Newmont's Management Presents at CIBC 17th Annual Whistler Institutional Investor Conference (Transcript)

Jan.24.14 | About: Newmont Mining (NEM)

Newmont Mining Corporation (NYSE:NEM)

CIBC 17th Annual Whistler Institutional Investor Conference Transcript

January 24, 2014 12:10 PM ET

Executives

Laurie Brlas - Executive Vice President and CFO

Analysts

Alec Kodatsky - CIBC World Markets

Alec Kodatsky - CIBC World Markets

Thank you. Well, I think, we are ready for the presentation. It’s my pleasure to introduce Laurie Brlas. She recently joined Newmont in the role of Executive Vice President and CFO in September of last year, joining the company from Cliffs Natural Resources, where she held a variety of senior positions. So speaking on Newmont today it’s my pleasure to ask Laurie to the podium. Thank you.

Laurie Brlas

Thank you, Alec. And thanks everybody for joining us this morning to hear a little bit about Newmont. I know we are approaching the end of the conference and the ski slopes are beckoning. So appreciate you staying with us and hearing about it.

Thanks to CIBC for hosting this wonderful venue. It's a great venue and I am happy to be here today and tell you a bit about our business and our strategy, and really what we're doing as you heard from a lot of other folks, but what are we doing to manage through this challenging environment that we are all facing.

But, first I have to remind you to look at our cautionary statement, here we go. And remind you to read our 10-K for all the details about those cautions and so forth.

Moving on, I'll start with what we feel differentiates Newmont from some of the other folks that you might talk to or look at. We are highly respected operator. We have been in business and production for over 90 years and we really focus on the operation side of our business.

Our commitment is to maximize value over the near-term and we also want to position the company to thrive in the medium-term as we see prices start to climb over the coming years.

We can't control metal prices, but we’re very focused throughout the entire organization on what we can control and you hear me talk about that a lot and you've seen it come through in our results.

So the first thing is improving operational cost and efficiencies, which is actually falls a little bit on, it’s similar to safety. We feel like if you have a safe environment, you're going to have a lot of operational efficiencies flow through that. We focus on our technical standards and also bringing on commitment to bring additional projects on at low safety rates.

So we are very pleased that we had the lowest safety rate, injury rate, in the history of Newmont this year. So we are very pleased by that. And as I said, we think that that leads to a real focus on the details of operation, if you are focused on the details of safety, you are focused on the details of operation. But we won’t be satisfied until everyone of our employees goes home safe every day.

Turning to our strategy. Our strategy centers around providing the highest risk returns in all price cycles, there we go. It consist of three major elements. The first is to secure the gold franchise.

And what we mean by that is running our existing businesses more efficiently and more effectively, that’s the best source of cash that we can find the best source of opportunity is to really focus on those. You saw that in our third quarter results. We are going to continue to focus on this. We reduce year-to-date consolidated spending by 13%.

We also reduce our all in sustaining costs in Q3 by 16% over the prior quarter. And we did that by a focus completely across the Board. It was sustaining capital. It was procurement. It was G&A. It was exploration. It was advanced projects. It was an effort by the entire organization to be focused on doing the right thing for shareholders.

Our second piece is to strengthen the portfolio. As I said, the first thing is just establish and get the best you can out of what you have. But as we look at our portfolio, we can consider options to add or divest.

We've got some interesting development projects that we are going to continue to evaluate. There are certainly acquisition opportunities out there and we also consider divestiture and I'll talk a little bit more about that.

But it's really focused on what mix of our portfolio will drive the most value, considering mine life, where we are on the cost curve, another criteria like political risk. So how can we reposition, remake our portfolio.

We are not rushing to do that, but it's something that we as a senior leadership spend a lot of time evaluating. We believe that although these market conditions we are all facing are very challenging, these challenges create some opportunities and we are looking to capitalize on the very best opportunities.

The third pillar of our strategy is to enable the strategy by strengthening the capabilities and systems and culture we need to succeed. So some of those systems became evident in what drives the cost reduction, what we call our full potential which is a systematic way of going through and identifying the opportunities to take the bottlenecks out of production and sharing those best practices across the globe. Those types of systems and strategies will help us drive the cost down.

It also includes a strong talent of pipeline and the high technical standards and also a more progressive approach with host governments and communities. These three elements of the strategy have really driven all of the operational and financial decisions that we've made in 2013. We’ve had evidence of the more effective management of our portfolio and rationalization of some of our non-core assets.

First, we’ve emphasized value over volume. And this is, in how we do our mine plans at every one of our regions as well as how we look at outside opportunities. We are focused on what's going to drive the most value. We look at gold and copper because we have gold and copper, but we don't have targets of how much we want to achieve in terms of that mix and between the two metals. We are comfortable with both of them and we are just looking from where we can drive the most value.

We also prioritized our capital well in the year. We reduced capital spending on a number of things, but we finished the Akyem and Phoenix Copper Leach projects. And those were delivered on time and on budget, which is -- it's an incredible feat in the mining industry. We will continue to invest in projects like the Turf Vent Shaft that will add 11 years of profitable life in Nevada. And our third quarter demonstrated our ability to sustainably reduce costs.

Finally, as I mentioned already, the core thing is we got to look at our portfolio and how do we optimize that portfolio. We’ve rationalized some non-core assets over the last year, including the sale of our interest in the Canadian Oil Sands. We are in the process of a divestiture of our Midas operations. Between these two, we will realize over $600 million in cash. We’ve done it quietly but we are looking at it carefully, but we’re not rushing into divestitures.

We think with our strong operational background that our team has, we are better off looking at those improvements that we can make because then we increased the attractiveness of anything that we might decide to divest, if we can improve the operations and also in the low gold environment that we’ve had and the uncertainty you are not going to get the best price.

So, if we wait a little while and focus on that type of improvement, we think if we do ultimately divest some of our assets, we can improve the cash returns that we will get for them. So in addition to our focus on the cost improvement and operating efficiencies, with that we expect to see increased cash flow.

So as we think about capital allocation, which has been a big point of discussion since I’ve joined the organization, really focused on making sure we make those right decisions in terms of capital allocation. So, first, we have to look at our financial flexibility and focusing on the balance sheet. I’m very comfortable with where the balance sheet is right now, but we have to monitor it carefully in this gold price environment. And I would not be comfortable adding significant debt to our balance sheet.

We are actually looking at what are the ways that we can look forward and look to reducing some of that debt and increasing our flexibility to look at other assets at some point in the future. Our investment grade rating is very important to us. It’s constrained is how we think about all of our opportunities around us, just making sure that we stay, keep our metrics within those investment grade criteria.

Secondly, as we think about capital allocation, it goes back to that portfolio question, how do we enhance our portfolio whether it's organic growth or M&A, what's the best moves to enhance that portfolio and build an organization that's going to do well for the long-term? And when we do that, we absolutely consider risks. So we expect different rates of return depending on the risk profile of any opportunity, be it organic or M&A. And I will take a little bit more about that later.

And we’ll also continue to look at rationalizing those non-core higher costs assets. And also we do believe it's important to return to our shareholders and the dividend has been an important part of what we do.

Our board continues to evaluate that. But it's an important thing that we think is a discipline that's valuable in returning cash and some capital to our shareholders. So this framework helps us to inform how we choose internal and external projects.

Here we go. All of our organic and M&A opportunities are combined and looked at within the same criteria and the number one criteria is value. What is the ability to yield the best value to the organization and that's the first criteria. We don't put any screen above that. What is -- and that focuses on things like, like mine life and like the cost position where we are on the cost curve.

All of this criteria come into effect to generate our definition of value as well as some of the other things in here have an impact, so execution risk. Certainly if you're looking at a development project, there is more execution risk than something that's already operating and generating cash flow. So it expects a higher return, if it's a development project.

We also look at what do we now about the geology and the mineralogy. Those factors will adjust the rate of return that we would expect. So execution risk is something that we consider very, very carefully when we look at our rate and rank for all of our different projects that we’re considering.

In today’s geopolitical environment, we certainly have to consider country risk and we use a different rate of return expectation depending on what country project is in. So we want to do it smartly. We do want to create value for the communities that we operate but we have to get a different return if there is going to be different risk.

So from a commodity standpoint as I mentioned, we look at gold and copper but we are not -- that's not one of the major screens that we look at. There is no target there. So speaking of the long term, we are bullish on metals. We do believe that we’re going to see gold prices move up.

We believe China and the developing economies will continue to show increased demand for gold over time. We’re not in this for the next year, we're in this for the long term. We saw a political growth was driven by the western economies in the 80s and 90s and they weren’t really capital intensive. So we need -- we're looking now at what happened since China has made to a 10% per year growth and as a result the increase in metals demand we’ve seen.

And we see that’s going to continue as they -- the Chinese population continues to urbanize. About 20% of the population is expected to urbanize within the next 20 to 25 years. An as they move to the cities, they have a different demand for gold and other commodities.

I’ll now walk through our portfolio which is the core of our organization. In North America, we expect full production for this year. We remain steady at 1.9 million to 2 million ounces. The Turf Vent Shaft is progressing very well. It’s on schedule and on budget at this point in time and we expect it to provide 100,000 to 150,000 ounces of gold annually, beginning in 2015 and run for 11 years.

We were very pleased in the fourth quarter to announce first production from the Phoenix Copper Leach project. It will deliver 20 million pounds of copper per year for 20 years. The development costs were about $200 million.

Turning to South America, we’re still on track to meet our 2013 guidance of 550,000 to 600,000 ounces at Yanacocha. At Conga, we’ve really been progressing our Water First program and we’re currently working on the access road between Yanacocha and Conga.

We continue to look at the progress we're making in terms of social acceptance and we’re seeing good progress there. We continue to look at the economics of Conga to determine what is the best way that we would choose to progress that. We also produced our first copper cathode at the Verde Bioleach facility in late September and this is an important effort in our goal to develop the extensive sulfide ore deposits beneath the oxide deposits at Yanacocha.

Turning to Africa, outstanding year we’re having there. We’re on track to meet our full year guidance of 625,000 to 675,000 ounces of gold and 50,000 to 100,000 of that from Akyem, where commercial production did began in Q4, safely on schedule and actually under budget, a great achievement. And over the first five years, we expect Akyem to deliver between 350,000 and 450,000 ounces. So a very strong contributor to our near to mid-term growth.

Turning to Australia and New Zealand, we saw great performance there in Q3. Many of our locations really took our full potential program very, very seriously. Tanami and Waihi were the best in a recent safety audit and they’ve also had equally impressive operational results. Really some amazing turnarounds in those areas of the organization.

At Boddington, we did see production increase with higher throughput and recoveries, but copper production continues to be a bit challenged due to mill availability and we’re working through those challenges and expect to see some improvement in 2014. We do expect that region to end in very strong position with relationship to the guidance that we’ve given.

Finally in Indonesia, which has been a bit in the press lately. We did receive where that with regard to the export been, we've been informed that we can continue to export our copper concentrate, which we’re very pleased because that is consistent with our contract of work. So that's what we would have expected.

There’s also been a progressive tax that’s recently been proposed that tax is in violation of our contract of work and we've had our contract of work honored for a very, very, very long time and we would expect it will still be honored.

At the present time, we’re working with the government of Indonesia to try to understand their thought and what their belief as of the implications on us. But our view is that our contract of work will not impact us, allow these things to impact us.

Currently, we've got the Phase Six stripping well underway and so at this point, we are not -- we would not be having any shipments until towards the end of the first quarter. So we do have a little bit of time to work through the challenge that’s indicated by this proposed tax. So we’re evaluating all of our alternatives in terms of operations and down the actions that we would be entitled to take.

So our commitment, as I said, was to maximize value in the near-term. Make sure that we position the business to thrive in the medium term and the long-term. Very big focus on capital allocation, making sure that we understand the true short-term cash implications and the long-term value creation of different alternatives that are available to us and that we choose wisely in those alternatives. We can't control metal prices, none of us can, but we’re very, very focused from top to bottom on what we can control and delivering on that to our shareholders.

Market conditions create some opportunities and that’s what we’re focused on. If you’re interested and available, we will be hosting a conference call a week from today where we’ll give our preliminary 2013 operating results, as well as our 2014 guidance. So that press release will go out after market on Thursday and the conference call will be Friday. So we'll be able to gives some more detail on what we see coming in the future at that point in time.

So, thank you for listening and I’ll take some questions at this point in time.

Question-and-Answer Session

Alec Kodatsky - CIBC World Markets

Great. Thank you very much for, Laurie. I will turn it over to the crowd to see if there any questions to start. Yeah, as usual, no. So, I guess, maybe to -- curious to sort of understand where to start. But with respect to, I guess, your arrival at Newmont. You’ve had some opportunity to, I guess, go through things and now that you sort of been in the seat for a little while. What are the aspects that you’ve reflect on and say that this is what I want to change or these are priorities that I want to pursue?

Laurie Brlas

Thanks. Okay. And I have been with Newmont for four months now, so I definitely not profess to know everything that needs to be done or everything that some of the people that have been there for a very long time understand.

But, I think, one of the things we've all seen this is, whether its a different person in the chair or not, we’ve different times right now and so we have different needs than what we would have had two or three years ago. And it was the same in the iron ore business, at one point we were very focused on growth and that’s what everybody was focused on and cash flow seem to be very prevalent.

Now, we are all focused on operations and I think my experience at first actually running the global operations for a period of time, helps with being a CFO. It gives you a different perspective of actually how to help the operating team really at a detailed level, figure out how to allocate the capital that the crazy finance people made us cut to.

And so I think my experience in operations has been very helpful. But we are very focused on -- I think absolutely the right things. Looking at how we can get them most out of the operations that we have is first and foremost, and then making sure that we make really smart decisions with our cash and with the opportunities that are available to us to manage the portfolio. And I think my background can help me, help the team, bring a perspective to those types of decisions.

Alec Kodatsky - CIBC World Markets

And with respect to the cost cuts, I think year-to-date it’s been quite successful and just curious as to the extent to which we may see further cuts or the opportunities and just maybe to frame that I think at this point, the market perceptions is the gains that have been made today aren’t unsustainable for any company and certainly not an expectation that there will be incremental savings, so curious on your view on that.

Laurie Brlas

Yeah. We definitely have done a lot of focus across-the-board. We feel very strongly that we didn't do anything that would compromise the organization for the long-term. We are very much focused on sustaining capital was a big deliver of that, but not cutting sustaining capital to that point where it's going to take years to recover.

That is not something -- if we got into a $1,000 gold environment, we might have to do some of those things that take a longer period of time to recover. But we feel that we’ve built a structure of an organization and a way of doing things that at this $1,200 gold price is very, very sustainable, very comfortable with that. We were building for growth and it's a different way of looking at things.

Alec Kodatsky - CIBC World Markets

And I guess maybe that feeds into my next question, but Newmont as an organization brings certain skills and certain advantages that don’t exist elsewhere in the industry and when you look at opportunities, do you see an ability for Newmont to add more value to the projects side of it as opposed to potentially looking at cash flowing assets?

Laurie Brlas

Well, we cannot value in either case, I think as I mentioned during the presentation. On the project side, we all know the risk is higher. So the return expectation that I would have in the Board and the rest of management team would be higher, because if you are purchasing a project that you haven’t been with for its entire lifecycle, there is more risk to that than occurring now in cash flowing assets.

So we would look at both. I think with our very, very strong operational expertise and Gary’s got -- that his prospect, his strength is operations, brought in some talented people to head up our operations. So, I think we would have the opportunity to improve a cash flowing assets as well as look at a projects asset. But it really comes down to risk and the return and the cash flow and making sure what’s the cash outflow in the near term with the project and are we comfortable that we can absorbs that type of cash outflow?

Alec Kodatsky - CIBC World Markets

And I guess maybe along those lines, historically, you’ve had success with partnerships and with the concept of risk mitigation, is that a potential opportunity or a way forward for you to manage risk as a company?

Laurie Brlas

Absolutely. And I don’t imagine that we are alone in this. It’s definitely a practice that’s fairly prevalent in the mining industry and Newmont has been very successful with it. And as we look at risk of the size of a project, what’s the potential impact to us as a company. It’s a great opportunity to reduce the risk. And sometimes it is in-country knowledge, sometimes it’s just peer balance sheets support, sometimes it’s sharing that technical expertise. All of those things can be very valuable and I think if we were looking at a size of a project that would be very much we something will be focused on.

Alec Kodatsky - CIBC World Markets

Okay.

Unidentified Analyst

(Inaudible)

Laurie Brlas

Yeah, part of it depends on where we are in the Batu Hijau cycle. So right now, we're probably only about 5% copper. When Batu Hijau is producing as opposed to the stripping campaign where we are right now, that might go up to say 20%. But we're still very, very much a gold company. And I think all of our peers have something other than gold and I think we just want to make sure people understand that we think it's where do you get in those value, not a focus on preference. And you’re actually casting a wider net if you open your mind to both and then you say which one is going to get them those value. That’s how we think about it, which is the most value.

Alec Kodatsky - CIBC World Markets

Anyone else? I guess maybe to one of the better aspects of 2013 has been within Nevada or there has clearly been a focus on cost reductions and aspects there. And the past, it’s come up as an area of focus. And you didn't specifically mention any regions in the presentation, perhaps quite designed. But curious again in the environment where you’re mitigating risks where do the priorities and geographies set for you today?

Laurie Brlas

Yeah, sure. Nevada is just -- it’s core to the organization and it is our largest region and it's very important to us and it's probably, I would say lowest risks. We understand it. We've been operating there for a very, very long time. So it certainly low risk. We feel very comfortable in Australia. It's a very long mining jurisdiction friendly country, where we are there. So we're very comfortable there.

We've actually had very good success in Ghana as well. We have been very careful about where in Africa we operate, but we operate in Ghana and it's not without challenges. But we've got a local counsel that advices us and we think we've been very successful there. We've been in and out of the news in Peru but over -- really over the long haul, we've been successful and we have a lot of support underground.

Part of being a mining company, I think is you have to learn how to deal with the things and not be a U.S. based company and just kind of run over people. So that’s an important skill set that I think we all have to develop. And right now certainly Indonesia is the most challenging as I said you've all seen in it the past. That would be the lowest on our list in best incremental dollars until we get those result but over the course of time, we've generated a lot of cash for new month out of Indonesia. So we're optimistic that our contract of work will be honored. And -- but that would be the lowest in terms of our current jurisdictions, in terms of our comfort level right now.

Alec Kodatsky - CIBC World Markets

And maybe to ask it a different way, historically companies have moved to new jurisdictions in order to chase ounces and production. Given what you're seeing in terms of the opportunities for Newmont, do you think you'll have to support side of your conventional regions in order to get the returns that you require?

Laurie Brlas

Yeah, we definitely are not solely focused on the countries that we're currently in. There is incremental value. There is a lower hurdle rate, if it's a country that we're in. We already have infrastructure, we already understand. But there are a number of other countries that we would be comfortable in. We just don't happen to operate in them right now and our exploration team is doing some preliminary work in a variety of other countries and we'll see what develops. But we would expect, we do a lot more analysis internally and we would expect a higher return if we ventured out of those regions.

Alec Kodatsky - CIBC World Markets

One question at the back which I think will be our last.

Unidentified Analyst

(Inaudible)

Laurie Brlas

Sure. As I mentioned, I'm comfortable with our balance sheet, where it is right now. We're squarely within the investment grade metrics and that's our goal to keep it there. And we believe strongly that that is important. We do have about $575 million maturing in this summer and we're currently evaluating what's the best method to deal with that. We don't have much in terms of near-term maturities. We can't make sure that we do not get ourselves into a position where we have to take some extreme measures to deal with that, is an important focus and I continue to remind some of the leadership team. Although we don't have much maturing this year, we do have to make sure that we're cognizant of what the coming year spring.

Alec Kodatsky - CIBC World Markets

Okay. Well, I think that does it for the time. Thank you very much, Laurie.

Laurie Brlas

Thank you.

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