Newmont Corp (NEM) — Q1 2024 Earnings Call Transcript

Thank you, operator. Good morning, everyone, and thank you for joining our call. Today, I'm joined by my executive leadership team, including Natascha Viljoen and Karyn Overman, and we will all be available to answer your questions at the end of the call. Can I please ask you to note our cautionary statement and refer to our SEC filings, which can be found on our website. Before we begin today, I'd like to take a moment to remember the three colleagues who sadly lost their lives working for Newmont this year. Ike Cobbina Morrison or Cobe, as he was known to his friends and colleagues, was a dedicated and hardworking member of our Ahafo North project team and a natural leader. Cobe was a son, a husband, a father, and a dear friend to many, and he'll be greatly missed. Rosana Ledesma was a daughter, a wife, and a mother to a young daughter. Civil engineer Rosana was part of the original team that developed Cerro Negro 11 years ago and had aspirations to soon become a part-time farmer in Argentina. And Daniel Ochoa was a son, a father to two young boys, a partner, and a brother. He has been described by his colleagues as a strong team member with ambitions to further develop his career in mining. The investigations into these tragic incidents have been led by two of our managing directors from different business units, with the support of teams of subject matter experts, to ensure that we truly understand the cause of the incidents. Our response will include implementing both immediate measures from early observations from the investigations, as well as taking a structured approach to reinvigorate our safety systems, tools, and in-field leadership activities that will all have a heavy focus on the quality of application. Sadly, these recent incidents are a stark reminder of the need to maintain discipline and a relentless focus on safety fundamentals. The loss of Adam Kennedy, Cobe, Rosana, and Daniel over the past six months has had a profound impact on the entire Newmont family, and it is with great humility and resolve that we will continue to challenge ourselves to ensure that everyone working in our business goes home safely to their loved ones. Turning to our quarterly results, we are firmly on track to deliver our 2024 guidance. We are pleased with our operational performance in the first quarter and remain focused on delivering consistent results as guided over the remainder of this year and beyond. I also want to reiterate the four key commitments that we have made to our shareholders. We continue to make progress on these commitments, and I'd like to provide a brief update on our first quarter achievements. We're strengthening Newmont's position as the gold industry's recognized sustainability leader. Last week, Newmont published their 20th Annual Sustainability Report along with our third annual taxes and royalties contribution report, both providing a detailed and transparent look at our values-driven approach to sustainability and the economic contributions we made in the jurisdictions and communities that we operate in. With this sustainable foundation in place, we have created the industry's strongest portfolio of world-class gold and copper assets in the most favorable mining jurisdictions. From this portfolio, we produced 1.7 million ounces of gold at an all-in sustaining cost of $1,439 an ounce in the first quarter. We continue to expect these unit costs to improve throughout the year, driven by both higher production in the second half and the delivery of synergies. I'd also note that in the first quarter, our go-forward Tier 1 portfolio produced 1.4 million ounces of gold at $1,378 an ounce. Our Tier 1 portfolio also produced over 480,000 gold equivalent ounces from copper, silver, lead, and zinc, and included in this number is the 35,000 tonnes of copper that we produced and sold. We generated $776 million of cash flow from operating activities in Q1, including a $666 million reduction from working capital, which Karyn will cover in a few minutes. When we exclude the $291 million one-time stamp duty payment we made in February in connection with our acquisition of Newcrest, free cash flow for the quarter would have been $217 million. Our second quarter production and costs are expected to remain relatively consistent with the first quarter, and we continue to expect that our gold production will be weighted to around 53% in the second half of the year, remaining firmly on track to achieve our full year guidance on both production and cost basis. In the first quarter, we also continued to progress the divestment of our six high-quality non-core assets this year. This morning, we announced the sale of our Lundin Gold financing facilities, generating $330 million in cash proceeds and furthering our commitment to maximizing shareholder value by monetizing our non-core assets. We continue to maintain our exposure to Fruta del Norte through our equity interest in Lundin Gold. Underpinned by the industry's strongest portfolio of gold and copper assets, we remain committed to maintaining a disciplined and balanced approach to capital allocation. As part of this, we declared a first quarter dividend of $0.25 per share, demonstrating our ongoing commitment to returning capital to shareholders. We refinanced approximately $2 billion in debt related to the Newcrest acquisition. We continue to advance our four key projects we have in execution: our second expansion at Tanami, our new mine, Ahafo North, and add two new block caves at Cadia. Finally, turning to synergies, we remain firmly on track to deliver on our commitments. In the first quarter, we achieved $56 million in synergies, bringing the total delivered to $105 million since we closed our acquisition of Newcrest in November last year, and building solid momentum towards our commitment of delivering a $500 million synergy run rate by the first of January 2026. We have identified a series of initiatives, each with action plans and dedicated resources in place that have us on track to achieve a $335 million run rate by the end of this year, representing two-thirds of our $500 million synergy commitment and well ahead of the run rate we estimated when we announced this commitment in May of last year. Starting with the core of this value delivery, we are seeing great opportunities emerging from our full potential work, and we are just getting started. At Lihir, we recently completed the first phase of full potential, from which we have identified initiatives that will deliver more than $150 million of value, close to double the synergy target we allocated to this new Tier 1 operation in our portfolio. I've just returned from Lihir, and the key to extracting this value will be simplification. Following a very similar approach to the one we used at Penasquito five years ago, we have key members of our Newmont technical team on the ground in Papua New Guinea supporting the site team to work on simplifying operations by focusing on the areas that would genuinely move the needle and stopping the non-value activities that have historically plagued this operation. One example of this work is the work we are doing to debottleneck the materials handling and crushing circuits, which have been limited by Lihir's different oil properties, resulting in downtime from spillage, block shoots, and block crushes. From this initiative alone, we expect to improve mill throughput and generate over $50 million in annual cash flow improvements. With the future waves of opportunities already identified at Lihir, we remain very excited about the untapped potential at this operation. We are also well into the first phase of our full potential work at Cadia, Red Chris, and Brucejack, and have already identified several high-value opportunities that we will progress in parallel with the initiatives now underway at Lihir. For our supply chain synergies, we have already realized close to $30 million from negotiating more favorable terms and pricing for materials and equipment, as well as first consolidating and then renegotiating service contracts. As we look ahead, we will continue to work closely with our key suppliers, leveraging our unmatched scale and global partnerships to seek improvements through negotiations and tenders over the course of the year. Then turning to G&A, we have already achieved over 80% of the synergies that we committed to, and we expect to exceed our $100 million G&A commitment by the end of this year. Most of our G&A synergies are coming from employee and contractor rationalization, as we expected, and to a lesser extent, from reductions in insurance premiums and other administrative fees. We look forward to realizing the significant production and cost benefits from our synergy work, and we will continue to provide you with updates on our progress each quarter. With that, I'll now pass to Natascha and then Karyn for an update on our operational and financial performance for the quarter. Over to you, Natascha.

Thank you, Tom, and good morning, everyone. After the loss of our colleagues at Ahafo North and Cerro Negro, Tom and I have spent time at these two sites and with the project operational and investigations teams to get a firsthand understanding of the incidents to inform our global response to address our safety performance. In addition to Ahafo North and Cerro Negro, I had the privilege of visiting five of our six managed Tier 1 operations and spend time with our colleagues at Boddington, Penasquito, Akyem, Ahafo, and Lihir, as well as Yanacocha and Merian. Our operations delivered a strong first quarter performance in line with our business plan and outlook for the year. With full potential underway at many of our sites, we remain confident in our ability to deliver safe and efficient production, keeping us on track to deliver on the commitments Tom just described. I will cover the first quarter performance and outlook for our Tier 1 operations, starting with Tanami. Tanami achieved planned production for the quarter, and despite the heavy wet season in the Northern Territory that resulted in a six-week closure of the Tanami track, in the first quarter, Tanami delivered higher tonnes mined from deeper underground and successfully completed its planned mold shutdown, positioning the site to deliver at least a 20% increase in gold production in the second quarter compared to the first. At Boddington, the stripping of the current laybacks in both the North and South pits continued to ramp up in the first quarter, an investment that will bring forward stronger gold and copper grades starting in 2026. Total material moved increased over the fourth quarter due to improved tonnes mined and higher shovel productivity through the introduction of double-sided loading for our autonomous truck fleet, representing a major milestone for this ore fleet as the performance of this technology continues to go from strength to strength. Penasquito delivered strong silver and lead production from the Chile Colorado set in the first quarter, as wide stripping continues to progress in the Penasco pit as previously indicated. As a result, and as planned, we continue to expect gold production to be around 60% weighted towards the second half of the year at this world-class polymetallic mine. As we return to mining ore from the Penasco pit towards the end of the year, we will have access to these higher gold rates in the fourth quarter and into next year. At Ahafo, we continue to optimize the processing circuits in the first quarter, achieving a 37% increase in mill throughput compared to the prior quarter. The newly fabricated girth gear for one of the two SAG mills has arrived on site, and we remain on track to replace this gear in May of this year. Once the new girth is commissioned, we anticipate a 10- to 20-day ramp-up period to reach full processing rates, resulting in even stronger production levels at Ahafo into the second half of the year. Cadia continued to deliver strong gold and copper grades from the Cadia block caves in the first quarter. However, as factored into our guidance, these grades are expected to gradually decline over the remainder of the year as we transition from mining this cave to Panel Cave 2 and 3. The work we are doing on both tailings rectification and expansion at Cadia, as mentioned last quarter, is progressing well. Tom and I visited Lihir in early April, and we were impressed with the team's dedication and understanding in implementing full potential work. As Tom said, this work will focus on simplifying the operation and being clear on the highest value option that will drive stability through the mining value chain. In addition, I want to flag that the largest of our four autoclaves at Lihir will come down in Q3 for planned maintenance. This shutdown is included in our guidance. During the first quarter, we continued to progress the four key projects we currently have in execution. At Ahafo North, we are advancing the construction of the processing plant and mine service facilities, along with wide stripping activities to allow the mining of ore to commence towards the end of this year. We are diligently focused on progressing the project safely and efficiently and looking forward to delivering new low-cost ounces in the second half of 2025. At the second expansion of Tanami, our focus is on safely lining the lowest section of the shaft. As you can see in the photo, we also continued to progress the construction of the underground infrastructure, including pouring the concrete foundation for the crusher chamber during the first quarter. The two block caves at Cadia are both progressing well. We are advancing cave development to bring production online at Panel 2-3, and we are progressing underground development work for Panel Cave 1-2.

Thank you, Natascha. Let's get started with a review of the financial highlights for the quarter. Newmont delivered solid first quarter earnings, driven by strong production volumes and favorable metal prices. As a reminder, results included only two months of our equity investment in Lundin Gold, which is accounted for one quarter in arrears. In the first quarter, Newmont delivered $4 billion in revenue, at an average realized gold price of $2,090 per ounce and copper price of $3.72 per pound. Adjusted EBITDA of $1.7 billion, and adjusted net income of $0.55 per diluted share. The most notable adjustment to net income for the quarter was a $0.43 add-back related to non-cash impairments, non-core assets that were classified as held-for-sale as of March 31 under U.S. GAAP. Assets that are classified as held-for-sale require a specific evaluation and need to be recorded at the lower of the carrying value or fair value less cost to sell. As a result of this evaluation, Newmont realized a non-cash loss on assets held-for-sale, including the associated tax impact, of $485 million, primarily related to the Coffee project, as opposed to assets that are currently operational. As I indicated on our previous call, we anticipated minimal free cash flow in the first quarter, primarily due to the timing of production and payments. We generated over $1.4 billion of cash flow from operations in the first quarter before a working capital reduction of $666 million. These changes in working capital included a one-time payment of $291 million related to stamp duty tax stemming from the acquisition of Newcrest, which was accrued for last year. The building stockpiles primarily at our newly acquired sites of $193 million. A build in accounts receivable of $84 million, largely due to the ramp-up of operations at Penasquito in the first quarter and the timing of concentrate sales, and $59 million of reclamation spend primarily related to the construction of the Yanacocha water treatment facilities. Yanacocha's ongoing closure advanced to the feasibility state at the end of last year and continues to address several complex closure issues, including water management, social impacts, and tailings. This long-term water management solution will replace five existing water treatment facilities with two. We commenced our construction of the Yanacocha water treatment plants as planned this quarter and expect spending to ramp up throughout the year and continue to adversely impact working capital. Historically, Newmont's stand-alone reclamation spend averaged around $200 million to $300 million per annum, but we expect to spend around $600 million in 2024 and peak around $700 million in 2025 before beginning to decline in 2026. As previously mentioned, the first half of the year traditionally tends to produce adverse working capital changes, and this normal trend is expected to continue into the second quarter, but with a slightly lower impact due to the regular timing of cash tax and interest payments. With production also weighted toward the second half of the year, we anticipate that the majority of our cash flow after working capital will be realized in the third and fourth quarter, positioning Newmont for a stronger second half of the year from both an earnings and cash flow perspective as we continue to focus on operational delivery. As Tom mentioned, we remain firmly on track to achieve our full year guidance for production, costs, and capital spend. Production is expected to increase in the second half of the year, with the year's strongest performance anticipated in the fourth quarter, primarily driven by strong grades at Penasquito and Tanami. Unit costs will be closely correlated to production, with the added benefit of full potential improvements and additional synergies realized in the second half of the year. Capital discipline is a key focus area for us with our transformed portfolio. As mentioned on our last call, we continue to expect to invest an average of $1.3 billion per year of development capital in projects that will generate the highest returns, which we plan to provide more information about during our Capital Markets Day in the fourth quarter of 2024. During the first quarter, we continued to execute our balanced capital allocation strategy, which focuses on maintaining a strong balance sheet, steadily funding cash-generative capital projects, and returning capital to shareholders. We maintained an investment-grade balance sheet and ended the quarter with $6.7 billion in total liquidity when including the cash reclassified to current assets held for sale. We reinvested $317 million of development capital as we continue to advance our highest return projects from our deep organic pipeline. Finally, we declared a fixed common first quarter dividend of $0.25 per share, in line with the dividend declared during the fourth quarter. Looking ahead, our capital allocation priorities have not changed, and the cash flows generated from our operations and the proceeds from divestments will be allocated first to have an approximate cash balance of $3 billion, and then to reduce debt up to $8 billion over the next few years. Additionally, once we have line of sight on meeting our balance sheet targets, we intend to repurchase shares as we see value in buying back our shares. Maintaining a disciplined and structured approach to capital allocation throughout the year will better position Newmont to deliver value to our shareholders.

Thanks, Karyn. In closing, as we look ahead to our priorities for the year, I'd like to reiterate our focus areas and key commitments. First, we will reinvigorate our established safety program and continue to strengthen Newmont's position as the gold industry's recognized sustainability leaders. Second, we will continue operating the industry's strongest portfolio of world-class gold and copper assets in the most favorable mining jurisdictions. Third, over the next two years, we will deliver $500 million of annual synergies, an additional $500 million in cost and productivity improvements, and over $2 billion in cash from portfolio optimization. Finally, we will drive a disciplined, balanced approach to capital allocation, creating a resilient and returns-focused future for our organization and our shareholders. From our go-forward portfolio, focused on Tier 1 gold and copper operations, we are well positioned to deliver on these commitments and more, routing an attractive value proposition to new and existing investors during this unique time in the gold industry. With that, I'll thank you for your time today and turn it over to the operator to open the line for questions.

Very nice quarterly results, and thanks for the update today. Can I start off by asking about asset sales? First of all, congratulations on realizing value from the sale of the lending stream and offtake. But with respect to that, first of all, when you receive that, when would you receive that cash, first of all? And then second of all, will it be applied entirely to debt repayment? And then just looking at the asset sales more broadly, we've seen public indications of interest, fairly substantial interest in a team in Telfer. How would you describe the interest in the other assets? And what is your timeline currently on thinking to be able to announce some transactions on these assets?

I'll pick up the second part of your question and get Karyn to pick up the first in terms of the use of the proceeds from the Lundin transaction. So six high-quality non-core assets that are now held for divestment. We've moved into that accounting classification, as Karyn talked about. We have started a formal process on each of those assets. We are in Phase 1 in each of those processes, so we're in the price discovery phase. There is a high level of interest across all of those processes. When we classify assets held for sale, we are laying out a program as we've committed to, that we will work to divest those assets for fair value over the next 12 months. Our preference is on cash, and that's what we've been looking to optimize value and cash. The process has started on all six of them, and there's a high degree of interest, clearly getting an asset out of a Newmont portfolio is attracting a lot of interest in the marketplace. Off to Karyn, in terms of your question around the use of the proceeds, they're coming in tranches that we process.

Yes. In terms of the use of proceeds, the first payment is expected in the second quarter, the second payment in the third quarter. Our capital allocation priorities are consistent as I discussed in my prepared remarks. As we've indicated throughout 2024, we will be drawing that cash as we go through the year. The first proceeds would be used to replenish those cash balances as we go forward.

Natascha, I wanted to ask you just on the year on the GEO side. You gave us the 47-53 on the gold front. Can you give us some guidance on the other metals, maybe just on the GEOs, how they progress at the year, and particularly at Penasquito, please.

Tanya, thank you for that question. Starting off broadly, we will see higher contributions from Penasquito on GEO this year because we are mining predominantly in the Chile Colorado pit that we know is higher in GEOs. If we look at our GEO production across the last four quarters, we will see that the GEO collection for silver would be around 9 million ounces a quarter, in the order of about 28 million ounces or lead; sorry, 29,000 tonnes and 58,000 tonnes of zinc across the four quarters.

Just chipping in there, Tanya. Coming out of Chile Colorado for the fourth quarter and the hit-back in Penasco, it's probably flat on silver and lead, with maybe a little bit more zinc in the fourth quarter.

Okay. No, that's helpful.

Copper is pretty steady through the year. Sorry, Tanya.

And could I ask just still on the operational side, Natascha, you mentioned Lihir maintenance in Q3. Are there any other big maintenance that we should be aware of in your portfolio, particularly Nevada Gold Mines, Pueblo Viejo, Cadia?

The only other areas would be Ahafo South. We will be replacing the girth gear, as I mentioned in the prepared comments, and that will happen now in the second quarter. After that, we should see a ramp-up back to normal production levels for Ahafo. You might remember, Tanya, we did say that we've reduced production out of Ahafo to ensure that we see the two mill streams running, but that will then return to normal production rates after that shutdown.

That's very helpful. Finally, regarding operations, I'm curious about the costs in Q1, which were quite favorable despite lower production levels. We're anticipating improved production as the year progresses. Can you provide any insights on inflation? Are you noticing any easing or benefits in that area?

We've certainly seen some easing in three areas. We've seen it in contractor costs, diesel, and explosives. But then we've also seen some increase in our scalable cost related to steel price and cyanide costs. The other factor would probably be energy; in certain areas, we see a reduction in energy. That is, I think, quite surprising for us from 2023.

Just a reminder, labor costs have been pretty flat.

Yes.

So just as I understood because it faded in and out, and I apologize for that. Just on where you're seeing reductions or easing, it is in contractor costs, diesel, and some consumables and energy? Is that a correct statement?

Explosives specifically. Overall labor cost staying flat for own labor makes up about 50% of our cost makeup.

The team has presented an optimistic view regarding the prospects for asset sales and the outlook for free cash flow, assuming fewer working capital challenges. In this context, I'm curious about the flexibility of the company's buyback policy, especially since I've noticed the stock price has increased significantly today compared to when the buyback plans were announced during the fourth quarter results.

Thank you, Josh. As we proceed with the divestitures, and as I mentioned, once our free cash flow increases in the second half of the year, our first priority will be to replenish our cash reserves. After that, as long as we have a clear plan for reducing debt over the next two years, we would consider starting share buybacks if the conditions are right.

As a reminder, Josh, we've got an approved $1 billion buyback program ready to go if and when that scenario Karyn maps out takes place.

Okay. And then just sort of to clarify, when I look at even what a flat quarter would look like at much higher gold prices today, and again, without some of the larger working capital challenges, even maybe one or two of these asset dispositions would put you in line of sight of that. Is it fair to say that the prospects for this buyback could happen sooner than maybe what the initial criteria were outlined for the balance sheet requirements?

Yes. The expectations for the divestitures is that those will be executed within the next 12 months; hence, the consideration on the balance sheet as assets held for sale. The expectation is through the first quarter of 2025, that we will have executed or made decisions around the divestitures. And so the timing has continued upon that.

Okay. And then sorry, just one question, if I can sneak in. I noticed the book value for the assets that are held for sale is $5.7 billion, which is quite a large number as compared to the $2 billion targeted. Any sort of comments there on how we should think about pricing or what the targets are effectively?

Not necessarily. I think from an accounting convention perspective and how they're reported from a GAAP perspective, will be considered by potential buyers, but in essence, the process of going through the commercial view of the assets and the value to potential buyers will produce something most likely different, whether it's up or down, associated with what is recorded on our books from a GAAP perspective.

Maybe I'll ask the first question on the full potential program. I had the privilege of visiting Penasquito in March and definitely the team did a great job of outlining how the full potential program has benefited there. I know you're working very hard on rolling that out in some of the newer acquired assets like Lihir. Can you talk a little bit about how that's going so far? And what you're seeing in terms of achievements or maybe potential for future achievements?

Yes, Jackie. I'll kick off, and Natascha you might want to build on that a little bit as well. We're further most advanced at Lihir, which is where we saw the most opportunity, which is why we jumped in literally on day one. There are three main productivity and cost opportunities at Lihir. The one I mentioned in the prepared remarks is really around consistency for materials handling. You've got to have the right balance of different ores so that you can manage and address materials handling. It's a key value driver. Asset management and improving plant availability and reducing other plant losses are a real opportunity at Lihir, just the basics of work quality, work management, and reliability engineering, with the strength of the team we have supporting Lihir. The third one is down into the pit, improving mine efficiency and productivity, getting back to the basics of blast, load, and haul through the mine. Very similar to what we discussed at Penasquito in late February. Moving across to maybe just touch on Cadia and Red Chris in particular. There's an enabler at Cadia, really important, in terms of resolving the tailings constraint, so understanding the work to rectify the tailings at Cadia and expanding those tailings to ensure you've got the tonnage capacity to support productivity improvements from both the mine and the processing plant underground to unlock panel development. We're clearly working on PC 2-3, so progressing the opening up of the draw points over the next couple of years and ensuring that you're bringing on the development work for PC 1-2. There's a fine balance between the mine and the processing plant. As we're doing that work, we're also unlocking our processing capability. We're still in that first phase of full potential, but we do identify some early quick wins. I would argue that we are specialists in high-pressure grinding rolls at Boddington. We've worked with those over the last few years, and we have a very efficient way of operating and maintaining that important crushing circuit. Regular visits to Boddington help us understand how we both operate and maintain those HPGRs. The opportunity for us to quickly get across to the HPGRs at Cadia and to optimize those is really a quick win we're getting after, even before we finish the diagnostic phase. Let me touch on Red Chris: that processing plant will be there through the end of the open-pit mine, and as we ultimately move into the block cave, we'll be focusing on stabilizing mill operations. Again, the basics around reliability and uptime of that facility with consistent feed are very important. Then after you've stabilized operations, we can optimize copper and gold recoveries and improve process controls to ensure that we’re maximizing performance for the remaining life of the open pit as we transition to the block cave in future years. Natascha, anything to add?

No, I think that was a really comprehensive answer.

Hopefully, Jackie, that gives you some sense of the excitement we have seen behind full potential and the confidence we have in that run rate through the end of this year and the run rate to the end of next year, why we've gone after the upside on top of that $500 million.

And that was a super-helpful answer. And maybe if I can ask a second question. Just going back to your divestment strategy, I know you have a number of assets that you're looking to sell in Canada specifically, but also, I guess, globally as well. Can you comment at all? Like do you have a preference of selling that that's in groups or bundles? Or are they all expected to be sold individually to different buyers? I don't know if you can make any comments on just how you're thinking about that?

Thanks, Jackie. As I mentioned in an earlier question, the process has started on all six assets. We have engaged banks and are starting the process on all six assets. We're in the process of price discovery through Phase 1, so we're gauging the level of interest in these assets and the competitive environment we're hoping to enjoy. We're running three separate processes since they're in different locations. There's a process for Telfer in the Australian context with a dedicated team looking after that, a process for a chin in the African organic context with a separate team looking after that, and a process for our North American assets, which includes the four operations plus the Coffee project. That team is being led by Peter Toth and Scott Langley, but all is up and running and very active; as I say, we're in Phase 1, but we're quite excited about the level of interest and the competitive environment for these assets.

Just looking for a bit of additional color with Yanacocha and the water treatment plants. This might be a bit old, but just looking for what's the main driver there doing the two new plants versus the five existing ones? Is it capacity or just the old ones don't have the technology?

Mike, the situation involves both capacity and technology. We have been operating a mine in the oxide ore at Yanacocha for nearly 30 years and have disturbed an area at the top of the Andes equivalent to three-quarters of Manhattan, which illustrates the scale of the impacted land. The region experiences significant rainfall each year and has a watershed draining into both the Atlantic and Pacific Oceans. There is a considerable amount of disturbed land and water at the top of the Andes, but this water is acidic. Therefore, any water that encounters the disturbed land must be captured, processed, treated, and discharged according to different standards, some requiring drinking quality and others needing to align with agricultural standards as outlined by our permits from regulatory authorities in Peru. We are progressing toward the closure of Yanacocha, which includes the construction of two large water treatment plants in the coming years that will treat water indefinitely. These plants are designed to continuously process and discharge water. To give you perspective, the capacity of these treatment plants is designed to handle 8,000 cubic meters per hour, which is comparable to a city the size of Seattle.

And the cost of those, that's all flowing through this year and next year. Is that in your capital budget? Or is that running through the income statement?

Sorry, Mike, I'll build on this. That's accrued capital or sustaining capital.

That's correct. It's accrued on our balance sheet as a liability. You'll see that the $600 million we expect to spend in 2024 is considered a current liability, but that you will not see that flowing through sustaining or development capital.

Okay. So is it more working capital changes as the current liability drops down?

Yes. Consistent with the first quarter, you'll see that flow through working capital.

Just a little bit of a follow-on to what Mike has just asked. With Yanacocha, originally, you guys took the provision of $2 billion, and it was basically the cost of treating this water in perpetuity. So at least that's what we understood or that you previously talked about. Do we still have those costs as well? Or is this like once you've built this plant, you wouldn't have ongoing expenses in terms of the water treatment plant? Like I'm not quite sure if this is now additive to the original $2 billion.

Anita, in terms of the provisions that we've had in our closure liabilities, that's all been accounted for. So there's no new information there; it's fully accounted for in terms of our closure liabilities for Yanacocha. As part of that, there's always been the spend to build the water treatment plants, which takes place over '24, '25 to '26, and then the cost to operate those water treatment plants; operational costs are around $40 million to $50 million a year to operate these plants in perpetuity. The cost to both operate and construct these water treatment plants are included in our closure liability.

So what's that total closure liability now then?

For Yanacocha, it is sitting at about $4.8 billion.

Yes. It's around $6.6 billion for total reclamation and remediation liabilities, but for Yanacocha, it is the $1.7 billion that has been accrued on our balance sheet.

Sorry, what are those?

For the water treatment plant, Yanacocha has a bunch of other closure activities. You've got to reshape the leach pads, waste dumps, and tailings facilities. Water treatment is comparative to that, but the total closure liability for Yanacocha is $4.8 billion.

Okay. Got it. And then you mentioned it's taking place over '24, '25 and then '26? Can you tell us what the number that we would see in working capital outflow in '26 would be?

Yes. As I indicated in my prepared remarks, the $600 million in terms of '24, peaking at $700 million in 2025, and then starting to come down from there in 2026.

Sorry, I'll keep it quick on time. Two questions. One, just on following up on the working capital. Looking at your Slide 10 in the presentation, you've talked at length about the reclamation payments. But can you give us a sense of any other key moving parts we should expect in the coming quarters, and where you would expect the net balance change year-on-year to be from a cash working capital perspective, including the stamp duty or excluding it, whichever?

Sure. The only additional stamp duty we'll have is in the third quarter of approximately $30 million. You'll see some additional seasonal changes as we head into the second quarter as it relates to cash taxes, as well as interest from a cash perspective. Those will flow through in the second quarter as well and you'll see higher reclamation liabilities; the cash outflow associated with that as we go through 2024. In addition, you'll see the traditional timing as it relates to sales and inventory changes as we go through the year.

So if you stand now, what would you expect the net change to be over the full year in terms of that net build in working capital?

Yes. That really depends on the timing in terms of that, as well as, of course, pricing as we go through 2024.

The things, by far away, Daniel, is the tragic loss of Adam Kennedy's life at Brucejack on the 20th of December last year. Reflecting on the integration, reflecting on what things we could have done differently, what decisions could we have made differently that could have affected Adam being killed that day at Brucejack. It’s having lived through a similar integration and transaction five years ago. When I step back from those three areas, I think the integration has gone very well. We had the benefit of being able to apply the lessons we learned from integrating the five Goldcorp assets back in 2019 to this exercise, and that's put us in good stead.

Yes, I apologize for being interrupted before I finished my question. I was assuming that the 2026 expenditure for the Yanacocha water treatment would amount to $400 million. If I recall correctly, you mentioned that the total for the construction of those plants was $1.7 billion. Based on the $600 million and then $700 million expenditures, it seems that the remaining amount would be $400 million. Is that accurate?

Yes. The expectation is that this will be commissioned in 2027, and there'll be obviously some continued operating costs, around $50 million a year associated with that going forward.

We definitely see an increase over those three years and then, as much as possible to predict that far into the future, returning to the normal long-term levels for closure and reclamation activities.

Okay. The second question I wanted to ask was about Cerro Negro. It is definitely unfortunate that two people lost their lives. I wanted to inquire if this incident has anything to do with long-term structural support there. These individuals were part of the Mine Technical Services group, so it was a bit unexpected for that to occur. I'm trying to see if you have any insights on that.

Thanks, Anita. I'd ask Natascha to comment.

It's absolutely not structural. From a geotechnical point of view and from a quality of asset point of view, it's very high quality and has no material geotechnical challenges for us; this was procedural by nature. So it is definitely not linked to any long-term predictions.

As we close out our investigation, we will share those lessons widely with the industry so as we have the opportunity.

Thank you, operator. Thank you all for your time, and please enjoy the rest of your day. Thanks, everyone.