紐蒙特黃金公司 (NEM) 2021 Q2 法說會逐字稿

Good morning, and welcome to Newmont's Second Quarter 2021 Earnings Call. (Operator Instructions) 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 Eric Colby, Vice President of Investor Relations and Communications. Please go ahead.

Good morning, and thank you for joining Newmont's Second Quarter 2021 Earnings Call. Today, we have Tom Palmer, Rob Atkinson and Nancy Buese. They will be available to answer questions at the end of the call, along with other members of our executive team.

Please note our cautionary statement on Slide 2 and refer to our SEC filings, which can be found on our website.

I'll now turn it over to Tom on Slide 3.

Thanks, Eric. Good morning, and thank you all for joining our call. In May, Newmont celebrated its 100th birthday, marking a major milestone in our company's long history of creating value and improving lives through sustainable and responsible mining. And while our organization has certainly evolved, our strategy remains clear. We are focused on delivering value to all of our stakeholders from our world-class portfolio of long-life, responsibly managed assets located in the best gold mining jurisdictions.

Turning to Slide 4 for a summary of our quarterly performance. During the second quarter, Newmont produced 1.45 million ounces of gold and over 300,000 gold equivalent ounces from copper, silver, lead and zinc, as we build momentum for a strong second half of the year. We generated operating cash flow of nearly $1 billion and free cash flow of $578 million, of which 97% is attributable to Newmont.

In May, we completed the acquisition of GT Gold, consolidating our position in the highly prospective Golden Triangle district of British Columbia. And last week, we announced the approval of our Ahafo North project, expanding our existing footprint in Ghana and adding more than 3 million ounces of gold production over a 13-year mine life. This project is expected to deliver an internal rate of return of over 30% at current gold prices and offers exciting exploration opportunities throughout the land package.

Supported by our leading portfolio of operations and projects, we continue to apply a disciplined approach to our capital allocation priorities. Even after the redemption of our 2021 senior notes in April and the completion of the GT Gold acquisition, we have $7.6 billion in total liquidity. We have sustained a net debt-to-EBITDA ratio of 0.2x, maintaining our financial flexibility whilst we continue to reinvest in our business and return cash to our shareholders.

Yesterday, we declared a second quarter dividend of $0.55, maintaining an industry-leading dividend yield of over 3.5%. Set within our established framework, our second quarter dividend demonstrates our confidence in the strength of both our portfolio and our operating model to generate sustainable, long-term value.

In June, we published 2 important ESG-focused reports that touched every part of our business and our operations. The first was our 17th Annual Sustainability Report, which continues to provide a transparent and detailed look at our ESG performance, focusing on the issues and metrics that matter most to our stakeholders.

The second was our first Climate Strategy Report, which focuses on our approach to achieving our science-based climate targets and aligns with the reporting guidelines from the task force on climate-related financial disclosures. These reports outline the key sustainability strategies that are embedded in our business and our culture at Newmont.

Turning to Slide 5. Newmont is broadly recognized for our robust and disciplined practices when it comes to sustainability reporting, both within our sector and among all corporate reporters. And our long history of taking a leading approach to environmental, social and governance practices has positioned us as the gold sector's recognized sustainability leader.

Newmont's strong ESG performance creates long-term value for our stakeholders and drive superior business results through delivering safer, more efficient and reliable operations, greater productivity from well-managed resources, the ability to operate effectively in a broad range of jurisdictions, a proactive approach to managing risks and emerging issues and, most importantly, a reputation built on trust-based relationships and a track record of delivering on our commitments.

Earlier this month, we hosted a webcast to provide an overview of our ESG journey, what we have done well, where we have learned lessons and our plans for continued improvement. If you weren't able to join us, I would invite you to listen to the replay, which is posted on our website.

Turning now to Slide 6. Newmont is the world's leading gold producer, with an unmatched portfolio of world-class, long-life operations. Among our 12 operating mines and 2 joint ventures, we have 9 world-class assets, each of which delivers more than 500,000 gold equivalent ounces per year, an all-in sustaining costs of less than $900 per ounce and with a mine life exceeding 10 years.

And we believe that where we choose to operate matters. It's important to note that all of our world-class assets are located in top-tier jurisdictions that we define as countries classified in the A and B ratings ranges by each of Moody's, S&P and Fitch. Newmont has the best portfolio of assets located in the most favorable gold mining jurisdictions that when coupled with the quality of our people and our integrated operating model positions us to generate sustainable returns for decades to come.

Turning to Slide 7. Our portfolio will produce steady gold production of more than 6 million ounces per year through until at least 2030, balanced across each of our 4 regions. This profile is further enhanced by the production of more than 1 million gold equivalent ounces from silver, lead and zinc at Peñasquito and copper at Boddington and Yanacocha. Combined, we will deliver nearly 8 million gold equivalent ounces per year for the next decade, the most of any company in our industry.

Moving to Slide 8. Our project pipeline is unmatched in the gold industry and is one of the best in the mining industry. There is significant value to unlock as we optimize and advance our longer-term projects and lay the pathway to steady production and cash flow well into the 2040s.

We continue to advance our midterm projects, including Yanacocha Sulfides, where we are preparing for full funds approval in December of this year. With a multi-decade mine life that provides exposure to gold, copper and silver, the sulfide project generates profitable production and offers additional upside to extend mine life at this cornerstone asset.

We are also executing the second expansion project at Tanami. Through the development of a 1.6 kilometer deep production shaft and supporting infrastructure, this project supports the site's future as a long-life and low-cost producer, and it also provides a platform for us to further explore a prolific mineral endowment in the Tanami district.

And as mentioned previously, we are pleased to announce the funding for the development of Ahafo North has been approved, and this project has now advanced into the execution phase.

Turning to the next slide for some more details. Earlier this month, our Board of Directors approved full funding for the Ahafo North project, expanding our existing footprint in Ghana and adding more than 3 million ounces of gold production over an initial 13-year mine life.

Located approximately 30 kilometers north of our existing Ahafo South operations, the Ahafo North project will include 4 open pit mines and the construction of a stand-alone mill to produce approximately 300,000 ounces per year at very attractive forward-sustaining costs. The project is expected to deliver an internal rate of return of over 30% at current gold prices.

Ahafo North is a significant gold mine by any measure. We have conducted extensive regulatory and community engagements, including meetings with traditional leaders and local government agencies and public forums to ensure that we earn and maintain social acceptance throughout Ahafo North's life cycle. We will work to create lasting value for host communities through enhanced local sourcing and hiring.

One key aspect of Ahafo North is our workforce planning, which includes a target to achieve gender parity in the workforce when operations begin. We are very excited about progressing Ahafo North and look forward to bringing you updates as we develop this new mine over the next 2 years.

Turning to Slide 10. The global pandemic has and will continue to challenge all of us for some time to come. And our commitment to protect the health and safety of our workforce and host communities remains our top priority. We believe that the COVID-19 vaccine is critical in combating the spread of the virus. We are encouraging our workforce to get vaccinated as soon as they become eligible, and we are working with our local communities and host governments to improve availability and deployment at all of our managed operations.

These efforts are supported by our global community support fund, which is seeking to help with vaccine rollout, vaccine education and awareness campaigns. We are seeing some of the highest vaccination rates in the United States and Canada, largely due to the widespread and early availability in these countries. But until the vaccine is available to everyone around the world, our people and operations will continue to be affected by this virus. And recent outbreaks have shown just how difficult this pandemic continues to be, testing our protocols and the resilience of our people and systems.

The impacts of the pandemic are also driving cost inflation around the globe. We are now expecting cost escalation of around 3% to 5% for materials, energy and labor. And we expect these pressures to continue through to at least the end of next year. We are currently working on our 2022 business plan, ensuring that the higher cost of inflation and the application of our wide-ranging controls and safety protocols are built into our assumptions going forward.

However, despite the impacts of COVID, we remain in line with our guidance ranges. As a reminder, our guidance ranges are plus or minus 5% from the midpoint we published in December 2020. We are on track to achieve the midpoint to low end for production and the midpoint to high end for costs. Production remains back-half weighted for the year, with approximately 53% expected in the second half of the year.

As a reminder, our cost guidance assumes a $1,200 gold price. At today's gold prices, you can expect an additional $20 to $30 per ounce for production taxes and royalties.

As we look ahead towards the second half of this year, we will remain diligent and supportive of vaccination efforts that are so urgently needed around the world. And we encourage everyone to get their vaccine as soon as they are eligible, ensuring that we are all doing our part to end this global pandemic.

And with that, I'll turn it over to Rob Atkinson for a more detailed look at our global projects and operations. Over to you, Rob.

Thanks, Tom. Turning to Slide 12, I'll give an update on our regional performance, starting with Africa. Our team delivered another strong performance during the second quarter, as higher ore grades from changes in sequencing largely offset more tons mined due to challenges with shovel availability. The site is well positioned to deliver solid production throughout the year, expecting to reach its highest production during the fourth quarter.

Ahafo continues to be a solid contributor, delivering higher-grade material from our underground operations to offset unplanned mill maintenance and power outages.

At Subika, we continue to progress the development of our new underground mining method, sublevel shrinkage, and we expect to see steady increases in grade and underground ore tons mined in the second half of the year.

In addition, we expect to reach higher ore grades from the open pit operations in quarter 3 and 4, positioning Ahafo to deliver a strong finish to 2021.

And after finalizing the permitting process with the Guinean EPA, our Board of Directors approved full funding of the Ahafo North project earlier this month. Spending will ramp up in the second half of the year and all critical path equipment orders have been placed in support of initial construction activities to ensure timely execution of the project. The development of this prolific ore body will leverage our proven operating model, with the project and resulting mine receiving functional and technical support from our existing world-class Ahafo South operation as we create the next generation of mining in Ghana.

Turning to Slide 13. Tanami delivered solid results in the second quarter as higher ore grades more than offset unplanned mill maintenance and longer-haul distances from the bottom of the mine.

In late June, we detected our first positive COVID case at Tanami. Working closely with government representatives and other key stakeholders, we rapidly made the decision to place the site on care and maintenance beginning on June 26 to reduce the spread of the virus and protect the health of our workforce and communities right across Australia. I'd like to thank our team in Australia for the rapid response and courageous decisions during such an extraordinary and dynamic set of circumstances. And I'm proud of the resilience and strength of our workforce as we continue to learn from and manage the impacts and consequences of this virus.

Although our second quarter was largely unaffected, we are forecasting a 40,000 to 50,000 ounce impact for the remainder of the year as a result of the care and maintenance period.

We began ramping up out of care and maintenance on July 13. And today, Tanami is now operating at 90%. And despite the impacts from COVID, we continue to advance Tanami Expansion 2. During the second quarter, we progressed the hoist structure and our work on the mine shaft, remaining on track to deliver significant ounce, cost and efficiency improvements in the first half of 2024.

Boddington achieved near-record quarterly mill performance, reaching nearly 11 million tons processed during the second quarter. And we continue to expand the use of the gold industry's first autonomous haul fleet. And today, we are operating 20 trucks in the south pit. And we remain on track to deploy the entire fleet of 36 trucks by the end of quarter 3. The efficiencies from autonomous haulage, coupled with improved performance from the mill, will continue to drive performance at Boddington.

The improved mill performance helped to offset lower tons mined from ongoing shovel reliability and geotechnical challenges in the south pit, which has the potential to impact our ability to reach as much of the higher grades as we have planned in the second half of the year.

Turning to Slide 14. Peñasquito delivered another consistent quarter as we continue to execute on our planned full potential enhancements. And the most recent improvements in metal recovery rates will continue to support planned delivery into the future. The work we've done to optimize Peñasquito since we acquired the site in 2019 demonstrates our ability to successfully operate and enhance value at large, complex, open pit mines. The site is well positioned to remain a strong performer throughout 2021 as we continue to realize higher-than-planned tons mined and improved recoveries in the far, out-of-reach plant.

CC&V delivered lower tons mined due to unplanned fleet maintenance. And the site continued to experience geochemistry challenges during the second quarter, resulting in lower grades and recovery. Mill performance was offset by higher leach pad recoveries, and grade improvements are expected during the second half of the year, helping to partially overcome some of the challenges experienced in the first and second quarter.

At Porcupine, mill and ongoing equipment maintenance has resulted in lower tons mined and processed during the quarter. As we look towards the second half of the year, we expect underground development and grades will improve.

And last month, our full potential program identified 20 initiatives at Porcupine, which will deliver efficiency improvements in the coming months.

As mentioned previously, we continue to closely monitor the impacts from COVID at Musselwhite. In April, we made the decision to temporarily suspend operations for 5 days to reduce the spread of the virus, resulting in mill stoppages, reduced underground development and more personnel at site in late April and early May. We expect that these challenges will persist in the second half of the year, and we are continuing our full potential work at Musselwhite, focused on increasing development rates and driving productivity.

Eleonore delivered another strong quarter as development rates and mill throughput continued to improve over the prior quarter and prior year, offsetting the impact of lower personnel in site due to COVID. In addition, the site continues to increase the use of tele-remote mucking equipment, which have helped to increase tons mined and drive important improvements to safety and efficiency. Eleonore will continue to be a solid contributor during 2021 as we expect to sustain consistent production from stable tons mined and processed throughout the year.

Turning to Slide 15. Despite heavy rainfall in the second quarter, Merian remains a strong performer in the South American region. The site continues to utilize an ore blending strategy to optimize mill performance. And during the second quarter, Merian delivered lower throughput as the site focused on processing harder, higher-grade ore. In the second half of the year, Merian will continue to transition from softer saprolite to harder ore, resulting in higher production from improved grades and steady throughput.

Cerro Negro continues to improve productivity and performance as the site continues to manage through the evolving pandemic. During the second quarter, Cerro Negro delivered higher ore grades. And despite reduced personnel from COVID, the site continues to increase ore tons mined and processed each quarter. Due to the pandemic, Cerro Negro has delivered low development rates over the past year, limiting access to high-grade ore in the late 2021 and into 2022. However, the site is progressing future growth projects such as the development of San Marcos and exploration in the Eastern District.

Yanacocha has also experienced significant challenges due to the pandemic, impacting productivity through the year. Yet, despite the challenges from the virus, Yanacocha delivered higher grades and recovery from the leach pad in addition to an increase in grade and ore tons mined from the Carachugo open pit. As we look towards the second half of the year, Yanacocha will focus on optimal ore placement and leach pads as the site has transitioned to leach-only operations ahead of the development of Yanacocha Sulfides.

The Yanacocha Sulfides project has the potential to extend Yanacocha's world-class operations well beyond 2040, adding profitable production from one of the largest and most prolific gold districts in South America for decades to come. And despite potential impacts from the elections in Peru and the impacts of COVID, the project is progressing well. The team is focused on critical path activities, such as advanced engineering and procurement, as we prepare for full funds approval in December of this year.

And with that, I'll hand it over to Nancy on Slide 16.

Thanks, Rob. Turning to Slide 17 for the financial highlights.

Newmont delivered strong performance in the second quarter with over $3 billion in revenue, an increase of $700 million from the prior year quarter, driven by higher sales volumes and metal prices; adjusted net income of $670 million or $0.83 per diluted share; adjusted EBITDA of nearly $1.6 billion, an increase of over 60% in the prior year quarter; and strong free cash flow of $578 million, also an increase of about 50% from Q2 of 2020.

Yesterday, we declared a regular quarterly dividend of $0.55 per share, an increase of $0.30 or 120% over the prior year quarter. With a yield of over 3.5% at our current share price, Newmont is among the top 10% of the S&P's large-cap dividend payers.

Turning to Slide 18 for a review of our adjusted earnings per share in more detail. Second quarter GAAP net income from continuing operations was $640 million or $0.80 per share. Adjustments included $0.03 related to the unrealized mark-to-market gains on equity investments, $0.02 related to reclamation and remediation adjustments at historical mining sites, $0.02 related to tax adjustments and valuation allowance and $0.02 of other charges. Taking these adjustments into account, we reported second quarter adjusted net income of $0.83 per diluted share, an increase of almost 160% or $0.51 over the prior year quarter.

As a reminder, due to our status as a U.S. GAAP filer, our adjustments to net income do not include $19 million of incremental costs incurred this quarter as a result of the COVID pandemic. Adjusting for these costs would have resulted in approximately $0.02 of additional net income per share in the second quarter, and we expect these costs to continue throughout the year as we prioritize the health and safety of our workforce and local communities.

Turning now to Slide 19. Under our conservative $1,200 gold price assumption, Newmont expects to generate $3.5 billion of attributable free cash flow over a 5-year period. In addition, for every $100 increase in gold prices above our base assumption, Newmont delivers $400 million of incremental attributable free cash flow per year. Newmont is the only company in the gold mining industry with the ability to generate these levels of attributable free cash flow, allowing us to balance steady reinvestment in the business, continue to strengthen our balance sheet and also provide superior shareholder returns to our industry-leading dividend framework and opportunistic share buybacks.

Turning to Slide 20 for more about our dividend. Our dividend framework provides shareholders with a stable base annualized dividend of $1 per share at a $1,200 gold price, along with the potential to receive 40% to 60% of the incremental attributable free cash flow generated at gold prices above our plan. We will continue to review our dividend each quarter with management and our Board, evaluating our operational and financial performance and outlook semiannually to give us maximum flexibility in determining our dividend within the framework.

The dividend declared yesterday was consistent with our first quarter dividend, calibrated at an $1,800 gold price assumption and a 40% distribution of incremental free cash flow. Our second quarter dividend demonstrates our confidence in our future outlook and our ability to maintain capital discipline.

Turning to Slide 21. We continue to drive the business with our clear capital allocation priorities, which include reinvesting in our business through disciplined investments in exploration and organic growth projects, maintaining our financial strength and flexibility and returning cash to shareholders. During the second quarter, we delivered on each of these priorities by progressing our profitable reinvestment in the business, particularly with the execution of the Tanami expansion, the approval of Ahafo North and the advancement of Yanacocha Sulfides; investing in exploration with 55 drill rigs working around the globe; completing the GT Gold transaction in May of this year; maintaining our industry-leading dividend established within our framework to provide stable and predictable returns; repurchasing 2.4 million shares, translating to approximately $150 million of our $1 billion share buyback program; and maintaining a strong balance sheet with a net debt-to-EBITDA ratio of 0.2x, giving us the flexibility to reduce our debt outstanding by $550 million with available cash and still maintain cash balances of $4.6 billion at the end of the quarter.

We are confident in our ability to continue delivering strong results and free cash flow to maintain our disciplined approach to capital allocation. The progress we made in the first and second quarter enabled Newmont to return over $1 billion to shareholders in the first half of this year while we continue to reinvest in our business and support our operations with a strong and flexible balance sheet.

With that, I'll hand it back to Tom on Slide 22.

Thanks, Nancy. I'll wrap it up on Slide 23. I'm privileged to lead an organization with a proven track record and a long history of value creation. Capitalizing on the strength of our people, assets and integrated operating model, Newmont is well positioned to lead the industry with our commitment to create value and improve lives through sustainable and responsible mining.

As our company moves into its next 100 years, we remain focused on delivering value to all of our stakeholders from our world-class portfolio of long life, responsibly managed assets located in top-tier jurisdictions.

With that, I'll turn it over to the operator to open the line for questions.

(Operator Instructions) And our first question comes from Tyler Langton of JPMorgan.

Just, I guess I had a question on COVID. And I know it's probably tough to calculate, but do you have a sense sort of the impact from COVID restrictions on production in Q2? And then just as you look out to the second half, I mean, Rob, you mentioned the impact at Tanami. But are there any other sort of operations just as sort of the Delta variant spreads, that you're kind of sort of particularly sort of watching for risk to production?

Thanks, Tyler. I'll pass across to Rob, but we are certainly continuing to manage the virus across just every one of our locations. But Rob, maybe you've got a bit of color as you flip around the coin here.

Thanks, Tyler. And if I can start off in Australia. Obviously, the Tanami, that we had that first positive case and you get 2 weeks completely shut down. And it takes a little while to ramp up. And Tanami is now back up at about 90%. So it's 2 weeks plus a few days.

But the biggest worry we've got in Australia is that each one of the states and territories have got different rules and regulations. And they're not necessarily allowing free travel between the states and the quarantine, and we've obviously got people that work at the different states. So that's a risk, moving forward, that we're carefully watching and carefully managing in Australia.

But really, in terms of the biggest area which we're still worried about is South America. It's that, by far and away, that's where we've had the biggest impact. Certainly, in Cerro Negro, we've had several key outbreaks and we've had to shut down several times in the second quarter. But vaccines are starting to get through there. And building up in similar, Yanacocha, the vaccines are coming through.

But it's the absenteeism, Tyler, which is the biggest unpredictable thing that you can sometimes have shovel operators away, you can have mill operators away, and that causes the biggest challenge. But, certainly, with the vaccines in that part of the world, that's certainly very positive for us.

In terms of Canada, I mentioned about Musselwhite that we had that week in April and May where we had to go into care and maintenance. So that had a significant impact. But again, in each one of the Canadian sites, the level of absenteeism has sometimes been 3 or 4x higher than what we've typically had, and that really impacts the development, et cetera.

And the key thing that I want to get across is that the sites are actually managing the situation very, very well, but it is the unpredictability of the virus. And that's the challenge we've got. But with the vaccines coming on, we're certainly very hopeful that, that will reduce. But it's a very difficult question to actually put your finger on.

Tyler, if I build upon that. We will continue to make decisions that put the health and safety of our workforce and local communities front and center. In that Tanami example, it was midnight on a Friday night that, that positive case came through. Within 2 hours, that team had made the decision to put the operation into care and maintenance, have 750 people back in their rooms quarantined and everything safely buttoned up at the mine site and have notified 900 people who had flown home in the previous 48 hours to ensure that they were going to home quarantine and doing the appropriate testing. And we will continue to make those decisions and courageous decisions to ensure health and safety above all those.

As we look around how we're managing these impacts, with a portfolio of our size, with the strength we have of a balanced portfolio around the globe, we believe that we can continue to accommodate these pandemic impacts within the guidance that we provided.

All right. That's very helpful. And then just switching to Ahafo North, and I know there was just a slight increase in the CapEx with the full funds decision versus the previous guidance. I'm just trying to get a sense. The current CapEx guide, sort of what level of input costs does that assume? Is it sort of more recent prices for things like user materials and energy? And I guess the same question also for the cost. Or are you assuming kind of more sort of average prices over the past several years? Just trying to get a sense, sort of the impact that sort of current inflationary trends that could potentially have on the CapEx and operating cost there.

Thanks, Tyler. We certainly -- and the -- that slight bump in the capital cost, from what we've been guiding previously, was looking at current pricing and looking at COVID impacts. And we've already placed orders on a number of critical path items, which is really locking up pricing and schedule. And we're doing some of that for the Yanacocha Sulfides as well to ensure that we can manage by schedule and cost. So there's COVID impacts, but also we've already done some work to lock in contracts and pricing.

So it takes into account, on a capital cost, the considerations around current inflation pressures and COVID. And from an operating sense, still a couple of years out before that operation comes online, we do expect these inflationary pressures to be cyclical and my role will be to fill the other side of that cycle by the time Ahafo North is up and running and producing.

The next question comes from Fahad Tariq of Credit Suisse.

Just building on the last question about the COVID impact. Maybe just remind us where some of the production offsets are coming in the second half of the year. By that, I mean, which operations are expected to kind of make up for some of the COVID issues, predominantly in South America and Australia?

Thanks, Fahad. It's -- our needle-moving sites really drive our portfolio movements on a half year to half year basis. So Peñasquito is pretty flat. It's having a very solid year. But it's pretty consistent half-on-half, quarter-on-quarter.

Boddington, we are -- I was down at Boddington about 3 weeks ago, watching autonomous haulage in action and spending some time in the south pit and the SO5 layback, just looking at our work to move down into the high-grade ore. So we are moving into the high-grade ore in the latter part of this year. And Rob talked a bit about the importance of managing some of the geotechnical challenges and some of the equipment reliability challenges. So really important we have that discipline and focus to get to that high-grade ore. So Boddington is a key contributor.

At Tanami, has got some high grade in the latter part of the year. And so I'm very pleased that we're able to navigate through that positive case, back up and running very smoothly and we'll enter into some higher grade stopes at Tanami in the latter part of the year.

And the other one is Ahafo. We've got a stronger second half in Ahafo as we get -- certainly, as the underground, Subika underground sub-level shrinkage comes on, but also as we get into some high-grade ore out of the open pits. So flat for Peñasquito, stronger second half at Boddington mine and Ahafo, and we had the operations have moved the needle.

Okay. That's really clear. And my only other question. Just on the Yanacocha sulfides, as you work towards the full funds decision, if there was a situation where your joint venture partner was unable to contribute as much as their funding because of balance sheet issues, et cetera, would there be appetite from Newmont to maybe consider buying out a larger stake of the project?

We're very excited about Yanacocha Sulfides. We're very excited about the long life potential of sulfide. So sulfides project is built off -- and the economics are built off of the first wave, what we call the first wave, which is another layback at the Yanacocha Verde pit and Chaquicocha underground.

But there's a second wave and a third wave and a fourth wave of sulfides ore that come after you've installed that processing infrastructure. It's a story that will play out like Carlin did for Newmont from the early to mid-'90s and over the last 25, 30 years.

So we're very excited about the potential of the Yanacocha. We see Yanacocha as a cornerstone asset in the -- a key district that we want to be in for a very long time. And it's gold and copper, which we're excited about.

So if the opportunity -- when we think about M&A activity, we look at where we can consolidate in districts like we did with GT Gold in the Golden Triangle over the earlier part of this year. And certainly, if we could consolidate our position at an operating asset in a prolific district in around Yanacocha, if that opportunity presented and we could pick up more of that asset for a fair value, we would be interested.

The next question comes from Josh Wolfson of RBC.

Josh, we can't hear you. You must be on mute or something. Operator, it looks like we might have a connection issue with Josh.

Yes. We will move on to Greg Barnes of TD Securities.

Tom, I'm just trying to understand the Boddington commentary because Rob seemed to imply that you weren't going to get as much high grade in the second half of the year perhaps expected, but you still expect production to be up, stronger than the second half of the year. Just trying to reconcile those 2 comments.

Thanks, Greg. So we're moving down into the higher grade in the South pit. So as you move into those higher grades, you progressively start to build into higher, higher grades that are coming out of the South pit, mostly fitting into the mill. So you are going to see -- we will see a trend of high production in the second half as you do that. It's really going to be that mine sequence of how much of that high grade you get by December 31, and how much tips over into January as we move through.

So it's going to be a stronger second half because we're entering the high-grade area. It's about how many weeks in the 6 months we get at that high-grade materials and how much is coming off the medium-grade stockpile into a mill that is absolutely humming. So it will progressively increase. It's just how much that high grade we can creep into 2021 versus tipping into 2022. And that's what we are very focused on in terms of making sure we step down those benches, manage the bench hygiene to ensure that we're looking after geotechnical issues.

And then we've had some reliability issues with a very large hydraulic shovel, both engine issues and very large hydraulic oil pump issues that you wouldn't typically see in these machines. So working with the -- working very closely with the supplier of that machine to ensure we get that reliability and maximize the amount of high-grade ore we get in the second half.

Okay. So there's going to be a little less production from Boddington in the second half of the year, perhaps as you were previously expecting, is what I think I'm hearing.

Potentially, there's a risk that some tips into the early part of '21. But we're still at 6 months in front of us, Greg, so we're still very much focused on making sure we manage that bench turnover very, very carefully.

And as I said, I was down there for a period of time about 3 weeks ago, spending -- I've spent a fair bit of time climbing over that shovel and in that pit with the mining team, just understanding how they're working their way through that.

Okay. And Tom, your comments about inflationary pressures in the second half of the year and into 2022, I think that's a bit of a change from perhaps what you're saying at the beginning of the year. I don't think you're seeing much impact from those cost pressures, but now it does appear to be coming through. Where is it coming through from?

Thanks, Greg. It is, as we sit -- as we've been sitting, and we're right in the middle of our business planning process now. So as we -- as our global supply chain team then starts to look at some of those trends, we are seeing across -- I mean 50% of our cash is labor, and we are seeing both in Canada and Australia quite hot labor markets for mining. And so we are seeing -- that has been an uptick certainly in both those countries over the course of this year, and we expect to see that flow through at least all of next year.

And then materials and energy make up the next 40% to 45%. So across labor materials and energy, you've got our cost base. And we are seeing, in terms of steel and fuel and oils, as we pull together our plans, work with our various suppliers, that uptick and bundled it all together, aggregated that altogether, we're seeing the order of about that 5%. We're seeing it not structurally. We are seeing it as cyclical, but we are seeing that buying through. And considering that, that will play out for at least all of 2022 and starting to factor that into our planning process.

We've got our continuous improvement program full potential, which is very mature, that we are leaning in too hard to look for where we can offset some of those headwinds, but we certainly are seeing that inflation trend. And of course, it's -- it does set us up nicely for some pretty positive gold price outlook as we're seeing that. But as we're pulling together the detailed analysis for our business plan, we are seeing those trends flow through.

Okay. So likely upward pressure on 2022 cost guidance, but you have to (inaudible).

That's right, Greg. And as we sit here, midstream in our planning process, looking about that, around about that 5% aggregated number.

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

I guess I'll just sort of follow on Greg's question on inflation. So you're kind of worrying that you're expecting to see inflation on the operating cost side, and it sounds like maybe on the capital cost side, too, with things like steel. But your guidance is more or less unchanged. I guess, it looks like there's a few areas, at least in 2021, on both development and sustaining CapEx trends, where we've actually seen it go down by a little bit.

And it looks like also maybe in 2023, with development CapEx. So how should we be thinking about the guidance? Is this something that -- I mean, did you have sort of a wiggle room built into it, that the inflation is just sort of going in? Or is there any risk that we might see, either your CapEx or your OpEx guidance go up by subsequent quarters? By year-end?

Thanks, Jackie. So for 2021, we're certainly seeing, on the cost side, somewhere between midpoint in the high end. So that high end is plus 5%. So we're going to track somewhere within there. So as we sit here today, we get some of those inflationary pressures, so that we can and will accommodate our costs this year within that.

Certainly, as we look to 2022 and update our long-term guidance in December, we're certainly seeing that cost pressure that I was just talking with Greg about.

And on the development capital side, we have built into the Tanami and we've built into the Ahafo North our understanding of where cost is, and that's accommodated within the outlook we've given for both those projects.

We are continuing to derisk Yanacocha Sulfides, where we are on a critical path. We are getting -- ensuring we get factory slots and process for some different critical path items, for instance, oxygen plants and the like. So we're making sure we're managing that process ahead of the full funds decision so that when we come out with, hopefully, a full funds decision in December that the -- what we guided to is accommodating some of those capital cost inflationary pressures.

And then the on the development capital side as we guide, I'd say less the inflationary pressures, more the sequence of those projects as you've got a different COVID impact. So how is the spend profile looking for Ahafo North and Yanacocha Sulfides and at Tanami is more going to be the influence of our development capital number in 2022 versus '23 versus '24.

All right. That makes a lot of sense. Maybe I'll just follow up with the point on the Yanacocha Sulfides. And Tom, I know you've been asked this 100 times probably already, but with the changes in Peru, with the recent election, and it looks like there's a formal signing, Castillo, is there anything that would -- that you could see between now and December that would make you pause on sanctioning Yanacocha Sulfides or independent of the project itself? I'm talking more about the political or regulatory environment. Is there anything that would worry you? Or are you fairly confident that you'd be able to manage that in whatever environment you're in?

Yes. Thanks, Jackie. It's certainly, I think, a very important step is the declaration of President Castillo, next step for us would be to see how he assembles his cabinet. And then when we know who we can engage with and understand that we're about to embark upon a couple of billion dollar investment in their country, I think it's clear that they acknowledge the importance of mining to Peru's economy and a country that's probably the worst hit from the pandemic around the world. And so the opportunity to have an investment into the mining industry, that's going to help the Peruvian economy. I'm optimistic that, that discussion will be well received as we can start engaging with the new cabinet.

We've been in Peru for 30 years. Yanacocha Sulfides will position us to be in Peru for at least another 30 or 40 years. So we are taking a very long-term view on this decision. But pleased to see that we've got our decision in the election, which will allow us then to start engaging over the next 6 months with some of those key leaders in government.

The next question comes from Tanya Jakusconek of Scotiabank.

Great. Just maybe coming to Rob or Tom, I just wanted to follow back on to this inflation question. Appreciate the 3% to 5%. And you mentioned labor in Canada and Australia. I just want to dig deeper if there's any aspects of labor that you're seeing a much higher inflationary pressures on. Is it underground miners? I'm just trying to understand if there's pockets of that, that's occurring, that you're seeing.

Yes. Tanya, thank you for the question. We are certainly seeing, in Canada, a high demand for a key technical staff, a number of projects around the country, and so you're starting to see that mobility of folks moving on to the different opportunities. And we're seeing that impact in terms of operators and maintainers for the mine, again, and particularly, you've got the fly-in, fly-out operations that is being able to switch from one plan to another. So we are seeing those pressures heating up market in Canada.

And very similar in Western Australia, where you've got a very significant boom happening on the back of record iron ore prices. So very high demand, both in the construction of the expansions to -- the expansion of those iron mines to maintain throughput, high demand for operators, maintainers and technical people, so professionals.

In an environment that Rob was talking about earlier where the state governments, the provincial governments in Australia are constantly opening and closing borders. And so there's a real push on to be employing out of the state, so that you've got that reliability of your staff being within state. And we're likely to have, in Australia, those interstate pressures or still some time to come given their slow take-up of the vaccination, which is certainly they're paying the price for now, with the Delta strain of the virus.

One of the things that we are doing, which is going to significantly offset the pressure on operators in particular, is the implementation of autonomous haulage at Boddington. And if you think about a fleet of 36 trucks across 4 shifts and then the additional number of people you have to cover shift breaks and annual leave and those sorts of things, you're talking of the order of 180 people that are no longer needed to drive trucks because they're running autonomously, and that takes some pressure out of the system in terms of that labor pressure for operating and maintaining.

There's lots of projects in both those countries and limited supply on both professionals and operator and maintainer. Rob, do you have anything you want to add?

I think the only thing I would add, Tom, is, Tanya, it also applies to contractors where maintenance shuts that there's such demand competing priorities. And as Tom said, if you're trying to do a major shut in Western Australia and you're limited to contractors there, sometimes, you can't do all the work you need to. And as such, you've got to kind of do deferred work, et cetera.

And similar to what Tom said, in Canada, we've also seen exploration contractors also lift their prices as well. So those are definitely the 2 toughest and hottest markets.

Okay. And then maybe if I can get a bit of clarity on material energy, I understand. But just on material, are you just seeing it in steel? Is it cement? Is it cyanide? Maybe just a little bit more clarity precisely on the material side.

Yes, it's predominantly steel that we're seeing it come through on the material side. And what we'd also tuck in underneath materials when we think about that element of our cost tenure is freight. So it's particularly, as we've got concentrate, we're moving out of Peñasquito and Boddington, we are seeing freight costs increase. So that will be the 2 material areas that we're seeing that pressure.

And then just on 2 other assets that we didn't touch on, or maybe -- well, Boddington, we did a little bit. Can you just remind me of what exactly the geotechnical issue is in the pit?

Rob, do you want to pick that one up as we bring our benches down?

Yes. Tanya, it's -- there's quite a seasonal issue there as well as that Australia, that part of the world tends to get quite heavy rain. And when you've got heavy rain, there's always the risk to the walls where we stand off a little bit further. And that's something which we've been managing very, very carefully. So it's things as practical as that.

And just a piece of information, this month of July has been some of the record rainfalls in Australia. So we just have to stand off the walls a little bit further, and that causes a slight slowdown in the trucks.

And it's making sure you're keeping your catch benches clear if you're stepping down. So if you could start to see, because of some of that, that weather, I mean, if you remember, in the Boddington pit, Tanya, when you were there a few years ago, is quite a fractious material. So it's making sure you've got the spaces clean, you're keeping the catch benches clean and making sure you've got that hygiene, just stepping down, so you're not creating problems for yourself into the future because you're not looking after your bench hygiene.

Okay. And then just on the Goldstrike roaster, I don't know if Rob can share with us the impact of that roaster, portion of the roaster being down for Q3, what that would be as an impact to you like you gave us for Tanami.

Sure. And Rob is in regular -- Rob and Greg would talk every week or every couple of weeks. So it's the mill feed in the roaster and it's the flipping on the mill that's had the fire and is being replaced. And Rob, you want to give a bit of color and our understanding of the impact from an NGM perspective.

Yes. Certainly, Tanya, obviously, it has been a major failure, went down end of May. We're expecting it to come up some time in September. What the team at NGM has been able to do is run a different type of feed there, whether it's the high-carbon materials, to make sure that there's still material that we're going through that particular mill.

But in terms of the impact, when we look at the roaster and also some of the challenges that are occurring at Turquoise Ridge, we're looking at for new one, about 40,000 ounce impact.

Tanya?

That's in Q3 for your share?

For the second half, for the rest of the year.

For the rest of the year.

Rob and I are also heading up to across Elko on Sunday for our quarterly board meeting, so we'll get a chance to have a bit of a look-see as well.

And if I could just squeeze one more in, just on the status of the illegal miners that are going on in Ghana, maybe what's happening there?

Rob or Steve. We've got Steve Gottesfeld here as well. So Rob or Steve, you want to pick up that one?

I'll pick it up, Steve. And Tanya, one of the key things I'd say is that year-to-date, there's actually been quite a remarkable turnaround there in terms of actually, on-site. The presence of the illegal miners on the site has been managed particularly well, that the Guinean authorities are working closely with us to make sure that we're not only targeting the illegal miners. But also where the gold is getting processed, is it also getting sold. And the response from the Guinean authorities has been first-class.

At the same time, we've increased our intelligence, our monitoring, our response, et cetera. So in many ways, the way in which we are managing what we can manage on the site is actually going quite well with a clear partnership with the Guinean authorities. There has obviously been some issues off-site, and perhaps, Steve, if you wanted to just talk about that.

Sure, Rob. So I guess I would just add that, as Rob was saying, we obviously rely on the government authority to provide security as well as have our own security. As you know, we're committed to the voluntary principles on security and human rights. Those trainings are always ongoing. Maybe in a particular case, there were several dozen individuals who, clearly, were intent on conducting illegal mining activities in the government media to engage in effective action.

We have a robust ASM program. We focus on maximizing local hiring, local procurement and alternative livelihood work. We'll continue to do that, partner as closely as we can with the government and also the local stakeholders and traditional authorities, who are, after all, are the owners of the land. And we believe that the stuff is being taken, we'll calm the situation now, but we're watching it very carefully.

The next question comes from Anita Soni of CIBC World Markets.

So the question, I guess, is just a little bit more on input cost or the inflationary pressures that you're seeing. So as I look at the guide, you said you'd be midpoint to top end of the guidance range in the plus or minus 5%. So for year-to-date, you've hit the middle of that range. So is that to say the second half of the year could be on the plus 5% or higher from second half on cost this year?

Yes. One of the things to monitor with our cost guidance is we guided a $1,200 gold price. And so when you see our year-to-date actual costs, they include production taxes and royalties of some $20 to $30 an ounce because we've been up at around $1,800. So it's factoring -- if you're factoring in that $20 to $30, assuming gold price stays at its current levels, we'll continue to flow through in our actual costs going forward.

Okay. I'm not sure if that made it better or worse, but let me think about that.

The second question, I guess, would be around the moving to the second half of the year -- or sorry, moving into 2022, thinking about the guidance that you've given on cost. So if I'm going to summarize all the commentary, I think you're basically saying development costs are encapsulated already in the 2 guides you've given for the 2 projects as they stand for Ahafo North and Tanami. And then secondly, sustaining costs and operating costs, you're seeing a 3% to 5% increase, and that includes, I guess, all kind of input and labor escalation. Does it include COVID impacts as well?

Yes. Yes. So we are building our plans now, Anita, but we are incorporating. We do expect those COVID protocols and costs to continue into next year. So we're building assumptions around those into our cost as we build our plan. And that -- when I talk that 3% to 5%, that's including in the provisions we made for that.

Okay. And then as you mentioned, it's done at $1,200 gold. So is there any thought to increasing that number for next year, so that when we -- when we look at this chart next year, would those royalties be better captured with the higher gold price?

We're certainly maintaining our discipline internally with our business plan to build at that $1,200 assumption to ensure we've got the robustness and that discipline in our culture. And we're debating, at the moment, how we think about providing our cost guidance for next year, whether we maintain an assumption on the $1,200 revenue gold price, or whether we were to charge it to some other numbers. So we're considering that as we pull together our numbers. Nancy, do you want to make a comment?

Yes. Anita, I would also add, we will continue to provide you with sensitivities around all the important drivers. So even at a $1,200 gold price, you'll be able to articulate and make good assumptions about different gold prices and output. So for example, the comments that Tom made on the taxes and royalties at prices higher than $1,200, we will continue to guide clarity around those, so you can get a better picture even at the $1,200 level.

The next question comes from Mike Parkin of National Bank.

In Peru, there certainly seems to be a fair bit of issue, not specific to Yanacocha, but to just the mining industry in general about kind of a lack of investment and flow of monies earned back into local communities. Can you give us some color in terms of what your stakeholder engagement has been like with your local communities that are impacted by Yanacocha and what, if anything, you're kind of planning to do differently if you do go ahead with the full funds decision on the sulfide project.

Thanks, Mike. Great question. And I'll pass it across to Steve Gottesfeld to give you some color in terms of some of the aspects of the work we're doing there.

Thanks, Tom. And thank you, Mike, for the questions. I think as you know, mining is a pillar and core -- really a cornerstone for the Peruvian economy. And we've been there for well over 3 decades now. And our relationship with Cajamarca has really improved over the years. Obviously, Yanacocha has a huge presence in Cajamarca, and our community has grown substantially over time.

There have been challenges, for sure, with regard to delivery of value coming from the central government in the form of taxes as to where that money gets distributed. And over time, they've -- with different administrations, you've seen more or less tons come back into the region. Obviously, we value through extensive employment, local hiring, local content.

And I would say, honestly, that as hard hit as Peru and Cajamarca have been in this COVID pandemic environment, our relationship has really strengthened during this period of time. In fact, we just had a vaccination clinic opened up in our offices in Cajamarca, and I believe it's the only mining company that's been able to do that in Peru to date.

So our intention, certainly, is and has been to focus on the value provided to our stakeholders in Cajamarca. Our relationship, not only with the many communities throughout our operation, but also with the regional government continues to strengthen. Our intention would be, throughout this process, to continue to work with them to find ways, especially as we look at moving forward with Sulfides, in maximizing that value.

Certainly, we want to partner with the central government on determining how to best provide a return of those dollars back into the community. And I'd also encourage you to take a look at our sustainability report on the programs that we have, more broadly in Cajamarca and the efforts we've made and the economic contribution that's occurring.

All right. And one other one. Just back to mentioning how freight is weighing in on the inflation. Can you -- are you seeing any major challenges with access to securing container availability? Reading a few reports out there, saying that's becoming quite a challenge. Is that something that's impacting either the movement of concentrate or supplies into sites? Or whatever color you can kind of provide would be appreciated.

Thanks, Mike. We're not seeing any impact on that perspective around freight.

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

Thank you, operator, and thank you all for joining us today. And please, as this virus continues to play out, stay safe and healthy and look out to your families. Thanks, everyone.

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