紐蒙特黃金公司 (NEM) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Newmont Full Year and Quarter 4 2017 Earnings Call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Jessica Largent, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining Newmont's full year and fourth quarter 2017 conference call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer; Nancy Buese, Chief Financial Officer; and Tom Palmer, Chief Operating Officer. They and other members of our executive team will be available to answer questions at the end of the call.

Turning to Slide 2. Before we go further, please take a moment to review the cautionary statement shown here and refer to our SEC filings, which can be found on our website at newmont.com.

And now, I'll turn it over to Gary on Slide 3.

Thanks, Jess, and thank you all for joining us this morning. I'm pleased to report that we continued our steady trajectory of operational and financial improvements in 2017 and laid the groundwork for even longer term value creation.

Before we get into the details, I want to congratulate the Newmont team for executing our strategy by running our operations safely and efficiently and meeting or exceeding all cost, capital, and production commitments, building profitable expansions and advancing exploration prospects on 4 continents, and demonstrating that leading financial, social and environmental performance do go hand-in-hand.

Turning to an overview of our 2017 performance on Slide 4. Highlights for the year include delivering superior operational execution, which we demonstrated by keeping all-in sustaining cost at $924 per ounce, with support from our full potential cost and efficiency improvement program, which continues to deliver strong results; increasing gold production by 8% to 5.3 million ounces as we added a first full year of production from Merian and Long Canyon; and taking a measured approach to assessing technology so that we invest [work] adds the greatest value.

We also strengthened our global portfolio of long life assets by delivering the Tanami Expansion safely, on time and on budget, advancing 5 projects that will add profitable production, outperforming our exploration targets, replacing reserves depletion of 6.4 million ounces and growing our resource base and securing early-stage exploration options in Canada, French Guiana and across the Andes.

Finally, we drove toward our goal of leading the gold sector in both profitability and responsibility by improving free cash flow by 88% to $1.5 billion, improving adjusted EBITDA by 12% to $2.7 billion, increasing our dividend by 87% versus the prior quarter and nearly tripling it versus the fourth quarter of 2016 based on our strong balance sheet and steady production profile, and being recognized as an industry leader for our sustainability performance. I'll expand on that topic on Slide 5.

We achieved our second year of working without fatalities in 2017. We also installed fatigue monitors in our fleet of 270 haul trucks which, along with training, help keep our drivers and roads safer. To improve consistency, we took a closer look at how we categorize injuries across the portfolio and updated our numbers to reflect the highest industry standards. As a result, you'll see slightly higher rates for 2017 and the previous 5 years, with same overall improvement trend. Going forward, we'll continue to test the controls we have in place to prevent accidents and to learn from our mistakes as we work to make our operations even safer.

It was an honor to be recognized as the top mining company in the Dow Jones Sustainability Index for the third consecutive year in 2017, and to be named to The Wall Street Journal's Top 250 Best Managed Companies. Newmont was also ranked as one of the world's most admired companies by Fortune magazine based on the quality of our management team and our strong performance in the areas of social responsibility, long-term investment, people management and innovation. This recognition speaks to the caliber of our team as well as our success in executing our strategy and living our values.

Our teams also differentiated by their project delivery record, turning to Slide 6. Over the last 3 years, we built Merian and the first phase of Long Canyon on time and 20% below budget. And in 2017, we reached commercial production at our Tanami Expansion, a project with an internal rate of return above 35%. We also announced decisions to fund expansion projects in every region.

In North America, we approved the twin underground mine and advanced Northwest Exodus in the prolific Carlin district. In South America, we approved Quecher Main to extend oxide production and bridge to developing Yanacocha's extensive sulfide deposits. In Africa, we approved our Ahafo Mill expansion and Subika Underground mine, which will extend profitable production until at least 2029. This investment led the government -- led to the government extending tax and royalty stability for another 5 years, which supports Newmont's view of Ghana as a favorable operating jurisdiction.

And most recently, in Australia, we approved the Tanami Power project to lower cost and emissions, and facilitate future growth. We expect to reach commercial production at Northwest Exodus, Twin Underground, and Subika Underground this year. The 6 projects shown here will generate an average internal rate of return above 20%, helping to improve our outlook.

Turning to Slide 7. Our 5-year guidance reflects cost and production improvements from our full potential work as well as higher investment in exploration and advanced projects. Covering the highlights, our costs are expected to rise slightly in 2018, reflecting higher stripping at Carlin, Boddington, Ahafo and Twin Creeks. Then come back down in 2019 as we bring on new lower-cost production at Subika Underground and reach higher grades at key operations. Our production guidance reflects productivity gains in mine planning and mill performance, and we expect to improve production and operating cost in the outer years through projects that have not yet been approved.

We're also maintaining capital discipline. Sustaining capital is expected to increase slightly in 2018 and '19 to cover profitable expansions as well as water treatment and tailings facility construction. Development capital covers our existing projects, which I just reviewed, and will increase as we approve new projects. For instance, these numbers now include $300 million to fund the Tanami Power project and our portion of the Turquoise Ridge mine optimization project, which Tom will cover in more detail. This guidance also reflects continued investment in advancing our longer-term growth options.

Turning to Slide 8. In North America, we're advancing Long Canyon Phase 2 as well as multiple underground expansions at Carlin, and we're working with Goldstrike to further explore the Plateau property in the Canadian Yukon. In South America, we continued to see favorable drilling and process test results at the Yanacocha Sulfides project in Peru and positive results from our drilling program at Chaquicocha, where we added resources in 2017.

We're also working with Continental Gold to support the safe and efficient development of the high-grade Buritica project as well as nearby exploration assets in Colombia. In Africa, we're advancing studies to develop underground deposits at both Ahafo and Akyem, and we're working with a local partner, Ezana, to explore greenfield opportunities in Ethiopia. Finally, in Australia, we're pursuing our second expansion at Tanami and advancing exploration prospects around both KCGM and Tanami.

Our investment in long-term value creation also paid off through strong reserve and resource additions, turning to Slide 9. In 2017, we added 6.4 million ounces of reserves, exceeding our target of 4 million ounces, and replacing depletion for the first time since 2012. We achieved this milestone while maintaining the same reserve gold price as the prior year. We also added 7.9 million ounces of resources, exceeding our target of 4.6 million ounces, improving grade by 7% and making first additions at Sabajo and underground at Akyem and Apensu North.

As you can see on this waterfall chart, 4.4 million ounces of our reserve additions were delivered by the drill bit and 2 million were delivered through revisions and the acquisition of the IFC stake in Yanacocha. Our reserve additions were primarily in North America and Australia, and our resource additions were spread more equally across our 4 regions.

Positive additions and revisions to our reserve base included 1.8 million ounces at Boddington, 800,000 ounces at Carlin underground and Cripple Creek & Victor, 700,000 ounces at Turquoise Ridge, 600,000 ounces at our Ahafo surface mines and 400,000 ounces at Tanami. I want to acknowledge our exploration and operations teams for their collaboration in delivering these exceptional results.

And with that, I'll turn it over to Nancy to discuss our financial performance.

Thanks, Gary. I'm pleased to report strong financial results for the quarter and the year, and continued momentum in improving our cash flow, dividend and balance sheet.

Let's start with a look at fourth quarter results on Slide 11. Compared to the prior year quarter, we improved revenue by 8% to $1.9 billion and this was driven by higher sales at Merian and Long Canyon as well as higher gold prices. We adjusted -- we increased adjusted net income by 62% to $216 million or $0.40 per diluted share. We improved adjusted EBITDA by 17% to $736 million, and we increased free cash flow by 54% to $445 million.

I'll take a moment to walk you through adjustments for the quarter on Slide 12. Starting with earnings per share at the top of the slide, we recorded a loss in our GAAP net income from continuing operations this quarter, primarily due to tax and valuation allowance adjustments of $1.30 per share. I'll talk about these adjustments and how changes to the U.S. tax law impact Newmont in just a moment.

Other adjustments for the quarter included $0.11 related to reclamation and remediation losses, $0.02 due to losses on the impairment of long-lived assets and equity affiliates assets, and $0.04 related to a gain from the tax effect of these items. You can see the adjustments related to our fourth quarter EBITDA on the bottom of the slide.

We also delivered exceptional results for the full year, turning to Slide 13. Comparing 2017 results to the prior year, we improved revenues by 9% to $7.3 billion. We increase adjusted net income to $780 million or $1.46 per diluted share. And we improved adjusted EBITDA by 12% at $22.7 billion. Finally, we increased our cash from continuing operations to $2.4 billion and boosted our free cash flow by 88% to $1.5 billion.

Turning to adjustments, to full year earnings per share on Slide 14. Here, too, you see the impact of tax and valuation allowance adjustments on our GAAP net income from continuing operations of $1.49 per share. Other adjustments for the year included $0.12 related to a loss from reclamation costs at a closed site in Nevada and remediation expenses at former operations; $0.04 due to a gain from the sale of investments; $0.03 related to a loss from restructuring, impairment of long-lived assets and adjustment of equity interests; and $0.03 related to a gain from the tax effects of these items. Once again, you can see the impact to EBITDA at the bottom of the slide.

These results helped Newmont maintain one of the strongest balance sheets in the gold sector. Turning to Slide 15. We've worked hard to build a foundation that allows us to continue executing our 3 capital priorities. One priority is to invest in profitable growth, and we're seeing strong returns on our investment in projects and exploration in the form of improved margins and mine life and a stronger reserve base. Another priority is to maintain an investment-grade balance sheet and credit rating. We've done that by lowering our net debt by 83% since 2013, and in the fourth quarter, further reducing our net debt to adjusted EBITDA ratio to 0.3x. Our total liquidity at the end of 2017 was $6.2 billion, and we have no debt maturities due until the fourth quarter of 2019.

Our final capital priority is to return cash to shareholders. I'm excited to share how we're doing that by significantly improving our dividend. Turning to Slide 16. In December, we announced plans to de-link our dividend from the gold price and to raise it by at least 50%. Earlier this week, we delivered on that commitment, declaring a fourth quarter dividend of $0.14 per share, which is 87% higher than the prior quarter and nearly 3x higher than the fourth quarter of 2016.

$0.14 translates to an industry-leading dividend yield of 1.5% compared to a North American senior gold producer average of approximately 0.5%. This increase reflects our strong balance sheet and steady long-term production and cash flow profile. It also reflects our confidence in our ability to generate superior returns, while continuing to invest in profitable growth.

In addition to approving a dividend increase our Board of Directors also authorized a share repurchase program of up to $90 million. The goal of this program is to offset potential dilution from the vesting of our annual equity compensation, and we expect this to occur in the first part of this year.

Before I hand it over to Tom, I'll take a minute to talk about U.S. tax law changes on Slide 17. We're still evaluating the complexities of the new U.S. Tax Cuts and Jobs Act, but I'll cover 4 primary aspects here. First, we expect to reduce income tax rate to benefit our North America operations starting in 2018. Second, the percentage depletion deduction for companies and extractive industries remains unchanged, which is good for Newmont. Third, our total tax rate for 2018 is expected to remain between 28% and 34% based on projected sales and costs. This rate could decrease at higher gold prices. Fourth, the elimination of the alternative minimum tax and the monetization of earned AMT credits is also favorable to Newmont. In short, we expect the new tax legislation to have a positive impact on cash flow going forward.

There are, however, 2 onetime noncash charges reflected in our year-end financials. Remeasurement of our 2017 deferred tax position resulted in a charge of $346 million. We've also made an election relative to our international tax structure that resulted in a charge of $395 million. This decision to restructure the U.S. holding of our foreign operations allows us to retain optionality as a global taxpayer in the years ahead. We will keep you posted on tax matters as the year progresses.

And now, over to Tom to cover operational highlights, starting on Slide 18.

Thank you, Nancy. We delivered solid performance in 2017 by continuing to focus on the things we control. Improving ore body modeling; mine planning and execution; increasing mill throughput and recovery; and leveraging technology based on its value and viability. This focus helped us deliver more than $400 million in full potential improvements and offset the things we don't control, including lower grades at maturing operations, geotechnical issues and extreme weather events.

Turning to North America on Slide 19. The region produced more than 2.2 million ounces of gold in 2017 at all-in sustaining costs below $900 per ounce. At Carlin, we improved ground control and stope design, allowing us to ramp up production at Leeville and improve development rates by 60%. We're now running a fleet of autonomous loaders at Leeville and Northwest Exodus, and you can see our team operating them from the surface in this photo. Work to de-weight Silverstar continues and will reach ore that was covered by the slide in the latter half of this year and into 2019.

At Twin Creeks, we mined the first production stope at our new underground mine 1 month ahead of schedule and remain on track to reach commercial production in mid-2018. We also completed a full year layback in the mega pit, stepping out of the bottom to manage some geotechnical issues. While we originally planned to mine this layback through the first quarter of 2018, we're now reviewing opportunities to offset the impact of exiting a little earlier than planned.

We signed a new 7-year, 12 million agreement with our partner to process ore from Turquoise Ridge in Twin Creeks Sage order claves and approved funding from our portion of the Turquoise Ridge mine optimization project. The project centers on sinking a production shaft that will give us access to the richest part of the deposit, and improve production rates and unit costs when it comes online in 2022.

At Cripple Creek & Victor, we're loading up the first batch of concentrates for processing in our Nevada mills. And finally, at Long Canyon, Phase 2 studies continue on course, and we expect to complete the environmental impact statement process over 2018 and '19.

Turning to South America on Slide 20. Our operations turned the corner in the second half of 2017, ending the year with 660,000 ounces of gold production at an all-in sustaining cost of about $960 per ounce. Merian delivered strong fourth quarter results and the team have launched full potential, with initial focus on improving mine productivity and building on already strong mill performance. Construction of our near primary crusher is advancing on course and will be completed as we reach fresh rock in the second half of this year.

At Yanacocha, operations dried out and the team achieved its 2017 targets. However, we're now processing higher cost deep transitional ores and we've also increased our exploration and advanced project spending in the region. Engineering is completed in Quecher Main and we began stripping in the mine, and we continued to advance our Yanacocha Sulfide studies.

Turning to Africa on Slide 21. The region continued to outperform in 2017 on the back of ongoing mill throughput and recovery improvements, and produced just over 820,000 ounces of gold at all-in sustaining cost below $850 per ounce. At Ahafo, we are beginning a layback of our existing Subika service mine and our growth projects are progressing well. We're completing the primary crusher and grinding mill foundations and have begun to build additional leach tanks for the mill expansion. And we're currently mining our third stope at the Subika Underground mine, and still expect to reach commercial production in the second half of this year. At Akyem, strong performance is helping to offset the impact of harder ore, but unit costs rose as expected in the second half of 2017.

Finally, we continue to advance our growth -- regional growth studies, which center on developing underground resources at both Ahafo and Akyem as well as a potential new mine at Ahafo North.

Turning to Australia on Slide 22. In 2017, the region produced more than 1.5 million ounces of gold at all-in sustaining costs of approximately $820 per ounce. We also reached commercial production at our Tanami Expansion, safely, on budget and on schedule, overcoming the impacts of record rainfall in the first quarter of 2017. Increased resource confidence at Tanami allowed us to optimize stope design, resulting in high grades, and the expanded mill is performing above nameplate capacity.

At KCGM, we continued to remediate a slip in the West wall of the Fimiston pit from Q1 last year and expect to complete that work this year. We'll reach a decision to proceed with the Morrison layback in the second half of 2018. We delayed approval timing so we can combine 2 permit applications, but there is no change to the production schedule. We still expect to begin mining the layback in the fourth quarter this year and to deliver first ore in January 2019. At Boddington, the team set and broke records for mill recovery and throughput 4x in 2017, helping offset lower grades associated with moving into laybacks in the South pit. Mine plan optimization at Boddington has also delivered significant improvements. As Gary mentioned, we added 1.8 million ounces to reserves in 2017, 1.4 million ounces of which were from positive revisions.

We've also approved a new project at Tanami to support continued expansion, turning to Slide 23. Our Tanami Power project will lower costs and carbon emissions by 20% and mitigate our reliance on diesel fuel, which is trucked to site by moving to natural gas delivered via pipeline. We've contracted with experts to develop a 450-kilometer pipeline and 2 on-site power plants. The project will improve supply reliability and scalability as we continue to develop the world-class Tanami deposit. We expect the project to come online in the first half of 2019 with net cash savings at Tanami of approximately $34 an ounce from 2019 to 2023. Our capital investment of between $225 million and $275 million covers the lease that will be paid over a 10-year period, and the project is expected to generate an internal rate of return greater than 50%.

Looking to the year ahead, on Slide 24. For 2018 guidance we presented in December reflects better unit costs and production than our prior outlook and the benefits of ongoing full potential improvements. However, as we discussed in December, mine sequencing and plant maintenance shutdowns result in second half weighting, with our highest production and lowest cost expected in the fourth quarter. We will advance stripping campaigns in each of our regions during the first half of the year and execute our planned maintenance, annual planned maintenance, at Carlin's Mill 6 in the second quarter.

We then expect to ramp up production in the third quarter as we begin to process Silverstar ore and reach higher grade ores at Ahafo surface mines. And we look to make a strong finish to the year with Subika Underground coming online in both South American operations reaching higher grades. The photo on this slide shows automated haulage we'll use to improve safety and efficiency at our new Subika Underground mine.

With that, I'll hand it back to Gary

Thank you, Tom. Turning to Slide 26. Newmont is anchored in 4 regions, where we have the stability and resources we need to continue investing over time. More than 70% of our production, and about the same amount of our reserves, are located in the United States and Australia, and we continue to fund high-return projects to sustain future production and improve on our return on capital employed. These factors position us to maintain stable returns over the next decade and beyond.

Our portfolio is also differentiated by our near mine growth prospects, turning to Slide 27. Our pipeline is among the best in the gold sector in terms of depth and capital efficiency, and it gives us the means to maintain steady production, while growing our margins and our reserves. Projects included in our outlook are the current and sustaining capital projects you see here: Northwest Exodus and Twin Underground in Nevada, Morrison and the Tanami Power project in Australia, the Subika Underground and Ahafo Mill Expansion in Ghana and Quecher Main in Peru. A mid-term project that will improve our outlook is Ahafo North, shown here in green. We expect to reach definitive feasibility at Ahafo North this year and advance to execution in the second half of 2019.

Finally, we continue to invest in progressing our longer-term projects shown here in dark blue. This pipeline lays the foundation for steady production and improving margins, turning to Slide 28. Here's a look at our production profile over the next 7 years. Our gold production is forecast to remain at about 5 million attributable ounces per year and our share of global mine production is projected to grow from 4.4% in 2015 to 5% by 2024. This profile includes production from existing operations as well as sustaining and current projects that are included in our current guidance.

The green layer shows production from our midterm Ahafo North project, which is not included in our current guidance, and the dark blue layer shows the 2 long-term projects that are in prefeasibility, Tanami Expansion 2 and Yanacocha Sulfides, which represent further upside to our current guidance.

Summing it up, Newmont's stable asset base and robust project pipeline represent a distinct competitive advantage.

As does our leading reserve profile. Turning to Slide 29. One of the practices that distinguishes Newmont is that we never stopped investing in exploration across the price cycle. And in 2017, that investment paid off as we replaced reserve depletion at a constant gold price. The same time, we also increased resources. The value and risk profile of our reserve base also compares favorably to the gold sector average. We offer 128 ounces per 1,000 shares and an operating reserve life of about 12 years, and more than 70% of our reserves are based in the U.S. and Australia. Another distinction is that our mine grade is about the same as our reserve grade. Our focus on quality reserves has helped us achieve and maintain top quartile total shareholder returns since 2014. Putting it all together, we delivered another year of strong results in 2017 and position the business to generate more value over a longer time horizon.

Thank you for your time. And with that, I'll open the floor for questions.

(Operator Instructions) Our first question comes from Chris Terry of Deutsche Bank.

I have a couple. Just in terms of Slide 27 that you show each quarter, given the number of the projects that are now in the execution phase and you think about the last couple of years the major acquisition you've done is CC&V, do you think you have -- are you comfortable with the mix of organic opportunities from here? Or do you think that you maybe need to look inorganically at other opportunities or JVs at this point, given you've obviously progressed the number of the early options already?

No, thanks for that, Chris. I think as you look, we do have a number that are in execution, so making sure we get those across the line, efficiently, safely, and on budget is important. If you look at the others, the 2 that I pointed out, Yanacocha Sulfides, Tanami Expansion 2, I'd see progressing this year into the next stage over to the right, likewise with Ahafo North as we continue development on those projects. And those are some pretty substantial projects when you look at the size and the potential capital of those. So good focus there. But I think more importantly, and that's kind of where you're getting to, is on the far left, the greenfield side and where we are working with the team at continental in Columbia to progress that project and make a decision on whether we want to continue with that investment or not later this year or early next year. Our greenfield's efforts in French Guiana, efforts in the Yukon and in Australia. So a number of different projects. And I'll hand over to Tom to see if he's got a couple more to add into that mix.

I'd also add -- thanks, Gary. If you look at some of the opportunities under conceptual and scoping, there's still some real prospects, particularly around Ahafo underground that we need to pursue and that Carlin district and the underground potential in and around there is still very perspective. So it's really about making sure we continue to do our work to bring those opportunities forward. And as I mentioned in my notes, Long Canyon is -- we're running in Phase 1, so the opportunity is to continue to progress Long Canyon on the eastern part of Nevada.

Look, clearly, in summary, Chris, our focus is on the organic pipeline that we have. We've got a very strong organic pipeline. We'll continue to kick the tires, so to speak, on other assets. But as you've seen over the last several years, the only one we did that made sense and added value for our shareholders was CC&V.

And in terms of the Yanacocha Sulfides, so can you just step through the main time line there? Or what we should be expecting over the next couple of years?

Sure. I'll hand that one over to Tom, to cover.

Thanks, Gary. So we're -- over the course of this year, we expect -- or at the very end of this year, late this year, to commence feasibility studies. And we wouldn't be looking to get to a decision to proceed until the latter part of 2019. We really see that, that piece of work, as the first phase, and that first phase is the opportunity to extend Yanacocha's operational life out to 2039, with AngloGold equivalent production because there's a lot of copper as well as gold in the sulfide deposit. We're looking at extending that life after about 2039 of about 350,000 ounces per year. And we're still looking at around about the 2 billion mark for that project.

And the last one from me. Just in terms of 2018 production, can you just talk through the quarterly progression? I think your production's Q4 or second half weighted, but maybe you can just talk through some of the operational movements we should be conscious of, I guess, in the first and second half.

Thanks. It's Tom here, I'll take that one, again. You're certainly going to see Carlin weighted to the second half in the fourth quarter. Again, as I mentioned in my comments, driven by stripping in the Mill 6 annual planned maintenance that we do in the second quarter. And then, we start to access the Silverstar ore in the third quarter and well into the fourth quarter. So Carlin is a significant contributor to that second half weighting. You'll certainly see, in Merian, as we work through a stripping campaign in the first half to 3 quarters, will it reach some high-grade ores at Merian. So we'll see it quite weighted to the second half. Others that are weighted to the second half are particularly in Africa, in around Ahafo as we're in the Subika layback at the open pit at Ahafo. We'll get into some high-grade ores at Subika. And then, we start to -- as we move into commercial production in Subika Underground and bring on the refrigeration plant and get more ventilation into the underground mine, we start to bring on some more ore and higher grades at our Subika Underground. So they're some of the features that have us weighted to the second half, near the fourth quarter.

(Operator Instructions) Our next question comes from David Haughton of CIBC.

I've got a couple of questions. Just looking at the Tanami Power, you've got a capital outlay here of $250 million give or take $25 million. Now that's for a lease payment. Is that CapEx outlay for you a lump sum? Or is it spread throughout the year? How does that work?

Happy to take that one. So we have indicated $225 million to $275 million for that project and that's been accrued as of 2018 as development capital. And then, you'll see annual cash lease payment over a 10-year period starting in 2019. And then, we will also reflect about $10 million of owner cost that will be paid in 2018.

So with that payment, is that going to be a single lump sum or is it spread throughout the year?

It's spread throughout the year.

Okay. So I could just presume it's equal quarter-by-quarter, then?

Yes. That's fair enough for modeling purposes.

Okay. Question, then, for CC&V. Recovery is still very low. I'm just wondering what the outlook there is for the mill component of the ore.

Tom here, I'll take that question, David. We've just moved out of the (inaudible) pit and we're moving into 2 other pits at CC&V, so we're going to see lower grades, which is then going to impact on recoveries through the mill over the next period of time. So if I look at CC&V grade, you're going to see similar grades to what you're seeing and now -- going forward. And that's been included in our guidance going forward. So it's a fact we're moving out of a pit, that had higher grades into 2 other pits that have some lower grades.

So should we expect something in that 40% to 45% recovery range, then, for the mill component?

Yes, in terms of modeling purposes, that's something -- that is something to consider. The other thing is that as I mentioned in my comments, we've just taken the first of our concentrates out of that circuit to send to Nevada and put through the mills there, particularly Mill 6. So CC&V will benefit from some higher recoveries as we bring that on. So we've got a rougher con coming through now. We've got some extra flotation cells to put in to make a cleaner con, to improve the recoveries over the course of this year. So that will also be part of the equation for CC&V, and that's included in our guidance.

Okay. Over to Merian, some pretty good-looking throughputs and only 15 million tonnes per annum on an annualized basis. That's going through the softer saprolite material you'll be transitioning over the next year or so into harder material. What sort of throughput should we be thinking about once you move into more of the harder material?

Thanks, David. Tom, again. Yes, we'll start to move through the saprolite this year. We'll see the first of the fresh rock come through that crusher in the second half. And the mill's nameplate capacity was down around the 12 million tons per annum. So as we start the process the harder ore, it will come down to those sorts of rates. It will be -- we've been running up around 15. I think it will be a combination of fresh rock and still some saprolite. So the 12 million to 14 million tonnes per annum is probably something worth modeling.

Okay. And that would be in 2019 and 2020 sort of time frame?

Yes, I think that would be reasonable, David.

Okay. And just one other thought on that Tanami. We see operating cost savings. Were they included in your reserve calculations that were released yesterday? As far as thinking about what the implications could be for reserves with a lower cost base?

We haven't carried that into the reserve calculation yet, David, so that would be an upside as we update into our 2018 -- end-of-year 2018 reserves.

(Operator Instructions) Our next question comes from Michael Dudas of Vertical Research.

I think in Tom's prepared remarks, he talked about the excess of $400 million in full development savings. How is that relative to expectations? And going forward, it's been a great program for extracting value. Does it get harder because it's been so successful? Or there is enough out there to continue to offset some of the cost escalation. I'm sure everybody is worried about in their calculations, given the replacement number.

Thanks, Mike. Tom, again. I'll take that question. I think it was -- as Gary mentioned, I think it was terrific work by all of our teams at Newmont to drive hard on the Full Potential Program and the $400 million exceeded quite significantly the targets we set ourselves out. Our starting point for full potential is to offset escalation, but we certainly encourage all of our teams to drive to get upside about that and we certainly achieved that in spades in 2017. There is still plenty of upside in our Full Potential Program. It's moved from a site-by-site focus, and it's still very much the accountability of each site's team to deliver on their commitments around full potential. But we're seeing real potential upside around the opportunities to work together regionally and globally, and really leverage our global footprint as an organization. And we still see plenty of upside continuing in milling and mining to improve our costs and productivity. So we continue to drive that program hard, and I think there's still plenty of upside in the years ahead.

And for Nancy, the tax implications, can you put a soft target around some of the positive cash flow metrics or any refunds that you might be anticipating over the next couple of years?

Yes. I think the high level way to think about this is change in rate relative to our North American operations. Again, that's all amongst our diversified portfolio of all the regions in the world. And then, the other piece is really just positive cash flow associated with that. So the 2 pieces will be, the monetization of the AMT credits. We'll expect a refund on that over the next 5 years. And then, the second piece will be rate reductions for North American ops. That's kind of the way to think about it.

That's fine. And final thing is, relative to cap spending, Gary, how do you see the leap, the yellow iron that you have? Certainly, you've done a great job of keeping it maintained. Is there a new purchase? Is there going to be more buying it, given the opportunities you have in your capital program as the average age start to get up there, we need to replenish? Just a sense on that and how those prices and budgets may be pulling in to your capital numbers that you put out today?

I think as you look at our sustaining capital guidance we gave out for the next 5 years, that looked at where we're at in terms of improved equipment lives and we've built that into those plans. So there's no big bump in any sort of equipment replacement that's in the next 5-year plan. I think the team's done a great job of looking at, not just how we get more life out of equipment components and the equipment, but how we utilize that equipment more effectively going forward. So we also have done, I think, a very good job with our equipment manufacturers, working closely with them in terms that take in longer-term purchase agreements that apply, really, to all of our operating sites.

And finally, I think (inaudible) should be commended for its confidence and putting out their dividend policy. Appreciate it.

This concludes the question-and-answer session. I would like to turn the conference back over to Gary Goldberg for any closing remarks.

Thanks. Just a brief set of comments here. Thank you all for joining our call this morning. We're pleased with our performance in 2017. But as always, our commitment is to take it to the next level, which we'll do by delivering steady gold production at competitive costs, continuing to invest in the next generation of mines, leaders and technology, and staying at the head of the pack in terms of the value we create and the standards we uphold.

Thank you for joining us, and have a safe day.

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