紐蒙特黃金公司 (NEM) 2014 Q3 法說會逐字稿

Good morning and welcome to the Newmont Mining third-quarter earnings conference call.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn conference over to Meredith Bandy, Vice President, Investor Relations. Thank you, you may begin.

Thank you, operator, and good morning, everyone. Welcome to Newmont's third-quarter 2014 earning conference call. With us in the room today are Gary Goldberg, our President and Chief Executive Officer, Laurie Brlas, Chief Financial Officer, and other members of our executive team who'll be available to answer questions at the end of the call.

Turning to slide 2, I would like to refer you to our cautionary statement. We will be discussing forward-looking information which is subject to a number of risks. More information is included in our SEC filings which can be found on our website at Newmont.com. And now, I will turn it over to Gary

Thank you, Meredith, and thank you all for joining us this morning. I appreciate the opportunity to share the latest from Newmont.

We delivered strong results in the third quarter, including net income of $210 million, or $0.42 per share, operating cash flow of $328 million, and stable gold production. For 2014, we expect our costs to be at the lower end of guidance and we remain on track to meet our current outlook for production.

Strong performance starts with safe and efficient operations. Turning to slide 4. Over the past two years, we've reduced our total injury rate by more than 35%. Our ultimate goal is to prevent all injuries and illnesses at Newmont and to make the communities where we operate safer, too.

For example, we continue to support the fight against Ebola in Western Africa. We are partnering with a private-sector group and Project Cure to get supplies to frontline medical workers. We are also working with government and health providers in Ghana to raise awareness and preparedness.

While only a few countries are affected, we see this as a global issue and I'm proud that our employees in Denver have donated to the Red Cross to help put an end to this pandemic. We're supporting their efforts by double matching their contributions. I'm also proud of our team's performance in delivering on our commitments.

Let me turn you to slide 5. Highlights for the quarter fall into three main areas. The first is improving our underlying business.

We continue to find ways to operate more efficiently and that's helped us drive our all-in sustaining cost below $1000 per ounce this quarter. I'm also pleased to report that Batu Hijau's mine and mill are running at full capacity. We exported about 75,000 tons of copper concentrate since receiving an export permit in the latter part of September.

Second, we're building a stronger asset portfolio. We received our right of exploitation for Merian in late August and construction mobilization is underway. I got a firsthand look at the Turf Vent Shaft last month and that project is proceeding safely, on time, and on budget.

We also announced the sale of our stake in the La Herradura, bringing our total proceeds from asset sales to about $1.3 billion since mid-2013. Third, we are ultimately here to create value for our shareholders. During the third quarter, we generated $51 million in free cash flow and reduced our capital expenditures by 30% over the prior-year quarter.

Let's turn to slide 6 for production results. We remain on track to meet production guidance for 2014. Third-quarter production is down 10% versus the prior-year quarter, but if we adjust for the sale of Midas and Jundee, that number drops to 4%.

I'll take a minute to walk you through each region now. In North America, production was down from the prior-year quarter due to planned stripping campaigns at Carlin and twin creeks and the sale of Midas.

South America production was also slightly lower than prior-year quarter due to planned processing of lower grade stockpiled ore. We have seen sequential improvement since the second quarter, and we expect production to continue to increase in the fourth quarter as we reach higher grades.

In Australia and New Zealand, production was about 20% below the prior-year quarter, in line with plans to mill lower grade ore at Boddington and Tanami, as well as the sale of Jundee. Here, too, we expect stronger fourth-quarter production.

As I mentioned earlier, Batu Hijau is now operating at full capacity. We anticipate producing between 25,000 and 35,000 ounces of gold in 2014 and we remain on track to reach higher-grade Phase 6 ore in the first half of 2015.

Finally, in Africa, gold production increased 48% over the prior-year quarter with continued steady production at Akyem, our lowest cost operation. We recently achieved a milestone of 500,000 ounces of gold produced at Akyem since its commissioning last year.

Let's turn to slide 7 and take a closer look at costs. Our year-to-date cash all-in sustaining cost savings total $630 million. This brings us to a total of $1.6 billion in cost reductions since the beginning of 2013.

Savings in gold all-in sustaining costs for the quarter were offset by higher copper all-in sustaining costs due to the shutdown in Indonesia earlier this year. We have also made adjustments to reflect the sale of Midas and Jundee.

These savings are the result of making many improvements across the business. Examples include extending asset life from tires to mill liners, optimizing payloads and throughput, and streamlining our overhead costs.

We reduced gold all-in sustaining costs to $995 per ounce, down from $1018 per ounce in the prior-year quarter. Our target is to have all-in sustaining cost at or below $1000 per ounce at all of our operations. Now, I will hand it over to Laurie to review our third-quarter financial results.

Thanks, Gary, and thanks again to everyone for joining us this morning. As Gary described, our results indicate that our focus on cost and portfolio optimization has resulted in strong financial performance for the quarter. With our Q3 results, we reduced costs, delivered positive free cash flow, and improved our guidance.

Turning to slide 9. In comparing Q3 to the prior-year quarter, our Q3 reported net income from continuing operations was $210 million, including a tax benefit due to an IRS settlement and expected tax refunds in Australia. As a result, we have adjusted our full-year 2014 tax rate guidance to 17% to 22% to reflect our year-to-date results, including nonoperating items.

Our long-term operating tax rate outlook remains unchanged at 37% to 40%, although we will see quarter-to-quarter swings in our tax rate. As you can see, we experienced a 14% drop in revenue over the prior-year quarter as a result of a 4% drop in the gold price and a lower production Gary described earlier.

We reported adjusted net income of $249 million, or $0.50 per share. This was above the $217 million in the prior-year quarter, or $0.44 per share, as cost savings and tax gains more than offset lower gold production and pricing. Cash provided from continuing operations was very strong at $328 million, reflecting our commitment to reducing costs and improving efficiencies.

During the quarter, we also paid our previously announced dividend. Earlier this week, our Board approved a dividend of the same amount payable in December of this year. This is based on our gold price-linked dividend policy, and the average London P.M. Fix during the third quarter of $1282 per ounce.

We continue to be focused on generating value, and we achieved $51 million in positive free cash flow from continuing operations in the quarter. I'm also pleased to note that we are free cash flow positive on a year-to-date basis.

Turning to slide 10, we reconciled Q3 net income to adjusted net income. The primary adjustments to our GAAP net income include: a $17 million gain on asset sales following the sale of Jundee and McCoy Cove during the quarter; $11 million of restructuring charges related to workforce reduction; $19 million of cost at Batu Hijau, related to the suspended operation; and a $21 million tax valuation allowance related to our tax planning efforts.

After excluding these items, we reported adjusted net income of $249 million, or $0.50 per share for the quarter. Due to the revised royalties and export duties agreed at Batu Hijau, we recorded a net realizable value, or NRV, stockpile adjustment of approximately $194 million. $160 million of this is attributed to CAS with the remainder attributed to depreciation and amortization.

Excluding these NRVs and suspension costs, our Batu Hijau copper CAS would have been approximately 78% lower for the quarter. In addition, excluding these NRVs and abnormal production costs at Batu Hijau, total Company CAS would have been $688 per ounce and $2.26 per pound of copper.

And keep in mind, that this applies to our sales volume, which is significantly higher than production this quarter, particularly for copper, as we continue to work down the Batu Hijau inventory built earlier this year. That's in contrast to the second quarter when our production was higher than sales. We've also returned $102 million to our shareholders so far this year.

Slide 12 illustrates our debt repayment schedule. As you can see, we do not have any significant debt due until 2019. And have maintained an investment grade rating in metrics, which remains a priority for Newmont.

We have a $575 million convertible due in 2017, which we expect we could refinance in the capital markets. Our revolver has only one financial covenant, maximum net debt to book capital of 62.5%, which we were at 27.9% as of September 30, 2014.

Our net debt at September 30 was $5 billion. Including the cash proceeds from the sale of La Herradura, which we received shortly after quarter end, our net debt would be $4.5 billion. And I will now turn it back over to Gary.

Thanks, Laurie. Turning to slide 14. We are confident that we can continue our trajectory of lower costs and steady production, and we are improving our 2014 guidance again as a result.

We are lowering our outlook for gold cost applicable to sales to between $710 and $750 per ounce for the year. Four of our five regions have also lowered their outlook for gold all-in sustaining costs. This adds up to a reduced outlook of between $1020 and $1080 per ounce.

Our 2014 capital expenditure outlook has also been reduced by nearly 20% as we continue to realize savings through our Full Potential program and other improvement initiatives. Finally, the only change to our 2015 and 2016 guidance was to remove La Herradura.

Let's turn to slide 15 for a quick update on Merian. As I mentioned earlier, we recently received our right of exploitation for Merian, which triggered the start of construction. Mining equipment is arriving on site and we are clearing ground for the process facilities and camp.

We will be mining near-surface saprolite ore for the first five or six years. During that period, we expect average annual production of between 400,000 and 500,000 ounces of gold at all-in sustaining costs of between $750 and $850 per ounce.

These cost estimates are escalated. And if you were to exclude inflation, they would be closer to the bottom of that range. I will also point out that Merian stripping ratio is 3 to 1 for the life of the mine, which compares favorably to other open pit projects.

Finally, we have gold reserves of 4.2 million ounces and resources of 1.7 million ounces, and exploration continues to yield positive results. You can see here on this slide on the lower right the target areas denoted in dotted red where we're looking to extend the deposit out to the southeast and the northwest, and also to do in-fill drilling along the center of the central pit, their Merian II pit.

Turn to slide 16, and other growth options. We improved the value and viability of our project pipeline significantly over last year.

In Nevada, the Turf Vent Shaft is expected to reach full depth of 2050 feet in the first quarter of 2015, and to achieve commercial production by the fourth quarter. The shaft will allow the region to increase hydrate ore to mill 6, adding 100,000 to 150,000 ounces annually, while improving costs and efficiency.

In New Zealand, we are extending the life of our Waihi operation through our new Correnso mine. We continue to take a phased approach to developing Long Canyon, which represents another promising new district.

The first phase is expected to deliver about 150,000 ounces of production per year at competitive costs. We anticipate reaching a decision on whether to proceed during the first quarter of 2015.

In Africa, we are advancing the Ahafo Mill expansion, which will help offset the impacts of lower grade ore. We are looking to reach a decision on this project in the latter half of 2015.

Developing Ahafo Subika Underground mine would give us access to ore with grades that are four times higher than the surface mine and add 200,000 ounces of production annually. We expect to reach a decision on Subika by early 2016.

In Australia, we are advancing our Tanami Expansion project. This new project is an outcome of our Full Potential program, and includes constructing a second decline in the mine. We anticipate reaching a decision to fund this project in early 2015.

Moving to South America, we continue to explore our options with Conga, but would not proceed without social acceptance and solid project economics. We are also exploring the possibility of bringing in an additional partner.

Options to extend mine life at Yanacocha include the Yanacocha Suflides and Chaqui Sulfides projects, as well as Quecher, a potential oxide mine near the existing pit. Our work to optimize our pipeline will continue and I look forward to bringing you more news on these projects in early 2015.

Wrapping up, on slide 17. We've had another great quarter and we continue to focus on delivering on our three primary commitments. Continuous cost and efficiency improvement, which means operating more efficiently. Portfolio optimization by divesting non-core assets and developing the next generation of Newmont mines. And value creation by maintaining a strong balance sheet and improving shareholder returns.

Thank you for your time. I'd like to now turn it back to the operator to field questions.

Thank you.

(Operator Instructions)

David Haughton, with Bank of Montreal.

Good morning, Gary and Laurie, and others in the room. Thank you for the update. A surprisingly strong quarter coming through for you guys, which is good to see.

And you've maintained your production guidance. It implies a fairly strong fourth quarter. And in a few of your operations, it suggests that that quarter would be better than what we've seen previously for the other three quarters, specifically at Yanacocha, at Tanami, and Boddington.

Can you just talk about your confidence in making sure the fourth quarter is a record for the year?

I am happy to do that, David. And as I look at those three specific operations, and we have flagged that Yanacocha, in particular, that the grades in the production in the first half would be made up and come back strongly in the second half. That looks to be well on track.

Tanami is going through a transition in their mining areas, which will be changing during the fourth quarter, and that we expect to see better grades. And Boddington, partially grades, but also we had the mill shut down in the third quarter that was -- we expect to see that moving forward in the fourth quarter, as well as location of where we are at in the mines.

So confident, very well, on all three of those areas that will be coming in. And like we have been here over the last several quarters within our overall guidance

And with, moving into the bit of mine sequencing at those operations, do you see those better grades carrying over into 2015?

Yes, we plan to give an update on our 2015 through 2017 guidance here over the next couple of months, but right now we see basically, well, Yanacocha will go through a changeover, that three-year period which we've already highlighted as production comes off, but really see that production continuing to do well at those two. And the rest of our operations. We'll see a bit of a recovery, as we've talked about before, in -- and I don't get into all the details of all the different regions, we'll save that for a couple months from now, but at Carlin, as we get through the stripping phase at both Carlin and then also at Twin Creeks

And also, on the saving front, good saving on the capital front. It looks like your guidance is down over $200 million for the year. To what extent should we be thinking about those savings being deferrals versus outright savings?

Yes, the big thing I keep an eye on, David, when we look, and we've just been going through our planning process for 2015 to 2017, and you can expect to see those sustaining capital costs to remain consistent through the three-year period going forward from this year.

Okay.

No carpet rolls, is my term that I use.

Can you repeat that, sorry?

No carpet rolls, is the term that I use. No bumps out there. We haven't deferred and pushed things out 'til next year

Okay. And then, just over to Batu Hijau, back in there now. And presumably getting into the better grade material from Phase 6 into next year. Will that timing work for you to be able to get into that high grade material during the dry season?

Yes, we are, in fact, good point in terms of where pit water levels are, but we look good in 2015 timing-wise second quarter to be matched with what we've planned for our forecast going out through 2015. We have the wet and dry seasons and we work up in the upper part of the areas as we go through and make sure we match the pit pumping, but it does coordinate well.

Okay, thank you, Gary.

Thanks, David.

Brian MacArthur, UBS.

Hello, good morning. Just following up on Batu Hijau. In your guidance, I see we still continue to assume we're going to sell down the next 7%.

Now that everything has been resolved there, are we actually making progress on that? Or is that just an assumption for it, i.e., obviously, if you can sell that, that'll help bring down the balance sheet as well?

Yes, Brian, we continue to maintain that assumption because we have an agreement with the government for them to acquire that 7% stake. At this stage, there haven't been any real substantive discussions. And with the change in government there, we'll just have to see whether they want to take that option up, but hasn't been an issue, either.

I think as we went to our discussions around changes to the MOU, the need to divest was not an issue that was raised with the government. Although we are at 44%, and this is the last 7% of divestiture, it hasn't been raised as an issue by the government.

So it's one we'll keep people posted on if that situation changes But we've made that assumption in our plan for now going forward that it goes into effect from the beginning of the year.

Great, thanks very much.

Thanks, Brian

Patrick Chidley, HSBC.

Good morning, Gary, everybody.

Good morning, Patrick

I just wanted to ask quick question about what is the elephant in the room, which is the gold price obviously coming down significantly today and these last couple of weeks. I'm wondering if you give us any color on what's going on on the refining side?

And if you're seeing good a demand at the Valcambi refinery? And what sort of comments on the physical flow of metal that maybe you can enlighten us with?

No, thanks, Patrick. I think as we look at -- we can look at the gold price day to day, but I'm really pleased over the last two years the work we've been doing within the business to make sure that we're prepared for lower prices and don't have to be making knee-jerk shifts within the business as we address the market environment.

As we've look at things, and I tend to look at things in the medium to long term on where that is, we do see good strong demand into China, in particular, and good flows from Valcambi into India is what we've been seeing. I think with the price, and what we've seen as prices have dropped around in this range or now lower today, that we've seen a good response in terms of buying in the marketplace that tends to support price. But that said, we continue to keep focused on controlling what we do control within the business.

Right. Okay, good. Anyway, thanks very much and congratulations on the quarter

Thanks, Patrick.

Andrew Quail, Goldman Sachs.

Hello. Good morning, guys. Congratulations on a good quarter and thanks for taking my questions.

Firstly, maybe one for Laurie, just can we dig down into the tax adjustments? And just outline a little bit more detail on that tax refund in Australia?

Sure. There were a variety of tax things that happened during the quarter. And got one question before on, why we carved certain things out and not other?

The piece that we carved out from adjusted net income was related to prior years, and it was a settlement. And part of it is, going forward, how we can treat NRVs in Australia. The piece that is in the current quarter is related to some of the sales that we had, the asset sales and the valuation allowances on those.

And there's quite a bit of detail in the 10-Q and we can walk you through in more detail, if you'd like.

And the first refund, is that a unit that's in there as well? Or is that a number like second part of the whole tax adjustment?

Well, it's a refund that we expect that we haven't received yet, so it wouldn't be in our cash yet.

Okay, got you. Okay, I understand. And maybe one for you, Gary.

Look, obviously with the Merian, and maybe with similar to Patrick's question, I mean, is there a gold price in the back of your mind that might be slowed down? Or is it, now we've got the permit, it's full steam ahead?

No, Andrew, as you look at Merian and also the Turf Vent Shaft, those are projects we've initiated and moving forward with. We've got the government that has a decision to make, and they appear to be moving forward to prepare it in Suriname to take on up to a 25% equity interest, which reduces the cost to us.

I think with our current cash position and where we're at, we're in a strong position to move forward. It's a good project and as I say, good returns in the first five or six years producing 400,000 to 500,000 ounces a year.

We will keep an eye on the market. Obviously, if it changes dramatically more, but today I don't see that changing.

Yes, that's right, Gary. With the cash balance we ended the quarter with, and then the addition of the sale of La Herradura cash coming in to after the quarter, that puts us in a good position to fund it.

And you said those inflation rates that you're talking about, is that local of course? Is that, obviously, we've, there's CapEx as well, but what's the split of US dollar versus other currencies?

Yes, what we've built in, and I do this in part as a rigor within the business that people have to work to offset inflation, so we basically have built into our plans a 3% a year inflation into both our operating and our capital costs. And it's Chris and his team's task to look at ways through Full Potential and other ways to offset that.

For instance, supply costs. We've been meeting with suppliers here for almost a two-year period, looking at changes in our longer-term contracts we have with them and renegotiating terms to ones that make more sense in today's marketplace.

Terrific Thanks, guys

Great. Thanks, Andrew.

Jorge Beristain, Deutsche Bank.

Good morning. Jorge with DB. I guess, maybe, my first question is for Laurie.

I just was looking at the full-year guidance that you're maintaining for other expenses, which is on an annual 2014 basis, still quoted at $150 million to $175 million. You've done $161 million of these other expenses in the first nine months, so it would seem that you've hit your midpoint.

So my question is, could you just shed some more light on what those actual recurrent other expenses are? Are you looking for basically $0 in the fourth quarter? And why you keep using that category as opposed to putting them, say, inside of costs of good sold, or SG&A, as they do seem recurrent to support the business?

Yes, there's a variety of things that go through there. I mean, regional, admin, and community development are the main expenses that go through there.

But we also would have severance, and that hit this quarter in some of the severance would be something we would carve out normally. So that probably -- the severance is a little higher than what we would have originally anticipated at the beginning of the year.

Is there the likelihood that you're going to, again, use this category then in the fourth quarter, so that you might exceed your full-year guidance metric there?

On a GAAP basis, we might. But on an adjusted basis, we wouldn't because of severance in there.

Okay. And my other question is, and again, this probably falls to you. Would it be possible to start including an EBIDTA and/or an adjusted EBITDA for Newmont, just given the numerous charges we've seen as operations are facing headwinds?

It just makes it very difficult to calculate core operating cash flow for the Company, so that's just a request I would put out there.

We'll take that under advisement and have a discussion about that. Thanks, Jorge.

Anita Soni, Credit Suisse.

Good morning, guys. Just a question, two questions. First, with regards to the other income, what was in that bucket of $79 million?

That would be the gain on sale of the assets that we had is the biggest item on it. And then, also, some of our foreign hedging gains would come through there as well.

Hedging gains, okay. And what items do have hedged again?

Pardon?

What are your hedging, what specifically are those hedging gains relate to?

The Australian dollar.

Primarily, the Australian dollar is the largest portion of it. We also do a little bit with the kiwi and some diesel fuel hedging.

Yes, but those are smaller. It is primarily the Australian dollar.

And second question is with respect to the gold price. Remind me again, what you've used to estimate your reserves last year and what you're resources are done at?

Anita, we use $1300 for our reserve price and $1400 for our resource price.

Okay, thank you.

Thank you, Anita.

Our final question comes from Adam Graf with Cowen.

Final question, wow, okay. (laughter) Well, I've got one final question, but it's in four parts. How's that? (laughter)

Okay.

Go for it.

Could you guys, when we were out in August at the Carlin operations and looking at the Turf Vent Shaft, you guys put out a pretty detailed poster there of how you saw the ramp up. And it looked like you guys were expecting to double throughput capacity through the Greater Turf and Leeville. And maybe it can give us further details about how that ramp, how you see that ramp up in coming through in 2015 and 2016?

Sure, Adam. What I'll do is hand it over to Chris Robison to go through a bit. That definitely isn't doubling the throughput, but over to Chris.

Yes, Adam, I think as Gary mentioned earlier, we increased production with the Turf Vent Shaft, we increased production somewhere in the 100,000, 115,000 ounces per year going forward. I think what that graph showed was also showing without the Turf Vent Shaft, the decline in production that would occur.

But anyway, the project is on, as Gary mentioned earlier, on plan in terms of time and price. In fact, probably a couple of weeks ahead, actually. But again, certainly not doubling production.

I think of it comes on at the end of 2015 and then would see the full impact in 2016.

Right.

Can you give us an idea of what you're expecting then out of the Greater Turf Leeville in 2016?

Yes. What we'll do, Adam, when we go and give guidance for the future years, which we'll do here in the next couple of months as we roll out the 2015 through 2017 guidance, we'll give more detail on that.

Okay. And then, jumping to the other side of the world. On Correnso and Waihi, I know you're spending some money there.

Can you give us an idea of what the remaining mine life will be? And I remember at one point Waihi was an asset you guys would consider selling, and I wonder if that's still on the block?

Yes, I think, well, we always get lots of people knocking on the door. Not a lot of them have cash, but we will always talk, if there's the right value there on any of our assets. But with regards to Waihi, the Correnso extension added about three or four years of mine life.

We have recently also obtained access to the area to the north of the pit that we didn't have the expiration tenements on. So were doing drilling there to see what extensions might go in the other direction at Waihi.

Okay. So, barring a sale, you've got at least another four or five years?

Three or four years.

Three or four years. And then, at Tanami, with the construction you guys are doing, the expansion you guys are doing there, and then with the potential to add Federation to Tanami operations, what's the mine life you guys are looking at there?

Yes, I'd have to, I mean, we're looking at literally decades in terms of additional mine life there. Currently out to 2025. But we haven't included Federation in that at this stage because it's still undergoing exploration.

And the key with Tanami, what this expansion program we're talking about there, we're currently mine constrained and we're looking to add the second decline there to remove that constrained movement of the mine equipment. At some point in the future, we'll move deeper and we'd look to put in a shaft.

That's not what were talking about at this stage. It's really doing things through the decline and the double decline improving the mine efficiency. We'll do some small things at the mill to make sure it can handle the additional ore that is coming through, but that's really the crux of it.

And it's, in terms of returns, one of the better projects I've seen. We'll talk more about that once we get to an approval stage early next year.

So it's to maintain the 6000 to 7000 ton a day throughput level?

It actually is to improve that throughput level.

Okay, and very good, very good. And then, maybe just hopping over to Africa. For the Subika Underground project, what is the range of upfront CapEx to get that up and running?

It's in the roughly $200 million to $250 million range to bring that up and running. We've actually, with some of the work we've done, we've got test stopes to test ground conditions, and recoveries, we've seen good results there.

But doing, we received and exploration permit there in the last couple of months to extend to do more drilling underground, and we're doing that now to confirm the continuity of the orebody and the quality of the grades.

Excellent. And when, I apologize, when are you going bring that, when do you think you can bring that to the board for a decision?

That one would come in early 2016 is what we have in the timeline today.

I'm sorry, that's when it comes to the Board? Or that's when you break ground for first production?

That's when it comes to the Board.

Got it. Excellent. Thank you for taking all of my questions.

No, no worries. Thanks, Adam. I appreciate the questions and I appreciate everybody's questions here this morning.

In an obviously turbulent gold price environment, I think the business continues to deliver as we have committed to along the way. I appreciate the efforts that our team are making to keep focused on controlling what they control. Thank you for your interest and have a good rest of your day.

That does conclude today's conference. Thank you for participating. You may disconnect at this time.