Denver Gold Group Tom Brady, Chief Economist January 2015 Agenda - - PowerPoint PPT Presentation

Denver Gold Group Tom Brady, Chief Economist January 2015

Agenda

• Brief Introduction and Newmont Overview
• U.S. & Global Macroeconomic Trends
• Commodity Review

– Gold – Copper – Oil

• China & Commodities
• Status of the Commodities Cycle

Newmont Mining Corporation

Long Canyon

January 2015 Slide 2

Tom Brady: brief background

Newmont Mining Corporation Slide 3

• 1996 PhD in Mineral Economics from CSM
• JPM Commodity Research Desk
• 1996 – 1998: Mining
• Newmont Mining – Corporate Development analyst
• 1998 – 2007: Energy / Oil & Gas
• Risk Capital Advisors
• Arthur Andersen
• 2007 – Present: Mining
• Newmont Mining –
• Treasury: Financial Risk Management
• Investor Relations
• Strategic Planning
• Chief Economist

January 2015

About Newmont

• Founded in 1921
• Second largest gold mining company by

production

• ~ 30,000 employees and contractors

(was ~ 45,000)

• Only gold mining company included in

the S&P 500 Index and Fortune 500

• BBB rating from Standard & Poor’s;

Baa2 rating from Moody’s

• Publically traded on the New York Stock

Exchange since 1940 - NYSE: NEM

• Market Capitalization: ~$9.7B

Gold pour at Gold Quarry, Nevada

January, 2015

100 102 104 106 108 110 112 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Trade Weighted USD Index

U.S. dollar strengthening

• U.S. dollar has strengthened on improved outlook for economic conditions

–

Trade-weighted index up ~9% since July

• Market expects the U.S. dollar index to gain another ~3% in 2015

– Gold is priced in U.S. dollars and becomes relatively more expensive with dollar strengthening

Newmont Mining Corporation Slide 5

Recent U.S. dollar appreciation expected to continue* U.S. Dollar Strength ~9% increase since July

* Fed Reserve Broad (Trade-weighted) dollar index: currencies weighted based on international trade (China: 20%, Euro Area: ~17%, Canada: 13%, Mexico: 11%, Japan: 7%, UK: ~3%, South Korea:

~4%, Brazil: 2%, Others: 23%)

January 2015

• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 U.S. Inflation (%)

CPI - Headline CPI - Core PCE - Core

Inflation has remained low by multiple measures

• Multiple measures of US inflation remain below Fed’s target of 2%

– Headline CPI (most often quoted): currently ~1.7% – Core CPI (excludes volatile food & energy costs): currently ~1.8% – Personal consumption expenditure (monitored by Fed): currently ~1.5%

Newmont Mining Corporation

*Source: MacroBond

Slide 6

Inflation less than 2% U.S. Fed Target = 2%

January 2015

Future inflation also expected to remain low

• Expected inflation from Univ. of Michigan monthly survey

– Median of monthly survey of ~500 households

• Median expectations are for inflation to remain ~3% over the next 1- and 5-years

Newmont Mining Corporation Slide 7

Anticipated inflation to remain muted over the next 1 and 5 years

0.0 1.0 2.0 3.0 4.0 5.0 6.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Expected Inflation (%)

Expected Inflation (1 year) Expected Inflation (5 years) January 2015

U.S. yield curve has steepened and shifted upwards

• Over the last 2 years, yields on bonds with maturities > 1-year have increased

–

Lower demand for longer-dated bonds (as U.S. Fed tapers purchases)

• Results in lower bond prices (and higher yields)
• Yield curve has steepened

– Signals U.S. economic expansion has gained traction

• Market expects higher rates (near- and medium-term bearish outlook for gold)

Newmont Mining Corporation Slide 8

Yield curves past, present & expected

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 1-Day 7-Day 1-Month 3-Month 6-Month 1-Year 2-Year 3-Year 4-Year 5-Year 6-Year 7-Year 8-Year 10-Year 20-Year 30-Year Yield (%)

Current 2-Years Ago Consensus Expectations (Q2 2015) January 2015

$1,100 $1,200 $1,300 $1,400 $1,500 $1,600 $1,700 $1,800 1,400 1,500 1,600 1,700 1,800 1,900 2,000 2,100 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 LMBA P.M. Fix ($/oz.) S&P 500 Index S&P 500 Gold Price ($/oz.)

U.S. equities and gold prices

• Since 1 Jan. 1, 2013: Gold prices down ~$500/oz. (-30%)

S&P 500 Index is up over 600 points (over 40%)

• Low inflation and less risk aversion driving investors away from safe-haven instruments

such as gold

Newmont Mining Corporation Slide 9

Equities trending up while gold weakens

January 2015

• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 1990 1995 2000 2005 2010 2015E Annual Growth (%)

OECD Contribution Emerging Market Contribution World GDP

• Prior to 2001, global GDP changes generally based on OECD economic activity
• Post 2001, emerging markets have been primary contributors driving average growth of

~3.5% per year

• Global growth expected to average ~4% through 2019

Newmont Mining Corporation Slide 10

Annual global growth expected to increase to 4%

*Source: IMF WEO Database

Global economic growth recovering

January 2015

Global economic growth and commodities

• The CRB index provides a direction of the overall commodity sector

– Based on futures prices for a basket of 19 commodities

• In general, global economic growth < 4% results in poor performance for a broad

collection of commodities

Newmont Mining Corporation Slide 11

Slower growth has weighed on the overall commodity sector

• 60
• 40
• 20

20 40

• 2.0

0.0 2.0 4.0 6.0 8.0 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016E CRB Index (change) World GDP (%)

World GDP % CRB Index Commodities decline when world growth <4%

* Source: Dundee Securities

January 2015

Personal consumption expenditure and gold demand

• Global spending was ~$31 trillion dollars globally in 2012

– ~75% of total in North America (U.S. and Canada), Western Europe and Affluent Asia (Japan, Australia, South Korea) – China and India represent ~5% and 3% of total, respectively

• Over 50% of consumer gold demand in China and India

Newmont Mining Corporation

*consumer demand includes demand for gold jewelry, bars and coins

Slide 12

Global consumer gold demand* Global consumer spending

North America (34%) Western Europe (27%) Affluent Asia (13%) South & Central America (7%) China (5%) Eastern Europe (5%) East & (3%) Developing Asia (3%) India (3%)

Middle East & Africa (3%)

North America (5%) Western Europe (10%) Affluent Asia (1%) China (26%) Eastern Europe (6%) Middle East & Africa (6%) Developing Asia (7%) India (27%) Other (12%)

January 2015

20 40 60 80 100 120 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

(Moz)

Strong gold fundamentals support long term pricing

• 60% from emerging countries (vs. 50% 10 years ago)
• Mine supply has grown ~2%/year over the last decade
• Longer-term mine supply growth challenged with fewer new discoveries, capital cost

inflation, increasing nationalism and activism, aging mines and declining grades

• Project cancellations and deferments expected to reduce mine supply by ~3%/year going

forward

Newmont Mining Corporation

*Source: GFMS and World Gold Council.

Slide 13

Global gold mine supply projections* Global gold mine supply (2004 – 2013)

January 2015

Gold ETF liquidations have moderated

• Global gold ETF volumes decreased over 30 percent in 2013 (~28M ounces)
• Global ETFs currently hold over 20M ounces more than at start of the Financial Crisis

Newmont Mining Corporation

*Source: Bloomberg

Slide 14

Gold ETF holdings historical trends*

30 40 50 60 70 80 90 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Holdings (Moz.)

• 28M ozs. In 2013
• 5M ozs. In 2014 YTD

January 2015

Central banks continue to be gold buyers

• From 2004 – 2009, banks were net-sellers of over 70M ounces
• Since 2010 banks have become net gold purchasers
• Gold purchases assist to diversify reserves (primarily away from U.S. and European

treasury securities)

Newmont Mining Corporation

*Source: IMF and World Gold Council.

Slide 15

Central bank net-gold additions*

• 30
• 20
• 10

10 20 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD Central Bank Net Additions (Mozs.)

NA & SA Int'l Banks Former Soviet Union ME, Africa, Asia Known, not public Europe Global Net Additions January 2015

Copper surplus limits price upside in near-term

Moderate global surplus conditions expected in over next 2-3 years*

• Global demand has grown ~3.5%/year over last decade

– Chinese demand growth has exceeded 11%/year – Emerging economies accounted for ~70% of total demand in 2013, up from ~45% in 2003

• Refined copper supply expected to grow from <22M tonnes to >26M tonnes by 2020
• Potential global surplus could continue over near-term* except under demand growth

assumptions of 5%/year

* These market balance projections include annual supply disruptions of approximately 6 percent over the forecasted period; Source: Wood Mackenzie, Spring 2014

Newmont Mining Corporation Slide 16

10,000 15,000 20,000 25,000 30,000 10,000 15,000 20,000 25,000 30,000 2000 2005 2010 2015E 2020E

Global Copper Supply ('000 tonnes) Global Copper Demand ('000 tonnes)

Refined Supply Demand Demand Growth @ 5% CAGR Demand Growth @ 3% CAGR Demand Growth @ 0% CAGR

January 2015

Chinese copper “intensity of use”*

• Copper intensity generally first rises, then decreases with increasing per capita income

(an inverted “U” relationship)

• In 1990, the average Chinese citizen consumed 0.4kg of copper which has increased to

well over 6.0kg last year

Newmont Mining Corporation

*Source: GaveKel Research and Bloomberg.

Slide 17

“Intensity of use” suggests increased consumption

2013 2013 2013 2013

Phase 1

(agrarian)

Phase 2

(urbanization & industrialization)

Phase 3

(demand peaks)

Phase 4

(goods & services) January 2015

$30 $50 $70 $90 $110 $130 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ / barrel Brent WTI

WTI and Brent prices and expectations

• Since July 1st WTI prices have dropped ~$55/barrel (Brent: ~$60/barrel)

– Continued growth in U.S. production, slower global growth expectations, higher production within OPEC

• Saudi Arabia desires to maintain market share and achieve geo-political objectives

Newmont Mining Corporation Slide 18

WTI and Brent crude oil prices and median expectations

• >50%

January 2015

Competitive markets or monopoly power?

• Oil markets have migrated between periods of competition and where OPEC flexed power

– Competition: prices heavily influenced by marginal costs within industry – OPEC Monopolistic: Saudi Arabia primarily restricting output

Newmont Mining Corporation Slide 19

Inflation-adjusted WTI prices

January 2015

$0 $20 $40 $60 $80 $100 $120 $140 $160 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Real WTI Price ($/barrel)

OPEC cartel pricing OPEC cartel pricing Competitive market pricing OPEC cuts

• utput

OPEC does not cut

• utput

Domestic crude oil trends

• The U.S. remains the world’s largest oil consumer, accounting for ~20% of global demand
• For each year since 2011, U.S. production has increased ~1M barrels/day

– U.S. production recently surpassed 9M barrels per day – Will this level of growth continue in 2015?

Newmont Mining Corporation Slide 20

U.S. crude oil production and imports

3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 2004 2006 2008 2010 2012 2014 Barrels / Day (millions) U.S. Crude Oil Production U.S. Crude Oil Imports

January 2015

2014E global crude oil supply

• Global crude oil supply nearly 80M barrels/day in 2014

– ~16M from core-OPEC (~20% of total)

• OPEC production cuts expected to be modest until there is sufficient evidence of a

slowdown in the production growth rate in the U.S.

Newmont Mining Corporation Slide 21

2014E global crude oil supply (millions of barrels per day)

Saudi Arabia Kuwait UAE Qatar Iran Iraq Nigeria Venezuela Libya Other OPEC U.S. Other NA Russia Other FSU China APAC LatAm Other 0.0 10.0 20.0 30.0 40.0 50.0 60.0 OPEC Non-OPEC Supply (M barrels/day)

Core OPEC January 2015

China remains a key driver of commodity demand

• China consumes between 40% - 60% of mined commodities but only generates ~13% of

global GDP

Newmont Mining Corporation

Source: Commonwealth Bank of Australia and Goldman Sachs

Slide 22

% of global totals

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Iron ore Steel Aluminium Zinc Copper Nickel Coking Coal Thermal Coal Oil Natural Gas LNG Gold Share of Global Commodity Consumption

Other Developed * India China

More “consumption” exposure More “construction” exposure

Base Metals Energy Gold

January 2015

As household income rises, consumption mix changes

• 1st entering Middle Class (income > ~$8K/year): Increased spending on housing, cell

phones, mass produced clothing

• 1st entering Upper Middle Class (income > ~$13.5K/year): Increased spending on cars

and non-essential items

• 1st entering Upper Class (income > ~$20.5K/year): Increased spending on health care,

tourism, non-essential items

Chinese household wealth trends

Source: GaveKal Research

Newmont Mining Corporation Slide 23 January 2015

5 10 15 20 25 # of Households Entering Consumer Class (millions)

Middle (>~$8,000/year) Upper Middle (>~$13,500/year) Upper (>~$20,500/year) Rapid growth in household’s 1st entering middle class Rapid growth in household’s becoming more “established” in middle class Rapid growth in household’s becoming affluent

1st entering Middle Class 1st entering Upper Middle Class 1st entering Upper (Affluent) Class

200 400 600 800 1,000 1,200 1,400 1,600 5 10 15 20 25 Chinese Consumer Gold Demand (tonnes) # of Households Entering Consumer Class (millions)

China Consumer Gold Demand Upper Middle (>~$13,500/year) Upper (>~$20,500/year)

Chinese trends support bullish gold outlook

• Growing household wealth driving higher levels of disposable income
• China now largest market for gold demand (~1,100 tonnes or ~35M ounces in 2013)
• The World Gold Council anticipates that demand will increase to at least 1,350 tonnes or

to ~43M ounces by 2017 (25%)

Source: GaveKal Research, WGC

Newmont Mining Corporation Slide 24

Chinese household wealth and gold jewelry, bar and coin demand

January 2015

Urbanization in China

• Current 50% urbanization rate expected to exceed 70% by 2030

– Another ~300M people moving to cities!

Newmont Mining Corporation Slide 25

China’s urban population trends and commodity prices 50 100 150 200 250

• 5.0

10.0 15.0 20.0 25.0 30.0 1991 1996 2001 2006 2011 2016 2021 2026 IMF Metals Index Increase in Chinese Urban Population (Millions)

IMF Metals Index1

(right-hand axis)

Chinese Urban Population Growth

(left-hand axis)

Forecast Urban Growth to reach 1 billion in 2030

1The IMF Metals Index weightings: Aluminum = 36%; Copper = 26%; Iron Ore = 12%; Nickel = 10%; Zinc = 6%; Uranium = 5%; Tin = 2% and Lead = 2%

January 2015

Chinese consumption to spur copper demand*

• China accounts for over 40% of global copper demand (Power sector = 50% of this)
• The average Chinese citizen consumes:

– ~33% of the amount of electricity a South Korean citizen consumes; and – 25% of what the average person in the United States consumes

Newmont Mining Corporation

*Source: GaveKel Research and Bloomberg.

Slide 26

Electric power consumption – China vs. developed world

January 2015

U.S. South Korea Japan China

Status of the commodities cycle

Gold: “Prices subdued through 2017 and then to strengthen” Near-term: Prices to remain “subdued”, but range bound

• Continuing U.S. dollar strength
• Low inflation & higher interest rates to limit investment demand
• Relaxation of import restrictions in India
• Price sensitive Chinese consumers

Longer-term: Macroeconomic and industry trends support higher prices

• Return of inflation (initially with labor markets in U.S., will past QE efforts to catch up?)
• Decreasing mine supply
• Wealth trends in China

– Development of health care and social safety net programs

Newmont Mining Corporation Slide 27 January 2015

Status of the commodities cycle

Copper : “Prices subdued through 2017 and then to strengthen” Near-term: Moderate supply surplus conditions will weigh on prices

• Advanced stage project additions
• Slowing property sector and SOE reforms in China
• Purchases by China’s State Reserve Bureau could provide support

Longer-term: Market fundamentals are bullish

• Decreasing mine supply
• Urbanization trends in China
• Consumption based economic growth (vs. investment) in China

Newmont Mining Corporation Slide 28 January 2015

Status of the commodities cycle

Oil: “Market restructuring” Near-term: Supply driven bear market (is $50/barrel a floor or ceiling?)

• How the global market restructures will determine prices
• Competitive: marginal cost of non-OPEC producers will determine prices
• OPEC as an effective cartel: lower output will drive prices relatively higher
• Building inventory overhang
• Stronger global demand (lagged response to price decrease)

Longer-term: Markets to normalize

• Capex reductions will slow supply growth (OPEC and non-OPEC)
• China and India demand growth

Newmont Mining Corporation Slide 29 January 2015

…Finally…to Set Expectations… Newmont’s Economist? …. “…He Sucks!...”

Newmont Mining Corporation Slide 30 January 2015

Tom.Brady@newmont.com

Appendix

Newmont’s

~30,000 Total Workforce 13 – Open pit mines 13 – UG mines 15 – Process facilities 7 – Heap leach pads 2 – Power Plants

Operations Projects

Operations Carlin Leeville Midas Phoenix Twin Creeks Projects Emigrant Phoenix Cu Leach Leeville / Turf Expansion Phoenix Mill Expansion Long Canyon La Zanja Yanacocha Conga Merian Sabajo Waihi Golden Link Tanami Tanami Shaft Jundee KCGM Boddington Batu Hijau Elang Subika Expansion Akyem Ahafo Nimba La Herradura

Newmont’s worldwide portfolio

January 2015

Oil price stretches budgets of many OPEC members

• Brent crude price (Nov. 20th, 2014) = ~$79/barrel (…~$71 on Dec. 2…~$51, currently)
• Most U.S. shale projects continue to be profitable below $80/barrel

– Bakken and Eagle Ford formations profitable at $50/barrel

Newmont Mining Corporation Slide 33

2014E fiscal breakeven prices ($/barrel)*

$0 $20 $40 $60 $80 $100 $120 $140 $160 North Dakota Russia Iran Venezuela Algeria Nigeria Ecuador Iraq Angola Saudi Arabia Libya Kuwait UAE Qatar

• Est. 2014 Fiscal Breakeven Price ($/barrel)

*Source: Wall Street Journal, Bloomberg, Oxford Economics

OPEC: weighted average = ~$100/bbl. January 2015

Natural gas importance will grow for China

• China’s energy mix is highly dependent on coal (nearly 70%)
• Natural gas will play a more important role going forward

Newmont Mining Corporation

*Source: Goldman Sachs

Slide 34

Primary energy consumption breakdown (%)* 19% 38% 67% 58% 37% 30% 18% 17% 26% 22% 9% 14% 9% 9% 5% 8% 8% 2% 1% 3%

0% 20% 40% 60% 80% 100%

OECD (2013) Non-OECD (2013) China (2013) China (2020) Primary Energy Consumption Breakdown (%)

Nuclear Renewables Natural Gas Oil Coal

January 2015

Gold positively correlated with inflation

• Gold prices tend to increase with higher current and expected inflation

– Expected inflation appears to drive gold more than current

Newmont Mining Corporation Slide 35

Gold price returns & current inflation

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 0% - 1% 1% - 2% 2% - 3% 3% - 4% > 4% Gold Price (Avg. Monthly Return) (%) 5 Year Inflation Expectations (Median) 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0% - 1% 1% - 2% 2% - 3% 3% - 4% > 4% Gold Price (Avg. Monthly Return) (%) Concurrent Inflation Expectations (U.S. CPI %)

Gold price returns & expected inflation

January 2015

Changes in commodity prices

• xxx

Newmont Mining Corporation Slide 36

2014 YTD price changes

• 40%
• 30%
• 20%
• 10%

0% 10% 20% Iron Ore Brent WTI Silver Platinum Copper Tin Lead Gold Palladium Zinc Aluminum Nickel

2014 YTD Change (%)

2015 Q4 consensus expectations

• 10%

0% 10% 20% 30% 40% Gold Aluminum Copper Zinc Palladium Lead Silver Nickel Tin Brent WTI Iron Ore Platinum

Q4 2015 Consensus Change (%)

January 2015