Gold.com, Inc. Q2 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by. This is the event operator. Welcome to Barrick's Results Presentation for the Second Quarter of 2024. Following today's presentation, a question-and-answer session will be conducted. As a reminder, this event is being recorded and a replay will be available on Barrick’s website later today, August 12, 2024. I would now like to turn you over to Mark Bristow, President and CEO of Barrick. Please go ahead, sir.

Thank you very much and very good morning and good afternoon to those here at the Barrick corporate office and across the globe. Welcome to the quarter two results presentation. So at the halfway mark of 2024, it's gratifying to report that our performance has been picking up as we work to meet our production guidance for the year. As important as our operations is the progress we are making in advancing our major growth projects. As I will show you during this presentation, a new potential Tier 1 gold mine, 100% owned by Barrick, is taking shape in Nevada. Our copper business is on track for a transformative expansion and the enlarged and upgraded Pueblo Viejo is getting into its stride for a new 20-year stretch as a world-class producer. These mines will be delivering new gold and copper into the market at a highly opportune time, demonstrating the value of Barrick's long-term planning and investment strategy, as well as the enormous upside optionality embedded in our asset base. This is the customary cautionary notice regarding forward-looking information. And for those who want to study it further, you'll find it in full on our website. Starting with the group highlights, the safety, financial, and operational results for the past quarter all point in the right direction, reflecting a business that is delivering across the board. Rising production and increasing margins provide the foundation for a strong second half, while the financials indicate well for our ability to fund our growth and sustain the delivery of value to our shareholders. A closer look at the financials particularly significant are the increase in attributable EBITDA margin to 48% and the substantial free cash flow growth. Gold margins were up 39% quarter-on-quarter, while copper margins rose by 124%. Adjusted net earnings per share were 68% higher quarter-on-quarter, and debt net of cash was reduced by 12%. The share buyback program was restarted and the quarterly dividend maintained at $0.10 per share. Operationally, gold production increased slightly quarter-on-quarter. Slightly higher costs were a function of higher royalties, but for all intents and purposes, the costs were flat and the drivers of the costs were really set with PV as we ramped up and then the push backs in Carlin and Cortez. Copper production increased with costs falling thanks to higher grades and mining fleet upgrades and looking ahead we expect materially higher production from PV, Turquoise Ridge, and La Moana into the second half of the year. If you look at our detailed health and safety report, it's very pleasing to show you how that the performance continues to trend positively as we pursue our zero-harm goal. Our approach to sustainability has always been holistic and embedded in our business. It is a differentiated approach focused on the long-term and the understanding that all environmental and social aspects are interconnected and integrated. Our approach is always based on science and it needs to be measurable. This is why we developed the Industry-First Sustainability Scorecard to track and disclose our sustainability performance. We also link our targets and reports to the UN Global Compact and the UN Sustainable Development Goals, or SDGs, which itself calls for an approach to sustainability that resonates with our strategy. And that is why we have developed and launched our own comprehensive biodiversity assessment tool during the past quarter. It is designed to measure our impacts on nature and inform actionable conservation strategies and in time to come, targets to measure against, while maintaining a human-focused lens for the development of our host communities in our goal to alleviate poverty. Our integrated approach extends to our climate change strategy, and the addition of 200 megawatts of renewable solar energy at the TS Power Plant in Nevada is another contributor. We start the operational review as usual in North America, where Nevada Gold Mines hosts three of our Tier 1 mines, with another in the making at the adjacent 100% Barrick-owned Fourmile project. Fourmile is a particularly exciting prospect. The more we learn about it, the more it looks like it could be the largest undeveloped high-grade gold deposit in the world today, directly adjacent to Nevada Gold Mine's existing infrastructure in one of the world's best mining jurisdictions. Following the completion of the Sage autoclave maintenance shutdown in the first quarter, Turquoise Ridge increased production by 16%, while Carlin focused on underground development to improve its operational flexibility to offset the gold quarry pit redesign following the pit wall failure in Q1 and Gold Rush continued to ramp up at Cortez. With that let's take a closer look at Fourmile, which is adjacent to Gold Rush, but as I said in the previous slide is 100% owned by Barrick. I'm going to pause here so that you can digest the very significant intersections by the 10 diamond core drill rigs currently on site. If you look at these drill rigs, drill intersections reminisce of yesteryear, the gold strikes, the Carlins, the big discoveries. And many are in the 2-ounce per tonne category. Really, Fourmile reminds me of those company-making Carlin deposits of the past, a world-class project in every sense. As we shared with you last quarter, we're planning to have an updated mineral resource towards the end of the year when you'll make a decision about the pre-feasibility options. I believe this asset has the potential to be as valuable to Barrick as our current stake in Nevada gold mines. And that's before our geologists find more of those Carlin elephants that I keep talking about. That takes me to the 14 million-ounce Leeville project, which like Gold Rush is developing into another major growth driver with the potential to double or triple current reserves extending Carlin's life beyond 2045. I think this is significant just to dwell a little further on it. When you look at what we're dealing with today, we did a number of transactions in 2019, 2020. We never paid a premium for any of them. Embedded in those transactions are these types of ore bodies. What we're doing now is bringing them to the fore and working to get them into our production profile. You'll see more of this as you go. But just before I leave North America, so we've got Gold Rush driving Cortez Complex. We've got the emerging Leeville expansion driving Carlin. Of course, Turquoise Ridge stands on its own as a high-cost, low-grade producer. That is the future of Nevada. When you see the sort of quality coming out of Fourmile, you've got to believe that there are more opportunities to make new discoveries in this region, and that's our focus. So leaving North America, we move now to Latin America and the Asia-Pacific region, where our flagship growth project, the Pueblo Viejo plant expansion and mine extension is up and running again. In Papua New Guinea, the recently restarted Porgera mine is ramping up to commercial production, while in Pakistan the Reko Diq feasibility study is on track for completion this year. Work has already started on the construction of what we term early works infrastructure while a recruitment drive focused on employees from the Balochistan province, which is the very foundation of what we're going to build Reko Diq. Just a reminder that the Pueblo Viejo project is designed to increase annual production sustainably above 800,000 ounces for 20-plus years. After the failure of the conveyor infrastructure last year, it has now been rebuilt and the focus over the past three months has been on throughput. For the third quarter, attention is now on grinding, flotation and recovery, ramping to achieve design output parameters. In the meantime, work on the new El Naranjo tailing storage facility is advancing as planned. Now you can see how the project has advanced over the past 12 months and the outlook for the remainder of the year. Now to Africa and Middle East region, which delivered its usual reliable performance with steady production and well-contained costs. These are the highlights, and I'll tell you more about them as we go along. Another steady quarter for Loulo-Gounkoto with cash costs well contained and all-in sustaining costs impacted by additional stripping for the pit pushback. Positive results from ongoing brownfields exploration point to further life of mine extension opportunities. As we indicated last quarter, we continue to engage with the government of Mali on their desire to increase their benefits from the mining industry while protecting our rights and the economic viability of the Loulo-Gounkoto complex going forward. In the north of the Loulo permit, drill results from the Baboto target have identified a large-scale well-endowed system with high-grade intercepts. This, along with other near-mine targets, all goes well for Loulo-Gounkoto to again replace the gold they mine this year. Across to the DRC where Kibali picked up speed after a slow start to the year with waste stripping providing access to higher-grade open pit ore. Meanwhile, next year's planned commissioning of its solar power and battery storage facility will complement the mine's three hydropower plants, increasing the renewable component of its energy use to 85%. In fact, for six months of the year, we'll have 100% renewable energy driving our power delivery. Similar to Loulo-Gounkoto, brownfield exploration continues to deliver further potential for growth, with high-grade results from the targets pointing to a significant deposit within just four kilometers of the plant. The prolific KCD trend is also producing new opportunities for reserve additions and therein lies the quality — real Tier 1 assets come with enormous upside opportunity as you see in Loulo-Gounkoto and at Kibali and significantly in Nevada. In Tanzania, North Mara and Bulyanhulu both increased production while driving down costs, and the resuscitation of these mines is one of our major success stories, as is the concept of Fourmile benefit sharing partnerships with host countries, which we successfully pioneered with the Tanzanian government. The Lumwana copper mine in Zambia delivered higher production at lower costs in line with the plan and is set for an even stronger second half of the year. The mine is also on the threshold of its super pit expansion, which will increase production to some 240,000 tons of copper and extend the operations life by more than 30 years. First production of this project is expected in 2028. The Lumwana super pit and Reko Diq are two of the organic growth projects I referred to at the start of the presentation and which are recapped here. Together, they will provide powerful support for Barrick’s drive to grow our gold equivalent production by 30% during this decade. It’s worth reminding you that Reko Diq will be both a gold and a copper mine, designed to produce 400,000 tonnes of copper on an annual basis and 500,000 ounces of gold per year in Phase 2 of its development. Add to that the ramp-up of two new mines, Gold Rush and PV, to be followed by a potential brand new mine in Fourmile, of which Barrick owns 100% and which can utilize the existing Nevada Gold mines infrastructure and processing facilities. Barrick has an unmatched growth portfolio that separates us from the industry with prospects of even more to come from our ongoing exploration initiatives. This brings me to a subject I have been flagging for some time and that is how undervalued Barrick shares are today. To end my presentation, I wanted to take you through some research based on the consensus net asset value of our assets. On this slide, we highlight two of our key businesses. On the left of the slide, you have Nevada Gold Mines, which is by far the best gold asset in the world's most mining-friendly jurisdiction. The right side shows our growing copper business is well on track to becoming world-class among peers, some of which have recently attracted international attention. Moving one step further, this table identifies the unrealized value embedded in Barrick’s portfolio. Nevada Gold mines, on its own, should command the industry's highest valuation. On that basis, this analysis conservatively assumes the price to NAV multiple equivalent to that of Agnico Eagle, although arguably NGM would be higher rated given its size and quality. The analysis applies a similarly conservative market multiple to our copper assets in line with copper peers. Again, the analysis is based on the current consensus NAVs, but we expect these NAVs to increase as we will be publishing updated feasibility studies on our two key growth projects at the end of the year. As you can see from the table, the value of just our interest in Nevada gold mines and our copper portfolio alone exceeds our current market cap. In fact, according to the current market value of our shares, the rest of our business has a negative value of $1.2 billion. This includes our interest in three Tier 1 gold mines outside Nevada, the world-class Fourmile project, other gold mines and development projects still in the pipeline, and our exploration team's unparalleled success in covering and uncovering new answers. In short, I would submit that when you buy a Barrick today, you get a lot for free. We set out in 2019 to build a sustainably profitable gold and copper mining company focused on world-class assets. We did not have to buy them at a premium, as I indicated in my introduction. They were embedded in the combined portfolio that we put together at market. Just required identification, evaluation, development, and delivery, which is where we are today. On top of that, we have replaced all the ounces we have mined and repaired our balance sheet to be industry-leading and capable of supporting our dividend policy and growth plans. Clearly, Barrick represents an investment opportunity unmatched in our sector, and I hope you'll leave the presentation with a clearer understanding of why the case for such an investment is so compelling. Thank you all for your attention, and we'll be happy to take questions as usual.

Mark, thanks very much for the presentation. I wanted to start on copper and just ask about La Moana. So two questions on that particular asset. So one, the power situation in the country. I mean, currently there's been a reduction of 20% initially and now 40% for electricity availability. Do you anticipate that will continue to improve going forward? Is there any risk that could be reduced further? And then secondly, when you think about the La Moana project ramping up and then first production in 2028, what is the latest thinking on a power solution for that asset?

There are plans to put extra power infrastructure into Zambia. We have already been awarded the capacity required to bring in the expansion in Zambia. So technically we're cleared to draw off the grid as the country itself looks to expand its infrastructure. At the same time, Barrick has recently completed a study of the entire Zambian power infrastructure and potential. Of course, we share that with the authorities. As far as the short-term issues go, you're right that 40% is now the rationing level, but we have a back-to-back agreement with the utility to purchase power, third party power from outside Zambia at a discount to the cost of generating diesel power, and we've got full backup diesel power on site as well. We anticipated this situation and invested in our own insurance. We then worked with the government to ensure that we can access additional external third-party power at a lower price than what we generate ourselves. Additionally, we brought in new infrastructure and generating equipment to support ourselves. We've also reached agreements on cogeneration, allowing us to generate power ourselves and feed it through the grid. Having said that, there are challenges. Every now and then we do encounter issues with the power delivery alignment, but we're improving our ability to manage this. At this stage, we don't believe there's a risk in the medium to long-term, but we will continue to look at solutions. We recently commissioned the TS solar plant in Nevada, that's 200 megawatts. Our experience going back to Randgold was to start with diesel, transition to heavy fuel, then gas turbines, and now solar. We have a strong technical capability in power management. It's paramount to work with the utility to ensure they understand the opportunities and the necessary infrastructure.

Mark, if I can ask you a question on capital allocation. I think historically you've talked about prioritizing financial liquidity for some of the copper growth portfolio, you know, development capital. The company now started a little bit of a buyback. Is it reasonable to assume that this could continue from here, or is this sort of a one-off thing?

To correct you, we put in the buyback approvals so that we can manage shorts in the market and any softness in the stock. Our discipline is real, and managing capital allocation is core to us. When we get extra cash net off debt, we will pay that as a dividend. As management, we've got the flexibility to use that money to buy back stock and delay the dividend. We manage it against how we deem the value of the shares, and right now, the shares are a good buy. We've seen some challenges earlier this year but had some extra cash. We had a window to act because we have closed periods where we can't buy. Our objective will be to get the share price up as our real focus. Long-term, we'll pay the dividends as we did at Randgold Resources; dividends should come from the profit and loss in a mining company like Barrick, and we shouldn't borrow to pay dividends. Our objective is clear, and our shareholder returns reflect that.

I do like the slide you had that demonstrates the value proposition with the stock here and sort of the real core value drivers. I'm wondering, in the event that shareholders, investors don't recognize that, would the company ever consider spinning out some assets or divesting some of these non-core positions to try to realize the value on a quicker timeframe?

Getting rid of non-core assets is logical, but moving high-quality assets out of a portfolio makes no sense. The mining industry has too many companies with not enough competent management. Breaking these companies up without a third-party acquisition is a challenge to deliver value. Raising capital development and delaying dividends is also short-sighted. Companies like Freeport illustrate that investing in infrastructure pays off long-term. We are focused on the long term, creating value for all our stakeholders, and dismantling this company is not a strategy I endorse. Our main investors are solid, and the belief in the company remains unchanged since 2019.

Mark, you've highlighted how exciting Fourmile might be, but can you just go over and review how it gets vended in to NGM? Can you walk us through the necessary study, and who controls the time horizon on this?

I'll cover the strategy, while Graham can provide detail. No one can force anyone to do anything under this agreement. We have a partnership with Newmont in Nevada and access to utilize Nevada Goldmine's infrastructure. There is an opportunity to find the best way to develop it for the interest of both sets of shareholders. Fourmile remains an asset of 100%, and our work this year is to assess it properly. We're using 10 rigs on site, and every intersection has been promising. We're committed to having a clearer picture of what we have. There’s an option to develop Fourmile independently, but we will work to maximize the asset's value for our shareholders. I can assure you that it's exciting work.

The joint venture agreement has specific provisions regarding bringing the asset into the joint venture. Provided that the joint venture meets a minimum return hurdle rate, it goes into the joint venture based on a comprehensive feasibility study. The value of the asset for inclusion is determined based on market valuation and existing infrastructure, providing additional value. The feasibility study will capture the evolving conditions and accurately reflect Fourmile's potential.

Good morning. My question is with regards to Pueblo Viejo. You've provided a slide showing recovery rates. Could you elaborate on how this evolves through 2025 and particularly the targeted 92%?

I think it's above 80% for later years. The targeted recovery rates will increase incrementally. The focus is on optimizing grind and float to improve recovery. We are making progress in throughput and refining the recovery process is complex but essential. We're confident in achieving those goals, but it requires disciplined operational control and adjustments to maintain consistent recovery.

Just to clarify, is the expectation that as we move through the rest of the year, Nevada's gold production will primarily be driven by Carlin and Turquoise Ridge with higher grades? Also, are you seeing a pickup in the grade now that we're halfway through Q3?

Broadly yes, it primarily relies on higher underground grades instead of open pit ore. That could temper throughput but overall, we're seeing positive trends. We are indeed seeing improvements in recovery and throughput at Pueblo Viejo as well, with optimization efforts now focused on grind control.

Thank you. This concludes today's event. Should you have additional questions, please contact the Barrick Investor Relations Department. You may now disconnect your lines. Thank you for participating.