➤ Gold miners need to consolidate to better compete in capital markets and address environmental, social and governance issues, especially those related to the energy transition.
➤ The recent left turn in South American politics is not a major headwind for Newmont Corp.'s upcoming expansion decision at the Yanacocha gold mine in Peru, but it might be different if the miner had not already operated in the country for decades.
➤ Newmont is considering increasing the gold price assumptions for its reserves estimates after a "step change" in pricing.
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Gold miners need to consolidate given the tough task of investing in net-zero operations. They also need to increase focus on ESG issues to remain relevant in metal markets amid the energy transition. Newmont President and CEO Tom Palmer touched on these views and others in a June 15 interview on the closing day of the Prospectors & Developers Association of Canada conference in Toronto. The following conversation has been edited for clarity and length.
S&P Global Commodity Insights: Why have you said the gold mining industry needs to see more company consolidation over the next decade or so?
There's a few factors behind it. Gold ore bodies are becoming harder to find and more difficult to develop, so you are going to need capability and strength within an organization to develop more complex deposits or to actually go and discover them. Access to capital is a factor. If you look at the number of listed gold mining companies, they are an order of magnitude more than the next commodity. And if you add up all the market cap of those gold companies, including ourselves, it comes to about 15% or 20% of the value of Apple Inc. So relevance in the capital markets will increasingly become a factor.
With the world moving to decarbonize, as a mining company you're going to need to have the scale and mine life to underpin those sorts of investments. And part of that journey will lead to consolidation, because you're going to need to work together. When we're in a time machine in 10 years, we'll look back and say that was a key driver behind consolidation in this industry.
In your keynote address at the Prospectors & Developers Association of Canada conference, you said the gold mining industry needs to lean into ESG goals and not back away from them. Why is this particularly important for the gold mining sector?
One of the challenges for gold is it doesn't play an intrinsic role in the world's move to decarbonize energy supply. But gold plays an incredibly important role, as it has for millennia, in creating value. And so gold mining companies need to recognize where gold sits in the global context and focus on the value that gold provides, creating economic opportunities, improving lives for people who work in and around gold mining operations. If you're a copper producer, you say, "I'm producing copper [that is critical for] health and electrification." What is our narrative for gold? And how do we as gold mining companies articulate the very important role gold plays in society, improving lives?
Is energy inflation changing how you look at investing in particular jurisdictions, given the remoteness of certain potential operations and their need to depend on fossil fuels for power?
Not specifically. One of the fundamental questions we ask ourselves if we go into a jurisdiction, or if we choose to remain in a jurisdiction, is: Can we be confident that we can develop and maintain relationships and stability over the long term? It's a capital intensive business. You're making investments for a long period of time. Are we able to engage with governments, communities and traditional leaders so we can manage a multidecade relationship with them?
That's the overarching premise behind country risk assessment. Often, if not all the time, the same jurisdictions will have forward-thinking leaders that are seeing the need for renewables in the energy transition. Therefore it sort of comes hand in glove with those decisions.
Speaking of political risk, there have been concerns about higher royalties and a tougher mine development environment after the recent left turn in Chilean and Peruvian politics. Has that had
The big investment decision we have within South America is in Peru [at Yanacocha]. It's a big investment decision, but it's a brownfield expansion of a site we know very, very well. We've been there for 35 years. On the back of all of that experience and know-how, we're confident making that investment decision, which is coming up for us toward the end of the year. If it was a completely new jurisdiction with a completely greenfield operation, then it would be a different set of risks that you would want to understand and manage.
Where do you expect gold price assumptions for Newmont reserves to go as the company reconsiders them amid energy inflation and relatively high metal prices?
Our current reserve price is $1,200 per ounce of gold. And it's been at that level for the better part of a decade. And it's been linked to the macroeconomics associated with gold over that period of time. We've just been through a disruptive period, with the pandemic and other issues around the globe. And a lot of the macroeconomics point to gold sitting more around $1,500/oz or even $1,600/oz. There's been a step change. So we are debating a higher reserve price. If, for argument's sake, we lifted reserves to $1,400/oz, then the important thing is to maintain the rigor and discipline in how we've run our business.
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