Gold supply to drop by 7 pct by 2021 – Newmont CEO

Gary Goldberg, president and CEO of Newmont Mining

Due to the past price performance of gold, supply is constrained says Gary Goldberg, president and CEO of Newmont Mining.

“We see the medium- to long-term as being very good,” said Goldberg in an interview with earlier this month talking about gold prices and buying trends in India and China.

“I think you have seen a decrease in supply as there has been less investment in new properties. We are one of the few who are building two brand-new mines: Merian-Suriname and Long Canyon in Nevada.

“Overall, we see gold supply dropping by about 7% by 2021.”

Transcript is edited for brevity and clarity. Who are you.

Gary Goldberg: I am Gary Goldberg. I am the president and CEO of Newmont Mining. What is Newmont Mining?

Gary Goldberg: Newmont Mining is one of the world’s largest gold mine operators with operations on five continents, with a little over 16,000 employees and producing over five million ounces of gold per year. When did you start your position as president and CEO?

Gary Goldberg: It’s been a little over three years  since I took over as CEO of Newmont. How have gold prices changed since then?

Gary Goldberg: When I joined Newmont about 4.5 years ago, I think prices were at about the peak. The prices have gone down ever since I have joined basically until earlier this year. How did you deal with the declining price of gold?

Gary Goldberg: I’ve been in the mining industry for 35 years so cycles have been a part of what I experienced. Gold was unique. We hadn’t seen a downturn in 12 years. Key for us was making sure the business was positioned really from the time I took over as CEO focusing the business on value instead of volume. How did you prepare the company for a downturn?

Gary Goldberg: We really looked at several things. One was making sure the underlying portfolio was performing well. We went out under a structured program called Full Potential. We looked at ways to reduce costs and improve efficiencies. From a 2012 base, we reduced about $1 billion. The other thing we did was look through the portfolio of what best fit, what projects were the best ones to invest in or not, and we sold $1.9 billion in assets. We used the cash to pay down debt, to strengthen our balance sheet going forward and we continued to invest in our people. How did you lower costs?

Gary Goldberg: I think the big thing that contributed was our Full Potential program. We also got help with tailwinds from lower oil prices and an improved Aussie dollar exchange. Were there any silver linings that came out of the bear market?

Gary Goldberg: To have the burning platform of prices going down helps people understand there is a business need and an imperative. The other silver lining—or gold lining—are that certain competitors had issues as prices came down and it created an opportunity for us to acquire Cripple Creek and Victor last year from AngloGold Ashanti who needed cash to pay down their debt. The mines fit well in our portfolio, and we were able to come up with the transaction that made sense. What is the current state of the gold market?

Gary Goldberg: Well, we have seen it pop up a bit earlier this year off the back of higher investments in ETFs. We still see good demand for gold in China and in India. We see the medium- to long-term as being very good. I think you have seen a decrease in supply as there has been less investment in new properties. We are one of the few who are building two brand-new mines: Merian-Suriname and Long Canyon in Nevada. Overall we see gold supply dropping by about 7% by 2021. Are there any new trends in automation or improved technical fundamentals that have made an impact?

Gary Goldberg: I think there are a number of things: one is just doing the technical work properly. Where we have been very successful is how we model our ore bodies. Gold is very variable by its nature. Understanding those differences and where the risks are in each of our ore body models at each of our mine sites. We have gone through a very vigorous program of understanding those risks and then putting in place things to reduce it whether it is additional drilling, metallurgical test work, additional geotechnical work so we minimize the risk. If we get a better handle on the models, that reduces the variability of the production from day to day and throughout the year and that gives you the ability to deliver more reliably. Why is modelling better now than it was a few years ago?

Gary Goldberg: I just think it is the focus we have put on it. It’s getting back to the basics. In the hay days, people were pushing for the volume rather than the value piece, just looking for any additional ounce almost no matter what it cost. Make sure you have the rigor around your modelling process and you are going for the best value ounce rather than just any ounce. What are going to be the trends for miners going forward?

Gary Goldberg: Continued focus on the fundamentals. Part of that is keeping to a value focus. All the miners got focused on growth. It’s good to have an eye on growth but you’ve got to do it profitably. I think there was a lot of people listening to investors wanting to see what is the growth story and people forgot about the need to deliver value along with that. That focus on shareholder value here at Newmont and is going to be key with what we are focused on. The rest of the industry has got to figure that out and catch up. Why do you an emphasis on mine safety?

Gary Goldberg: A safe operation is always an efficient and effective one. It’s something I valued since I started my career thirty five years ago as a front line supervisor. You want your people to go home safely. I think what is neat to see is how people take it home and the things they do there. It’s just not something that starts and ends at the mine gate. What metrics do you use to check mine safety?

Gary Goldberg: We have a number of leading indicators. We look at safety interactions which is a key one and is one I personally participate in when I get out to sites. People going out and talking to people while they are doing a job and asking them: “Where could they get hurt?” or “How can you do things differently?”. What it does is raise awareness about what the person is doing and it gets a conversation going outside of the normal routine of doing a job. Is there anything you would like to add?

Gary Goldberg: We produced over 5 million ounces in 2015, which is the same that we did in 2012 but we did it with 27% fewer people, which gets back to making sure we are doing the key things we need to deliver value rather than just deliver volume.