Newmont Corporation (NYSE:NEM) Q4 2023 Earnings Call Transcript February 22, 2024

Newmont Corporation reports earnings inline with expectations. Reported EPS is $0.5 EPS, expectations were $0.5. Newmont Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to Newmont's Fourth Quarter 2023 Earnings and 2024 Guidance Call. [Operator Instructions]. I would now like to turn the conference over to Tom Palmer, President and Chief Executive Officer. Please go ahead.

Thomas Palmer: Good morning, everyone, and thank you for joining our call today. Please note our cautionary statement and refer to our SEC filings, which can be found on our website. Today, I'm joined by my executive leadership team, including Natascha Viljoen and Karyn Ovelmen, and we'll all be available to answer your questions at the end of the call. I'd also like to take a moment to acknowledge our friend and colleague, Rob Atkinson, our Chief Operating Officer for the past 5 years, Rob will leave Newmont in early May, although his legacy will endure. Through his visible self-leadership, Rob has driven our fatality risk management program, achieving 5 years fatality-free performance. Throughout the pandemic, Rob navigated our operations through challenges, including periods of care and maintenance, order closures and vaccine implementation.

Rob also represented the very best of our values when he guided Pe?asquito through 2 major challenges: resolving a community blockade in 2019 and an unjustified strike last year. In both situations, Rob found sustainable solutions that protected a long-term value of Newmont. Over the last 5 months, Rob and Natascha have conducted a thorough handover of accountabilities and Rob will remain with us to support [indiscernible] before finishing up and heading back to the U.K. to spend more time with family. Before we get started, it is with great sadness that I share the tragic news regarding a fatal incident at our recently acquired Brucejack operation on December 20 last year. I'd like to take a moment to remember our colleague Adam Kennedy. Adam was only 44 years old.

He was a partner, a son, a brother, and uncle, a best friend and a valued colleague. Our condolences go out to Adams loved ones during this difficult time, and we are again reminded how important it is to maintain a sense of chronic unease when it comes to the safety of everyone who works at Newmont. [indiscernible] fatality is totally unacceptable. We fully understand the fatality risk in our industry and the critical controls that need to be in place at all times to manage them. So we have been taking the time to conduct a safety reset across all Newmont sites, not just the 5 new Newmont operations with a laser focus on the implementation of our fatality risk management system. This reset work includes training delivered by our line leaders, our managing directors, our general managers and our senior health and safety leaders.

Training on our fatality risk management standards, and our critical control verification process. We are also concluding our thorough investigation into this tragic incident which is being led by David Thornton, the Managing Director of our Africa business unit. We are applying the lessons learned from this investigation at all of our managed operations globally and we will share them widely with our mining industry peers. Nothing is more important that our commitment to the health and safety of our workforce, and we are determined to create an environment with every person working at Newmont across all locations return home safe and well to their families and loved ones at the end of each and every shift. Turning to our performance in 2023.

Newmont finished the year with a solid fourth quarter, putting us in line with the revised stand-alone outlook that we issued following the resolution of the strike at Pe?asquito. In summary, we produced 5.5 million ounces of gold at all-in sustaining costs of $1,444 an ounce. In addition to gold, we produced nearly 900,000 gold equivalent ounces from copper, silver, lead and zinc over the course of the year. This performance enabled us to deliver $4.2 billion in adjusted EBITDA returned the $1.4 million to shareholders and end the year with liquidity above $6 billion. In a few minutes Natascha and I will explain on how we expect to improve upon this performance in 2024 and beyond, with a focus of delivering meaningful value to our shareholders.

But before we do that, I would like to describe how we're transforming our business into a unique collection of the world's best gold and copper operations and projects following last year's transaction. When we announced our binding agreement to acquire Newcrest in May last year, we outlined a powerful value proposition built around 4 key commitments. First, to set the new sustainability standard and strengthened Newmont's position as the gold sector recognize sustainability leader. Second, to create the industry's strongest portfolio of world-class gold and copper assets in the most favorable mining jurisdictions. Third, to deliver $500 million of annual synergies and realize over $2 billion in cash from portfolio optimization. And finally, to continue driving a disciplined, balanced approach to capital allocation.

After closing the transaction on November 6 last year, the integration of the 5 new operations into our Newmont operating model has been progressing very well. And as we enter this critically important year of integration and transformation, I'll be holding myself and my executive leadership team accountable for delivering on these commitments and this will be our key focus in 2024. To support this work, earlier today, we announced 4 key actions that together will enhance our ability to deliver on our clear and consistent strategy. First, we plan to divest 6 high-quality but noncore assets this year. From this point forward, our world-class portfolio will consist entirely of Tier 1, an emerging Tier 1 operations and districts. And it will have a significant exposure to growth in copper and gold from our industry-leading organic project pipeline.

Second, we provided our 2024 and 5-year outlook, getting a clear picture of the work we're doing today to expand margins and appropriately sequence our projects to deliver sustainable value. Third, with the clarity, simplicity and focus that our Tier 1 portfolio provides, we have committed to deliver a further $500 million in cost and productivity improvements across the entire portfolio. And these improvements are over and above our synergy commitment from the Newcrest acquisition. We expect to hit this $500 million annual run rate of improvement by the end of 2025. And finally, we announced a balanced shareholder return framework, consisting of $1 per share annualized base dividend and a new $1 billion share repurchase program. Our go-forward Newmont portfolio is focused on Tier 1, gold and copper, operations and projects located in the world's most favorable mining jurisdictions.

And it has 4 key features. First, it contains 10 Tier 1 operations, representing all the half of the world Tier 1 guidelines in the Newmont portfolio. Second, it has 3 emerging Tier 1 operations that each has a clear path for growth. And we have the opportunity to create a Tier 1 district in British Columbia, a district in which Newmont will be operating for at least the next [indiscernible]. And third, it has an unmatched organic development pipeline with 6 large-scale top of gold projects. And fourth, underpinning our Tier 1 portfolio, is the industry's most robust foundation of reserves and resources. Going forward, Newmont has the industry's largest gold resource base and we also have the largest base of copper resources in the gold industry.

To put these numbers into perspective, Newmont has an almost 30% large gold reserve resource base than our nearest peer. And we have a 40% larger copper reserve resource base than our nearest gold peer. No other gold producing in the world can offer the depth and quality that Newmont's Tier 1 portfolio can today. Later on, I'll provide a little bit more color about Newmont's longer-term outlook and the exciting gold, copper opportunities ahead of us. But first, I'd like to step back and give some insight into how we are framing the year ahead. 2023 brought with a number of unique challenges, which are now certainly behind us. The 120-day labor dispute at Pe?asquito, asset integrity issues that were inherent in the original design of equipment at Ahafo and wildfires in Canada impacting éléonore.

Those 3 events, mean that our final production number did not reflect the full capability of our assets. As we emerge on the other side of these events, I am proud of the decisions that we took to protect the long-term interest of our company rather than looking to seek short-term experience solutions. However, I'm also not happy with the underlying level of our operating performance. We have the opportunity to improve our compliance to mine plants to improve our fixed and mobile equipment reliability and to improve our mill throughputs and recoveries. So our focus to '24 will be on safely integrating new teams, new operations in our Newmont operating model and culture, transforming our portfolio, underlying the groundwork for sustainable operating performance, margin expansion and strong returns.

Finally, this morning, we also announced that we have extended the completion date and increased the project capital cost for our Tanami 2 expansion project. In the second half of last year, we completed the concrete lining of the top half or 700 meters of this 1.5 kilometer deep production shaft. This milestone gave us the opportunity to assess the condition of the known overbreak and ground conditions at the very bottom of the shaft as well as incorporate the lessons learned providing the top half of the shaft into the cost and schedule for the run home. We have critically assessed a number of options to safely address the line overbreak and line the lower section of the shaft. This work included key third-party reviews before we landed on a method.

And it was this methodology and subsequent decision that an informed the cost and schedule update we provided today. Although I'm not happy with the extension of time and cost, I am confident that we have chosen a method that is safe and will ensure the shaft construction is of the quality necessary to rely with service Tanami prolific ore body for many, many years to come. So with that, I'll hand it over to Natascha to walk you through our operational priorities in 2024 and what we are doing to ensure that we deliver on our commitments this year. Over to you, Natascha.

Natascha Viljoen: Thank you, Tom, and good morning. Since joining Newmont in October, I have visited 14 of Newmont's 17 managed operations. And I've been really impressed by the quality of the assets, the dedication of our people and the commitment from our operational leaders to drive safe and profitable production. Now before I begin, I'd like to provide a brief introduction to the operational team focused on integration and value delivery in 2024. As mentioned last quarter, within our global operating model, we have 6 regional business units, each headed up by a world-class experienced Newmont leader where you can see on this slide. This scalable integrated operating model enables alignment across our operating leadership team while also empowering our managing directors to apply the extensive local and technical knowledge and draw on the global functional expertise to lead each unique operation.

To support our operations from the project execution side, we have a dedicated restructured project delivery team. This team of subject matter experts is working across the full spectrum of our organic pipeline, including studies, project development, construction and commissioning of projects. By strengthen our operating model with block driving capability and an understanding of industry-leading practices in project development. This year, we will have a laser focus on the performance of our 11 managed operations in our go-forward portfolio, while also guiding our 6 noncore assets through a safe and productive process for divestment. As we work to deliver efficiency and reliability from our global portfolio, we are committed to progressing our 4 key projects in execution and keeping them on track in 2024.

As a result, we are entering the year with a strong focus on integration and the safe delivery of our targets. Our success in 2024 will be largely determined by the performance of our 6 managed Tier 1 operations, Boddington, Tanami, Penasquito, Ahafo, Lihir and Cadia, not underestimating the significant impact of the delivery from the full portfolio of operating assets. I will also separately touch on telephone and how we are ensuring [indiscernible] integrity at this new to Newmont operation. We're very clear on the key priorities to integrate and deliver 2024 and how this set up operations in the next 5 years. And I will touch on some of these in each of the Tier 1 managed operations. At Boddington, we are progressing the stripping of the current laybacks in the North and South pits as planned, with improved productivity from our fully autonomous [indiscernible] fleet.

At our poly metallic mine Pe?asquito, our focus is on delivering strong silver, lead and zinc from the Chile Colorado pit, and continuing wide stripping in the Pe?asco pit to deliver higher gold grade in 2025. At Ahafo, we remain on track to replacement girth gear in the second quarter to maximize [indiscernible] rates. At Tanami, we are improving material movement through the decline as we progress deeper underground. [indiscernible] team will be focused on simplifying the mine plan and improving asset reliability. And at our other Newmont operation Cadia, we are commissioning the next block cave and progressing some important tailings rectification and expansion work to sync up for the next decade of all feed. We have full potential teams on the ground at coherent Cadia, actively working through our diagnosis phase and designing the initiatives to extract value and deliver the opportunities identified.

So taking these key priorities into account, we anticipate that the production will be around 53% weighted towards the second half of the year as we return to full pricing rates at Ahafo, reach higher grades for the liberator ore body at Tanami and site integrated due to Newmont sites into the Newmont operating model. I'm touching briefly on Telfer, a noncore operation in Australia. We are focused on remediating [indiscernible] and fracs detected at the tailing storage facility in December, where we stopped the mill to complete the first phase of remediation work. In early February, we temporarily restarted the plant while evaluating options for further remediation of an [indiscernible] tailing facility and we'll provide an update on that work on our first quarter earnings call.

And with a focus on fatality risk management, we expect that work and full potential implies, we remind fairly on track to deliver on our commitments this year. On top of delevering in 2024 operationally, we are working to bring forward new low-cost ounces from the 4 key projects we have in execution. These projects include the second expansion at Tanami, as Tom just covered. Our focus is on slightly aligning the lower section of the shaft and continuing to construct and crushing and combined infrastructure underground. Two block cave projects at Cadia to recover both gold and copper, where we have just let first ore as we ramp up the first of these caves. And our new mine, Ahafo North, where we are making good progress on the construction of the [indiscernible] and other supporting infrastructure, along with wire stripping to allow us to start accessing the ore for stockpiling.

When this new and very exciting mine is combined with the underground potential of Subika, Apensu and Awonsu, we have a Tier 1 Ahafo district and we'll be capable of producing around 850,000 ounces of gold per year out to and beyond 2015, which would make it one of the world's top gold mining districts by any measure. Now bringing all of this together, as we focus on the integration and size delivering this year, we expect our Tier 1 portfolio to produce around 5.6 million ounces of gold and an all-in sustaining cost of $1,300 per ounce. Combined with the very significant 1.9 million gold equivalent ounces from copper, silver, lead, zinc and molybdenum. Our unit costs are expected to improve compared to 2023 due to steady production of net volumes and the delivery of synergies and full potential improvements with the lowest unit cost coming from Newmont's managed Tier 1 portfolio.

Our capital reinvestments remains in line with the pre-acquisition spending levels as we continue to focus our disciplined delivery and a balanced approach to capital allocation. And with a stable reduction and structured reinvestment, we are strongly positioned to integrate and deliver on our commitments in 2024, setting the stage to future proof these world-class assets with benchmark performance and meaningful growth in 2025 and beyond. And with that, I'll turn it back to Tom.

Thomas Palmer: Thanks, Natascha. Moving up to foundation we are establishing in 2024 that Natascha just covered. I'd now like to provide a bit of color around the opportunities that we are seeing from our go-forward portfolio. We will continue to optimize the performance of our mature Tier 1 operations and our new to Newmont assets. At Boddington, the stripping that we are doing today will bring forward strong gold and copper grades starting in 2026, all supported by the gold industry's only fully autonomous whole fleet. At Tanami, the completion of the second expansion will provide efficient access to ore at depth and open up this prolific underground ore body in 2027 and beyond. At Penasquito, the stripping that we are currently doing will bring forward a harder proportion of gold ounces from the Penasco pit, balancing with the strong production of silver, lead and zinc from the Chile Colorado pit.

At Ahafo, we are building out district potential with new low-cost ounces from both underground and open pit at Ahafo South, and our new mine, Ahafo North coming online in 2025. At Cadia, we will commission our second block cave in this time frame bringing forward higher gold and copper grades whilst in parallel, leveraging our full potential program to improve their reliability and throughput. And finally, simplifying the [indiscernible] mine plan is expected to deliver a strong improvement in gold production as we reach higher grades from Phase 14a. As I mentioned earlier, with a clear line of sight into the Tier 1 managed operations in our portfolio, we have identified $500 million of additional cost and productivity improvements over and above our synergy commitments.

So taking everything into account. Over the next 5 years, we expect to deliver growing gold production driven by the completion of the laybacks at both Boddington and Pe?asquito, the new ounces from Ahafo North, the completion of the second expansion at Tanami and both block caves at Cadia and binding improvements combined with higher grades [indiscernible]. And on top of this improving gold production, Newmont will produce a significant amount of copper, along with silver, lead, zinc and molybdenum with our global diversified Tier 1 portfolio. Driven by this high metal production and with a focus on improving costs, we expect to deliver all-in sustaining costs bringing our go-forward portfolio down to $1,150 per ounce by 2027. For development capital, we are applying a pragmatic and methodical approach to our project work to ensure we are efficiently bringing forward opportunities that are aligned with our strategy, also remaining disciplined with our capital allocation priorities.

We expect to spend an average of $1.3 billion per year on development capital, driving healthy competition for investment has been closed out all large projects we have in execution and bring forward the next wave of profitable production from our organic project pipeline. Newmont is supported by the deepest and best project pipeline in the gold industry and we will manage it with discipline and rigor to ensure that the most value-accretive opportunities are advanced at the right time and to the right order. We have 3 world-class copper, gold projects in our pipeline ramped up behind the 4 projects we have currently in execution. Moving underground with the block cave at Red Chris developing the [indiscernible] block cave and processing the sulfide ore at Yanacocha.

And then when we look beyond those projects, we have 3 exciting long-term opportunities to further diversify into copper, Galore Creek, Pueblo Viejo and Norte Abierto. Over the next 10 years, the amount of copper is expected to increase significantly. And based on current copper production trends, the world can expect to experience around a 10 million tonne shortfall on this critical metal by 2035. Bridging this gap will require significantly more copper mines, copper recycling and enhanced copper hedging processes, creating an exciting opportunity to Newmont to help meet this demand with the organic copper exposure we have in our portfolio, whilst continuing to provide unparalleled exposure to gold and its enduring value. And with that, I'll hand it over to Karyn to talk through our balanced capital allocation strategy.

Karyn Ovelmen: Thank you, Tom. Our capital allocation strategy is underpinned by 3 priorities: working in [indiscernible], these priorities maintain the financial flexibility necessary to reinvest in our business with the goal of generating long-term sustainable free cash flow, in turn, positioning us to return capital to shareholders through our balanced shareholder return framework. Beginning with financial flexibility, the first of our 3 priorities. We intend to maintain an investment-grade balance sheet with gross debt of up to $8 million and liquidity of $7 billion, including approximately $3 billion of cash. And by maintaining a strong balance sheet, we can ensure we have the ability to steadily fund cash-generative capital projects, all while returning capital to shareholders.

As announced this morning, we have 6 assets currently classified as non-core. The anticipated proceeds from these divestments, along with free cash flow from operations, will cycle through our capital allocation priorities beginning with enhancing our financial strength and flexibility. Divestiture proceeds will first be allocated to maintaining our minimum cash balance of approximately $3 billion and will then be applied to reducing debt to $8 million or below. Our initial debt target of $8 billion is to achieve return -- we intend to return both free cash flow from operations and divestiture proceeds to our shareholders, which I will touch on in more detail in a minute. Moving to sustainable investments. As Tom and Natascha mentioned, over the next 5 years, we expect meaningful production growth from a volume wise, low-cost operations as we invest an average of $1.3 billion of development capital into projects that will generate the highest returns.

The third priority of our capital allocation approach is a balanced shareholder return framework designed to return capital to shareholders through our base dividend and share repurchases. To be clear, we are not yet where we want to be in terms of generating free cash flow to return to our shareholders, but I believe we have the right framework in place to return an increasing amount of capital as our operational and financial performance improves. Our balanced shareholder return framework begins with an annualized base dividend of $1 per share, an amount that will remain fixed and currently equates to a quarterly dividend of $0.25 per share. We expect to be able to pay the base dividend from free cash flow over time. Our dividend is subject to approval from our Board of Directors on a quarterly basis.

Historically, our free cash flow generation has been weighted towards the back end of the year, and we expect that will be the case in 2024 as our production profile and synergy realization is expected to be higher in the second half of the year than in the first half of the year. In addition, free cash flow generation in the first quarter of 2024 will be impacted by the payment of safe duty tax related to the acquisition of Newcrest. Stamp duty was accrued in the fourth quarter and paid in February. As necessary, we will use the flexibility of our balance sheet from the base dividend through the quarters with the annualized $1 per share dividend expected to be ultimately funded with free cash flow. Additionally, our Board has authorized $1 billion share repurchase program.

As the liquidity and debt parameters I defined earlier are satisfied, we intend to repurchase shares in line with our free cash flow and asset sale proceeds. To reiterate, our free cash flow and proceeds from divestments will be prioritized as follows. The first dollar will be allocated to maintaining our minimum cash balance, the second will be applying to reducing debt to $8 billion, and the third will go towards share repurchases. Our goal portfolio positioned us to improve margins and performance over time, funding our capital allocation priorities and allowing us to reward our shareholders directly with returns of capital. And we believe reducing debt and returning capital to shareholders creates attractive value proposition for [indiscernible] existing investors while also improving the company's financial position over the long term.

I'll now turn it back to Tom for closing remarks.

Thomas Palmer: Thanks, Karyn. Newmont go forward Tier 1 portfolio sets the new standard for gold and copper mining and provides our shareholders with exposure to the highest concentration of Tier 1 assets in the sector, located in the most favorable mining jurisdictions, and with improving cost profile to maximize margins and generate strong free cash flow. The industry-leading growth optionality in copper and gold through disciplined reinvestment and project execution and a balanced shareholder return framework. As we look forward to this very important year of integration and transformation, I am very confident in the quality of our assets and the capability of our team to deliver on our commitments and justify our position as the benchmark gold equity.

This year, we'll also be continuing to work on transforming our go-forward portfolio and importantly, building out the strategic and life-of-mine plans for each of our managed sections. And I look forward to updating you on the longer-term potential of this world-class portfolio at our Capital Market Days in the second half of this year. And with that, I'll turn it over to the operator to open the line for questions.

Operator: [Operator Instructions]. Our first question today is from the line of Josh Wolfson of RBC.

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