Q2 2019 Earnings Call
Good morning, welcome to Newmont's Gold Corp's second quarter 2019 earnings call.
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After todays presentation, there will be an opportunity to ask questions.
Please note that this event is being recorded.
I would now like to turn the conference over to Jessica Largent, Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to Newmont Gold Corp's second quarter 2019 earnings Conference call.
Joining us on the call today are Gary Goldberg, Chief Executive Officer, Tom Palmer, President and Nancy BZ, Chief Financial 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 two.
Please take a moment to review the cautionary statement shown here and refer to our FCC filings, which can be found on our website at newmont Goldcorp Dot com.
And now I'll turn it over to Gary on slide three.
Thanks, Jess and thank you for joining our call.
We delivered strong performance in the second quarter and continued our work to establish newmont Goldcorp is the world's leading gold business.
Highlights for the quarter included closing the deal to acquire Goldcorp with the overwhelming support of our shareholders.
Making steady progress on integrating assets and aligning teams with our proven strategy.
Completing an historic joint venture with Barrick to create the worlds largest gold producing complex.
And meeting our ongoing commitment to deliver leading operational financial and sustainability performance turning to the details on slide four.
The first pillar of our strategy is to deliver superior operational execution.
In the second quarter, we produced 1.6 million ounces of gold and delivered all in sustaining cost of $1016 per ounce.
And continued to improve costs and efficiencies across the portfolio.
We're on track to achieve a run rate of $365 million in annual improvements from the Goldcorp acquisition by early 2021.
And we launched our full potential continuous improvement program at Penasquito and Cerro <expletive> . This program has delivered more than $2 billion and improvements since 2013.
The second pillar of our strategy is to sustain a global portfolio of long life assets.
During the second quarter, we approve the wants to lay back to extend the life at Ahafo was open pit mine.
We supported the completion of the Nevada gold mines joint venture.
And we continued to advance profitable projects, including the Ahafo mill expansion catcher, Maine, and Borden, all of which will reach commercial production later this year.
The third pillar of our strategy is to lead the gold sector and profitability and responsibility.
In the second quarter, we returned $590 million in dividends to our shareholders.
Maintained a strong balance sheet with an investment grade credit rating and nearly $5 billion of liquidity.
And we were recognized as one of the top companies in the world for our leading social environmental and governance performance.
This performance starts with running safe operations, turning to slide five.
Well, they're combined safety performance improved in the second quarter, we remain focused on achieving zero harm across our portfolio.
That focus includes reporting and sharing significant events that hold the potential to impact safety.
And embedding our fatality risk management program to test the controls we have in place to prevent accidents and injuries.
Over the last six months, we've also been driving efforts to eliminate life maintenance work as another effective way to protect our people from injuries.
We were honored to be recognized as one of the worlds, leading corporate citizens by corporate responsibility magazine and the only mining company to make the list for our performance.
This recognition is a tribute to the commitment our teams bring to leading sustainability performance and a key measure of how well we run our business.
Turning to a look at our global portfolio on slide six.
Our operations are based in four regions and managed under our proven operating model taken together Newmont Goldcorp offers investors an unparalleled portfolio of mines projects and reserves in favorable jurisdictions.
In fact, 90% of our reserves are based in the Americas and Australia.
Sustainable gold production targeting between six and 7 million ounces per year with another one and a half a billion dollars of annual revenue from copper zinc lead and silver production.
And the financial flexibility needed to continue investing in profitable growth and delivering industry leading dividend.
Finally, we offer strong leadership and a wealth of technical expertise to make the most of these assets.
I visited Eleanor and Porcupine last week and I was pleased to see the progress of the teams are making to align and integrate these operations.
And the ongoing work by the combined teams to make the Nevada gold mines joint venture a success with that I will turn it over to Tom on slide seven to discuss our operational performance and recent integration work.
Thanks, Gary.
Before reviewing our operational performance and integration work I'd like to take a moment and welcome Rebecca Thompson and new Chief operating officer.
Who you will hear from next quarter.
Over the past 25 years, Rob is to leave it step change improvements in safety productivity Steinem and sustainability in the mining sector.
We are excited to have Robin board as he brings a demonstrated commitment to building strong safety cultures and to leading any pairing teams to achieve meaningful business results.
With his capability and experience Rubs addition to add leadership team will help to drive the delivery of value we have identified through our combination with gokul.
Now beginning with a review of our regional performance on slide eight.
The North American operations were impacted but near term challenges in the second quarter.
But performance is expected to improve in the second half as we work to fully integrate the Gulf coast assets and set them up for sustainable future success.
At Penasquito operations side to ramp back up in June and concentrate inventories are almost back to know.
During the shutdown the team brought forward maintenance on various plant and equipment.
The remainder of 2019 inch 2020 grades are expected to steadily improve as we complete the stripping campaign to the mine an ESCO Pete.
And we also launched a full potential program at that operation now touch a bit more on that later.
On June 17, we began good fights dialogue with the trucking company and the Syndros community.
And just last week the team has to decision on saw it.
The stake holders were able to see first hand, the focus we have on environmental compliance water efficiency, social development and long term community water plans and more.
Most of what the rehab at the conveyor ramp is around 70% complete.
They can be Regrut secondary egress has been successfully established allowing us to recommence, but development activities and work on the materials handling project earlier this month.
The focus for the remainder of 2019 will be on replacing the conveyor system and using this period as an opportunity to get a hit on development work.
And as you know we have begun accessing high grade in the horizon five zone.
And preparations are underway to launch full potential in the fourth quarter.
We also continue to advance materials handling project to improve productivity from low levels of the mine.
At Porcupine Borden project remains on schedule to reach commercial production in the fourth quarter.
And Red Lake production cushion to was ramping up in the second quarter.
However in early July we proactively pools, the underground operations in order to strengthen our controls following an in depth review of an a storage underground area.
[noise] Ashland to ground operations rigid and a few days later following the implementation of additional controls.
And over the course of this quarter, we will be installing some further control measures and expect to return to full underground operations during Q4.
Turning to see NV, we delivered steady production during the quarter and assign to toll milling agreement with Nevada gold mines to continue prices in concentrate in Nevada.
In the second quarter and about our operations performed as planned.
With Kolon safely completing its annual shot on mill six.
And on July 1st we closed the Nevada joint venture and Barrick is shouldn't operatorship of Nevada Gold mines.
We look forward to working together and supporting the joint ventures efforts to unlock significant value over the years ahead.
Turning to South America on slide nine.
[noise] Yanacocha delivered another solid quarter with continued high grades and that the part of West IP.
And drawdown of liquidity Leach pad.
And at Merian continued productivity improvements helped offset seasonal wet weather.
At Cerro <expletive> .
Second quarter performance was in line with expectations.
And we anticipate a stronger second half as we reach high grades from the Urika Mariana Norte tight.
[noise] relationship we launched full potential early this month with a focus on improving development and mining rights maximizing recoveries and applying our asset management methodologies at that operation.
Looking forward fit your mind continues on schedule with commercial production expected in the fourth quarter.
Turning to Australia on slide 10.
Testimony delivered another solid performance coming of high grades in the first quarter.
And we are starting to see the cost benefits from the transition to natural gas fired power.
Boddington continues to progress the stripping campaign in the south pit.
And expects to reach high grades in Q4.
We recently advanced autonomous hole that study.
With the potential to reach a full funds decision later this year.
If approved the project is expected to improve costs and Bonnie productivity, but converting the fleet of 39 hole trucks to Thomas operation using the Cat command system.
[noise] Casey Jim Geotechnical remediation work on the east will have to fit Mr. Pete is ongoing.
We are starting to see production for the Morrison starter pit and expect to reach high grades in the second half.
And 10 of my expansion to continue advancing towards a full funds decision in the second half engineering works are ongoing.
And shaft sinking has progressed beyond 150 meters.
Turning to Africa on Slide 11.
[noise] chain again delivered strong quarterly production on the back of high grades a new full potential initiatives associated with optimizing branding and improving recoveries.
At Ahafo, we continue to benefit from high grades in but is this a big open pit and underground.
We recently approved funding for further light back so the once the pit.
While we anticipate first gold from these light backs in the fourth quarter of this year.
The majority of the benefits flow from 2024 to 2029.
These laybacks extend the loss of Ahafo surface mines by another four years.
And the Ahafo mill expansion is nearing completion.
With commissioning commissioning expected to start next month and commercial production in the fourth quarter.
Keeping us on course for a record year in Africa.
Following a review of geotechnical assumptions at the Subika underground mine, we are assessing mining methods for the low levels of that mine.
As we conduct this review we are mining more laterally and as a consequence have reduced at 2019 outlook by approximately 40000 ounces.
Looking forward at Ahafo, North we continue to work through the permitting process.
Engaging with the relevant government agencies and building upon our relationships with traditional leaders and local communities.
So putting it altogether.
We delivered 1.6 million ounces and all in sustaining costs of approximately a thousand dollars per ounce in the second quarter.
With that global and balanced portfolio, allowing us to overcome headwinds at select sites with continued solid execution across the rest of our operations.
Turning to review of our operational outlook on slide 12.
No 2019 guidance includes the full year, the new remote operations.
Including a full year al about assaults.
And the partial year for the former gold corporations from April 18 to December 31.
[noise] outlook has been updated to include the impacts from the blockade of Penasquito, the kumbaya far muscle what the installation of additional site to controls at Red Lake.
And the impacts from the slip in the Goldcorp pit at Carlin in late 2019.
2019 is second half weighted as you ramp up the Ahafo mill expansion and important projects.
And rich high grades at Cerro <expletive> Penasquito and Eleonore.
Sustaining capital of $995 million includes investments in Thailand storage facilities expansions at Ahafo and Penasquito.
They left to Leach pad expansion at C.C. NV.
In addition to infrastructure equipment and ongoing underground mine development throughout the portfolio.
Development capital of $575 million include spend on Ahafo mill expansion kitchen mine Borden and conveyor remediation works at Musselwhite.
In summary, we expect to deliver 6.5 million ounces of gold and all in sustaining cost of $975 per ounce.
First partial year as a combined company.
This operational outlook does not include any of the benefits that will flow from that full potential work at Penasquito and Cerro <expletive> .
Well from supply chain improvements, where we are actively progressing work.
Turning to slide 13 for looked into it early successes.
We have made excellent progress in the first 90 days of integration.
On the GE and I front, we recently completed our organizational design work to re size the Vancouver office from a corporate headquarters to a regional office.
This work has already captured $40 million per annum in labor savings to date.
We have realized a further $10 million per annum in Nonlabor, Jay nice synergies through the consolidation of insurance and benefit programs real estate another quick wins.
We have commenced the next phase of this work, which shifted the focus from Vancouver to tie the chip location across the operating businesses.
Turning to our supply chain work.
Newmont's experienced supply chain team is actively chasing value across several fronts.
Quick wins are being achieved through the extension of best pricing and rebates.
And we're also leveraging our increased scale and volume to seek improvements on some of the input costs.
A full potential program is well underway at Penasquito recently kicked off at Cerro <expletive> and we're preparing to launch a daily in all in the fourth quarter.
At Penasquito full potential began in early June and we have a key subject matter experts on the ground working with the sought team focused on opportunities in the areas of mining processing asset management, Jay and I and external spend.
Another example of applying our technical expertise to turn these formal gokul baskets round is our strategic resource development program.
This program lays the groundwork for future business plans, but testing an extensive set of mine plan options across a wide range of interrelated variables.
The output from this work in shoes that we are pursuing the optimal development and value for our operations.
At Musselwhite strategic resource team is working with the sought to understand the entire value chain and review critical tried all seen physicals financials and risk.
To develop the best value for that operation.
In summary, a structured approach to delivering value has us well on our way to achieve the cash flow improvements of $365 million per annum.
We expect 40% of the improvements to be realized this year.
Ramping up to 80% Nics cheap and a 100% by 2021.
Looking further ahead at our project pipeline on slide 14.
Another key value proposition in a combination with goldcorp is the industry leading project pipeline.
Leveraging our project delivery track record.
It provides the opportunity to establish a foundation for steady production and cash flow for decades to come.
This pipeline gives us significant flexibility and we will continue to advance only those projects that meet our minimum hurdle rate of 15% at a 1200 dollar gold price.
As previously mentioned, we recently approved the ones who lybeck.
And this project is now shown in execution.
Along with musselwhite materials handling and the three projects, we expect to complete in the fourth quarter of this year.
Half a mill expansion kitchen mine and Boston.
It's also worth noting that we shifted the coffee project from definitive feasibility to Prefeasibility.
As we take a step back to perform further exploration confirmed the resource advance permitting activities and improve our understanding of the asset.
That's part of the integration and annual planning work, we will continue to evaluate all projects through our rigorous and disciplined investments system.
I look forward to providing updates on our project portfolio as well as our optimization work on the six former Gokul baskets.
To deliver long term value as we move ahead.
With that I'll hand, it over to Nancy on Slide 15.
Thanks, Tom.
Turning to slide 16 for the financial highlights.
Before we jump in it's important to note that results reflect the performance of Goldcorp assets from April 18th until June Thirtyth.
In the second quarter, we delivered revenue of $2.3 billion, which increased 36% over the prior year quarter with the additional sales from goldcorp assets and higher realized gold prices.
Adjusted net income of $92 million or 12 cents per diluted share.
And adjusted EBITDA of $679 million, a 25% increase over the prior year quarter.
Cash from continuing operations was $301 million, a decrease of 25% driven by lower net income and higher accounts receivable at boddington at Penasquito.
With Penasquito concentrate shipments we commencing in mid June and port congestion at boddington that delayed shipments near quarter end.
Outstanding concentrate receivables at these two operations was more than $150 million, which we expect to collect in the third quarter.
Those movements also contributed to free cash flow decreased approximately $220 million over the prior year quarter, along with higher investments and development projects.
We have collected 45 million of insurance proceeds related to the conveyor fire at musselwhite of which $14 million was recorded as an offset to cost applicable to sales in the second quarter.
As you will see in our detailed results there are specific accounting and policy differences for the newly reported goldcorp assets, including a reset in the basis of assets and liabilities at fair value.
And there are changes to reporting for differences between I, FRS and U.S. GAAP and the adoption of new mine accounting policies.
Some of these items include differences and the classification of certain investments as sustaining or development capital.
The exclusion of resources and the calculation of depreciation expense.
And the impact on cost applicable to sales without deferred stripping costs.
Other notable differences include co product accounting at Penasquito.
Changes to the accounting for the mine silver stream contract and inclusion of Cerro <expletive> as Argentinian export tax in our AI assay calculations.
Turning to slide 17 for review of earnings per share in more detail.
Second quarter GAAP net income from continuing operations was $1 million primary adjustments included 16 cents comprised of 14 cents related to transaction and integration costs from the Goldcorp acquisition, such as severance payments legal and banking fees and consulting costs and two cents related to the Nevada joint venture transaction, including costs related to defense.
Four cents related to reclamation and remediation remediation charges at legacy Newmont site.
Five cents related to a change in the fair value of equity investments.
And four cents related to gains from the sale of exploration properties in North America.
Taking these adjustments into account we reported adjusted net income of 12 cents per diluted share.
I wanted to take a moment to thank the newmont Goldcorp finance team and all the work they've accomplished to support the successful integration of the businesses and coordination with Barrick to successfully transfer ownership of our Nevada assets to the joint venture.
As a reminder, our results for the third quarter will proportionately consolidate newmont gold corp's ownership interest in Nevada gold mines per the terms of the joint venture agreement.
We will present these results as a separate segment in our financial statements, including the various elements of the piano for disclosure purposes.
Turning now to slide 18.
We remain well positioned to execute our capital priorities.
Including maintaining an investment grade balance sheet.
Investing in the next generation of mines to improve margins and build a stronger reserve base and return cash to shareholders.
You might Goldcorp has one of the strongest balance sheet in the gold sector.
Supported by a cash balance of $1.8 billion, even after paying off $1.25 billion of outstanding Goldcorp debt at closing and returning approximately $590 million to shareholders in the second quarter.
After the completion of several key financing activities in April , including a reset of our five year 3 billion dollar revolving credit facility and a successful exchange at Goldcorp notes.
We maintain financial flexibility with a net debt to adjusted EBITDA ratio of 1.5 times.
We also demonstrated our continued commitment to returns through a special dividend of 88 cents per share and a common dividend of 14 cents per share.
Wrapping up with our 2019 corporate outlook on slide 19.
We continue to invest in our future to secure the long term stability of our business.
For 2019, our support cost outlook is $325 million, which includes a portion of synergies from the Goldcorp combination, but also contemplates managing the Nevada operations from our Alco Regional office through June Thirtyth.
We are on track to deliver an annualized run rate of $85 million in DNA savings for 2020.
Our interest expense is expected to be $280 million from our new debt profile.
And our depreciation and amortization outlook is just over $2 billion.
Investment in exploration and advanced project is expected to be $450 million with near mine and Greenfield exploration occurring across all regions and ongoing investments and advanced projects as we progress the next phase of future growth.
Finally, our consolidated adjusted tax rate is forecast to be in a range of 34% to 39% using a 1200 dollar gold price.
Going forward you might goldcorp is well positioned to continue continue a trajectory of industry, leading financial performance by executing our capital priorities and staying focused on long term value creation.
And now I'll hand, it to Gary to wrap up.
Thanks, Nancy turning to slide 21.
Newmont Goldcorp delivered a strong first half in 2019, we are well positioned to build on that performance in the second half and for decades to come.
We will continue to focus on generating long term value for our shareholders by executing our strategy, which is to deliver superior operational excellence by focusing on safety and a culture of continuous improvement.
Sustain a global portfolio of long life assets by investing in the next generation of mines technology and leaders across our business.
And to lead the gold sector in profitability and responsibility by maintaining high standards and living up to expectations of how a leading business should operate.
I'll end by saying thank you.
To our team.
And to our investors for your support.
It has been an honor to lead Newmont Goldcorp.
I'm proud of what we've accomplished together over the last seven years and I'm excited about the future for the business.
I have great confidence and Tom and his new leadership team as he takes over the reins as CEO on October Onest.
And I have great confidence in this team's ability to build on a strong foundation in advanced Newmont Goldcorp position as the worlds leading gold company.
Thank you for your time and 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.
You asked a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from John Bridges of Jpmorgan. Please go ahead.
Thanks.
Good morning, Gary Nancy a Tom.
And it's been great working with you Gary Best of luck in your new endeavors.
I was just wondering with or with the new accounting Nancy that you spoke of.
How much of the the lower earnings or related to that you know the change in our life or the change in loss of deferred stripping and and the more conservative accounting you know have you thought about you know that the the impact that the that we've seen with these results as a result of the accounting.
Yeah, Thanks, Don and absolutely that's something we want to telegraph very early on because we knew there would be some significant differences I would say the difference between I FRS and U.S. gap is probably the most material piece and we'd be happy to walk you through those in a bit more detail and then certainly some changes between policies and as we've talked about the difference between development versus sustaining Capex is probably the key piece of it as well as the co product versus byproduct accounting at Penasquito. So yeah, that's probably a fairly material difference in the way you would have seen things reported at the Goldcorp level and we're very comfortable walking folks through the details of those to help make sure you're you're bridging to the way, we'll be accounting for those going forward, but yeah. That's our goal was not to surprise the market with that but we've tried to telegraph that there would be some fairly material changes.
And then one of the things that are.
It seems a little bit counterintuitive is the switch from being able to depreciate to.
Underground mine is against the reserve and resources.
No I understand.
You know just using reserves as per the golf is a more conservative way of working but it seems impractical, particularly as you. Another mine has become more focused on underground mines, what's your thoughts on that and would it be possible to lobby the the actually see to Oh to change that.
Yeah totally understand that the request there and we don't disagree with you. However, we are settled a bit by the requirements you have U.S. GAAP, so that might take more than just new mindset desires to turn that around but <unk>, we totally understand the thoughts, but U.S. GAAP really requires us to only use reserve life to calculate depreciation.
Right.
And then just if I may a speaker you mentioned that there's been a change to the money fund what's going on.
John It's Tom here I'll pick that one up as we as we look at some of the so the ongoing work in looking at some of the stresses as you move into the dip dips deeper into that mine, we're seeing Hon. Hai stresses. So we're taking a step back to look at mining method.
Particularly the top of backfill, we bought need for that so as we as we step back and understand that we've just moved out a mounting laterally. So we can work through that bonding plane mine planning process through the course of the business planning process. This year. So I would expect as we move through to provide out longer term gardens. The latter part of this year that we can provide more insight into that but it's it's how we manage high stresses he met modestly as we move into some some deeper parts of it.
Okay, great. Thanks, Best of luck, Tom and the new Roland and especially the Guardian and any new endeavors. Thank you.
Thanks, John .
Our next question comes from Chris Terry of Deutsche Bank. Please go ahead.
Hi, Gary Coleman, Nancy and all the best for you Gary and told me in your new role.
A couple of a couple of questions from me just starting on the new guidance. The 6.5 million ounces for 2019, taking into account the from April on the on the go cool pass its how do we think about the number that you provided in the context of the ongoing full potential program from here and as you transition into into 2020 and moving forward is that is that a number you've largely reset as such and then you build from that with any optimization on on full potential or we still think about 2020 and beyond is still pretty fluid depending on on on the outcomes of Ah you reveal the assets and in the coming six months. Thanks.
Thanks, Chris Tom here ill pick that one up but the approach that we take with all of the operations and the potential approach, we take in coming in and running full potential at those operations is to start with previous best demonstrated performance and understand what you've done in the past and then building a plan on that basis that is underpinned by our robust resource model, that's including a mine plan and then we start to build some stretch in that in terms of improvement. That's the starting point that full potential has as it comes into Penasquito, and Cerro <expletive> and eleonore as well as existing or former a new remote operations. So that's that's the basis of which we have worked with our foreign operations to develop your guidance for this year.
And that's the prices that were using to build up our business plans for 2020 and beyond for Newmont Gokul.
What we do with full potentially so when we have a full potential program. We got through a diagnosis phase and then a development phase coming out of the development Phase you didn't have a series of projects that have clear value delivery linked to them resources and accountabilities in a timeframe.
It's only when we have those are clearly different projects implies that we build them into our plans and our guidance. So as I said in my comments a you once the full potential benefits built into 2019 gardens because that work is only just starting at Penasquito on Cerro <expletive> , we would expect to see some of those benefits for those two starts flowing into well 2020 business plan in 2020 numbers are so we're very disciplined and rigorous in the in the why we look at out on planes and the why we apply a full potential program.
Okay. Thanks, Thanks, Tom and then just thinking about the the medium term. So should we expect our updated guidance on forward years from from light. This later this year and and what's the sort of updated timing on any divestments in that prior sort of six to 7 million ounce range that you you talked about on the last on the last quarter. Thanks.
Thanks, Chris I'll pick up the first part of question pass across to Gary for the second part.
We're right in the middle of El Al normal annual business planning process at the moment, a that's a myth that standard prices. He run through as we work through that process and presented business plan to our board and the latter part of this year for approval. We will then follow up with longer term guidance and we are currently targeting outstanding Tom Prime of December to be sharing that with you.
And just to follow up on the divestment question. You know just a reminder, there was no need to do any divestments as part of this acquisition and the whole process that we've gone as we've worked with Barrick to support and develop them about a joint venture. So we want to make sure we get in get a good look at all the operations and projects that we brought in with the Goldcorp acquisition to make sure as we did with Newmont five years ago, well five to six years ago in terms of going through all the assets to make sure they're delivering is strongly and as well as possible before we moved forward with that process. So that's where we're focused.
Thanks, Thanks, Gary and then the last one for me just on on a couple of US it specifically on muscle what and pushing out the Tom on on on the repair work. The <unk> should we assume that that that that can ramp up pretty quickly in 2020 or is it is it too early to say what the impact might be on that year, and then for Penasquito, specifically as well did the blockade have I was just wondering if you could go through a few more details on the impact that that had on perhaps mining inventory levels are the fact is around them on as well just just to think about the second half and going forward. Thanks.
Hey, Chris told me going up the L Pic, but those up so at a mass award the fire damage to the full two and a half kilometer conveying system. So it's a process of Rehabbing say after removal that the damage structure and rehab the ground control.
You know you know the two and a half kilometer day clock and we are well advanced 70% complete on that rehab work calls at muscle what a a few weeks ago I will just say that working progress and they doing an excellent job in terms of ensuring that they are sitting up a that that rehab for the long term in a in a mine that has a very long life.
We're right in the in the in the throes now assessing bids for the fabrication in slide <unk> you can via.
So they are ultimately automic will be determined by the above those bids coming in so we will gain greater understanding of that in the coming weeks. It will be in the 2020 , though before that that combining systems commissioned and up and running.
Where are we I'm back in working on the.
Materials handling project that project was well advanced when it was pools because of the for US. So it's a we would very much getting the final stages of that that project and we would be moving through commissioning in the latter part of this year and having it ready and available in the new year is that combining system comes comes up.
Al focus at muscle want is to ensure that there is the appropriate level of development work that we have the appropriate number of stopes open and then we have the drift out to do the exploration work to map out the future that mine. So that when we have that combining system up and running we have the appropriate number of open stopes and the ability to be able to maintain the appropriate number of I've been stubs going forward. So I fully expect that when that mine comes back up when they come buying system comes back up it will come up very smoothly and would be out of here now.
Whatever the appropriate right is that of that mine very smoothly and quickly.
In terms of Penasquito as a result of that block high there was there were no impacts on the operation itself. It was a managed in a very appropriately in a care and maintenance situation and we did a lot of maintenance work through that that downtime period. It also has ramped up very smoothly, we have been able to move concentrate to market very effectively although as Nancy indicated by the Penasquito and boddington have a little backlog of concentrate sales from the second quarter that will flow into the third quarter, but concentrate inventory levels by now back to normal.
The mine is running well the the plant is running well the impact on the second half of this year. It will still moving to high grades for gold silver and lead grade stay about the same for zinc, but as a result of the 50 day shutdown, we'll see some of those high grades that were expecting in the fourth quarter to move into 2020 and so we'll see that in that 2020 God and since we as you bring that out later in the.
Thanks, Tom, let's so from a and all the best to younger thanks.
Thanks, Kris Kris.
Our next question comes from Fahad Tariq of Credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my question I'm, just going back to the Goldcorp synergies for a second can you clarify the cadence of the synergies I I thought I heard you say, 40% this year, 80% next year and 100% by 2021 and if that's the case. This year is it right to say that none of that 40% of the 365 would be full potential it's all coming from Gionee and supply chain and just some clarity around that would be helpful.
Like Tom Tom again, I'll pick that went up you get pretty much spot on so a lot of the lot of the early quick wins from Jane I, which way, saying now and what was still more to pursue as we move from Vancouver. After the operating so it's that's the quick wins that that come from supply chain in terms of rebates extensions for for the Gokul equipping the gold Cup. So I'd say just to quickly with some supply chain and Jane I with GE and IB in the lion share of that 40% this year.
He will then start to see Nics, chief by supply chain improvements and potential flow as a as we start to deliver on improvement projects that penasquito in Cerro <expletive> and then as we move through the other Gokul pass it through the course of next year, you'll start to see the reminder, that flow primarily from from full potential with some additional supply chain, So Jay and I some supply chain full potential really kicking in in 2020 2021.
That's helpful. Thanks, and just as a quick follow up any surprises or anything interesting you've learned so far from the full potential work at Penasquito in Cerro <expletive> or anything that has been different than perhaps your initial assumptions. When you first did the due diligence on the minds. Thanks.
No surprises from our due diligence with it there is everything not expect to see that we're seeing and I think there's the real the value proposition of the months operating model I'm sitting and having these six go back that's coming to L., probably model and seeing the journey that we've been on a place to slot boddington untenable I applied to operations like Penasquito and Cerro <expletive> absolutely hub water and there's nothing's changed in my mind in terms of what we sold during due diligence on what we've seen over the first 90 days of running these operations, there's some need for technical rigor and discipline, we bring that we've got key technical expertise, we're seeing some real real opportunities I'm in the full potential space I think in Penasquito I'm heading down there. This afternoon I'm, particularly the interface between the mine and the mill, which we see and have continued to pursue at boddington, we see it a real opportunities there at Penasquito at Cerro <expletive> is going to be a real focus around mining and <unk>.
Mining and development rights underground, that's a real opportunity there. We believe we have the skills and expertise to bring improvements in that space at Cerro <expletive> . So.
No surprises at all.
Thank you.
Our next question comes from Greg Barnes of TD Securities. Please go ahead.
Thank you Tom just listening to what you're saying about the development at Musselwhite and how are the folks there is to get that ahead of.
Where you happen I suppose is that a continuing theme you're seeing across the Gulf coast operations is that just wasn't the.
Development work done all stripping required to.
Meet the needs of the mills.
Like it because to be Frank there might be Frank Greg Yes.
Yeah, there was not the work done on exploration there wasn't the work done on development and that's absolutely fundamental in either I've computer an underground mine. So as we are as we look at Musselwhite Musselwhite had one step up and.
Before the fall out that's that's that's a unacceptable we will not have anyway.
It depends where you have to do out at work on understanding the value, but you'd expect them on the sorts of muscle wallet with the size of this types to have five or six Dod side, but at any one time. So before we before we re commission that conveying system.
We expect to have the development work done to not only have six stopes ready to go but those types of combi on those and the exploration drift to be maybe understand I mean, that's a it's a real it's I mean, most awardees I testimony in Canada. So we need to be out in front of the money would be doing the exploration work to be to be mapping out that the future potential that operation. So that's our focus is now that weve got sick and rigorous used to be in there doing the development work so that when the conveying systems ready we can maintain the appropriate levels of throughput through that mom, but also I'd be doing the work to understand its future loss.
So it was a similar lack of development at Cerro <expletive> and Eleonore as well.
Yeah, It's a simple it's a similar thing the thing we saw through our due diligence was the opportunity for us to come in and apply a rigor and discipline and operating model to those to those operations.
How long time do you think it's going to take you to get these operations to where you want them to be.
Again, as we talked about as we as we as we marketed this transaction. There is a 24 months, possibly at the 36 months for some of these operations to really get them to the to the level of performance that we would expect it's a very similar journey. If you look back over newmont over the last six or seven years, and we were at boddington or tandem I was back in 2012 or 13 to where it is today. There is a good two or three years of work to get those operations set up for sustainable long term value delivered.
Okay. That's very helpful. Thanks, Tom.
Our next question comes from Kerry mockery of Canaccord Genuity. Please go ahead.
Hi, Good morning, just got a question on Cerro <expletive> unhealthy NR.
Cerro <expletive> I think the trends.
Throughput in the quarter is around 3400 tons I know goldcorp was pushing 4000 tons and I think you've talked in the past about maybe that was too aggressive I'm. Just wondering should we assume a run rate similar to Q2 or sort of what throughput expectation should we expect over the balance of the year and similarly on eleonore.
Yeah.
Thanks Kerry so.
We <unk> you won't hear us talk about tons per day added the former Gulf cooperation she'll talk because you hear us talk about it not be tons <unk>, certainly going to hear us talk about what's the highest value will the best value out of those operations.
In terms of Cerro <expletive> , we are moving into a couple of high grade zones.
In.
So you'd expect to see both high grade and increase volume coming out of those underground mines in the in the second half of which is going to contribute to.
Two.
A back half weighted Cerro <expletive> for 2019.
Similarly for Elliott, Illinois, you are moving into some high grade areas of horizon, five and six that will well hope a back half white illegal for this year.
So should we assume that the the the raider or going into the mill will be more variable going forward or.
Now you'd expect you could just pick the right going through the mill to be consistent going forward, but what we'll be focused on is what's the combination of bottom middle that's going to deliver the best value for those operations that that will be a changing language you can expect to hear from Newmont gokul.
And again for the balance of the years, that's going to be similar to Q2 or is it going to be different than Q2, obviously, you've mentioned higher grades in the back half.
Yeah <unk>.
Yeah, essentially one thing to remember second quarter didn't start with all these goldcorp assets, we didn't start accounting for up until April 18th so that.
That wasn't a full three months of production so keep that in mind when you look at the numbers.
Okay, and then maybe one other question on 2019, clearly there was a lot.
Issues this year with the Penasquito and Musselwhite fire I think your previous pro forma guidance for 2020, 2021, 7.4 to 7.5 million ounces is there anything that you've seen so far that you think those numbers would change materially or more or less you think you can still get to those sort of numbers you know again barring any improvements from the full potential.
[noise] carry way out right in the middle of our planning process at the moment and as I talked earlier in terms of we stepped back and ensure we understand the resource model. That's underpinning mine plans to resource risk the investment in exploration, we need to do to be managing a resource risk and then building mine plans off the back of the operating assumptions that are based on previous best demonstrated performance and then have improvement built into those so were going back to the does technical fundamentals for all 14 operations across Newmont Gokul.
And as we were building now is up production, probably falls and then starting to move into the the costs and so on and so forth, where we're saying production profile is that consistent with what we expected coming into these transactions.
Okay fair enough. Thank you.
Our next question is from Tanya.
Jake Us contact.
Of Scotia Bank. Please go ahead.
Hi, Good morning, everybody I think that's me has finally [laughter] have to start my name.
I just wanted to have Gary first of all I good luck.
Hey, you and your next adventure is really great working with you.
All of that.
Just on just a few things for myself, maybe Tom just coming back to a half hour just on the Subika underground appreciate a you're talking that you see additional I'm not sure I have then you are expecting as you go deeper can you just let US know the is this just in a certain portion of the ore body that this is occurring why you would have to adjust so it's just a general for the whole ore body.
It's a full four of us a baker ore body speaker underground ore body. It is a general increase in stress as you move through dip. So its then stepping back and saying well what's the what's the mining method that best suits that that Straits condition, and whats and associated that what's the appropriate backfill. So it's as we step back and look at that we it's starting to look like a mining method that.
Might be more bulk taught mining, which which ultimately I think as we as we working our way through that has the opportunity to extend the life of so Baker underground because it will give us access to more or so it's about working through understanding that stress mining method and then looking at the upside opportunity if that changing mining methods, but it is generally as you move.
A dip in the middle but are you, saying you, saying high stress isn't there, but we have to think about how we.
What's the what's the best mining method to match those.
Okay, and when will that work to be done by.
We're doing that work now it's being built into our business plans <unk> for this year and going forward. So we would expect to see that incorporated into our long term guidance. So that we would come out with in December .
Okay.
And then just on so that was that they they change and a half a guidance that we saw from your previous guidance and is it safe to assume all of the change in Nevada guidance was the gold quarry adjustment.
That's correct. So you so at Ahafo, where mining with mining laterally rather than than hitting down. So that's that's the impact they and yes. The that's the 70000 ounces that we've been indicating a from the gold quarry.
The impact from the sleep last year is what you're saying is tied up in that guidance for for out in Nevada or assets that we have just issued okay. And then maybe just on coming back on the Goldcorp assets. You know clearly your statement on the fact that the lack of underground development to sustain these assets out there.
Longer term and this has to catch up so Tom.
If this is the case how confident are you on the guidance that you gave up to 19 like I do we have enough development to meet.
Guidance numbers you put out.
Yes, we do and I'm very confident in the guidance numbers, we put out Weve applaud newmont regard to arrive at those numbers and I'm very comforting to nice numbers.
That there was an underground operation.
Yes.
Okay in some instances in some instances 10, new year, you know that the developments there for now but I you know at Panama, We have grade control drilling out three years in front of US who had a 10 year Lafayette in front of US that's the expectation that all I have for these days gokul baskets as well. So it's it's it's some the example, I gave at muscle watch the here and now there are other examples where we need to make sure. We were managing these assets for the for the long term.
Okay. So so meeting the 66 <unk> hundred tonnes a day Italian all 4000 at Cerro <expletive> and you have the stopes you need to to make that for this year.
We have the development work required to meet our production guidance for this year and it does form a Gulf coast assets. Okay, and then maybe on Penasquito I'm just on the open Pat you said it ramped up nicely is that grade or are you seeing improvement in growth, we are seeing that coming through from that mine as expected.
Okay. So no surprises is right now for Penasquito.
I'm, sorry, I didn't understand that throughput is that's true cut back to 110000 times a day.
Well, we will have the throughput to deliver a garden for 2019.
Okay.
Okay look forward to seeing that thank you.
Our next question comes from Anita Soni of C.I.B.C. Please go ahead.
Hi, good morning, everyone and interest in terms of the capital guidance I think you've talked about it I'm a bit but I was just trying to figure out how do I think about 2020 given the guidance that you have for this year. So I guess my first question was.
And with somewhat addressed that.
With Goldcorp and are capitalizing, but it sounds like there needs to be a catch up in capital. So if I was looking at this would it or would it be fair to just basically you know annualize the numbers that you put out given that this is about three quarters of the year for where the goldcorp assets between 19.
A native told me that's a that's a fair assumption.
Alright, and then I guess moving on to and said there. So then Cerro <expletive> would be you know given that it's sort of a $80 million or sorry, not 80 $70 million side going forward.
For three quarters of the year, we're looking at 100 million Bucks per annum at at Cerro <expletive> .
Between development and sustaining capital.
Yeah, I think a nadir at this point in time, that's that's a that's a good estimate tonight as I say, we're right in the middle avail that planning process at the moment. So we will we'll be out to give you better guidance on that when we when we havent numbers later in the EBIT. So for now I think that's that that's appropriate.
Sure and then maybe Nancy you could give me some clarity on the demarcation between development capital in sustaining capital I understand Goldcorp was not a conservative as you guys are but.
Im just trying to understand what the 40 million in development capital at Eleonore is related to I mean is that just catching up you're calling that catching up on underground development work is that what it is.
I need I don't have the details on that specific that but I will double check on that for you I think it's really it is you've captured it. It's it's a more conservative view from new mines few and things that we wouldn't consider sustaining capex versus development <unk> I'm not trying to get I understand, but where where are you still drop the line, though at that its development capital if it I mean.
You know it historically people would think of development capital is growth related capital and it doesn't sound like you guys are forecasting any growth we'll talk about that.
Right. So again, it's just it's a policy difference and we would be more conservative in that view and it would take under our definition of development capital would probably have a bit more.
In terms of our hurdle to get through before me the call at that so I think thats really the biggest difference and again, we can walk you through some of the details at that.
Offline if that's helpful. That's an example.
Hey, Tom Hey, they you do have in that development capital number for this year the the mature they the material handling system. It also will yeah, and yeah, and I understand sorry daily and only related to Borden porcupines, probably related to Borden I get the musselwhite I'm just trying to understand you know the eleonore and Cerro <expletive> or presumably there's not a lot of growth coming down the pipe.
Or there was no real big projects happening, it's just a matter of catching up on sustaining so just moving onto Penasquito I'm and you know maybe you can help me out this with this offline, but it does look like you already had pretty good grades going into this quarter throughput was obviously low and recoveries Robert Hello at a and I was just trying to understand on the recovery side of the equation.
Are you confident in a PLP in the guidance that they had put that goldcorp had put out for and about 80% recovery rates are coming at it pulled in the PRB circuit, considering that you know and only did 57. This quarter I mean, how much was that was related to the shutdown how much will the rebound.
Yeah, a neighborhood I wouldn't I wouldn't look at the numbers out of this quarter for those few days and draw any conclusions because in commissioning the facility to bring some.
Some low grade material higher carbon material through that's a good thing to get it back up and running again, so a key part of my visit down they are hitting down there. This afternoon. It's just to understand how that Pam how that whole circuit is performing including people pay and that I've they've got the the plans in place to deliver on their commitments for.
For production this year from all circuits in the processing plant at Penasquito, including people, but.
Okay, and I mean, the great already in quarter, though is I think with decent I'm just kind of struggling through the ounces a change between ounces in short time, and and your and your methodology, but it does look like with round 0.8 gram per tonne material in the historical sense of legal corporate part of that so.
Just I'm just wondering why you decided to put high grade material through the no one in particular.
Yeah, I wouldn't look at a few days operation this quarter and draw any conclusions that was really a really ramping up a facility. So it's even now around eight or any couple of weeks you know with a big Big processing played lot that a couple of weeks into into July or dumb I'd, let things settle down and see what the Q3 numbers look like.
All right. Okay. Thank you very much.
This concludes the question and answer session I would like to turn the conference back over to Gary Goldberg for closing remarks.
Newmont Goldcorp delivered solid second quarter results and we look forward to an even stronger second half because we continue to lead the gold sector and profitability in responsibility. Thank you for joining us and for your interest in Newmont Goldcorp.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.