Newmont Corporation (NEM) Q2 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to Newmont's Second Quarter 2021 Earnings Call. All participants will be in listen-only mode. [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 perspective Golden Triangle District of British Columbia. And last week, we announced the approval of 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 0.2 times, 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 two important ESG focused reports that touch every part of our business and 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 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 sectors recognized sustainability leader. Newmont's strong ESG performance creates long-term value for our stakeholders and drives 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 two joint ventures, we have nine world-class assets, each of which delivers more than 500,000 gold equivalent ounces per year at all-in sustaining costs of less than $900 per ounce and with a mine life exceeding 10 years. And we believe that way we choose to operate matters. It is 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 rankings ranges, but 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 produced steady gold production of more than 6 million ounces per year through until at least 2030, balanced across each of our four regions. This profile is further enhanced by the production of more than 1 million gold equivalent ounces from silver, lead and zinc at Penasquito 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 the steady production and cash flow well into the 2040s. We continued to advance our mid-term project, including Yanacocha Sulfides, where we’re preparing for a full funds approval in December of this year with a multi-decade mine life that provides exposure to gold, copper and silver. The sulfides 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 at a long life and low-cost production 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 that 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 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 four open pit mines and the construction of a standalone mill to produce approximately 300,000 ounces per year at very attractive all-in 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 lifecycle. We will work to correct 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 two 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 their 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 until at least the end of next year. We are currently working on our 2022 business plan, ensuring that the high cost of inflation and the application of a wide ranging controls and safety protocols are built into our assumptions going forward. However despite the impacts from COVID, we remain in line with our guidance ranges. As a reminder, our guidance ranges a plus or minus 5% percent from the midpoints we published in December 2020. We are on track to achieve the midpoint to low end for production and the midpoint to high input 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 achieved 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 in supporting the 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, Akyem delivered another strong performance during the second quarter as higher ore grades from changes in sequencing largely offset lower tons mined due to challenges with shovel availability. The state 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 mail maintenance and power outages. At Subika we continued 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 three and four positioning Ahafo to deliver a strong finish to 2021. And after finalizing the permitting process with the Canadian 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 an all critical path equipment orders have been placed in support of initial construction activities to ensure a timely execution of the project. The development of this prolific ore body will leverage our proven operating model with the project and resulting Maine receiving functional and technical support from our existing world-class Ahafo sales 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 and care and maintenance beginning on June the 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 decision this, 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 homes impact for the remainder of the year as a result of the care and maintenance period. We began ramping up out of care maintenance on July the 13th. And today Tanami mine is now operating at 90%. And despite the impacts from COVID, we continue to advance Tanami mine expansion too. 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 process 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 three. 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 continued to execute on our plan 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 continued to realize higher than planned tons mined and improve recoveries from the pyrite leach 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 an 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 five days to reduce the spread of the virus resulting in mill stoppages, reduced underground development and more personnel at site in late April and the 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. Éléonore delivered another strong quarter as development rates and mill throughput continued to improve over the prior quarter and prior year, offsetting the impact of law personnel that say due to COVID. In addition the site continues to increase the use of teleremote mucking equipment which have helped to increase tons mined and drive important improvements to safety and efficiency. Éléonore will continue to be a solid contributor during 2021 as we expect to sustain consistent production from stable tons mined and process 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 a site focused on processing harder, higher grade ore. In the second half of the year, Merian will continue to transition from softer satellite to harder raw 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 During the second quarter Cerro Negro delivered higher ore grades and despite reduced personnel from COVID the site continues to increase or tons mined and processed each quarter. Due to the pandemic Cerro Negro has delivered low development rates over the past year limiting access to higher 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 the 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 pads in addition to an increase in grade and Quecher Main golden pit. As we look towards the second half of the year Yanacocha will focus on optimal ore placement on the leach pads as the site just transition to which reach 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 with over $3 billion in revenue an increase of $700 million from the prior year quarter driven by higher sales volumes in 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% from 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 a 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 to 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've reported second quarter adjusted net income of $0.83 per diluted share an increase of almost a 160% or $0.51 over the prior year quarter. As a reminder due to our status as a US 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 an 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 five 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, continued 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 $1 billion share buyback program and maintaining a strong balance sheet with a net-debt-to-EBITDA ratio of 0.2 times, 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 and 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.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Tyler Langton of JPMorgan. Please go ahead.

Yeah, thanks. And good morning sort of Tom, Robin, Nancy. 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 risks to production?

Yes. Thanks, Tyler. I’ll pass it across to Rob that we are certainly continuing to manage the virus across just about every one of our locations. But Rob, maybe you give a bit of color as you flip around the globe.

Yes. Thanks, Tyler. And if I kind of start off in Australia that obviously the Tanami mine that we had that first positive case and you get two weeks completely shut down. And it takes a little while to ramp up. And Tanami mine has no backup but about 90%. So, it's two 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 quarantining. 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 to South America is that by far and away that's where we've had the biggest impacts certainly set in agro. 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 that 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 muscle weight that we had that week in April and May where we had to go into care and maintenance, so that that had a significant impact. But again, as each one of the Canadian stays, their level of absenteeism has sometimes been three or four times 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 it that the saints 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 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. And that kind of my example, it was midnight on a Friday night that positive case came through within two hours that team had made the decision to put their operation in the care and maintenance, have 750 people back in their rooms quarantined and everything safely buttoned up at the mine site and had notified 900 people who had flown home in the previous 48 hours to ensure that they were going into home quarantine and doing the appropriate testing. And we will continue to make those decisions and courageous decisions to ensure health and safety about all else. 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. And I’m just trying to get a sense that the current CapEx guide is sort of what level of input cost 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 could potentially have on the CapEx and operating cost here?

Yes. Thanks, Tyler. We certainly and that the slight bump in the capital cost from what we've been guarding previously was looking at current prices 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 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 locking contracts and pricing. So it takes into account on a capital cost of the considerations around current inflation pressures in COVID. And from an operating sense to a couple of years out before that operation comes online, we do expect these inflationary pressures to be cyclical and may well be thrown out the other side of that cycle by the time Ahafo North is up and running and producing.

Great. That makes sense. That’s it for me. Thanks so much.

Thanks, Tyler.

The next question comes from Fahad Tariq of Credit Suisse. Please go ahead.

Hi, good morning. Just building on the last question about the COVID impacts. 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 these COVID issues predominantly in South America and Australia? Thanks.

Thanks, Fahad, and good morning. The - it’s our needle moving sites really drive here our portfolio movements on a hockey-to-hockey 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 - and I was down at Boddington about three weeks ago, watching autonomous haulage in action and spending some time in the south pit and so if I lay back 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 are really important. We had that discipline and focus to get to that high-grade ore. So Boddington is a great contributor. 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 high grade starts 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, it’s the underground, Subika underground sublevel shrinkage comes on, but also as we get into some high grade ore out of the open pit. So flat for Peñasquito, stronger second half for Boddington and Ahafo and they are the operations that moved the needle.

Okay, that's really clear. Thanks. 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 to the 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? Thanks.

We're very excited about Yanacocha Sulfides, we're very excited about the long life potential of sulfide so sulfide project is built off and the economics have built off the first wave, what we call the first wave which is another live at Yanacocha and third a pit chucky culture underground but there is a second wave and the third wave and the 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 Yanacocha. We see Yanacocha as a cornerstone asset and a key district that we want to be in for a very long time and its gold and copper which we're very excited about. So we see 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 upgrading asset in a prolific district in around Yanacocha that opportunity presented and we could pick up more of that asset forfeiture value we would be interested.

The next question comes from Josh Wolfson of RBC. Please go ahead.

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. Please go ahead.

Tom I'm just trying to understand the Boddington commentary because Rob seemed to imply it you wouldn't get to get as this much high-grade in the second half as you just perhaps expected but you still expect production to be up strongly in the year and after the year. Trying to reconcile those two comments?

Thanks Greg. So we're moving down into the higher grades 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 and obviously feeding into the middle. So you are going to see - we will see a trend of higher production in the second half as you do that. It's really going to be that mind sequence at 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 six months we get that high-grade material and how much is coming off a medium grade stockpile into a mill that is absolutely humming. So it’s - it will progressively increase and it's just how much that high-grade we can creep into 2021 versus tipping into 2022. And that's what we're very focused on in terms of making sure we stepped 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 - and working very closely with the supplier that machine to make sure we get that reliability and maximize the amount of high-grade ore we get did 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 as well that's what I think I'm hearing?

Potentially there's a risk that some tips into the early part of 2021.

Yes.

But we're - we’ve - we’re still at six months in front of us Greg so we're still very much focused on Newmont and making sure we manage that page turn over very, very carefully, you know that said, I was down there for a period of time about three weeks ago spending, I’ve spent a fair bit of time calming over that shovel. And in that pit with a mining team just understanding how they're working their way through that.

And some of your comments about inflationary pressures in the second half of the year into 2022, I think that's a bit of a change from perhaps what you were saying at the beginning of the year where 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, as we sit, as we've been sitting there right in the middle of our business planning process now. So as we, as a global supply chain team then starts to look at some of those, those trends, we are seeing across, I mean 50% of our case 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, 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, you've got our cost base. And we are saying in terms of steel and fuel and oils as we pull together out, our plans work with us various suppliers that uptick and it bundled all together, aggregate it all together, we're seeing the order of about that 5%, or 5%. We're seeing it not structural. We are seeing it is cyclical. So what we are seeing that buying through and considering that that will play our, 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 but we are leaning in too hard to look for we can offset some of those headwinds. But we certainly are seeing that inflation trend. And of course it does set us up nicely for some pretty positive gold profit outlook as we're seeing that. But we're pulling together the detailed analysis for our business plan that we are seeing as trends flow through.

Okay. So likely upward pressure on 2022 to cost guidance?

That’s right, Greg. And as we see the midstream in our planning process, looking at about that around about that 5% aggregated number.

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

I guess I'll just to follow on Greg's question on inflation. So you’re kind of warning that you're expecting to see inflation on the operating cost side. And it sounds like maybe on the capital cost side too where 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 expense or 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 several wiggle room built into it that the inflation is just sort of filling 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.

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 high-end plus 5%. So, we're going to track some way within it, so we as we stated I am looking at some of those inflationary pressures, so that we can and will accommodate our costs this year. Within that, certainly as we look at 2022 and now and update our long-term guidance in December, we're certainly saying that cost pressure I was just talking with Greg about. And on the development capital side, we have built with 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 of those projects. We are continuing to de-risk Yanacocha Sulfides, where we're on critical path. We are getting - surely we get factory slots and prices 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 a full funds decision, so that when they come out with a hopefully full funds decision in December that what we've gone to is accommodating some of those capital cost inflationary pressures. And then on the development capital side as we guide outside left the inflationary pressures more the sequence of those projects as you've got a different COVID impacts. How is the spend profile looking for a half a north and Yanacocha Sulfides then a Tanami is more going to be the influence of our development capital number in 2022 versus 2023 versus 2024.

All right. That makes a lot of sense. Thank you. Thank you for clarifying that. Maybe I'll just follow-up with the point on Yanacocha Sulfides and Tom I know you've been asked this 100 times probably already, but with the changes improve, with the recent election and it looks like the formal signing into Castillo. Is there anything 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 in the declaration of President, Castillo. Next step for us will be to see how he assembles his cabinet and then make - 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 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 six months with some of those key leaders in government.

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

Good morning, everyone, and thank you for taking my questions. Just maybe coming up to Rob or Tom, I just wanted to follow back on 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 is any aspects of labor that you’re seeing a much higher I mean inflationary pressures on this underground miners, I’m just trying to understand if there is pockets of that that’s occurring that you’re seeing?

Yes and good morning, Tanya. Thank you for the question. We are certainly seeing in Canada high demand for creek technical staff. A number of projects around the country and then say you starting to see that mobility of folks moving on to different opportunities. And we're seeing that that impact in terms of operators and maintainers for the mine, again in particularly when you got the fly in and fly out operations that that ease being able to switch from one plant to another. So we are seeing those pressures in a 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 or as the expansions those iron ore 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 closing borders. And so there's a real push on to the employing out of the state, so that you've got that reliability you stop 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 full now with the delta strain of the virus. One of the things that we’re doing which is going to significantly offset the pressure on operators in particular is the implementation of autonomous haulage at Boddington. If you think about our fleet of 36 trucks across four ships and then the additional numbers of people you have to cover a ship breaks manually and those sorts of things. You're talking of the order of the 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 labor pressure for operators and maintainers. But it's lots of projects in both of those countries and limited supply and by professionals and operators in maintenance. Robert do you have anything you could add?

I think the only thing that I would add Tom is Tanya that it also applies to contractors where maintenance shuts that there is such demand competing priorities. And as Tom said if you're trying to do a major shift 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 do the fair 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 two toughest in the autos markets.

And then maybe if I can get a bit of clarity on material energy. I understand but just some material are you just seeing it in steel is it cement is it cyanide? Maybe just a little bit more clarity exactly in the materials side?

Yes it predominantly is steel that we're seeing it come through on the materials side. And what we'd also tuck-in underneath materials and when we think about that element of our so as 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 two materials areas that we're seeing that pressure.

And then just on two 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 geo technical issue is in the pit?

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

Yes. Tanya it's quite a seasonal issue there as well is with Australia. And 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 for a piece of information this month of July has been some of the record rainfalls in Australia. So we've just had to stand off the walls a little bit further. And that causes a slight slowdown in the charts.

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

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’s in regular, Rob and Greg would talk every week, for every couple of weeks. So it's the mill feeding the roster and it's the slippery on the mill that's had the fire and is being replaced. And Rob, you might give a bit of color and my understanding of the impact from an NGM perspective.

Yes. Certainly, Tanya. It’s obviously, it has been a major failure when down end of May. We're expecting it to come up sometime 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 were going through that particular mill. But in terms of the impact when we look at the roster and also some of the challenges that are occurring at Turquoise Ridge we're looking at for Newmont about 40,000 ounce impact.

Okay. That's helpful.

Sorry Tanya.

That and Q3 for your share.

For the second half - for rest of the year.

For the rest of the year.

Rest of the year. Okay and...

Rob and I are also hitting up to across to Alcoa on Sunday's 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 and just on the status of the illegal miners that are going on in Ghana maybe what's happening there?

Yes, Rob or Steve. We’ve got Steve Gottesfeld here as well. So Rob or Steve why don't you take that one?

Okay. I'll kick off, Steve. And Tanya, one of the key things to see is it’s year-to-date, there has actually been quite a remarkable turnaround there in terms of actually onsite. 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 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 site is actually going quite well with a clear partnership with the Guinean authorities. There has obviously been some issues offsite and perhaps Steve if you want to just talk about that.

Sure. So, I guess I would just add that as Rob is saying we obviously rely on the government authority to provide security as well as having our own security. As you know, we're committed to the voluntary principles on security and human rights. Those trainings are always ongoing. In this particular case, there were several dozen individuals who clearly were intent on conducting illegal mining activities and the government needed to engage in protective 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 after all are the owners of the land. And we believe that the steps been taken will calm the situation now. But we're watching it very carefully.

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

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

Yes, one of the things to monitor without cost guidance as we guided $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 - it's factoring in that $20 to $30 assuming gold price stays at current levels will continue to flow through and 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 oh sorry moving into 2022 thinking about the guidance will be given on costs. So if I'm going to summarize all the commentary? I think you're basically saying development costs are encapsulated already in the two guides you've given for the two 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 kinds of input and labor escalation. Does it include COVID impacts as well?

Yes, yes so we are - and we are building our plants now [native] but we are incorporating. We do expect those COVID protocols and costs to continue into next year. So we are building assumptions around those into our cost as we build our plant and that when I talk that 3% to 5% that's including any provisions we might for them.

Okay. And then as you mentioned then at $1,200 gold so, is there any thought to increasing that, that number for next year so that when we - look at this chart next year with those royalties that are captured with a higher gold price?

We certainly, 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 and actually whether we maintain an assumption on a $1,200 revenue gold price or whether we were to, try to do some other numbers. So, we're considering that as we, as we pull together our numbers. Nancy, did 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 comment that Tom made on the taxes and royalties about that price is 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. Please go ahead.

Thanks for taking my questions. I think 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 moneys 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 sulphide 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 question. Yes I think, as you know mining is a pillar and a core really a cornerstone for the Peruvian economy. And we've been there for well over three decades now. And our relationship with [Cajamarca] has really improved over the years. Obviously - Yanacocha is 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 funds 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 open 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 around 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 our value. Certainly we'd 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 in the economic contribution that's occurring.

All right no thanks for that. And one other one just mentioning how freight is weighing 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 for 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 after your families. Thanks everyone.

The conference is now concluded. Thank you for attending today's presentation. And you may now disconnect.