Newmont Corp (NEM) — Q4 2020 Earnings Call Transcript

Thank you, and good morning. Welcome to Newmont's Full Year and Fourth Quarter 2020 Earnings Call. Joining us on the call today are Tom Palmer, President and Chief Executive Officer; Rob Atkinson, Chief Operating Officer; Nancy Buese, Chief Financial Officer; and Randy Engel, Executive Vice President of Strategic Development. They will be available to answer questions at the end of the call, along with other members of our executive team. Please take a moment to review the cautionary statement shown here and refer to our SEC filings, which can be found on our website. And now, I'll turn it over to Tom on slide 3.

Thanks, Eric. Good morning, and thank you all for joining our call. 2020 was a year of unprecedented challenges. But through it all, we remain focused on continuing to differentiate ourselves as the clear industry leader. And I'm proud to say that we have delivered record-breaking results as a consequence. Turning to Slide 4 for a recap of our major achievements. The safety and well-being of our employees and local communities remains a fundamental principle of our company. Unfortunately, the world continues to grapple with the COVID-19 pandemic and we remain disciplined in the application of the key health and safety protocols across our business. Despite the challenges of managing through an unprecedented pandemic, we achieved the best safety performance in our company's history. This was a result of having a clear focus on managing the fatality risks across our company, and ensuring that we have a consistent and rigorous approach to the application of critical controls required to manage these risks. We continue to lead the industry with our ESG practices, setting targets to reduce greenhouse gas emissions by 30% by 2030 and achieve net zero carbon by 2050. We met full year guidance, delivering more than 5.9 million ounces of attributable gold production at all-in sustaining costs of $1,045 per ounce. In addition to this, we produced a further 1 million gold equivalent ounces from copper, silver, lead, and zinc at all-in sustaining costs of $858 per gold equivalent ounce. Last year, our 12 managed operations, supported by an integrated operating model and a culture of continuous improvement, delivered $790 million in cost and productivity improvements through our Full Potential program. We continue to maintain our discipline of improving margins at $1,200 per ounce, allowing us to capitalize on our significant leverage to higher gold prices and delivering record financial results. In 2020, we generated $3.6 billion in free cash flow, the highest in the industry, and ended the year with $5.5 billion of cash on the balance sheet. The strength and stability of our business supports our industry-leading dividend framework. This framework provides our shareholders with the stability of a base annualized dividend of $1 per share calibrated at a $1,200 gold price assumption and the potential to receive 40% to 60% of the incremental free cash flow generated at gold prices above $1,200. Newmont continues to set the standard as the clear industry leader in shareholder returns, which we further differentiated with a 38% increase in our quarterly dividend that we announced yesterday, bringing our quarterly dividend to $0.55 per share and our annualized dividend rate to $2.20 per share. With this increase, our current dividend yield places us in the top 25 dividend payers of a large-cap S&P 500. We also recently announced a new $1 billion share buyback program. This follows the $1 billion program we completed in the fourth quarter, which reduced our total share count by 22 million at an average price of $45 per share. Our industry-leading dividend and share repurchase program are a reflection of our commitment to deliver industry-leading shareholder returns while remaining focused on the financial strength and flexibility needed to create value throughout the price cycle.

Thanks Tom. Before jumping into the regions, I'd like to start by saying how very proud I am of our entire team and what they have safely accomplished while navigating such a tough and unprecedented year in 2020. Heading into 2021, we remain very diligent in our application of our wide-ranging controls and safety protocols to place the health, safety, and well-being of our teams and communities above all else. Turning to slide 12, I'll give an update on Australia's performance. In 2020, Australia produced approximately 1.2 million ounces of gold at all-in sustaining costs of $964 per ounce. At Boddington, we've produced approximately 670,000 gold ounces and 56 million pounds of copper in 2020. The site delivered a single-year record for mill performance, reaching 40.5 million tonnes processed against a nameplate capacity of 35 million tonnes per annum. Achieving this level of performance is a testament to the successful implementation and consistent delivery of our proven Full Potential program, which is a direct result of the continuous improvement mindset of our dedicated site leadership personnel. We have completed three Full Potential refreshes at Boddington since 2013 and continue to identify opportunities to take performance to the next level. During the fourth quarter, higher throughput and consistent grades drove strong production. Sustaining capital was higher than normal, as we took early receipt of Cat trucks as part of the Autonomous Haulage system, which drove higher all-in sustaining costs. We're well on our way to operating the world's first open-pit gold mine with an autonomous truck fleet, improving the safety of our employees and extending life at one of Newmont's cornerstone assets. Ten of the 29 new Cat trucks have already arrived on site, with four of those trucks fully commissioned and being put through their paces on the test circuit. We'll soon begin full deployment of these impressive autonomous vehicles that will increase productivity and improve mining rates. These improved mining rates, coupled with higher grade expected later in the year from the South Pit, positions Boddington to deliver a stronger second half and over one million equivalent gold ounces for 2021.

You know, it's important to note that Newmont continues to refine its operational performance framework. I want to ensure we are well positioned to respond flexibly to market dynamics while staying committed to sound governance and operational excellence.

Thanks, Rob. Turning to slide 18 for the financial highlights. As you can see on this slide, we had an exceptional year and delivered our best quarterly performance of 2020 in the fourth quarter, including $3.4 billion in revenue, an increase of over $400 million from the prior year quarter driven by higher prices; adjusted net income of $856 million or $1.06 per diluted share; adjusted EBITDA of nearly $1.8 billion, an increase of 37% from the prior year quarter; and nearly $1.3 billion in free cash flow for the quarter, and an amount entirely attributable to Newmont's account. This strong financial performance allows us to raise our dividend for a third time since the beginning of 2020, with the fourth-quarter dividend declared of $0.55 per share, which is almost four times larger than the fourth-quarter dividend from 2019.

Thanks, Nancy. Before we move on to Q&A, I'd like to pause and acknowledge Randy Engel, who has made the decision to retire in the second quarter after dedicating 27 years of service to our company. For the past 15 years, Randy has led our Strategy and Corporate Development groups, serving on the senior and executive leadership teams of three CEOs. Over his career, Randy and his team have completed more than $35 billion in transactions, including the purchase of Cripple Creek & Victor, the sale of Batu Hijau, and most importantly, the acquisition of Goldcorp and the establishment of the Nevada Gold Mines joint venture in 2019. I am enormously grateful to Randy for the contributions he has made to our company over his distinguished career and for the friendship and support that he has provided to me during my time at Newmont. I wish him all the very best in his well-earned retirement and with whatever he chooses to embark on in the next chapter of his life, which will no doubt include lots of time in the outdoors with his family and friends. With Randy's retirement, Blake Rhodes, currently our Senior Vice President of Strategic Development, will assume responsibility for Strategy and Corporate Development, reporting directly to me. Blake has been with Newmont for 25 years, serving in a variety of positions, including General Counsel and Senior Vice President for our Indonesian business. Blake has played a central role in all of the major transactions we have completed since 2014 and is well-prepared to succeed Randy. As I've discussed many times at Newmont, we believe consistent operational environmental and social performance starts with good governance, which includes thoughtful succession planning. This transition is another example of our commitment to sound governance practices and reflects our deep bench strength of capable leaders.

Hi. Good morning. Thanks for taking my questions. Can you comment on Cerro Negro and the government restrictions that were imposed in December, and how that impacts production going forward? I know you mentioned that the mine is ramping up again, but any insight on how long the impact could be or what you're observing from a mining mill perspective would be helpful. Thanks.

Thanks and good morning, Fahad. I'll pass that question across to Rob. The specific restrictions were associated with a shutdown around the Christmas/New Year period for the whole of the mining industry in Argentina. And then, those restrictions or controls for people moving around the country were lifted after that, but for a few days, went back to what was in place prior to Christmas. And we're operating to those protocols. Rob, do you have any other details or color you wanted to add to that?

No, Tom. You covered it. The most significant one was that all-country one that was imposed between Christmas and New Year, but we're now operating under the same restrictions as before. So, nothing else to add.

And from a percentage perspective, are you basically saying it's back to 100% of normal capacity, or is it still below capacity?

I'll just follow on to that Fahad. Yes. Thanks, Tom. Fahad, we're probably running about 80% to 85%, and that's primarily because of COVID impacts that Argentina is still suffering from COVID. And we've got a few of our employees testing positive. And as a result, we do have a number of people unable to work. So that's really meaning that we're kind of averaging about the 85% capacity at the moment.

Thanks, Fahad.

Thank you very much. I just wanted to ask you a couple of questions about your dividend policy, maybe just to get some clarification. The first question would be the framework that you've set up, the 40% to 60% of your incremental cash flows. Can you tell me maybe what you would need to see to move from the 40% that you used for this dividend you reported the other day, up more closer to the 60% level? What would be the driver to change that part of the formula? And then, just as a follow-up question on the share buyback. Do you expect to complete most of that $1 billion this year? I know you have an 18-month window. Just wondering, if you could give us some sense on the timing of that, and if that's discretionary or if you have a program in place? Thanks so much.

Thanks, Jackie. I'll start, and Nancy may want to add her thoughts too. Each quarter, when we meet with our Board to discuss our dividend, we reflect on significant past periods. This week, we looked back at the second half of 2020, when gold was averaging just over $1,800 for those six months. We discussed raising our target from the $1,500 range to the $1,800 range based on that gold performance. We plan to have these discussions every quarter. As mentioned in our introduction of the framework in October, it’s more likely that changes will occur semiannually, with discussions happening quarterly. We will evaluate gold's performance over a lagging six-month period while considering macroeconomic indicators regarding gold and assessing the appropriate 40% to 60% range. The recent good performance of gold informed our decision to raise our target to $1,800, and we believe there is potential for further increases if gold holds its current levels or rises. Therefore, we view this as a sound decision within our framework, and we will continue these quarterly discussions with our Board.

Yes. Tom, just a couple of quick things. Just to reiterate, Jackie, that the repurchase program doesn't impact our ability to continue to offer those higher dividends. So we are very flexible in that way. I think that's a key differentiator is our ability to offer both the dividend with full transparency and also the share buyback programs. And then really it is a discretionary program and we will consider a number of factors when we decide to repurchase, but the fundamental underlying thesis is that it will be an accretive purchase. So lots of things to think about, but our view is to provide more value to shareholders in an accretive way.

Hi Tom, Rob, and Nancy. Thanks for taking my questions. First one, I had just related to what's built into the guidance around COVID. Are you sort of taking what you're seeing today, or are you allowing for potential hiccups that could occur? Just trying to work out whether the guidance is sort of the midpoint of the outcomes or whether there's upside if things improve better around COVID? And then just related to that, just wondering if you could quantify maybe on a dollar per ounce basis what the cost of operating in a COVID environment is today and maybe on an ongoing basis? Thanks.

Yes. Thanks Chris. Again, I'll kick off. And Nancy or Rob may want to chip in as well. We've included about a $10 an ounce impact for COVID in our guidance. And that's a lot to do with the hygiene rates and social distancing, the additional logistics of moving people back and forth. And I'd anticipate, as we see in the world play out that we're going to be managing COVID protocols for at least all of 2021 in some shape or form. We may see a little bit of movement around that number, but that's what we're expecting. Rob or Nancy do you want to provide any additional color or Nancy point to where there's some more detail in some of the particulars that we published?

Tom, just to add to what you said. I think Chris we have adapted very, very well to the situation. And one of the key things is that a number of the folks that we've taken off the sites are working hard to make sure we stay that way. So we've made almost a permanent change. But I think the biggest change that we will see is, as the vaccinations are rolled out, as the pandemic eases being able to go back to more normality of people in buses, people in cars, etc. So you need less buses, less cars to transport similar people in similar flights, etc. Those are the things which will make the big differences. But I think one of the key things I'd say is that we have adjusted very well to the situation and I think we'll continue to evolve in a positive way. Nancy?

Thanks. And yes, just to reiterate it is about $10 an ounce built into our guidance for 2021. And then just as a reminder, the impacts of COVID for this year will be reported and disclosed in the other expense line item of our financial statements. Back to you, Tom.

Thanks Nancy.

The other question I had just on Peñasquito. Now that you've been able to ramp the mine back up in the second half of last year after the COVID impact. I was wondering if you could talk through what you're seeing and whether there's opportunities in terms of recovery rates or mining. I know that was one of your target assets in the Goldcorp acquisition. So I just wondered if you could give a more detailed update on that asset and where the potential lies?

Yes. Thanks Chris. We're really pleased with how Peñasquito has not only ramped up out of care and maintenance but is performing and the upside opportunity. And Rob, do you want to provide a little color to that for Chris?

No, I certainly will. And just to reemphasize that what we've achieved at Peñasquito has been quite remarkable, and when you actually look at last year, that is about 13 records that we broke. And the reason I just say that is that those are based around the augmented feed. And not only have we increased it on average, but we've still got some room to go. And if we compare what we did at Boddington at 40.5 million tonnes through the mill on a nameplate capacity of 36 million, we've still got a long way to go at Peñasquito to really make sure that we're sustaining those. But we're working very, very positively. I think in the mine as well, the basics such as payload, and for example, we've been able to increase payload there by nearly 13 tonnes per truck, which may not seem a lot, but given the size of the fleet that's 25,000 tonnes a day that we're able to do. And when you couple that with the drill and blast improvements, the supply chain improvements, and the Pyrite Leach performance where we also saw a record performance in the last four months of last year, it's a site which is showing that it really can perform across a whole number of things. So in short, very pleased with it. I think the potential upside is still very significant just doing the basics and the full potential process that Newmont has used over many, many years as a fundamental part of that.

Thanks, Rob. And that's it for me. And all the best Randy on your retirement. Thanks.

Thanks very much, Chris. I appreciate it.

Good morning everybody. And thanks for taking my question. I'll start with the easy one, which is Randy congratulations on your retirement.

Thanks, Tanya.

Moving on to just second easier one which is just on the production profile for 2021. I just want to make sure I had all of the mines that were second half weighted. That was Ahafo, Yanacocha, Mussel, Porcupine, CC&V. Is that correct? Those are the only ones?

That sounds correct Tanya, and I'd say if you want to get into a macro level the rough trend is going to be maybe 47, 48, 52, 53 first half, second half. And it's going to be the bigger mines that would drive that. So it will be Boddington and Ahafo. The other ones will contribute. But in terms of the big mines that contribute to that, you will see that you will see our North American region and our South American region will largely even through the year, just a little bit to the second half. And then you'll see both Australia and Africa probably more like 45, 55 because of the big contributions in those big assets coming in the second half.

Okay. So Boddington is also second half?

Yes, Boddington's second half. You're really going to see second half and into the latter part of the second half as you get that autonomous fleet up and running and getting some really good grades in the second half of the year.

And there's nothing with Peñasquito that we should be aware of because that one can be quite quarter-grade dependent per quarter?

No. At the moment Tanya, we're in pretty good shape there. So it's looking as though it's going to hold up to fairly even first half to second half.

Okay. Perfect. And now that I have you on Rob, I just wanted to circle back to Tanami and just wanted to talk about the capital increase. And just so that I understand it's about $150 million. I'm just trying to understand a part of it is to do with increase on contractor pricing. Some of it was change in scope. And I think some of it is also a bit deferred in startup. Is that correct?

I'll just continue on that, Tanya. The other part is certainly to do with COVID itself. And if I give an example that we had planned to do all of our engineering in South Africa. But because of the logistics, the bandwidth, etc., we had to move that to Santiago in Chile. That coupled with just getting people in and out of Australia has proven to be quite difficult. And then, as you may remember, that we had to change manufacturing plants from China back into Australia. So there is that kind of 30% related to COVID as well.

Okay. So 30% COVID and then the other 70% is pretty much change of scope, higher contract pricing and a bit on timing. Would that be fair?

The change of scope would include that – the larger diameter of shafts. So if you include that, most definitely. And then certainly the competitive market that we're seeing in Australia especially for those shaft sinking contractors. So those are certainly the big ones.

Okay. And then maybe just lastly, given what we're seeing here just wanted to make sure I ask about inflationary pressures. Are we starting to see inflationary pressures come through the capital and cost structure at all?

I think it's quite a unique circumstance in Australia, Tanya, with the nature of sinking deep shafts and relocation in a country that's got international borders closed. As we look into Ahafo North, which will be the next project where we're doing work, a lot of the work in 2021 is ground clearing, road diversion and using local contractors with some of the plant coming through in 2022. And you'd expect to see some of the COVID restrictions lifting. So I'm not seeing the same level of cost escalation there as we're seeing in quite some unique circumstances for the scope of the work and the location for Tanami.

Okay. No, that’s good. Thank you very much for that.

Good morning, everyone. So Tanya asked similar questions to what I was going to ask about grade and then also about Tanami, and then you answered into the reads around Ahafo North. But could you just remind me, what capital we're looking at Ahafo? What the old guidance was?

I think the old guidance – correct me Eric, if I get this wrong but it's $750 million off the top of my head for the Ahafo North.

Okay. So we could see a little bit higher but not to the extent that Tanami was – Tanami increased?

Yes. I'd say you're looking at a $700 million to $800 million range for Ahafo. We're not seeing the same challenges for that project and its scope as we're seeing at Tanami.

Okay. So just one more question regarding the dividend. You mentioned that it would be reviewed every quarter, but likely reassessed based on gold prices every six months. Considering we're currently below the $1800 threshold you have in mind, and that you have a framework of 40% versus 40% to 60%, if gold price stays around $1,675 to $1,775, even possibly $1,750 for the next three months, how do you see the dividend evolving? Is there enough buffer to maintain the $0.55? What are your expectations for the dividend over the next few quarters? Should we anticipate $0.55 for the next three quarters, or could it potentially be lowered next quarter or in the third quarter?

The key thing with our dividend framework was to have stability and predictability with it, Tanya. So we will certainly – we're not looking to have it go up and down on a quarterly basis. Certainly, at the end of the day, that's a Board decision and we need to look at the circumstances at the time. But having those $300 increments looking at it every quarter but really starting to orient over the longer term on a semiannual basis for lifting or lowering or keeping the dividend the same. So we're not looking for it to have to go up and down. So we would look back at an April meeting. We'd look back at the gold price over the last six to nine months and make judgments about where it's at and where we see the macroeconomics going forward. We'd look at the strength of our balance sheet and our ability to maintain certain dividend levels. So it's very much looking to have stability and predictability for our shareholders based upon a long-term view of gold price, both retrospectively and having a view going forward, as well as our business performance. So I hope you get some clarity.

The $1,500 provided us with some additional flexibility. Given the current fluctuations, I wanted to gain a better understanding of your position and thoughts. It seems that maintaining around $1,800 would be sufficient.

Yeah. And we look not only at the gold price, but we look at the cash flow and the balance sheet as well as we make those judgments.

Thank you. I have a follow-up about Australian inflation. Is it correct to say that the inflation you are experiencing there is primarily on the CapEx side due to the specific work being done, rather than on the OpEx side? Also, I have a broader question related to COVID that I will ask later.

It's quite a unique capital escalation both in terms of the nature of the job and the quite unique contractors who can sink a shaft and line a shaft of this depth. And then when you've got international border restrictions, then you are further constrained in terms of who are the quality contractors you can access. So that particular scope of work that contractor market has hardened due to COVID. We're not seeing the cost escalations on our operating side. We have long-term contracts in place with strategic suppliers, and our labor turnover, which is an important input cost, is at very healthy levels. So we're not seeing operating cost escalations.

Great. Thank you. That's very clear. And just secondly on COVID. So the way you operate in South America and Ghana, are you engaging with the governments on how you guys can help in terms of vaccine deployments, whether that's using your own facilities or funding vaccines directly for your employees and local communities? What kind of conversations are you having there?

Yeah. So we operate across eight countries around the world, and they're all in different phases of rolling out vaccines. And we're engaging with governments in every one of those countries, particularly in places like Ghana and through those Latin American countries to see where we can help and support them in terms of not only the rollout of the vaccine but helping the education around the importance of vaccination. So that engagement is a continuation of the engagement we have with all of those governments as we've managed our way through the pandemic and looks to protect the health of our host communities and ensure that we can operate safely. So it's a continuation of those relationships and discussions that we've strengthened through the last 12 months with this pandemic.

Thank you, operator. My apologies, if we couldn't get to all of your questions today. I was conscious that you've got another call to get on. Please know that Eric saw who was in the queue and we'll be back in touch with you to make sure we follow up with you on your questions. And thank you for your time and I wish you all a good rest of the day. Thanks everyone.