and realized initial benefits from the successful ramp up of the AHAFL mill expansion project. The expansion accelerates efficient processing of ore from stockpiles and the Sabaika underground mine as well as harder, lower grade ore from AHAFL's existing pits. Successful project execution has positioned the operation to generate a strong fourth quarter and a record 2019. At Acheem, we also delivered yet another solid quarter and are pleased to have recently connected both our Africa operations to our operations support hub and pair. The process control staff are now remotely analyzing real-time data from Acheem and collaborating with the site to deliver SAG mill improvements. We have identified approximately 20 to 25 million dollars of annual opportunities at Acheem and AHAFL from throughput and recovery improvements that will be implemented over three years. This is a great example of the value that can be generated from operating as one, fully connected global mining business. Looking forward, we have now established a solid platform to further evaluate growth from this prospective district. As we continue progressing our underground exploration, I am excited by the potential at Sabaika and adjacent ore bodies and are actively evaluating and prioritizing these growth opportunities on a value versus risk basis. Wrapping up with our 2019 operational outlook on slide 14. Our full year outlook now incorporates Nevada gold mines from July 1, which lowered our production by 45,000 ounces, improved our overall unit costs and lowered our exploration and advanced project spend by approximately 35 million dollars. We also updated the North America and Australia regions to include the impacts of the last Pennisquito blockade and current mining constraints at KCGM. These have been partially offset by improved unit costs at Barrington. Our development capital outlook has been lowered to 550 million dollars as increases for Nevada gold mines and AHAFL are offset by lower spend in North and South America. In summary, we expect to deliver approximately 6.3 million attributable ounces of gold and deliver all in sustaining costs of approximately 965 dollars per ounce in 2019. We remain fully focused on safely improving productivity and lowering costs to generate sustainable long-term value. And we'll provide an update on our progress at our guidance webcast on December the 2nd. With that, I'll hand it over to Nancy on slide 15.

speaker
Nancy Beese
Chief Financial Officer

Thanks, Rob. Turning to slide 16 for the financial highlights. In the third quarter, we delivered revenue of more than 2.7 billion dollars, which increased 57 percent over the prior year quarter with the additional sales from the GoldCorp assets and higher gold prices. Adjusted net income of 292 million dollars, or 36 cents per diluted share. An adjusted EBITDA of nearly 1.1 billion dollars, a 70 percent increase over the prior year quarter. Cash from continuing operations was 793 million dollars, an increase of 85 percent driven by higher adjusted EBITDA. Free cash flow of 365 million dollars increased more than 200 million dollars over the prior year quarter. Free cash flow per share of 44 cents, of which we paid 14 cents per share in dividends. As a reminder, our third quarter results proportionately consolidated the company's ownership interest in Nevada Goldmines. For the third quarter, our 38.5 percent of the Nevada Goldmines joint venture contributed 334,000 ounces and generated 234 million dollars of EBITDA. Turning to slide 17 for a review of earnings per share in more detail. Third quarter gap net income from continuing operations was 2.2 billion dollars, or 2.71 cents per share. The primary adjustment was a 2.88 cent gain related to the creation of Nevada Goldmines. The gain represents the difference between the fair value of Newmont's 38.5 percent ownership interest in Nevada Goldmines and the carrying value of the Newmont Nevada assets contributed to the joint venture. Other adjustments included 49 cents related to valuation allowances and other tax impacts, 3 cents related to transaction and integration costs, and 1 cent of other charges. Taking these adjustments into account, we reported adjusted net income of 36 cents per diluted share. Turning to slide 18. We remain well positioned to execute our capital priorities, including maintaining an investment grade balance sheet, investing in the next generation of mines to improve margins and build a stronger reserve base, and returning cash to shareholders through our sustainable quarterly dividend of 14 cents per share. We have one of the strongest balance sheets in the gold sector. In September, we issued 700 million dollars of debt at a rate of 2.8 percent, which was the lowest 10 years metal and mining coupon ever and is a testament to our leading financial position. Before using the proceeds to pay off 626 million dollars of debt due on October 1st, we ended the quarter with a cash balance of 2.7 billion dollars. Looking forward, we are well positioned to continue a trajectory of industry leading financial performance by executing our capital priorities and staying focused on long term value creation. And now I'll hand it back to Tom to wrap up on slide 19.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks Nancy. Turning to slide 20. We are building momentum to deliver a strong fourth quarter and ensuring we are taking the necessary steps to position our business for long term success. We remain focused on the five foundational principles of our strategy. Keeping our people safe with a relentless commitment to our safety culture and systems. Growing margins through the application of our operating, technical and exploration discipline. Leveraging our exploration program and unmatched portfolio to grow reserves and resources. Optimizing our world class project pipeline. And maintaining discipline around capital allocation. Thank you for your time. With that I'll turn it over to the operator to open the line for questions.

speaker
Operator
System Operator

We will now begin the question and answer session. To ask a question you may press star then 1 on your touch tone phone. If you are using the speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster.

speaker
Moderator
Conference Moderator

And our first question comes

speaker
Operator
System Operator

from Mike Parkins of National Bank. Please go ahead.

speaker
Mike Parkins
Representative, National Bank

Hi guys, thanks for taking my question. Looking back at slide 8 where you're showing where your initial kind of target on synergies was and where you transitioned to today, looks like the G&A savings are if that right hand bar chart is the one that you're looking at, the G&A savings is right hand bar chart is proportional, has grown substantially. Just trying to get an idea of what is benefited from your initial kind of look to where you are today and then also if you provide any kind of sense of what the breakdown in that G&A savings would be, just ballpark on a percentage basis on a corporate versus a site base.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks Mike, it's Tom here. So the G&A number is $120 million that you see on the right hand side which is an increase from the initial commitment we made of $85 million. That value comes from collapsing two companies into one. So it's the value that comes from no longer having a corporate headquarters in Vancouver and starting to run Newmont Gold Corp like we ran Newmont before we acquired Gold Corp. So the vast majority of that value is coming from corporate costs and it's about the focus we've had on driving down our overhead costs so that we're running this business as efficiently as we can. And from my position we're not finished yet. I think there's still more work for us to do to set this business up to run efficiently and as we move into 2020 you can expect to hear more from me on that.

speaker
Mike Parkins
Representative, National Bank

Great, thanks very much and congrats on the progress on that target.

speaker
Operator
System Operator

Our next question comes from Matthew Murphy of Barclays. Please go ahead.

speaker
Matthew Murphy
Representative, Barclays

Hi, just had a question on the ramp up at Muscle White. So when you're talking about rebuilding inventories those are underground inventory or at stope availability or at actual or at surface.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks Matthew, I'll pass the microphone across to Rob Eccleston to answer your question.

speaker
Rob Atkinson
Chief Operating Officer

Thanks

speaker
Tom Palmer
President and Chief Executive Officer

Matthew.

speaker
Rob Atkinson
Chief Operating Officer

Very simply it's material that we are currently trucking up from underground to the surface and when those stocks get to the sufficient level we'll restart the plant next year but it is ore that's currently being mined halfway down the

speaker
Matthew Murphy
Representative, Barclays

mine. Okay and then the reason for not starting the mill till later is just it's going to be insufficient quantities till then, is that right?

speaker
Rob Atkinson
Chief Operating Officer

That's correct. You know the best way to run a mill is flat out or not at all and we want to make sure that we're in a position of not starting and stopping.

speaker
Matthew Murphy
Representative, Barclays

Sure, okay and so is this progress in line with what you had previously guided on Muscle White?

speaker
Rob Atkinson
Chief Operating Officer

It very much is and certainly I was up there a couple of weeks ago and saw the operation first hand, the team's making great progress and I mentioned in the discussion that we've awarded the contracts so cementation are on board and you know we really are pushing that project to bring it on by early October next year so very good progress.

speaker
Matthew Murphy
Representative, Barclays

Okay thanks and then just the last one related to Muscle White is those insurance proceeds looks like 45 million since the fire. Do you expect to get more proceeds there or is there a cap on what you can get?

speaker
Nancy Beese
Chief Financial Officer

We do. There is a cap and we have not previously disclosed that but suffice it to say we're working with the carriers and the underwriters now to settle that claim and our hope is to try to wrap that up by the end of the fourth quarter.

speaker
Moderator
Conference Moderator

Okay thanks a lot. Thanks Matthew.

speaker
Operator
System Operator

Our next question comes from Chris Terry of Deutsche Bank. Please go ahead.

speaker
Chris Terry
Representative, Deutsche Bank

Hi Tom and Nancy. A few questions from me. Maybe we could just start at Penasquitos, a lot of moving parts there. Just wondering if you could comment on the last technical report you had out versus how we should expect the run rate from here. I think you mentioned higher throughputs, 50 mil full potential savings so just wanted to sort of think about how that asset is shaping up in forward periods.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks. Chris I'll pick up that one and maybe pass across to Rob to add any color. The 50 million quick wins comes from some very straightforward things. Parking up 14 pieces of mining equipment, access to requirements, parking up an overland waste conveyor that's not required and taking our team from Boddington and Sagmill so it runs efficiently and a bit of work around how we design a polygon in the mine and how we dig to the polygons. So as Rob talks about some really basic things that we're doing at Penasquitos, the thing that gets me really excited about Penasquitos and the value it can deliver are the parallels between Penasquitos and Boddington. I've led the turnaround at Boddington over the last six or seven years and I can see the same story at Penasquitos and the opportunity for us to improve throughput particularly at the front end of that mill by taking all of that experience from Boddington and rapidly applying it to Penasquitos is what gets me very excited about the value and the upside that we can deliver from Penasquitos. In terms of long term view, in less than four weeks we're providing our guidance for five years and that's probably the best way to give you a summary of how Penasquitos is going to shape up over the next five years or so.

speaker
Chris Terry
Representative, Deutsche Bank

Okay, thanks Tom. And then maybe just to ask a question on the slide going through the synergies in other way. Of the $40 million that you've added, the $240 million, I just wondered if you could comment on what we should see of that actually flowing through to the CAS line, so actually on the operating line.

speaker
Moderator
Conference Moderator

Thanks. Yeah,

speaker
Tom Palmer
President and Chief Executive Officer

you'll start to see that flowing through. I might pass across to Nancy to probably be a better place to answer that question.

speaker
Nancy Beese
Chief Financial Officer

Yep, so you'll see as we recognize some of the full potential benefits, you'll see those in a variety of ways. You'll see them in an improved cost structure. You may see them in terms of improved production and productivity and a few other places. So I would say it's a balance between cost and production probably swayed significantly more towards costs and we will continue to refine those numbers as we present them to you over the quarters and recognizing folks who want to understand how this is actually flowing through AISC and how it will flow through production. And again, as Tom mentioned, you'll see most of that represented in our December guidance and that will be the best benchmark for how to understand those savings. But we get the ask and we'll continue to provide transparency on that as we move forward.

speaker
Chris Terry
Representative, Deutsche Bank

Okay, thanks Nancy. And then in terms of just following up on the costs as well, just to tantamount, I just wondered if you could comment, thinking about the expansion, the second phase and where that assets are. I just wondered if you could comment a little bit on what you've seen on the cost reduction from the pipeline versus your original expectations and whether the benefits are coming through there. Thanks.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks Chris. Again, we'll provide some more detail to build upon the information we provided previously in a few weeks time with our long term guidance. But that project continues to meet our internal rates of return. So it continues to present as a very profitable mind and I'd expect that we'll be able to show you some good cost improvements and a story that continues from the one that we've shared with you over the last 12 months for that expansion of that operation.

speaker
Chris Terry
Representative, Deutsche Bank

Thanks Tom. The last one for me, just in terms of the guidance going forward and maybe you'll have more color in the next month or so, but are you going to be guiding on an asset by asset basis or going to more of a regional approach like you have in this release? Thanks. Chris, you'll

speaker
Tom Palmer
President and Chief Executive Officer

see the same asset by asset approach for Newmont Gold Corp going forward that you had from Newmont in the past. So for the next 12 months you'll see asset by asset, you'll see 3 years by region, you'll see 5 years for the portfolio. Same as we've done for a number of years now.

speaker
Moderator
Conference Moderator

Thanks, that's it from me. Good luck. Thanks Chris.

speaker
Operator
System Operator

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

speaker
Greg Barnes
Representative, TD Securities

Yes, thank you. Rob, in your comments at Pensacito and the discussions you have in there, you specifically said you're talking to a Cedros community only. I'm wondering where the trucking company and their issues lie now.

speaker
Rob Atkinson
Chief Operating Officer

It's a good question. Going back to what I said, the key relationship we have is with the communities and that's where it's got to start and finish. The cab-bus trucking live is some in that community, others elsewhere, but very simply that our discussions are with that community and that's what we've got to solve. With the government, both state and federal, we're having other discussions to make sure that the Cedros community is first and foremost and that's where our discussions lie and that's where we are absolutely targeting to deliver a long-term sustainable future. Certainly our priority is with the Cedros community and CAVA we have to manage on an ongoing basis but our focus again is with Cedros. Is it mostly the water issues that you're dealing with there? Very much. The water is the key part. The other thing is that we want to have an ongoing relationship. Relationships shouldn't be transactional and we want to make sure that the Cedros community is benefiting from the presence of our operation there but a large part of that is to have reliable, predictable and a high quality source of water. That forms a large part of the discussions but it's certainly not the only part.

speaker
Greg Barnes
Representative, TD Securities

Thanks for that. Tom, the Q4 is shaping up to be a very good quarter north of 1.8 million ounces I guess from what your guidance suggests. I guess the only issue there is that Goldcorp had a history of loading everything up into the fourth quarter and then there was a bit of a pullback after that. Is Q4 more of a run rate or is it a one-hit wonder and then things pull back? How do you see things moving forward?

speaker
Tom Palmer
President and Chief Executive Officer

Well there are a number of factors driving our strong fourth quarter and they're not all from former Goldcorp assets. You've got a half a mil expansion that's going to have a full quarter of run rate. You're moving into high grade ore at KCGM, you're moving into high grade ore at Tanami. So there are a number of former Newmont assets that are contributing to that fourth quarter. So it's the factor of high grade ore that's driving a higher fourth quarter this year. And when we guide in December we'll give you some indications through our guidance as to how 2020 is shaping up in terms of a half year on half year or quarter on quarter performance.

speaker
Rob Atkinson
Chief Operating Officer

And I think Tom if I could also just add that one of the key things that we are doing next year is to make sure that we're well set up for the long term future. And as an example of that at Eleonore we're working very closely to make sure that our stoping sequence is right, that we've got that flexibility and also the work that we're doing at Musselwhite to make sure that we're no longer in that one stop position that we were just 12 months ago, that we've actually got several stops. So all the work that we are doing is very much focused on the long term and we're setting the mains up as such.

speaker
Greg Barnes
Representative, TD Securities

Does the goal to have more of a consistent

speaker
Moderator
Conference Moderator

production profile through the year?

speaker
Tom Palmer
President and Chief Executive Officer

Greg it's about following the mine sequence and how the grade presents through a portfolio of 13 or 14 operations. So we don't try and optimize to get smooth quarter on quarter. We look to optimize on what's the best value and then let those mine plans, those mine sequence follow in good order.

speaker
Moderator
Conference Moderator

Thanks Tom. Thanks Greg.

speaker
Operator
System Operator

Our next question comes from Kerry Nacarori of Canaccord Genuity. Please go ahead.

speaker
Kerry Nacarori
Representative, Canaccord Genuity

Hi, good morning everyone. Just had a question on Eleonore and Port Ketline. I guess when the GoalCorp deal was first done those were deemed as potentially non-core. Now that you've had them for almost two quarters I'm just wondering what you're thinking on those two assets there.

speaker
Tom Palmer
President and Chief Executive Officer

Yes, just to clarify Kerry, we never said Eleonore was a potential optimization asset. It's a core asset in our business and the exploration potential around Eleonore is first class. That's a region that we are very happy to have our foot on. So I don't know where that story's come from but that's never been the case. Porcupine, some really good opportunities around porcupine to optimize that operation, particularly as we look to bring in Borden and the contribution from Borden and the upside from Borden. So our focus with porcupine is on optimizing the value from that asset.

speaker
Kerry Nacarori
Representative, Canaccord Genuity

Thanks. Maybe on the 2020 guidance, I think your preliminary numbers are at 7.4 million ounces. You know, given the blockade of penasquito and what's happened with muscle weight and potentially KCGM, are those the three items that you would have had that we should potentially be taking our 2020 numbers down a bit by or are there other items that should offset those when we think about 2020? I know you're in the middle of your guidance process.

speaker
Tom Palmer
President and Chief Executive Officer

It's a bit of apples to oranges when you start to compare from that March guidance to what we're presenting 2020. You've got since March we've formed a joint venture in Nevada. So you'll see the impact of production and cost from that joint venture that we'll talk to in that first week of December. You've got a potential divestment of Red Lake that comes into that equation. You've got a different mining sequence from penasquito as you flagged in terms of when all might present. So there are a number of factors that come into play. At a half-o we move into a different mining method next year as we mine the Sabika Underground mine with a sublevel shrinkage method that wasn't there back in March 4. So there are a number of factors that will be different from March 4 to what we present in the first week of December. We'll provide clear explanation of that when we provide our long-term guidance.

speaker
Moderator
Conference Moderator

Okay, fair

speaker
Tom Palmer
President and Chief Executive Officer

enough.

speaker
Moderator
Conference Moderator

Thank you.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks, Karen.

speaker
Operator
System Operator

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

speaker
Tanya Jacuzkovic
Representative, Scotiabank

Yes, good morning everybody. Maybe for time congratulations on the full potential that you're seeing ahead of budget there. I wanted to ask about 2020. I know that we talked previously that 80% of your expected synergies were going to be captured in 2020 and you would be exiting the year at 100%. But since you've been doing better than anticipated, is that something that we think you're going to be doing better than that 80%? Have you changed that target at all?

speaker
Tom Palmer
President and Chief Executive Officer

Thanks, Tanya. It's Tom here. We were 40% run rate by the end of this year. 80% by the end of 2020 and 100% by the end of 2021 was the initial commitment that we made. We're now sitting at essentially 66% of that run rate at the end of 2020. As part of our long-term guidance again in four weeks time, we'll give you an update in terms of how we're tracking based upon that guidance against that initial commitment that we made.

speaker
Tanya Jacuzkovic
Representative, Scotiabank

Okay. Alright. I look forward to hearing more about that. And maybe just on your divestiture, you mentioned Red Lake potentially not being in 2020 guidance. Does it look like something could close before your end?

speaker
Tom Palmer
President and Chief Executive Officer

We're on track with the process we're running. We've just completed the site visits so we remain on track. Okay.

speaker
Operator
System Operator

Alright. Look forward to hearing on that too.

speaker
Moderator
Conference Moderator

Thanks, Tanya.

speaker
Operator
System Operator

Our next question comes from Anita Sonny of CIBC. Please go ahead.

speaker
Anita Sonny
Representative, CIBC

Good morning, everyone. So my question is with regards to LDNOR. Could you just talk about the grade, the lower grades that you had this quarter and how you see that playing out over the next little while?

speaker
Tom Palmer
President and Chief Executive Officer

Thanks, Anita. I'll pass the microphone across to Rob Ekinson to take you through that. No

speaker
Rob Atkinson
Chief Operating Officer

problem. Good morning, Anita. It's really very simple that we've been working hard to get the stops back into a good sequence so that we're minimizing all the mining stresses. We are looking at certainly higher grade coming into the quarter four. So very simply it's those two issues that I think we're getting back into a better sequence and the stops which are presenting are of a higher grade. So that's all there is to it.

speaker
Anita Sonny
Representative, CIBC

Alright. And then similarly on Sero Negro lower grades, I think you're citing Eureka and Marion and Ortiz higher grades in fourth quarter, but as I recall Eureka grades weren't all that high. So I'm just, I think you had 10 grand per ton overall this quarter and I think what I know of Eureka, what was left was about 10 grand per ton material. So was there some pod that you had not mined yet that was higher grade?

speaker
Moderator
Conference Moderator

I'm

speaker
Rob Atkinson
Chief Operating Officer

not a hundred percent sure to be honest, but certainly, you know, I think we've, at Sero Negro we've just been progressing, you know, the plan was certainly to very high grades moving forward this next quarter, but perhaps Tom? Yeah, I think,

speaker
Tom Palmer
President and Chief Executive Officer

Anita, why don't we get Jess to pick up with you after the call and she can take you through the detail of that question.

speaker
Anita Sonny
Representative, CIBC

Sure. And then just in terms of the debt issuance and then repaying the debt on October 1st, I'm just curious why you didn't use cash balances to just pay off that debt. I know that your net debt to EBITDA is around one at the $1,500 gold that we just experienced, but closer to about 1.5 if you use the prior quarter's run rate on EBITDA.

speaker
Nancy Beese
Chief Financial Officer

Yeah, Anita, great question. And what we really wanted to do was as we take on both the acquisition of the GoldCorp assets and the JV, we wanted to ensure we had maximum financial flexibility. So we had an opportunity at an unbelievable coupon to just refinance that for now. But that's one thing we've really continued to think about. Today's higher gold prices, debt repayment will be a significant priority. We just wanted to give ourselves some flexibility as we're taking on what Newmont looks like today. But you can certainly anticipate as we are experiencing these prices, a significant amount of those dollars will be pointed towards debt reduction of those 21 through 23 debt towers.

speaker
Anita Sonny
Representative, CIBC

Thank you. And then last one, just a little bit more on the trying to get you to reveal something as everyone else has on the guidance coming up. In terms of Muscle White, when you put out the 7.4 million ounces, I think that was in June of, it was with Q2 results when you put out 7.4. Did that incorporate the impact of the Muscle White fire, which I think happened in the end of the first quarter?

speaker
Tom Palmer
President and Chief Executive Officer

The numbers you're quoting there, I need to go back to our guidance from early March. Don't incorporate the impact of the Muscle White fire that happened in late March.

speaker
Anita Sonny
Representative, CIBC

Alright, so this would probably have been more like the annualized run rate pre-fire would have been in that 7.4 million ounces.

speaker
Tom Palmer
President and Chief Executive Officer

That's a good judgment to make.

speaker
Anita Sonny
Representative, CIBC

Great.

speaker
Moderator
Conference Moderator

Thank you very much. Thanks, Anita.

speaker
Operator
System Operator

Our next question comes from Andrew Kipe of BMO Capital Markets. Please go ahead.

speaker
Andrew Kipe
Representative, BMO Capital Markets

Alright, thanks very much for taking my question. Look, just a little bit more on Muscle White. Early October is when you're guiding towards commercial production. Wondering if you can walk us through the steps and what the critical path there is that's determining early October. Is it the completion of the conveyance system or is it material handling system isn't going to be commercial by that time? So just a bit more clarity would be...

speaker
Tom Palmer
President and Chief Executive Officer

Thanks, Andrew. It's not linked to the materials handling system. It's the replacement desire and I'll get Rob to tag you through some data on that.

speaker
Rob Atkinson
Chief Operating Officer

No problem. Thanks, Andrew. And again, this is a sequence of events. So really, what we've been working hard on at the moment is the rehabilitation and the dewatering. That had to be done to be completed. We've got one more area which is the transfer point to demolish and salvage some of the old gear and that will be done over the coming months. The contract in place to get a suitably qualified, experienced contractor was also a part and that's been awarded. And we expect full site mobilization to be completed by early January. Now, as Tom mentioned, the materials handling, it's a very important part. If you remember that we've got a shaft and we've got conveyor and a crusher. That's being commissioned and we're expecting that to be fully commissioned round about the end of the first quarter. The mechanical completion of the belt, we're expecting to be somewhere towards the end of the second, early third quarter. And then that's where we can do the practical completion, the technical support and the ramp up to allow us to get to October. So certainly, whilst it's not the material handling system, the material handling system only comes into its own with the belt running and that's when we can get the true efficiency. So we're going to get a double whammy that when the belt comes back, it's going to be a lot more efficient than mine in general with the materials handling system as well. But that's the sequence of events that we're looking at over the next nine months, nine or ten months.

speaker
Andrew Kipe
Representative, BMO Capital Markets

All right, thank you. And then when we think about muscle weight on a go forward basis for production, how many stops are you thinking that you have available to be able to meet the production expectations in guidance and give you that flexibility that you can look out efficiently?

speaker
Rob Atkinson
Chief Operating Officer

I think a good rule of thumb is four. If we're in for that, and certainly I think we'll be comfortable for the couple of reasons, is that it gives us the flexibility if there's any challenges with stops, it also gives us the flexibility with grade. And the key to all that is making sure that our development is well ahead. Whether it's at muscle weights or any of our other mains, keeping that 18 months in advance is so key. But a good rule of thumb we're aiming at is to have at least four.

speaker
Tom Palmer
President and Chief Executive Officer

Just another comment I'd make Andrew on keeping muscle-wide as an important mine in our portfolio of 14. Keeping the context of our portfolio, it represents approximately 200,000 ounces. So one of the advantages of having a portfolio of our size and spread globally is that we can manage through this issue, but it's at that scale compared to our portfolio.

speaker
Andrew Kipe
Representative, BMO Capital Markets

And then just one final question, just on Penasquido, you had indicated that grades would be stepping up in the fourth quarter from where they are currently. I'm just wondering what kind of step-up we expect. There's a fairly significant grade difference between what was previously forecasted for 2019 and then what 2020 was and that's moved. So I'm just wondering how much of a step-up should we be expecting? The

speaker
Rob Atkinson
Chief Operating Officer

grades, we are about to hit some good material in the mine after the pre-stripping has been done. So we are going to have a sustained period where the grade is going to be higher. I think a good rule of thumb is about half a gram per ton is where we're typically sitting for the final quarter.

speaker
Andrew Kipe
Representative, BMO Capital Markets

Okay, thank you very much.

speaker
Operator
System Operator

Our next question comes from John Tomazos of John Tomazos, Very Independent Research. Please go ahead.

speaker
John Tomazos
Research Analyst, John Tomazos, Very Independent Research

Thank you very much for taking my question. Could you elaborate a little bit that there was a sentence or two towards the end of the presentation that mentioned Galore Creek, Norte Aviorte, and Nueva Union. Are those projects that you're optimistic about because they're very large or because the pending data that might be developed over the next couple years as Newmont does their work may improve the project or because of the existing data on the project or because you expect higher copper and gold prices to improve the returns?

speaker
Tom Palmer
President and Chief Executive Officer

Thanks John, it's Tom here. What we like about those three projects that we have sitting at pre-feasibility stage is the very long life that they present and they can underpin an investment thesis for Newmont Gold Corp that presents a very long life that can go out through the next two or three decades or beyond. Where those projects sit or three of them in pre-feasibility study phases, it gives us in conjunction with our joint venture partners, the opportunity to really work on and optimize those projects, get good competition for capital going so that they present in the second half of next decade as the first project that may come on to extend the life of our business. We look at those projects as doing them in series, not parallel, so if you look at those three projects, the opportunity to optimize them and then sequence them, you can have those three projects come on through the latter part of the 2020s into the 2030s and into the 2040s and really underpinning long life for our business.

speaker
Moderator
Conference Moderator

Thanks John.

speaker
Operator
System Operator

Our next question is a follow up from Anita Sonny of CIBC. Please go ahead.

speaker
Anita Sonny
Representative, CIBC

Thank you. So I was just wondering when you do the December 2nd guidance and outlook, will you address reserves at the acquired assets at that point or would that be a February Q4 phenomenon?

speaker
Tom Palmer
President and Chief Executive Officer

Anita, it's Tom here. It'll be February and we'll make sure that we bring that information out. Typically we drop a press release but I think for next year we'll make sure we signal that and take you through that information as that's ready. But it's an end of the new year exercise for us to complete all that work.

speaker
Anita Sonny
Representative, CIBC

And will it incorporate your assumptions on where the costs could go or will it just come at a benchmark to where you are now?

speaker
Tom Palmer
President and Chief Executive Officer

You're asking the question in terms of reserve pricing.

speaker
Anita Sonny
Representative, CIBC

Yeah, reserve pricing. I mean one side of the equation of a reserve is the cost associated with it.

speaker
Tom Palmer
President and Chief Executive Officer

Yeah, I wouldn't expect our reserve pricing to change from $1,200.

speaker
Anita Sonny
Representative, CIBC

But I mean the unit cost assumptions that are used on the other side of the equation to say, okay, well we're mining at $90 a ton at Eleanor versus say $110 which is, you know, I'm just pulling numbers out of the air. But I'm just wondering, will it include sort of the benchmarking of what's actually happening at the asset right now or some future projection of what you think you can deliver?

speaker
Tom Palmer
President and Chief Executive Officer

For the operating assets it will be underpinned by the mine plans that underpin our business. So it will be the assumptions we've used.

speaker
Operator
System Operator

Okay, thank

speaker
Tom Palmer
President and Chief Executive Officer

you. Thanks, Nathan.

speaker
Operator
System Operator

Our next question is a follow-up from Kerry McElroy of Canaccord Genuity. Please go ahead.

speaker
Kerry Nacarori
Representative, Canaccord Genuity

Hi, just one more question on, just wondering if you could touch on a coffee project. I know you've pushed it back in the development pipeline. Just wondering what the work plan there looks like on Ford.

speaker
Tom Palmer
President and Chief Executive Officer

Thanks, Kerry. It's we've stepped back to pre-feasibility because we think there's exploration upside potential there that we want to better understand. Marcelo Godoy, our head of exploration, particularly excited about the opportunity around coffee but what we're looking at is doing the drilling program to better define that resource and keep that project in pre-feasibility stage until we can better understand that, optimize that project and then bring it forward in competition with the other project. It sits alongside in pre-feas.

speaker
Moderator
Conference Moderator

Okay, thank you. Thanks, Kerry.

speaker
Operator
System Operator

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

speaker
Tom Palmer
President and Chief Executive Officer

Thank you, operator. Thank you everyone for joining us and thank you for your continued interest in New Montgold. Thank you.

speaker
Operator
System Operator

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

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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