Newmont Corporation (NEM) Q1 2013 Earnings Report, Transcript and Summary

Good morning and welcome to the Newmont Mining First Quarter 2013 Earnings Conference Call. (Operator Instructions) I’d now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Newmont’s First Quarter 2013 Earnings Conference Call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer and other members of our executive leadership team who will be available to answer questions at the end of the call. Turning to Slide 2, as always, I’d like to refer you to our cautionary statement as we will be discussing forward-looking information which is subject to a number of risks as further described in our SEC filings which can be found on our website at newmont.com. And now I’ll turn the call over to Gary Goldberg.

Thanks, John, and good morning, everyone. I’d like to start with safety, our most important value. For the second straight quarter Newmont kept its injury frequency rate lower than 0.5 injuries per 200,000 hours worked. This constitutes sector-leading performance. There’s some notable successes driving this outcome. Our teams at Phoenix and Waihi set new records at both sites by exceeding 200 days working without an injury and our team in Africa is leading the pack with our lowest reportable injury rate. I’ll take this opportunity to acknowledge and thank our employees and contractors for these results as we continue on our journey toward zero harm. Turning to Slide 4, our primary goal is to build a more resilient business. This is more important than ever given the increasing volatility in the gold sector. To reach this goal we will continue to focus on profitable production, sustainable cost improvements, better mining fundamentals and building only the best projects. This allows us to maintain our strong balance sheet, our gold price linked dividend and ultimately strong returns to shareholders. Moving to Slide 5, lower production impacted our financial results for the first quarter of the year. We are working to turn that performance around on two fronts. First, continuing our sustainable cost and efficiency improvements, and second, building the foundation for significant free cash flow improvements in 2014 and 2015 with the start up of a team in Ghana and the transition to higher grade ore at Batu Hijau in Indonesia. Last week we announced that our Board approved a second quarter gold price linked dividend of $0.35 per share. Our dividend is stable compared with the first quarter of 2012 and represents a payout of just under half of our adjusted net income. On Slide 6, you’ll see that lower production…

(Operator Instructions) First question comes from Jorge Beristain, Deutsche Bank. Your line is open. Jorge Beristain – Deutsche Bank: Good morning, Gary. Jorge Beristain with Deutsche Bank. My question is regarding capital and if you could just update us on the large capital projects particularly Conga in terms of what would be required to finish up that project getting it to the Water First stage and if you’re thinking on that project has changed at all, given the recent down dip we’ve seen in gold prices?

No, thanks, Jorge. The plan for this year was to spend a consolidated $300 million, as we look to both build the two water reservoirs that we had planned to build this year, but also wind up engineering and certain equipment receipts and make sure we could get their equipment that we’d already purchased put into a good position. We continue to look at how we get social acceptance for that project and the work we’re doing on the ground there, and also look at the economics of the project. Clearly we keep an eye on where short term prices have gone, but that’s one of the other criteria, where are prices going and where are economics for the projects going for the longer term to make that decision on whether we proceed, beyond just the Water First we’re working on now. Jorge Beristain – Deutsche Bank: And I guess my question is, what would be the next natural junction in terms of dates that you could make the decision to proceed fully with the project or not? I’m assuming that would be out by 2Q 2014, but how are you handling the ordering of long lead equipment that would be tied to a potential go or no go decision? And do you have optionality on any of that equipment that is being ordered to not go through with it, if you decide by next year not to proceed with the project?

Yeah. We basically, once we made the decision to move to the Water First, stopped any further acquisition of equipment, but we had a good deal of the major equipment, the mills for instance, motors, and even the mining equipment was on order. We’ve placed some of that equipment, that we could sell, and we’re looking at a total of between $200 million and $300 million in mining equipment that we’re, we’ve been able to place some of that already and continue to place that in the market place. So there’s no more long lead time items that we have out, and really the mills are the long lead time items and those we’ve got purchased and held in inventory.

Okay. Next question comes from Michael Dudas. Your line is open. Michael Dudas – Sterne Agee: Of Sterne, Agee. Good morning, everybody.

Good morning, Michael. Michael Dudas – Sterne Agee: Gary, following up on some capital thoughts. The $100 million reduction you announced, is this just what you found over the last three months? Is, I’m sure it’s an ongoing process, but is it going to be gold and copper price dependent, or do we anticipate more squeezing of that budge as we move through 2013? And then as we look out 2014 and 2015, that 60, 40 mix between sustainable and growth, where are we going to be in the mix looking at 2014, assuming gold prices are still relatively under pressure?

Okay. Thanks, Michael. The $100 million really comes as we look at spend we had the Lone Tree mill that we’re looking to restart and some work on the underground in Vista Vane in Nevada and we’ve backed off on those right now as we’ve looked at the economics in this price environment. So those were tied to that. As we look beyond that, we’re taking through this full potential process I talked about a very hard look at all of our sustaining capital spend where we can improve, where we might be able to defer. Keep in mind we’re looking to make sure these are sustainable cost reduction so it’s not just cut today and then put ourselves in problems tomorrow so we’re making sure as we do these evaluations we’re doing it for the longer term. So in terms of the split between development capital and sustaining capital we I’m going to ask Randy Engel to give you an overview on what that looks like.

Hey, Mike. Michael Dudas – Sterne Agee: Hey, Randy.

So we’ve got really three main areas where we expect capital to be down between 2013 and 2014. Really we expect roughly on attributable basis about $0.5 billion down in between this year and next year, broken fairly evenly between Africa, South America and our North American operations primarily in Nevada. Michael Dudas – Sterne Agee: Okay. My follow-up is looking at Akyem, what are the guide posts or milestones to look at to make that a successful start-up and how confident as we look towards the end of the year that that would be such?

I think from my standpoint completing the construction they’re finishing up the reticulation, getting the power lines in which is a major milestone. I visited there a couple of months ago and all the different elements are coming together while the mine we’ve actually got the material stock pile so we’re in a position. We’ve got the ore ready to go. This is completing the construction of the mill and then doing all – really it’s electrical hookups is the big part. This mill is very similar to the mill we have at Ahafo so in terms of startup and debugging and things like that we don’t expect any major issues. We do plan for a normal sort of ramp up but since it’s one that’s very similar with what we’ve done in the past we’re comfortable with that and we’re still looking to see first production by the end of this year. Michael Dudas – Sterne Agee: Terrific. My follow-up question is how do you foresee or how is the progress and when do we could anticipate announcement of a new CFO?

We continue to go through the process of interviews. As I mentioned earlier we’ve got Tom Mahoney who’s taken on or will be taking on the acting CFO role from May 2 taking over from Russell and he’ll provide good leadership for the team in the interim. Michael Dudas – Sterne Agee: Okay. Thank you, Gary.

Thanks.

Next question David Haughton, BMO. Your line is open. David Haughton – BMO: Good morning and thank you for the update. You had mentioned an approval for Merian. Can you just let us know where you’re at with that project, what you need to move forward on it and what the broad economics might be?

Sure, David. Merian continues – we continue to work with the government of Suriname on getting a mineral agreement that would allow us to potentially develop the project. We’ve been in discussions with the government and had reached an agreement and it’s now in front of the Parliament in going through a process of review there before it gets approval. I can’t speculate on how long that would take. I think it could take anywhere from weeks to months but that’s a key first step for us getting the approval on the ground there with the government. We’ve done some really good work on the ground with the local communities. I’m pleased with how that’s gone. I actually visited there earlier this year to get a flavor of how that’s going. But once we get that approval then it would need to go in front of our Board for approval if we deem the economics are such to carry forward. I think the economics are fairly resilient. It is a new country for us but there are others that have operated there and operated very successfully so that that gives me some confidence that that’s something we could do there as well. So in terms of timing it’s really dependent first on getting that agreement with the government. That’s really the main milestone here that I’m looking at to begin with before we take things forward the next step. David Haughton – BMO: All right. Just stepping back a little bit. We have had some concern clearly in the marketplace about the free cash flow positions of most of the larger gold companies. We’ve a number of your competing companies talking about savings in the cost department. You’ve already discussed your savings for this year. Randy discussed potential for further savings next year. Have you been running the numbers internally as to what you could be thinking about for a saving on the exploration spend, deferral of projects [and need] [ph] mines would come in to question in the lower gold price environment?

Yes, and in fact we already started that process last year in terms of what I call tightening the belt on our exploration and advanced project spend so the $130 million in savings last year carries on into this year and then we tightened the belt further, not so much cutting out exploration because it’s still an important part for where we looked at ounces and economic and profitable ounces to our reserve and resource space but looking at where it may be more expensive to do exploration. So we’ve cut back in certain areas where for instance it takes helicopters to get out to the sites and we don’t have as much potential for near-term discovery so we’ve been trying to ratchet those areas back in particular. But clearly we look through in our normal planning process even before the downturn that occurred here within the last month. We continue to look at our business in a variety of different gold and copper price scenarios to make sure that we can work through the cycles. David Haughton – BMO: And has some of that responsibility also had been pushed down to the mine level where they are looking to make sure that they are doing the best they can on the cost front, given weaker metal price?

David, that’s exact, that’s where it has to happen, is at the front line. Exactly. David Haughton – BMO: Okay. Thank you, Gary.

Thanks.

Next question, Paretosh Misra, Morgan Stanley. Your line is open. Paretosh Misra – Morgan Stanley: Hi, guys. A question on your capital structure. Is there any debt to EBITDA level which you are going to target?

I’ll hand that over to Tom.

Good morning. You know we don’t have definitive targets, but we certainly track more towards investment grade metrics. You know, I think that if you read some of the analyst reports from the credit agencies, you’ll see some targets they establish. We may trend towards those as a marker, 2.5 is kind of what people would highlight as a target. So in general, it’s a guideline. Paretosh Misra – Morgan Stanley: Got it. And second, on Nevada. Can you talk a bit more about your expectation on mill throughput this year? What the trajectory is going to look like?

Yes. We’ve got typical mill maintenance that will occur in the second quarter at Carlin, so we expect that normal down dip that we get in the second quarter will occur the second quarter, so we expect stronger throughput in the second half there. At Twin Creeks where we had also the lower grade, we see that improving, but also in the second part of the year. So as much as I’d like to have things front-ended in terms of production, we have got a hole to dig out of there in the second half of the year, and that’s what Tom and the team are working on. Paretosh Misra – Morgan Stanley: Okay. And my last question on Long Canyon, was there any additional drilling done there in the first quarter? Thanks.

There has been some additional drilling, but we haven’t made any changes. We tend to look at the reserve resource picture at the end of the year. Paretosh Misra – Morgan Stanley: Got it. Thanks, guys.

Thanks.

Next question, Patrick Chidley, HSBC. Your line is open.

Hello, Patrick? Patrick Chidley – HSBC: Get on line into current maintenance. Can you give us an idea of how much that is in resources at the moment, and/or reserves? And what the key issues are driving you to do that, because my understanding was that’s quite a high grade deposit.

Yeah, it’s higher grade, Patrick. They’re referring to, we missed the first part, but I think you’re referring to Sabika and the underground there at Ahafua in Africa. Patrick Chidley – HSBC: Yup.

We had been going through a process of permitting and exploration drilling. We’ve installed basically a decline and done exploration work at depth, at this stage the grade is clearly higher than the open pit, but not high enough to warrant full development at this stage and replacement of the open pit tons that we have, so that’s why we’re putting the mine on care and maintenance at this stage, so grades are higher. I expect it’s going to be developed at some point in time, I just, it doesn’t, it’s not the right direction to go today given the open pit resources that we have available to feed the mill. Patrick Chidley – HSBC: All right. I just wanted to find out, how much of your reserves and resources are in that project, so what percentage or how many million ounces?

Okay, I’ll have to take a look at the numbers here.

Hey Patrick, its John. I can get back to you on that after the call. Patrick Chidley – HSBC: No problem. Okay. Thanks. And then the other questions, just quickly on Ghana again is the Ohafo mill any idea of CapEx and timing and what the impact would be for the expansion then?

Yeah. We’re still in the process of going through the pre-feasibility work on the Ohafo mill expansion and actually looking at potentially, not just the single sag and ball but two sag mills and a ball mill to take the capacity up because as we go deeper the ore hardness increases, so to maintain production you look at a bigger expansion. Today we’re looking at a capital cost in the range of about $500 million but we’re still going through that work. That project comes through for next stage review closer to the end of this year.

Once again, I think the point that I’d make on that Patrick too, is the mill would be a carbon copy of what we’ve got there already, so all the expansion it’s not like we’re out having to redesign and re-engineer something fit for purpose, it would be very similar to what we’ve got at Ohafo no and what we are in the process of completing at Akyem. Patrick Chidley – HSBC: Right. And in terms of rough timing, when that $500 million gets spent is that 14, 15 or what sort of timing would you envisage?

Yep, 14 and 15 would start up, I believe, in 2016. Patrick Chidley – HSBC: Thanks very much. Great. And just one point a quick question on the refinery Cambie, have you seen a step-up in demand for the products there, is it very significant?

I’m going to hand over to Tom on that one.

Yes. You know in our conversations with management about Cambie they suggested some very healthy physical market and they move a lot of coins and physical. So I think it’s probably just relates to the rest of the gold market, very strong on the physical side. Patrick Chidley – HSBC: Great. Okay. Thanks, Tom.

Thank you. (Operator Instructions) And our next question comes from Stephen Walker, RBC Capital Markets. Stephen Walker – RBC Capital Markets: Great. Thank you, operator. Gary, just to follow-up to David’s questions on Mirian. Could you give us a sense of what your huddle rate would be on an unleveraged basis for a project like Mirian ?

Yeah. As I look at that project today, we look at a minimum 12% as our hurdle rate. Stephen Walker – RBC Capital Markets: Okay. And spot price of gold or gold price assumptions? When you look at these projects, how do you – what do you feel comfortable with when you’re assessing the commodity price environment?

We look at a range and typically, and for this year, our planning price assumption has been $1,500, our reserves are at $1,400, but we would test it down, say, to $1,200 to make sure that the economics still look attractive. Stephen Walker – RBC Capital Markets: Great. Thank you for that, Gary. That’s quite helpful. And just if you could as well, on the Phoenix project, obviously you’re generating copper production that’s applied to the – as byproduct credits to the Nevada CAS. Maybe just talk a little bit why that’s not broken out as a separate mining project. And then secondly, with the Copper Leach project that’s going to be coming on, will you also apply the copper revenue from the Copper Leach project to the CAS as byproduct credits?

I’m happy to start out with my mining engineer’s explanation and then hand over to get the proper financial explanation. But it’s basically the way we account for all of Nevada, that we’re required to report the copper revenues as a byproduct and the same would apply for the Phoenix Copper Leach that it would work through. But I’m going to ask Russ to add on top of that from a financial standpoint.

Yeah. Hey, Steve. Gary’s pretty close for a mining engineer, actually, at the end of the day. If you look at Nevada, because of the integrated nature of Nevada, the resources and the people, the processing facilities, we look at Nevada as one combined district versus Australia or a number of largely independent operations. So when we look at the byproduct, co-product revenue split, we look at it for the entire Nevada region. And because the level of copper is diminimus, we offset that. So you’ll see, I think, it’s 20,000 pounds of copper, not a huge number, coming out of the Phoenix Copper Leach, and that will get reflected as a reduction, again, CAS on our financial statements and we’ll provide the disclosure around quantities like we normally do. And you won’t see that showing up in the revenue line. Stephen Walker – RBC Capital Markets: Okay. That’s great. Thank you very much for that, Russell, and thank you, Gary.

You bet.

Next question, Anita Soni, Credit Suisse. Your line is open. Anita Soni – Credit Suisse: Morning, gentlemen. First question, commercial production on Akyem, when do you expect that to be achieved?

We expect first commercial production maybe the end of this year but probably early into the New Year. Just, it becomes the timing of that ramp-up I was describing really is what triggers achievement of the first commercial production. Anita Soni – Credit Suisse: Okay. On reserve estimation, how should we thinking about your approaches, gold certainly starts to flatten out on the three year profile and perhaps goes into a dip as a three year trailing average next year?

I’m sorry, I couldn’t hear the question. Anita Soni – Credit Suisse: So on reserve estimation. Last year you used a three year trailing average, price of gold and some of your competitors have used somewhat of a discount to three year trailing average price. Is that something that you’re going to continue to do? Use the three year trailing average price or would you think about using a discount?

No, I think at this stage, and we used the $1,400 price, the trailing three year would put it higher than that but we’re sticking at the $1,400 at this stage, for our reserve calculations. That may change as we look later in the year but that’s where we’re at today. Anita Soni – Credit Suisse: And then CapEx reductions for 2014. I think Randy mentioned $0.5 billion, could you give us a split-out of how much of that is sustaining and how much of that is gross related?

Yeah, a good portion of it is tied back to projects. As we look to completing Akyem and reductions that occur at Conga), so the majority of that reduction is tied back to projects.

Yeah, in fact the 500 that I was referencing, the roughly 500 was oriented all to development capital. We expect sustaining capital to be reasonably stable, at least in our current plans. But we’re looking for opportunities to pull that back as well. So you will see a change in the mix next year as again, as Gary noted, as Akyem spending comes off and production ramps up, Conga spending comes down and Nevada development capital comes down as well. Anita Soni – Credit Suisse: And the last question. It’s been a while I think since this has been addressed, but the five year growth plan, how should we be thinking about what Newmont looks like in five years from now.

I think what I mentioned the last time, still holds. The, we reduced at our Investor Day last year $7 million ounce target for 2017 to the $6 million to $7 million ounce range. And as I talked about on the last call, I still see us in the, probably the $5.5 million range in that timeframe. But it really ties back to the focus on profitable production and even in the current price environment I see that still as an appropriate range to look at out by 2015, 2016, the $5.5 million range. Anita Soni – Credit Suisse: Okay. Thank you very much.

Okay, well thank you very much for your participation and your questions this morning. I appreciate your support. Looking forward we’re going to continue to keep our relentless focus on what we can do to improve our cost structure and continue to work safely, so thanks very much and enjoy the rest of your day.

Okay, thank you. That does conclude the call for today. You may disconnect your phone lines at this time.