Gold.com, Inc. Q3 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by. This is the conference operator. Welcome to the Barrick 2022 Third Quarter Results Conference Call. During the presentation, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded and a replay will be available on Barrick's website later today, November 3rd, 2022. I would now like to turn you over to Mark Bristow, Chief Executive Officer. Please go ahead, sir.

Thank you very much and good morning, and good afternoon, ladies and gentlemen. And again, welcome to our presentation of the Q3 results today. We present from the London Stock Exchange today, and it's nice to see those familiar faces and not so familiar faces. That brings back lots of memories for me being here. Times like we are today, not always up but also down. I look forward to getting some questions from the floor, and thank you very much for coming out in person today. As I've said many times before, the troubles that have been closing in on the global economy, including the mining sector, tightened their grip in the last quarter. Barrick, however, as I hope I'll be able to demonstrate once again, is well placed to contend with these challenges. Thanks to the disciplined execution of our long-term value-creating strategy, we have and still are focused on maintaining a strong balance sheet. Our dividend policy is delivering sustainable returns and we continue to extend our life of mine plans to ensure that our tenure production profile remains intact. Our successful exploration programs are feeding high-quality prospects into an already bulging pipeline, and while our focus is on organic growth, we are also keeping an eye open for value-adding M&A opportunities, albeit that those capable of meeting our strict investment criteria remain few and far between. Please take note of our cautionary statement, and for those who wish to study it in more detail, it's available on our website. We had a softer quarter in Q3, as I'm sure all of you noticed and we guided you to, and it was mainly due to sequencing at Carlin and Cortez. But a great uplift in some hard work in the fourth quarter should keep us on track to achieve our 2022 gold production guidance, albeit at the low end of the range. Our copper portfolio earlier on the other hand performed well and is trending towards the midpoint of our guidance. Exploration, as I said in the introduction, continues to discover new opportunities as well as to expand our existing asset base and we expect to grow our reserves for the group again, and that is net of depletion as we did last year. Other highlights include the completion of the public comment stage in the Goldrush project and our continued progress with a massive Pueblo Viejo expansion project with the submission of our environmental and social impact assessment for the new tailings storage facility. I should also point out that Barrick was serious about responsible tailings management long before recent calamities focused the industry's attention on this issue, and we've made excellent progress and are on track to comply with the new standards on time. We've reviewed all our tailings facilities, both from the closed sites as well as our operating mines. I'll cover the financial results a little later. I've just given you a picture of our operating performance and how you can see the details. It's worth noting that higher energy-related input prices are having an impact on our cost structure. And so costs for the year are trending above the guidance range, and inflationary pressures remain a challenge, which we are actively managing. I’ll point out that a lot of people just roll up inflation, but there is inflation, and we're managing that. But we have the added impact of the geopolitical crisis and conflicts in Eastern Europe and other parts of the world, which are seriously impacting on the fuel costs and the electricity costs. Our drive to reduce greenhouse gas emissions by at least 30% by 2030 is going to go a long way to mitigate the current impact of fuel prices. We have already seen the benefits of these investments and expect further reductions over the next 12 to 24 months. This is a solid set of numbers with a strong operating cash flow of $758 million plus the proceeds from ongoing sales of non-core royalty assets. Our robust balance sheet supports a $0.15 per share dividend made up of a $0.10 base dividend and a $0.05 performance enhancement. In addition to this, our $1 billion share buyback program has repurchased $322 million worth of shares to-date, which is equivalent to 1% of Barrick's issued and outstanding shares at the time the program was announced. When you add those together year-to-date, we've returned just over $1.2 billion to shareholders, and we are on track, when you look at our forecast for the rest of the year, that we'll exceed our record $1.4 billion return to shareholders of last year. There's an extra component in returns with our commitment to continue to buy back shares when we feel that they are materially below their real value. After today, we're going to be buying back more, significantly more. Sustainability, as always, remains the cornerstone of Barrick's business. And again, I'd point out we practiced responsible mining long before ESG became the focal point. We've adopted an integrated holistic approach to sustainability because it’s crucial. In its current form, ESG is skewed towards environmental concerns at the expense of social and governance. The upliftment and development of societies and countries that have been left behind by the developed world is a significant global problem, we would argue, as climate change, and it should be linked to it. Poverty is particularly a big issue in Africa, which hosts two of our Tier 1 mines and many of our prospects. Africa holds 17% of the world's population but, owing to developmental neglect, accounts for only 3% to 4% of global carbon emissions. Unless the aim is to keep Africa poor forever, population growth and the fast pace of urbanization will cause this rate to rise dramatically. We have invested heavily in clean energy at our African operations, and the Kibali gold mine in the Democratic Republic of Congo is now largely powered by three hydropower stations, which we built there, as well as refurbished forestation that provides energy to the community. We are also sponsoring major biodiversity initiatives designed to mitigate the climate change and nature loss risks posed by deforestation and the degradation of habitats. This risk is very real. And just on that, our blended costs for the last 12 months at Kibali is just under $0.05 a kilowatt-hour. So, it's very much a mitigating investment, and our drive to 30% reduction by 2030 will continue in real terms, mitigating the increased costs of hydrocarbon fuel, and every one of our cleaner energy investment projects meets our 15% return hurdle rate. So, it's a real investment; it's not just something to comply with regulators. Last quarter, Barrick advanced its investment in its REDD+ program surrounding our Lumwana mine in Zambia. For those who don't know, REDD+ is a UN-backed framework that covers the role of conservation, the sustainable management of forests, and the enhancement of forest carbon stocks in developing countries through socioeconomic and biodiversity-linked projects. In keeping with our holistic approach to sustainability, Barrick invested $8.7 million in community development alone in Q3. These collective sustainability approaches implemented by Barrick, clean energy, community development, and nature-based solutions through the REDD+ programs will aim to address a just transition throughout the developing world. We recently started engaging with the Dominican Republic government on another similar REDD+ program regarding carbon credits. For those who don't fully appreciate it, if you want to invest in carbon credits, you have to do it in partnership with governments. Health and safety for our employees and the welfare of the communities around our mines are part of our sustainability strategy. We continue to reduce the total recordable injury frequency rate and the lost time injury frequency rates at our mines. I’m saddened to share that our journey to zero harm was marked by a contractor fatality at Pueblo Viejo last quarter. Certainly, any event like this offers lessons to be learned, and we ensure that those lessons are shared across all our operations globally. With the threat of COVID-19 still lingering, we continue to encourage our workforce to be vaccinated, and I am proud to share with you that 80% of our workforce across the world have been at least partially vaccinated to date. I’ll start the operational review as usual in North America at Nevada Gold Mines, Barrick's value foundation. As far as the original objectives of the joint venture are concerned, I can safely say mission accomplished. We've created a whole that is truly greater than the sum of its parts. From this sound base, Nevada Gold Mines can exploit the wealth of opportunities in its ambit. We have recruited a future-facing management team, including a new North American Regional Chief Operating Officer and a new Nevada Gold Mines Executive Managing Director to lead the company into its new growth phase. But back to last quarter when Nevada Gold Mines had to deal with some operational issues. At Carlin, production was impacted by a temporary fall of ground, while Cortez was in the process of transitioning from open pit mining at Pipeline to a new phase at the Crossroads pit. For the fourth quarter, Carlin expects higher open pit grades from Gold Struck, while Cortez is anticipating the Crossroads will also deliver a grade improvement. At Turquoise Ridge, the underground operations continued to make good progress, although production was down due to lower underground grades mined and lower autoclave recovery. The mine began commissioning its third shaft, and on the back of a change in management, we are starting to navigate some of the maintenance and availability challenges that have impacted the sage processing facility for some time. This slide shows the substantial exploration and expansion targets and their potential to continue to grow the Nevada Gold Mines reserve and resource base. NGM's greatly enhanced geological capacity has delivered an optimal balance between the search for long-term standalone deposits while extending and converting answers around existing targets. Simultaneously, Barrick is also looking for new opportunities elsewhere in Nevada and North America as a whole. Let’s take Greater North Leeville as just one example of how Nevada Gold Mines is increasing its growth footprint. Continuing exploration has produced some of the best intercepts in the history of the Carlin complex, producing significant grade intercepts with much more to come. This target clearly has a multi-million-ounce potential. We will be sharing a lot of these projects with you at the Investor Day in two weeks' time, so this is just a teaser of what's to come. We then move on to Latin America and the region where we faced many post-merger challenges. We've made enormous progress in minimizing inherited liabilities and maximizing assets, with the Pueblo Viejo expansion project in the Dominican Republic as a shining example of the latter. This region also includes our Asia-Pacific holdings, where the revival of Porgera in Papua New Guinea and the development of the Reko Diq project in Pakistan bode well for the future. Despite dealing with the expansion project, which is designed to extend its life beyond 2040, with an annual production rate of over 800,000 ounces, Pueblo Viejo posted a stellar set of operating results, increasing production 15% quarter-on-quarter. The construction of the processing plant as part of the expansion is now 70% complete and the environmental and social impact assessment, as indicated in my introduction for the new tailings storage facility, has been completed in line with the government's Terms of Reference and submitted for approval. Our expectation is that this will convert a significant amount of resources already in the measured and indicated category into reserves for this mine. Essentially, as we indicated when we started, it's like a new mine, adding production well past 2040 to the life of the mine. In order to size the TSF properly, which we're currently busy with, we are working on that prefeasibility study. We have been evaluating opportunities within and nearby the Pueblo Viejo lease with some success. Several new targets that the team has developed, we are getting encouraging results from. We cross now to Argentina, which continues to be a tough operating environment, while the government struggles with currency crises and hyperinflation. Fortunately, the San Juan Province which hosts Veladero has been very supportive and the mine is now in much better shape than when we found it. This is our first winter operating on the new leach pad Phase 6 facility. It is separate from the old facilities, and we are still getting our heads around the geomet and leach dynamics, which we believe have been exacerbated by the abnormally long winter and freezing of part of the pads. Meanwhile, the construction of the Phase 7A leach pad continues to advance, and work on 7B will start this quarter. We hope to see Veladero's long-awaited connection to the Chile power grid in the near-term. Our restructured exploration teams have been progressing targets located across the continent and the region. Regarding Porgera, the new joint venture company has now been incorporated in September, and while still some conditions precedent are to be fulfilled, the path toward a restart is now clearer than when we last spoke at the last quarterly presentation. In Pakistan, the definitive agreements for the Reko Diq joint venture have been finalized, and the process has moved to its penultimate stage: legalization and closing. The feasibility study update is targeted for 2024 and production for late 2027 into 2028. While I always refer to Nevada as Barrick's value foundation, our Africa and Middle East region is our most consistent producer of excellence across all fronts, alongside rich gold and copper growth opportunities. Barrick's status as Africa's largest gold mine is underlined by the Loulo-Gounkoto complex, routinely accounting for around 7% of Mali's GDP. It's been going strong for 18 years, and its continued success in replacing depleted reserves gives us a lease on life of at least another 10 years at sustained production levels. We've been making substantial investments in clean energy there, and the expansion of the solar power plant by an additional 40 megawatts and a 36-megawatt battery storage system is proceeding steadily. This will replace another 23 million liters of heavy fuel when it's fully commissioned in 2024. When it comes to exploration success, the Loulo district remains one of our happy hunting grounds with a lot of discovery potential. The Yalea deposit, hosted within its 72-kilometer-long mineralized district, continues to hold strong potential to add further ounces. The open extensions we are exploring are key to our successful depletion replacement strategy. Kibali, Africa's largest gold mine, produced another steady performance with improved costs across all metrics. Hydropower provides most of the mine's energy requirements, offsetting the impact of higher diesel prices. As pointed out, its average energy spend of just under $0.045 per kilowatt-hour makes it one of the industry's lowest cost producers. Similarly, like Loulo-Gounkoto, Kibali is on track to meet its 2022 production guidance despite the 21-day planned shutdown of the shaft to replace the winder. In fact, that’s about to end, and I believe we started hoisting last night, so we’re busy commissioning the new winder as we speak— a good job from the team. Also, like Loulo, Barrick's other Tier 1 asset in Africa, Kibali has many opportunities for reserve growth with the complex hosting multiple targets. Our Tanzanian operations are again a prime example of partnership and action. When we took over North Mara and Bulyanhulu, they were not only poorly managed but effectively closed. We've addressed all their legacy issues in the joint venture deal with the government, transforming them into new mines capable of a combined annual production exceeding 500,000 ounces at North Mara, while it continues to ramp up its open-pit operations. Bulyanhulu's underground mine also continues to scale its production, backed by a new fleet that will enhance our development while we look to mitigate the constraints imposed by the mines' narrow ore bodies. Turning to our copper operations, Lumwana and Jabal Sayid are both delivering stellar results with exciting growth prospects, while Zaldívar maintains consistent performance. Since 2019, we extended Lumwana's life to 2042 and have a real opportunity to increase its life of mine beyond 2060. Our success in drilling out the Lubwe target has provided the potential for a major pushback needed for the development of a super pit, and we’ve started work on a pre-feasibility study, which is scheduled for completion next year. As you all know, Barrick's core belief is that the best assets managed by the best people will produce the best returns, arguably the most consistent and best returns. Our sustainable dividend framework provides investors with an opportunity for enhanced performance-based rewards as well as financial flexibility and, importantly in a cyclical business, predictability. For the third quarter, as I noted earlier, the $0.15 per share dividend comprises a base and a performance component. On an annualized basis, this equates to a peer-leading dividend yield. When you combine this dividend with a share buyback, it points to a total shareholder return year-to-date, as I stated, at $1.2 billion, setting it on track to beat the record $1.4 billion return of last year. Ladies and gentlemen, in conclusion, we are successfully executing our strategy of building the world's most valued gold and copper mining company, as evidenced by these actions. With the industry's largest portfolio of Tier 1 gold assets and many growth opportunities that lie ahead, we are confident in our continued ability to deliver on this strategy, which presents a compelling thesis for creating value. I thank you for your attention, and we are happy to take any questions you might have. I suggest we start with...

Yes. I wanted to ask you one more question and thank you for your comments about the outlook for 2023; that would have been my natural follow-up. So, I also just wanted to ask about your comments around Argentina and your latest thoughts and whether or not you see any potential for improvement from there based on what you're seeing at both the state and federal level? Thank you.

Yes, Argentina is a very frustrating country on every aspect. It's got so much going for it, but the politics are just crazy. I'll just give you an example: If you look at our truck drivers, which are part of a union, and the regulations behind salary adjustments. The Argentinians are managing this crisis like the South Africans used to manage sanctions; they've introduced an artificial exchange rate. We've increased our driver salaries by 50% in U.S. dollars over the last 12 months, but the drivers are still earning the same in pesos. That shows the unnatural and non-market exchange rate forced upon us, and that's the issue in Argentina; a forced inflation or price increases, not really inflation through regulations. The government is obsessed with protecting dollars; but we make the dollars and communicate this to the central bank's Governor. They've recently introduced a regulation where we can only pay for purchases 18 months after they arrive in the country. It’s manageable for Barrick because we have a balance sheet between the U.S. and Shandong; we can finance that, but for smaller mining companies, it's very tough. It’s the same when we look to keep money offshore; we want to get some returns back, and they will only give us a 20% retention of the dollars offshore. We're expected to pre-finance the gold sales. We do that as Barrick has a big trading arm, and we profit from these trades. But again, if you don't have that capacity, it's hard to do business. We talk all the time to the central government; they're very accommodating in conversation but just can’t seem to grasp what must be done to unlock the hard currency component of their economy. They have plenty to deliver dollars; it’s a great tourist destination with fantastic agriculture, some of the best in the world, and mining. It should work, and for some reason, the folks in Buenos Aires are struggling to catch up with that, Economics 101. Does that answer your question?

Yes, that’s perfect. If I could actually sneak in one more question, maybe just your comments on M&A activity. You mentioned that you continue to be sharp on the lookout for opportunities, but they're just not meeting your investment filters. Can you refresh what those investment filters are, and how important you consider M&A to Barrick's strategy going forward?

Let me rephrase that because I don't think we want to get the wrong message across. There's a scarcity of high-quality assets; we coined the term Tier 1, which has been adulterated by most folks as far as its definition. A Tier 1 asset in gold means at least 0.5 million ounces for a minimum of 10 years at the lower half of the cost curve. A Tier 1 asset for copper is more than 5 million tons of contained copper or a 30-year life and also at the lower half of the cost curve. That’s simple, and if you do that, you can be sure of making money. We calculate those returns based on our long-term strategic prices. There aren't many assets fitting that criteria. In gold, there are probably only about 12, and we've got six of those. You've seen us play in the market on all the sales at the back end of last year and the beginning of this year, and we walked away from every asset that does not fit our criteria. Many of those transactions were done at assumed prices above what the spot price is today, given the escalation of costs. It's not a healthy situation, and it seems some folks in Canada think that the only way to grow is through M&A, but I can assure you that’s not how you grow value for shareholders.

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

Good morning, everyone or good afternoon. Thank you so much for taking my question. I've got three. I'll try to make them quick. The first one is just on Nevada Gold Mines. Mark, when we were at the mine tour in September, we talked about Nevada Gold Mines Q4 being about 1 million ounces of production coming for the quarter. Now that we're 1 month into the quarter, how does that outlook feel to you? Is it still doable with grade and throughput?

So, I'm not sure where you got the 1 million ounces. Not sure, Tanya, but close, not quite 1 million, around 950,000 ounces, and we're on track for that. This is specifically for Nevada Gold Mines, not North America; North America gets close to that.

Thank you for that. You talked a little bit about growing your reserves at year-end 2022. I just wanted to confirm that you’re thinking about that $1,300 gold price up from $1,200. And when you talk about growing your reserves, I'd like to go around the world and identify the assets that are going to grow. When we were at Nevada Gold Mines, we discussed reserves not being replaced this year, but can you elaborate on where reserves will grow? Also, is this separate from you getting the permit in H1 of next year for Pueblo Viejo and having that huge increase in resources move to reserves? I just want to understand where it's coming from and if it is separate from Pueblo Viejo's reserve increase, should we get the permit?

You're right, let me start with Nevada. You are correct on that. It's about 50% that will be replaced in reserves, but we are growing the resources. Given its size, Nevada experiences cyclical trends. It takes a while to build up the resources, and we’ve shown you those resource growth projects, which will transition back to reserves ultimately. The reason for that is we drill them out first from the surface, then we develop them to drill out from underground. This cycle is much longer than, for instance, in our African assets, where we should replace and add about 1 million ounces net increase in reserves. Our current production rate is around 3.5 million ounces. On the Dominican Republic, we always pointed to 9 million ounces of potential conversion on a 100% basis. That more than compensates, and again, we are still working on the final pit. As I said, we’re sizing that tailings facility, and that adds up for the rest and accounts for all of LatAm and Asia Pacific, so that gives you a broad overview. We’ll provide more detail as stated in our Investor Day. The $1,300 is simply to put things in perspective: it’s not only about the $1,300; it’s about the input cost model we use to set long-term gold prices. More or less, our view is that the long-term impact on input costs will be around $100 an ounce. So that’s where we are indicating we might land with the new long-term gold price. The copper side will be above $2.75, and we’re working hard on that as well. Our input cost model effectively manages long-term revenues rather than roughly guessing at the gold price.

Okay. Just to clarify my understanding, when you do talk about the increase in your reserves at year-end, does it include the Pueblo Viejo conversion from resources to reserves?

Exactly. That's always been the case. Tanya, just to point out that when we did the deal, the Dominican Republic was a real issue because it hadn't repaid its original capital, which amounted to over $3 billion paid out to the government, and it had more reserves locked up than it could produce. We would have halted some mining already this year. The partnership we've built with both the communities around our mine and the government is significant; it effectively delivers a new plus 800 million ounces annual production mine for Barrick.

Understood. And just my last question, if I could, I wanted to ask about the inflationary pressures you're seeing. You mentioned electricity costs, and definitely, power costs are high in your part of the world. Are you seeing any relief, or maybe not, as the momentum has declined concerning inflationary pressures on labor and/or consumables?

I think we should start with inflation vs. input cost increases related to the geopolitical situation, which has nothing to do with inflation, particularly from Eastern Europe. That’s more about energy costs. But there are others – explosives, etc. Fix the crisis in Ukraine, and you'll take all that away. But there’s inflation that’s a long-coming issue, a product of excessive quantitative easing. We live in a world today where global debt has multiplied compared to global GDP. Just to remind you, it started....

Yes. Is this on? Yes. So, Jackie, just to simplify the formula we put together; it was purposefully done to deliver an additional dividend when our performance, measured by our available cash resources, was strong. We aimed to give absolute clarity on how that would be calculated, so that stakeholders have visibility while still maintaining a dividend through the cycle. As Mark pointed out, this is a cyclical industry, and perpetually increasing dividends is just not realistic. So having a formula linked to that cycle, but underpinned by a base dividend, is a responsible way forward. It was deliberately structured so that when the market corrected, which it has, investors would fully understand how that dividend would be determined. So, to answer your question, no, we have no intention of changing that formula.

The added thing to note – I find it difficult to follow: we have a market where gold prices were at $1,800 and above. People declare dividend policies of ratios based on cash flows, etc., which we refrain from doing or linking to the gold price. With the gold price down $300 and the cost side of that equation up $100+, people are still retaining the same dividends in a resource industry. Your revenues dropped by around 30%, and you're maintaining the same dividend; it doesn't make sense. Paying out more than your cash flow— that's absurd. Many fund managers are looking for this. I’m sure that investors behind those funds don't want to see that; they invest in our business because we’re a resource business, and they want full exposure to the metals that we mine. Our plan is to remain reliable in running our business, as we have been for the last 30 years.

That's very clear. Thanks for that answer. That’s really helpful. If I could follow up, you mentioned growth opportunities. Reko Diq has been significant for you. I saw the comments in the MD&A. I know you're still waiting for events on the bureaucratic side in Pakistan before you can move forward with Reko Diq. Is there a timeframe for when you see that coming together, and when you might be able to close that agreement and restart the feasibility study?

We've set ourselves the end of the year for closure. It depends on one thing: the Supreme Court. We believe in managing risk responsibly and have passed this through the President to the Supreme Court for reference. Once that’s done, it will return to parliament for specific legislation to be passed, focusing on the whole industries through an omnibus legislation that we've negotiated. Once we get that, we'll sign the documents. All of those documents, all agreements are settled; they’re just waiting on that process. In the meantime, we're doing work; we've completed the baseline study, the environmental baseline study. We need to implement this as we need a couple of seasons to refresh the 2011 environmental permitting, as it has timed out. We’re enhancing infrastructure with the airstrip at the site. We have started investing in education initiatives, potable water, and have done all the redesigning needed for the limited drilling we play into geotech. We’re engaged in tendering for drilling works planned for both water and confirmation drilling of the main resources, and we're on top of the seismic work to understand the aquifers. We’re also well along on infrastructure and logistical planning and design for managing access in and out. We are building a project team that will initially be located in Dubai and ultimately move to the country; the design makes sense. Short flights enhance access, and significant connectivity is available. That’s the preliminary work while waiting for the closure of agreements.

Thanks. It sounds like next year will be very busy there.

Next year will indeed be busy at Barrick, as it always is. This year has been busy, too.

Okay, I believe you. Thanks very much, Mark.

At this time, there are no more questions from the conference call.

Thank you, everyone, for participating. We are concluding the call now. If anyone has questions that they’re too shy to ask in public, we are absolutely available to answer them. The whole team, from the explorers to the tax experts and people involved in Pakistan are here. We'll see you outside. Thank you again to everyone who has joined us on the phone. We look forward to our Investor Day and our road show, where we'll see some of you traveling around the world, including New York in two weeks. Cheers.

Nothing to drink?