Newmont Corporation (NEM) Q4 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the Goldcorp Incorporated 2012 fourth quarter and year-end conference call for Friday, February 15, 2013. Please be advised this call is being recorded. I would now like to turn the meeting over to Mr. Jeff Wilhoit, Vice President, Investor Relations at Goldcorp. Please go ahead, Mr. Wilhoit.

Thank you, and welcome everyone to the Goldcorp fourth quarter and year-end earnings conference call. Among the senior management in the room with me today are Chuck Jeannes, President and Chief Executive Officer, Lindsay Hall, Chief Financial Officer, and George Burns, Chief Operating Officer. For those of you participating on the webcast, we have included a number of slides to support this morning's discussion. These slides are available on our website at www.goldcorp.com. As a reminder, we will be discussing forward-looking information that involves unique risks concerning the business, operations, and financial performance and condition of Goldcorp. Forward-looking statements include, but are not limited to, statements with respect to future metal prices, the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, and costs and timing of the development of new deposits. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements. With that, I will now turn the call over to Chuck Jeannes, CEO of Goldcorp.

Thanks Jeff, and thanks everyone for joining us today. When we last spoke about five weeks ago in conjunction with the issuance of our guidance and fourth quarter production, I mentioned the strong finish we had in 2012 and indeed the fourth quarter saw a new record for gold production at 700,400 ounces. This led to quarterly revenues of $1.4 billion and operating cash flow before working capital of $721 million. This was a result strong effort from most of the mines and particularly both Red Lake and Penasquito. Gold grades at Red Lake drove a successful quarter and established a solid foundation for 2013. At Penasquito, all phases of the operation continued to improve and our confidence in the near-term water availability is increasing. We also believe that the water study underway will produce a solution that addresses our long-term needs for the Penasquito district. With the Pueblo Viejo joint venture achieving commercial production in January, the three linchpins of our 2013 performance are all headed in the right direction. Due to the board's confidence in the future of our business, we elected to increase the dividend for the fourth time in three years to $0.60 per share. So turning to the 2012 highlights. Production for the year was 2.4 million ounces at all-in sustaining cash cost of $874 an ounce. As I mentioned in January, all-in sustaining cash cost is a new metric we are adopting this year as are many of our peers in the industry. We believe this provides a more complete picture of the actual cost of producing an ounce of gold by including cash costs, sustaining thing capital corporate G&A, exploration expense and reclamation costs. Going forward, we will provide regular quarterly reporting on this metric in addition to our traditional reporting on cash…

The key takeaways from the fourth quarter from an operational perspective are that Red Lake and Penasquito finished strong and the work completed last year provides a solid foundation for the future. In addition, Pueblo Viejo is on track to meet our expectations in 2013. These developments, when coupled with the stable overall mine portfolio underscore our confidence in executing successfully to our plan. Working with our mining project teams, I am excited by the many opportunities we have to add value by focusing on innovation, automation, efficiency and productivity improvement. Our operating for excellence culture will reduce cost by harnessing our highly engaged workforce to identify and prioritize opportunities, plan the required changes and then execute and sustain the improvement. I am passionate about creating value from continuous improvement throughout my career and the increased focus of my operating team going forward has me confident and excited. Gold production in the fourth quarter reached a record 700,400 ounces, an increase of 18% over the third quarter driven by strength at most of our mines including Red Lake and Penasquito, Los Filos and Porcupine. At Porcupine, production was 74,100 ounces in the fourth quarter for a total of 262,800 ounces for the year. The increase was driven by higher grades over the prior quarter. Los Filos production for the quarter was 92,800 ounces which is led by a record year of production of 340,400 ounces. This resulted from higher ore process. Chuck has mentioned our success in growing gold reserves again this year and I will include some of the relevant information around continued exploration success as I review the portfolio in more detail. At Red Lake, fourth quarter production totaled 168,300 ounces and 507,700 ounces for the year. Following the completion of de-stressing the 45 level in the third…

Thanks George. Building on the third quarter momentum, the fourth quarter closed with strong production of some 700,000 ounces of gold. We reported revenues of $1.4 billion during the quarter, resulting in full year 2012 revenues of over $5.4 billion of which 87% results form selling precious metals, 2.3 million ounces of gold and 31 million ounces of silver. Operating cash flow before working capital changes increased to $721 million in the fourth quarter, resulting in full year operating cash flows of some $2.4 billion. $719 million was invested in our operations and capital projects this quarter, resulting in a full year total investment in our operating and capital project of $2.6 billion, right in line with the guidance we gave at the beginning of 2012. Our average realized price per ounce of gold sold in the fourth quarter was $1,692. While our all-in sustaining cash cost were $910 per gold ounce, resulting in all-in sustaining gross margin of 46%. On a full year basis, our average realized price per ounce of gold sold was $1,672. All-in sustaining cash cost were $874 resulting in all-in sustaining gross margin of 48%. By-product cash cost increased to $360 per ounce in Q4 from $220 per ounce in Q3, primarily due to lower by-product sales credits at Alumbrera as a result of a lower sales volume in Q4. As you will recall, during Q3, Alumbrera sold most of its Q2 production in Q3. On a full year basis, by-product cash cost increased to $300 per ounce compared to $223 per ounce in 2011, primarily due to increases in production cost experienced industry-wide. All-in, sustaining cash cost for the fourth quarter and full year 2012 were $910 and $874 per gold ounce, respectively, and include by-product cash cost sustaining capital, corporate administrative expenses, reclamation…

(Operator Instructions) First question is from John Bridges from JPMorgan. Please go ahead.

Thanks, Chuck and everybody. Well, congratulations on the results there. It is quite difficult to find things to ask questions until last night. Everything look nice. But one thing was intriguing was the use of $1,350 gold price in your reserve calculation. I wonder if Charlie was holding something back there?

Sorry, I didn’t understand.

The gold prices that you used to calculate your results, $1,350? some of the other guys are using the maximum, the $1,500.

Well, this is consistent with the way we are trying to run the business and being disciplined and not trying to maximize the last ounce we can, either in our reserve calculation or production but to go after calling ounces. So. I don’t think it's any differently if you look at the way we compared in terms of our long-term price assumptions in the past and actual spot prices. We are in right around the same range as have been. So for us, there hasn’t been any change there, John.

Okay, great, and then following on from that and topical for today. There is a little bearish commentary, Chuck around in the market. Just wondered if you could talk about contingency plans if gold were to fall off sharply. I know you guys have an ongoing contingency plan in having low-cost operations but what should we expect from the industry as low prices continue?

Well, I can only speak for us. I could certainly tell you that we sensitize everything we do looking at what would be the impact of lower sustained prices. I think that’s the key. I said earlier this year a couple times that it wouldn’t surprise me to see some volatility in the gold price and to see some weakness in fact because I believe there is some ways some artificial exuberance about international economic activity right now that is not likely to last throughout the course of the year. For example, we look at our reserves down to $1,200 and you would see about 6% decrease only in reserves at $1,000. The go down around 15%. So certainly not something that’s significant. I think overall, as I said, I don’t expect this current weakness to continue. I am still very much a believer in the long term trend in the gold price and it seems to me that all of the macroeconomic factors that have supported that continue very much in place, if not even more so than they have been in the past in terms of the debt levels for countries around the world, the likelihood of inflation down the road or at a minimum of the base in currency. So, yes, I can't say what other folks would do but we are very comfortable that the business will run quite well even at lower prices although we don’t expect it to be sustained.

Okay, great. Well done, guys. Congratulations.

Thanks, John

Thank you. The next question is from Jorge Beristain from Deutsche Bank. Please go ahead.

Hi, guys. I guess my question is for Chuck. We have seen some notable announcements in the gold space and mining space in general about the potential for slimming down of portfolios and in that environment would we be right to consider Goldcorp a potential buyer of assets if in fact there is more willing sellers out there?

While we are always on the lookout for opportunities as you know have a pretty active corporate development department and I think we've made, as I said during my prepared remarks, some pretty solid acquisitions that are now in the process of adding real value to us in terms of Cerro Negro and Eleonore and Cochenour, and so yeah we'll keep our eyes on things. I can say it's a general matter. The things that others tend to want to dispose on would probably not be realized on our list. There are things that we would like to buy, but we will look at opportunities that are presented.

Then just as a follow up to that, could you talk a little bit about the quality if you have noted that from your development department of the bid/ask spread out there it would seem that the market is not attributing a lot of value to companies that are now saying they might be selling assets and I am just trying to understand if you are seeing a real widening of the bid/ask spread there or if assets you said are maybe [what the is at high] quality to generate interest.

Yes. It's hard for me to say, because I don't know what people are seeing in terms of the various bids for their assets. That is the process that to the extent we are involved, which is very limited, we are only seeing one side of that discussion, so you would have to ask that posters selling the asset.

Okay. Fair enough thanks.

Thank you. The question is from Patrick Chidley from HSBC Securities. Please go ahead.

Hi, everybody. Just a quick question on your developments down in Argentina, I was wondering what's impact you are having or seeing from inflation in Argentina there and why you see Argentinean inflation right now?

Hi, Patrick, as we said in January, we were disappointed to have a pretty significant increase in capital cost at Cerro Negro and the large majority of that increase came from what we call Argentina factors or local factors that was the inflation rate and which was running in the range of 25% and the other side of it was the difficulty of importing equipment and materials into the country and the cost and times delay that that added to us, but the good news is that we've managed those issues and our numbers that we provided you assume continued inflation without any meaningful reduction in the exchange rate or adjustment in the exchange rate, so eventually there has got to be some corresponding devaluation of the peso and we haven't seen that yet. And otherwise the guys are doing a very good job of managing and advancing the project and things are going quite well, but it is a challenging environment.

Thanks. Any impact on Alumbrera?

Yes, but it's the inflation rate and so you've seen some movement in the cost at Alumbrera. I do not actually have breakdown as to the difference between the inflationary factor in fact it is mind just getting deeper and that you got to move rock further than you did before, but as you can see Alumbrera continues to be a very strong cash going asset and so it as well has managed those impacts.

Okay. Thanks.

Thank you. The next question is from Alec Kodatsky from CIBC. Please go ahead.

Thanks. Good afternoon. Maybe just to fill in a few holes, a few questions, but just going back to I think good afternoon just weeks, pupils a few questions but am just going back to Cerro Negro you noted that you are still looking for government approval in the power line towards the end of March. Just sort of curious sort of the of genesis of that approval and does it require approval by March or is there a longer timeline behind that before you actually need the power?

This is George. Yes. We've got a few months to get the power line started to be consistent with our start up at the end of the year. we are comfortable with the permit process, but that is going to be changed.

I guess probably another question for George just maybe an update in terms of how the refurbishment of autoclaves are going at PV? I know its only been a month since we last talked but any insight there is helpful.

Sure. The first autoclave, the retrofits are working well and that gives us confidence that our guidance and our plans for the years is intact. The second autoclave, the retrofits have been completed and that line will be starting up within a week. We are on track to get the last two autoclaves completed in the first half of the year. So things are looking well.

Then probably a question for Lindsay. It seems the number of different definitions for expenditures and just wanted to clarify where you are placing capitalized stripping and development? Would that be in a sustaining bucket? Or is that in the project capital and other bucket?

In sustaining, Alec.

Okay. I would hope so but just wanted to check.

It is like just following on that, Alec. I mean that’s one of our real reasons for adopting the all-in cost measure, is that stripping and development work at our mines is a real cash outlay every year and it should be counted, and it should be paid just as much attention to in our internal work and externally as the operating costs are. So, yes, they are definitely included.

Okay, no, its just a clarification. I do appreciate that. Thanks.

That's all?

Yes, I am all done. Thanks.

Thank you. We have a question from Steve Butler from Canaccord Genuity. Please go ahead.

Hello, good afternoon, guys. It was a wonderful Q4 to see 27 odd grams per ton, Chuck. That annualized at ridiculous 670,000 ounces a year but question for you guys as to whether Q4 was a particularly obviously very heavy high-grade zone quarter and perhaps it was on a run rate overly influential in the quarter. Would that be a reasonable assumption?

Perhaps I would let you talk to George in a minute but as you know, Red Lake has variability based on grade and at times you are in a low-grade area of the high-grade zone or lower grade. Other times you get into some really nice stopes. So that was the case in the fourth quarter which, as George said, continues to show what an outstanding deposit it is. But I will pass it to him.

Hi, Steve. The first half of the year, one of the impact we have was the destress slot timing and our ability to get into some of these high grade stopes. So by getting all that work completed in the third quarter really opened up the mine in the high-grade zone and that flushed out some of the production in higher grade fourth quarter. So, yes, it was a really strong quarter. As I said, Red Lake is an exceptional mine and we expect to see quarters in the future like that again. We are comparable with our guidance for the year.

All right, okay. That’s good, that’s fine. Then, Chuck on your opening remarks somewhat, you talked a bit about your confidence towards creating and finding long-term solutions to the water and tailings water program management, if you will. Maybe what gives you that confidence? I am assuming your studies are not, perhaps, even nearing completion, you talked about it being delivered by the first half and so maybe if you could give us a bit more color there, if you don’t mind, unless we have to wait for the study?

Well, you do. The great thing about being CEO is I get to make broad statements about how things are going well and then George gets to explain them. So I am going to pass that over.

Yes, Steve. I mean one of the confidence issues is that we have been expanding the well field on the property we control currently and as we have completed those wells and understand the water that will be delivered are confident and our guidance this year has increased. So I am feeling a lot better about things now than I was three months ago just due to that success. In terms of a longer-term plan, both the studies advancing, we are on track, in terms of timing and we will work on our way through finishing the study and drawing our conclusions. So for that you are going to have to stay tuned.

Okay, thanks guys.

Thanks, Steve.

Thank you. We have no further questions. I would like to turn the meeting back over to Mr. Jeff.

Okay, thanks everyone. We certainly appreciate that we just spoke to you for a little while ago about these issues. So what thanks for the questions we did have and thanks for joining us today. As you heard from all of us, we are quite excited about the year ahead and we look forward to updating you on our progress on our first quarter conference call. So have a good weekend. Thanks.

Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.