Newmont Corp (NEM) — Q1 2022 Earnings Call Transcript

Good morning, and thank you for joining Newmont’s first quarter 2022 earnings call. Today, I'm joined by Rob Atkinson and Nancy Buese, along with other members of our executive team. And we will be available to answer questions at the end of the call. Before I begin, please note our cautionary statement and refer to our SEC filings, which can be found on our website. Newmont delivered on a challenging first quarter, as our operations and the mining industry as a whole safely managed through the Omicron surge over the first three months of this year. As we emerge on the other side of this wave, Newmont remains well-positioned to deliver solid performance in 2022, leveraging our scale and proven operating model to deliver long-term value from the world's best mining jurisdictions. The strength of our people and stability of our global portfolio not only allows us to endure our short-term disruptions, but it is the foundation of Newmont’s clear and consistent strategy to create value and improve lives through sustainable and responsible mining. Turning to our quarterly results, let's take a look at the highlights. During the first quarter, Newmont produced 1.3 million ounces of gold and 350,000 gold equivalent ounces from copper, silver, lead and zinc. And despite challenges from the Omicron surge and the knock-on impacts from this global pandemic, we remain on track to achieve our full year guidance ranges as we build momentum for a strong second half. I recently visited Ahafo and Akyem in Ghana as well as the Boddington mine in Australia, where I saw firsthand the significant efforts our teams are taking to protect the health and safety of our workforce while continuing to move critical projects forward. With $7.3 billion in total liquidity, we have a net debt to EBITDA ratio of 0.3 times, preserving Newmont's financial strength and flexibility to sustain and grow the business. We also continue to invest in and develop our most profitable near-term projects, including Ahafo mill, the second inspection at Tanami and Yanacocha Sulfides. Just last week, we announced the acquisition of Sumitomo’s interest in Yanacocha, which will bring Newmont’s ownership in this operation and the exciting sulfides project to 100%. And yesterday, we declared a first quarter dividend of $0.55 per share set within our established dividend framework and consistent with our last five quarters. Newmont’s core values of safety, sustainability, integrity, inclusion, and responsibility are essential to creating long-term value for our investors, most governments, communities, and employees. Last week, Newmont launched its 18th annual sustainability report, providing a transparent look at our ESG performance and the issues and metrics that matter most to our stakeholders. And in March, we committed $5 million to provide relief and medical supplies to the millions of people affected by the war in Ukraine. We take pride in being a value-driven organization and our core values are fundamental to how we run our business and where we choose to operate. In line with the geopolitical events and the Omicron surge that have impacted so many around the world, our commitment to sustainable and responsible mining is more relevant today than ever before. During our fourth quarter earnings call in late February, we provided an update on how the Omicron surge and the lingering effects of the pandemic were affecting our operations and the impacts that our stakeholders could expect in the first quarter. As you can see here on the slide, over the first three months of this year, we saw the largest spike in positive COVID cases at Newmont since the start of the pandemic. This graph only shows positive cases and does not include absenteeism from adhering to close contact isolation protocols. As a rule of thumb, for every positive case identified on site, approximately two coworkers were sent home to isolate for a minimum of seven days. In addition, many of our team also needed to take time off to care for sick children and family members, as COVID cases spiked in surrounding communities. Fortunately, due to our very high vaccination status, the severity of any positive cases has remained low. As of today, eight of our 12 managed operations have a fully vaccinated workforce of employees and contractors, positioning us to emerge strongly on the other side of this wave and others that may come. However, as a consequence of managing through the Omicron surge, our operations have been impacted during the first quarter by lower productivity from close contact isolation protocols, supply capacity constraints, and various other safety measures. We've also experienced pandemic-related supply chain disruptions and the impacts from various state and national border restrictions. This has affected both labor availability and the delivery of equipment and critical spares. Although our operations were not directly impacted by the Russian invasion of Ukraine, it has resulted in new and developing complexities in global supply chains and the input costs. As we described in our guidance webcast last December, we assured that escalation factors in 2022 when we developed our business plan to account for higher inflation expected during this year. During the first quarter, we remained in line with our inflation assumptions but we are closely monitoring critical commodities and materials such as natural gas and the ammonia used for the production of explosives and cyanide. Although it is difficult to predict at this stage, the cost pressures from these new supply chain disruptions may increase our unit cost by another 3% to 5% and toward the high end of our guidance range. We will be closely monitoring the situation in the second quarter and we'll provide you with an update during our Q2 earnings call in July. On the production front, we are well positioned to land within our guidance, now tracking to land 100,000 ounces below our midpoint for gold. We continue to expect both production and unit costs to improve through the second half, with approximately 53% of our production weighted to the back half of the year, driven by Tanami, Ahafo, Cerro Negro, and our Canadian operations. As we have demonstrated since the start of the pandemic, we will continue to be as transparent as we can with our updates to the market as we leverage our proven operating model and balanced global portfolio to overcome these mid-term uncontrollable disruptions and deliver on our long-term commitments. At Newmont, we have created a robust and diverse portfolio of operations along with a pipeline of more than 20 organic projects with the scale and mine life to deliver long-term results. Newmont will produce more than 6 million ounces of gold each year and almost 2 million gold equivalent ounces from copper, silver, lead, and zinc, combined that is nearly 8 million gold equivalent ounces per year for at least the next decade, the most of any company in our industry. Importantly, this is attributable production, among our 12 operating mines and two joint ventures, nearly 90% of this attributable gold production comes from top tier jurisdictions. With the acquisition of the remaining 5% ownership in Yanacocha, 11 of our 12 managed operations will be 100% owned, ensuring that our stakeholders receive the full benefit from Newmont's clear strategic focus and superior execution. We firmly believe that where we choose to invest and operate matters. We have a disciplined geopolitical risk program that ensures we routinely assess our jurisdictions and our risk tolerance to deliver long-term results from established mining jurisdictions. Underpinning our portfolio is a robust foundation of reserves and resources, which combined with the gold industry's best organic project pipeline provides the pathway to steady production and cash flow well into the 2040s. We are entering a period of meaningful reinvestments as we continue to advance our near-term projects, including the second expansion at Tanami in Australia's Northern Territory, the development of Ahafo mill in Ghana, and the Yanacocha Sulfides project, marking the next exciting chapter in Newmont’s long and profitable history in Peru. And with that, I'll turn it over to Rob and then Nancy for a more detailed look at our first quarter performance. Over to you, Rob.

Thank you, Tom, and good morning, everyone. Turning to the next slide. Let's dive into the operations and projects starting with Africa. Tom and I had the opportunity to separately visit Ghana recently and we were impressed with the progress of both operations as they continued to advance important growth opportunities in this proven mining industry, including sublevel shrinkage at Subika underground, the Akyem Mine and of course, Ahafo North. As indicated during our fourth quarter earnings call, Ahafo South saw the challenging start of the year. Besides first quarter performance was impacted by supply chain disruptions and global border closures, which impacted labor availability and the delivery of new equipment and critical spares. As an example, last year, the site ordered four new drills for the underground and open-pit operations. We only received the first drill in March this year, with delivery of the remaining drills expected sometime in the third quarter, much later than originally planned. In addition, delays of replacement parts for existing drills are compounding the situation, creating availability challenges with the equipment that we have on hand today. Improved performance has helped to offset these delays, but the impacts from the pandemic have affected our ability to ramp up mining rates in the Subika underground. Consequently, we are evaluating approaches to improve our mining rates, which may include adding a third production level to access higher rates in late 2022 and into 2023. We expect to have an update with our second quarter earnings in July. Our team delivered a solid performance in the first quarter due to sustained throughput and strong recoveries. The team continues to progress stripping of the next layback in the open pit, which will extend mine life by an additional four years and provide future optionality for both underground and open pit growth. Finally, we continue the development of the Ahafo North project, engineering is nearly 90% complete, and procurement is 60% complete as we continue to work together with local communities, traditional leaders, and regulators to secure full land access and commence construction. In just the last few weeks, Tom and I met separately with key stakeholders and received strong support for this important project. Last week, we also achieved an important milestone with the cabinet in Ghana formally approving the divestiture of the highway that currently passes through a section of the new mine site. When operations begin, Ahafo North is expected to add approximately 300,000 ounces of gold per year while creating lasting value for host communities through enhanced local sourcing and hiring as we develop this project. Turning to Australia, at Boddington and Tanami, we experienced the impact from the Omicron surge in the first quarter as labor availability and close contact isolation protocols impacted the region. Additionally, the West Australian border was reopened in early March, leading to an increase in on-site cases, but also allowing our teams, contractors, and business partners to move more freely through the country and to Tanami for the first time in many months. At Boddington, we reported lower production compared to the fourth quarter due to plant maintenance and COVID-related absenteeism as we saw our first COVID cases on site. These impacts were partially offset by improved grades and higher ore tonnes mined from Boddington’s fleet of fully autonomous trucks. The team is diligently working multiple face positions in the circuit to access higher grade ore and we expect tonnes mined and grade to remain strong throughout the year as we continue to optimize consistency, efficiency, and productivity from our autonomous truck fleet, a key component to delivering a strong finish to the year. At Tanami, the site delivered a strong performance despite the impacts from the Omicron surge in the first quarter and a very competitive labor market in Australia. The site also delivered a lower ore grade than the fourth quarter due to mine sequencing and unplanned maintenance at processing facilities. The team continues to progress the second expansion at Tanami, a project with potential to extend mine life beyond 2040. As you can see here in the photo, the assembly of the head frame is nearing completion, which is an important milestone as we transition from the reaming of the shaft to commencing the shaft lining activities. Nearly 85% of the project engineering and procurement has been completed, and over the coming months, the site will focus on the completion of the head frame installation and commencement of the shaft lining, bringing Tanami that much closer to delivering significant ounce, cost, and efficiency improvements. Now over to North America. Peñasquito delivered another solid quarter, a strong mill performance that delivered higher co-product production from lead and zinc offset lower gold production. Stripping has continued in both Peñasquito and Chile Colorado pit with lower gold grade and higher ore coming from Chile Colorado in the first quarter. Looking ahead, due to efficient sequencing gold production from this large polymetallic mine is expected to decrease in the second quarter, but increase in the third quarter due to higher grades delivered from the Peñasquito mine. Moving to Canada, our operations in the country as a whole continued to be impacted by ongoing challenges stemming from the global pandemic and a very competitive labor market. As indicated a couple of months ago, the Omicron surge reintroduced flight capacity constraints, testing requirements, and strict close contact isolation protocols. Working closely with the First Nations, we have maintained our stringent protocols and testing regimes, even as restrictions have relaxed. Due to the remote locations, these impacts were particularly pronounced at Musselwhite and Éléonore, where both sites delivered lower tonnes mined and processed compared to the fourth quarter. As an example, we saw absenteeism rates as high as 15% to 20% during the peak of the Omicron surge in our Canadian operations. At Musselwhite, we decided to place the site in care and maintenance for seven days in February to reduce the spread of the virus and protect the health of our workforce and communities. At Porcupine, our ore grade was offset by lower tonnes processed as a result of COVID-related labor absenteeism and mill maintenance. In addition to challenging ground conditions and some ventilation constraints at Hoyle Pond, the site continues to progress the Pamour layback, a project that will extend mining at Porcupine through 2035. Construction for the water treatment plant is well underway as the team prepares to dewater the pit in advance of full funds approval in the second half of this year. Finally, at CC&V, the mine required a mill shutdown from a conveyor fire that occurred during the first quarter. With the pending conclusion of our contract to supply concentrate from CC&V to Nevada Gold Mines, we are stepping back to assess our operating strategy at the site to determine if there is the potential for a simpler, higher-value, longer-life operation that does not carry the complexity and cost of running a mill to process a relatively small amount of ore mined. This work is underway, and we expect to have an update with our second quarter earnings in July. Moving to South America, Merian delivered a solid performance despite very heavy rain and mill maintenance during the first quarter, as the site continues to utilize an ore binding strategy to balance steady grade and strong mill performance. In Yanacocha, record rains led to a federal emergency declaration in Peru impacting the site as it continues to deliver leach only production while we work to develop the first phase of the Sulfides project, which continues to advance towards an investment decision in late 2022. Engineering is approximately 50% complete and the early earthworks and construction activities continue to progress at the site. Once finished, the camp will allow the construction workforce to begin ramping up in 2023. Finally, Cerro Negro delivered a strong performance in the first quarter as a result of higher grade mine from Marianas North and Marianas Central and ongoing productivity improvements despite disruptions from the Omicron surge. During the first quarter, the team successfully completed the tailings storage facility expansion project and continued to progress the first wave of expansions at Cerro Negro, including the development of the Marianas and Eastern districts to extend existing operations beyond 2030. The team is advancing the development of the San Marcos decline, and as you can see in the quarter, the construction of the roads, infrastructure platforms, and portal access are all well underway in the Eastern district. With that, I’ll turn it over to Nancy on the next slide.

Thanks, Rob. Let’s start with a look at the financial highlights. In the first quarter, Newmont delivered $3 billion in revenue at a realized gold price of $1,892 per ounce, adjusted net income of $546 million or $0.69 per diluted share. Adjusted EBITDA of $1.4 billion and solid free cash flow of $252 million, which includes unfavorable working capital movements of $465 million in the first quarter, primarily driven by timing of cash collections and over $420 million of tax payments, largely attributable to 2021. Free cash flow was also impacted by higher capital spend as Newmont enters a period of significant reinvestment and essential component of growing production, improving margins, and extending mine life. First quarter GAAP net income from continuing operations was $432 million or $0.54 per share. Adjustments included $0.16 related to a non-cash loss on a pension annuitization settlement, $0.04 primarily related to a loss from the sale of La Zanja as part of the transaction to increase our ownership at Yanacocha, $0.05 related to the unrealized mark-to-market gains on equity investments, $0.04 related to tax adjustments and evaluation allowance, and $0.04 of other charges. Taking these adjustments into account, we reported first quarter adjusted net income of $0.69 per diluted share. In our balanced global portfolio combined with our discipline provides significant leverage to higher gold prices from the largest production base in the world. For every $100 increase in gold prices above our base assumption, Newmont delivers $400 million of incremental attributable free cash flow per year. Newmont is the only company in the gold mining industry with the ability to generate these levels of attributable free cash flow, allowing us to confidently execute our capital allocation priorities and build from our position as the world’s leading gold company. A year and a half ago, Newmont was the first in the gold industry to announce a clear dividend framework with a decisive strategy to provide stable and predictable returns. Yesterday, we declared a first-quarter dividend of $0.55 per share, or $2.20 per share on an annualized basis, calibrated at an $1,800 gold price assumption and a conservative 40% distribution of incremental free cash. We continue to review our dividend each quarter with our board, assessing gold price performance along with our operational and financial outlook over the long-term to determine the payout levels within our dividend framework. Since its introduction 18 months ago, Newmont has returned $2.5 billion to shareholders from dividends, demonstrating our confidence in the long-term value of our business and our ability to maintain financial flexibility while steadily reinvesting in our future. Our capital allocation priorities remain unchanged with a clear strategy to reinvest in our business through exploration and organic growth projects, to maintain financial strength and flexibility on our balance sheets and to continue to provide industry-leading returns to shareholders. In the first quarter, we delivered on each of these priorities by progressing our profitable reinvestment into the business with the advancement of our near-term projects, and an ongoing commitment to our robust exploration strategies, enhancing our ownership of world-class assets and improving mining jurisdictions through the acquisition of the remaining interest in Yanacocha and the Sulfides project, maintaining our industry-leading dividend of $2.20 per share on an annualized basis, and sustaining a strong balance sheet with $7.3 billion in liquidity and a net debt to EBITDA ratio of 0.3x, preserving Newmont’s financial flexibility across price cycles. As we look ahead, we are confident in our ability to deliver on our disciplined capital allocation priorities, creating long-term value for the business and maintaining our position as the world’s leading gold company. With that, I’ll hand it back to Tom on Slide 20.

Thanks, Nancy. Newmont has a long history of leading change in our approach to ESG, and these practices have been embedded in our culture and strategy and are woven into the very fabric of our company. Last week, Newmont launched its 2021 annual sustainability report, part of the suite of reports and our company’s ESG practices in key areas that matter most to our stakeholders, including health, safety and security, human rights, the environment, social acceptance, governance, and inclusion and diversity. Some of the highlights from this year’s report include zero work-related fatalities for a third year in a row, with our focus on verifying the critical controls that prevent fatalities and coaching frontline leaders to provide visible self-leadership. Continuing to put the health, safety, and wellbeing of our workforce and host communities at the heart of every decision we made and continue to make during this pandemic. A key part of this was adopting the requirement for all of our workforce to be fully vaccinated. With contributions to our Global Community Support Fund, we supported COVID testing facilities, vaccine awareness campaigns, and vaccine rollouts in areas near our operations. We established the industry’s first sustainability-linked bond, a bond that holds Newmont accountable for meeting our 2030 initial reduction targets, and also to reach gender equality and senior leadership bonds by 2030. By linking the interest rate paid to our ESG performance, this represents the next important step in aligning our financial performance with our sustainability performance. Finally, Newmont played an important role in creating economic value, contributing $10.8 billion to our workforce, host communities, and jurisdictions through wages of benefits, operating costs, capital spend, royalties, and taxes. Next month, we will launch our second annual climate report, which will outline Newmont’s climate-related risks and opportunities, our strategic planning, and the pathways we are taking to achieve our climate targets. We’ve been disclosing non-financial performance since 2004, regularly ranking as one of the most transparent companies in the S&P 500 and positioning Newmont as the gold sector's recognized sustainability leader. We understand that strong ESG performance is an indicator of a well-run organization, and we will only be successful if we forge and maintain strong partnerships with local communities and demonstrate our ability to mine in ways that protect the environment and create opportunities for the people. To address the critical global issues we face today, the mining industry will need leaders to scale, mine life, superior cash flow generation, and an unwavering commitment to leading ESG practices. We believe that Newmont is one of those leaders. We will continue to differentiate ourselves through our clear strategic focus, the discipline of our unmatched global portfolio of operations and projects, and an integrated operating model with a deep edge of experienced leaders as we continue into our next 100 years of sustainable and responsible mining. With that, I’ll turn it over to the operator to open the line for questions.

Thanks very much. I want to ask a question about your cash flow statement. It looks like you had a pretty high working capital spend in the quarter, and I was wondering if you could give us some color on the reasons for that and what you’re doing with working capital? Thank you.

Thanks, Jackie. Good morning. Nancy, do you want to pick up this question?

So, in working capital, that was related to – sorry, that was related to changes in working capital that were related to tax payments made in Q1 that were relatively tied to income and revenue received in Q4 of 2021. So that was the biggest factor. We also had some inventory that had not yet been sold as of the end of the quarter. Those were the key drivers.

Thanks, Nancy. Maybe just one other question. It looks like in some of your regions, your CapEx spending, specifically your development CapEx spending, is a little bit below the run rate for the full year guidance. I guess specifically that is South America and Africa, which makes sense because the major projects there haven’t been greenlit yet. Can you give us some color because I’m thinking at least on Yanacocha Sulfides, the full fund decision isn’t due until December and I’m thinking it’s probably the same in Africa. Can you provide some insight into the expected spending? Do you expect to have a pickup in spending before full funds are decided? Or should we really expect to see those sorts of spending decisions more towards the fourth quarter?

Thanks, Jackie. I’ll pick up Yanacocha first. You will see spending pick up ahead of the full funds decision. The first quarter was certainly the largest in terms of spend that builds up considerably. We’ll more than double that spend as we move into the remaining three quarters. So you’ll build through the second quarter with approximately 42% of spending in the first half versus 58% in the second half. So we will be building that spend towards full fund approval at the end of the year for Yanacocha. You are right; a similar story exists with Ahafo North. We are spending the money now on engineering and procurement and doing the important work with the regulators and traditional leaders around getting the areas of land cleared of structures and farms and the like to be able to do the highway diversion, which has just been approved by Cabinet. This will set us up for breaking ground, which we are expecting to commence this quarter.

That’s perfect. That’s all my questions. Thanks very much Tom and Nancy.

Okay. Thanks, Jackie.

Great. Thank you very much. Thank you for the additional color on the costs versus, I guess, what the guidance expectations were. I’m wondering, that 3% to 5% upside that could take you toward the high end of the guidance range, what does that incorporate? Is that assuming current spot prices continue for the duration of the year, or are there other factors at play?

Yes. Thanks, Josh. I might just walk you through another level of detail in terms of what makes up our operating costs, as we are looking toward that top end of guidance. If you are modeling off the back of that, if you think about our unit cost on a gold basis, it’s probably closer to 5% than 3% as we look across our portfolio. On the total metal, it’s somewhere between 3% and 5%. But if you look at the drivers of it, 50% of our spend is labor, a mix of contracted labor and employees. What we are seeing is a start up in labor costs, due to wage premiums being introduced for specialized services or shutdowns. Also, for instance, Boddington completed one of their major shutdowns in the first quarter. We had to actually reduce the scope for that shutdown because we simply couldn’t secure the workforce to operate within that condition. If you think about that 3% to 5% number, around 50% of operational costs are being driven by contracted services around our operations globally. We do want to watch this closely, because it is a moving target. The next 30% relates to materials and consumables, and the real driver in that realm is ammonia, which is used for explosives and cyanide. To an extent, we are seeing the price on grinding media due to rising steel prices. We’re experiencing price increases probably in the range of 20% to 30% for our cyanide delivery, but that summarized represents less than 3% of our operational costs when you view that impact on the total cost structure. What we are monitoring more closely with materials and consumables is the situation with global supply chains. There are certainly higher freight costs, but we are paying constant attention to ensure we are securing cyanide and explosives for our mine sites to operate as planned. The last 15% is related to energy, primarily driven by diesel, while we are assured at $6 a barrel, we have seen prices exceed $100 a barrel. That is effectively flowing through into our operational costs. However, I believe what will drive that number more likely will be labor-related as we assess our outlook through the remainder of the year.

Great. Thank you for that. Maybe, one more question on the same topic. There were some disclosures about supply chain challenges as well as, I guess, earlier comments all provided on some of the challenges in Ghana. Is this a jurisdiction- or localized issue on the supply chain for specific areas? Or is it specific components? Or is it broad across the board?

Yes, it is more specific components, Josh. In the Africa example, it’s getting drills in. We need both the open pit and underground to the operating development sites. Some equipment suppliers are filling orders but struggle with particular components, which leads to delays in equipment delivery. For the African case, it's drills, which will significantly impact the mining industry globally. It’s a targeted piece of equipment and some of the supplies we had until now were challenged. Global border closures were particularly pronounced in Western Australia, impacting our operations.

Yes. Thanks, Tom. To add a little more color, as Tom said, in Ghana, we specifically had drills for the Ahafo North project. We’re receiving haul trucks, graders, and water trucks, but certain key components remain an issue. It's not a blanket issue across the board.

Great. Is there anything else that you can think of beyond equipment that stands out with that level of tightness? Or is that really the number one item that would stand out?

I think on the equipment side, that’s the one that’s been particularly problematic but in terms of areas that may also be tighter, labor is going to be a key driver for that as well. Some of the consumables will be contingent on our global supply chain oversight relationships to ensure good management of potential disruptions.

Thank you very much.

Thanks, Josh.

Great. Good morning, everyone, and thank you for taking my questions. I have several, but I’ll keep it to three. I just wanted to come back to the guidance you provided and thank you for that. I just want to make sure I heard it correctly because there was a little bit of static on the phone. Tom, did you say we’re looking at 100,000 ounces below 6.2 million for this year?

Yes, good morning, Tanya. Yes, that’s correct. If I offer a bit more color, about 70% of that will come from Subika Underground and the work we’ll do to step back towards a third level to improve operation as we move forward. About 20% will come from Cripple Creek and Victor as we move to more simplified operation, just mining and heap leach. We have incorporated some delays in response to the Omicron surge during the latter part of last year. The final 10% we’ve made up across the three Canadian operations that were significantly impacted through the first quarter. So Tanya, around about 100,000 ounces, with 70% underground, 20% CC&V, and about 10% Canadian operations.

Okay. And does your guidance – you mentioned the 53% in the second half, and obviously, the first half will be weaker. Does all of the asset breakdown you provided in your Q4 numbers still stand?

That’s correct. On gold production, as you’ll see, we’ll drop in the second quarter. We will then climb again in the third, and it will drop again in the fourth, but it’s about evenly weighted across the two halves, which will show different metals in terms of where we’re mining them.

Okay. Just my last question on the guidance. I wanted to see how your April performance has been regarding Omicron in these jurisdictions. Have you seen an improvement in productivity and performance?

Certainly, we are coming out the other side. If I quickly cover the four regions, in Canada, except Éléonore, we have maintained strict protocols of testing and isolating due to the proximity to the First Nations communities around that mine. But in general, we are seeing Canada and the U.S. Cripple Creek and Victor open up well. Ghana has progressed well. Australia, on the other hand, is currently facing challenges due to virus prevalence. There are further updates we’ll receive at the mill from the communities in Australia. Peñasquito is solid, along with Merian, Yanacocha, and Cerro Negro as they get on the better side of the challenges.

So, it looks like you’re coming through it, which is good. I’ll let someone else ask.

Thanks, Tanya.

Thank you. Good morning, Tom, Nancy, and Rob. Thanks for the update today. If I could maybe just go back to the cost guidance, just one more time for some clarity on your exposure to fuel. If we marked WTI at $100 per barrel versus your $60 per barrel, and all else remained constant, could you still stay within your guidance?

Good morning. Congratulations on your new role, Lawson. Yes, regarding that guidance range, staying within our guidance range would indicate prices at current levels. Every $10 per barrel change in oil price affects our free cash flow by $15 million per year. For every $100 increase in gold price, we generate an additional $400 million of free cash flow. Therefore, the revenue dynamics are certainly compensating for the cost increase from diesel or oil. The assumptions we’re making around current oil prices incorporate into our indication regarding guidance.

Okay. That’s excellent color. On cyanide costs, typically, those prices are regional. Are you seeing inflation across all regions? Or are there specific areas where that inflation is more pronounced?

We’re seeing that across the board, driven by what's happening to the natural gas price. It’s a slightly different driver than usual because of the recent circumstances.

That’s great. And then, I’d like to touch on the working capital build. Nancy, you mentioned a portion of that is inventory build. Could you clarify what extent that inventory build may be structural or due to supply chain issues? To what extent might that build unwind throughout the year?

That was merely a quarter-end convention that happens from time to time. It will release all of those sales that took place in April. Sometimes we experience a buildup at the end of the quarter, sometimes we don’t. I wouldn’t consider that a factor for modeling throughout the year.

To expect a standard unwinding?

Yes, absolutely.

Great. Just one final question. I know you intend to be opportunistic with buybacks. What indicators tell you it’s a good time to repurchase your shares?

We always analyze factors, including current valuation, forecast, and trading among peers, when determining appropriate timing for buybacks. The market volatility we’re experiencing now means we are evaluating our options as we always do. We continue to view buybacks as a tool for achieving optimal value.

Okay. Excellent. Thank you all very much.

Thanks, Lawson.

Thank you. Tom and Rob, I want to talk about supply chain issues and cost pressures that you have generally faced. Are you seeing impacts on your capital projects timing and CapEx-wise?

Good morning, Greg. I’ll take that, and then I may turn to Rob for more color. The key capital projects — if I run through them quickly. Tanami 2 is experiencing impacts from the specialized labor we will need for lining that shaft. We are just a month or two away from finishing the reaming of the 1.5 kilometers. The airframe is nearing completion, and we need to set it up for the next couple of years to line that shaft for completion. Securing specialized labor will determine our timeline for that project.

I think it’s worth noting, Greg, that we have completed 85% of the engineering and procurement, which highlights our good planning work. However, as Tom said, it is indeed about the availability of specialized labor that we are monitoring. We remain optimistic about our plans moving forward.

Next, regarding Ahafo North, engineering is 90% complete and procurement is 60% complete. We have most of the heavy mobile equipment in Ghana, getting access to land area cleared, and civil works prepared for developing the project. Breaking ground is an important milestone, and so we expect that we’ll be moving through these tasks over the current quarter.

One important milestone is regarding the road divestiture, which has been formally approved. So our schedule will be focused on ramping up spend in the second half accordingly.

The third major project is Yanacocha Sulfides. In reaction to world events, we made a prudent decision earlier to delay full funds approval, but at the same time, we committed to continue with essential equipment packages. We secured factory slots and pricing for key pieces, like oxygen plants and mills, which ensures a de-risking of aspects of the project. The engineering execution is approximately 50% complete, and we’re pushing through with camp construction. We are determined to get things completed in time for full funding later this year.

That provides clarity, thanks, Tom. With Yanacocha Sulfides, do you expect to have an update in Q3 on that project, or will it be more focused towards Q4 or early 2023?

More likely Q4, Greg. We are evaluating the engineering over the next few months while determining costs and schedules for the full fund decision. We will be ready to provide updates on the other two projects by Q3.

Okay. It’s important to follow up on the guidance mention of CapEx inflation, which you indicated ranges from 15% to 20%. Is that what you’re observing, or do you think you have avoided the worst of that at least in Tanami and Ahafo North?

There is ongoing cost escalation in the mining industry. We’ve managed to avoid some elements because of our procurement processes. Our concern is mitigating the indirect costs related to potentially longer timelines across projects. So, as we hit milestones, we’ll assess the situation further until we get similar indications for additional costs to take further avoidance actions.

The key risk for us is indeed labor costs. Early indications from our project planning have told us we weren’t necessarily planned for this increase, particularly in Australia, so we’re watching this closely.

In terms of the specialized labor costs, do you have an idea of how much they’re increasing percentage-wise? Is it too early to say?

Better to wait until we have clear schedules and costs aligned through our defined projects rather than provide estimations based on a generalized notion.

Fair enough. Thank you, Tom.

Hi. Thanks. My questions have been answered. Thank you.

Thanks, Fahad.

Hi, good morning, Tom, Nancy, and Rob. I just wanted to follow up on Greg’s question related to CapEx. Looking back through the transcript, previously you guys had said in Q4 that it would be a 55:45 split on capital this year. So it appears that spend is actually moved into the second half. Is it reasonable to say that next year, due to that pace of spend you're experiencing, the budgets may be higher?

Good morning, Anita. Yes, the spend profile you described is accurate. However, I believe you are going to see a strong visibility in terms of spending in the second half, with considerable escalation being addressed in the following year as well.

Okay. The next question is more indicative across operations. I notice grades are more severely impacted compared with tonnage due to the Omicron situation. Are your grades expected to rebound closer to reserve grade for most operations?

We are expecting improvements. Grade discrepancies you’re observing are tied to mine sequencing, which is different from what would have otherwise occurred if we had uninterrupted access through the pandemic.

Thank you very much.

Thanks, Anita.

Good morning, everyone. Thanks for taking my questions. Tom, I have a couple of questions regarding cost. If gold prices exceed the assumed levels, how does this affect your thinking on your cost guidance for next year amidst the inflationary environment?

Good morning, Adam. Our yearly cost guidance does not assume any inflation and is un-escalated. Typically, in years past, we’d build in a 2% to 3% inflation assumption in guidance as we prepare for the next year. Currently, we’re observing unprecedented dynamics with the pandemic and global events impacting inflation, so we need to ascertain how critical events unfold this year before finalizing our 2023 guidance.

Thanks Tom, that’s helpful. Relatedly, can you define what the duration has been of previous inflationary cycles, when looking back?

In general, these inflationary cycles tended to last a couple of years, but given what we’re facing, we must remain cautious to avoid drawing overly confident conclusions.

I appreciate the insight. Thank you, Tom.

You’re welcome.

Thanks, guys, for taking my question. Most of my questions have been asked, but I have one on supply chain delays with sourcing equipment. Can you clarify if we’re seeing delays more from manufacturing or logistics?

Yes, good morning, Mike. The delays on key equipment, specifically drills, have mainly been tied to production delays rather than shipping or logistics. The issue lies within the manufacturing programs — it’s a supply chain interruption related to labor and accessibility of components.

Definitely. It’s similar to issues faced in the automotive sector regarding supply chain capacity. While we maintain excellent relationships with equipment manufacturers, we remind ourselves of existing challenges, especially concerning essential components that need approval or production from various locations.

Thanks, guys. I appreciate the explanation.

Thanks, Mike.

Thanks, and thanks everybody for extending your time today. I have a couple of questions regarding inflation. At what point will you attempt to reevaluate the gold price used for budgeting? Would it be possible to change it from $1,200 an ounce?

Good morning, Cleve, and a good question. We are actively debating this notion now. We’re observing substantial market trends driving shifts in pricing. The macroeconomic debate around gold price is ongoing with our internal discussions continuing across the rest of the year.

That makes sense. Would you say that this will likely be a year-end budgeting issue?

Certainly something we can consider incorporating into the plan.

Perfect. On CapEx, are the engineering and construction projects being conducted on a fixed price basis, or is it more of a cost-plus basis?

It varies from project to project, depending on the type of work required. Generally, we prefer fixed contracts with full scope specified to ensure the best outcomes.

For large ongoing projects, our supply chain team works closely with Bechtel to assess updates as we’re developing project specifics. We ensure adherence to all agreements to mitigate exposure to cost fluctuations.

Thank you for clarifying that. Lastly, as it pertains to COVID measures, are you able to adapt your protocols based on varying transmission levels?

Absolutely. Our decision to require vaccination for every employee has proven instrumental in keeping our workforce healthy and safe. We’ve maintained strong vaccination coverage, allowing us to adapt our protocols based on transmission levels. We’re satisfied with how we managed COVID throughout our operations, with limited disruptions compared to our competitors.

I’d just like to add that we have a COVID committee that carefully monitors transmission rates and adjusts protocols in response. For example, while in Ghana, we can now reduce the requirement for masks and allow people to sit together again for meals.

Thank you for the insights. I’ll follow up with you in future.

Thank you!

I think we might be good to conclude now, operator. Thank you everyone for your contributions and attendance today. Please have a wonderful weekend, and I look forward to our upcoming analyst roundtable in a few weeks.