Newcrest Mining Ltd

ASX:NCM

Earnings Call Transcript 2023-Q3

[Tom Dixon, executive]

Hello. Good morning, and welcome to Newcrest Mining's March 2023 Quarterly Results Conference Call. This is Tom Dixon, Head of Investor Relations. This call is being recorded today, Thursday, 27th of April 2023.

As usual, a reminder that Newcrest is a U.S. dollar reporting entity, and all dollar references in the slides today are to U.S. dollars. Any references to the prior period are to the December 2022 quarter.

Look, we have a brief presentation for you today and then plenty of time is available for Q&A. As per the normal process, please limit your questions to 2 each and then rejoin the queue if there are more topics you would like to cover. I'll now hand over to Sherry.

[Sherry Duhe, executive]

Thanks, Tom. Good morning, everyone, and thanks for joining us today. With me here today in Melbourne is Dan O'Connell, our Chief Financial Officer; and Suresh Vadnagra, our Chief Technical and Projects Officer. We also have Craig Jones, our Chief Operating Officer, joining us on the line from Vancouver.

We're pleased to provide you with a brief overview of our performance in the March quarter and highlight the progress made on some of our exciting growth opportunities, and we'll then be happy to take any questions you may have.

Now before we get underway, please note the company's important disclaimers on Slides 2 and 3.

Now I expect the focus for many people on the call today will be Newmont's proposal to acquire Newcrest and how this is progressing. And I'm sure you'll appreciate there's not a great deal of incremental information we can share at this stage, but I will touch on this in a little more detail shortly.

Through the course of the new year, we continued to deliver on our strategy, reaching 3 major milestones across our pipeline of high quality gold and copper growth projects. In January, we progressed the Lihir Phase 14A feasibility study to execution. In March, we significantly expanded the exploration target at East Ridge. And in early April, we reached a pivotal milestone at Wafi Golpu with the signing of the framework MOU.

On the production front, our operations delivered another solid performance during the March quarter. And importantly, we remain on track to meet our full year group production guidance. Our gold production for the quarter was 510,000 ounces and our copper production was 31,000 tonnes. Our group all-in sustaining cost was USD 1,012 per ounce, delivering a very healthy margin of USD 837 per ounce.

We expect gold and copper production to increase in the June quarter. And with the current positive momentum in gold and copper prices, we remain on track to deliver a strong FY '23 results.

Pleasingly, we've also recorded our third consecutive quarter of reduced injury rates, and it was a tremendous achievement for both Cadia and Lihir to achieve 0 recordable injuries for the quarter.

As I mentioned, this calendar year we've achieved 3 significant milestones across our pipeline of organic gold and copper growth projects. At Lihir, we progressed the Phase 14A cutback to execution. The Phase 14A feasibility study outlined a high confidence plan, which is expected to add high-grade ore into the mine plan from the next financial year before we move into the higher grades within the [indiscernible] ore body. The study also outlined the upside potential we see at Lihir.

The application of steep wall technologies, together with an alternative lower cost and simpler seepage barrier design, have the potential to enable access to additional high-grade zones outside the current ore reserve and extend Lihir's elevated production profile beyond FY '31.

In March, we significantly increased our exploration target at East Ridge. East Ridge represents a unique opportunity for Newcrest as its scale and proximity to Red Chris' other macro blocks means that it could have a meaningful role to play in the long-term future of Red Chris. East Ridge mineralization could provide further mining optionality to reprioritize block caving sequencing and target these higher grade tonnes after Block Cave 1, the first 1 Eastern Block Cave to increase value at Red Chris.

We're also looking at the potential to establish East Ridge as a second production front in parallel to the main underground development, which could lead to higher production rates in the future.

And then in April, we signed the Wafi Golpu framework MOU, marking a key milestone towards the development of this premier copper gold deposit. This MOU gives us confidence that the permitting for Wafi Golpu will progress constructively and in a timely manner to the grant of a special mining lease, following which we will update the 2018 feasibility study and commence engineering towards development.

Now moving on to our operations. As I highlighted earlier, it was a tremendous achievement by our teams at Cadia and Lihir to record 0 injuries for the quarter. This was the best safety performance for Cadia on record and only the second time in 10 years that Lihir has recorded 0 injuries for a quarter. Safety remains our first and fundamental priority, and we will continue to focus on further embedding our safety culture to ensure everybody goes home safe and healthy every day.

We had a solid third quarter operationally. Cadia continued to deliver very attractive cash margins for the business with an all-in sustaining cost of negative $154 per ounce, and it was pleasing to see production improving at Brucejack and Lihir. We continue to progress several optimization opportunities through the Red Chris Block Cave feasibility study, which we expect to complete later this calendar year.

And the Brucejack transformation program also continued to make great progress with our synergy benefits on track and impressive preliminary results on bench scale or sorting trials.

And Fruta del Norte had another impressive quarter as well. We were very pleased to receive our second dividend for the year with nearly CAD 30 million in dividends received from Lundin Gold in FY '23.

Overall, we expect gold production to increase in the fourth quarter with higher mill throughput expected across all of our operations and in particular, higher gold grades at Lihir, Brucejack and Telfer. And again, importantly, we remain on track to deliver our full year group production guidance for FY '23.

Our exploration team also continues to create significant value for Newcrest. The excellent results we're seeing from our Brucejack exploration program continue to be very encouraging. And our exploration success at Red Chris is clearly evident in the significant enhancements we've seen at the East Ridge exploration target.

Now following the rejection of Newmont's previous proposals to acquire Newcrest during the quarter, we received a further nonbinding indicative proposal in early April. The revised, conditional and nonbinding proposal is at 0.40 exchange ratio and permits us to pay a franked special dividend of up to USD 1.10 per share. The revised proposal represented an implied Newcrest share price of AUD 32.87 per share as of 6th of April 2023. This valued Newcrest at over AUD 29 billion and represented a 46% premium to our share price prior to Newmont's original proposal in February.

The revised proposal is a clear reflection of our outstanding portfolio of long-life gold and copper assets, our high quality growth and exploration pipeline and the achievement of our exceptional people. We have, as such, given Newmont the opportunity to conduct confirmatory due diligence on an exclusive basis to enable it to put forward a binding proposal.

This exclusivity period has begun, and it will continue until the 11th of May 2023. We'll, of course, continue to keep the market informed of any material updates in line with our continuous disclosure obligations.

So in closing, I just want to reiterate that we remain steadfastly focused on our business and the safety and wellbeing of our people through this period of confirmatory due diligence with Newmont and any potential future steps, should the proposal continue to progress. Our priorities remain very clear, and we'll continue to focus on executing our strategy to create value for our shareholders.

So thanks very much for listening. And with that, we're happy to take any questions.

[Operator]

[Operator Instructions] Your first question comes from Kate McCutcheon with Citi.

[Kate McCutcheon, analyst]

[indiscernible] Newmont deal, is there anything you can say around essential timing of the deal if the deal is successful and [indiscernible]?

[Sherry Duhe, executive]

Thanks for that, Kate. It's a good question that many people are asking. I would say that it's probably a bit early to give you any specific timetables other than just to confirm what I've just said that we're about halfway through a 4-week due diligence process, and that is targeted to conclude by the 11th of May. And should that then culminate in a binding offer from Newmont, we would then map out what the timetable looks like to get all of the regulatory approvals complete and all of the other preparatory steps for ultimately shareholder votes and bringing the transaction to a conclusion.

So you can imagine it would be some period of months, but we haven't put specific timetables on that yet, as right now, our focus is getting through the due diligence process.

[Kate McCutcheon, analyst]

Okay. And then in terms of [indiscernible] Wafi-Golpu MOU, given [indiscernible] the last MOU, is it on finding or [indiscernible] question is what's different than as last time? And then just secondly, how [indiscernible] framework that will be included in the [indiscernible] contract phase?

[Sherry Duhe, executive]

And I might just turn that 1 straight over to Suresh, who's on the line, who did the honors of bringing those agreements together over the last few weeks here. Suresh, are you on the line? Okay. We're just trying to get Suresh placed into the call, but I'll have a go at that first, and then hopefully, Suresh will get on to fill in a bit more detail.

I thought that was him, but he's not coming on.

Look, Kate, it's 1 that has -- we've had several goes at it in the past. As you'll be well aware, we've been working on this well over 10 years. I think the pleasing thing that we see this time around is that all of the key fiscal and nonfiscal items that are really the precursors of getting us forward into that development agreement and ultimately, the special mining license have been agreed in a way that works for all of us, both on the fiscal and the non-fiscal terms.

So that will then allow us to move forward in terms of getting it into the special mining license and also the trigger to refresh all of the feasibility study work that was last done in 2018.

[Kate McCutcheon, analyst]

Okay. And is there any update on when we could expect [indiscernible] feasibility study?

[Sherry Duhe, executive]

We haven't yet talked about official timelines externally. What we have said generally is that to go through and update that feasibility study, it's probably in the range of kind of 12 to 18 months. But again, the trigger to go ahead and officially kick that off is getting things transitioned from this MOU that we've agreed into the -- ultimately, the special mining license. So that's the current focus of the teams right now.

[Kate McCutcheon, analyst]

Okay. And then just a final question for [indiscernible] yo said in your announcement that the feasibility study is ongoing there. Is there any timing update on that study? And then secondly, what are the expectations for the mine life [indiscernible]?

[Sherry Duhe, executive]

Okay. Both good questions. We haven't yet put out a detailed timetable for that study for Telfer. So that's still ongoing. And as soon as we have a target date that we're ready to release, we'll put that out there. Currently, based on the latest cutbacks that we've approved for Telfer, we're talking about production continuing on until or thereabouts 2025. And again, that optimization study will look at other life expansion opportunities beyond that date.

[Suresh Vadnagra, executive]

Sherry, I am just checking. If you can hear me now?

[Sherry Duhe, executive]

Yes, I can, Suresh. Great that we got you in. Is there anything you wanted to add, while we've still got Kate asking her questions?

[Suresh Vadnagra, executive]

I'll respond to questions going forward. I'm not sure what happened there, sorry about that.

[Operator]

Your next question comes from Daniel Morgan from Barrenjoey.

[Daniel Morgan, analyst]

Just on the upcoming scope of the Red Chris study, which is in the second half of this calendar year. Just wondering what's going to be included in that project? And what is not, i.e., might East Ridge come into that project or -- sorry, that study or is it for contemplation at a later point?

[Sherry Duhe, executive]

Yes. Thanks, Daniel. East Ridge, as we said previously, is not in the initial scope for that. That would be a subsequent optimization around it as we continue working through those exploration results and the optionality around that. So that will be something that will come after that. And now that I've got Suresh on the line given that's his project as well, you may want to add any additional detail on scope. Suresh?

[Suresh Vadnagra, executive]

Yes. So as Sherry mentioned, East Ridge 1 [indiscernible] of the feasibility study, which we expect to complete later this calendar year. What will be part of that feasibility study is the mining inventory that we included in the DFS, the macro of line 2 and 3 as well as some optimization options that we're looking. Those are the reasons -- those are the main reasons that we've extended the feasibility study.

The optimization we're looking at include some alternative footprints for the K, and including potentially establishing the extraction level higher in the case to give us earlier access to higher-grade ores, some alternative flow sheets that could be more capital efficient [indiscernible] type of ore that we're dealing with and will allow us to stage the expansion of the plant slightly differently, because they are matched [indiscernible] ramp-up schedule and a variety of costs, both capital and operating cost optimization.

[Daniel Morgan, analyst]

Next question is the CapEx reduction that you announced today. Is this mainly a timing issue and has some project spent or project slipped from FY '23 into FY '24? And is there -- the benefits from some of those projects slipped too?

[Sherry Duhe, executive]

I'm going to turn that 1 straight over to Dan on the guidance question on CapEx.

[Dan O'Connell, executive]

Yes. No, thank you, Dan or Daniel. Look, I'll just start by saying that we've got a long history of successfully delivering projects and in calendar '23, we've continued with that. With -- in January, releasing a Phase 14A study, the significant exploration target at East Ridge in March and the Wafi-Golpu milestone we've already covered. If perhaps we just step through, there have been each of the categories of projects. I guess first up on our major projects CapEx. Some of the delays you're seeing at Cadia are around PC1-2 and PC2-3 are really linked back to the vent raise issue start of the year. We successfully got first ore from 2-3 in the March quarter, and we're not expecting any issues with ramp up over the next few years of both PC2-3 and PC1-2. We remain on track to deliver the first high-grade ore from Phase 14A in FY '24.

And we've continued to develop critical path access decline at Red Chris. That's our critical path to first ore as we continue to investigate optimization opportunities that Suresh has covered, so yes, not seeing any material issues there, just a movement of the timing of spend.

If we then look at some of the sustaining CapEx in particular the cutbacks or the production stripping we're working through, you'll see the reduction is linked to both positive outcomes as well as some slower-than-expected ramp-up. However, just to confirm, we are not expecting any material issues to emerge from that in terms production.

We have reaffirmed our guidance again at a group level today. And look, I guess the final element is there is some other sustaining CapEx that has progressed more slowly, most particularly the -- some spend on Cadia tailings. We are working through that, and we've now got a contractor on board and accelerating into that project. I invite Craig and Suresh to add anything they may wish to.

[Craig Jones, executive]

Well, I think you covered that admirably well.

[Operator]

[Operator Instructions] The next question comes from Tanya Jakusconek with Scotiabank.

[Tanya Jakusconek, analyst]

I'd like to just ask the question on guidance, if I could. So just the capital deferral to $360 million or thereabouts. How should I think about that? Should I be moving that into 2024 or just some of it in '24 and some in '25? Maybe some on guidance on that, please.

[Tom Dixon, executive]

Look, I mean, we provide guidance on an annual basis, and we'll continue to do so as we move into the normal phase. So typically, we provide that in August. So you'll get a more detailed update then. As you're aware, we have released some guidance material into the market through our studies, and we're well aware of our continuous disclosure requirements around making sure that remains current.

[Tanya Jakusconek, analyst]

Okay. Since you did not reconfirm exploration or depreciation guidance. Is that still the same? I didn't see it in the release. Is that still constant?

[Tom Dixon, executive]

There's no material changes to guidance in relation to those matters.

[Tanya Jakusconek, analyst]

And the all-in sustained costs, if I were to just take your deferral of your sustaining capital and just from your $2.1 billion to $2.4 billion that you had previously guided, would I be in the ballpark?

[Tom Dixon, executive]

What I would say, you've asked a question about group level. I'd certainly say that if we needed to reguide the market, we would have reguided the market.

[Tanya Jakusconek, analyst]

All right. So I will take $2.1 billion to $2.4 billion still intact for you.

[Tom Dixon, executive]

Yes.

[Operator]

Next question comes from Anita Soni with CIBC Capital Markets.

[Anita Soni, analyst]

I just wanted to ask a little bit about Brucejack. I noticed that you've revised guidance downwards there to 300,000 ounces of production and that would imply a fairly strong fourth quarter. I guess that would be in the range of about 95,000 ounces. You said that you were expecting stronger grades in Q4. Could you talk about kind of grades that you're expecting to see and what kind of throughput within that you are looking for? And will that be sustained going into next year?

[Sherry Duhe, executive]

Thanks for that and you picked up correctly that we do expect strong grade and strong performance for Brucejack in Q4. I might give that 1 to Craig from an operations perspective to talk in a bit more detail on the grade quality we're expecting.

[Craig Jones, executive]

Yes. Thanks, Sherry. And with the shutdown from the fatality back in October, we are increasing the throughput rates through the mill, so that we've got [indiscernible] to process additional materials. So we'll be doing that through the rest of the year, and that's where the increased throughput will come from. So we are in the permit.

In terms of grades, we haven't given any specific guidance [indiscernible], but you -- but we do expect the grades to increase for the rest of the quarter.

[Anita Soni, analyst]

Okay. And I guess, a similar question for Cadia. You're expecting, I guess, grades to decline and they have declined quarter-over-quarter. And I think eventually, I guess they get down to the 0.5 gram per tonne level as you hit steady state with these two panels you're developing right now. But I think it implies about 116,000 ounces. Would the throughput be expected to stay the same or increase in the next quarter? Or is it all just a grade-driven decline in the numbers there?

[Sherry Duhe, executive]

Craig, I'm going to stay with you on that one.

[Craig Jones, executive]

Sure. And again, we've obviously mentioned that we are in the process of ramping up the throughput capacity of Cadia plant to the 35 million tones per annum rate. So you can assume that we're going to increase the throughput at the end of quarter but then, of course, the grade does tail off as you rightly point out.

[Anita Soni, analyst]

Is grade decline is enough to offset that ramp-up in to 35 million? So if we modeled 35 million tonnes in the last quarter and then sort of backed into the grade, that would be a good way to look at it?

[Sherry Duhe, executive]

I think that it's not necessarily as specific as that because you've got to think about the 35 million tonnes is on a calendar year basis, but we're working towards getting the capacity up over that period. So I think we can't be as precise as that in terms of telling you how to model it.

[Craig Jones, executive]

On a macro level, I mean we -- we put out a production profile as part of the PC1-2 feasibility study, so I think [indiscernible] back to that as well.

[Anita Soni, analyst]

Yes. I would say -- I mean, I was looking for a little bit more quarterly color and generally, your guidance ranges are in 3-year increments.

[Operator]

There are no further questions at this time. I'll now hand back to Sherry for closing remarks.

[Sherry Duhe, executive]

Okay. Well, thanks everyone, for joining in. I know it's a busy reporting period. So I appreciate your time today. And as I say, if we've got any more material updates around Newmont, we'll share those as and when, and look forward to engaging with a number of you in the coming weeks and months. Thank you.