Growth Strategies for Gold Producers: Greg Robinson, Newcrest Mining at Mines and Money 2013
 

Growth Strategies for Gold Producers: Greg Robinson, Newcrest Mining at Mines and Money 2013

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    Growth Strategies for Gold Producers: Greg Robinson, Newcrest Mining at Mines and Money 2013 Growth Strategies for Gold Producers: Greg Robinson, Newcrest Mining at Mines and Money 2013 Presentation Transcript

    • Presented at:www.minesandmoney.com/hongkong
    • Strategies for Evolving Market ConditionsMines and Money Conference & Exhibition20-22 March 2013, Hong KongGreg RobinsonManaging Director and Chief Executive Officer
    • DisclaimerForward Looking StatementsThese materials include forward looking statements. Often, but not always, forward looking statements can generally be identified by the use of forward looking words such as “may”, “will”,“expect”, “intend”, “plan”, “estimate”, “anticipate”, “continue”, and “guidance”, or other similar words and may include, without limitation, statements regarding plans, strategies and objectives ofmanagement, anticipated production or construction commencement dates and expected costs or production outputs.Forward looking statements inherently involve known and unknown risks, uncertainties and other factors that may cause the company‟s actual results, performance and achievements to differmaterially from any future results, performance or achievements. Relevant factors may include, but are not limited to, changes in commodity prices, foreign exchange fluctuations and generaleconomic conditions, increased costs and demand for production inputs, the speculative nature of exploration and project development, including the risks of obtaining necessary licenses andpermits and diminishing quantities or grades of reserves, political and social risks, changes to the regulatory framework within which the company operates or may in the future operate,environmental conditions including extreme weather conditions, recruitment and retention of personnel, industrial relations issues and litigation.Forward looking statements are based on the company and its management‟s good faith assumptions relating to the financial, market, regulatory and other relevant environments that will existand affect the company‟s business and operations in the future. The company does not give any assurance that the assumptions on which forward looking statements are based will prove to becorrect, or that the company‟s business or operations will not be affected in any material manner by these or other factors not foreseen or foreseeable by the company or management or beyondthe company‟s control.Although the company attempts and has attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in forward looking statements,there may be other factors that could cause actual results, performance, achievements or events not to be as anticipated, estimated or intended, and many events are beyond the reasonablecontrol of the company. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Forward looking statements in these materials speak only at the date ofissue. Subject to any continuing obligations under applicable law or any relevant stock exchange listing rules, in providing this information the company does not undertake any obligation topublicly update or revise any of the forward looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.Ore Reserves and Mineral Resources Reporting RequirementsAs an Australian company with securities listed on the Australian Securities Exchange (“ASX”), Newcrest is subject to Australian disclosure requirements and standards, including therequirements of the Corporations Act and the ASX. Investors should note that it is a requirement of the ASX listing rules that the reporting of ore reserves and mineral resources in Australiacomply with the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”) and that Newcrest‟s ore reserve and mineralresource estimates comply with the JORC Code. As a company listed on the Toronto Stock Exchange (“TSX”), Newcrest is subject to certain Canadian disclosure requirements and standards,including the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators (“NI 43-101”). In accordance with NI 43-101,Newcrest reports its ore reserves and mineral resources estimates in compliance with the JORC Code, along with a reconciliation to the material differences between the JORC Code and theapplicable definitions adopted by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM Definition Standards). In relation to the December 2012 Resources and Reserves Statement,the reconciliation is set out in Newcrest‟s Canadian News Release dated 8 February 2013, and is available at www.sedar.com and at Newcrest‟s website www.newcrest.com.au. Except asotherwise noted in that document, there are no material differences between the definitions of Measured, Indicated and Inferred Mineral Resources, and Proven and Probable Reserves, under theCIM Definition Standards and the equivalent or corresponding definitions in the JORC Code.Competent Person’s StatementThe information in this presentation that relates to Exploration Results and other scientific and technical information is based on information compiled by C. Moorhead, EGM Minerals for Newcrestwho is a Fellow of The Australasian Institute of Mining and Metallurgy, and a full-time employee of Newcrest. Mr Moorhead has sufficient experience which is relevant to the styles ofmineralisation and types of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code and is a Qualified Personwithin the meaning of NI 43-101. Mr Moorhead consents to and has approved the inclusion in this presentation of the matters based on this information in the form and context in which it appearsincluding sampling, analytical and test data underlying the results. For details of exploration reports refer to the Newcrest website at www.newcrest.com.au.Non-IFRS Financial InformationThis presentation uses Non-IFRS financial information including Underlying Profit, EBITDA and EBIT. Underlying Profit is presented to assist in the assessment of the relative performance of theGroup. EBITDA and EBIT are used to measure segment performance and have been extracted from the Segment Information disclosed in the ASX Appendix 4D. Non-IFRS information has notbeen subject to review by Newcrest‟s external auditor. 3
    • Today‟s discussion• Creating value in an evolving market – Cheap resource capture – Optimise capital committed to growth – Low cost, predictable production• Gold markets – Gold price drivers still in place – Gold vs. Gold Companies• Newcrest • Focus on gold (copper and silver production) • SE Asia location • Concentrated portfolio of mines • World‟s 4th largest Gold Company 4
    • Creating value in an evolving marketValue creation in mining Impacted by current market conditions • Negative view on M&A • Investor confidence lowerCheap resource capture • Backwardation on commodity price forecasts • Focus on returns in short / medium term • Resource project capital expenditure overrunsOptimise capital investments • Larger, long dated project risk • Production reliability has been below parLow cost, predictable production • Company focus on costs and productivity • Many investors short term event focus 5
    • Resource Industry Focus• Industry has moved past „growth at all costs‟• Large scale M&A on hold (expensive and difficult) – A key test is what you pay for reserve and resource – Needs to be very cheap, hard to add “operating” value• Organic growth moderated (deliver existing projects) • Tighten large project capital, deliver to budget, modular approach • Delay new projects, until price and capital cycle are more obvious• Exploration focus (early entry, low cost) – Greenfield exploration, more patience and focus – Increasing brownfield exploration, existing ore body potential – Drilling becomes cheaper if you have moneyCycle of low price forecast and delayed projects circular impact on future supply 6
    • Industry cost trends, increases slowingIncreasing industry cash costs Relative cost impacted by exchange rates 2,000 70% Papua New 1,750 Average Cash Cost Appreciation to USD (2006 to 2012) Cash Cost US$/oz (net of by- Guinea • 2006 US$317/oz 50% China 1,500 • H1 2012 US$727/oz product credit) 1,250 Australia 30% Australia Canada • Q2/2012 US$868/oz 1,000 Peru USA 10% Russia Brazil 750 H1 2012 -10% Indonesia 500 South Africa 2006 250 -30% 0 Ghana 0 10 20 30 40 50 60 70 80 90 100 -50% -250 Cumulative Production (Percent) 2012 gold production by country -70%Source: Thomson Reuters GFMS Gold Mine Economics Service Source: Thomson Reuters GFMS, Bloomberg • Increasing cash costs across the industry – Cost followed revenue, lagged by 12 – 18 months – Partly due to declining grades across industry • Exchange rates drive regional differences Costs have following higher commodity prices, impacts now slowing 7
    • Managing costs, Improving Productivity• Mining is fixed activity short term, floating cost• Typical mine cost structure – 40 - 50% labour – 20 - 30% energy – 20 - 30% consumables• Focus is on productivity • People/training • Technology• Lesser focus on cost cutting Focus is on productivity • Pressure on contractors/services • Supply contracts 8
    • Funding mechanisms for exploration & projects• Obvious caveats – Size and quality (grade, depth, metallurgy) – Location (political conditions and remoteness) – Price projections (revenue) – Cost competitiveness (cash cost and total cost) – Capability (technical and organisational)• Timing always critical• Approach to current market conditions – Wait (downsize, wait for cycle timing to fund) – Financial partners (Shrinking, will look for faster returns) – Find larger partners (expect dilution and control discussion) – Merge (look for momentum through creation of a larger company) – Sell (cash out) To maintain activity, alternate funding approaches are required 9
    • Gold markets 10
    • Gold price and money supply• Western economies have loosened Global money supply and gold price monetary policy• Fundamentals still support a strong gold price – Currency devaluation – Negative real interest rates – Inflation, political and economic uncertainty Source: World Gold Council Fundamentals remain for a strong gold price 11
    • Growing gold demand Annual gold demand in tonnes and value 1 Who is buying Tonnes US$Bn 5,000 250 USA, 162 Europe, 4,000 200 318 Russia, 82 India, 864 3,000 150 Turkey, 119 2,000 100 Middle East, 178 1,000 50 0 0 Rest of China, 818 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Asia, 230 Gold demand volume Gold demand value 2012 demand (tonnes) Source: Thomson Reuters GFMS, LBMA, World Gold Council Source: World Gold Council • Total gold demand up 50% from 2002 to 2012 • Total value up 850% in the same period • China and India represent over 60% of global demand Gold demand continues growing despite rising price 121 Gold demand comprises of jewellery, investment (excl, OTC & other stock flows), technology and official sector net purchases
    • Demand led by investmentShare of gold demand by category Bar and coin investment particularly strong100% Tonnes 120090% 1,908t80% 100070% 80060% 428t 60050%40% 40030% 20020% 1,535t 010% 0% -200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jewellery Technology Investment Europe USA India China Source: Thomson Reuters GFMS, World Gold Council Source: Thomson Reuters GFMS, World Gold Council • Investments share of demand has grown from 11% to 40% in ten years • Bar and coin investment growing – Growth in Europe and US as insurance against paper currencies – Growth in India and China as an investment aligned to growing wealth Bars and coins leading the investment story 13
    • Supply history• Mine production growing slowly Changes in supply mix tonnes – 1.4% annual increase in production 5000 between 1989 and 2011 4500 4000 – Declining grades 3500 3000 – Higher costs 2500 2000 – Discoveries rate continue to decline 1500 1000 500 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Decline in hedging (2002) and official sector sales (2008) Mine production Official sector sales Old gold scrap Net hedge & other Source: Thomson Reuters GFMS Scrap sales increase as prices rise Growth in mine production continues 14
    • Getting harder to find and slower to develop Exploration cost 1 and number of discoveries 2 Increasing time to develop 25 6,000 18 Exploration Budget (US$m) 5,000 15 Years from Discovery to 20 4,000 12 Discoveries Production 15 3,000 9 2,000 6 10 1,000 3 5 0 0 0 Number of Discoveries Exploration Budgets Source: MEG Strategies for Gold Reserves Replacement Source: MEG Strategies for Gold Reserves Replacement • Discoveries are getting more difficult – Higher exploration cost for each discovery – Fewer, smaller discoveries each year – Taking longer to bring to production Future supply under pressure 151 Exploration budget = Grassroots + 75% of late-stage budgets2 Major discoveries = Resources + past production > 2Moz Au (or >1Moz defined reserves)
    • Industry correlation to gold price 1 Year to December 2012 10 years to December 2012 1.20 1.20 1.00 1.00 1.00 1.00 1.00 1.00 0.87 0.82 0.84 0.78 0.80 0.80 0.64 0.57 0.60 0.60 0.40 0.40 0.20 0.20 0.00 0.00 -0.20 -0.20 Gold spot SPDR gold S&P/TSX FTSE gold Phili gold & Gold spot SPDR gold FTSE gold S&P/TSX Phili gold & $/oz trust global gold mines index silver index $/oz trust mines index global gold silver index index index Source: Bloomberg Source: Bloomberg • Gold equities performed poorly in 2012 – S&P/TSX gold index down 24%1 – Key factors include: poor M&A, overspend on projects, missed production guidance  Gold producers now focussed on value and cash flow, not production growth – Expect improved discipline Gold industry will correlate to gold price over time 161 Measured over 12 months to 31 August 2012
    • Newcrest Mining Newcrest in a snapshot • 4th largest global gold producer1 Bonikro • 6 production assets in 4 countries, primarily Australia and Asia Pacific Gosowong • Gold production 2.3 – 2.5Moz2 Manus Is Lihir Is • Copper production 75 – 85kt2 Tandai Wafi-Golpu • Reserve life of >40 years Hidden Valley • Workforce 19,000+ Newcrest strategy Telfer Namosi JV • Long life, low cost, moderate growth • Australia, SE Asia focus Cadia Valley • Unhedged, low gearing, dividend growth Gold Equivalent Resource • Focus on early stage resources +50Moz 20-50Moz • People & technical capability focus 0-20Moz • Management incentives ROCE, reserve growth, and cost position 171 By market capitalisation2 FY13 production guidance.
    • Key themes for Newcrest• Drive performance from existing assets – Ramp up and optimise high margin assets – Lift return from existing assets – Technology and people capability focus – Increase productivity – Strong focus on cost reduction• Capital reduction – Investments in growth largely completed – Minimise future investment until cycle trend becomes clearer – Entering period of strong free cash flow generation• Grow shareholder returns 18
    • Long reserve life, concentrated focus Reserve life (years) Number of Mine Provinces 31 42 28 17 17 20 19 7 Newcrest Goldcorp Newmont Barrick Barrick Newmont Goldcorp NewcrestSource: company filings December 2012 Source: Intierra; Minimum 40% holding, at least one project at mine must be pre-feasibility or concept Percentage of Mine Provinces in “Top 30” Mines • Long reserve life in the industry 43% 29% • Concentration of high quality assets 24% 16% • Brownfield focus continues to deliver upside Newcrest Goldcorp Newmont Barrick Source: Intierra; Top 30 NPV basis from BMO Equity Research at 5% discount rate and street consensus pricing; current as of 8-Jan-2013 19
    • Near term growth from past investment Gold Production 5-year production growth of 35% to 50% • CAGR = 5 to 10% per annum 5% to 10% • Past investments drive future growth 2.3Moz 2.29 to growth – Cadia East = 30 to 40% of 5 year growth Moz 2.5Moz per year – Lihir = 50 to 70% of 5 year growth 2012 2013 2017 – Other growth option studies continue Copper Production 5-year production growth of 20% to 30% • CAGR = 5 to 7% per annum 5% to 7% • Cadia East ramp-up delivers growth 75kt growth 76kt to • Telfer production declines to 25ktpa from FY14 per year 85kt 2012 2013 2017 20As provided in August 2012 market guidance
    • Three major focus areas = shareholder value Cadia • Australia‟s largest underground mine • 30 year + mine life • Lowest cost quartile (cash and total) • Production growing from 450,000 to 800,000 ounces, next 5 years Lihir • 30 year + mine life • Second quartile cash cost • Production growing from 600,000 ounces to over 1 million ounces Wafi Golpu • Finalising Pre Feasability • Very high grade, low cost, 30 year + life • Projected production of 600,000kozs gold, 400,000kt copper 21
    • Interim dividend maintained Dividend growth Increasing payout ratio 60 1200 FY13 Interim dividend of 12cps 34% including 50 1000 (unfranked) special dividend Statutory Profit (A$M) 29% 40 800 Dividend (cps) 25% 30 600 20% interim 20 400 16% 15% 11% 12% 10% 9% 10 200 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 1H FY13 Interim Dividend Final Dividend Special Dividend FY Statutory Profit Calculated as DPS divided by EPS (underlying)Objective is to grow profit and cash flow, maintain a conservative balance sheet, spend within means, and return cash to shareholders via ordinary and special dividends 22
    • Conclusion• Creating value in today‟s market – Cheap resource capture – Optimised growth, limited capital – Low cost, predictable production• Gold markets – Fundamentals support a strong gold price – Growing demand for investment – Future supply under pressure – Increasing costs• Key Newcrest themes – Drive performance from existing assets – Grow shareholder returns – Set up future growth options 23
    • Save the Date for Mines and Money Hong Kong 2014 March 24-28, 2014 - Hong Kong Convention & Exhibition CentreRegister your Interest at:www.minesandmoney.com/hongkong