Newmont - Q1 2024

Transcript

Operator (participant)

Good morning and welcome to Newmont's first quarter 2024 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. Please note the event is being recorded. I'd now like to turn the conference over to Tom Palmer, President and Chief Executive Officer. Please go ahead.

Tom Palmer (President and CEO)

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 Ovelmen, and we'll 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, 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. Daniel Ochoa, 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'll 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, starting with strengthening Newmont's position as the gold industry's recognized sustainability leader. Last week, Newmont published our 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 tons 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 a 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, and we continue to advance our four key projects we have in execution: a second expansion at Tanami, our new mine Ahafo North, and our two new block caves at Cadia. And 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 1st 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. Beginning 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 Peñasquito five years ago, we have key members of our Newmont technical team on the ground in PNG 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 ore properties, resulting in downtime from spillage, blocked chutes, and blocked crushers. From this initiative alone, we expect to improve mill throughput and generate over $50 million in annual cash flow improvements. With future waves of opportunities already identified at Lihir, we remain very excited about the untapped potential at this Tier 1 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. And with that, I'll now pass it to Natascha and then Karyn for an update on our operational and financial performance for the quarter. Over to you, Natascha.

Natascha Viljoen (COO)

Thank you, Tom, and good morning, everyone. After the loss of our colleagues at Ahafo North and Cerro Negro, Tom and I 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 spent time with our colleagues at Boddington, Peñasquito, 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 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 mill 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 movement 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 haul fleet as the performance of this technology continues to go from strength to strength.

Peñasquito delivered strong silver and lead production from the Chile Colorado pit in the first quarter, as waste stripping continues to progress in the Peñasco 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 Peñasco pit toward the end of the year, we will have access to these higher gold grades 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 gear is commissioned, we anticipate a 10-day to 20-day wrap-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 current block cave 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 2-3. 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're impressed with the team's dedication and understanding and then implementing Full Potential work.

As Tom said, this work will focus on simplifying the operation and being clear on the highest value options 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 quarter three for planned maintenance. This shutdown is included in our guidance. During the first quarter, we continue 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 waste 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 lower 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. With that, I'll turn it over to Karyn to cover our financial performance and capital allocation priorities for the remainder of the year.

Karyn Ovelmen (EVP and CFO)

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 of non-core assets that were classified as held for sale as of March 31st. 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, a build in 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 Peñasquito 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 standalone reclamation spend averaged around $200 million-$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.

And 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 Peñasquito, Ahafo, and Tanami. And 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.

And 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 investments 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. With that, I'll hand it to Tom for closing remarks. Back to you, Tom.

Tom Palmer (President and CEO)

Thanks, Karyn. In closing, and 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 leader. 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. And 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, creating an attractive value proposition for new and existing investors during this unique time in the gold industry. And with that, I'll thank you for your time today and turn it over to the operator to open the line for questions.

Operator (participant)

We'll now begin the question and answer session. We ask that you please limit inquiries to one primary question and one follow-up question. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause to assemble our roster. Our first question comes from Lawson Winder of Bank of America.

Lawson Winder (Senior Equity Research Analyst)

Thank you, operator. Good morning, Tom and team. 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 Lundin stream and offtake. But with respect to that, first of all, when you receive that, when will 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 Akyem and Telfer. How would you describe the interest in the other assets, and what is your timeline currently on thinking to deal and announce some transactions on these assets? Thank you.

Tom Palmer (President and CEO)

Good morning, Lawson. And thank you.

I'll pick up the second-party 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 investment. So we've moved into that accounting classification as Karyn talked to. We have started a formal process on every one of those assets. So we're in phase 1 in each of those for each and every one of those assets. So we're in the price discovery phase. And there is a high level of interest across all of those processes. When we classify as 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'll be 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. After Karyn, in terms of your question around the use of the proceeds, they're coming in two tranches, Karyn, and then where we propose to use them.

Karyn Ovelmen (EVP and CFO)

Yes. In terms of the use of proceeds, so the first payment, 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, through 2024, the beginning part of the year, we will be drawing on cash as we go through the year. So the first proceeds would be used to kind of replenish those cash balances as we go forward.

Lawson Winder (Senior Equity Research Analyst)

Great. Thank you very much.

Tom Palmer (President and CEO)

Thanks, Lawson.

Operator (participant)

Our next question comes from Tanya Jakusconek of Scotiabank.

Tanya Jakusconek (Managing Director and Senior Equity Research Analyst)

Oh, great. Good morning. Thank you for taking my question. 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 progressed this year and particularly at Peñasquito, please?

Natascha Viljoen (COO)

Tanya, thank you for that question. I think starting off just broadly, we see higher contribution from Peñasquito on GEOs 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 production for silver would be around 9 million ounces a quarter in the order of about 28 million ounces for lead—sorry, 28,000 tons and 58,000 tons of zinc across the four quarters.

Tom Palmer (President and CEO)

Just chipping in there, Tanya, that we get into the sort of coming out of Chile Colorado to the fourth quarter and head back into Peñasco pretty flat on silver and lead. But probably, Natascha, it's a little bit more zinc maybe in the fourth quarter.

Tanya Jakusconek (Managing Director and Senior Equity Research Analyst)

Okay. No, that's helpful. Thank you.

Tom Palmer (President and CEO)

And copper's pretty steady through the year. Copper's pretty steady, Tanya. Sorry.

Tanya Jakusconek (Managing Director and Senior Equity Research Analyst)

Okay. 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?

Natascha Viljoen (COO)

The only other area would be Ahafo South where we will be replacing the girth gear, as I mentioned in the prepared comments. And that will happen now in the second quarter. And then 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 make sure that we keep the two gold streams running, but that will then return to normal production rates after that shut.

Tanya Jakusconek (Managing Director and Senior Equity Research Analyst)

Okay. That's very helpful. And just one on operations, and I'll leave it for someone else to ask. I'm just interested in, as you know, the costs were quite good in Q1, even with the lower production level, that you are going to expect better production going through the year. Anything on the inflationary front that you could flag for us? Any easing that you're seeing? Anything that you're seeing some benefits on?

Natascha Viljoen (COO)

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 steel ball costs related to steel price and then also cyanide costs. The other added factor would probably be energy. In certain areas, we see a reduction in energy. That is, I think, quite surprising for us from 2023.

Tom Palmer (President and CEO)

And just to remind us, Tanya, about half of our direct cost is labor, and that's been pretty flat.

Natascha Viljoen (COO)

Yes.

Tanya Jakusconek (Managing Director and Senior Equity Research Analyst)

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 is in contractor costs, diesel, and some consumables and energy, is that a correct statement?

Natascha Viljoen (COO)

Yeah. Yeah. Explosives specifically. And then overall, labor costs yeah. Overall, labor costs staying flat for owned labor. That's about 50% of our cost makeup.

Tanya Jakusconek (Managing Director and Senior Equity Research Analyst)

Okay. Thank you so much for taking my questions, and I'll pass it to someone else. Thank you.

Tom Palmer (President and CEO)

Thanks, Tanya.

Operator (participant)

Our next question comes from Josh Wolfson of RBC Capital Markets.

Josh Wolfson (Managing Director and Head of Global Mining Research)

Hey, thanks very much. The team has painted a fairly rosy picture here on what the prospects are for asset dispositions and then also what the free cash flow outlook will look like absent some of these working capital headwinds. In that context, I'm wondering how flexible is the company's buyback policy. And I'm noticing the stock being a lot higher today than it was when the plans were announced at the fourth quarter results. Thank you.

Karyn Ovelmen (EVP and CFO)

Thanks, Josh. Yeah. As we go through the divestitures and as I've indicated, as our free cash flow picks up in the second half of the year, first priority is to ensure that we've got our cash replenished on our balance sheet. And then there will be flexibility as long as we have line of sight in terms of that debt reduction over the next 24 months. At that point in time, if we were to position, start to think about executing on share buybacks.

Tom Palmer (President and CEO)

And 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.

Josh Wolfson (Managing Director and Head of Global Mining Research)

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. So 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?

Karyn Ovelmen (EVP and CFO)

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

Josh Wolfson (Managing Director and Head of Global Mining Research)

Got it. Okay. Then sort of 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?

Karyn Ovelmen (EVP and CFO)

No, not necessarily. I think from an accounting convention perspective and how they're reported from a GAAP perspective will be obviously considered, I would assume, by potential buyers. But in essence, the process of going through the commercial view of the assets and the value to the potential buyers, that will produce something most likely different, whether it's up or down, versus what is recorded on our book from a GAAP perspective.

Josh Wolfson (Managing Director and Head of Global Mining Research)

Great. Thank you very much.

Tom Palmer (President and CEO)

Thanks, Josh.

Operator (participant)

Our next question comes from Jackie Przybylowski of BMO Capital Markets.

Jackie Przybylowski (Managing Director)

Yeah. Thanks very much for taking my questions. Maybe I'll ask the first question on the Full Potential program. So I had the privilege of visiting Peñasquito in March, and definitely, the team did a great job of outlining how the Full Potential program has benefited there. And 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?

Tom Palmer (President and CEO)

Yeah. Thanks, Jackie. Good morning. I'll kick off. And Natascha, you might want to build on that. Well, with Dean Gehring in the room as well, I want to chip in as well. We're most advanced at Lihir, and Lihir was the site we saw as the most opportunity, which is why we jumped into there literally on day one. Three main productivity and cost opportunities at Lihir. The one I mentioned in the prepared remarks is really around consistent ore feed so that you can manage and address materials handling. So ensuring you've got the right balance of different ores so that you've got managing conveyor belts and blocked chutes and blockedcrushers, just allowing a big plant to get a good consistent feed coming into it is a key value driver.

Asset management and improving plant availability and other plant losses, a real opportunity at Lihir, just the basics of good quality work management, reliability engineering with the strength of the team that we have to support Lihir.

And then the third one is down into the pit and improving mine efficiency and mine productivity, just getting back to the basics of drill and blast, load haul through the mine. So very similar as we discussed at Peñasquito in late February. Move across to maybe just touch on Cadia and Red Chris in particular. There's an enabler at Cadia, a really important enabler in terms of resolving the tailings constraints, so understanding the work to rectify the tailings at Cadia and then expand those tailings to ensure you've got the tailings capacity to support productivity improvements from both the mine and the processing plant. Underground, it's unlocking panel development. We're clearly opening up PC2-3, so progressing the opening up of the draw points over the next couple of years in PC2-3, ensuring that you're bringing on the development work for PC1-2.

Then it's a fine balance between the mine and the processing plant, so ensuring that as we're doing that work, we're also unlocking 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. Over the last dozen years, we have worked with those HPGRs, and we have a very efficient way of operating and maintaining that important crushing circuit such that we have regular visits to Boddington to understand how we both operate and maintain those HPGRs. So the opportunity for us to quickly get across to the HPGRs at Cadia, understand the power draw, understand the process control logic, and optimize those HPGRs is a really early quick win that we're getting after even before we finish the diagnostic phase.

And then I'll maybe touch on Red Chris. Red Chris, that processing plant, is going to be there through the end of the open pit mine and as we ultimately move into the block cave. So really focusing on the opportunities to stabilize mill operations, again, the basics around reliability and having uptime of that facility with consistent feed. And then after you've stabilized, then optimizing copper and gold recoveries and improving process controls so that you have a mill that's performing very well for the remaining life of the open pit as you then bring on the ore from the block cave in future years. Natascha, anything to add?

Natascha Viljoen (COO)

No, I think that was a really comprehensive answer. Thanks, Tom.

Tom Palmer (President and CEO)

But hopefully, Jackie, that gives you some sense of the excitement we have sitting in behind Full Potential and the confidence we have in that run rate through to the end of this year, the run rate to the end of next year, and why we've gone after the upside on

Jackie Przybylowski (Managing Director)

top of that $500 billion. Yeah. No, that was a super helpful answer. Thanks, Tom. And maybe if I can ask as 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? Do you have a preference of selling the assets in sort of groups or bundles, or are they all expected to be sold individually to different buyers? I mean, I don't know if you can make any comments on sort of how you're thinking about that.

Tom Palmer (President and CEO)

Thanks, Jackie. As I mentioned in an earlier question, the process has started on all six assets. So we have engaged banks and have started a process on all six assets, and we're in the process of price discovery through phase one and active interest. So we are getting a good feel for the level of interest in these assets and the competitive environment that we're hoping to enjoy. And we're running three separate processes because they're in different locations. So there's a process for Telfer in the Australian context with a dedicated team looking after that. There's a process for Akyem in the African or Ghanaian context with a separate team looking after that.

There's a process for our North American assets, the four operations plus the Coffee Project and a team getting after that, all being led by Peter Toth and Scott Langley, but up and running and very active. As I say, we're in phase one and quite excited about the level of interest and the competitive environment which we're presenting these assets to prospective buyers.

Jackie Przybylowski (Managing Director)

I appreciate the color. Thanks very much.

Tom Palmer (President and CEO)

Thanks, Jackie.

Operator (participant)

Our next question comes from Mike Parkin of National Bank.

Mike Parkin (National Bank)

Hi, guys. Thanks for taking my question. 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 of doing the two new plants versus the five existing ones? Is it capacity, or just the old ones don't have the technology you kind of need to have implemented there?

Tom Palmer (President and CEO)

Good morning, Mike. It is both capacity and technology. So just to paint a picture for you, we've been operating and mining the oxide ore at Yanacocha for the better part of the last 30 years and disturbed at the top of the Andes, an area that is the equivalent of three-quarters of Manhattan. So to give you a sense of the scale of the disturbed land at the top of the Andes, significant rainfall every year and a watershed rate into both the Atlantic and the Pacific Oceans. So there is a very significant amount of disturbed land, a very significant amount of water at the top of the Andes. And that water is acidic.

So every drop of water that touches that disturbed land, we need to capture, process, treat, and then discharge to different qualities. In some instances, the discharge needs to be to drinking water quality and some instances to agricultural standards as defined by the permits we have from the regulatory authorities in Peru. So as has been accrued for within our closure liability, we have been moving into a stage of closure for Yanacocha that involves the construction of two large water treatment plants over the next few years that then will treat water in perpetuity forever. These plants are designed to be there processing water and discharging water forever. So we're in the building of the plant phase now for a set of facilities that will operate for literally decades out in front of us.

Just to put into perspective the size of these water treatment plants, we are designing and building these plants to treat 8,000 cu m per hour. That is a plant equivalent to treating the water required by a city the size of Seattle. So that's the size of the water treatment plants we're building up at Yanacocha.

Mike Parkin (National Bank)

And the cost of those, I get that's all kind of flowing through this year and next year. Is that in your capital budget, or is that running through the income statement? You normally have a development expense.

Tom Palmer (President and CEO)

Sorry, Mike. Karyn might want to build on this. You don't spend it on development capital or a sustaining capital.

Karyn Ovelmen (EVP and CFO)

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

Mike Parkin (National Bank)

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

Karyn Ovelmen (EVP and CFO)

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

Mike Parkin (National Bank)

Okay. Thanks very much. That's it for me.

Tom Palmer (President and CEO)

Right. Thanks, Mike.

Operator (participant)

Our next question comes from Anita Soni of CIBC.

Anita Soni (Managing Director)

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

Tom Palmer (President and CEO)

So in other terms, the provisions that we've had in our closure liabilities, that's all been there. So there's no new information there. That's fully accounted for in terms of our closure liabilities for Yanacocha. And as part of that, there's always been the spend to build the water treatment plants, which takes place over 2024, 2025, 2026, and then the cost to operate those water treatment plants. So you're then looking at around $40 million-$50 million a year to operate these water treatment plants in perpetuity. The cost to both operate those plants and to construct those plants are included in our closure liability.

Anita Soni (Managing Director)

So what's that total closure liability now then?

Tom Palmer (President and CEO)

For Yanacocha, it's sitting at—just looking at my number—it is sitting at about $4.8 billion in the—sorry, the liability. I'll pass across to Karyn to cover the liability rather than me trying to tackle with balance sheets.

Karyn Ovelmen (EVP and CFO)

Yeah. As Tom was referring to, the total reclamation and remediation liabilities is around $6.6 billion, but for Yanacocha, it is the $1.7 billion that has been accrued for on our balance sheet.

Anita Soni (Managing Director)

Sorry, $1.7 billion.

Karyn Ovelmen (EVP and CFO)

Yes, for the water treatment.

Tom Palmer (President and CEO)

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

Anita Soni (Managing Director)

Okay. Got it. And then you mentioned it's taking place over 2024, 2025, and then 2026. Can you tell us what the number that we would see in working capital outflow in 2026 would be?

Karyn Ovelmen (EVP and CFO)

Yeah. So as I indicated in my prepared remarks, $600 million in 2024, peaking at $700 million in 2025, and then starting to come down from there in 2026.

Our final question comes from Daniel Major of UBS.

Daniel Major (Metals & Mining Analyst)

Hi there. Yeah, thanks. Thanks.

Tom Palmer (President and CEO)

Go for it, Daniel.

Daniel Major (Metals & Mining Analyst)

Okay. Sorry. I'll keep it quick if you want any other time. Thanks. Yeah. Two questions. One, just following up on the working capital and looking at your slide 10 in the presentation, you've talked at length on 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?

Karyn Ovelmen (EVP and CFO)

Sure. So the only additional stamp duty we'll have is in the third quarter for approximately $30 million. You'll see some additional seasonal changes as we head into 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. You'll see higher of the reclamation liabilities, the cash outflow associated with that as we go through 2024. And then in addition to that, you'll see the traditional timing as it relates to sales and inventory changes as we go through the year.

Daniel Major (Metals & Mining Analyst)

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

Karyn Ovelmen (EVP and CFO)

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

Daniel Major (Metals & Mining Analyst)

Okay. Thanks. And then just second one, you've talked detailed a lot of the progress you've made since the integration in Newcrest. In these kind of deals, I guess there's always positives and negatives. What's the toughest part? What's been the most challenging or most difficult part of the integration so far?

Tom Palmer (President and CEO)

I'll pick that one up. By far and away, Daniel, is the tragic loss of Adam Kennedy's life, Brucejack, on the 20th of December last year. As you reflect upon the integration, you reflect upon what things could we have done differently, what decisions could we have made differently that wouldn't have led to Adam being killed that day at Brucejack. I think, as you've said in some of our remarks as well, I think stepping back from the loss of Adam and safety, I think the two areas that we're working through diligently, tailings facilities. We've talked about Telfer, and we've talked about Cadia and a little bit around at Red Chris.

So just bringing those tailings facilities into the Newmont standard and ensuring that we have the appropriate rigor and discipline around those, managing them here and now, and ensuring as we shepherd those going forward that they are the appropriate standard. And then the third one would be bringing the ore body knowledge levels up to a Newmont standard so that we've got really robust ore body knowledge underpinning our mine plans. So that will be the three areas where there's been, I guess, the hard work. I think if I step back from that with the perspective of having lived through a similar integration and transaction five years ago, I think when I step back from those three areas, I think the integration has gone very well.

And I think 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.

Daniel Major (Metals & Mining Analyst)

Great. Thanks so much. Good luck.

Tom Palmer (President and CEO)

Thanks, Mike.

Operator (participant)

We've had a follow-up question from Anita Soni of CIBC.

Anita Soni (Managing Director)

Yeah. Sorry, I got cut off there before the end of the question. But I was hoping I'm assuming that the 2026 spend for Yanacocha water treatment would be $400 million. I think you said it was $1.7 billion just for the buildup of those plants. So you're doing $600 million and then $700 million. So the remainder would be $400 million. Is that correct?

Karyn Ovelmen (EVP and CFO)

Yeah. And the expectation is that this will be commissioned in 2027, and there'll be obviously some continued, as Tom said, continued approximately around $50 million a year associated with that going forward.

Tom Palmer (President and CEO)

So now, we do certainly see the step up through those three years. And then back to as best you can predict that far into the future, back to the sort of normal long-run levels for closure and reclamation activities.

Anita Soni (Managing Director)

Okay. So the second question that I wanted to ask was about Cerro Negro. So definitely unfortunate that two people lost their lives. I did want to ask a little bit about does it have anything to do with long-term structural support there? I mean, these guys were or a gentleman and a lady were within the Mine Technical Services Group, so a little bit unexpected for that group to, for that to happen. So I was just trying to find out if you had any color on that.

Tom Palmer (President and CEO)

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

Natascha Viljoen (COO)

Anita, absolutely not structural. So from a geotechnical point of view and from a quality of asset point of view, very high quality and no material geotech challenges for us. This was procedural by nature, so definitely not linked to any long-term predictions.

Anita Soni (Managing Director)

Okay. All right. Thank you. That's it for my questions.

Tom Palmer (President and CEO)

Thanks, Anita. As we close out our investigation, we will share those lessons widely with the industry. So as we're able to, we will. Thanks, Anita.

Operator (participant)

This concludes the question and answer session. I would like to turn the conference back over to Tom Palmer for closing remarks.

Tom Palmer (President and CEO)

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

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.