Newmont Corporation (NEM) Q4 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to the Year-End and Fourth Quarter 2018 Earnings Call. [Operator Instructions] Please note 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, and good morning, everyone. Welcome to Newmont's full year and fourth quarter 2018 earnings conference call. Joining us on the call today are Gary Goldberg, Chief Executive Officer; Nancy Buese, Chief Financial Officer; and Tom Palmer, President and Chief Operating Officer. They will be available to answer questions at the end of the call along with other members of our executive team. Turning to Slide 2, before we go further, please take a moment to review the cautionary statements shown here and refer to our SEC filings, which can be found on our website at newmont.com. Turning to Slide 3, here you will find additional information on the proposed transaction between Newmont and Goldcorp. Our preliminary proxy statement was filed this morning and is also available on our website. Now, I'll hand it over to Gary on Slide 4.

Thanks Jess. Good morning and thank you all for joining this call. Newmont finished the year with a strong fourth quarter as we reached commercial production at Subika Underground delivering another profitable project on time and within budget. But before we get into the details, I want to congratulate our Newmont team for continuing to stay focused on meeting our commitments and for laying the groundwork to lead the Gold sector in profitability and sustainability. Turning to more details on Slide 5. In 2018 Newmont delivered superior operational execution which we demonstrated by producing 5.1 million ounces of gold at all-in sustaining costs of $909 per ounce overcoming geotechnical challenges and the impacts of planned stripping campaigns in North America and Australia generating $640 million in cost and efficiency improvements from our full potential continuous improvement program more than offsetting inflation and bringing total improvements to more than $2 billion since 2013. And advancing our most promising digital initiatives to improve safety, optimize how we mine and process ore, improve process control systems, and monitor mobile equipment health from a centralized base. We also strengthened our global portfolio of long life assets in all four regions. In North America, we completed the Twin Creeks Underground and Northwest Exodus projects extending mine life and adding lower cost production in Nevada. We delivered the Cripple Creek & Victor concentrate project to improve recoveries, and we advanced Long Canyon Phase 2 to feasibility study. In South America, we commissioned a new primary crusher at Merian, mined first gold at Quecher Main ahead of schedule, and declared first reserves at Yanacocha Sulfides. In Australia, we progressed the Tanami Power project to pave the way for a second expansion of this world class asset. In Africa, we reached commercial production at Subika Underground adding higher grade, lower cost production at Ahafo while advancing future growth opportunities throughout the region. And we outperformed our global exploration targets by adding 6.7 million ounces of reserve and 9.5 million ounces of resource via the drill bit. Finally we progressed in our goal of leading the gold sector in both profitability and responsibility by generating adjusted EBITDA of $2.6 billion and maintaining an investment-grade credit profile with over $6.3 billion of liquidity returning approximately $400 million to shareholders through an industry-leading dividend and share repurchases reflecting confidence in our ability to deliver returns while investing in profitable growth and being recognized as the mining sector leader in sustainability, management performance and for the advancement of diversity and inclusion in the workplace. I’ll expand on this topic on Slide 6. We finished the year with a total recordable injury frequency rate of 0.40 which was a 13% improvement from 2017. However this performance was overshadowed by the death of seven colleagues. While we will never fully recover from these losses, we have made every effort to learn from them, strengthen our controls and share our lessons across the mining industry. Managing risk and embedding controls to prevent fatalities remain at the heart of our safety program and safer operations are also the foundation for driving further efficiency. We remain focused on driving visible felt leadership by reinforcing key safety systems and behaviors among our employees and contractors. Our long-term success also rest on the standards we set and the values we uphold. In 2018 we were honored to be recognized as the top mining company in the Dow Jones Sustainability Index for the fourth consecutive year, and to be named one of the Wall Street Journal's top 250 Best Managed Companies. Newmont's commitment to inclusion and diversity was also recognized by the National Association of Corporate Directors and in Bloomberg's Gender Equality Index. This recognition speaks to the caliber of our team, as well as our success in executing our strategy and living our values. Turning to costs and production on Slide 7. Our track record shows a steady trajectory of improvement as our full potential program more than offset inflation and help to mitigate the unit cost impact from planned stripping campaigns at Carlin, Twin Creeks and Boddington and through continued outperformance across our portfolio we delivered 5.1 million attributable ounces at all-in sustaining costs of $909 per ounce in 2018, below our full-year guidance of $915 to $955 per ounce. Looking forward 2019 all-in sustaining costs are expected to be $935 per ounce with lower cost production at Subika Underground and reduced power costs at Tanami helping to offset headwinds such as geotechnical challenges at Carlin and KCGM and input cost pressures. In 2019 we expect to produce approximately 5.2 million ounces driven primarily by higher grades at Ahafo, and the completion of the Ahafo mill expansion to offset lower grades in North America and ongoing going stripping at Boddington. Turning to our latest projects on Slide 8. In November we reached commercial production at Subika Underground in Africa on schedule and within budget. And we are currently executing three projects that will be completed before the end of 2019. In South America, we're extending oxide production through Quecher Main where we reached the first gold in December and mining continues on schedule. In Africa we continue to make good progress on the Ahafo mill expansion which together with Subika Underground will extend profitable production until at least 2029. Finally, in Australia our Tanami Power project is nearing completion to lower costs and emissions while facilitating future growth. These projects are expected to deliver an average internal rate of return above 20%. Turning to our reserve and resource delivery on Slide 9. In 2018 we added 6.7 million ounces of reserves exceeding our exploration target of 4 million ounces all by the drill bit. We achieved these results while maintaining the same $1200 reserve gold price as the prior-year. Exploration also added 9.5 million ounces of resources more than offsetting the conversion of resource ounces to reserves. We also added 5.3 million ounces of resource through our acquisition of a 50% interest in the Galore Creek project. As you can see in this waterfall chart, reserve additions of 6.7 million ounces exceeded depletion of 6.1 million ounces but were offset by revisions of 3.6 million ounces largely driven by orebody and metallurgical model changes at Phoenix and pit design changes at Carlin driven by increased costs and the removal of the layback at Gold Quarry. Our reserve additions are spread equally across our four regions and our resource additions were primarily in Australia and South America. Positive additions and revisions to our resource base included a first-time declaration of 2.2 million ounces from the Yanacocha Sulfides as this project moved into definitive feasibility; 800,000 ounces at Tanami from conversion of resource ounces at [Oran] [ph]; 600,000 ounces at CC&V due to mine planning improvements; 550,000 ounces at Boddington from drilling and pit optimization, and 360,000 ounces at Ahafo due to the improved [wall][ph] control guidelines allowing for steeper slopes. Our average reserve grade also increased 4% to 1.19 grams per tonne largely due to higher grade additions from several of these sites and the reclassification to resource of lower grade ounces at Carlin and Phoenix. I want to acknowledge our exploration and our operations teams for their collaboration in delivering these results. With that, I'll turn it over to Nancy on Slide 10 to discuss our financial performance.

Thanks Gary. Turning to Slide11 for the financial highlights. I'm pleased in place to report strong fourth quarter results consistent with our back half weighting. Compared to the prior-year quarter, we delivered a 6% increase in revenue to more than $2 billion. Adjusted net income of $214 million or $0.40 per diluted share and adjusted EBITDA of $759 million an increase of 5%. Cash from continuing operations was $742 million a slight decrease compared to $748 million last year. Turning to Slide 12 for review of earnings per share in more detail. For the fourth quarter we recorded a small loss in our GAAP net income from continuing operations of $3 million or approximately breakeven. Adjustments for the quarter included $0.08 related to impairments to asset and investments, $0.23 related to valuation allowances and other tax impacts, and $0.09 related to a change in the fair market value of our marketable equity securities portfolio and the impact of reclamation and restructuring charges. Taking these adjustments into account we delivered fourth quarter adjusted net income of $0.40 per diluted share. Turning to our full-year results on Slide 13. Comparing 2018 results to the prior year, our revenues held steady at $7.3 billion despite planned stripping at Boddington and Twin Creeks along with geotechnical headwinds at Carlin and KCGM. We generated net income of $718 million or $1.34 per diluted share, and we delivered adjusted EBITDA of $2.6 billion. Cash from continuing operations was $1.8 million a decrease of approximately $300 million compared to the prior year primarily due to the timing of cash tax payments. And in 2018, we declared dividend of $0.56 per share demonstrating our commitment to shareholder returns. Turning to the full-year adjustments through earnings per share on Slide 14. Here you see the impacts of impairments on our GAAP net income from continuing operations of $0.76 per share which primarily occurred in third quarter and related to assets and exploration properties in North America. Other adjustments for the year included $0.03 related to valuation allowances and other tax impacts and $0.02 due to other items. Taking these adjustments into account, we delivered full-year adjusted net income of a $1.34 per diluted share. Turning to our capital priorities on Slide 15. Newmont continues to have one of the strongest balance sheets in the gold sector with liquidity of more than $6 billion and a net debt to adjusted EBITDA ratio of just 0.3x. We remain well-positioned to execute on our capital priorities including maintaining an investment-grade credit profile, investing in the next generation of mines to improve life and build a stronger reserve base, and returning cash to shareholders. For 2018 we delivered nearly $400 million and returns to shareholders through our dividends and share buybacks, and in 2019 we expect to maintain an industry-leading dividend of $0.56 per share. We will also continue with our share repurchase program which aims to offset potential dilution by maintaining a constant share count. In summary, we’re well-positioned to continue our trajectory of industry-leading financial performance by focusing on value generation over the long-term. And now I’ll pass to Tom for a discussion of our operations starting on Slide 16.

Thanks Nancy. In 2019 we delivered solid performance across all four regions driven by culture of continuous improvement. As Gary mentioned, our full potential program generated $640 million in cost efficiencies and productivity improvements exceeding our targets and continuing to offset headwinds. I would like to thank all of our teams for demonstrating our commitment to share ideas, and learn from each other success. We are clearly seeing the benefits from this global collaborative approach. Looking forward, we remain excited about advancing several technology initiatives including Smart Mine, advanced process control, and connected worker which will take our performance to the next level. These technology programs are also being applied on a globally consistent basis. Turning to Slide 17. Newmont is anchored in four regions where we have the stability and the proven operating model we need to create value over the long-term. Over the last few years out team has executed on our strategy, and set out up our business for success over the long-term by optimizing portfolio, for the monetization of non-core assets, advancing profitable growth, and adding more than 2 million ounces of gold production at all-in sustaining costs of about $750 per ounce, investing in exploration across the cycle to support a stable production profile with approximately 70% of our production and reserves located in the United States and Australia, and strengthening our balance sheet to provide us financial flexibility. Turning to review of our regional performance starting with North America on Slide 18. The region produced more than 2 million ounces of gold in 2018 at all-in sustaining costs of $928 per ounce. At Carlin geotechnical challenges impacted performance during the year but the site delivered a strong fourth quarter on the back of improving grades at Leeville. The region is advancing work to improve their geotechnical risk management which will help inform our path for optimizing Carlin's mine plans and safely reentering Gold Quarry. For the consequence of the Gold Quarry remediation work, production may be impacted by approximately 70,000 ounces in 2019. However, it should be noted that Gold Quarry is only expected to contribute 5% to 10% of Carlin's total production over the next three years. And we expect to recover some of these ounces over the medium-term. In January, we reached to three year labor agreement at Carlin, our only operation in North America covered by collective labor agreement. The updated agreement covers approximately 1500 employees and is in line with the assumed wage increases in our guidance. CC&V also ended the year strongly with the expected grow down of stockpiled concentrates, and recovery of deferred leach production from earlier this year. The concentrate projects is fully operational and we're seeing the expected recovery improvements at both CC&V and Carlin's Mill 6. At Phoenix, we saw higher gold grades and improved mill recovery and at Twin Creeks we generated steady production with higher grades from the underground and continued full potential improvements. And last month the Long Canyon Phase 2 project advanced to feasibility study is what continues to inform our approach to the sites open pit and underground growth potential. Looking forward, the region also continues to progress studies of Newmont Underground expansions at Carlin and CC&V, bolster advancing studies at Galore Creek with Teck. Turning to South America on Slide 19. In 2018, the region produced approximately 670,000 ounces of attributable gold at all-in sustaining cost of around $800 per ounce, an improvement of more than 7% from the prior year. At Yanacocha our optimized mill blending strategy improved recoveries after processing high-grade ore from Tapado Oeste pit resulting in steady production at lower costs. At Merian continued improvements in mine and mill productivity through full potential delivered very strong performance in the fourth quarter. With the new primary crusher in place to help sustain mill throughput as the site transitions from saprolite to harder rock starting later this year. Development at Quecher Main is progressing on course as stripping and leach pad construction continues to plan. In December we produced first gold from an existing leach pad and remain on track to reach commercial production in the second half of this year. This project serves as a bridge to developing Yanacocha's extensive sulfide deposits in the years ahead. In January, we advanced the sulfides project to the definitive feasibility stage. In the first phase of this project, we will process sulfide material from the Yanacocha Verde Open Pit and Chaquicocha Underground Mine both of which are located within Yanacocha's current operational footprint. The well will be processed through an integrated flow sheet including new flotation, pressure oxidation, neutralization, solvent extraction and electric winning facilities. Upon reaching commercial production, we expect the project to produce approximately 500,000 consolidated gold equivalent ounces per year for the first five years from 2024 to 2028 and a total of around 6.5 million gold equivalent ounces through to 2039. We expect to make a full funds decision on Yanacocha Sulfides in 2020 and the project has a three-year development schedule. Additional Sulfide resources that are not currently included in the first phase of the project are expected to further extend the loss of the Yanacocha operation. Turning to Australia on Slide 20. The region produced over 1.5 million ounces of gold in 2019, the all-in sustaining costs of $845 per ounce. At our world-class Tanami asset we delivered record production of just under 500,000 ounces supported by a strong fourth quarter driven by high grades. And earlier this month we received approval from the Northern Territory Government to introduce gas to the pipeline allowing commissioning on gas to commence at the Tanami Power project. Gas is now being introduced into the pipeline and we remain on track to have connected gas - connected to gas generator power by the end of this quarter. Once operational, Tanami's Power cost will reduce by 20% resulting in a net cash savings of $35 per ounce while flooring carbon emissions by 20%. This power project also sets the stage for the next phase of profitable at Tanami. Steady work on Tanami Expansion 2 continues to progress towards a full funds decision in the second half of this year. Tanami Expansion 2 has the potential to extend mine life to 2040, reduce operating costs by approximately 10% and add an incremental 100,000 ounces per year from 2023 through 2027. In addition to the study work thinking of the shaft for Tanami Expansion 2 has now progressed beyond 70 meters. At Boddington, we delivered record mill throughput in 2018 of 40.2 million tonnes. This was delivered on the back of sustained full potential improvements over the last six years. The most recent being an optimized maintenance strategy that through improved reliability allowed us to move from four major shafts to three in 2018. Tripping on the south laybacks will continue as planned through 2019 and into 2020 before we reach higher grades in 2021. At KCGM the team is managing through geotechnical challenges which reduced mining activity in the back half of 2019. Remediation work is ongoing and we expect to continue drawing down stockpiles this year to help offset reduced mining rates. Stripping in the Morrison starter pick commenced in November and we achieved first production in December ahead of schedule. Morrison starter opens up an additional mining area in the Fimiston Pit and allows the site to sustain operations whilst we continue to work to optimize a longer-term mine plans. Morrison starter is expected to contribute approximately 150,000 to 200,000 ounces through 2021. Remaining Morrison resource is being evaluated as part of KCGM's broader Golden Mile Growth Study. Now over to Africa on Slide 21, the region produced 850,000 ounces of gold at all-in sustaining costs below $800 per ounce. At Akyem, strong performance came as a result of continued full potential improvements and the most notably within the process plant where the teams reduced the frequency and duration of mill shuts, and delivered higher-than-expected throughput and recovery. Looking forward the site is targeting further cost efficiency improvements by reducing part and services spending associated with regular mill maintenance. And at Ahafo increased tons and grade contributed to a strong fourth quarter. Subika Underground reached commercial production in November on schedule and within budget and the team is making good progress on the Ahafo mill expansion. Civil construction of the primary crusher is completed, leach tanks have been placed and structure work on the [indiscernible] SAG mill is complete. Ahafo is looking forward to a strong 2019 with higher grades expected to continue from both the Subika Open Pit and Underground combined the mill expansion project reaching commercial production in the second half of this year. Finally we continue to advance our regional growth studies and are working to prioritize out various opportunities on a value versus risk basis. Looking further ahead at our project pipeline on Slide 22. Our pipeline is amongst 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 margins, reserves and resources. Projects included in our outlook are the current and sustaining capital projects you see here. Quecher Main in Peru, the Ahafo Mill expansion and the layback of the Awonsu Pit at Ahafo and the Tanami Power project in Australia. Three midterm projects will improve our outlook, the Yanacocha Sulfides, Ahafo North and Tanami Expansion 2 shown here in green. Finally we continue to invest in progressing our longer-term projects shown here in dark blue. This pipeline lays the foundation for steady long-term production and profitability. Turning to Slide 23. If you look at our production profile for the next seven years through 2025, annual gold production is forecast to remain around 5 million attributable ounces and our share of global mine production is also expected to grow over this period. This profile includes production from existing operations, as well as sustaining and current projects included in our guidance. The green layer shows production from our midterm projects Yanacocha Sulfides, Ahafo North and Tanami Expansion 2 which are not included in our guidance. And the dark blue layer shows a longer-term projects including Long Canyon Phase 2, Chaquicocha Oxides and Akyem Underground all representing further upside. Overall Newmont's stable asset base and robust project pipeline represent a distinct competitive advantage. Now I’ll hand it back to Gary on Slide 24.

Thanks Tom. Turning to Slide 25. In January we announced an agreement to combine with Goldcorp with the vision of creating the world's leading gold business as measured by assets, people, prospects and value. Newmont Goldcorp will operate a world-class portfolio of assets on four continents with the ability to target sustainable and profitable production of between 6 million and 7 million ounces of gold annually and have the benefit of additional revenue of about $1.5 billion from other products including silver, zinc and copper. We will have the sectors best project pipeline and exploration portfolio in terms of both quality and depth, and these prospects translate to the gold sector's largest reserve and resource base with long-term leverage to the gold price. Finally we will continue to have the financial flexibility to execute our capital priorities, deliver sustainable shareholder returns through an industry-leading dividend, and maintain an investment grade balance sheet. We expect the transaction to close in the second quarter following our special stockholder meetings in April and receipt of all necessary regulatory approvals. In the meantime, we're working to ensure a smooth transition and integration as we position the business to deliver industry leading returns for decades to come. Newmont Goldcorp's value proposition is unparalleled. We expect to generate $100 million in annual pretax synergies from G&A savings and a streamlined supply chain, and we plan to achieve additional benefits from the application of our proven full potential continuous improvement program where we have proven we can deliver sustainable cost efficiencies, and productivity improvements of approximately $75 per ounce once fully ramped up. This equates to about $165 million per year combined with the $100 million of annual synergies. These efforts have the potential to deliver more than $2.5 billion in total value creation. Further upside is expected through project optimization and sequencing, asset investments, and an increased and focused investment in exploration potential of these assets. Newmont Goldcorp's operations and project pipeline provides the foundation for steady profitable production, stable cash flow generation and improving costs over the long term and gives a significant optionality and the ability to continue to advance only those projects that meet our minimum hurdle rate of 15% at a $1200 gold price. I recently had the opportunity to visit Red Lake and Musselwhite meeting with more than 600 people in crew meetings at the sites. I'm pleased by the quality of the talent that I met and the future operational potential of these assets. Our teams will be working diligently over the coming weeks to close the transaction and we anticipate providing an update to our 2019 guidance in due course along with a view of our longer-term guidance later this year at our Investor Day. We're very excited about this combination and have clear implementation plans in place to create the world's leading gold business. Thank you for your time. And with that, I'll turn it over to the Operator to open the line for questions.

[Operator Instructions] And our first question comes from John Bridges of JPMorgan. Please go ahead.

Many congratulations of the results. Good to see some ounces showing up from the sulfide project in Yanacocha. I was just wondering to what extent is this - the last word and to what extent is the vehicle to attach on these the satellite ore neighboring deposits which looks if they can create nice synergies, how does that work?

I think I’ll start off here and then hand over to Tom. When you look this really just involves our Chaquicocha deposit and part of the Verde deposit which sits off to the side but there's other satellite deposits as you point out John that are not yet included in here because we're doing some additional exploration work. I don’t know Tom if you've got anything to add.

John one of the areas we’re looking at for additional oxide is the - in the Chaquicocha Underground we are seeing some additional oxide that might help serve as a further bridge between oxides and sulfides at Yanacocha. And also share some infrastructure in terms of the underground development at the Chaquicocha Underground. But there is a quite extensive sulfide deposits across that existing operational footprint at Yanacocha. So, our Verde Open Pit Chaquicocha Underground represent Phase 1, but there are some other quite exciting deposits that serve [indiscernible] beyond that Phase 1 stage of the project.

I guess you’re quite busy with other things at the moment but are there any catalyst with respect to in talking to neighbors about working other deposits into the infrastructure you got there, the footprint?

I think that's one that we’re open to John when it comes to going Galeno and Michiquillay and how that might fit with Conga, but I think like we’re looking at with the Goldcorp transaction when is the right time to bring those in and we can look at proper sequencing and how that might work best.

Our next question comes from Matthew Murphy of Barclays. Please go ahead.

I am just wondering with some of the comments on full potential and I guess there is some mention on costs playing a role in some of the reserve reduction. Just interested in what you're seeing generally in the industry on cost inflation and whether you still think you have enough low hanging fruit or potential to take cost out and continue to keep cost flat?

Tom Palmer, here. We are seeing some headwinds say in Australia particular where the iron ore markets heated up so the labor markets warmed up in Australia. So we are seeing attrition a little bit higher, so we’re seeing some headwinds in that area. But our full potential program and the commitment each of our operating General Manager make every year in their planning process is to offset inflation and we have assumptions for inflation building to our planning process to ensure that they have baked into their plans clear projects that can offset inflation as a minimum and then deliver beyond that. And we’ve been out to do that over the last several years, we see it in our plans going forward and we’re confident that we still got a pipeline of projects that can continue to at a minimum offset inflation.

And then just a quick highly specific one, sorry hopefully this doesn't put you on the spot but we're just trying to reconcile the CC&V mill production in Q4. It looked like it was double roughly what would be implied from throughput grade recovery et cetera. Does that have something to do with drawing down stockpiles or something?

That is linked to the concentrates we now produce at CC&V that we had been stockpiling whilst we got our logistics process in place to ship them to Carlin's Mill 6. And we drew down all of those concentrates that we had stockpile through the year. So what you're seeing in the fourth quarter is all of that concentrate we produced through 2018, getting prices through Carlin's Mill 6, at improved recovery then what you would have seen at CC&V's Mill 6 and helping contribute to improve recoveries in Carlin's Mill 6. So that's what you're seeing in those numbers for CC&V in the fourth quarter.

Our next question comes from Chris Terry of Deutsche Bank. Please go ahead.

The first one I had is just how we think about the progression of this year. So if the deal is to close in 2Q would you expect that you would then give combined guidance shortly after that for the Company? And would it also include say three to five years out as well or will that take some time. And the second question I had is just around the proxies that are been announced. Just trying to reconcile some of the CapEx numbers that you provided in December and the numbers that are given there for Goldcorp and for Newmont just struggling to square a couple of the numbers. May be you could just step through what's in the proxy CapEx numbers in particular? Thanks.

Couple of things, in regards to guidance what we look to do once we close is to provide an update to 2019 guidance after we've closed and gone through the process to make sure we've got a good understanding of how to properly present because we do look at costs in particular differently than Goldcorp has historically. So we will come out with that guidance. In terms of longer-term guidance, we look to target our Investor Day at the end of the year. Right now we’re looking in either November/December to hold that Investor Day to provide the longer term guidance and outlook for the combined business. In regards to the proxy question, I'd probably need to get more specifics because that’s a backward looking document and it’s not looking forward. So I'm not clear exactly what you want to cover there, but we’re happy if you want to get back to us with the detail on that we can provide it.

Thanks for the color guys. Its more this 2019 and forward CapEx numbers and then free cash flow showing within the business and you take that the forward CapEx numbers for Newmont, they look higher than the numbers given in the December CapEx numbers. So I am just trying to work out the forward CapEx reconciliation?

Yes Chris. The proxy is really mostly backward looking so probably the best thing to do is take the Newmont guidance that we gave you in December period assume for the Newmont that stays the same for now. And then let us give you more information after the transaction closes relative to the Goldcorp spend and assets. I think that will be the best way to put things together for 2019 and then certainly we’ll give you the full view. We want to make sure we reconcile all the components there is significant differences between the way the two companies have reported and we want to get that very right before we make that public. So give us a little bit of time but post closing will give you a clear view on 2019 numbers at least.

And the last one from me, just in terms of the updated guidance and what we should expect. If you back out any potential divestments that might occur from the existing assets on the Newmont side, would we expect the Newmont guidance would stay the same as in for the existing assets?

At this stage we wouldn't be projecting any asset sales. I think that's something that we typically don't hang the- for sale sign out there. So clearly we’re going to go through a process like we've done with Newmont over the last five years where we assess all of our assets both operating assets and projects and the value versus risk basis and go through in detail making sure we understand what their full potential is before we move forward. So at this stage especially for the 2019 guidance that we provide in due course after close, I wouldn't anticipate seeing any asset sales in there.

[Operator Instructions] And our next question will come from Anita Soni of CIBC. Please go ahead.

My question is with regards again to the proxy just little bit more on this free cash flow projections. I realize it’s a backward looking document but can I understand what kind of assumptions you used for stock for the Goldcorp side of the equation, what gold price were you assuming and also does your projections for free cash flow reflect the 2.2 million to 2.4 million guidance, 1 million ounce guidance that they put out and the further implications of that?

Yes, so in terms of projections for the Goldcorp piece they use a $1300 long-term gold price and so that’s what we have baked in. So that’s sort of the baseline. And then I guess your question about cash flows, again this is all just based on the initial modeling and the basics from an accounting point of view. So if there's further details on that, you're trying to get to let us help you try to work through because they're meant to give a view, but again this is a preliminary review of accounting valuation based on the business model and a deal model. We still have additional work to do. The evaluation itself will change up to and including the date of closing.

Right, no I understand there is going to be differences in cost but the CapEx and revenue seems like it should be pretty straightforward. And then on your side of the equation on Newmont and I think this is what Chris is driving at, the prior guidance that you guys have put out was around about - and I hesitate to say guidance but if you add the two, the guidance of about 500 million to 600 million that's in the chart. And then also in another chart says 500 million of ongoing development capital. So to get you to about 1 billion, whereas the proxy is saying in some years it's 1.2 to 1.3 for you. So I'm just curious as to what precipitated that increase in CapEx?

Yes again, kind of coming back to the basis of the proxy. That is not guidance that's provided in there. So when you see the spend numbers relative to capital, I wouldn't translate that to guidance. Let us give that to you once we actually get closed because it's really an accounting view based on a model and we haven't gotten - let us do the work to give you proper guidance about spend.

Thank you. So you said it was $1,300 growth for Goldcorp sided equation, what did you use for yours?

$1,200.

$1,200 for yours? Okay. All right. Thank you very much.

Anita maybe just as we get the next call and just to give some high level numbers, we're talking of targeting 6 million to 7 million ounces out into the future - the foreseeable future. What we see here over the next five years is a roughly $800 million a year in development costs on a combined basis and roughly about $1 billion a year on sustaining capital. So that total is kind of a high level. We'll have to get into the details and we'll give much more detail as we get into providing guidance near the end of the year with the Investor Day.

Our next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.

Just may be a question for Tom, just coming back to the reserves. Tom, can you give us a little bit more details on the 3.6 million ounce revision that happened between Phoenix and Gold Quarry, I guess Carlin and what exactly happened there?

At Phoenix, more infill drilling allowed us to improve our resource models and get better reconciliations between the model and what we're mining and processing. So it was really a process of continuing to refine and optimize their models through infill drilling and then making those adjustments so that we have more reliability and predictability in terms of what we have in the ground and what we actually produce through the plant. So the prices are continuing to tidy up and improve those models at Phoenix. And at Carlin, two laybacks in the Gold Quarry pit, that as we got to the point in that planning processes we were optimizing those laybacks, we were able to improve the performance of one of the laybacks and actually pull ounces out of one of the laybacks, by adding the second layback into the first layback. So improved one layback but that led to the other layback becoming uneconomic in terms of our reserves requirements and so it pushed out. So it's really about that Carlin going through that stage of mine planning and doing the optimization on the next phase as layback's coming through.

And at Phoenix, the improved reconciliation that you did with the infill drilling, did you just find that these ounces just were not there?

Some of that is a complex multi metal ore body. So as you get in and do your drilling, it's about getting better confidence about what's in the ground between the fortitude and bonanza pits and it was a process as we start to do the additional drilling and bring that drilling into the resource model and then bring that into our mine plants that got better confidence in that material. So there's some metal that we previously thought was there that that wasn't there, some metal moves into resource whilst we do more work.

What sort of drill phasing did you use? We can take it offline. That's fine.

Sounds like a good idea Tanya.

Our next question comes from Michael Dudas of Vertical Research Partners. Please go ahead.

Three quick ones. First, like 2018 you had more second-half weighted results, can you comment a bit about how that's going to pull through for 2019? Secondly, as you're combining the best of the best, you're going through the analysis of the merger with Goldcorp; given your development projects right now, is there any change to the timing currently and is that still kind of get [indiscernible] bring everything else on board? And third, you mentioned your Musselwhite and Red Lake business. Have Gary or Tom, have you've been to all the major operations yet with the Goldcorp any other maybe color that you received or what you're expecting to find as you finish up? Thank you.

I'll have Tom start with the 2018 to 2019 comparisons.

Our 2019 might be as heavily weighted to the fourth quarter as 2018 was. We had a Tanami, Merian, Ahafo, CC&V, and Carlin, all fourth quarters that were heavily weighted in 2018. There will be a slight waiting to the second-half and fourth quarter mainly around the Ahafo mill expansion coming on stream in the second half of 2019. So we'll see increased volume come through and somewhat into the second half and into the fourth quarter. But not the same level that you saw in 2018.

I think then moving on in terms of as we go through both in terms of project sequencing but more specifically going through and assessing talent and getting to a position to be able to name the senior leaders of the new company. We're going through a very detailed process between Tom and I with a number of meetings with the Goldcorp team and with our own team as we go through that process. Look to have that in a position that by the time we get to close that we're able to name essentially the senior leadership team across the combined Newmont Goldcorp organization. So working through that a very detailed rigorous process, and one that's wanting to make sure we get to meet the people and take the proper amount of time as we go through this process. I think on your last question I did have the opportunity to visit Musselwhite and Red Lake last week and I didn't mention that it was a little cold up there too but that's beside the point. We have - as we've done our due-diligence across the entire business and portfolio, had the opportunity to go to everyone of the operating sites, and as well as had detailed discussions around all the projects and we continue to go through - I look forward to and Tom does as well to get around to visit all the sites in due course but that won't happen here over the next couple of weeks. That'll be over the next several months as we work through that process.

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

Thank you for joining our call this morning. We're pleased with our performance in 2018. But as always, our commitment is to take it to the next level by delivering steady gold production at competitive costs, continuing to invest in the next generation of mines, leaders, and technology; and staying ahead 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 is now concluded. Thank you for attending today's presentation. You may now disconnect.