Newmont 2023 Q3 Earnings Transcript - Highlights

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Newmont 2023 Q3 Earnings Transcript - Highlights

Link to Full Transcript:
https://seekingalpha.com/article/464398 ... transcript

Slides:
https://s24.q4cdn.com/382246808/files/d ... final2.pdf

Webinar:
https://events.q4inc.com/attendee/362063644/guest

Thomas Palmer
Our pending acquisition of Newcrest is a significant event for our industry. It combines two of the sector's top senior gold producers to set the new standard for sustainable, responsible gold and copper mining. I think this Is a very exciting and transformational time for Newmont and all of our stakeholders.

Turning to our quarterly highlights. During the third quarter, Newmont produced 1.3 million ounces of gold and 10,000 tonnes of copper, generating $933 million in adjusted EBITDA and over $1 billion of cash from continuing operations, a 53% increase over the prior quarter, and we declared a dividend of $0.40 per share from our established framework.

So for 2023, we now expect to produce 5.3 million ounces of gold from the current Newmont portfolio, with a resulting all-in sustaining cost of $1,400 an ounce. As a reminder, our full year results for 2023 that will report in late February next year will incorporate around 7 weeks of production from the 5 acquired Newcrest assets with the transaction currently on track to close on Monday, the 6th of November.

Robert Atkinson
On top of the 800,000 ounces of gold produced from our Tier 1 operations and joint ventures, the remainder of Newmont portfolio contributed approximately 500,000 ounces of profitable gold production, an increase of more than 100,000 ounces compared to the second quarter, and we anticipate solid results from these efforts through the rest of the year.

Before I hand it to Karyn, I'd like to take a moment to cover a few highlights from our development projects we are currently executing. On top of the achievements that I already noted at our second expansion at Tanami and Ahafo North, we also achieved key milestones at Cerro Negro, Porcupine and At Cerro Negro, we declared commercial production for San Marcos across the 6 ore bodies associated with this exciting district expansion. This opens up a further 650,000 ounces of high-grade gold, which will be mined over the coming 10 years.

Karyn Ovelmen
Thank you, Rob. Let's get started with the financial highlights. During the third quarter, revenue was $2.5 billion at a realized gold price of $1,920 per ounce, and adjusted EBITDA was $933 million, was up 10% from the third quarter of last year, driven by higher gold prices and lower direct operating costs.

We also generated $1 billion of cash from operations and $397 million of free cash flow for the quarter, which is net of more than $600 million of capital spend as we continue to move through a period of significant reinvestment back into our business. And we closed the quarter with a steady cash position of $3.2 billion in a leverage ratio of 0.7x net debt to adjusted EBITDA.

From a financial standpoint, our goal is to maintain a best-in-class investment-grade balance sheet while funding value-accretive projects and delivering healthy returns. And in recognition of Newmont's ongoing balance sheet strength and financial flexibility, I'm pleased to say that we have received a first time A- rating from Fitch with a stable outlook. We also maintained solid margins in the third quarter, despite the challenges that Rob mentioned at Peñasquito, Ahafo and our non-management joint ventures.

Third quarter GAAP net income from continuing operations was $157 million or $0.20 per diluted share. Adjustments this quarter included $0.14 related to revisions in reclamation and remediation plans at former operations, $0.05 related to unrealized mark-to-market losses on equity investments, $0.02 related to transaction costs associated with our pending acquisition of Newcrest and $0.05 related to tax adjustments and other items.

Newmont had paid over $5 billion in dividends since closing the Goldcorp transaction in 2019, demonstrating our commitment to our shareholders. On the close of the Newcrest acquisition, Newmont will integrate 5 new operations into our robust global operating model. February of next year, we expect to provide our 2024 outlook for the combined company with our fourth quarter and full year results.

For a longer-term view of our portfolio, we will apply a disciplined and thoughtful approach to setting market guidance for the combined company. We expect to provide our long-term outlook after we've had some time on the ground with the Newcrest assets and following our annual strategy session with our Board of Directors, which typically takes place in June.

We look forward to and providing more information on the exciting opportunities ahead for both current and future stakeholders. And with that, I'll pass it on to Tom for an update on the Newcrest transaction.

Thomas Palmer
Thanks, Karyn. The combination of Newmont and Newcrest represents an exceptional value proposition for shareholders and all our other stakeholders. Through an unrivaled platform, featuring the industry's best talent, growing the highest concentration of Tier 1 assets in the most favorable jurisdictions, Newmont is uniquely positioned to generate superior returns for decades to come. Recognizing the strategic rationale to create the industry's strongest portfolio of world-class gold and copper assets, 96% of votes cast by Newmont shareholders and 93% of votes cast by Newcrest shareholders were overwhelmingly in favor of this transformational transaction.

All of the regulatory approvals and shareholder votes now secured, we expect to close the transaction on Monday, the 6th of November, and set the new standard for gold and copper mining across the industry. Following the close of the transaction, the core of our portfolio will be 10 Tier 1 assets, representing more than half of the world's top-tier gold mines. And these assets will have the scale, mine life, cost profile and resilience to position Newmont to deliver strong and stable returns for several decades.

Leveraging the learnings from operating our current Tier 1 assets, along with our comprehensive asset strategy work, we will be applying the strength of our operating model, our people and our systems with the newly acquired Tier 1 assets in Lihir and Cadia as well as Brucejack and Red Chris in our emerging Tier 1 district of British Columbia. There is no doubt that Newmont will be operating the world's best gold copper portfolio under one umbrella, benefiting from our existing portfolio, operating model, sustainability practices and disciplined capital allocation process.

Every one of our assets is managed through our integrated global operating model, supported by a big bench of experienced leaders and subject matter experts with a track record of safely delivering value. And within this global operating model, we will have 6 regional business units, each led by a dedicated managing director. From the start of November, Natascha will assume accountability for our Australian business unit, led by Mia Gous, our North American business unit led by Bernard Wessels and Papua New Guinea, where we have Alwyn Pretorius returning to Newmont to head up this newly established business unit.

Through early 2024, Rob will continue to have accountability for our African business unit led by Dave Thornton, our Latin American and Caribbean business unit led by Mark Rogers, and our Peruvian business unit led by Rahman Amoadu. We are very fortunate to have Rob as a continuing member of our executive leadership team, particularly during this important integration period. Natascha and Rob will work together closely in the coming months, and both leaders will be pivotal in delivering synergies for the Newcrest acquisition and driving operational results that demonstrate our position as the benchmark gold equity.

In just a few days, we'll be welcoming our Newcrest colleagues to Newmont. And on day 1, my extended leadership team and I will be on site across every Newcrest location. As we begin our integration work with the Newcrest team, we'll be focused on 3 key systems that have been fundamental to our success at Newmont. The first is our fatality risk management program, which is at the very core of our safety approach. And put simply, great companies do not kill people.

Second is our Respect@Work program, a key benefit from bringing these 2 companies together is the alignment in our values and culture, in particular, around safe and inclusive workplaces. We have the opportunity to learn from each other with the programs we both have in place. Like many other companies in the mining industry, we know there are systemic issues that allow sexism, racism, discrimination, harassment and bullying to continue to be experienced in our workplaces.

These disrespectful behaviors have no place at Newmont. And we'll be working together to take actions to create a workplace with everyone is welcome and safe. The third key system is our full potential program, which will commence rolling out at both Lihir and Cadia in November to support the delivery of our synergy commitments. Full Potential is a program that I have led at the Newmont over the last decade. It is the most sustainable improvement program that I've worked with in my 35-year career in the industry, and it was key to delivering over $1 billion in synergies from our acquisition of Goldcorp some 4 years ago.

However, Full Potential delivers much more than just cost savings and productivity improvements. It sustains and improves our culture by breaking down barriers and encouraging active participation, global collaboration and sharing lessons learned across our organization.

During our due diligence work back in May, we identified and committed to $500 million in annual synergies across 3 categories: G&A, supply chain and Full Potential. As we look ahead to the closing of the transaction and the delivery of these synergies over the first 24 months, we are very excited about the long-term value and opportunities it will bring to both sets of stakeholders and our combined workforce. This transaction creates the best possible collection of Tier 1 gold and copper assets in the industry, all supported by the industry's best talent, technical capabilities, sustainability practices and disciplined capital allocation process.

We'll also increase our investor outreach, welcoming shareholders from Australia that will form an important part of our shareholder base as we look to establish and then grow our listing on the ASX. We have a long history and a shared heritage in Australia, and we will be strengthening our presence in this key mining jurisdiction. We're upon the close of this transaction, around 30% of our revenues will be derived.

We're looking forward to welcoming the experienced and talented team at Newcrest and providing our first integration update on the combined business for the first quarter of next year. And with that, I thank you for your time today and turn it over to the operator to open the line for questions.

Question-and-Answer Session


Operator
[Operator Instructions]. The first question today comes from the line of Lawson Winder with Bank of America.

Lawson Winder
You've all discussed the likelihood for the combined company to have lower production than a combined 8 million ounces annually. What is the urgency with which you intend to sell any noncore assets to reduce from that level and improve the overall combined portfolio?

Thomas Palmer
Thanks, Lawson, for the question. In terms of it, as Karyn talked about in terms of us taking time to work through the longer-term outlook with more like a midyear then we will run a Capital Markets Day to share that, what we'll look to do almost immediately after close is we have a reserve and resource, review team. We call it our 3R review. We have that team going in each of the 5 operations at Newcrest and establish the reserve and resources to the Newmont definition. And then with that reserve and resource review done, we're going to establish Newmont-based resource models. and then start to develop our mine plans based upon previous best demonstrated performance and then have those start to convert into business plans, and then we'll iterate and work those.

So we'll certainly work to reduce a 2024 budget for the combined portfolio, but we're going to take our time to really understand and work those mine plans to understand the potential of those operations, ensure we can deliver on those operations, but also understand projects across that portfolio and how they together. So that's going to be work will do diligently over the -- starting in early November for the first few months of next year.

In terms of the full portfolio of 17 managed operations, as I've described in my remarks, Lawson, we can very comfortably manage those operations within our global operating model. Listen, this is an intensive purposes is a bolt-on of 5 operations in the Newmont's operating model. 2 operations in the Australian business unit. When I was running the Australian business units some years ago, I had that number and a couple more from memory, 2 operations into North American business unit. Bernard Wessels is very capable to accommodate those 2 operations and manage them and then standing up our new business unit in Papa New Guinea.

And as I mentioned, one of the very best leaders I've been work at Newmont, Alwyn Pretorius, who retired to go work on his family farm in South Africa, is coming back to Newmont and stand up that business unit. So someone who's very experienced having run very successfully our business unit in Africa some years ago and then our Latin American business unit.

He understands developing world, he understands Newmont and he is really well placed to stand up that new PNG business. So we will capably run those 17 operations and his team will look at where the opportunities might be to optimize our portfolio. We have a commitment of $2 billion over the first 24 months. That will be a combination of project resequencing, come part of that business planning work that we'll do, but we'll also be looking to where the opportunity is to rationalize our portfolio.

And we'll be looking at those operations that are Tier 2, and we have a number of Tier 2 operations in our portfolio. Several has a potential to grow to Tier 1, but we have a number that include in Tier 2 and work through a very structured process to think about how we might rationalize the portfolio. But we are very comfortable also to be able to run 17 operations in our business.

Lawson Winder
And if I could follow up just one final question on your Full Potential comments in your prepared remarks and synergies. Can you comment on which assets might get the greatest attention for that program post closing on the NCM side? And put another way, is there a Peñasquito in the NCM portfolio that could materially exceed expectations included in the initial synergy guidance?

Thomas Palmer
Thanks, Lawson $500 million, $200 million is attributable to our Full Potential work. There are 2 Peñasquitos in the Newcrest portfolio, Lihir and Cadia. That's where we're focusing our time and attention of the $200 million we see the order of $90 million coming out of Lihir as we think about the opportunities to improve the work we do around the mine, the basics of mining from and blast and maintenance asset management work. So we're presenting the best ore consistently the in that processing plant. We'll have people on the ground next month to start really getting in and understanding those opportunities that we saw during due diligence.

I think we certainly plan to tell a story out of Lihir very similar to the story we've told out at Peñasquito. And then Cadia, the other very large Tier 1 operation in the Newcrest portfolio. We see opportunities in the processing plant. Big block cave mine, roughly 35 million tonnes a year coming out of that underground mine. The opportunities we see are to work the bottlenecks in the processing plant, the availability, the reliability, getting consistent throughput through the crushing and grinding circuit so that we've got consistent to the service and then improve both throughput and recovery.

Again, very similar to where we've worked Peñasquito with a big mill, crushing and grinding circuit with multiple plantation service. So Peñasquito story and the Boddington story in terms of work in the mill is where we see the analogy or the analog to Cadia and then working on mine at Cadia is very similar to the work that Rob and the team led at Peñasquito to deliver significant improvement out of that mine to present a very hungry mill at Peñasquito.

Daniel Morgan
That's probably a good segue, Tom, into my next question, which is the market can sometimes get fixated on short-term issues and forget that the gold is still there. So if the market does do that in the share price underperforms as it has year-to-date, is it an opportune time at some point soon to look to a buyback to maybe communicate to the market that there is long-term value in the share price and the market may not be pricing in?

Thomas Palmer
Thanks, Daniel. That's certainly say for anyone looking at Newmont's stock today, there's some tremendous buying out there in terms of the transaction we're about to close and the portfolio that we'll be in less than 2 weeks' time. Daniel, the process we'll work through. We'll diligently work through our business planning for what I was mentioning in the answer to the previous question, we've got 5 new assets to develop Newmont base mine plans to and work through a process of determining our 2024 budget and continuing in parallel work on the longer-term plans.

That will then inform our capital allocation process, which for us is ensuring we're maintaining a strong balance sheet, ensuring that we're directing appropriate levels of cash towards reinvestment back in the business to extend life and the growth and ensure we've got returns available to our shareholders. Our capital allocation strategy as returns first and foremost been through our dividend framework. So we'll work through our business planning process, particularly for 2024 year and look to how we calibrate our dividend framework when you think about assumptions about gold price, the cash flow we generated and some of the other macroeconomic events that will be impacting our business in our world at that time.

That will be the primary debate and discussion we'll have. But as we have that debate and we present those numbers to our Board and we look at the cash we're generating, we look at our share price, it is an area that we will continue to debate as a second order capital allocation element returns to shareholders and whether there would be some benefit in terms of how we're seeing the business and whether there will be any benefit in seeking permission from the Board to establish a buyback program. So it'll be part of the debate. But our first order returns to our shareholders is through the dividend framework.

Operator
Our next question comes from the line of Tanya Jakusconek with Scotiabank.

Tanya Jakusconek
Just have a couple that I just need some clarity on. Tom, can we just go back to the Newcrest merger that is pending. Can we just talk about Newcrest's reserves and resources? When you report your guidance in February of 2024 for the year and your reserves and resources, will you be adjusting those reserves and resources based on your inputs just like you did with Goldcorp when you took over, you've made adjustments from the reserve to the resource category? And if so, can you review with us some of the mines that we may see some shift. That's my first question.

Thomas Palmer
Thanks, Tanya. Yes, you can expect something very similar to what took place when we acquired Goldcorp. So we'll have a team -- a technical team on the ground across those 5 operations through November and December assessing the reserves and resource at each of those operations and assessing those against our Newmont definition. So we obviously report under SEC rules and Newcrest report under So there will be some differences in terms of what is classified as a reserve and resource and then we also have a very high standard at Newmont, right? A Newmont reserve is a higher standard in the industry. So you will see some back and forth.

The various announcements we've made since we announced the binding agreement, you'll see us talk about a couple of instances about reserves and resources, and you'll see us report them separately for the 2 companies because there are 2 different definitions for those. So we are working towards with our February time frame to update reserves and resources for the combined portfolio.

And in terms of any sort of signaling, we haven't -- and I think it's important that everybody is we had access to a data room for 4 weeks back in April and May to assess and to submit a binding offer and to determine our synergy values and to make some judgments about portfolio optimization. Since that time, both companies are required to run as independent companies. And so we have had an integration team working on planning for integration, but we have not had any access to any additional Newcrest information since that time.

We get the keys to the car on Monday, the 6th of November. That's the first time we get access to reserves and resources, mine plans and the can start that work. So it's in front of us, Tanya, in a couple of weeks' time.

Tanya Jakusconek
Okay. So there isn't anything that you can think of, for example, the Lihir where some of those reserves, I think, is about 3 million ounces or thereabouts in the reserve category that need the additional layback from the, I think, the dam wall to be included, whether something like that could shift from reserves to resources given Newmont's stricter definition. Have you -- I'm just giving that as an example. I'm just wondering if there's anything between the 2 accountings, the 2 IFRS and U.S. GAAP on the reserves just is glaring to you at this point.

Thomas Palmer
Nothing is that level of granularity, Tanya, but our expectation is similar to the Goldcorp experience. You will see -- without going into specifics, you will Newcrest reported reserves in some instances move into Newmont reported resources. You've also seen -- I think many people fully understand as we move from interest reporting to accounting to U.S. GAAP accounting, our definitions for the stockpiles and for sustaining capital and other things can change. Our coproduct, byproduct accounting will which change. There'll be some moving parts around all of that as well. But we don't have that granularity yet, Tanya.

Tanya Jakusconek
Okay. So -- and then just on the long-term guidance, I think I heard that, that will be provided after the Board strategy meetings in June. So should we be thinking midyear for a 5-year guidance outlook?

Thomas Palmer
That's what we're planning to do, Tanya. And what do we want to get through that good working session with our Board and then really look to set up the Capital Markets Day where we can come together and work through that longer-term view, certainly the 5-year, and certainly with the portfolio on where will be looking to show the 5- to 10-year view of the strength of this portfolio. But we certainly want to work with those mine plans over the first few months of next year in order to really have a wrap-up story to share with the market.

Tanya Jakusconek
Okay. And then just maybe on any more severance and/or restructuring costs that we are going to be incurring in Q4? Or have these all been taken in Q3?

Thomas Palmer
The severance costs in Q3 largely unrelated to this transaction that was associated with the reset work happening down at Yanacocha as we're ramping down there, and we've got folks taking some voluntary redundancies. So we will start to see the transaction-related severances flow in the fourth quarter, and then they'll flow into the third quarter of next year where you'll see that probably the larger numbers will be in the first quarter of next year than the fourth quarter of this year.

Tanya Jakusconek
Okay. So more cost in Q4 and Q1 to come. And then my last question is I just kind of would like...

Thomas Palmer
[indiscernible]

Tanya Jakusconek
Yes. Okay. With the transaction, yes. And then just my last question is just your view on sort of all of these index rebalancing from now until year-end. Could you give us some overall qualitative information in terms of what quantitative do you have in terms of how you see all of these index rebalancing occurring or what your view is on year-end? Too hard with all this movement in the share prices as we look at the stock, yes.

Thomas Palmer
Thanks, Tanya. Lots of moving parts happening at the moment, certainly with the in that process at the index rebalancing as Newcrest coming off the ASX and our secondary listing coming on the ASX and all of that work happening as well as the volatility in terms of gold price movements. And so there's lots of moving parts affecting stock performance at the moment. When we look at the -- we look at our modeling getting thrown out the other side of the rebalancing between the -- our head stock in the New York Stock Exchange and the secondary listing in the ASX, it's likely to be a month or 2 for that to settle out.

So we anticipate -- and certainly as we've had conversations with shareholders in Australia and describing what we're going to anticipate happening quite a bit of volatility in liquidity before things start to settle out in terms of New York Stock Exchange and ASX. We think there'll be some movement of potentially up to AUD 10 billion that could flow the other. We also anticipate that we'll have something in the order of AUD 10 billion to AUD 15 billion market cap sitting on the ASX, representing 20% to 30% of our market cap.

That where the starting point will lean into and then look that secondary listing, alongside our primary listing. So we get some modeling that sort of shows some scenarios as to where we may land between New York Stock Exchange and ASX. and that -- and we fully anticipate that it will be volatile and liquid for a month or a couple of months before it settles down and get a line of sight on the Board.

Tanya Jakusconek
Okay. So what I take on that is some outflows from now until year-end with all of this rebalancing and then settling in and then obviously on a positive side with the Australian listing.

Thomas Palmer
The positive side of the Australian listing with a very savvy mining investment community and some very sticky funds with the big super funds there and lots of interest as we then go to that investment community. And then you'll also see -- I think you'll see positive trends is from a passive standpoint with our larger market cap as things settle out, I think you're going to see some of that flow as well. So noisy, but there's some very good signs as to what this portfolio is going to be able to attract.

Operator
Our next question comes from Josh Wolfson with RBC.

Joshua Wolfson
I understand there's a lot of moving parts here. But is it possible to provide some goalposts or some indication of what the cost structure looks like even just for the Newmont portfolio going forward? When we take a look at the numbers, fourth quarter, based on guidance, looks to be an annualized rate of 6 million ounces, which is, let's call it, average for the company, and the implied AISC is closer to about $1,350, which would be quite a bit higher than where the company was discussing costs at least for 2024 under the old structure. So I understand a lot of moving parts, but just anything on inflation or costs for some the Newmont portfolio going forward.

Thomas Palmer
Thanks, Josh. I mean it's a tricky one this year because of some of the events we've managed, which are really impacting ounce production. There has been slowing impact on cost. But when we look through that to our direct cost base, it's very much in line with what we're expecting for this year. And then as we look into next year, that direct cost base is looking pretty steady. So it's sort of staying at the levels that we've seen and the sort of stabilizing out of inflation very much as we look into next year is doing a planning work, at least the direct cost base looks very similar this year.

So for us, it will be working through the ounce profile for this combined portfolio. But thinking about -- we'll think about our portfolio in a couple of different chunks as we we're doing our plan. What will be the Tier 1 operations and the emerging Tier 1 operations that we manage and how we think about those. We'll be thinking about 3 non-managed joint ventures that will have in our portfolio, Nevada Gold Mines, Pueblo Viejo And then we'll be thinking about those Tier 2 assets and how we manage those Tier 2 assets and those that would be more likely to be part of that portfolio optimization.

So we think about what's our cost base for the Tier 1 operations, emerging Tier 1 portfolio that we manage. We will be challenging our non-managed joint ventures around their cost base. And then we're looking at how we manage our Tier 2 assets going forward. So we'll be having those debates in and build our business plans. But the high-level answer to your question is our direct cost base is very consistent with what we see this year, and we'll be working to ensure that we've got some of those that we're throwing out the other side of some of those challenges that we've had with bush fires and flooding, a strike and manufacturing with So we'll certainly be looking at the plan for '24 being pretty consistent in that profile for those operations a pretty consistent cost base.

Joshua Wolfson
Got it. Okay. And then another question, I'm not sure if you can provide any details or review of this. But following the Newcrest recent operating update, I'm just wondering the performance of these assets, has that affected your views on maybe some of the complexity or the strategy for integrating this portfolio or maybe how you're going to manage that process?

Thomas Palmer
No, Josh, nothing's changed from our due diligence. We are crystal clear on how we will manage those operations and how we will integrate them into our operating model, and we're well advanced in -- well advanced in planning in terms of what we'll do on day 1, week 1, month 1 and the first 100 days. So there's nothing about anything happened in the sort of the more recent times that changes our long-term view on those assets and how we integrate.

Operator
Our final question today comes from Anita Soni with CIBC World Markets.

Anita Soni
So the first one I think was -- is related to capital allocation. When you deliver on the $2 billion in portfolio optimization, can you give us an idea whether or not that could be used to support a dividend, if needed? Or do you think you have uses for that capital in terms of reinvesting in your portfolio?

Thomas Palmer
Thanks, Anita. So the portfolio optimization will come from 2 categories. One will be resequencing the projects of the combined portfolio. And so the -- you match the 2 portfolios together, that would have been the cash going towards development projects and reinvesting, that will change, and that will then lead to free cash flow that we're generating be informing the decisions we make around calibrating our dividend framework. So that portfolio optimization will actually lead to generating free cash flow for support of the dividend.

Then the portfolio optimization with the proceeds that we received from divestments of assets. First and foremost, we would bring that on to our balance sheet -- to strengthen our balance sheet and then make judgments about how we use the cash on our balance sheet. And certainly, as we did with the Goldcorp, we look back to our Goldcorp experience and we look at where our -- to the answer of the earlier question, we look at where our share price is trading, we have a robust view of where we value.

And if we thought that there was some opportunity to buy back some shares, so that would be a debate we would have with our Board. But the first and foremost, that cash will come on to our balance sheet and be used to strengthen and bolster the balance sheet of the combined organization.

Anita Soni
Okay. So just on that note, can you just go versus February 2024, you will provide guidance for the combined portfolio for 2024 -- sorry, for 2024 only. And then June, you will provide the combined portfolio -- or midyear, you'll provide a 5-year for the combined portfolio. Is that correct?

Thomas Palmer
That's correct, Anita.