Newmont Mining Corporation (Holding Company) (NEM)
Denver Gold Forum Conference Call
September 24, 2013, 1:05 PM ET
Gary Goldberg - President and Chief Executive Officer
Good morning, everyone, and thanks for attending. It's a pleasure to be here at the Denver Gold Forum. I'm happy to be here today to give you an update on our business and our strategy. We've been a respected global mining house for more than 90 years, and we've adapted to industry changes throughout that timeframe.
Today we'll be looking at what we're doing, not only just to whether the challenging times, but to make the most of those challenging times through our value over volume approach. I refer like we all do to our cautionary statement on Slide 2 here, and remind you to take a look at the Form 10-K for more detail.
I'll start by making remarks with our most important value, which is safety. You can see on here, in fact quite frankly, you don't see a safe operation that isn't also an efficient operation or vice versa. It's gratifying to see our safety performance improve, as we focus on embedding the underlying behaviors that create a safe workplace.
We're also proud of the fact that we have some of the best underground mine rescue teams in the nation. Here in the right you can see our Carlin Team, which took first place and also we have the Midas Team that took fourth place in the Mine Rescue Competition.
However, our strong performance has been overshadowed this year by the loss of a colleague in Nevada, in June, and that's not acceptable to any of us. Our ultimate goal is to send our people home safely, every day, and we're relentless about improving our performance in safety across every aspect of the business.
Continuous improvement is at the heart of our refresh strategy. Our strategy has three key elements. The first is to secure the gold franchise by running our existing business more efficiently and more effectively. The second is to strengthen the portfolio by targeting investments and acquisitions in gold and in copper that improve value, mine life and our position on the cost curve. The third is to enable that strategy by strengthening the capabilities, the systems and the culture that we need to succeed. Taken together, these commitments have fundamentally changed Newmont's focus from volumes to value.
Our work to secure the gold franchise or really to get our house in order has begun to deliver results. These results will have the effect of reducing our production cost by 10% to 15% over the next three years. At our operations, we've launched an in-depth continuous improvement program that we call full potential. This will deliver significant improvements to our technical performance, operating cost and capital expenditures.
At our offices, we have reduced corporate headcount by nearly 30%, as a result of a more streamlined and decentralized operating model. We will deliver more savings through overhead reductions at our regional offices. With these efforts, we are targeting all-in sustaining cost reductions of approximately $125 per ounce by 2015. Achieving these goals will require us to consistently deliver on our plans.
This year, we're already on track to meet or exceed our production and cost outlook. We continue to expect 4.8 million to 5.1 million ounces of gold production and 150 million to 170 million pounds copper production. We've reduced our capital expenditure guidance by 8% or some $200 million so far this year.
Total capital spending so far this year is down 29% versus last year or approximately $500 million. We have reduced our exploration spending by 30% or $60 million year-to-date versus last year. Our all-in sustaining costs are down approximately $20 per ounce over prior year's first half actual. This may seem small, but it's a significant change from the increasing year-on-year trend that we've experienced and others in the industry have experienced.
Finally, our consolidated spending is down 10% through mid-year or $362 million. Cost and capital discipline are key to preserving our financial flexibility. As of June 30, we have about $5 billion in available liquidity, including $1.2 billion in cash and marketable securities and a $3 billion revolver. Most of our debt is long dated with favorable terms.
Strong financial management has allowed us to retain an investment grade credit rating and ratios that demonstrate the health of our balance sheet. Our new CFO, Laurie Brlas, who is here with us today in the crowd, is an industry veteran. I'm glad to have her. She has joined about two weeks ago, and she will be instrumental in maintaining and improving on our financial performance.
We're also continuing to optimize our portfolio. In July, we announced and realized total net proceeds of $575 million through our sale of our Canadian Oil Sands asset. This transaction represents a net gain of about $300 million, which will be recorded in this third quarter. Preserving our financial flexibility ensures that we'll have the ability to build and invest in our best projects globally.
Today, Newmont's global portfolio and project pipeline includes the Akyem and Turf Vent Shaft, which is anticipated to contribute to a stable operating portfolio of approximately 5 million ounces of gold production per year over the next three years. Our focus is on continuing to strengthen our global portfolio and deliver value to our shareholders, which may include divestment of non-core assets. We are committed to this objective and is evidenced by last week's announcement of signing a Letter of Intent to sell our Midas operation in Nevada to Waterton Global.
We'll begin our tour of our global operations with North America. We are seeing improved production in Nevada in the second half with completion of our planned mill shutdown for maintenance in the second quarter. Our most promising growth projects are on track. We are in the process of completing the collar on the 2,000 foot Turf Vent Shaft, which will provide about 100,000 to 150,000 ounces of gold annually, beginning in 2015, at total development cost of about $400 million. This is basically allowing additional ventilation to allow us to access other parts of the ore body and get additional production out.
First production from Phoenix Copper Leach is expected later this year. This project will deliver about 20 million pounds of copper per year over a 20 year period and a development cost of about $200 million. This project is coming online good and it's our first venture into oxide copper leaching.
Turning to the future. We're continuing to advance the permitting process at Long Canyon and we're seeing positive results from ongoing exploration in that particular part of the region. I appreciate the good work that the team have been doing with local communities and have recently achieved agreements with local communities on water. So really appreciate the water work that they've done. This work puts us on track for first production in 2017.
Turning to South America. We remain on track to meet our 2013 guidance. At Conga, our Water First program is advancing with completion of Chailhuagón reservoir, shown here on the right, and we are continuing to work on an access road between Yanacocha and Conga. And provided that moves forward fine, we'd be looking to develop a second reservoir, Perol reservoir, next year.
Our team is also making headway on rebuilding trust and gaining social acceptance that we need to develop the project. I had an opportunity last quarter to visit with our partner Roque Benavides, with Buenaventura, and visit with some of the local community leaders at the Chailhuagón site. And it's impressive to actually meet with some of these people and actually we're spending time sharing with community leaders the work that's been done, and hearing from these community leaders and the things that they want. It's not just about give us money and give us different jobs, it's about what we can do to help employ their children in the future. So I think we're making some good progress there and we have more work to do.
We are also making progress on the sulfite leach at Yanacocha and we've got the bio-leach test facility that should be coming online within the next couple of months. We'll see how that process works to be able to take full advantage of the Yanacocha deposit that we have.
Turning to Merian. Merian gives us a foothold in a potential new gold district. We are currently awaiting government approval of our mineral agreement, and pending that, and the ability to really bring something forward that make sense in this current economic times. We'll go through review and decide whether we make the next step on that.
Crossing the Atlantic, over to Ghana and Africa. We're on track. Here at the Akyem project, it's on time, on budget and on schedule to be able to be in the first commercial production later this year. Most recently, we delivered as you can see in the picture in the right, our first ore to the crusher and we received approval on our tailings facility permits.
The other thing we had, our Head of Operations was over visiting a couple of weeks ago and he has been through a number of these sorts of startups and really pleased with the progress that the team is making in terms of going through. We've started and turned the ball mills and the SAG mill, and we're in good shape to be able to bring production online later this year. This project will increase our production from the region over the next couple of years. It won't quite double production, but will increase our production.
Ahafo is on track, as I mentioned to delivering our 2013 guidance. We continue to evaluate our opportunities in the greater Ahafo district, including the potential to expand the mill, which would double our throughput capacity. We're in the process of studying that particular expansion and we'll have more information on that early in 2014.
Turning to Australia and New Zealand operations. So a strong first half performance from both Tanami and Waihi. This was the result of concerted effort by our operational leaders to improve on our cost, our technical standards and in our efficiencies. Boddington is where we launched our first wave of our full potential program and they're working to realize more than $200 million in cost improvements.
One improvement that we'll be looking at is to reduce conveyor downtime by half. And what this does is allow us to take the mill capacity that we're not fully utilizing by debottlenecking the conveyor raised mill throughput by about 2% and in the end add about $30 million in incremental value. So it's not just about going out and cutting cost, it's also about going out and looking at ways we can improve value by improving the performance of the business.
Moving north to Batu Hijau. Phase 6 stripping is on schedule, after a difficult rainy season in the first half of the year. We're currently feeding the plant from our stockpiles, so we're seeing lower grades in recovery and they seem like, I say this every quarter, and we're looking forward to late 2014, early 2015, when we get back in ore. We do anticipate that this waste stripping and the processing of this lower grade material may result in adjustments to earnings, as we get back into the ore body, which as I say, will be late in 2014.
That completes our global tour. And what I'd like to do to conclude today is with a little bit of an overview and our commitments and future vision for the company. As you know, our strategy is only as good as our ability to deliver on it. Here is a quick overview of our commitments.
So far this year, we have launched programs and implemented programs to achieve real and sustainable improvements to our costs and capital efficiency, and to optimize our asset portfolio and our approach to exploration. Our work to improve key capabilities from technical to social capabilities is also underway.
We are allocating capital to projects and evaluating our existing portfolio based on not just one, but multiple pricing scenarios for gold and for copper. We will deliver new gold and copper production this year at Akyem and at Phoenix Copper Leach. And finally, we'll work to strengthen our portfolio by acquiring or developing gold and copper assets that add value, lower cost and improve mine life.
In 2014, this work will continue and we'll advance our Long Canyon project. And finally, we will achieve our $500 million to $750 million in targeted savings and progress the next generation growth projects and would be operating under a more efficient business model. Putting this all together, I'll end with a vision of the future that we're creating at Newmont. Our vision starts with delivering top cortile shareholder returns through all cycles. We will achieve this vision by continuing to focus on returns over ounces and pounds, value over volume.
Our immediate priority is to live within our means. And we've made good strides towards improving cost and efficiency at our operations and in our offices. We're taking a conservative approach to short-term planning, but remain bullish on gold and copper in the medium-term horizon. And we'll maintain the financial strength necessary to grow, but only when we have local support and acceptable economics and when the new assets contribute to longer life and a lower cost portfolio.
Thank you very much for listening and I will be happy to take any questions.
We have 10 minutes.
Gary, I have got a question about Batu Hijau on the 2014 export ban in Indonesia. How are the negations going with that and how do you expect it to affect the mine?
Thank you. In regards to the Batu Hijau, we have a contract to work at Batu Hijau that we've been operating on since we began the mine. That's actually in place through more than another decade. And under that contract to work we're allowed to export. We've looked at alternatives for being able to deliver concentrate to local smelters. We actually supply the Gresik smelter with about 25% or 30% of our concentrated fleet, but there has been an effort here recently to look to try to increase and build capacity, smelter capacity in Indonesia. Well, we'll support that by supplying concentrate. It's not an area that we intend to invest in.
We've heard a lot in the media, especially in the last few weeks. We have got discussions going on with government officials, which we see in the media. It doesn't always match what's going on in those discussions. They have one objective of trying to increase in-country production of copper through processing. At this stage, we would be supportive of that by supplying the concentrate, but not looking to build the smelter.
We have done some things here in the last week or two to prepare our folks. Even though, we believe the contract to work protects our right to be able to export, to prepare our employees and local officials in the event that they should decide to take this on. I am planning to visit here in November. We had our Head of Sustainability and External Relations, Elaine Dorward-King out visiting last week meeting with officials as well. And I'm confident we'll be able to work through this.
I noticed that you used the word copper quite a bit more than we've heard in years past, would you care to comment on that, is that part of a longer-term commodity diversification strategy for Newmont?
As you look two years ago, you probably wouldn't have been saying copper and there is a premium for gold producers that would suggest diversifying in the copper wouldn't make sense. If you take a look at our capabilities and from a shareholder standpoint, we run three copper, gold operations and produce concentrate from those three. As I mentioned, here in the presentation, we've got Copper Leach, we're doing oxide leach at Phoenix, in Nevada and testing the bio leaching of sulfides in Yanacocha. We really do have some very good core capabilities, we can leverage into copper.
So we spend time as we looked at refreshing our strategy talking to our board about where should we focus, not that we're going to go target a certain percentage of copper volume, but I think it's leveraging our capabilities. So we don't restrict ourselves just to gold in the future, but look at gold and copper opportunities. But remember, it's got to add value, add to mine life, take us down the cross curve and be in a jurisdiction, where we can manage the social-political risk and manage the technical risk. So it's on the table. There is another option for us to consider as we look to the future.
Gary, a question about Merian and the mineral agreement you're working on. Does that include any discussion on fixing your power rates? And if not, when does that discussion take place and what kind of power rate you think you need in order to make a go of it?
We're a little different than the rest, where I suppose, on the grid in the country, we actually have to generate our own power. So we would have the diesel generators, so we're separate from the sort of arrangement they have, where they've done a power arrangement with the country.
So what you're saying then is that you have to able to carry a power cost somewhere around $0.30 a kilowatt hour?
Yes. A little less than that, but it's self generated through the diesel generation. Yes.
A question in the front row.
Your predecessor had a bunker mentality towards the end. And you folks were having some problems in some countries. You came from Rio Tinto, you know about social license stop rate. Is there going to be more transparency and accessibility in your position?
Well, from my standpoint, that's key, wherever we operate, whether you're Newmont or someone else in the mining industry to be transparent and clear with your communities you're operating with, and with the key stakeholders you work with. So I think its evidenced by bringing in someone like Elaine Dorward-King, our Head of Sustainability and External Relations. She comes with a good background in that area.
To build on some other things, I think Newmont has actually been quite a leader in several areas, when it comes to community relations, environmental performance, things that we've done, for instance with the Cyanide Code. We want to continue to build. You can't ever rest on that reputation. We need to continue to build on it. So, yes, would be my short answer. You can count on that as we work. We need to have it. You heard at the very end, we've got to have the community acceptance and the right economics to be able to bring projects forward.
Gary, I have a question, and I don't see one from the crowd. Just you mentioned that you would -- selling Midas, that was announced last week, you divest other non-core assets. Would those be some gold mines or you have other assets?
I think and said this in February at the BMO Conference, from my standpoint we need to focus on making sure our operations are performing as well as they can. Now isn't necessarily the right environment to go out try to sell assets in a low priced environment. So you want to position, there might be opportunities to use some unique financing mechanisms or swaps that might be able to allow us to switch out of some assets to provide us opportunities to move elsewhere. So without targeting anything out there, everything is always available, but I think we've got to make sure what we do have is performing strongly.
We have a question on the left.
Can you just give us a brief update on La Herradura in Mexico, new operation?
There were some issues that you would have seen and Fresnillo can talk to some of those in terms of explosive licenses that elapsed on the smaller part of the operation. They are working through that. I think historically that's been a good operation for us. And they've been a good partner. And if there is to manage, we've really been bringing a focus with them to look at some of the longer-term, about thee to five years, where do they see the deposit going. I think it's been consistent.
They're just finishing up a mill expansion there. And I think they have been a good partner. We continue to look to them. In that region, we've been looking at some other things in that region as well in terms of expanding and looking at other things from an exploration standpoint, but really been pleased with them as a partner.
There is no more questions. You could join me to thank Gary and Newmont for the presentation. Thanks for the presentation.
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