Newmont Corp (NEM) — Q2 2023 Earnings Call Transcript

Thank you, operator. Good morning, everyone, and thank you for joining Newmont's second quarter earnings call. Today, I'm joined by my executive leadership team, including our Chief Operating Officer, Rob Atkinson, and we'll all be available to answer your questions at the end of the call. I'd also like to introduce our recently appointed Chief Financial Officer, Karyn Ovelmen. Karyn is a highly experienced financial professional who has held both CFO roles and Board seats in the resource and energy sectors. She brings a breadth of global experience, and we are very pleased that she has joined the Newmont team. Before I begin, please note our cautionary statement and refer to our SEC filings, which can be found on our website. Guided by a clear, consistent strategy, our focus is on running a safe and sustainable mining business to generate long-term value. Our business is underpinned by a strong balance sheet and a global portfolio with the size and scale to make decisions that deliver on our strategy. And while I'm not happy with our ultimate financial results for the second quarter, I am very comfortable with the prudent decisions that we made during the quarter to safeguard our workforce, protect long-term value, and position Newmont to deliver strong performance in the second half of this year and beyond. During the second quarter, Newmont produced 1.2 million ounces of gold and 256,000 gold equivalent ounces from copper, silver, lead, and zinc, generating nearly $1 billion in adjusted EBITDA and more than $650 million in cash from our continuing operations. There were four important decisions that we made during the second quarter. First, we decided to suspend operations at Peñasquito to focus on finding an appropriate and sustainable resolution to the current dispute with the Union representing our workforce in Mexico. This dispute is associated with a profit-sharing agreement that we made with the Union leadership only 12 months ago. And in May, we paid our employees their profit-sharing bonus for the 2022 year, calculated in strict accordance with this agreement. The Union leadership is now demanding more than double the agreed amount and have taken strike action through the withdrawal of labor. At Newmont, Peñasquito sits within a strong, balanced global portfolio of operations, a portfolio that is supported by the industry's strongest balance sheet. During this important time for Peñasquito, we will remain firm in our resolve and continue to make decisions that protect the long-term value of the operation and benefit our employees, our contracting partners, our host communities, our customers, and all of our stakeholders. We strongly encourage the Union leadership up to and including Senator Napoleón Gómez to cease this strike action and return their members to work. The second decision we made during the quarter was associated with protecting our workforce at Éléonore from the unprecedented wildfires being experienced this summer in Canada, evacuating the mine and placing the operation on care and maintenance. Third, at Cerro Negro, we made the decision to pause mining for two weeks and complete important safety inspections to ensure that we had the appropriate control environment in place at this remote underground mine and to protect the health and safety of our mining teams working there. And finally, at Akyem, we made the decision to process lower-grade stockpiles that were originally planned for the fourth quarter in order to optimize the mine plan, ensuring that we are in a position to safely extract the maximum amount of ore as we complete the current layback in the gen pit over the next few months. As planned, higher gold production is expected in the second half of the year and will be driven by higher grades and tonnes mined from both Subika Underground and open pit at Ahafo. Higher grades and tonnes mined Cerro Negro is the first wave of our district expansion which comes online in the third quarter. Higher tonnes mined and processed at Tanami, where we will mine the highest grades for the year in the fourth quarter. Higher grade run-of-mine ore processed at Akyem as we return and complete the current layback. And when combined with the higher production that we expect from our two non-managed joint ventures, Nevada Gold Mines and Pueblo Viejo, we remain on track to deliver on our full-year guidance. We ended the quarter with $6.2 billion in total liquidity and maintained an investment-grade balance sheet, preserving financial flexibility as we continue through a period of meaningful reinvestment and return a stable dividend to our shareholders. Consistent with our 2023 dividend payout range, we declared a second quarter dividend of $0.40 per share, demonstrating both our ongoing commitment to shareholder returns and our confidence in the long-term strength of our business. We remain on track to close on our acquisition of Newcrest in the fourth quarter and are leveraging the lessons we learned from the successful integration of Goldcorp four years ago as we build out our integration plans. We have also commenced the portfolio optimization work associated with this transaction, making the important decision in June to defer the Yanacocha Sulfides project. This is the first step in delivering significant value through portfolio optimization, and we will continue to evaluate opportunities to resequence project capital and rationalize the portfolio of the combined company over the next couple of years. At Newmont, we recognize that a strong safety and sustainability culture is not only an indicator of a reliable, well-run business. It is fundamental to delivering on our commitments to employees, contracted partners, host communities, and all of our stakeholders. As we position ourselves to safely integrate Newcrest and enter this next chapter in Newmont's 102-year history, we made an important decision in the second quarter to further strengthen our commitment to responsible gold leadership and increase our focus on safety and sustainability. In June, we promoted Suzy Retallack to the role of Chief Safety and Sustainability Officer, reporting directly to me. Suzy is an industry leader with more than 20 years of experience in driving value-based decisions. Over the last five years, as our Senior Vice President, Health, Safety and Security, Suzy has been instrumental in leading the delivery of a step change in Newmont's safety performance, particularly in the area of fatality risk management. Suzy will apply the lessons we have learned from our significant improvement in health, safety, and security to further enhance our performance in the areas of environment and social responsibility. In this new role, Suzy will also support me and my leadership team in the work we need to do as a company and as an industry to create workplaces that are free from harassment, assault, bullying, and discrimination. I'll now turn it over to Rob and then to Karyn to take us through each of our operations and projects, along with a review of our quarterly financial highlights. Over to you, Rob.

Thank you, Tom, and good morning, everyone. Turning to the next slide, let's begin in Australia. Boddington delivered another strong performance in the second quarter, increasing both gold and copper production from sustained grades and improved mill throughput. As part of our multi-decade life of asset strategy for Boddington, we have increased our autonomous haulage fleet with five additional trucks as we increased the planned waste movement in both the North and the South pits. This investment into the next layback at Boddington will support stable gold and copper production for many years to come. We remain clearly on target to hit our 2023 production guidance, and we are well positioned to deliver more than 1 million gold equivalent ounces from this cornerstone asset. Moving to Tanami, the site has recovered extremely well following the record wet weather and extensive flooding experienced in the Northern Territory during the first quarter. We doubled our quarterly gold production in the second quarter and remain firmly on track to land within our full-year guidance ranges and will mine the year's highest grades in the fourth quarter. In addition, we continue to progress the second expansion at Tanami with nearly 50% of the concrete lining of our 1.5-kilometer deep shaft installed. The lining and the furnishing of the shaft continue to be on the critical path as our project team works to deliver significant ounce and cost improvements to our Tier 1 operation in Tanami. Moving up to Africa. In June, I visited both the Ahafo South and Akyem, as well as our Ahafo North project in Ghana. At Akyem, I spent time with the team as we work through the decision Tom covered earlier to prioritize safety, optimize the mine plan, and maximize the ore extracted as we close out the current layback in the coming months. As a consequence of this work, we expect grades to improve by 35% during the third quarter, positioning the site to deliver significantly higher production in the second half of the year and land within our 2023 guidance ranges. At Ahafo South, we delivered higher production as we access the third mining level and additional draw points in the Subika Underground ahead of plan. With access to higher grades from the open pit, the Ahafo mill will process higher grade from both underground and surface in the second half. Ahafo is also on track to commission a replacement conveyor in the third quarter and it remains on target to hit guidance for the year. And finally, it was great to see firsthand the progress we are making on the Ahafo North project. The highway relocation and bulk earthworks continue to progress very well and with the new mining fleet in place, the project team is preparing to commence pre-stripping in the second half of the year. Moving across to North America. As Tom described, Canada has been impacted by unprecedented wildfires, with Quebec particularly affected during the second quarter. In the second week of June, as the fire front approached the property, we made the swift and proactive decision to evacuate our workforce and place Éléonore on care and maintenance to protect our employees and contractors. During this time, our first priority was, and will always be, the safety and well-being of our workforce and local communities. We're now safely ramping up production activities as the forest fire threat continues to abate. And we will continue to monitor the situation in Quebec very closely as we work with the provincial government agencies to assess fire progress and air quality on a daily basis. Moving to Porcupine, we delivered another steady performance in the second quarter and remain well-positioned to deliver improved production in the second half of the year driven by higher grades from the Hollinger pit in Q3 and from Borden Underground in Q4. We continue to progress the Pamour project and are preparing for a full funds investment decision later this year. We will complete commissioning of a new water treatment plant in the coming weeks, which will accelerate dewatering of the pre-market and allow us to commence pre-stripping during the fourth quarter, with first ore expected in 2024. At Musselwhite, we delivered consistent gold production as we progress planned development activities that will increase scope availability in the second half of the year, including access to another double lift stope. As a consequence, we expect tonnes mined to increase by more than 30% and grades to increase by around 15%, supporting a strong third and fourth quarter. Finally, Cripple Creek and Victor delivered solid results due to higher grade and strong recoveries from our heap leach facilities. And now moving down to South America. Yanacocha delivered a strong second quarter as we begin to realize the benefits from applying our injection leaching technology. At Merian, we continued the planned stripping of the next layback in the Merian Pit and the site is on track to deliver 40% higher grade from the Maraba pit in the third quarter, putting Merian on target to hit full-year guidance. Moving to Cerro Negro. In the third quarter, tonnes mined is expected to increase by nearly 30% as the underground ramps up to full productivity following the safety pause that Tom referred to, and grade is expected to increase by 50% as we begin to access the higher-grade stopes from San Marcos, the first of six new deposits associated with the exciting underground district expansion at Cerro Negro. San Marcos will continue to ramp up throughout the year and is expected to reach commercial production in late 2023. Finally, as Tom discussed, we made the decision to suspend operations at Peñasquito on June 7, as we focus on finding a resolution to the dispute with the union leadership. We have and will continue to abide by the fair and equitable agreement that is currently in place and that was importantly, fully agreed to only a year ago with the union. We will continue to communicate directly with our employees and engage with the union leaders and government officials to find a fair, appropriate, and sustainable resolution to this very disappointing dispute. You can expect that we will provide a fulsome update to the market once an agreement has been reached, and we look forward to returning our focus to safe and sustainable mining at Peñasquito. And now I'll wrap up on the next slide with our two non-managed joint ventures. Our share in Nevada Gold Mines and interest in Pueblo Viejo contributed 338,000 ounces of attributable gold production in the second quarter, and we look forward to both joint ventures delivering on their expected strong second half. And with that, I'll pass it over to Karyn to cover our financial results.

Thank you, Rob, and good morning, everyone. I'm happy to be joining the call today and look forward to presenting our second quarter financial results and answering any questions you might have. Before I get started, I wanted to talk briefly about what brought me to Newmont. When I was doing my due diligence on Newmont, I was excited to learn about the company's clear and consistent strategy, leading approach to safety and sustainability, its global diverse portfolio of assets and deep project pipeline to position Newmont for long-term success. Joining in May, I've had the pleasure to meet Newmont's senior leaders and the Board and spend time with my very talented finance team. And I can say that the strength of our people and capabilities have already far surpassed our initial expectations. Over the coming months, my team and I will be focused on building upon the strong foundation that we have today, partnering with the business to improve our overall financial performance and driving our disciplined capital allocation strategy, with a balance sheet that can support our strategic initiatives throughout the commodity cycle. Turning to the next slide. Let's get started with a look at the financial highlights. In the second quarter, Newmont delivered $2.7 billion in revenue at a realized gold price of $1,965 per ounce, adjusted EBITDA of $910 million, cash from operations of $656 million, which includes over $100 million of unfavorable working capital changes. Included in working capital changes were nearly $250 million in tax payments in the second quarter, partially offset by a draw on receivables. We would expect to draw on receivables to reverse in future quarters. The tax payments to decrease in the third and fourth quarter as they have in previous years. In total, we generated $40 million of free cash flow for the quarter, which is net of more than $600 million of capital spend as we continue to progress our most profitable near-term projects and position the portfolio for growth, both in ounces and margins in future years. We maintained a strong cash position with $3.2 billion and an attractive leverage ratio of 0.7 times net debt to adjusted EBITDA. We also maintained solid margins in the second quarter, driven by higher realized gold prices and steady direct costs. Second quarter GAAP net income from continuing operations was $155 million, or $0.19 per diluted share. Adjustments included $0.05 related to unrealized mark-to-market losses on equity investments, $0.03 related to transaction costs associated with our pending acquisition of Newcrest, and $0.06 related to tax adjustments and other items. Taking these into account, we reported second quarter adjusted net income of $0.33 per diluted share. And it is also important to note that this number has not been adjusted for the $46 million in operating costs and depreciation at Peñasquito since the strike commenced and at Éléonore, while the site was proactively shut down due to the wildfires. As Tom and Rob noted, Newmont remains well-positioned to deliver a strong performance in the second half of the year and achieve our full-year guidance. In the second quarter, we declared a dividend of $0.40 per share or $1.60 per share on an annualized basis, consistent with the last two quarters and calibrated within our 2023 dividend payout range of $1.40 to $1.80 per share. We have now maintained a dividend yield above 3% for 11 consecutive quarters, and this continues to be the highest dividend per share in the gold sector. With that, I'll turn it over to Tom for an update on the timeline from today through to the close of our acquisition of Newcrest.

Thanks, Karyn. Over the last two months since we announced the binding agreement to acquire Newcrest, my team and I have engaged with many of our important stakeholders, including employees, shareholders, local communities, and government leaders. These conversations were aimed at listening to and answering questions while also ensuring that the benefits of the transaction and Newmont's strategic rationale were well understood. Over the next couple of months, we will continue to progress the various regulatory approvals ahead of closing the transaction, primarily in Australia and Papua New Guinea. I'm pleased to advise we've already received clearance from the Canadian government. Earlier this month, I visited Papua New Guinea for the second time, meeting with various government officials, including Prime Minister James Marape, Deputy Prime Minister John Russo, and Mining Minister Sir Ano Pala. As we continue this engagement, we remain excited for the opportunity to operate Lihir and develop the world-class Waihi gold mine project. We are diligently working towards launching a scheme booklet and filing a proxy statement this quarter with shareholder votes expected in October. We then expect to close the transaction in November and begin the important work to safely integrate the Newcrest teams and operations into our portfolio. Then be in a position to provide 2024 guidance for the combined company in February of next year, along with our fourth quarter and 2023 results. With that, I'll thank you for your time today and turn it over to the operator to open the line for questions.

Yeah. Thank you very much. Tom, I just wanted to ask about inflationary pressures and how you see them evolving into the second half of 2023 and 2024 ex any volume improvements you're going to get, which obviously will help on a gold per ounce basis?

Yes. Thanks, Greg. Good morning. What we're seeing in our direct cost is largely consistent with what we expected as we guided this year, and I just step through that in a little bit more detail. About half our cost base is labor, about 50% is labor and made up pretty evenly between employees and contractors. Employee costs remain largely stable and expect that to remain largely stable through the rest of this year and into next. Certainly, seeing some settling down in Australia, Canada, and the United States. Contracted services also have stabilized. So still at a higher cost that we saw with the inflation coming through last year but largely stabilized, with maybe a little bit of easing into the second half of this year, but certainly seeing the volatility come out of that, and that's at 50%, that's a pretty important driver. 30% materials and consumables. So it's the various reagents, particularly cyanide, explosives, steel for grinding media, and the like. We're seeing those largely consistent with what we expected. Natural gas prices have come off, which is then flowing through to the prices that we're seeing for both cyanide and explosives. So a little bit of relief tailwinds with those consumables and would expect that to flow through the second half of this year. We'll see the supply of natural gas may tighten a bit, which may put a bit more tension on those prices, but certainly expecting to see stable or a little bit of an improvement and still pretty much holding its own as we look at the grinding media around the place. And then the next big category is fuel and energy at 15%, and that's driven by diesel. We've certainly seen some relief in oil prices relative to what we've assumed. We would expect to see that carry on through the second half of this year, but it's a volatile commodity and one that we'll continue to be conservative as we think about our assumptions for that. So a few tailwinds regarding some stability and consistent with what we expected for 2023.

Great. That's very helpful, Tom. And just a follow-on. In the presentation, you talked about the guidance you're going to provide in February. I'm just wondering how detailed do you expect to be in February around Newcrest and your expectations for how that's going to fold into the company in 2024?

We're certainly working towards being in a position where we can give you a view of 2024 for the combined portfolio, which would include our view of the five Newcrest assets being folded into our operations. So if things continue to go to plan in terms of regulatory approvals, shareholder votes, and closure, integration planning is busily being done. We'll receive the keys to the car, so to speak, in early November, I would hope, and that gives us time to work through those mine plans, apply the Newmont lens on those mine plans and the assumptions we make for some of the key input assumptions and certainly working towards being in a position to provide the 2024 guidance for the combined portfolio in the February timeframe.

And what about the three to five-year guidance beyond that, will that wait?

We will monitor that and see how those numbers come together. We'll certainly be looking in the 2024 timeframe to provide as much information as we think appropriate, certainly for 2024 in that February timeframe and then look for a logical time for a Capital Markets Day to share some more information on the combined portfolio and maybe even look to try and include some sort of site visit with that. So that's still work in progress, Greg. But certainly, 2024 is in our side for the February timeframe.

Great. Okay. Thank you, Tom. That's it from me.

Thanks, Greg.

Hi, good morning Tom and team. My first question is with regards to the transaction. Could you tell me, did the independent adviser or the independent expert for Newcrest reach that conclusion yet?

Good morning, Anita and thank you for dialing in. I think that might be a little vacation period for you. So, good to hear your voice, and hopefully, you can get off this call and back to some better years of time. They're still working through that process. So, that's their working on it, it's in train working through, but not finished yet. So, it's, but it's on schedule in terms of when we need that information in order to be able to proceed for the timeline we had in the deck.

Okay. For my second question, I'm trying to clarify some of the grades that Rob mentioned. Let's start with Musselwhite. I believe they reported a 30% improvement in tons mined and a 40% increase in grades. Is that for Q3 or Q4? If it’s for Q3, I calculate that to be significantly above your guidance.

We are definitely noticing an increase in grade for both Q3 and Q4, which is consistent across these quarters for Musselwhite. We're starting to open up a nice double lift stope, which will enhance both our grade and volume. Additionally, we're expecting some high-grade material to come through as a result of our efforts in the first half. This trend of consistent grades is projected to continue through the second half, with an increase in volume expected as we progress into the third and fourth quarters. We anticipate the highest volume through the mill in the fourth quarter, maintaining this consistency.

Okay. And then just in terms of Ahafo, where you mentioned a 35% increase in grades in Q3. Is that correct?

That's correct, Anita. In Akyem, we moved into stockpiles, and since Akyem has a long, narrow pit, we're extracting the last of the ore from the bottom and preparing for the next phase. We're focused on maximizing that extraction as well. We've exited the pit to ensure that the catch benches are in good condition and have now transitioned back into the stockpiles that we anticipated accessing in the fourth quarter. Currently, we are processing ore directly from the bottom of the pit. You'll notice a significant amount of this grade ore starting to come through, particularly in the third and fourth quarters, with the highest grades expected in the fourth quarter, building up from the third quarter.

Okay. And then lastly, at Cerro Negro, I just want to confirm what I heard. There's a 30% increase in tons mined and a 50% increase in grade. However, I don't think Rob specified which quarter this applies to. Does this start in Q3, or is it heavier in Q4?

We see a consistent increase in grade at Cerro Negro throughout the third and fourth quarters. Additionally, there is a noticeable rise in tonnes mined due to our enhanced ability to access ore, particularly as we begin extracting ore from San Marcos for the first time. Overall, the second half of the year shows consistency in terms of material processed through the mill and stable grades across both quarters.

Okay. Thanks. I’ll leave it there. Thank you.

Anita, we also have exciting developments at Ahafo. The Subika open pit is showing great potential, and we now have the third level of Subika underground open with more than 20 draw points available. This gives us a combination of high grades and significant tonnage from both the open pit and underground operations at Ahafo. It's crucial to consider this as we look towards the second half of the year, especially since the fourth quarter is expected to be particularly strong. The alignment of mining sequences in both the open and underground areas is promising as we move through the third and fourth quarters.

Okay. Thank you very much.

Thanks, Anita.

Yes, thanks. Can you just give a bit more color in terms of the background on pausing at Cerro Negro in mining? And does it have with what you've kind of investigated and decided on a go-forward basis, does it have any material impact on the cost structure of that asset going forward?

Good morning, Mike. There is absolutely no impact on the cost structure moving forward. Occasionally, there are events that arise, and we experienced a significant potential one in the underground mine involving a loader. We were not satisfied with the control measures in place, as this was a piece of equipment involved in an incident. Cerro Negro is located in a very remote part of Argentina and Patagonia, and we wanted to ensure that our expected standards were communicated clearly across the four crews on site. We conducted thorough inspections of the underground mine to confirm that the equipment and conditions were well understood. Given the remote location, it's crucial that we ensure clarity in expectations and understanding of the underground conditions. As we enter the second half, which promises an increase in both grade and tonnage, we took the necessary time to clarify these conditions and set expectations. There will be no additional costs; it’s primarily about ensuring that leaders at all levels and their mining teams understand our expected standards, allowing us to confidently proceed with what will be a strong second half at Cerro Negro.

Okay, great. So pretty much to sum up, it's more kind of ensuring operational best practices of Newmont being executed at that site?

That's right, Mike. We will do that from time to time in my experience. There are times when you must always maintain a chronic unease with safety, and there will be events that come from time to time, and part of maintaining solid safety performance is recognizing when you may need to just pause and ensure everyone's got their mind on the game, understand what's expected, and then move forward with confidence. So that's something we do from time to time. Certainly, Cerro Negro we cited that this needed a couple of weeks down. I'd expect as we do our integration planning for Newcrest and think about the five new operations coming into our portfolio, think about the work we might do through November and December. That's certainly one of the debates we're having in terms of how do we ensure that the standards that we expect at Newmont are there in place on day one of those new crystal operations. So it's something that certainly both Rob and I have done in our careers from time to time when we see a need to reset expectations.

Okay, excellent. And just one question on Peñasquito. With respect to the stream, is there any minimum delivery of silver that you're tied to, or are you fully free to shut down and not deliver sulfur when you're not producing?

That's correct. That's my understanding, Mike, we'll get the team to just run that to ground. And it's different from that. We'll let you know, but that's our understanding.

Okay. That’s it from me guys. Thanks so much.

Thanks, Michael.

Good morning, everyone. Thank you so much for taking my question. I wanted to ask about Peñasquito, just to get some clarification just from so many news articles that keep coming out. I'm just trying to understand with the union being on June 8th. I just want to make sure that I understood some of the articles that came out. Has the union gone to paying the workers? Because my understanding was the workers aren't being paid being on strike that the union has gone into pay the workers. Do we know if that's a correct statement from some of the papers I was reading?

Tanya, that's correct. The members, the union members who are on strike are not being paid by the union that they're members of. And as part of our position at the negotiating table, we're not paying back pay.

Okay. So the union is not paying and you're not paying. So they haven't been paid since June 8th.

That's right. So a workforce of some 2,000 people aren’t being paid. You've got a much bigger contractor workforce that aren't being paid. You've got an extended community, there's some 28,000 people that rely upon those wages to receive some benefits. They're not being paid. We're the biggest taxpayer in the state of Zacatecas. They're not getting taxes. Our contributions are close to $2 billion a year to the Mexican government through both taxes and royalties, which are not currently being paid. So our message to the union leadership is we have a fair and equitable agreement. We paid in accordance with that, and we strongly encourage them to get their members back to work so that we can start paying wages again.

There was an article stating that the union leader was taking money from their funds to pay the workers, and I wanted to clarify that. As we approach July, how should I understand the monthly costs associated with care and maintenance? Specifically, what kind of costs should I expect you to incur for care and maintenance, and will these costs be included in the operating costs or classified separately? Thank you.

Thanks, Anita. After the call, I'll have Daniel follow up with you about something in our earnings release. For the month of June at Peñasquito, we faced $23 million in operating costs and an additional $15 million in depreciation due to the suspension of operations. Operations were mostly down for June, which gives a good indication of what to expect moving forward.

Okay. And I would run that through the cost. You're not going to take it out separately. Sometimes you've taken it out and included it out of operating costs into other items.

No, we don't plan to do that, Tanya. So what you described is how best to model it.

Okay. Thank you for that. And then if I could just go back to Anita's question on just the second half performance with some of the mines that I think Cerro Negro would be evenly distributed Ahafo and Mussel are going to get higher Q4. Is there any other operation that going to have a higher Q4 because when I look at the numbers, you're looking at a production profile of Q4 being significantly stronger than Q3. Is that how I should think about it?

That's correct. Tanya, we're preparing for a robust fourth quarter. In some regions where we operate, third quarter tends to be wetter, so we usually see better performance in the drier areas during the fourth quarter. Pueblo Viejo is ramping up, and we expect 40% output from there, which is crucial for the second half of the year. Nevada Gold Mines is also forecasted to have a strong second half, contributing significantly to our performance. At Tanami, we have consistent throughput in the second half, but we will be accessing our highest grade stopes in the fourth quarter, which is an important detail. We've also noted that Merian has exhibited a stronger second half, remaining consistent throughout the third and fourth quarters. Overall, I believe we have addressed the main factors differentiating the first half from the second half and where we anticipate higher performance in the fourth quarter.

I appreciate that. When examining the production profile, excluding Peñasquito depending on what happens there, the fourth quarter will be significant for achieving your guidance.

That's right, Tanya.

If I could just do one final question.

Go ahead, Tanya.

I would like to follow up on Greg's questions about the inflationary trends you are experiencing. I want to confirm this because other companies are not reporting the same outcomes. Would it be accurate to say that you are observing a decrease in cyanide pricing compared to your current levels? Additionally, I am curious about whether you plan to restock your inventories at these lower prices. Some contracts are set to expire in three or six months, and I am interested in when you anticipate renegotiating at these reduced levels so we can understand how it will impact your cost structure.

So, Tanya, our supply chain strategy, especially regarding key commodities, involves establishing long-term strategic contracts based on the scale of our portfolio, which incorporates price rise calculations. As a result, we essentially take the prevailing market price, but at a competitive level. As prices fluctuate, we experience some relief from the volatility in price increases or decreases. With the inventories available at our sites, it takes some time for these changes to reflect. Recently, as natural gas prices have decreased, we are witnessing lower prices for ammonia and caustic soda, as well as improvements in cyanide and explosive costs. These changes are associated with key commodity prices and are reflected in our contracts. The impact will gradually flow through our inventories, and we will continue to adjust our pricing according to the agreements in those contracts, a process that typically takes one to three months to fully integrate into our inventory.

Okay. And so those you could see them coming in, in Q3 and into Q4?

Yes, yes, we'll see some of that benefit in Q3 and Q4, absolutely.

Okay. Great. Thank you. I will get back in the queue. Thank you.

Thanks, Tanya.

Good morning. Can I just follow up on Peñasquito? Tanya covered the ongoing cost, but where is the concentrate situation? Is there concentrate in transit that's off-site that's provisionally priced and you're going to have some sales in Q3 if nothing happens, or I was looking at your sales versus your production, and I know it varies quarter-by-quarter and lead versus zinc, where are we on that? Is there actually a cash inflow to you from concentrated? Is it all stuck at the site, or where is that situation at the moment?

Hey, good morning Brian. So, there's nothing left to put in all the sales being recognized in the second quarter. So, there's nothing in the supply chain from the mine site to the smelters that hasn't been sold and recognized. And then we have a small amount of concentrate stockpile on site, but not much. The site's been put into care and maintenance in very good neck and everything is safe and secure onsite. So, the expectation that common sense prevails and we've got a workforce back at work. We can ramp up very quickly with a lot of experience in being able to ramp up from the pandemic days. So, we know how to get that big mine back up and running and producing concentrate very quickly. So, it's pretty clean in terms of where we sit with the concentrates.

Great. Thanks very much, Tom.

Thanks, Brian.

Sure. Thanks for taking my follow-up. So a few more questions in terms of the details. At Tanami, could you just go over what you're looking for in terms of grades and tonnes in the Q4, Q3?

No problems, Tanya. The Q3…

Anita.

Sorry, sorry. I live in the flow.

And you called Tanya, Anita.

Daniel was writing me notes. Tanya, if you're still listening, my apologies, and I needed my apologies. Obviously, I need a holiday, sorry, how embarrassed. The high grades are in the fourth quarter. You'll actually see a little bit of a step up in the third quarter from what we were able to see in the second, and then we get into some nice high-grade stopes in the fourth quarter. So pretty consistent through the mill and a step-up in third and fourth quarter as they're free and clear of some of the disruption from the weather in the first half. So you see a step-up in volumes through the mill but the real grades flow in the fourth quarter. Nothing outrageous. Certainly, well within the grades that we've seen historically.

I noticed the spending at the different projects. Tanami seems to be on track, but I'm unsure of the timeline for building out these projects. Regarding Ahafo North, the spending appears to be lower, with only about 3% of the expected budget utilized compared to Tanami. Could you provide more details about the timeline and spending rate for both Tanami and Ahafo North?

Sure, I'll begin with Ahafo North and Rob may want to add to this. Ahafo North has primarily focused on getting the work areas prepared in the first half of the year. This includes clearing land and bringing in equipment. We are positioning ourselves to begin the pre-stripping work, followed by the civil work for constructing the processing plant and other necessary infrastructure. We are in the process of ramping up to accelerate our operations for an open pit mine with a processing facility. Regarding Tanami, we are currently making significant progress with the shaft, including concrete lining and integrating the various facilities connected to that structure. This stage is now stabilizing as an essential part of our timeline. Most of the surface infrastructure work is almost complete, but there is still some equipment that needs to be installed at the right time. At Tanami, the underground excavation is finished, and we are now working on mobilizing construction crews underground to begin building out the conveyors, crushers, and all supporting infrastructure. We are gearing up to advance that area of work. These two projects differ considerably in their infrastructure needs, with one focused on underground facilities and shaft lining, while the other is developing an open pit mine and related infrastructure. Rob, do you have anything to add?

Anita, I would just emphasize what Tom said, the number of fronts that we're actively working on at Tanami is far larger than Ahafo North. So every part of that project is getting worked on. And as Tom said, Ahafo North is seeing it just a month or so ago, the civil works are progressing very, very well. In the coming months, that's when we will see significant spend, whether it be the contractors coming in. It's the steel getting erected. It's the hiring of cranes, it's the digging of tranches, et cetera, it's the construction of the tailings dams. So as the next few months pass, the number of fronts that we start working on at Ahafo North significantly increases. And as such, we'll see that increase in spend as well.

In terms of that work, how much has been committed or what is the visibility on the cost level for the latter half of this year and early next year?

In terms of, Anita...

I guess I'm just trying to understand that if you haven't – yes, what I was trying to understand is if you haven't really started getting into the guts of it, how certain are you that the CapEx guidance range is still good?

The key thing, which I'd certainly see, Anita, is that on the procurement side of things that we have basically secured just about all the supplies for both the projects. And I think that protects us enormously. The engineering that we've also done on both projects is at a significant level as well. So we've got a large degree of confidence. The biggest thing is always is with shaft building. We progressed down there. And at the moment, we're aligning that very well. We've got patches of over break, which we'll deal with. But at the moment, because of the engineering, the procurement, we're still very much on track.

Thank you. That's all my questions.

Thanks, Anita.

Thanks, operator. Just a quick one for Mike Parkin's question. Just confirm there's no minimum payment on the silver stream, Mike, if you're still listening on the call. Thank you all for making the time for the call this quarter, and please enjoy the rest of your day, and thank you for your time. Thanks, everyone.