Newmont Corporation

Good morning and welcome to Newmont's second quarter 2022 earnings call. All participants will be in listen-only mode. Should you require any 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 Tom Palmer, President and Chief Executive Officer. Tom? Please go ahead.

Thank you, operator. Good morning and thank you all for joining Newmont's second quarter 2022 earnings call. Today I'm joined by Rob Atkinson and Nancy Beezy, along with other members of our executive team. And we will be available to answer questions at the end of the call. Before I begin, please note our cautionary statement and refer to our SEC filings, which can be found on our website. Newmont delivered a solid second quarter as we continue to differentiate ourselves through our leading portfolio of assets and projects, our proven integrated operating model, our balanced and disciplined approach to capital allocation, and most importantly, our values-driven commitment to our purpose of creating value and improving lives through sustainable and responsible mining. Underpinned by these key differentiators and guided by a clear and consistent strategy, Newmont remains well positioned to safely manage through the evolving and unprecedented challenges that our industry and the world at large face. During the second quarter, Newmont produced 1.5 million ounces of gold, an increase of over 150,000 ounces from the first quarter and as expected. In addition, we produced more than 330,000 gold equivalent ounces from copper, silver, lead and zinc, bringing us to well over 1.8 million gold equivalent ounces for the quarter from our balanced global portfolio. We generated significant operating cash flow of $1 billion and free cash flow of $514 million, an improvement of more than $260 million from the first quarter. With $7.3 billion in total liquidity, we have maintained an investment-grade balance sheet with a net debt to EBITDA ratio of 0.3 times, preserving our financial flexibility whilst we continue to invest in our most profitable organic projects and return cash to shareholders. In June, we completed the acquisition of Simitomo's interest in Yanakocha. bringing Newmont's ownership in this operation and the exciting Sulfites project to 100%. And last week, we declared a second quarter dividend of $0.55, maintaining an attractive dividend yield of between 3% and 4% for the last seven consecutive quarters. Set within our established industry-leading framework and calibrated at an $1,800 gold price, Our second quarter dividend demonstrates our confidence in the strength of both our portfolio and our operating model to deliver sustainable long-term value. In May, we published our second annual climate report, part of the suite of reports on our company's non-financial performance. To address climate change and make a real impact, we will need to leverage Newmont's leading ESG practices our integrating operating model, and the scale and mind life of our global portfolio. These are all important components, not only for creating long-term value, but also for addressing the critical issues that our industry must solve, none more important than the elimination of fatalities. Safety is a core company value, and it is at the very heart of operating any sustainable business. I expect it to be the first consideration before anyone begins work at any Newmont location ensuring that our workforce returns home safely after each and every shift. We have continued our disciplined and dedicated approach to safety, maintaining a clear focus on managing the critical controls that must be in place at all times to prevent fatalities. During the second quarter, We completed 155,000 conversations by leaders in the field that were focused on these critical controls. Two years ago, we commissioned mobile technology to gather consistent data globally around these important discussions, which we call critical control verifications. And I'm pleased to say that since then, our leaders have now completed more than 800,000 of these conversations. Over the last three years, Newmont has continued to evolve our approach to safety across our global business, improving our fatality risk management program to ensure it is as effective and as insightful as possible. By combining our learnings from significant potential events and critical control verification data, we are now able to gain a deep understanding of the fatality risks of each operation, and importantly, what is needed to be done to reduce these risks. At Newmont, we have created a robust and diverse portfolio of operations, along with a pipeline of more than 20 organic projects with the scale and mine life to deliver strong long-term results. Newmont will produce more than 6 million 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 every year for at least the next decade. the most of any company in our industry. Among our 12 operating mines and two joint ventures, nearly 90% of our attributable gold production comes from top tier jurisdictions because we firmly believe that where we choose to invest and operate matters. And underpinning our portfolio is a robust foundation of reserves and resources, which combined with the gold industry's best organic project pipeline provides the pathway to steady production and cash flow well into the 2014s. We are in a period of meaningful reinvestment as we continue to advance our near-term projects, including the second expansion at Tanami in Australia's Northern Territory, the development of a half-hour north in Ghana, and the Yanacocha Sulfides project, the next exciting chapter in YMOT's long and profitable journey in Peru. And in addition to our three near-term projects, Newmont has a deep pipeline of longer-term projects that represent growth opportunities for later in this decade and beyond. These projects and operations are managed through a proven integrated operating model with a strong track record of delivering long-term value to all of our stakeholders. Newmont's operating model is built upon the fundamental principle that the whole is worth more than the sum of the individual parts. And it is strongly supported by our full potential continuous improvement program, a program that has been in place for over eight years and is more important today than it has ever been. Our team is taking the lessons learned during the pandemic to address the challenges that our industry faces today, including tight labour markets, inflation and supply chain disruptions. As the world is reacting to these pressures, we are actively deploying strategies to reduce our exposure. Our global supply chain team is leveraging our scale and the strong partnerships we have developed over many years with our key suppliers and equipment manufacturers. As the industry leader, we have best-in-class pricing, as well as sophisticated rise and fall formulas built into our long-term contracts to reduce both volatility and mitigate logistical constraints in order to prevent disruption at our operations. And whilst we can't talk about specific contracts, several of our major equipment and parts suppliers have recently issued comprehensive price increases for the industry that range from 15% to 30%. However, through the efforts of our global supply chain team, we have negotiated lower price increases, in some cases of only 3% to 5% for the coming year. In addition to this, we are challenging the gold industry by implementing new technology to improve productivity and reduce labour risk, such as our transition last year to a fully autonomous haul truck fleet at Boddington. We are leveraging our full potential program, which has been instrumental in delivering value during these unprecedented times, helping to offset the impacts from current market conditions. And we are utilising real-time data and our global team of subject matter experts to share knowledge and talent across our global portfolio, providing critical insights and driving improved performance that our operating teams simply cannot achieve on their own. As one of the most tangible examples of this, we have designed and implemented three operational support networks covering our core areas of mining, processing and asset management. These global networks bring together our technical experts from around the world, providing 24-hour monitoring, coaching and support through a consistent platform. In the mining industry, we traditionally expect our frontline leaders to obtain their own data and insights as they manage everything involved in safely leading a team of people at the start, during and end of a shift. Through our support networks, we help our leaders by monitoring operational performance, and providing insights into the areas that need their attention, saving time, improving focus, and removing the need for so many people at our mine sites. And by offering a more flexible work environment, Newmont is able to attract the best talent from within and beyond our industry, creating a more diverse, motivated, and highly skilled team to coach and support not one, but all of our operations. In addition to our dedicated and disciplined approach to cost management, you can also expect that we will remain transparent about what we are experiencing today and what we are anticipating in the future from this unprecedented environment. Over the last eight months, we have observed cost pressures, including the impact from Russia's invasion of Ukraine, an increasingly competitive labour market, and the highest global inflation rates our world has seen in nearly 40 years. As a consequence, we are anticipating an additional 7% of cost escalation this year. That is on top of the 5% we had already included in our four-year outlook we established last December. Around one-third of this increase is related to labour costs. we are seeing contracted services rates that are more than 10% higher than December last year, driven primarily by strong competition for specialised labour, higher levels of post-pandemic accretion resulting in higher demand, and the pass-through of higher commodity prices and transportation costs. The next third of the impact comes from an increase in prices for global commodities and raw materials. we're observing escalation in the range of 20% to 30% for certain items, such as cyanide and explosives, which is being driven by the increase in the price of natural gas and the availability of ammonia, as well as an increase in the price of steel that is being used in our grinding media and spare parts. And the final third of the impact is coming from higher fuel and energy costs. As an example, diesel prices have increased by more than $50 per barrel adding approximately $20 per ounce to our all-in sustaining costs compared to our original guidance. I'll now turn it over to Rob and then Nancy for a more detailed look at our operational and financial performance, and they will discuss how our second quarter results have been impacted by the current environment. I will then wrap up with an overview of our outlook for the remainder of this year as we remain focused on implementing productivity improvements and offsetting the impacts of these challenging market conditions. Over to you, Rob.

Thank you, Tom, and good morning, everyone. Turning to the next slide, let's dive into our operations and projects, starting with Africa. A team delivered a solid performance in the second quarter due to higher ore grade and tons mined, in addition to strong mill performance. And the team is working to complete an open pit layback and we expect stripping to decrease in the third quarter as we begin to reach the ore and create future optionality for both underground and open pit growth. A HAPO South delivered a strong second quarter performance, increasing gold production by more than 25% compared to the first quarter due to improved ore grades, higher underground and open pit ore tons mined, and steady mill performance. And despite the challenges experienced during later on. We anticipate production at AHAFO to be weighted around 60% to the second half of this year, as we continue to increase underground tons through increased development and reach higher grades, positioning AHAFO for a strong finish to the year. And finally, the team continues to progress engineering and procurement for the AHAFO North project. All of the permitting has been completed and we are local communities, traditional leaders and regulators to ensure full land access, that it is properly cleared of all structures and crops. As I have mentioned in previous updates, this will be an important milestone, which will give us the opportunity to update the remaining costs and schedule to develop this prolific ore body, ensuring that we can properly incorporate the impacts from this land access delay. As a consequence of working through this important activity, preliminary capital costs are expected to be approximately 15% higher than our original estimate, and we are anticipating a shift in commercial production from 2024 to mid 2025. We look forward to providing additional detail later this year as we work to add profitable production from the best unmined gold deposit in West Africa. And now turning to South America. Cerro Negro delivered another strong performance in the second quarter as a result of steady ore grade and ongoing improvements to mining rates and mill performance. The team continues to advance the first wave of expansions at Cerro Negro, including the expansion of the Marianas District and the development of the Eastern District to extend existing operations beyond 2030. The development of the San Marcos decline is progressing, and we have successfully completed the first blast in the Eastern District in May of this year. An exciting accomplishment as we continue to explore and develop the district potential in Argentina. At Merion, the team delivered a steady performance despite very heavy rainfall in the second quarter, impacting mine sequencing and resulting in lower war tons mined and milled in addition to lower grades. improving mill performance and reaching higher ore grades in the second half of the year. And finally, Yanacocha continued to deliver solid production during the second quarter, accelerating ounces from the re-leaching program and improving recoveries from the use of a richer leaching solution. We anticipate production at Yanacocha to be weighted around 55% to the first half of this year. As the site decreases ore tons mined, project. Engineering is nearly 60% complete and procurement is around 45% complete with approximately one-third of the local contracts already awarded. And as you can see in the picture here, the team is progressing the camp construction and early earthworks as planned, ensuring we have in place proper accommodations for our construction workforce and for future mine operations. The project team is preparing for an investment decision in late 2022, and we currently expect capital spend to be around $2.5 billion from the full fund's approval date, with commercial production in mid-2026. We look forward to providing an update towards the end of the year, and we remain very excited about the opportunity to develop the sulphide potential at Yanacocha. And now over to North America. Penesquito delivered another solid quarter as higher gold and silver grades helped to offset the impact from planned mill maintenance and higher costs associated with the workforce negotiation announced earlier this month. As part of the newly established profit sharing agreement, and over $180 per ounce for co-product gold equivalent ounces. For 2022, we expect the profit sharing bonus to add additional costs of around $15 million at an $1,800 gold price, adding approximately $4 per ounce to North America's all-in sustaining costs for gold, and $10 per ounce for co-product gold equivalent ounces. We reached this agreement site and we continue to build an aligned and valued relationship with union leadership to support the safe and viable operation of the mine well into the future. Looking ahead, costs are expected to stabilize as gold production from this large polymetallic mine increases in the third quarter due to higher grades delivered from the Panasco pit, whilst coal product grades from silver, lead and zinc begin to decline in the second half of the year as planned due to mine sequencing. Moving to Canada, productivity and costs continue to be impacted by ongoing challenges stemming from a very competitive labour market. In addition to these challenges, Eleanor experienced COVID-related absenteeism during the second quarter as flight capacity restrictions and strict Musselwhite and Porcupine both delivered an improved performance compared to the first quarter, increasing ore tons mined and processed, with Musselwhite delivering its best monthly performance in over three years. Productivity and ore grades at both sites are expected to continue improving in the second half of the year, as mining at Musselwhite progresses to the north in the PQ deeps area, and Porcupine reaches higher grades from Hoyle and Borden beginning in the third quarter. And finally at CC&V, the site delivered improved production compared to the first quarter due to higher ore tons mined and processed at our leach facilities. And as Tom will discuss later on, the mine is now operating as a leach only facility with steady production from optimised ore placement and declining per unit costs for the remainder of the year. And now, turning to Australia. As mentioned during the first quarter earnings call, the Western Australian border was reopened in early March, resulting in significantly higher case counts, ongoing testing requirements, and strict close contact protocols throughout the state. Approximately one third of the Boddington workforce and half of the Tannamine workforce tested positive for COVID in the second quarter, and high levels of absenteeism from positive cases and close contact isolation protocols continued to challenge productivity at both sides. In addition, Australia is experiencing a tightening of the labour market as the competition for skilled workers and contracted services has intensified in recent months. Yet despite these challenges, Boddington delivered a strong second quarter performance. The team reported an increase in gold and copper production of more than 25% compared to the first quarter, as higher mill throughput and grade more than offset lower tons mined due to inclement weather. Performance from Boddington's fleet of fully autonomous haul trucks continues to improve each quarter. And for the remainder of the year, Boddington will focus on achieving record mill throughput rates and increasing tons mined from this cornerstone asset. At Tannamind, the site also delivered improved production with an increase of more than 25% compared to the first quarter due to higher ore grades an increase in tons mined, and improved mill performance, helping to offset the impacts from higher contracted services costs in a very competitive labor market. With the ongoing challenges of securing specialized labor and contracted services, the team continues to successfully progress the second expansion of Tannamine, a project that will extend mine life beyond 2040. Nearly 90% of the project engineering and During the third quarter, the team will complete the reaming of the 1.5km deep, 5.5m wide shaft and the installation of the headframe and hoisting infrastructure, which as you can see here is nearly 95% complete. And as I have mentioned in previous updates on this project, this will be an important milestone as we evaluate the remaining schedule and cost to complete the project. with the key work remaining involving the concrete lining of this production shaft. This process will also ensure that we properly incorporate the significant impacts on COVID-related restrictions and protocols and the current market conditions for labour and materials. We continue to operate in a very competitive labour market in the Northern Territory with significant demand from mining competitors and infrastructure initiatives throughout Australia. Based on our preliminary view, we expect capital costs to be approximately 25% higher than our prior estimate and a shift in commercial production from 2024 into early 2025. We look forward to providing additional detail later this year, and we remain excited to deliver significant pounds I'll turn it over to Nancy on the next slide.