Newmont Corp (NEM) — Q3 2018 Earnings Call Transcript

Thank you, operator, and welcome to the Goldcorp third quarter 2018 conference call. Before we begin, I would like to remind you that during today’s presentation, we will be making comments containing forward-looking information. I invite you to read this slide which describes some of the risks and uncertainties that may affect Goldcorp’s performance in the future, and as such actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult our most recent annual information form. For the formal part of the call today, we have David Garofalo, President and Chief Executive Officer; Todd White, Executive Vice President and Chief Operating Officer; and Paul Harbidge, Senior Vice President, Exploration. Also joining us are Jason Attew, Executive Vice President and Chief Financial Officer; Brent Bergeron, Executive Vice President, Corporate Affairs and Sustainability; and Charlene Ripley, Executive Vice President and General Counsel. For those of you participating on the webcast, we have included a number of slides to support today’s discussion. With that, I will turn the call over to David Garofalo.

Good afternoon and thank you for joining us today. Steady project execution in the third quarter during a transition period at our flagship Peñasquito mine continued the process of expanding and de-risking our operating mines towards achieving our 20/20/20 production growth and cost reduction objectives. At the same time, with our renewed focus on exploration, we essentially replaced gold reserve depletion across Goldcorp operated assets, establishing a strong foundation to achieve our gold reserve target of 60 million ounces by 2021. Along with our third quarter results, we are providing updated guidance for the fourth quarter and full year estimates. Goldcorp expects to produce 620,000 ounces of gold at all-in sustaining cost, or AISC, of $750 per ounce in the fourth quarter of 2018. The reduction in our full year guidance was primarily attributable to lower than expected gold production for Musselwhite during the construction phase of its materials handling project, the cessation of equity accounting of gold production from Leagold earlier in the year after its merger with Brio Gold, as well as lower than budgeted grades and recoveries of Pueblo Viejo. However, all other mines remain within the previous guidance ranges and we still expect Cerro Negro and Éléonore to exit 2018 at optimum production rates. During the third quarter of 2018, Goldcorp continued to advance our organic growth opportunities and projects, making significant progress on key permitting and development milestones. At Peñasquito, the pyrite leach project (PLP) completed construction. First gold in commercial production is expected in the fourth quarter of 2018. The materials handling project has achieved 80% overall project construction at Musselwhite. Capital cost of the project remained on budget. While the majority of major infrastructure remains on track for completion in the first quarter of 2019, lower-than-expected productivity and ground support installation has resulted in commissioning now being expected by the third quarter of 2019. Further important project milestones were achieved at the Century Gold project, where our project description was submitted to regulatory authorities and the permitting process was initiated and at the Coffee project, which completed the adequacy phase with the territorial regulator allowing for advancement to the public consultation phase, which is expected to be completed during the fourth quarter. We have made a next step in our new $350 million sustainable efficiency objective. As you may recall, $250 million of these efficiencies were achieved by the second quarter of this year. During the third quarter of 2018, an additional $30 million of efficiencies were identified and are expected to be realized in early 2019. Finally, we are reporting our 2018 reserves of 52.8 million ounces. Reserves increased at Musselwhite and at Cerro Negro, two of our more exciting assets where we expect further upside from exploration. Overall, reserve additions at Goldcorp operated sites essentially replaced depletion over the 12-month period, as 1.9 million ounces of new gold reserves were added at existing operations. In addition, growth in byproduct metal reserves led to a 2.6% increase in our gold equivalent reserves. Our third quarter financial results include gold production of 503,000 ounces at all-in sustaining costs of $999 per ounce compared to 633,000 ounces at all-in sustaining costs of $827 per ounce during the third quarter of 2017. The production variance comes from Peñasquito’s processing of low-grade stockpile during the commissioning phase of the PLP, a lower grade sequence quarter at Cerro Negro, and production impacts of the construction of the materials handling system at Musselwhite. AISC was driven by lower metals production including reduced byproducts from low-grade stockpile at Peñasquito, as overall operating costs remained on plan. The net loss for the third quarter was $101 million or $0.12 per share compared to net earnings of $111 million or $0.13 per share for the third quarter of 2017. Net earnings were impacted by non-cash foreign exchange losses of $37 million, primarily rising of deferred tax balances. The resulting adjusted net loss was $0.07 per share. Adjusted operating cash flows were $192 million for the quarter compared to $350 million for the third quarter of 2017. With that, I will turn it over to Todd to discuss our operational performance during the quarter.

Thanks, David. I would like to start by pointing out that we have provided detailed mine by mine estimates of our production forecast for the fourth quarter relative to the third quarter in our third quarter report. Gold production at Éléonore continued to trend higher reflecting the ongoing ramp-up and contribution of higher grade ore during the third quarter of 2018. The mine is expected to exit the year at a sustained mining production rate of over 6,000 tons per day, or an annualized gold production rate of 400,000 ounces. Higher production at Red Lake was a result of completing its planned transition to a bulk mining operation. With the increased use of bulk mining methods, the milling rate increased by 39% over the prior year. Lower production at Peñasquito was due to processing nearly exclusively lower grade ore from stockpiles while completing the stripping campaign in the Peñasco pit and the pre-stripping campaign in the newly developed Chile Colorado pit. Production in the third quarter of 2018 was also impacted by a reduction in mill throughput as much harder low-grade ore from stockpiles was processed during the commissioning of the carbon pre-flotation plant (CPP), which is a component of the PLP. The CPP commissioning proceeded as planned and the circuit has now treated 6 million tons of high carbon ore and is operating at plant capacity. In the fourth quarter, the mill feed will consist predominantly of higher grade ore from both Chile Colorado and the Peñasco pit as the stripping campaigns begin to expose ore in both of these pits. Production at Cerro Negro was lower than the second quarter due to planned lower mill grades as a result of mine sequencing in Mariana Central and Eureka, partly offset by continued improved dilution control and higher tons milled as mine production continues to ramp up. The mine tonnage run rate for September was in excess of 3,100 tons of ore per day while maintaining development rates consistent with prior quarters. We continued to expect to achieve run rates of 4,000 tons per day to the mill by the end of 2018, supported by the commencement of an auxiliary shift at the beginning of October. To date, this additional shift has resulted in an increase of approximately 600 tons of mined ore per day, which the mill has been able to comfortably process to date. The Marianas Norte development and underground infrastructure was prioritized during the third quarter of 2018, with ramp breakthrough and connection in Mariana Central achieved on August 27, 2018. With this secondary egress established, production mining activities were initiated during the quarter with initial ore selling and haulage level developed. Development of the Emilia vein will continue for the next 12 months. Both projects are expected to supplement declining Eureka production in 2019. As part of the ongoing development of the Mariana’s district, the next deposit in sequence is San Marcos, where excavation and portal construction activities were initiated in the third quarter of 2018. We expect to commence ramp development activities during the first quarter of 2019 on this deposit. Musselwhite's production was slightly lower than the previous quarter as mine sequence was for lower grade material and we continued to see ore tonnage impacts from interactions between the material handling system construction and production. We expect the lower ore production levels at Musselwhite to continue until the third quarter of 2019 after the commissioning of the material handling system. We continue to execute on key milestones during 2018. The down ramp in Cerro Negro’s Mariana’s Norte deposit was completed in August and we have now begun mining activities. The PLP construction is complete and commissioning is underway with first gold and commercial production expected in the fourth quarter. We expect the completion of our optimized pre-feasibility study at Century Gold and Cerro Negro expansion concept study in the fourth quarter, with the results to be presented at our Investor Day in January. We are off to a good start on the next phase of our efficiency program with $30 million of the extended $100 million target already identified. In addition, good progress was made on permitting major projects, including Borden, for which operating permits are expected in the fourth quarter as it continues to advance construction towards commercial production in the second half of 2019. Century Gold has initiated its permitting process with the filing of its project description with regulators during the third quarter. With that, I will turn it over to Paul for an update on our mineral reserves, mineral resources and exploration program.

Thanks, Todd. Goldcorp’s proven and probable gold mineral reserves as of June 30, 2018, totaled 52.8 million ounces compared to 53.5 million ounces at the end of June 30, 2017, as exploration success at our operating mines essentially replaced gold depleted from production. Goldcorp's mineral reserves increased at Musselwhite and at Cerro Negro, while a small net loss in reserves from depletion was experienced at our non-operating mines, including Pueblo Viejo. Goldcorp has increased reserve ounces by 2.8 million ounces net of depletion since the beginning of the 20/20/20 plan in 2017 and remains positioned to deliver 20% reserve growth by 2021. Goldcorp expects contributions to our 20% reserve growth across our portfolio of under-explored land packages in addition to our development and beyond 2020 projects. Porcupine has over 8.4 million ounces in measured and indicated mineral resources and 3.7 million ounces of inferred mineral resources. A portion of resources is supported by the current mining and processing fleet. The Century Gold project envisions a significantly larger scale mining complex, which could afford us the opportunity for further conversion of this substantial gold resource into reserve. At Coffee, an additional 400,000 ounces of indicated and 600,000 ounces of inferred mineral resources are hosted within $1,200 pit shells derived from the inclusion of that material at the Supremo deposit as well as eight satellite deposits. An 80,000 meter infill drilling program in 2019 is expected to convert a portion to reserves and is being incorporated into future mine designs. In addition, generative work has identified a large portfolio of early-stage targets which remain untested for the potential for future resource and reserve growth. At Pueblo Viejo, a pre-feasibility study is expected in 2020 that has the potential to convert approximately 7 million ounces of measured and indicated mineral resources to proven and probable mineral reserves, of which Goldcorp’s share will be nearly 3 million ounces. Norte Abierto is expected to complete a pre-feasibility study by 2020 on the combined Cerro Casale and Caspiche deposits with a goal of converting a portion of the 26 million ounces of measured and indicated mineral resources and 8 million ounces of inferred mineral resources, of which Goldcorp earns 50%. Turning to Musselwhite, drilling for resource conversion at Musselwhite resulted in the addition of 0.7 million ounces of mineral reserves. At PQ Deeps C-Block, mineralization was extended and mineral reserves achieved approximately 70,000 ounces of gold per 50 meters compared to 25,000 ounces per 50 meters currently being mined and remains open down plunge. During the third quarter, mine exploration at Musselwhite returned positive results from the Lynx North area, located up-dip on the Northern Iron Formation above the C Block zone in PQ Deeps, the known Lynx North orebody, 500 meters to the North of the updated 2018 mineral reserves and the combined dip extent of Lynx North and C Block now extends over a vertical depth of 350 meters. Surface drilling from the North Shore of Opapamiskin Lake has recently intersected PQ Deep’s stratigraphy structure alteration and mineralization 1.2 kilometers along strike and down plunge of the updated 2018 mineral reserves, returning strong gold intersections. In addition, we have a winter ice program planned to test the Camp Bay and West Anticline zones. The continued expansion of the Musselwhite deposit in both ounces per vertical meter and strike length will be evaluated in various scenarios for how it can supplement or increase production levels in the mid and longer-term. At Cerro Negro, mineral reserve additions of 0.7 million ounces and the increase in mineral resources of 0.7 million ounces were mainly from the Silica Cap deposit, which consists of two main veins, the Silica Cap and Gato Salvaje veins, as well as ancillary hanging wall and footwall veins. Detailed planning is underway on the integration of the Silica Cap deposit with the existing Bajo Negro deposit. These deposits make up the Eastern District mining complex upon which initial development is expected in 2019. A concept study based on the Marianas District and new Eastern District to define optimization scenarios for the operation is expected to be completed in the fourth quarter of 2018. This work will incorporate trade-off studies on potential mine and mill expansions and grade optimization scenarios. Exploration has now shifted back to testing early-stage targets, and six targets have been drill tested thus far, with the objective that at least 10 will be tested by the end of 2018. Encouraging results have been received from the Ricarda vein. Surface work will continue over identified targets in the Southern area of the land package to prepare them for drilling in 2019. More detailed information relating to our reserve and resources statement, as well as additional exploration results from across our portfolio can be found in the press release. And with that, I’ll turn it over for questions and answers.

Good morning, Dave and team, thank you for the update, and I especially like the detailed guidance provided for the fourth quarter for each of the assets. However, if I was to input the uplift of the tons and the grade as you have described, I could end up with a number that could be higher than the 620,000 ounces for the fourth quarter. What would your guidance be as to how we should moderate some of those uplifts?

Yes, hi, Dave, it’s Todd. Again, I guess where I would say is you can see that recovery is probably the one area where we do see some variability there. The tons and the grade which we have given you are clearly approximate and directional in that, but where we don’t give you is recovery, and some of that is due to recovery expectations maybe being somewhat in line or somewhat less depending on ore type, but really recovery is the area that you can modify to come to that number that we have guided to.

Okay. So, one of the largest areas of uplift is looking at production of Cerro Negro, for instance, where you have got the potential for 25% more tons through the mill and 20% more gold, 40% more silver. So what gives you the confidence that you can deliver on that in the fourth quarter given where you were in Q3?

Yes. So as I mentioned earlier we have implemented an auxiliary shift in the mines. That was not a ramp-up; that was really a step change that occurred on day one. That additional tonnage, we are on pace with the numbers we have given you in the MD&A. So, I am confident that we are delivering that. And as I said, the mill is handling that tonnage very comfortably. So, I have a lot of confidence as the mines are producing it and the mill is more than capable of taking it. So we are on that pace today.

Okay. And then, as you said in your commentary, you are pretty confident moving into 2019 at a run-rate of 4,000 tons a day. Should we think about 4,000 tons a day as an average for the year or building up to that during the course of Q1 and Q2?

Yes, David, as we continue to advance our planning process here, we will provide a bit more of that. But clearly, we do expect Cerro Negro at that optimum production rate next year and expect another strong year from Cerro Negro. We are in the middle of that planning process now and we will provide that guidance to you in our Investor Day in January.

Okay. A similar kind of question, I guess, with Peñasquito. It’s interesting to see that with the 25% or the 45% lift in the gold grade full Q4, it actually brings the year pretty much in line with the guidance that you provided at the beginning of the year of that 0.4 grams for the entire year. So you are still – are you feeling comfortable with that? And the expectation I guess moving on there is, are you comfortable going towards the guidance we have been given previously of that 0.45 grams through 2019?

Yes, David. So, as we have come out of the Q3 on the stockpile, we are seeing the grades respond as we expected. And you are correct, we expect to achieve that grade guidance we gave you prior for Peñasquito. I am very comfortable we are seeing the mine’s response as we expected, we are exposing ore in Chile Colorado and Peñasco and both of those are reconciling as planned. So, you know Peñasquito is on the upswing, and we are expecting a strong recovery year for us next year at Peñasquito as we come out of the strip and the grades are performing as expected.

And David, I might add that the reason we are comfortable with the grade published for Peñasquito really from the beginning of the year is we flipped the quarters around with the early commissioning of PLP and CBP. We took Q4’s production, which was expected to be all surface stock, and it moved into Q3 to advance the commissioning. So in fact, we flipped the quarters, Q3 and Q4. And we have always had very strong reconciliations of grade to the reserve model at Peñasquito. It’s never been an issue in the past.

Okay, that’s great and thank you for the level of guidance that you have given there.

You are welcome.

Yes, thank you. So I just want to go back to that guidance for Q4 and the recoveries that you – the guidance recoveries that you have provided. At Peñasquito, there is only 51% recovery despite the grade lifting substantially. I would have thought that recovery would go up. Why is the grade or the recovery not improving more?

Yes, it’s a great point, Greg. Thanks for the question. Because Chile Colorado is a pretty significant component of the ore feed in Q4 while the grades are there. This is sedimentary ore out of Chile Colorado which does carry a component of organic carbon. So given that fact, we are estimating perhaps a bit lower recovery on that material for the quarter, so it sort of decouples from, call it historic Peñasco grades of that recoveries on that sort of grade.

Okay. So continuing on from that with the PLP expected to be commissioned fully by the end of Q4, what recoveries are planned for next year 2019? I believe it should be something close to 70%, should it not?

As again, as we bring that up, we would expect to see recoveries in addition to where we were. Peñasquito is roughly mid-60s sort of recovery, depending on the grade obviously, and that will be additional PLP. So again, we are in the budgeting process and the planning, and we will be providing that updated expectations for Peñasquito in January. But we certainly will see an uplift over past recoveries.

And I think Greg, it’s important to note that our expectation in terms of incremental gold production recovery, silver recovery or like of mine haven’t changed at Peñasquito as a result of the PLP investment.

So, as per the technical report?

Exactly.

Okay. And Dave, I don’t want to belabor this point, but in turn, you said 20% reserve increase by 2021 was aspirational. Now looking at the presentation, listening to what Paul was saying, it seems like that’s no longer aspirational; that’s the real target. Can you clear that up a little bit?

I will let Paul talk to where we think the sources of reserve growth are going to come from, and he has been quite specific about that material and where it is going to come from. But it is aspirational because it was always subject to drilling whereas our production and cost targets can be easily supported by financial models and spreadsheets and whatnot. So until we do the drilling, until we do the study work, we can’t say definitively that we are going to convert that, so there is an aspirational element to it. But I will let Paul interject and talk about, again the sources of reserve growth and why it has comprehensive…

Yes. I mean looking at our 5-year plan, 2017 we saw a step change with the conversion of the Century project, and then we always saw that 2018 and 2019 were relatively flat in essence that we would replace depletion. And so our 20% growth was always back-ended into 2020 and 2021. And obviously while it is aspirational, there are certain key elements that we have to get through, one of them being the pre-feasibility study at Pueblo Viejo. There is no risk in those resources; they are already drilled out. It's about getting the PFS done to get the additional tailings capacity. And then we have to undertake the big delta as well as down at Norte Abierto and in drilling out the Caspiche deposit. And so it’s about the logistics and staging that drilling that will land on for 2021. But as you see, we are getting significant reserve growth at both Musselwhite and Cerro Negro as we start to implement this new strategy over the last two years. We are putting more rigor and discipline into the way that we do geological work, and we are building that pipeline of targets to offer us the opportunity to make those discoveries. So we are feeling confident about our ability towards that 20% growth.

Okay. So Paul, just on Silica Cap, the 1.4 million ounces in resources that you have identified, largely 1.4 million ounces at Silica Cap, do you see significant scope over and above that in that zone?

Look, when we look at the veins historically, we know the Cerro Negro area generally sees them up between 0.5 million and just over 1 million ounces we have converted, it’s actually 536,000 ounces to reserve. And then we have got due to drill spacing and gold price differential on reserves – on reserve and resources we still got some infill drilling to do at Silica Cap to add an additional portion. But then obviously, one of our priorities is to make additional new vein discoveries to continue to build that reserve base.

Okay. Thanks, Paul.

Thank you. My questions concern the reserve report, and I apologize if I haven’t just said all the details by the information in the last deck. The proven and probable fell 700,000 ounces with I guess a declassification at Coffee and a couple of mines not replacing production and small gains at Alumbrera, Cerro Negro, Musselwhite, Peñasquito, and then the non-reserve resources in all categories fell almost 5 million ounces for gold. In base metals, there was a very big step up in NuevaUnión, in Alumbrera, and for Peñasquito Zinc. There were some downgrades in the non-gold resources I guess, maybe corresponding to some of the other upgrades in base metals, but could you talk to the reserve report and particularly the decline in gold and the improvement in base metals?

John, in terms of gold, essentially our own 100% operated mines replaced depletion, and we were impacted on Pueblo Viejo where there was straight depletion and we had no ability to be able to replace that depletion. And then with regard to Coffee, essentially we have got a lot of exploration upside having taken the project over from a junior; we have applied our geological rigor and discipline in terms of geological models, just statistical modeling, and we felt prudent that at this stage, while the global gold ounce total remains the same, that we reclassified some of that material. But we are confident that being able to bring that back in as we continue to complete the detailed infill drilling over the next year. And then we have got a whole portfolio of early stage targets within a very large ground holding, and so we are confident that our initial mine plan will have a reserve base of just over 2 million ounces.

Yes, John, it’s Todd. Maybe I will talk to the base metal add there that you picked up on. Obviously, the zinc was the big add at Peñasquito, where we brought in roughly 600,000 ounces of gold production along with that; certainly came zinc and lead reserve growth also. So, that’s really the driver there. The Alumbrera is associated with the underground project, that project that that operation is taking forward, so that added the few hundred thousand ounces of gold there as well as some copper that comes with that.

Union copper went up a great deal?

Got it. Obviously, we have continued to fine-tune our model on that with additional drilling data. There has been really – it’s really model changes within this, call it, the same base mine plan. So, there has not been a mine plan change on that; it’s simply additional drilling data in filling that and remodeling.

Where the finds more at the Teck legacy Relincho project or El Morro project or El Morro underground deepening or?

Certainly. Yes, essentially with La Fortuna and Relincho, we remain relatively consistent. And you point out underground potential, I want to be clear that there is no reserve on that yet, but we are certainly doing the work for an opportunity that we see forming under La Fortuna for additional reserve growth there. But what we see obviously was more around La Fortuna than Relincho.

Thank you very much.

You are welcome.

Yes, good afternoon gentlemen. I am trying to reconcile these results with the bigger plan that was laid out back in January at the investor conference for production growth, building reserves, lowering AISC, and budget de-leveraging. It just seems that everything is going backward and you have failed to make any progress over the last three quarters. And I am trying to think about the accountability on management, how shareholders are expected to understand this, the stocks down 35%, 40%, and it's almost as if business is as usual and it’s another failed gold mining stock in a company. It just seems like that's how this thing is playing out. And so, what would you tell an investor who feels extremely burned from your investor conference back in January why they should stay constructive with Goldcorp and the management team?

Sure. Thank you for your question. What I would say is we’ve made this business significantly more efficient than what we inherited several years ago. Back in 2015, we produced about 3.5 million ounces of gold at $900 an ounce, and even with the smaller production basis year, we’re expecting to deliver substantially lower all-in sustaining costs. So, we have seen significant efficiencies brought into our business. We’ve grown the reserve base in an industry that’s actually seen a 50% decline in reserves over the last five years; we’ve added about 7% to our reserve base since the beginning of our 2020 plan largely around our operating assets, and we are improving our mine plans. We’re still on a significant upward trajectory in our production over the next three to five years and we’re continuing to drive down our all-in sustaining costs both through our efficiency objectives and through the economies of scale inherent in expanding our existing operations. We’ve also added a pipeline of three significant projects in the last couple of years that put this in an enviable position in terms of delivering long-term value creation, namely our own discovery, Century in our backyard Porcupine, the addition of Labeling Yarn as we bring that to the stage-gating and feasibility work and expect to make an investment decision on that over the next couple of years, and our large-scale mineral endowment in Norte Abierto. And I would say in both of those cases in Chile, we’re investing capital responsibly and that we’re consolidating these districts. We bought them cheaply and we’re significantly reducing the capital footprint and being very responsible stewards of capital. But we’re not building duplicate infrastructure beside each other on separately owned land positions. We are consolidating land in those areas and we’re allocating capital in a disciplined way to generate strong rates of return. It’s a long-dated gain, we understand that, and obviously, I understand at this point with the current quarterly results as we are in a good track to achieve a significant production growth as soon as this quarter with significantly lower all-in sustaining costs.

Yes. Well, thank you for the answer. But it's just – it's very hard to see with not only this quarter, but the last two quarters that pretty much everything that was outlined in January has failed to materialize. And I’m not talking about since you started your 2020 plan; prior to that, I'm talking about how the execution has come about the last three quarters and the share price off 40% and you talk about building long-term value for the shareholders, where you’ve destroyed 40% of the value of the company over three quarters. So, I understand that from an investor standpoint it does not reconcile at all?

Yes. I don't find that premise for the simple reason that we’ve seen a significant compression in multiples across the entire sector this year. Yes, we've underperformed, but what I would also say is we significantly derisked the portfolio by delivering on our expansion plans, and we've done so on time and on budget. In fact, the reason we had a poor third quarter is because we delivered the Pyrite Leach project ahead of schedule and we decided to prioritize low-grade material in our flagship mine and flip around the course, so we’re going to see in Q4 what we expected in Q3. So, it was the acceleration of that project that led to an unusually weak third quarter. It was supposed to be Q4. So, I'm very, very pleased with how our operating team and our project teams have delivered our projects; they are on time and on budget. We’ve executed very well, we’re derisking these projects, and we are setting ourselves up for sustained higher production at sustained lower costs. I'm also very proud of the fact that we’ve run $250 million of efficiencies out of our business. Our costs would have been a lot higher with this lower production base without those efficiencies. And I’m also proud that we’ve been able to extend that program out another year with another $100 million. We still see a lot of opportunities to bring efficiencies out of our business even as the industry itself has reached an inflection point in all-in sustaining costs; redundancy costs within our peer companies go up, and we’re still going in the opposite direction in terms of our cost structure.

Okay, I appreciate that. And tuning again in January and I hope we see some progress made on these fronts, and thank you for going on the record on some of this. Thank you.

Thank you for your question.

Hi. Just a question on Red Lake, you have talked about completing the transition of bulk mining, so I am just wondering in terms of throughputs and cost per ton going forward what we could expect there?

Yes. As I said, we are essentially 100% long-haul stoping now and Red Lake as opposed to a lot of cut and fill mining that was done in the past. I would tell you looking at it, I would say very consistent throughputs with where we are today is our expectation with Red Lake. We have been working very hard to move, make that transition and get both of those mills full. Costs I think is an area that we have opportunities, and we are continuing to look at driving those costs down, but I think this quarter is really reflective of what you would look at going forward in terms of tonnage for Red Lake. But again, we are going to be pleased to give you an update in January of how we see next year shaping up at Red Lake.

Okay. And then secondly on Peñasquito, you talked about the PLP project in the carbon pre-flotation plant is commissioned. Just wondering what’s left to be commissioned there and is there risk if that’s late to impact Peñasquito production in the fourth quarter?

So, what’s left to be commissioned there is essentially, CPP is fully functional operating for the PLP back end of it. We have essentially have had slurry through the entire plant. What’s left is to turn on the leach circuit there. We have done some of the initial call it pre-commissioning of float sales; things are working, pumps are working everything is going through. So, again I think that we are very much on track. That’s a project that execution was some of the best I have ever seen, one of the safest executed projects I have seen and all of that discipline is translating over into our commissioning activities, so we are very much on track with that and by the end of the year we expect to have a fully commissioned and in commercial production.

So is that more later in the quarter or is there…

Yes, obviously we think towards the last part of the quarter is when we see this achieving the commercial production side of it, but again slurry is running through the plant today and it’s a matter right now of beginning the leaching circuit which we are prepared to do; not an issue everything is on track.

Great, thank you.

Yes, good afternoon everybody. Two questions. One on the operations and the second is on the reserve, so may be Todd on the operations, and again thanks a lot again for the Q4 details. Just wanted to circle back on the three mines, Peñasquito, Cerro Negro and Éléonore, just on Peñasquito where we have talked about the grade going back to the 0.42 grams per ton level where you have touched on the recovery. I just want to know right now for the month of October how have we looked at throughput and grade at Peñasquito?

What I would say, Tanya, is it’s very much aligned with the guidance that we have provided there. So we have come out of these stockpiles. We are feeding from both of the pits at this point in time, and the plant is responding as we have indicated it would in the MD&A.

So, we are back to the 0.42 grams per ton grade?

That’s correct.

Okay and slightly higher throughput?

Exactly and in line with what we said there; that’s true.

Okay, and what about longer term is are we looking at 112,000 tons per day at this operation? I think that’s what you filed in your technical study recently. Is that still on plan?

That is still very much in our plan. In fact, we have got some work ongoing right now where we are identifying those opportunities that we are capitalizing on. So that is still very much in our plan for Peñasquito.

Okay, good. That sounds good. Then maybe just moving on to Cerro Negro, and I know Dave asked the question that we have the bump up in grade. Maybe again, how does the month of October look at Cerro Negro, both tonnage and grade, some color on that, there is quite a big jump in grade and tonnage?

It is absolutely. And actually, this is an area that I think I am very pleased with where we are at. As I mentioned, we saw an immediate step change on October 1 against the Q3 tonnage.

Yes.

We’re seeing that mine jump up to into the 3,700 ton a day range from the mines themselves, and the mill has had – has no problems whatsoever at that tonnage level. So, we’re very much on pace with what we put in to the MD&A there.

And what about the grade because we were at 10.75 grams per ton in Q3, we have to go close to 14 grams per ton in Q4. What's the grade looking like in October?

Yes. The grade is on track in October. I want to say that the grades that really drive that come in late November and December as we transitioned back into some of the higher-grade stopes in the Mariana Central. But to date, the grade is tracking well and we still see the opportunity for that overall implied 14-gram grade that the numbers would equate to.

Okay. So, we’re better than that 10.75 grams per ton, but not yet the 14 grams per ton. Is that a safe assumption?

That would be a safe assumption, yes.

Okay. And if we were to go to Éléonore, how does November look for Éléonore, sorry, October, gotcha, which was in November, but October?

Yes. Again, Éléonore is very much on pace with the numbers we provided here. Mining is – what I’m very pleased about with Éléonore is they’ve got a number of – they’re about two months ahead of themselves in development on ore, which gives me a lot of confidence that they are more than capable of delivering that uplift in tonnage for Éléonore. Things are going very well there. Plan is very much intact and month to date, they are right on pace.

And have we seen that pick-up in grade in October?

We’ve seen grades consistent with where we planned to be, yes.

Okay. Okay, I’ll leave the mines, and maybe I can come to Paul. I just wanted to circle back on the reserves and resources. We were on the Éléonore Mine Tour, and I must say that we did talk about not replacing reserves at Éléonore; that’s fine. We were expecting that. But I think from my thoughts, the decline in overall resources with the reserves I get a decline of about 2.7 million ounces, which was more than I had anticipated. So maybe Paul, you can explain to me how your geological model interpretation has come in and maybe the drill spacing you’ve used to sort of move that downwards, and are we looking to bring that back into the plan in the next few years?

Yes. Tanya, if you remember from the visit, we completely redid the geological model building it from the face up with lithology structure, alteration and mineralization, and at the same time, we did some detailed statistical analysis on the drill hole densities. And with more rigor and discipline in the process of around our reserves and resources, then based on that spacing, we thought that it was prudent to downgrade some of that material. The deposits got from both along strike and down and continue down, and progress is being made. We’ve got recent results showing that we’ve got strong mineralization at depths, and as we advance the development, we’ll be able to drill out more of the material to bring that back into reserve. And we’ve had an aggressive program on the grade of the permit area as well, building that portfolio of targets. And actually, when you look at this new geological model and how robust it is, we’re getting very good reconciliation, and it gives us more confidence in our mine plan and being able to deliver on our production profile.

Okay. So, in terms of moving that material back, is this something that will take a few years to do?

Yes. I mean, as we get the development in place and we drill, we've got a systematic plan in place to be able to add that material back in as the years progress. And as I say, we get that development in place to give us the access for the drilling.

Okay. And then maybe just on Coffee, I know we chatted about the drill spacing declining from 70 meters, I think it was down to 40 meters for reserves definition, and you mentioned that there is the ability to further move into reserves, almost a million ounces. I think that’s 600,000 ounces and 400,000 ounces in other categories. What’s the timeframe for that? I know you’ll do some of it this year, but…

No, you are correct, Tanya. Again, it’s about getting that rigor and discipline into reserve and resource modeling. We also did that great control orientation study on a 5 by 5 pattern so that we could statistically work out what the spacing was, and you are right, we are down to – we need to have the infill at 35 to 40. So again, we felt it prudent to downgrade some of the classification, but the overall ounce content remains the same. We are already into infill drilling. The aim is to finish that infill drilling program by June next year so that we would be able to report back this time next year, having converted a portion of those resources back into reserve. We feel confident that we are going to have a mine plan based on more than 2 million ounces, and we still got significant upside now with five new satellite deposits over 12 kilometers of untested gold in soil anomalism and multiple opportunities to add to that resource base.

Okay, look forward to that. Thank you.

Alright. Good afternoon, Dave. I think you have got a record for most questions today. Just wondered, thanks for the guidance on the way that the reserves are wanting to be grown over in the next couple of years. Might have been helpful as we have been anticipating that analyst probably tend to look at straight line between where we are and the target in the absence of a bit of guidance. And with respect to the big additions in the aspirational big additions in 2020, 2021 from Caspiche and Norte Abierto, to what extent are those gold price-related goals affected given where gold is at the moment? It would be pretty horrible if 1200 lasted for another couple of years, but to what extent would your growth plans be affected by a 1200 gold price?

Yes, John, this is Todd. I guess what I would comment on that is, these are – we are still in early phases on the studies and clearly gold price is one of the drivers, but there is a lot of engineering work to be done and a lot of sort of project work to be done here to develop the absolute strongest business case we can or investment case on any of these projects. So, again at this point, I think it’s too early to say how it would be affected by gold because we are very early in the project work. But certainly, that is an element, but I don’t think it’s one of the key – one of the determining factors there. I think a lot of this is based on the work that we will do in the project. And again, our long-term price is certainly, I would agree with you, it would be horrible if it was 1200, but our long-term price is over that right now.

Okay. And you think that Caspiche would work at 12.50?

Again, I think it’s early to say. I mean, we certainly are pursuing concepts on that that we believe have an opportunity to convert, but it’s yet to be seen. But it’s longer dated than that, but it’s a lot of study work, and we will develop the strongest case we can at our pricing.

And John, what I would say is this investment model worked very, very well for us in leveling the island in bringing what were really two marginal deposits back into strong economics by reducing our capital footprint by 30% to 40%, and again consolidating the district. We are looking exactly to do the same thing with Norte Abierto. We are looking at one industrial complex to the two, as was contemplated when those deposits Casale and Caspiche were under separate ownership. And so, I think the possibility of bringing that mineral endowment from resource and reserve has been improved significantly.

Yes. No, I can’t disagree with the concept. Many thanks, guys. Best of luck.

Thank you. Taking a look at the Coffee acquisition and the context of several updates where reserves and resources have successfully declined and the acquisition looks like it will result in a negative IRR for the company, how does the company look at its M&A evaluation going forward in the context of challenges like this that have materialized? And what can be done going forward to sort of avoid these types of things?

Well, actually, the investment thesis really hasn’t changed at all, Josh. We only pay for the proven and probable reserves at the time which admittedly have declined marginally since then, but we see a strong probability of a good chunk of that mineral resource being brought into the starter mine. It’s all oxide mineralization. And so we do expect the mine plan to more or less be in line and the grades haven’t declined in any significant fashion at all to be in line with what our original thesis was. We didn’t pay a dime for the resource, nor do we pay a dime for any of the exploration upside, we still see immense potential within this district to add significant ounces.

Okay. So, the numbers at reserves, it looks like they have gone from 2.2 to 0.7 and then on the resource side from 1.5 grams to sub 1. So I would say there looks to be a difference in what’s been reported at least thus far. But beyond that, what’s – like what can the company’s perspective be on M&A today? Is there something that could be pursued in the next 12, 24 months?

What I would say for M&A generally is when we have done it, we have created – we have improved the quality of our portfolio by selling assets that were lower in quality and adding assets that we thought added value and improved the quality for the overall portfolio. Every mining company should be doing that. And we have been very judicious and systematic and measured in what we have done on the M&A side. So we are always open to upgrading the quality of our portfolio, and we think we have done that by bringing Coffee and Norte Abierto in and exiting Felis and Camino Rojo and Cerro Blanco over the last couple of years and recycling that capital to improve quality, but also increase the net asset value of our business. And we are still very strong on the economic case for Coffee; really hasn’t changed in the least, and we still see the potential for this to be even a larger mine plan than we originally contemplated in our due diligence.

Got it. Okay, thank you very much.

Well, thank you everybody for your kind attention, and of course if you have any other follow-up questions, please contact us individually.