Newmont - Q4 2023

Transcript

Operator (participant)

Morning and welcome to Newmont's fourth quarter 2023 earnings and 2024 guidance call. All participants will be in 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 will be an opportunity to ask questions. Please note this event is being recorded. I would 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. Please note our cautionary statement and refer to our SEC filings, which can be found on our website. 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. I'd also like to take a moment to acknowledge our friend and colleague, Rob Atkinson. Our Chief Operating Officer for the past five years, Rob, will leave Newmont in early May, although his legacy will endure. Through his visible felt leadership, Rob has driven our fatality risk management program, achieving five years' fatality-free performance. Throughout the pandemic, Rob navigated our operations through challenges, including periods of care and maintenance, border closures, and vaccine implementation.

Rob also represented the very best of our values when he guided Peñasquito through two major challenges: resolving a community blockade in 2019 and an unjustified strike last year. In both situations, Rob found sustainable solutions that protected the long-term value of Newmont. Over the last five months, Rob and Natascha have conducted a thorough handover of accountabilities, and Rob will remain with us to support Natascha and me before finishing up and heading back to the U.K. to spend more time with family. Before we get started, it is with great sadness that I share the tragic news regarding a fatal incident at our recently acquired Brucejack operation on December 20th last year. I'd like to take a moment to remember our colleague, Adam Kennedy. Adam was only 44 years old. He was a partner, a son, a brother, an uncle, a best friend, and a valued colleague.

Our condolences go out to Adam's loved ones during this difficult time, and we are again reminded how important it is to maintain a sense of chronic unease when it comes to the safety of everyone who works at Newmont. Any fatality is totally unacceptable. We fully understand the fatality risks in our industry and the critical controls that need to be in place at all times to manage them. We have been taking the time to conduct a safety reset across all Newmont sites, not just the five new to Newmont operations, with a laser focus on the implementation of our Fatality Risk Management system. This reset work includes training delivered by our line leaders, our managing directors, our general managers, and our senior health and safety leaders, training on our Fatality Risk Management standards and our Critical Control Verification process.

We're also concluding our thorough investigation into this tragic incident, which is being led by Dave Thornton, the Managing Director of our Africa business unit. We are applying the lessons learned from this investigation at all of our managed operations globally, and we will share them widely with our mining industry peers. Nothing is more important than our commitment to the health and safety of our workforce, and we are determined to create an environment where every person working at Newmont across all locations returns home safe and well to their families and loved ones at the end of each and every shift. Turning to our performance in 2023, Newmont finished the year with a solid fourth quarter, putting us in line with the revised standalone outlook that we issued following the resolution of the strike at Peñasquito.

In summary, we produced 5.5 million ounces of gold at All-in Sustaining Costs of $1,444 an ounce. In addition to gold, we produced nearly 900,000 gold equivalent ounces from copper, silver, lead, and zinc over the course of the year. This performance enabled us to deliver $4.2 billion in Adjusted EBITDA, return more than $1.4 billion to shareholders, and end the year with liquidity above $6 billion. In a few minutes, Natascha and I will expand on how we expect to improve upon this performance in 2024 and beyond with a focus on delivering meaningful value to our shareholders. But before we do that, I would like to describe how we are transforming our business into a unique collection of the world's best gold and copper operations and projects following last year's transaction.

When we announced our binding agreement to acquire Newcrest in May last year, we outlined a powerful value proposition built around four key commitments. First, to set the new sustainability standard and strengthen Newmont's position as the gold sector's recognized sustainability leader. Second, to create the industry's strongest portfolio of world-class gold and copper assets in the most favorable mining jurisdictions. Third, to deliver $500 million of annual synergies and realize over $2 billion in cash from portfolio optimization. And finally, to continue driving a disciplined, balanced approach to capital allocation. After closing the transaction on November 6th last year, the integration of the five new operations into our Newmont operating model has been progressing very well.

As we enter this critically important year of integration and transformation, I'll be holding myself and my executive leadership team accountable for delivering on these commitments, and this will be our key focus in 2024. To support this work, earlier today, we announced four key actions that together will enhance our ability to deliver on our clear and consistent strategy. First, we plan to divest six high-quality but non-core assets this year. From this point forward, our world-class portfolio will consist entirely of Tier 1 and emerging Tier 1 operations and districts, and it will have a significant exposure to growth in copper and gold from our industry-leading organic project pipeline. Second, we provided our 2024 and five-year outlook, giving a clear picture of the work we're doing today to expand margins and appropriately sequence our projects to deliver sustainable value.

Third, with the clarity, simplicity, and focus that our Tier 1 portfolio provides, we have committed to deliver a further $500 million in cost and productivity improvements across the entire portfolio. These improvements are over and above our synergy commitment from the Newcrest acquisition. We expect to hit this $500 million annual run rate of improvement by the end of 2025. Finally, we announced a balanced shareholder return framework consisting of a $1 per share annualized base dividend and a new $1 billion share repurchase program. Our go-forward Newmont portfolio is focused on Tier 1 gold and copper operations and projects located in the world's most favorable mining jurisdictions. It has four key features. First, it contains 10 Tier 1 operations representing more than half of the world's Tier 1 gold mines in the Newmont portfolio.

Second, it has three emerging Tier 1 operations that each have a clear path for growth. And we have the opportunity to create a Tier 1 district in British Columbia, a district in which Newmont will be operating for at least the next century. And third, it has an unmatched organic development pipeline with six large-scale copper gold projects. And fourth, underpinning our Tier 1 portfolio is the industry's most robust foundation of reserves and resources. Going forward, Newmont has the industry's largest gold resource base, and we also have the largest base of copper resources in the gold industry. To put these numbers into perspective, Newmont has an almost 30% larger gold reserve resource base than our nearest peer. And we have a 40% larger copper reserve resource base than our nearest gold peer.

No other gold producer in the world can offer the depth and quality that Newmont's Tier 1 portfolio can today. Later on, I'll provide a little bit more color about Newmont's longer-term outlook and the exciting gold and copper opportunities ahead of us. But first, I'd like to step back and give some insight into how we are framing the year ahead. 2023 brought with it a number of unique challenges, which are now firmly behind us: the 120-day labor dispute at Peñasquito, asset integrity issues that were inherent in the original design of equipment at Ahafo, and wildfires in Canada impacting Éléonore. Those three events meant that our final production number did not reflect the full capability of our assets.

As we emerge on the other side of these events, I am proud of the decisions that we took to protect the long-term interests of our company rather than looking to seek short-term expedient solutions. However, I am also not happy with the underlying level of our operating performance. We have the opportunity to improve our compliance to mine plans, to improve our fixed and mobile equipment reliability, and to improve our mill throughputs and recoveries. So our focus for 2024 will be on safely integrating new teams, new operations into our Newmont operating model and culture, transforming our portfolio, and laying the groundwork for sustainable operating performance, margin expansion, and strong returns. Finally, this morning, we also announced that we have extended the completion date and increased the projected capital cost for our Tanami II expansion project.

In the second half of last year, we completed the concrete lining of the top half, or 700 meters, of this 1.5-kilometer-deep production shaft. This milestone gave us the opportunity to assess the condition of the known overbreak and ground conditions at the very bottom of the shaft, as well as incorporate the lessons learned from lining the top half of the shaft into the costs and schedule for the run home. We have critically assessed a number of options to safely address the known overbreak and line the lower section of the shaft. This work included key third-party reviews before we landed on a method. It was this methodology and subsequent decision that has informed the cost and schedule update we provided today.

Although I'm not happy with the extension of time and cost, I am confident that we have chosen a method that is safe and will ensure the shaft construction is of the quality necessary to reliably service Tanami's prolific ore body for many, many years to come. So with that, I'll hand it over to Natascha to walk you through our operational priorities for 2024 and what we are doing to ensure that we deliver on our commitments this year. Over to you, Natascha.

Natascha Viljoen (President and COO)

Thank you, Tom, and good morning. Since joining Newmont in October, I have visited 14 of Newmont's 17 managed operations. I've been really impressed by the quality of the assets, the dedication of our people, and the commitment from our operational leaders to drive safe and profitable production.

Now, before I begin, I'd like to provide a brief introduction to the operational team focused on integration and value delivery in 2024. As mentioned last quarter, within our global operating model, we have six regional business units, each headed up by a world-class experienced Newmont leader who you can see on this slide. This scalable, integrated operating model enables alignment across our operating leadership team while also empowering our managing directors to apply their extensive local and technical knowledge and draw on the global functional expertise to lead each unique operation. To support our operations from the project execution side, we have a dedicated, restructured project delivery team. This team of subject matter experts is working across the full spectrum of our organic pipeline, including studies, project development, construction, and commissioning of projects.

They strengthen our operating model with block caving capability and an understanding of industry-leading practices in project development. This year, we will have a lighter focus on the performance of our 11 managed operations in our go-forward portfolio while also guiding our six non-core assets through a safe and productive process for divestment. As we work to deliver efficiency and reliability from our global portfolio, we are committed to progressing our four key projects in execution and keeping them on track in 2024. As a result, we are entering the year with a strong focus on integration and the safe delivery of our targets. Our success in 2024 will be largely determined by the performance of our six managed Tier 1 operations: Boddington, Tanami, Peñasquito, Ahafo, Lihir, and Cadia. Not underestimating the significant impact of the delivery from the full portfolio of operating assets.

I will also separately touch on Telfer and how we are ensuring tailings dam integrity at this new-to-Newmont operation. We are very clear on the key priorities to integrate and deliver 2024 and how to set up operations for the next five years. I will touch on some of these at each of the Tier 1 managed operations. At Boddington, we are progressing the stripping of the current laybacks in the north and south pits as planned with improved productivity from our fully autonomous haulage fleet. At our polymetallic mine, Peñasquito, our focus is on delivering strong silver, lead, and zinc from the Chile Colorado pit and continuing waste stripping in the Peñasco pit to deliver higher gold grade in 2025. At Ahafo, we remain on track to replace the defective girth gear in the second quarter to maximize processing rates.

At Tanami, we are improving material movement through the decline as we progress deeper underground. The Lihir team will be focused on simplifying the mine plan and improving asset reliability. At our other new-to-Newmont operation, Cadia, we are commissioning the next block cave and progressing some important tailings rectification and expansion work to set up for the next decade of ore feed. We have Full Potential teams on the ground at Lihir and Cadia actively working through our diagnosis phase and designing the initiatives to extract value and deliver the opportunities identified. Taking these key priorities into account, we anticipate that the production will be around 53% weighted towards the second half of the year as we return to full processing rates at Ahafo, reach higher grades from the Liberator ore body at Tanami, and safely integrate the new-to-Newmont sites into the Newmont operating model.

Now, touching briefly on Telfer, a non-core operation in Australia, we are focused on remediating sinkholes and cracks detected at the Tailings Storage Facility in December when we stopped the mill to complete a first phase of remediation work. In early February, we temporarily restarted the plant while evaluating options for further remediation of an adjacent Tailings Storage Facility and will provide an update on that work on our first quarter earnings call. And with a focus on Fatality Risk Management, Respect at Work, and Full Potential in place, we remain firmly on track to deliver on our commitments this year. On top of delivering in 2024 operationally, we are working to bring forward new low-cost ounces from the four key projects we have in execution.

These projects include the second expansion at Tanami, as Tom just covered, where our focus is on safely lining the lower section of the shaft and continuing to construct the crushing and conveying infrastructure underground. Two block cave projects at Cadia to recover both gold and copper, where we have just delivered first ore as we ramp up the first of these caves. Our new mine, Ahafo North, where we are making good progress on the construction of the mill and other supporting infrastructure, along with waste stripping to allow us to start accessing the ore for stockpiling.

When this new and very exciting mine is combined with the underground potential of Subika, Apensu, and Awonsu, we have a Tier 1 Ahafo district that will be capable of producing around 850,000 ounces of gold per year out to and beyond 2050, which would make it one of the world's top gold mining districts by any measure. Now, bringing all of this together, as we focus on integration and size delivery this year, we expect our Tier 1 portfolio to produce around 5.6 million ounces of gold and an all-in sustaining cost of $1,300 per ounce, combined with a very significant 1.9 million gold equivalent ounces from copper, silver, lead, zinc, and molybdenum. Our unit costs are expected to improve compared to 2023 due to steady production volumes and the delivery of synergies and Full Potential improvements, with the lowest unit cost coming from Newmont's managed Tier 1 portfolio.

Our capital reinvestments remain in line with the pre-acquisition spending levels as we continue to focus our disciplined delivery and a balanced approach to capital allocation. And with a stable production and structured reinvestment, we are strongly positioned to integrate and deliver on our commitments in 2024, setting the stage to future-proof these world-class assets with benchmark performance and meaningful growth in 2025 and beyond. And with that, I'll turn it back to Tom.

Tom Palmer (President and CEO)

Thanks, Natascha. Building off the foundation we are establishing in 2024 that Natascha just covered, I'd now like to provide a bit of color around the opportunities that we are seeing from our go-forward portfolio. We will continue to optimize the performance of our mature Tier 1 operations and our new-to-Newmont assets.

At Boddington, the stripping that we are doing today will bring forward strong gold and copper grades starting in 2026, all supported by the gold industry's only fully autonomous haul fleet. At Tanami, the completion of the second expansion will provide efficient access to ore at depth and open up this prolific underground ore body in 2027 and beyond. At Peñasquito, the stripping that we are currently doing will bring forward a higher proportion of gold ounces from the Peñasco pit, balancing with the strong production of silver, lead, and zinc from the Chile Colorado pit. At Ahafo, we are building out district potential with new low-cost ounces from both underground and open pit at Ahafo South and our new mine, Ahafo North, coming online in 2025.

At Cadia, we will commission our second block cave in this timeframe, bringing forward higher gold and copper grades while in parallel leveraging our Full Potential program to improve the reliability and throughput. Finally, simplifying the year's mine plan is expected to deliver a strong improvement in gold production as we reach higher grades from Phase 14A. As I mentioned earlier, with a clear line of sight into the Tier 1 managed operations in our portfolio, we have identified $500 million of additional cost and productivity improvements over and above our synergy commitments.

So taking everything into account, over the next five years, we expect to deliver growing gold production driven by the completion of the laybacks at both Boddington and Peñasquito, the new ounces from Ahafo North, the completion of the second expansion at Tanami and both block caves at Cadia, and mining improvements combined with higher grades at Lihir. On top of this improving gold production, Newmont will produce a significant amount of copper along with silver, lead, zinc, and molybdenum from our global diversified Tier 1 portfolio. Driven by this high metal production and with a focus on improving costs, we expect to deliver lower All-In Sustaining Costs, bringing our go-forward portfolio down to $1,150 per ounce by 2027.

For development capital, we are applying a pragmatic and methodical approach to our project work to ensure we are efficiently bringing forward opportunities that are aligned with our strategy while also remaining disciplined with our capital allocation priorities. We expect to spend an average of $1.3 billion per year on development capital, driving healthy competition for investment as we close out the four large projects we have in execution and bring forward the next wave of profitable production from our organic project pipeline. Newmont is supported by the deepest and best project pipeline in the gold industry. We will manage it with discipline and rigor to ensure that the most value creative opportunities are advanced at the right time and in the right order.

We have three world-class copper-gold projects in our pipeline ramped up behind the four projects we have currently in execution: moving underground at the Block Cave at Red Chris, developing the Wafi-Golpu Block Cave, and processing the sulfide ore at Yanacocha. And then when we look beyond those projects, we have three exciting long-term opportunities to further diversify into copper: Galore Creek, Nueva Unión, and Norte Abierto. Over the next 10 years, demand for copper is expected to increase significantly. And based on current copper production trends, the world can expect to experience around a 10 million-tonne shortfall of this critical metal by 2035.

Bridging this gap will require significantly more copper mines, copper recycling, and enhanced copper leaching processes, creating an exciting opportunity for Newmont to help meet this demand with the organic copper exposure we have in our portfolio while continuing to provide unparalleled exposure to gold and its enduring value. With that, I'll hand it over to Karyn to talk through our balanced capital allocation strategy.

Karyn Ovelmen (CFO)

Thank you, Tom. Our capital allocation strategy is underpinned by three priorities. Working in unison, these priorities maintain the financial flexibility necessary to reinvest in our business with the goal of generating long-term sustainable free cash flow, in turn positioning us to return capital to shareholders through our balanced shareholder return framework.

Beginning with financial flexibility, the first of our three priorities, we intend to maintain an investment-grade balance sheet with gross debt of up to $8 billion and liquidity of $7 billion, including approximately $3 billion of cash. By maintaining a strong balance sheet, we can ensure we have the ability to steadily fund cash-generative capital projects all while returning capital to shareholders. As announced this morning, we have six assets currently classified as non-core. The anticipated proceeds from lease investments, along with free cash flow from operations, will cycle through our capital allocation priorities, beginning with enhancing our financial strength and flexibility. Divestiture proceeds will first be allocated to maintaining our minimum cash balance of approximately $3 billion and will then be applied to reducing debt to $8 billion or below.

Our initial debt target of $8 billion is to achieve we intend to return both free cash flow from operations and divestiture proceeds to our shareholders, which I'll touch on in more detail in a minute. Moving to sustainable investments, as Tom and Natascha mentioned, over the next five years, we expect meaningful production growth from our long-life, low-cost operations as we invest an average of $1.3 billion of development capital into projects that will generate the highest returns. The third priority of our capital allocation approach is a balanced shareholder return framework designed to return capital to shareholders through our base dividend and share repurchases.

To be clear, we are not yet where we want to be in terms of generating free cash flow to return to our shareholders, but believe we have the right framework in place to return an increasing amount of capital as our operational and financial performance improves. Our balanced shareholder return framework begins with an annualized base dividend of $1 per share, an amount that will remain fixed and currently equates to a quarterly dividend of $0.25 per share. We expect to be able to pay the base dividend from free cash flow over time. Our dividend is subject to approval from our Board of Directors on a quarterly basis.

Historically, our free cash flow generation has been weighted towards the back end of the year, and we expect that will be the case in 2024 as our production profile and synergy realization is expected to be higher in the second half of the year than in the first half of the year. In addition, free cash flow generation in the first quarter of 2024 will be impacted by the payment of a stamp duty tax related to the acquisition of Newcrest. The stamp duty was accrued in the fourth quarter and paid in February. As necessary, we will use the flexibility of our balance sheet to fund the base dividend through the quarters, with the annualized $1 per share dividend expected to be ultimately funded with free cash flow. Additionally, our board has authorized $1 billion share repurchase program.

As the liquidity and debt parameters I defined earlier are satisfied, we intend to repurchase shares in line with our free cash flow and asset sale proceeds. To reiterate, our free cash flow and proceeds from investments will be prioritized as follows. The first dollar will be allocated to maintaining our minimum cash balance. The second will be applied to reducing debt to $8 billion. The third will go toward share repurchases. Our go-forward portfolio positions us to improve margins and performance over time, funding our capital allocation priorities and allowing us to reward our shareholders directly with returns of capital. We believe reducing debt and returning capital to shareholders creates an attractive value proposition for new and existing investors while also improving the company's financial position over the long term. I'll turn it back to Tom for closing remarks.

Tom Palmer (President and CEO)

Thanks, Karyn. Newmont's go-forward Tier 1 portfolio sets the new standard for gold and copper mining and provides our shareholders with exposure to the highest concentration of Tier 1 assets in the sector, located in the most favorable mining jurisdictions and with an improving cost profile to maximize margins and generate strong free cash flow, industry-leading growth optionality in copper and gold through disciplined reinvestment and project execution, and a balanced shareholder return framework. As we look forward to this very important year of integration and transformation, I am very confident in the quality of our assets and the capability of our team to deliver on our commitments and justify our position as the benchmark gold equity. This year, we'll also be continuing to work on transforming our go-forward portfolio and, importantly, building out the strategic and life of mine plans for each of our managed operations.

I look forward to updating you on the longer-term potential of this world-class portfolio at our capital market days in the second half of this year. With that, I'll turn it over to the operator to open the line for questions.

Operator (participant)

Thank you. We will 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 handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause to assemble our roster. Our first question today is from the line of Josh Wolfson of RBC. Josh, your line is now open. Please go ahead.

Josh Wolfson (Head of Global Metals & Mining Research)

Yeah. Thank you very much, operator. I guess I'll limit my questions to just this single one. On the Newcrest reserve front, it looks like the overall totals for gold declined by about a third. And I understand the differences were primarily due to reporting changes under SEC guidelines. I'm wondering how we should be thinking about the prior reserves that were there and whether the company would expect to incorporate these as part of their reserve base in the future or if this is something different than that. Thank you.

Tom Palmer (President and CEO)

Yeah. Thanks, Josh. And good morning. As we did the work to bring the Newcrest reserves and resources into the Newmont standards, we obviously have a tighter set of rules in terms of what makes a Newmont reserve and a Newmont resource.

As the numbers came together once we had the full transparency into the reserves and resources, they were very consistent to what we assumed when we did our due diligence back in April and May. There's a number of moving parts to it, Josh. And talking to the team over the last couple of days and reflecting back on what we did with Goldcorp five years ago, I think giving each of you the opportunity to sit down in a more detailed session where we can have our IR team along with Don Doe, who governs that whole process, we can take you through some of those detailed questions and ensure that we're able to adequately answer where you might be seeing those differences. But the work's done as we've obviously declared that statement. So I'd certainly look for our investor relations team to set those meetings up.

And we can spend some good time taking you through that if that's okay.

Josh Wolfson (Head of Global Metals & Mining Research)

Yes. That works. Thank you.

Tom Palmer (President and CEO)

Thanks, Josh.

Operator (participant)

Our next question today is from the line of Lawson Winder of Bank of America. Lawson, your line is now open. Please go ahead.

Lawson Winder (Senior Equity Research Analyst)

Thank you very much, operator. And thank you all for the update today. Could I ask about the capital return and how you thought about that? And essentially, what it looks like you've done to me is you've shifted the capital from dividends to share buybacks. So what drove that decision to make that transfer of capital return?

Tom Palmer (President and CEO)

Yeah. Thanks, Lawson. Good morning. I'll kick off and I'll get Karyn to build. When you look at we've transformed Newmont with the acquisition of Newcrest. So as we shaped the Newmont go-forward portfolio, so that Tier 1 portfolio, it's very different from what Newmont was before.

So once we determine that go-forward portfolio, then we step back to look at the appropriate capital allocation approach or strategy in the context of a portfolio of Tier 1 assets with very long life. We looked at our balance sheet in terms of the debt that we brought on board following the transaction. We looked at the number of shares that we issued in order to do this transaction. And they are important factors when you sit down and look at your capital, our allocation framework. So you step back from that. First and foremost, it's ensuring that we are putting money on the balance sheet. We're getting the cash to the parameters that Karyn talked about, building that cash up in order to pay down debt to the targets we're going to. Really important step that we do there.

We're really clear in terms of the amount of money we'll put towards reinvestment in the business and setting that average of $1.3 billion. A $1 per share-based dividend is something that is fixed, and you put it in the bank in terms of what you're going to expect from Newmont. Then it becomes, what do we do with any dollar over and above having met those requirements, with cash proceeds coming in and any net free cash flow that we generate in the context of us having reissued shares? A $1 billion share buyback gives us the vehicle to return any variable component or additional free cash flow. Lawson, it was very much the context of looking at the portfolio that we have transformed to and where we want to take that portfolio to in terms of its capital allocation settings. Karyn, did you want to build on that?

Karyn Ovelmen (CFO)

Sure. Just a follow-on to that. And then also, as we looked at this portfolio, it's linking the return of capital directly to our free cash flow realization. And then also just in terms of consistency, in terms of where we were in 2023 for the absolute dollar amount of the dividend, the base dividend that we paid at $1.60 was around $1.4 billion. So our base dividend today going forward at the dollar with the new share count is around $1.2 billion. We believe that's the right level for our free cash flow generation as we're going forward. As we couple that with a variable portion of the return now that will be in the form of a share repurchase, I think which is consistent with the new equity that we just issued and in terms of our ability to start to bring that down as well.

Lawson Winder (Senior Equity Research Analyst)

That's great. Thank you both very much.

Tom Palmer (President and CEO)

Thanks, Lawson.

Operator (participant)

Our next question today is from the line of Anita Soni of CIBC. Anita, your line is open if you'd like to proceed.

Anita Soni (Equity Research Analyst)

Hi. Good morning, Tom, Karyn, and Natascha. So my first question is with respect to the metallurgical changes at Peñasquito. Could you talk about that and what exactly happened there? What years does it impact? And I noticed there was a reduction in reserves at Peñasquito on gold and silver. And I just want to seek more clarity on that.

Tom Palmer (President and CEO)

Good morning, Anita. I'll let you kick off. Dean Gehring's also here with Natascha and Rob, if you wanted to chip in, folks. I think probably a couple of factors there. Anita, I think we've drilled some 40 kilometers of infill drilling across Peñasquito over the last period of time. And then looking at the impacts that that may have in terms of reserves and resources. And there's a layback in the Peñasco pit. It's Cutback 10. It's scheduled out into the 2030s. But as we did that infill drilling, didn't see the level of metal that we'd assumed as we got that great density of drilling. And so you're seeing that reflected in terms of reserve and resource numbers. It doesn't mean that we can't get that layback back into the system.

Our real focus at Peñasquito is ensuring that we roll up our sleeves, tighten our focus, and look to improve the operational efficiencies at that big mine. I think there's still plenty of upside there. I think about the timeframe out in front of us and the opportunities to improve cost and productivity at Peñasquito. I can see pathways to bring those ounces back in again as we focus on that challenge with a good decade out in front of us. The second area, Anita, is as we looked at the block models and our reconciliations over the last period of time, we were seeing reconciliations for silver, lead, and zinc sitting between 5%-10% over, so 105%-110%. Gold was coming in at around 90%, 95%.

So as we updated our mine plans, we incorporated the reconciliations that we've been seeing within our block model. So you're seeing some of that effect flow through as well. Just the governance of that block model, we manage separately. It's governed separately from the development of the mine plans. So as we looked at those reconciliations, we made the appropriate updates to the block models.

Anita Soni (Equity Research Analyst)

Okay. Thanks for that. And then my other question is also operational, technical in nature. I'm not quite sure what underbreak and overbreak means. Can you just explain it in layman's terms? What was happening at Tanami? I mean, my understanding, I think it looked like there was an issue when you were drilling the shaft and there was, I guess, collapsed a little bit. Or is that a mistaken assumption? What's going on at Tanami?

Tom Palmer (President and CEO)

Yeah. Thanks, Anita. So let me put the Tanami production shaft in a little bit of perspective. It's 1.5 kilometers deep. And the overbreak, which is the predominant challenge we're working through, is at the very bottom of that shaft. So it's in the bottom couple hundred meters. So we throw out a 1.5 Km deep shaft. It's 3 CM towers top to tail underground in the middle of the Northern Territory down there. So it's at that very bottom of the shaft that we're seeing the overbreak. As we raisebored the shaft, it's a six-meter diameter shaft. As we raisebored that shaft and you're leaving that parent drilled rock sitting there as you then come from the top and line down, that very bottom of the shaft was in some broken ground.

And so you do get some rattling and some ground breaking off into the very bottom of the shaft. And as that relaxed, that's broken out in areas too, in some areas, double the diameter of that shaft at the very bottom. It's the nature of underground mining and shaft sinking that you'll hit pockets of ground that's got some poor conditions. And so we've seen what we call overbreak, which means the width of the shaft is wider. Then you can safely reach out to do rock bolting, shotcreting, and the like to be able to then put the lining on.

So as we stepped through that 10 years ago, if you were doing that work in the shaft sinking industry, there would have been some very unsafe practices to be able to fill in that area in order to be able to bring back into six-meter diameter and then line that shaft. We're not prepared to do that. So we first understood the level of overbreak and then developed a range of different methodologies for how we could safely rectify that, had them assessed by third parties, and then landed on the one that we believe we can send human beings down at that depth to that location to do that work. So we have a methodology now that will involve safe rock bolting from a Galloway, safe shotcreting from the Galloway. And then we'll fill that bottom section of the shaft, those couple of 100 meters, with concrete.

And then we'll re-raisebore that bottom section. And then we'll come down and line that section alongside the rest of the shaft. And we'll have a shaft that will be assembled safely to the appropriate quality to then run for decades to service the ore body at depth. So that's the process we've been through to determine how to appropriately fill the overbreak area. So hopefully, Anita, that gives you some clarity.

Anita Soni (Equity Research Analyst)

It does. That part is what I thought. That's typical when someone hears the word overbreak. It's the phrase underbreak that you also used, which that's what confused me. Yeah.

Tom Palmer (President and CEO)

Thanks. Thank you.

Anita Soni (Equity Research Analyst)

Could you explain that part?

Tom Palmer (President and CEO)

It's not a huge amount. Sorry, Anita. There's not a huge part of the shaft. But there are certain areas where the raisebored has moved past of the hard rock or whatever it might be.

You've got a bit of material protruding into the diameter of where you want to line the shaft. So it's really coming through and being able to break back to the six-meter diameter so you've got the appropriate dimension and tolerance to be able to then pour concrete to form the wall. So there are certain sections where you haven't been able to ream out the full 6-meter diameter. And so you have to do some rectification work there.

Anita Soni (Equity Research Analyst)

Okay. I'll leave it there and pass it on to the next person. Thank you.

Tom Palmer (President and CEO)

Thanks, Anita.

Operator (participant)

Our next question today is from the line of Daniel Major of UBS. Daniel, your line is now open.

Daniel Major (Managing Director and Senior Equity Analyst)

Hi there. And thanks for the questions. Questions around some of the Newcrest assets. Observing, I guess, from a distance, this company for quite a long time, two things. The Lihir asset has been a perennial underperformer ever since Newcrest bought it. Why do you think you're going to be able to deliver better results and more consistent results at Lihir than Newcrest were able to over the last 10 years or so?

Tom Palmer (President and CEO)

Good morning, Daniel. It probably is morning for you, I suspect. Lihir is a big asset developed by Rio Tinto. Rio Tinto invested in the Lihir gold mining. And then Newcrest picked it up 10 or a dozen years ago. A big mine like Lihir is best placed in a big Tier 1 portfolio where you can balance out the ebbs and flows of a large, complex mine.

First and foremost, with Lihir in a balanced portfolio with nine other Tier 1 operations, you can develop strategic alliance of mine plans to optimize the value and allow the ebb and flow of gold production that flows from that as you move through the mining cycle to be appropriately managed. That'd be my first observation. My second observation is that Lihir has suffered from being a cash-generating asset in a smaller portfolio. Therefore, there hasn't been the appropriate time and attention on equipment reliability-based fixed and mobile. We're getting after that this year. There's also complexity in that mine plan that we believe can be simplified as we think about how we present the different types of ore and have the materials handling of that ore through a complex processing plant autoclave. We see real opportunities there as well.

And one data point, Daniel, that I'd put out there for you. One swallow doesn't make a spring. But as we've in the three months that we've had Lihir in the Newmont portfolio and we've worked with the team there, the dedication of our laboratories and on-the-ground managing director to build a 2024 mine plan and budget that they can get after, Lihir, in the month of January, beat their plan for the first time in four years. And the cultural change and the morale that comes from being able to set a target and get after that feeds on itself.

We see a real opportunity to set for Lihir some stretchy but achievable targets for them to hit the marks and to get the confidence that they can do things because they sit in a Newmont portfolio and they were able to give it the support and attention that it deserves. Hopefully, that gives you some color for how we're thinking about Lihir.

Daniel Major (Managing Director and Senior Equity Analyst)

That's very good. Thank you. Then the second question's slightly similar. Again, for an asset that had lots of potential but not moved forward particularly, is Wafi-Golpu. How much money are you spending on it at the moment? And where, from a timing perspective, do you see it kind of fitting into the growth pipeline, particularly kind of referencing Slide 21 of your presentation where you've got your various longer-term growth options?

Tom Palmer (President and CEO)

Yeah. Thanks, Daniel. I mean, Wafi-Golpu is one of the great untapped copper resources in the world in a very prolific Ring of Fire. It's a wonderful part of the world to be looking for and mining copper and gold. It's still in the study phase. So there's not a significant amount of money being spent on that project. A lot of the focus is working with Harmony, our joint venture partners, and the PNG government to work through the necessary negotiations to ensure that you ultimately have an investment regime that you can consider the level of investment over the timeframe you've brought from that mine to be a secure financial framework. And so that's the main focus with Wafi-Golpu at the moment. It sits there alongside the Block Cave at Red Chris and the ability to build a pressure oxidation circuit at Yanacocha to process the sulfide ores.

It's three great copper-gold projects. It's a great problem to have. It's an embarrassment of riches in terms of the projects that line up to compete for capital behind the forward projects we have in execution. So Wafi-Golpu is going to be a really, really important mine to contribute to the world's need for copper over the next several decades. But you need to have the appropriate investment environment. You then will need to go back in and do the appropriate level of drilling and study work to understand, ultimately, what the cost and returns will be. Wafi-Golpu and Red Chris are both block cave mines. We've got that technology in our portfolio. We've got that capability in our portfolio. But block cave mines, you invest all of your capital upfront before you get a return.

So it is critically important that you understand the ore body and you understand the development cost before you commit to executing. So that's going to be an important part of both Red Chris and Wafi-Golpu for Newmont as we make a decision about which projects follow Tanami 2, Ahafo North and the two block caves at Cadia.

Daniel Major (Managing Director and Senior Equity Analyst)

All right. Thank you very much.

Tom Palmer (President and CEO)

Great. Thanks, Daniel.

Operator (participant)

Our next question today is from the line of Greg Barnes of TD Securities. Greg, your line is now open.

Greg Barnes (Managing Director and Head of Mining Equity Research)

Yes. Thank you. Good morning, Tom and everybody. Just on the dividend, returning to that again, I understand, obviously, a base dividend and the share buyback program. But as you bring costs down and production up, do you see yourself transitioning to a dividend policy that's more progressive, i.e., you raise a dividend year after year, which some of your peers who've been more successful on this front, that's the approach that they've taken. Is that where you see this going?

Tom Palmer (President and CEO)

Greg, as I think about how to model Newmont returns, I'd put a fixed $1 a share dividend in your model and just run it forward. Any additional cash that we generate over and once we've set the parameters on cash and debt, that variable component is likely to come through share buybacks. We've just been through a major transaction. We've increased our share count. And we would look to bring that share count back down again. So for the foreseeable future, bank on a dollar a share dividend and any variable components of share buyback.

Greg Barnes (Managing Director and Head of Mining Equity Research)

Okay. That's great. That's very clear. Thanks, Tom. Yep. That's clear. Thank you.

Tom Palmer (President and CEO)

Great. Great.

Operator (participant)

Our next question today is from the line of Carey MacRury of Canaccord. Kerry, your line is now open. Please go ahead.

Carey MacRury (Equity Research Analyst)

Hi. Good morning. Just a question on the balance sheet, the $5 billion net debt target. Are there debt metrics here specifically targeting behind that?

Karyn Ovelmen (CFO)

Yeah. Essentially, our goal is always to have financial flexibility on the balance sheet and to maintain the investment-grade rating that we currently have today. So that is the absolute goal. But yes, in terms of the main metric, looking at it 1x net debt/EBITDA ratio as we go forward.

Carey MacRury (Equity Research Analyst)

That's helpful. And then maybe one other question is, then, during the transaction, you guys talked about the potential in the golden triangle area, no plan set out here. But can you talk a little bit about how you see that, how that region evolves over the next few years?

Tom Palmer (President and CEO)

Yeah. Thanks, Carey. Just to be a little bit solid, I'm pretty sure I heard you say, "How do we see the Golden Triangle opening up over the next few years?" I mean, I've actually had a couple of trips up there, sadly, over the last couple of months. Real potential at Brucejack to get a really solid understanding of that ore body in life and to have Brucejack contributing nice cash for quite some time to come from a nice ore body and then the exploration potential around that Valley of the Kings area. So really nice gold opportunity there.

As you then swing across to Red Chris, really important, spending some time in the portion at Red Chris and getting to appreciate the size and quality of that ore body, it is going to be an amazing block cave mine. So it's really going to be about ensuring that we work to understand how to build that mine to a high quality, understand the cost, understand the schedule, understand the various approvals that need to come with that, and develop that mine because that mine will run for decades with the original cave and then the other opportunities that are around there. So that is going to be a real focus in terms of copper and that investment. And then we bridge off that up to Galore Creek.

The work we'll do with Teck to build off Red Chris and then up into Galore Creek and then ultimately develop Galore Creek as another great copper mine. It'll be Brucejack potential, the transition from Buckfield to underground at Red Chris, really open up the decades of Red Chris and then pivot off that into Galore Creek. The cash that you want to do on that, Bill?

Natascha Viljoen (President and COO)

No. I think that's it. Thanks, Tom.

Tom Palmer (President and CEO)

Thanks, Carey.

Carey MacRury (Equity Research Analyst)

All right. Thanks. Thanks, guys.

Operator (participant)

Our next question today is from the line of Tanya Jakusconek of Scotiabank. Tanya, your line is now open. Please go ahead.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Great. Good morning, everyone. Thank you for taking my questions. Just wanted to come back to just a lot of information's come out today. I'm sort of looking out to what else is coming out above and beyond what you put out.

Looks like at your investor day, you mentioned new life-of-mine plans. We've got some Cadia news, block cave Cadia news, coming out in the second half of the year. Am I to assume that all of the reserves, Tom, are now done to your standard on these Newcrest assets? The life-of-mine plans are just going to be based on these new reserves? And will we get more information than just the chart that you've put out, the two charts on the five-year production and cost for your Tier 1 assets? What are we getting beyond that I'm asking at this investor day?

Tom Palmer (President and CEO)

Yeah. Yeah. Thanks, Natascha. Good morning. So the reserves and resources are set to Newmont standard. I'm looking across the room to Don now.

He's breathing a sigh of relief because he's got a significant lift from November 6th to a few weeks ago to get that through our processes. So they're set. They're the Newmont standard. And you're right. What we're doing now is doing the so François Hardy, who's the Group Head of our Mineral Resource Management Group, is now running strategic mine plans and life-of-mine plans on the top of those reserve resource statements to build out the potential of that go-forward portfolio on top of that five-year outlook. We'll work that over the months ahead. We've got an important strategy day with our board in June. Our annual strategy day is always in June.

We'll spend some time with our board looking at that longer-term potential, debating that and understanding that to then build towards an investor day in the second half where we'll start to show you and share with you a picture beyond the five years for what we see as the potential for this Newmont upgraded portfolio over the next 5, 10, 15, 20+ years. So we're still debating the timeframe for that. Our current thinking is we've reverted to our normal timeframe, which has typically been in around that November timeframe that we'd have our capital markets day and also talking about doing one in New York and one in Australia so we pick up both sides of our markets.

But that's the work in front of us this year, is to really get after the strategic life-of-mine plans so we can give you that with confidence, give you that longer-term story for this portfolio.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. So what I'm understanding from you is that we are going to get above and beyond just the five years that you've provided for us here so we would have a visibility for maybe 10+ years in your investor day.

Tom Palmer (President and CEO)

That's correct, Tanya.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. Okay. And then my second question, I just wanted to understand. I think, Tom, you mentioned that you're certain that your six operating assets are going to be sold, the non-core ones, in 2024. Does that mean that we are going to be seeing your financials going forward as having discontinued assets from Q1 onward on all of these six assets?

Karyn Ovelmen (CFO)

Tanya, the expectation is at the end of the first quarter 2024 that these six assets will be held as assets held for sale.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. All right. So then you're reporting on your operating assets. And the other ones will change a little bit as we look at what you're reporting on production costs, etc.

Karyn Ovelmen (CFO)

Correct.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. Thank you so much for taking my questions.

Tom Palmer (President and CEO)

Great. Thanks, Tanya.

Operator (participant)

My apologies. This concludes the question-and-answer session. I would like to turn the comments back over to Tom Palmer for some closing remarks.

Tom Palmer (President and CEO)

Thanks, operator. And thank you all for your time. And I look forward to catching up with you soon. Thanks, everyone.

Operator (participant)

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