Strategies for Evolving Market Conditions Mines and Money Conference & Exhibition 20-22 March 2013, Hong Kong Greg Robinson Managing Director and Chief Executive Officer
Disclaimer Forward Looking Statements These materials include forward looking statements. Often, but not always, forward looking statements can generally be identified by the use of forward looking words such as may, will, expect, intend, plan, estimate, anticipate, continue, and guidance, or other similar words and may include, without limitation, statements regarding plans, strategies and objectives of management, anticipated production or construction commencement dates and expected costs or production outputs. Forward looking statements inherently involve known and unknown risks, uncertainties and other factors that may cause the company s actual results, performance and achievements to differ materially from any future results, performance or achievements. Relevant factors may include, but are not limited to, changes in commodity prices, foreign exchange fluctuations and general economic conditions, increased costs and demand for production inputs, the speculative nature of exploration and project development, including the risks of obtaining necessary licenses and permits and diminishing quantities or grades of reserves, political and social risks, changes to the regulatory framework within which the company operates or may in the future operate, environmental conditions including extreme weather conditions, recruitment and retention of personnel, industrial relations issues and litigation. Forward looking statements are based on the company and its management s good faith assumptions relating to the financial, market, regulatory and other relevant environments that will exist and affect the company s business and operations in the future. The company does not give any assurance that the assumptions on which forward looking statements are based will prove to be correct, or that the company s business or operations will not be affected in any material manner by these or other factors not foreseen or foreseeable by the company or management or beyond the company s control. Although the company attempts and has attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in forward looking statements, there may be other factors that could cause actual results, performance, achievements or events not to be as anticipated, estimated or intended, and many events are beyond the reasonable control of the company. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Forward looking statements in these materials speak only at the date of issue. Subject to any continuing obligations under applicable law or any relevant stock exchange listing rules, in providing this information the company does not undertake any obligation to publicly update or revise any of the forward looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based. Ore Reserves and Mineral Resources Reporting Requirements As an Australian company with securities listed on the Australian Securities Exchange ( ASX ), Newcrest is subject to Australian disclosure requirements and standards, including the requirements of the Corporations Act and the ASX. Investors should note that it is a requirement of the ASX listing rules that the reporting of ore reserves and mineral resources in Australia comply with the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code ) and that Newcrest s ore reserve and mineral resource estimates comply with the JORC Code. As a company listed on the Toronto Stock Exchange ( TSX ), Newcrest is subject to certain Canadian disclosure requirements and standards, including the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators ( NI 43-101 ). In accordance with NI 43-101, Newcrest reports its ore reserves and mineral resources estimates in compliance with the JORC Code, along with a reconciliation to the material differences between the JORC Code and the applicable definitions adopted by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM Definition Standards). In relation to the December 2012 Resources and Reserves Statement, the reconciliation is set out in Newcrest s Canadian News Release dated 8 February 2013, and is available at www.sedar.com and at Newcrest s website www.newcrest.com.au. Except as otherwise noted in that document, there are no material differences between the definitions of Measured, Indicated and Inferred Mineral Resources, and Proven and Probable Reserves, under the CIM Definition Standards and the equivalent or corresponding definitions in the JORC Code. Competent Person s Statement The information in this presentation that relates to Exploration Results and other scientific and technical information is based on information compiled by C. Moorhead, EGM Minerals for Newcrest who is a Fellow of The Australasian Institute of Mining and Metallurgy, and a full-time employee of Newcrest. Mr Moorhead has sufficient experience which is relevant to the styles of mineralisation and types of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code and is a Qualified Person within the meaning of NI 43-101. Mr Moorhead consents to and has approved the inclusion in this presentation of the matters based on this information in the form and context in which it appears including sampling, analytical and test data underlying the results. For details of exploration reports refer to the Newcrest website at www.newcrest.com.au. Non-IFRS Financial Information This presentation uses Non-IFRS financial information including Underlying Profit, EBITDA and EBIT. Underlying Profit is presented to assist in the assessment of the relative performance of the Group. EBITDA and EBIT are used to measure segment performance and have been extracted from the Segment Information disclosed in the ASX Appendix 4D. Non-IFRS information has not been subject to review by Newcrest s external auditor. 2
Today s discussion Creating value in an evolving market Cheap resource capture Optimise capital committed to growth Low cost, predictable production Gold markets Gold price drivers still in place Gold vs. Gold Companies Newcrest Focus on gold (copper and silver production) SE Asia location Concentrated portfolio of mines World s 4 th largest Gold Company 3
Creating value in an evolving market Value creation in mining Impacted by current market conditions Cheap resource capture Negative view on M&A Investor confidence lower Backwardation on commodity price forecasts Focus on returns in short / medium term Optimise capital investments Resource project capital expenditure overruns Larger, long dated project risk Low cost, predictable production Production reliability has been below par Company focus on costs and productivity Many investors short term event focus 4
Resource Industry Focus Industry has moved past growth at all costs Large scale M&A on hold (expensive and difficult) A key test is what you pay for reserve and resource Needs to be very cheap, hard to add operating value Organic growth moderated (deliver existing projects) Tighten large project capital, deliver to budget, modular approach Delay new projects, until price and capital cycle are more obvious Exploration focus (early entry, low cost) Greenfield exploration, more patience and focus Increasing brownfield exploration, existing ore body potential Drilling becomes cheaper if you have money Cycle of low price forecast and delayed projects circular impact on future supply 5
Industry cost trends, increases slowing Increasing industry cash costs 2,000 Relative cost impacted by exchange rates Cash Cost US$/oz (net of byproduct credit) 1,750 1,500 1,250 1,000 750 500 250 0-250 Average Cash Cost 2006 US$317/oz H1 2012 US$727/oz Australia Q2/2012 US$868/oz H1 2012 2006 0 10 20 30 40 50 60 70 80 90 100 Cumulative Production (Percent) Source: Thomson Reuters GFMS Gold Mine Economics Service Source: Thomson Reuters GFMS, Bloomberg Increasing cash costs across the industry Cost followed revenue, lagged by 12 18 months Partly due to declining grades across industry Exchange rates drive regional differences Costs have following higher commodity prices, impacts now slowing 6
Managing costs, Improving Productivity Mining is fixed activity short term, floating cost Typical mine cost structure 40-50% labour 20-30% energy 20-30% consumables Focus is on productivity People/training Technology Lesser focus on cost cutting Pressure on contractors/services Supply contracts Focus is on productivity 7
Funding mechanisms for exploration & projects Obvious caveats Size and quality (grade, depth, metallurgy) Location (political conditions and remoteness) Price projections (revenue) Cost competitiveness (cash cost and total cost) Capability (technical and organisational) Timing always critical Approach to current market conditions Wait (downsize, wait for cycle timing to fund) Financial partners (Shrinking, will look for faster returns) Find larger partners (expect dilution and control discussion) Merge (look for momentum through creation of a larger company) Sell (cash out) To maintain activity, alternate funding approaches are required 8
Gold markets 9
Gold price and money supply Western economies have loosened monetary policy Global money supply and gold price Fundamentals still support a strong gold price Currency devaluation Negative real interest rates Inflation, political and economic uncertainty Source: World Gold Council Fundamentals remain for a strong gold price 10
Growing gold demand Annual gold demand in tonnes and value 1 Tonnes 5,000 US$Bn 250 Who is buying 4,000 200 3,000 150 2,000 100 1,000 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Gold demand volume Gold demand value 0 Source: Thomson Reuters GFMS, LBMA, World Gold Council Source: World Gold Council Total gold demand up 50% from 2002 to 2012 Total value up 850% in the same period China and India represent over 60% of global demand Gold demand continues growing despite rising price 11 1 Gold demand comprises of jewellery, investment (excl, OTC & other stock flows), technology and official sector net purchases
Demand led by investment Share of gold demand by category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jewellery Technology Investment Source: Thomson Reuters GFMS, World Gold Council 1,908t 428t 1,535t Bar and coin investment particularly strong Tonnes 1200 1000 800 600 400 200 0-200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Europe USA India China Source: Thomson Reuters GFMS, World Gold Council Investments share of demand has grown from 11% to 40% in ten years Bar and coin investment growing Growth in Europe and US as insurance against paper currencies Growth in India and China as an investment aligned to growing wealth Bars and coins leading the investment story 12
Supply history Mine production growing slowly 1.4% annual increase in production between 1989 and 2011 Declining grades Higher costs Discoveries rate continue to decline Decline in hedging (2002) and official sector sales (2008) Changes in supply mix tonnes 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Mine production Official sector sales Old gold scrap Net hedge & other Source: Thomson Reuters GFMS 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Scrap sales increase as prices rise Growth in mine production continues 13
Getting harder to find and slower to develop Exploration cost 1 and number of discoveries 2 Exploration Budget (US$m) 6,000 5,000 4,000 3,000 2,000 1,000 0 18 15 12 9 6 3 0 Discoveries Increasing time to develop Years from Discovery to Production 25 20 15 10 5 0 Number of Discoveries Exploration Budgets Source: MEG Strategies for Gold Reserves Replacement Source: MEG Strategies for Gold Reserves Replacement Discoveries are getting more difficult Higher exploration cost for each discovery Fewer, smaller discoveries each year Taking longer to bring to production Future supply under pressure 1 Exploration budget = Grassroots + 75% of late-stage budgets 2 Major discoveries = Resources + past production > 2Moz Au (or >1Moz defined reserves) 14
Industry correlation to gold price 1 Year to December 2012 10 years to December 2012 1.20 1.00 0.80 0.60 1.00 1.00 0.57 0.64 0.78 1.20 1.00 0.80 0.60 1.00 1.00 0.87 0.82 0.84 0.40 0.40 0.20 0.20 0.00 0.00-0.20 Gold spot $/oz SPDR gold trust S&P/TSX global gold index FTSE gold mines index Phili gold & silver index -0.20 Gold spot $/oz SPDR gold trust FTSE gold mines index S&P/TSX global gold index Phili gold & silver index Source: Bloomberg Source: Bloomberg Gold equities performed poorly in 2012 S&P/TSX gold index down 24% 1 Key factors include: poor M&A, overspend on projects, missed production guidance Gold producers now focussed on value and cash flow, not production growth Expect improved discipline Gold industry will correlate to gold price over time 1 Measured over 12 months to 31 August 2012 15
Newcrest Mining Newcrest in a snapshot Bonikro 4 th largest global gold producer 1 6 production assets in 4 countries, primarily Australia and Asia Pacific Gold production 2.3 2.5Moz 2 Tandai Gosowong Wafi-Golpu Manus Is Lihir Is Hidden Valley Copper production 75 85kt 2 Reserve life of >40 years Workforce 19,000+ Telfer Namosi JV Newcrest strategy Long life, low cost, moderate growth Gold Equivalent Resource +50Moz 20-50Moz 0-20Moz Cadia Valley Australia, SE Asia focus Unhedged, low gearing, dividend growth Focus on early stage resources People & technical capability focus Management incentives ROCE, reserve growth, and cost position 1 By market capitalisation 2 FY13 production guidance. 16
Key themes for Newcrest Drive performance from existing assets Ramp up and optimise high margin assets Lift return from existing assets Technology and people capability focus Increase productivity Strong focus on cost reduction Capital reduction Investments in growth largely completed Minimise future investment until cycle trend becomes clearer Entering period of strong free cash flow generation Grow shareholder returns 17
Long reserve life, concentrated focus Reserve life (years) Number of Mine Provinces 42 31 28 20 19 17 17 7 Newcrest Goldcorp Newmont Barrick Barrick Newmont Goldcorp Newcrest Source: company filings December 2012 Long reserve life in the industry Source: Intierra; Minimum 40% holding, at least one project at mine must be pre-feasibility or concept Percentage of Mine Provinces in Top 30 Mines 43% Concentration of high quality assets 29% 24% 16% Brownfield focus continues to deliver upside Newcrest Goldcorp Newmont Barrick Source: Intierra; Top 30 NPV basis from BMO Equity Research at 5% discount rate and street consensus pricing; current as of 8-Jan-2013 18
Near term growth from past investment Gold Production 2.29 Moz 2.3Moz to 2.5Moz 5% to 10% growth per year 2012 2013 2017 5-year production growth of 35% to 50% CAGR = 5 to 10% per annum Past investments drive future growth Cadia East = 30 to 40% of 5 year growth Lihir = 50 to 70% of 5 year growth Other growth option studies continue Copper Production 5-year production growth of 20% to 30% 76kt 75kt to 85kt 5% to 7% growth per year CAGR = 5 to 7% per annum Cadia East ramp-up delivers growth Telfer production declines to 25ktpa from FY14 2012 2013 2017 19 As provided in August 2012 market guidance
Three major focus areas = shareholder value Australia s largest underground mine 30 year + mine life 30 year + mine life Cadia Lowest cost quartile (cash and total) Production growing from 450,000 to 800,000 ounces, next 5 years Lihir Second quartile cash cost Production growing from 600,000 ounces to over 1 million ounces Wafi Golpu Finalising Pre Feasability Very high grade, low cost, 30 year + life Projected production of 600,000kozs gold, 400,000kt copper 20
Interim dividend maintained Dividend growth Increasing payout ratio FY13 Interim dividend of 12cps (unfranked) Objective is to grow profit and cash flow, maintain a conservative balance sheet, spend within means, and return cash to shareholders via ordinary and special dividends 21
Conclusion Creating value in today s market Cheap resource capture Optimised growth, limited capital Low cost, predictable production Gold markets Fundamentals support a strong gold price Growing demand for investment Future supply under pressure Increasing costs Key Newcrest themes Drive performance from existing assets Grow shareholder returns Set up future growth options 22