Newmont Corporation
Q2 2017 Earnings Call Transcript

Published: 25 Jul 2017

[Operator:]

Good morning, everyone, and welcome to the Newmont Q2 2017 Earnings Conference Call. All participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. And please note that the event is being recorded. I would now like to turn the conference over to Meredith Bandy, Vice President of Investor Relations. Please go ahead.

[Meredith H. Bandy:]

Thank you, and good morning, everyone. Welcome to Newmont's second quarter conference call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer; Nancy Buese, Chief Financial Officer; and Tom Palmer, Chief Operating Officer. They and other members of our executive team will be available to answer questions at the end of the call. Turning to slide 2, please take a moment to review the cautionary statement shown here or refer to our SEC filings, which can be found at our website at newmont.com. And now, I'll turn it over to Gary on slide 3.

[Gary J. Goldberg:]

Thanks, Meredith, and thank you for joining us on the call. Newmont delivered an exceptional quarter. Tom, Nancy and I look forward to presenting our teams' work, to overcome challenging conditions at the beginning of the year and improve our outlook for the remainder of 2017, launch another profitable project and invest in targeted gold prospects and create value through improved revenues, EBITDA and dividends. Turning to more details on slide 4. Quarter-on-quarter, we improved our underlying business by continuing to reduce workplace injuries, maintaining leading sustainability practices, lowering all-in sustaining costs 3% to $884 per ounce, and increasing gold production 13% to 1.4 million ounces. During the second quarter, we strengthened our portfolio by funding the Twin Underground project in Nevada, a profitable expansion of a well-known resource, progressing expansions at Northwest Exodus, Tanami and Ahafo, investing in Continental Gold's portfolio of high grade prospects in Colombia, and signing exploration agreements in Canada, Australia and French Guiana. Steady performance and portfolio improvements give us the means to create long-term value for shareholders. During the second quarter, we delivered nearly $700 million in EBITDA, a 16% increase from the prior year quarter; a net debt to EBITDA ratio of 0.6 times, making ours one of the strongest balance sheets in the sector; our fifth consecutive quarter of positive free cash flow; and a 200% increase in our dividend declared for the second quarter. Value creation starts at the mine phase. Turning to slide 5, Newmont's mines continue to be among the safest in the world. In the second quarter, we brought our total injury rate down to the lowest level we've achieved in two years. While we're proud of this performance, our overall approach to safety is to remain humble. And we continue to learn from mistakes and strengthen our controls. A safer operation is a more efficient operation and ultimately more sustainable. The photo you see in this slide shows the ultra-fine grind mill we installed at KCGM about two years ago. The mill replaced a roaster and virtually eliminated stack emissions at KCGM. This environmental improvement was achieved while the team also delivered a 14% improvement in throughput, something that Tom will cover in his remarks. Before I move on, I also want to acknowledge the KCGM team for reaching 4 million hours without a loss time injury during the quarter and for donating their safety bonus to people in need in their community. Turning to our cost performance on slide 6, in the second quarter, we delivered all-in sustaining costs of $884 an ounce on the back of higher production, lower capital and ongoing full potential savings. This brings our gold all-in sustaining costs to $892 per ounce for the first half of 2017 and our cost reductions to 24% since 2012. Nearly two-thirds of these reductions are the result of our ongoing Full Potential program, which rests on continuing to improve our technical fundamentals and replicate best practices, prioritizing technology investments based on their value and viability and developing the leadership, talent and culture we need to sustain operational excellence. Turning to slide 7. We increased attributable gold production to 1.4 million ounces, a 13% improvement over the prior year quarter. Contributing factors included higher grades, mill throughput and recovery at Akyem, higher mill grades and new leach production at Cripple Creek & Victor, favorable grades and ore blending at Twin Creeks and continued strong performance at Long Canyon and Boddington. We've improved our 2017 cost production and capital outlook on the back of this performance, which I'll cover shortly. Strong operating performance gives us the means to invest in growth. Turning to our most recent investment on slide 8. We recently funded the Twin Underground mine, which lies below into the North of the Twin Creek's Vista pit. This is a profitable expansion that is expected to add on average between 30,000 ounces and 40,000 ounces of annual gold production in the first five years, at an all-in sustaining cost of between $650 and $750 per ounce. Capital costs of between $45 million and $55 million are higher than the prior estimates due to increased mine size and mining rates. The larger mine improves project value and the internal rate of return is expected to be about 20% at a $1,200 gold price. The mine will supply high grade sulfide ore, averaging 6.5 grams of gold per tonne, to the Twin Creek's autoclaves, improving ore blending options and increasing processing life. The mine will also create a platform to explore and potentially extend the deposit which is open along strike and at depth. Turning to investments in new districts on slide 9. In May, we announced an agreement to acquire a 19.9% stake in Continental Gold for $109 million. This investment supports development of the high grade Buriticá gold project and gives us exposure to Continental's other exploration properties in Colombia. Buriticá includes two major vein systems that are open along strike and at depth with declared gold reserves of 3.7 million ounces at grades of more than 8 grams per tonne. The project is permitted and construction is expected to begin later this year with commercial production in 2020. And over the past month, we've implemented our joint sustainability, technical and exploration committees with the Continental team. In March, we announced an agreement with Goldstrike Resources to earn up to 80% equity in the Plateau property, through exploration investment. Plateau is a newly-discovered gold system in the Yukon territory. Since closing the transaction, Goldstrike has staked additional claims, increasing the total property to more than 570 square kilometers. And an airborne geophysical survey has been completed to support structural geology mapping. We are also pursuing exploration prospects in Australia at (8

[Nancy K. Buese:]

Thank you, Gary. I'm pleased to report another positive quarter with improved earnings and a strengthened balance sheet. Turning to slide 12 for the financial highlights. Revenue improved 12% to $1.9 billion, primarily due to higher sales volumes in North America and South America. Adjusted net income increased 59% to $248 million or $0.46 per diluted share, and adjusted EBITDA improved to nearly $700 million. We also generated more than $500 million in operating cash flow and nearly $350 million of free cash flow. Cash from continuing operations declined 21% versus the prior year quarter on timing of working capital changes. In particular, we had a large cash tax payment in Australia this quarter versus a U.S. cash tax refund this time last year, and a bill and accounts receivable, which is expected to reverse out next quarter. Free cash flow also declined 10%, as higher sales volumes and lower CapEx were offset by working capital changes. I'll turn to slide 13 to review adjustments to net income. Second quarter GAAP net income from continuing operations were $0.36 per share. Primary adjustments included a $0.03 non-cash gain related to the exchange of a JV interest for equity in Shore Gold, a $0.01 loss related to costs associated with the acquisition of Boddington in 2009, and $0.12 related to certain tax items. Because our foreign tax rates are greater than the U.S. rates, we continue to build up our foreign tax credit carry forward. Given the nature of this asset, we carry a full valuation. Taking these adjustments into account, we delivered adjusted net income of $0.46 per share. Turning to capital priorities on slide 14. Operating and portfolio improvement support our capital priorities, which are to fund profitable growth, return cash to our shareholders, and maintain an industry leading balance sheet. We continue to self-fund our most profitable projects in order to expand margins, extend mine life and improve reserve quality. We're also returning more cash to shareholders. Last week, we announced that our second quarter dividend will increase to $0.075 per share, up significantly from the prior year quarter. We extended our $3 billion corporate revolver by two years to May 2022. And as anticipated, we fully repaid $575 million of convertible notes with cash on-hand last week, further reducing debt and simplifying our capital structure. With the free cash flow we generated during the quarter and the July debt repayment, our total liquidity is about $5.5 billion. We also reduced net debt to $1.5 billion bringing our net debt-to-EBITDA ratio down to just 0.6 times. With that, I'll hand this call over to Tom Palmer to cover operational highlights starting on slide 15.

[Tom Palmer:]

Thanks, Nancy. Newmont operations delivered a strong first half, and we're positioned to continue that trajectory in the second. In North America our teams are delivering solid results and advancing profitable expansions. In South America, we expect a stronger second half as our operations dry up, and we're making steady progress on growth prospects. Australia was offsetting adverse weather impacts from earlier this year, while setting new records for mill productivity. And the region remains on track to commission the Tanami expansion in the coming weeks. We're also outperforming in Africa, primarily as a result of mill throughput and recovery improvements, and the Ahafo expansion projects are well underway. Finally, with Dean Gehring's arrival in Peru in early June, our regional leaders are in place and hitting their stride. Turning to more details on slide 16. North American operations have more than offset the impact of a slip in Carlin Silverstar mine late last year, primarily through mill and leach pad performance at Cripple Creek & Victor, optimized mine plans at Carlin, and higher throughput at Twin Creeks. As a result, we've improved both our original cost and production outlook for 2017. Highlights include, at Carlin, we completed our annual plant maintenance shutdown at Mill 6 ahead of schedule and under budget. We also completed geotechnical studies to guide safe reentry at Silverstar, where production represents upside beginning in 2018. Ground control rehabilitation at Leeville is largely finished as well. At Cripple Creek & Victor, production is up 15% versus prior year quarter on the back of new leach production, mill grades and ongoing full potential improvements. Long Canyon continues to ramp up and operate smoothly, and at Twin Creeks outperformance is largely due to optimized ore blends and lower displacement by Turquoise Ridge ore. Looking forward, vent fans are up and running at Northwest Exodus, a mine which has been designed to support autonomous equipment. As Gary mentioned, the Twin Underground project is underway, and we'll start to mine this higher grade ore later in the year, with commercial production forecast at mid-2018. Finally, we continue to advance our Long Canyon Phase 2 studies. Moving to South America on slide 17. As I mentioned, our South American operations are recovering from adverse weather in the first quarter. At Yanacocha, dilution from extreme rainfall impacted leach pad recoveries. Productivity is improving and we're expecting a stronger second half. At Merian, the team is focusing its Full Potential program on mine improvements to match above nameplate mill performance. Initiatives to optimize expenses, grade control, payloads and haul routes are all underway, and we're on track to complete our primary crusher installation by the end of 2018 when we expect to reach fresh rock in the mine. Looking to the future, our team at Suriname is making steady progress towards securing permits, consulting stakeholders and advancing drilling to develop the nearby Sabajo deposit. In Peru, we expect to reach a decision to develop the Quecher Main oxide project in the second half of the year. This project would sustain around 200,000 ounces of consolidated annual production from 2020 through 2025 and is not included in current guidance. Finally, work to optimize the Yanacocha sulfides project is going well. We continue to see good results from exploration drilling in the Chaquicocha decline. We started a second exploration drift and our autoclave pilot tests are going well. We'll have an update for you later this year. This project could come online in the early 2020s and extend profitable production for more than 15 years. Turning to Australia on slide 18. Our Full Potential program was piloted in Australia in 2013 and continues to deliver outstanding results. All three Australian operations are now mill constrained, making debottlenecking a priority. As you can see from these graphs, we have made solid gains in mill throughput over the last four years. Boddington has offset the impacts of 100-year storm event in February and is now ahead of schedule, primarily by reaching new recovery and throughput records for three of the last six months. Whilst higher stripping will reduce production by about 10% as we further develop the next lay back, performance in the first half has been strong enough to support improving guidance for the operation and the region as a whole. Tanami remains on track to meet 2017 guidance, despite a one month shutdown in the first quarter caused by record rainfall flooding all supply routes. The team has begun commissioning activities in the mill and we expect the Tanami expansion to reach commercial production in the coming weeks. KCGM has offset the impact of a slip in the west wall of the Fimiston Pit earlier this year and remains on track to meet 2017 guidance. Remediation is underway and we expect to complete that work in 2018. We'll reach a decision to proceed with the Morrison layback at KCGM in the first quarter of 2018, to accommodate additional metallurgical testing. Turning to Africa on slide 19. Africa performed strongly in the first half of 2017, primarily due to mill throughput and recovery improvements delivered through the Full Potential program. As a result, we have lowered our cost outlook and raised our production outlook for the remainder of the year. We've mined first ore at Subika Underground and produced first gold in June. And the mill expansion workforce has been mobilized and civil works for the primary crusher are well underway. Looking ahead, we continue to advance our regional growth studies, which center on developing underground resources at Ahafo and Akyem as well as Ahafo North. Ahafo North is located approximately 30 kilometers north of our existing operations and encompasses 15 deposits along a 12 kilometer strike length. Before I turn back to Gary, I want to touch briefly on how we assess and invest in technology to support continued value delivery through our Full Potential program. Turing to slide 20. I'll start by confirming that we rely on technology in every aspect of our business, to map and mine ore-bodies, operate process plants, protect our people, and stay in touch with our stakeholders. And we'll continue to harness technology and pursue targeted innovation and R&D where it adds value. Our approach to investing in new technology is the same as our approach to all investments, grounded in technical and financial discipline. Benchmarking shows that no one company has all the answers, so we are taking a measured approach, that includes conducting digital assessments to prioritize solutions based on their value and viability, working with leading technology companies, including GE, Cisco, Caterpillar, IBM and Infosys, advancing game-changing technologies to improve performance across the entire mine life cycle, and developing the underlying systems and change management programs that are necessary for both successful and importantly sustainable implementation. We recently completed a digital assessment at Twin Creeks to prioritize opportunities to deliver additional value. Outcomes of this assessment fall into three broad categories. Enablers that improve efficiency and safety, such as radiofrequency IDs for our team and digital field tools that provide real-time operational and production data, point solutions such as B-TAG tire monitors that support payload monitoring and management, as well as ore blend management, and ore control optimization solutions. All these solutions feature minimal disruption and high payback. For example, payload monitoring has delivered more than $17 million in annual productivity improvements since it was targeted as part of our Full Potential program in 2014. And, finally strategic opportunities, that include fleet automation, advance process control, predictive analytics and centralized operation centers. During my time at Rio Tinto Iron Ore, I led the implementation of the industry's first fully autonomous open pit mine, and was a member of the leadership team for the centralized Pilbara operations center in Perth. We'll have a good understanding of the change management required to implement these opportunities. Realizing the full potential of digital solutions also requires quality data and a sharp focus on business drivers and values. One leading technology company told us that the quality and organization of our data enable them to compress their predictive analytics work from 12 weeks into 4. Finally, we are leveraging and improving technologies such as virtual reality to improve understanding of our ore bodies and to optimize our drilling and mine plants. We believe that taking a measured approach supported by repeatable, scalable process and robust change management is critical to maximizing return on our technology and innovation investments. With that, I'll turn it back to Gary on slide 21.

[Gary J. Goldberg:]

Thank you, Tom. Turning now to slide 22. Our portfolio is anchored in four regions, where we have the stability and resources we need to continue investing over time. More than 70% of our production and about the same amount of our reserves are located in the United States and Australia. Improved margins at our newest mines are helping to offset stripping campaigns at our more mature assets, and we continue to fund high margin projects to sustain future production. These factors position us to maintain stable returns over the next decade and beyond. Turning to our most recent projects on slide 23. We've developed a strong track record of delivering profitable projects, when most miners were delaying their capital spend. Over the past three years, we built Merian and the first phase of Long Canyon on time and 20% below budget. We delivered the investment case at Cripple Creek & Victor while completing an expansion. Over the course of the next year, we'll complete expansions at Northwest Exodus and Tanami that add profitable production and service platforms for further exploration. And in 2017, we've announced decisions to fund three more expansion projects that will improve profitability and extend mine life at Ahafo and Twin Creeks. Taken together, these eight projects will add annual gold production of about 1.3 million ounces at all-in sustaining costs below $750 per ounce for their first five years and generate internal rates of return above 20%. Turning to our project pipeline on slide 24. Newmont's project pipeline is among the best in the gold sector in terms of depth and capital efficiency. This gives us the flexibility to maintain production levels while growing margins and mine life. The projects that are included in our outlook are the current and sustaining projects you see here

[Operator:]

Thank you. And the first questioner today is going to be John Bridges with JPMorgan. Please go ahead with the question.

[John Bridges:]

Good morning, Gary, everybody. Congratulations on the results. Just wondered, you're still forecasting a $55 oil price for the year. I just wondered what benchmark should we look at to see if you could be bringing that number down in the second half, and especially considering some hedges that may runoff, just as a first question.

[Gary J. Goldberg:]

Sure. I think just a couple of things. We do hedge a certain proportion of our Nevada diesel production, and that's on a rolling. It goes out about 18 months, because beyond that you start to see the cost go up a bit. So there is some slight hedging, that's more just to manage some of the volatility and smooth things out, but we would focus primarily when we look at our forecast at WTI, and what the rest of the world says. I wouldn't profess to be experts in the oil price, but we think that that provides a little bit of a degree of conservatism where we're at today in oil market.

[John Bridges:]

Well, that's nice. I don't think there were many experts left in the oil business. And it's good listening to Tom to hear somebody has actually been involved in introducing all these digital cleverness into the mining industry. I just wonder, Tom, if you could talk a little bit about the opportunities you see after your Australian experience in introducing these innovations into Nevada, in particular, and the potential to create more reserves from resources by hopefully lowering costs.

[Tom Palmer:]

Thanks, John. I think the important thing is making sure that just because something worked in iron ore in the Pilbara in that context doesn't necessarily mean it works elsewhere. So I think it's a better understanding of your business context and each of our four regions have different context from each other. But if a pickup in North America, where we've got a number of mines close together, the opportunity around looking at centralizing some of the asset health work, centralizing some of the truck dispatch work, enables us to identify opportunities, where, for instance, if I think about asset health, we look at component life. And if we have got a consistency in the component life of some key pieces of equipment on our 793 haul truck, then we can be making some decisions about asset strategy that's going to deliver value, maybe keep those components in service for longer or identify where they are failing before they fail and change them out in a controlled manner. And it's doing those sorts of things by looking at those operations at a whole and having some form of central monitoring center that is going to help a place like Nevada reduce their operating costs, and therefore, as you're saying, be able to bring more reserve into the system.

[John Bridges:]

Okay. Great. I look forward to hearing more about that in the future. Thank you.

[Operator:]

And the next questioner today is going to be Michael Dudas with Vertical Research. Please go ahead with your question.

[Michael S. Dudas:]

Good morning, everyone. Just wanted to, Gary, ask you, it's been almost, I think, next week two years since you closed the Cripple Creek transaction. Maybe you can reflect on what you expected and what has come about in that two-year period? And along those lines, and given your 20% returns on what you've provided here in your discussion this morning, which are very positive, is there a sense there's going to be some scarcity value out in the marketplace to find such opportunities to invest at such returns at the current gold prices in your view?

[Gary J. Goldberg:]

Thanks, Michael. When we acquired Cripple Creek & Victor, we targeted about a 10% improvement in mine productivity and improvement in costs. And we're seeing that and more. I think, as Tom pointed out, just sharing between folks in the region some of the things going on, operating cost wise, some of our supply chain contracts or things like cyanide and tires have brought benefits that we hadn't even built into some of that 10% cost improvement. We've carried through and completed the expansion projects at both the mill and the leach. And the leach, in particular, has gone quite well. The mill, we had a few bumps along the way, as we worked through some of the challenges that we inherited there right at the transition, because as you'd recall, the mill was just in ramp-up, so there might be a lesson there as you look at things. But in terms of scarcity of resources, clearly we acquired it at a time when AngloGold needed cash and we were in a good position in a still tough market condition to be able to take the opportunity and bring it into our portfolio. One of the items we're looking at now that we didn't build into any of the cost and efficiency improvements is the ability to take the concentrate from Cripple Creek & Victor over to Nevada, either to the roaster at Carlin or to the autoclaves at Twin Creeks to both improve and enhance recovery and bring it forward, but also reduce the overall cost for the North American portfolio. That's an option that AngloGold Ashanti wouldn't have had to consider at the time. So it's one that we're continuing to pursue.

[Michael S. Dudas:]

Excellent. Thank you.

[Gary J. Goldberg:]

Thanks, Michael.

[Operator:]

And our next questioner today is going to be Chris Terry with Deutsche Bank. Please go ahead.

[Chris Terry:]

Hi, guys. Couple questions for me. Just on Quecher Main, we know the decision is due soon. Can you just provide a bit of timing on whether that's the start of the second half or back towards the end of the year? And what are the key variables and considerations that are left at this stage?

[Gary J. Goldberg:]

I think you probably look for it more in the latter half of this second half, in terms of us getting through the engineering and taking it through the approval process that's needed, which also includes permits, but all that's moving along on schedule right now.

[Chris Terry:]

Okay. Okay. And the other question I had just in terms of the balance sheet, it's obviously in great shape. And you said the dividend policy going out, which is somewhat fixed at this stage. Thinking about other uses for that cash, if we consider a gold price environment that's relatively in the similar band to what we've had, how are you ranking things there? Obviously, you've got several projects that you're continuing to progress, but aside of just paying down debt, anything else that you can point towards on the use of cash?

[Gary J. Goldberg:]

No. Thanks, Chris. And similar to what we did last year, we went through our business plan process. We look out the next five years to 10 years at our cash needs both for projects, sustaining capital, what we see on the horizon for investment in exploration and some of the earlier stage projects that we've talked about. And then we modified – as we did at the end of last year, we modified our gold price-linked dividend. We'll be doing the same as we go through our planned process this year. So we'll be bringing the plan forward for review with the board in October, looking out once again 5 to 10 years and reassessing our approach to the dividend at that stage. So from a debt standpoint, over the last several years, we've done a good job and put the balance sheet on a strong footing. We don't have another tranche of debt due now till 2019, and so we sit in a good spot that way. So we're really looking at what are the investments back in the business and what can we do to further enhance the dividend going forward. So those will be the things we'll look at when we bring the plan to the board in October.

[Chris Terry:]

Okay. Thanks, Gary.

[Operator:]

And our next questioner today is going to be David Haughton with CIBC. Please go ahead.

[David Haughton:]

Good morning, Gary, Nancy, and Tom. Thank you very much for the update and very strong results there. Just got a question on to Quecher Main, if I could. You're spending $300 million roundabout. Can you just explain what most of that money would be put to? Is it through pit development laybacks, stripping and pad construction, or do you need fleet? What are the things that would be involved in the CapEx number?

[Gary J. Goldberg:]

I think you hit the nail on the head there, David. Most of it's going to be for stripping and extending the pit there and development as we go forward. And remember that number is a 100% number, that you are talking of, not our share.

[David Haughton:]

And as far as the operating parameters, what kind of stacking rate would you anticipate and the grade and the kind of strip you'd be thinking of?

[Tom Palmer:]

David, it's Tom Palmer here. It's pretty consistent with what – it's the last of the Yanacocha oxide. So the pit will be mined at similar rates to what you're seeing today in Yanacocha, and what you've seen historically in Yanacocha.

[Gary J. Goldberg:]

I think the other piece, and it's encouraging as we continue to look at developing the sulfide deposit, we're doing additional exploration around the fringes and seeing some interesting things in terms of drill results from the Chaquicocha pit with ore that could be, once again as you pointed out, process through some of our existing facilities either through the mill or on the leach pad. So, early days yet with that, but encouraged by those drill results.

[David Haughton:]

Well, it also gives you time to assess not only other oxide areas that you've not been able to get to before and also to think about the sulfides. I presume you're thinking about that as well.

[Gary J. Goldberg:]

Exactly.

[David Haughton:]

Just over to Twin Creeks, Underground coming into commercial production later this year. I saw that you had about 50,000 tonnes, imperial tonnes of underground material going through in the last quarter. What kind of thinking do you have for this new decline? Is there is scope for that underground to increase beyond your current incremental 20,000, 30,000, 40,000 ounces per annum. Can you just outline some of the parameters there, and your thinking where it could go?

[Gary J. Goldberg:]

Sure. I think just to start I was just over there a couple of weeks ago and visited Underground, so I got a good chance to see how the development is going. We had done quite a bit of development work already, which is why you'll see first production coming out here later this half. We're really open, as I said, along striking and at depth, and we'll continue. They've got a pretty efficient way that they look to mine this, but as we continue to get and develop further access for exploration, I suspect we'll see probably not an increase in production, so much as increase in life, at least to begin with, is where I would expect to see the change. But we'll just have to assess that, as we get more access for further drilling to firm up the resource into reserve.

[David Haughton:]

And the last one, I know that you've got a pretty good pipeline that you've demonstrated of your inorganic opportunities, but you are extending beyond that now. The investment in Continental and also into Guiana's (40

[Gary J. Goldberg:]

I think it's the exploration potential, some great resources there. It's a country that's been going through some positive change in terms of the direction it's heading. As you know, we have to be looking out 10 years to 20 years when we make investment decisions, and we figured this is a good way to test the water, so to speak, to go into better understand the country, and we believe that the Continental team has done a good job with the Buriticá project and also we like the prospects. There are other exploration prospects there, and further afield in Colombia. So -- but a measured approach to understand the risk and go in where we see worthwhile reward and grade makes a big difference in terms of this resource.

[Operator:]

And our next questioner today is going to be Tanya Jakusconek with Scotiabank. Please go ahead.

[Tanya Jakusconek:]

Yes. Good morning, everyone. And congratulations on some good results. This one is to ask Tom a little bit about how some of the key mines are looking into the second half of the year, and one of them was just Merian. I'm just wondering Tom, are we expected to see production ramp up in Q3 and then a strong Q4 is that still the plan?

[Tom Palmer:]

That's right, Tanya. So, we're – as I talked in the call and doing a fair bit of work on improving mine productivity and working our way through the wet season which is coming towards its end in Suriname. So we're expecting to see pretty consistent third quarter and probably then stepping up in the fourth quarter for stronger second half.

[Tanya Jakusconek:]

Okay. And then just on Boddington, I'm sorry, it was faded in and out a little bit for me. Did you mention that, we are going to be increasing the strip as we go into the second half of the year? I think Q4 we were into a higher strip, so costs at that operation should go up, and with production to be down about 10% in the second half. Is that what I heard?

[Gary J. Goldberg:]

That's exactly right, Tanya. So we're moving, and this is southern layback at the Boddington mine. So we start moving to the series end of that strip, so exactly you should say that's about how to play them.

[Tanya Jakusconek:]

Okay, with a 10% drop in production?

[Gary J. Goldberg:]

Yes.

[Tanya Jakusconek:]

Yes, okay. And then just lastly on Africa just coming back to Ahafo, which was one of the other mine, is it still expected to see some grade decline in the second half?

[Gary J. Goldberg:]

At Ahafo – yeah, what you're going to see is we completed the Amoma pit, so we're talking all of our ore out of the Subika pit now at Ahafo. So the grades are a little bit down in the second half through Ahafo.

[Tanya Jakusconek:]

Okay. Okay, well thank you for that. And then maybe Gary just coming back on to just what's happening with Barrick and the negotiations on your autoclave, and how is that's working out?

[Gary J. Goldberg:]

Yeah. We obviously have our toll milling agreement with them that comes due at the end of the year, and we'll be in discussions with them to work through what the next steps are.

[Tanya Jakusconek:]

So you are in discussions now, with them?

[Gary J. Goldberg:]

Yes.

[Tanya Jakusconek:]

Okay. Okay. Look forward to hearing on that. Thank you.

[Gary J. Goldberg:]

Thanks, Tanya.

[Operator:]

This will conclude the question-and-answer session. I would like to turn the conference back over to Gary Goldberg for his closing remarks.

[Gary J. Goldberg:]

Great. Thank you for joining our call this morning. We started 2017 from a position of strength and built on that foundation in the second quarter by delivering 1.4 million ounces of gold at all-in sustaining cost of $884 per ounce, improving our cost, production and capital guidance, progressing the next wave of growth projects and increasing our dividends to shareholders. We also strengthened our ability to execute our strategy by maintaining superior safety environmental, social and governance performance, and developing one of the strongest teams in the mining industry. Thank you, again and have a safe day.

[Operator:]

Ladies and gentlemen, the conference has now concluded. Thank you all for attending today's presentation and you may now disconnect your lines.