Newmont Mining Corporation (NEM)

NEM 
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Newmont Mining Corporation (NEM)

Q1 2013 Earnings Call

April 30, 2013 10:00 AM ET

Executives

John Seaberg – VP, IR

Gary Goldberg – President and CEO

Russell Ball – EVP and CFO

Randy Engel – Strategic Development

Tom Kerr – SVP, North America

Analysts

Jorge Beristain – Deutsche Bank

Michael Dudas – Sterne Agee

David Haughton – BMO

Beritash Mithra – Morgan Stanley

Patrick Chidley – HSBC

Stephen Walker – RBC Capital Markets

Anita Sony – Credit Suisse

Presentation

Operator

Good morning and welcome to the Newmont Mining First Quarter 2013 Earnings Conference Call. (Operator Instructions) I’d now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Thank you, sir. You may begin.

John Seaberg

Thank you, operator, and good morning, everyone. Welcome to Newmont’s First Quarter 2013 Earnings Conference Call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer and other members of our executive leadership team who will be available to answer questions at the end of the call.

Turning to Slide 2, as always, I’d like to refer you to our cautionary statement as we will be discussing forward-looking information which is subject to a number of risks as further described in our SEC filings which can be found on our website at newmont.com.

And now I’ll turn the call over to Gary Goldberg.

Gary Goldberg

Thanks, John, and good morning, everyone. I’d like to start with safety, our most important value. For the second straight quarter Newmont kept its injury frequency rate lower than 0.5 injuries per 200,000 hours worked. This constitutes sector-leading performance.

There’s some notable successes driving this outcome. Our teams at Phoenix and Waihi set new records at both sites by exceeding 200 days working without an injury and our team in Africa is leading the pack with our lowest reportable injury rate. I’ll take this opportunity to acknowledge and thank our employees and contractors for these results as we continue on our journey toward zero harm.

Turning to Slide 4, our primary goal is to build a more resilient business. This is more important than ever given the increasing volatility in the gold sector. To reach this goal we will continue to focus on profitable production, sustainable cost improvements, better mining fundamentals and building only the best projects. This allows us to maintain our strong balance sheet. Our gold price link dividend and ultimately strong returns to shareholders.

Moving to Slide 5, lower production impacted our financial results for the first quarter of the year. We are working to turn that performance around on two fronts. First, continuing our sustainable cost and efficiency improvements, and second, building the foundation for significant free cash flow improvements in 2014 and 2015 with a start of a team in Ghana and the transition to higher grade ore at Batu Hijau in Indonesia.

Last week we announced that our board approved the second quarter gold price link dividend of $0.35 per share. Our dividend is stable compared with the first quarter of 2012 and represents a payout of just under half of our adjusted net income.

On Slide 6, you’ll see that lower production was the most significant contributor to lower adjusted net income. Weaker average realized gold and copper pricing also played a role. These factors are partially offset by lower advance projects and exploration spending.

On to Slide 7, first quarter gold production was impacted by lower ore grade and recovery primarily in North America. Nonetheless we remain on track to meet full year guidance of 4.8 million to 5.1 million ounces by year end. In particular we expect a stronger second half for the year led by improved mill throughput in Nevada and new production at Akyem in Ghana. Copper production in the first quarter was in line with our plans and we are maintaining our annual outlook of 150 million to 170 million pounds.

On Slide 8 you can see first quarter production by region. In Nevada we are addressing the grade and recovery issues. In Australia and New Zealand we are meeting production targets. In South America we had lower mill grade at Yanacocha but are tracking ahead of full year guidance. In Africa lower mill grade has affected production for the first quarter. At Akyem we still remain on budget and schedule to reach first production later this year. And in Indonesia we’re on course for their stripping program and will be mining higher grade ore in late 2014.

On to Slide 9, sustaining and development capital is down 31% compared to the first quarter of 2012, and lower in every region. Highlights include completion of Immigrant in Nevada deferral of the Tanamai project in Australia until project economics improve, reduced spending on Conga as we progress our Water First Program.

Turning to Slide 10, you will see that lower production volume accounted for nearly three quarters of the increase in CAS from Q1 2012. Other factors included higher input costs which were basically labor, energy and the new carbon packs in Australia.

Moving to Slide 11. We are building on the approximately $130 million in cost reductions we achieved last year with $217 million in lower spending compared to Q1 2012. These savings are realized in our projects and exploration sustaining capital and other expense areas.

All in sustaining costs for the quarter are tracking below the midpoint of guidance for the year. This is a great start but we have more to do. We are also addressing operating costs through our Full Potential Program, which was launched at Boddington earlier this year. This program is underway and it will significantly improve our planning, mining, processing and maintenance efficiencies.

Read the rest of this transcript for free on seekingalpha.com