Good morning, and welcome to Newmont's Q1 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Tom Palmer, President and Chief Executive Officer. Please go ahead.
Good morning. Thank you for joining Newmont's Q1 2022 earnings call. Today, I'm joined by Rob Atkinson and Nancy Buese, along with other members of our executive team, and we'll be available to answer questions at the end of the call. Before I begin, please note our cautionary statement and refer to our SEC filings, which can be found on our website. Newmont delivered on a challenging Q1 as our operations and the mining industry as a whole safely managed through the Omicron surge over the first three months of this year. As we emerge on the other side of this wave, Newmont remains well-positioned to deliver solid performance in 2022, leveraging our scale and proven operating model to deliver long-term value from the world's best mining jurisdictions.
The strength of our people and stability of our global portfolio not only allows us to endure short-term disruptions, it is the foundation of Newmont's clear and consistent strategy to create value and improve lives through sustainable and responsible mining. Turning to our quarterly results, let's take a look at the highlights. During the Q1 , Newmont produced 1.3 million ounces of gold and 350,000 gold equivalent ounces from copper, silver, lead, and zinc. Despite challenges from the Omicron surge and the knock-on impacts from this global pandemic, we remain on track to achieve our full-year guidance ranges as we build momentum for a strong second half.
I recently visited Ahafo and Akyem in Ghana, as well as our Boddington mine in Australia, where I saw firsthand the significant efforts our teams are taking to protect the health and safety of our workforce while continuing to move critical projects forward. With $7.3 billion in total liquidity, we have a net debt to EBITDA ratio of 0.3x, preserving Newmont's financial strength and flexibility to sustain and grow the business. We also continue to invest in and develop our most profitable near-term projects, including Ahafo Mill, the second expansion at Tanami, and Yanacocha Sulfides. Just last week, we announced the acquisition of Sumitomo's interest in Yanacocha, which will bring Newmont's ownership in this operation and the exciting sulfides project to 100%.
Yesterday, we declared a Q1 dividend of $0.55 per share, set within our established dividend framework and consistent with our last 5 quarters. Newmont's core values of safety, sustainability, integrity, inclusion, and responsibility are essential to creating long-term value for our investors, host governments, communities, and employees. Last week, Newmont launched its 18th annual sustainability report, providing a transparent look at our ESG performance and the issues and metrics that matter most to our stakeholders. In March, we committed $5 million to provide relief and medical supplies to the millions of people affected by the war in Ukraine. We take pride in being a values-driven organization, and our core values are fundamental to how we run our business and where we choose to operate.
In light of the recent geopolitical events and the Omicron surge that have impacted so many around the world, our commitment to sustainable and responsible mining is more relevant today than ever before. During our Q4 earnings call in late February, we provided an update on how the Omicron surge and the lingering effects of the pandemic were affecting our operations and the impacts that our stakeholders could expect in the Q1 . As you can see here on the slide, over the first three months of this year, we saw the largest spike in positive COVID cases at Newmont since the start of pandemic. This graph only shows positive cases and does not include absenteeism from adhering to close contact isolation protocols.
As a rule of thumb, for every positive case identified at site, approximately two coworkers were sent home to isolate for a minimum of seven days. In addition, many of our team also needed to take time off to care for sick children and family members as COVID cases spiked in surrounding communities. Fortunately, due to our very high vaccination status, the severity of any positive cases has remained low. As of today, eight of our 12 managed operations have a fully vaccinated workforce of employees and contractors, positioning us to emerge strongly on the other side of this wave and others that may come. However, as a consequence of managing through the Omicron surge, our operations have been impacted during the Q1 by lower productivity from close contact isolation protocols, flight capacity constraints, and various other safety measures.
We've also experienced pandemic-related supply chain disruptions and the impacts from various state and national border restrictions. This has affected both labor availability and the delivery of equipment and critical spares. Although our operations were not directly impacted by the Russian invasion of Ukraine, it has resulted in new and developing complexities to global supply chains and input costs. As we described in our guidance webcast last December, we assumed an escalation factor in 2022 when we developed our business plan to account for higher inflation expected during this year. During the Q1 , we remain in line with our inflation assumptions, but we are closely monitoring critical commodities and materials such as natural gas and the ammonia used for the production of explosives in Yanacocha.
Although difficult to predict at this stage, the cost pressures from these new supply chain disruptions may increase our unit costs by another 3%-5% and towards the high end of our guidance range. We will be closely monitoring this through the Q2 and will provide you with an update during our Q2 earnings call in July. On the production front, we are well positioned to land within our guidance. We're tracking to around 100,000 ounces below our midpoint for gold. We continue to expect both production and unit cost to improve through the second half, with approximately 53% of our production weighted to the back half of the year, driven by Tanami, Ahafo, Cerro Negro, and our Canadian operations.
As we have demonstrated since the start of the pandemic, we will continue to be transparent as we can with our updates to the market as we leverage our proven operating model and balanced global portfolio to overcome these near-term uncontrollable disruptions and deliver our long-term commitments. At Newmont we have created a robust and diverse portfolio of operations, along with a pipeline of more than 20 organic projects with the scale and mine life to deliver long-term results. Newmont will produce more than six million ounces of gold each year and almost 2 million gold equivalent ounces from copper, silver, lead, and zinc. Combined, that is nearly 8 million gold equivalent ounces per year for at least the next decade, the most of any company in our industry. It is important to note that this is attributable production.
Among our 12 operating mines and 2 joint ventures, nearly 90% of this attributable gold production comes from top-tier jurisdictions. With the acquisition of the remaining 5% ownership in Yanacocha, 11 of our 12 managed operations will be 100% owned, ensuring that our stakeholders receive the full benefit from Newmont's clear strategic focus and superior execution. We firmly believe that where we choose to invest and operate matters. We have a disciplined geopolitical risk program that ensures we routinely assess our jurisdictions and our risk tolerance to deliver long-term results from established mining jurisdictions. Underpinning our portfolio is a robust foundation of reserves and resources, which, combined with the gold industry's best organic project pipeline, provides the pathway to steady production and cash flow well into the 2040s.
We are entering a period of meaningful reinvestment as we continue to advance our near-term projects, including the second expansion at Tanami in Australia's Northern Territory, the development of Ahafo North in Ghana, and the Yanacocha Sulfides Project, the next exciting chapter in Newmont's long and profitable history in Peru. With that, I'll turn it over to Rob and then Nancy for a more detailed look at our Q1 performance. Over to you, Rob.
Thank you, Tom, and good morning, everyone. Coming to the next slide, let's dive into the operations and projects, starting with Africa. Tom and I had the opportunity to separately visit Ghana recently, and we were impressed with the progress of both operations as they continue to advance important growth opportunities in this proven mining district, including sublevel shrinkage at Subika Underground, the Akyem Layback, and of course, Ahafo North.
As indicated during our Q4 earnings call, Ahafo South has had a challenging start to the year. The site's Q1 performance was impacted by supply chain disruptions and global border closures, impacting labor availability and the delivery of new equipment and critical spares. As an example, last year, the site ordered four new drills for the underground and open pit operations, and we only received the first drill in March this year, with delivery of the remaining drills expected sometime in the Q3 , much later than originally planned. In addition, the delay of replacement parts for existing drills is compounding the situation, creating availability challenges with the equipment that we have on hand today. Improved mill performance has helped to offset these delays, but the impacts from the pandemic have affected our ability to ramp up mining rates in the Subika Underground.
As a consequence, we're evaluating ways to improve our mine rates, which may include adding a third production level to access high grades in late 2022 and into 2023, and we expect to have an update with our quarter 2 earnings in July. Ahafo delivered a solid performance in the Q1 due to sustained throughput and strong recoveries. The team continues to progress stripping of the next layback in the open pit, which will extend mine life by an additional four years and provide future optionality for both underground and open pit growth. Finally, we continue the development of the Ahafo North project. Engineering is nearly 90% complete and procurement is 60% complete as we continue to work together with local communities, traditional leaders and regulators to gain full land access and commence construction.
Just in the last few weeks, Tom and I met separately with key stakeholders and received strong support for this important project. Last week, we also achieved an important milestone with the cabinet in Ghana formally approving the diversion of the highway that currently passes through a section of the new mine site. When operations begin, Ahafo North is expected to add approximately 300,000 ounces of gold per year while creating lasting value for host communities through enhanced local sourcing and hiring as we develop this prolific ore body. Now turning to Australia. At Boddington and Tanami, we experienced the impact from the Omicron surge in the Q1 as labor availability and close contact isolation protocols impacted the region.
In addition, the Western Australian border was reopened in early March, leading to an increase in on-site cases, but also allowing our teams, contractors and business partners to move more freely throughout the country and to Tanami for the first time in many months. At Boddington, we reported lower production compared to the Q4 due to plant maintenance and COVID-related absenteeism as we saw our first COVID cases on the site. These impacts were partially offset by improved grades and higher ore tons mined from Boddington's fleet of fully autonomous trucks. The team is diligently working multiple face positions in the south pit to access higher-grade ore. We expect tons mined and grade to remain strong throughout the year as we continue to optimize consistency, efficiency, and productivity from our autonomous truck fleet, a key component to delivering a strong finish to the year.
At Tanami, the site delivered a strong performance despite the impacts from the Omicron surge in the Q1 and a very competitive labor market in Australia. The site also delivered lower ore grade than the Q4 due to mine sequencing and unplanned maintenance at our processing facilities. The team continues to progress the second expansion at Tanami, a project with potential to extend mine life beyond 2040. As you can see here in the photo, the assembly of the head frame is nearing completion, which is an important milestone as we transition from the reaming of the shaft to commencing the shaft lining activities.
Nearly 85% of the project engineering and procurement has been completed, and over the coming months, the site will focus on the completion of the head frame installation and commencement of the shaft lining, bringing Tanami that much closer to delivering significant ounce, cost, and efficiency improvements. Now over to North America. Peñasquito delivered another solid quarter, a strong mill performance that delivered higher co-product production from lead and zinc, offset lower gold production. Stripping has continued in both the Peñasco and Chile Colorado pits, with lower gold grade and harder ore coming from Chile Colorado in the Q1 . Looking ahead, due to efficient sequencing, gold production from this large polymetallic mine is expected to decrease in the Q2 , but increase in the Q3 due to higher grade delivered from the Peñasco mine.
Moving to Canada, our operations in the country as a whole continue to be impacted by ongoing challenges stemming from the global pandemic and a very competitive labor market. As indicated a couple of months ago, the Omicron surge reintroduced flight capacity constraints, testing requirements, and strict close contact isolation protocols. Working closely with the First Nations, we have maintained our stringent protocols and testing regimes, even as restrictions have relaxed. Due to the remote locations, these impacts were particularly pronounced at Musselwhite and Éléonore, where both sites delivered lower tons mined and processed compared to the Q4 . As an example, we saw absenteeism rates as high as 15%-20% during the peak of the Omicron surge at our Canadian operations.
At Musselwhite, we decided to place the site on care and maintenance for 7 days in February to reduce the spread of the virus and protect the health of our workforce and communities. At Porcupine, our ore grade was offset by lower tons processed as a result of COVID-related labor absenteeism and mill maintenance, in addition to challenging ground conditions and some ventilation constraints at Hoyle Pond. The site continues to progress the Pamour Layback, a project that will extend mining at Porcupine through 2035. Construction of the water treatment plant is well underway as the team prepares to dewater the pit and advance towards full funds approval in the second half of this year. Finally, at CC&V, the mine required a mill shutdown from a conveyor fire that occurred during the Q1 .
With the pending conclusion of our contract to supply concentrate from CC&V to Nevada Gold Mines, we are stepping back to assess our operating strategy at the site to determine if there is the potential for a simpler, higher value, longer life leach-only operation that does not carry the complexity and cost of running a mill to process a relatively small amount of ore mined. This work is underway, and we expect to have an update with our quarter two earnings in July. Coming to South America, Merian delivered a solid performance despite very heavy rain and mill maintenance during the Q1 , as the site continues to utilize an ore blending strategy to balance steady grade and strong mill performance.
At Yanacocha, record rains all resulted in a federal emergency declaration in Peru, impacting the site as it continues to deliver leach-only production, while we work to develop the first phase of the sulfides project, which continues to advance towards an investment decision in late 2022. Engineering is approximately 50% complete, and the early earthworks camp construction activities continue to progress at site. Once finished, the camp will allow the construction workforce to begin ramping up in 2023. Finally, Cerro Negro delivered a strong performa nce in the Q1 as a result of higher-grade mine from Mariana Norte and Mariana Central, and ongoing improvements with productivity despite disruptions from the Omicron surge.
During the Q1 , the team successfully completed the tailings storage facility expansion project, and they continued to progress the first wave of expansions at Cerro Negro, including the development of the Marianas and Eastern Districts to extend existing operations beyond 2030. The team is currently advancing the development of the San Marcos decline. As you can see in the photo, the construction of the roads, infrastructure platforms, and portal access are all well underway in the Eastern District. With that, I'll turn it over to Nancy on the next slide.
Thanks, Rob. Let's start with a look at the financial highlights. In the Q1 , Newmont delivered $3 billion in revenue at a realized gold price of $1,892 per ounce. Adjusted net income of $546 million or $0.69 per diluted share. Adjusted EBITDA of $1.4 billion and solid free cash flow of $252 million, which includes unfavorable working capital movements of $465 million in the Q1 , primarily driven by timing of cash collections and over $420 million of tax payments, largely attributable to 2021. Free cash flow was also impacted by higher capital spend as Newmont enters a period of significant reinvestment, an essential component in growing production, improving margins, and extending mine life.
Q1 GAAP net income from continuing operations was $432 million or $0.54 per share. Adjustments included $0.16 related to a non-cash loss on a pension annuitization settlement, $0.04 primarily related to a loss from the sale of La Zanja as part of the transaction to increase our ownership at Yanacocha, $0.05 related to the unrealized mark-to-market gains on equity investments, $0.04 related to tax adjustments and valuation allowance, and $0.04 of other charges. Taking these adjustments into account, we reported Q1 adjusted net income of $0.69 per diluted share. Our balanced global portfolio, combined with our discipline, provides significant leverage to higher gold prices from the largest production base in the world. For every $100 increase in gold prices above our base assumptions, Newmont delivers $400 million in incremental attributable free cash flow per year.
Newmont is the only company in the gold mining industry with the ability to generate these levels of attributable free cash flow, allowing us to confidently execute our capital allocation priorities and build from our position as the world's leading gold company. A year and a half ago, Newmont was the first in the gold industry to announce a clear dividend framework with a decisive strategy to provide stable and predictable returns. Yesterday, we declared a Q1 dividend of $0.55 per share or $2.20 per share on an annualized basis, calibrated at a $1,800 gold price assumption and a conservative 40% distribution of incremental free cash flow.
We continue to review our dividend each quarter with our board, assessing gold price performance along with our operational and financial outlook over the long term to determine the payout levels within our dividend framework. Since its introduction eighteen months ago, Newmont has returned $2.5 billion to shareholders from dividends, demonstrating our confidence in the long-term value of our business and our ability to maintain financial flexibility while steadily reinvesting in our future. Our capital allocation priorities remain unchanged with a clear strategy, to reinvest in our business through exploration and organic growth projects, to maintain financial strength and flexibility on our balance sheet and to continue to provide industry-leading returns to shareholders. In the Q1 , we delivered on each of these priorities by progressing our profitable reinvestment into the business with the advancement of our near-term projects and an ongoing commitment to our robust exploration strategy.
Enhancing our ownership of world-class assets and improving mining jurisdictions through the acquisition of the remaining interest in Yanacocha and the Sulfides project. Maintaining our industry-leading dividend of $2.20 per share on an annualized basis is sustaining a strong balance sheet with $7.3 billion in liquidity and a net debt-to-EBITDA ratio of 0.3x, preserving Newmont's financial flexibility across price cycles. As we look ahead, we are confident in our ability to deliver on our disciplined capital allocation priorities, creating long-term value for the business, and maintaining our position as the world's leading gold company. With that, I'll hand it back to Tom on slide 20.
Thanks, Nancy. Newmont has a long history of leading change in our approach to ESG, and these practices have been embedded in our culture and strategy and are woven into the very fabric of our company. Last week, Newmont launched its 2021 Annual Sustainability Report, part of a suite of reports on our company's ESG practices in the key areas that matter most to our stakeholders, including health, safety and security, human rights, the environment, social acceptance, governance, and inclusion and diversity. Some of the highlights from this year's report include zero work-related fatalities for a third year in a row, with our focus on verifying the critical controls that prevent fatalities and coaching frontline leaders to provide visible felt leadership.
Continuing to put the health, safety, and well-being of our workforce and host communities at the heart of every decision we made and continue to make during this pandemic. A key part of this is adopting the requirement for all of our workforce to be fully vaccinated. With contributions to our Global Community Support Fund, we supported COVID testing facilities, vaccine awareness campaigns, and vaccine rollouts in areas near our operations. We established the industry's first sustainability-linked bond, a bond that holds Newmont to account for meeting our 2030 emission reduction targets and also to reach gender parity in senior leadership roles by 2030. By linking the interest rate paid to our ESG performance, this represents the next important step in aligning our financial performance with our sustainability performance.
Finally, Newmont played an important role in creating economic value, contributing $10.8 billion to our workforce, host communities, and jurisdictions through wages and benefits, operating costs, capital spend, royalties, and taxes. Next month, we will launch our second annual climate report, which will outline Newmont's climate-related risks and opportunities, our strategic planning, and the pathways we are taking to achieve our climate targets. We've been disclosing our non-financial performance since 2004, regularly ranking as one of the most transparent companies in the S&P 500 and positioning Newmont as the gold sector's recognized sustainability leader. We understand that strong ESG performance is an indicator of a well-run organization, and we will only be successful if we forge and maintain strong partnerships with local communities and demonstrate our ability to mine in a manner that protects the environment and creates opportunities for people.
In order to address the critical global issues we face today, the mining industry will need leaders with scale, mine life, superior cash flow generation, and an unwavering commitment to leading ESG practices. We believe that Newmont is one of those leaders. We will continue to differentiate ourselves through our clear strategic focus and discipline, our unmatched global portfolio of operations and projects, and an integrated operating model with a deep bench of experienced leaders as we continue into our next 100 years of sustainable and responsible mining. With that, I'll turn it over to the operator to open the line for questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star followed by one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before asking your question. To withdraw your question, please press star followed by two. At this time, we will pause to assemble our roster. Our first question comes from Jackie Przybylowski with BMO Capital Markets. Jackie, your line is now open.
Thanks very much. I think I wanna ask a question about your cash flow statement. It looks like you had a pretty high working capital spend in the quarter, and I was wondering if you could give us some color on the reasons for that and what you're doing with working capital. Thank you.
Thanks, Jackie. Good morning. Just passing across to Nancy to pick that question up for you, Jackie.
On working capital, really, that was related to working capital changes were related to tax payments made in Q1 that were relatively tied to the income and revenue received in Q4 of 2021. That was the biggest. We also had some inventory that had not yet been sold as of the end of the quarter. Those were the key drivers.
Thanks. Thanks, Nancy. Maybe just one other question. It looks like in some of your regions, your CapEx spending, I guess specifically your development CapEx spending, is a little bit below the run rate for the full year guidance. I guess specifically that is South America and Africa, which makes sense because the major projects there haven't been greenlit yet. Can you give us some color? Because I'm thinking, at least on Yanacocha Sulfides, the full funds decision isn't due until December, and I'm thinking it's probably the same in Africa. Can you give us some color in terms of, like, what the spending will look like?
Do you expect to have pickup in spending before full funding decision is reached, or should we really expect to see those sort of Q4 weighted in terms of the spending?
Thanks, Jackie. I'll pick up Yanacocha first. You will see spending pick up ahead of the full funds decision. The Q1 was certainly the lightest in terms of spend. That builds up quite considerably. We'll more than double that spend as we move into the remaining three quarters. It's you'll build through the Q2 at a half to half weighting, 42% spend in the first half versus 58% spend in the second. We will be building that spend towards full fund approval at the end of the year for Yanacocha. You're right, a similar story with Ahafo North.
We are spending the money now on engineering and procurement and doing the important work with the regulators and the traditional leaders around getting the areas of land cleared of structures and farms and the like to be able to do the highway diversion, which has just been approved by cabinet, and for us to come in and really start to break ground, which we're expecting will be moving through this quarter to get all that in place. Once you really start to build up a workforce and get people on the ground doing the earthworks, you'll see that spend build for Ahafo North in the second half. I'd be seeing a similar weighting for Ahafo North in the second half.
If you're modeling, I'd, you know, look at something more like 45, 55 for H1 versus H2.
That's perfect. That's all my questions. Thanks very much, Tom and Nancy.
Okay. Thanks, Jackie.
Thank you, Jackie. Our next question comes from Josh Wolfson with RBC Capital Markets. Josh, your line is now open.
Great. Thank you very much. Thank you for the additional color on the costs versus, I guess, what the guidance expectations were. I'm wondering that 3%-5% upside that would take you towards the high end of the guidance range, what does that incorporate? Is that assuming current spot prices continue for the duration of the year, or are there other sort of factors at play?
Yeah. Thanks, Josh. I might just talk you through another level of detail in terms of what makes up our operating costs and has us looking towards that top end of guidance. If you are modeling off the back of that, if you think about our unit cost on a gold basis, it's probably closer to the 5% than the 3%. As we look across our portfolio on the total metal, it's somewhere between 3%-5%. If you look at the drivers of it, 50% of our spend is labor, and that's contracted labor as well as employees.
What we are seeing starting to come through with contracted services, whether it be specialized labor services or the general labor that you bring in for large maintenance shuts, is we are starting to see both shortage of supply of labor as well as wage premiums coming into the prices that were being quoted for specialized services or shut downs. For instance, Boddington did one of their major shuts through the Q1 , and we had to actually reduce scope for that shut because you simply couldn't get the arms and legs to the mine site. Combination of labor availability in Western Australia and a time of the COVID being released into that community.
You are seeing, you know, if you think about that, 3%-5%, 50% of your operating costs, a lot of it is being driven by what we're starting to see come through for some of that contracted services around our operations globally. Given the quantity of that money, that 5% is sort of indicative of what we're seeing flow through. We wanna watch it because it is a moving feast. We wanna really see how that plays out through the Q2 . Josh, that will play through to exploration, and that will also flow through to some of the contracted services we'll be bringing in for some of our capital projects. We're watching that carefully.
The next 30% is materials and consumables. The real driver in that space is ammonia, which we obviously use for explosives and cyanide, and to an extent, grinding media due to the rising steel prices. We're seeing increase in pricing, probably increases of 20%-30% for our landed cost for cyanide. That's flowing through to really representing, though, a small portion of our operating costs. Probably less than 3% of our operating costs when you see that impact flow through. What we are monitoring more carefully on the materials and consumables is what's happening in the global supply chain.
There's obviously a higher freight cost, but it's also monitoring carefully to ensure that we're getting that cyanide and explosives to our mine sites and actually have those consumables that we need to keep our operations running. Our focus is keeping a wary eye on cost, but more about actively monitoring our supply levels for some of those critical materials and consumables. Then the last one's 15% is energy, and the driver of that's diesel. We assumed $6 a barrel, and we're obviously seeing prices over $100 a barrel. That's flowing through in terms of that operating cost.
Josh, I think what's going to drive that number will be labor as we look at our business through the remaining part of the year.
Great. Thank you for that. Maybe one more question on topic. There were some disclosures there about supply chain challenges, as well as, I guess, earlier commentary Rob provided on some of the challenges in Ghana. You know, I'm wondering, you know, maybe I had some nightmares back from May 2009 of these issues as well. You know, is this a jurisdictional or kinda localized item on the supply chain for specific areas, or is it specific components, or is it across the board?
It's more specific components, Josh. In the Africa example, it's getting drills in that we need both the open pit and underground to be opening up development fronts. It's the equipment suppliers. It's like buying a motor car. You can get a lot of components together, but there are some components that are built up, which means there is a delay in that equipment coming through. The African example, it's drills which will be impacting the mining industry globally. It's just particularly Subika Underground needs drills at a critical time in opening up sublevel shrinkage. That's the specific piece of type of equipment and supply chain issues.
The borders or the global border closures was specifically Western Australia and some of the key resource key people that come out of Western Australia to operate some of that key equipment. We've had some challenges navigating back and forth through some of those border restrictions that are now open. We've got that flowing. That is less of an issue, but we're still seeing those supply chain constraints getting some critical pieces of equipment in order to do the work that we plan to do in our mining operations. Rob, did you wanna build on that?
Yeah. Thanks, Tom. Josh, just to add a little bit more color. As Tom said, it was in Ghana, really, was specifically drills. You know, for the Ahafo North project, we're receiving our haul trucks, our graders, our water trucks. They're, those are coming through. As Tom rightly said, it is specific types of gear, specific types of parts. It isn't everything.
Great. Is there anything else that you can think of beyond drilling equipment that has that belt, that level of tightness? Or is it, is that really kinda number one, the item that would stand out?
I think the tightness on the equipment side, that's the one that's been a particular issue for us, Josh. I think the area that's going to be tight both for supply and cost that we need to monitor, as I indicated earlier, was gonna be labor. I think that's gonna be a key driver. Obviously some of the consumables, just ensuring that we're managing our. You know, we lead into our global supply chain, those long-term relationships, and we are monitoring that very closely. It's also linked to decisions we're making to de-risk some of our operations.
Knowing that this issue's potentially gonna be with the world and the mining industry for some time, that decision we're looking at around Subika Underground to drop down and open up a third level and have more headings from which to be able to take ore is de-risking that operation. It's stepping back, making investment now to de-risk that operation to better manage some of this volatility and disruptions coming ahead. We are starting to make decisions that help us manage some of these issues going forward.
Great. Thank you very much.
Thanks, Josh.
Thank you, Josh. Our next question comes from Tanya Jakusconek with Scotiabank. Tanya, your line is now open.
Great. Good morning, everyone, and thank you for taking my question. Many, but I'll keep it just to three if I could. Just wanted to come back to the guidance that you provided, and thank you for that. I just wanna make sure I heard it correctly 'cause there was a little bit of static on the phone. Tom, did you say that we're looking at 100,000 ounces below 6.2 million for this year?
Yes. Good morning, Tanya. Yes, that's correct. If I give you a little bit more color on that. About 70. It's 100,000 ounces below the 6.2 midpoint that we're starting to see open up. It's managed operations that I'm referring to in that around about 100,000 ounces. 70% of that will come from Subika Underground and the work we do to step back, drop down, open up that third level, and really, you know, just commenting with Josh to really de-risk that operation as we move forward.
I think about 20% will come from Cripple Creek & Victor as we again look to move towards that simpler operation, just mining and heap leach, and incorporate some of the delays that we've seen through both the impact of the Omicron surge through the latter part of last year and the start of this year, plus the very important decision we took to go to fully vaccinated at that site. We've got some work to do now to get ahead of some of the waste movement to open up the ore to get it onto heap leach pads. I think the move to a simpler longer life operation will contribute about 20%. The remaining 10% we've made up across the three Canadian operations that have been pretty significantly disrupted through the Q1 .
Tanya, around about 100,000 ounces, 70% Subika Underground, 20% CC&V, about 10% Canadian operations.
Okay. Does your guidance. You mentioned the 53 second half, and obviously, you know, first half is going to be weaker. Does all of the asset breakdowns that you provided in your Q4 numbers still stand? The only one I noticed that was a bit different was Peñasquito. I think guidance had been equally weighted, but I think you mentioned Q2 is gonna be weaker. Just wanted to make sure I understood that correctly.
That's correct. You will see when you look at gold production with where we're mining at Peñasquito, you're gonna see a bit of a seesaw through the course of the year. You'll see on gold it drop in the Q2 . It'll then climb again in the third, and it will drop again in the fourth. It's about evenly weighted across the two halves with a bit of that seesaw effect. You're just seeing the different metals come through as we're mining through the different phases of both mines, Tanya.
Okay. Just my last question on the guidance. I just wanted to see how has your April performance been, you know, with respect to Omicron, like in these jurisdictions? Have you seen an improvement in productivity and performance?
Certainly coming out the other side. I might just quickly work through the four regions, Tanya. Coming out the other side, certainly in Canada, except for I'd say Éléonore, where we are still very strict with our protocols of testing and isolating because of our close connections with the First Nations communities around that mine. We've kept some pretty stringent controls in place at Éléonore. In general, certainly seeing Canada and in the U.S., Cripple Creek and Victor open up. Ghana is coming. It's progressing well. I think Australia in general is awash with the virus at the moment.
April is still being impacted through Tanami and Boddington, but starting to come out the other side of that as you're really getting the herd immunity in the communities in and around Australia. Penasquito is solid and pretty solid through Merian, Yanacocha, and Cerro Negro in terms of being the other side of the Omicron surge.
Okay. It looks like you are coming through it, which is good.
Yeah.
I'll leave it to one more question, just if I could. You mentioned that you're closely monitoring labor and obviously your consumables. Can I ask about your labor? Do you have any contracts, union contracts or other that come up for renewal this year that could put more pressure on your costs above and beyond?
We've got contracts in negotiations in process currently in Ghana. Mexico is scheduled for July. Peru is in process. Suriname, it's been delayed. We've got a number of sites that aren't covered by collective agreements. They're active, but there's nothing that we're seeing unusual in terms of how those negotiations are proceeding, Tanya.
Okay. That's within your guidance range. You've assumed whatever wage inflation is assumed in your guidance for these contracts.
That's correct, Tanya.
What about your global supply chains? Do you have any renewals on cyanide and/or other that's coming through?
No, there's nothing coming through in the medium term on that front, Tanya. For that one, it's more managing the landed cost from the input cost of gas, and the logistics costs of getting it to where it needs to go.
Okay. Nothing else within the supply chain that has to be renegotiated?
Nothing, nothing material, Tanya.
Okay, perfect. Thank you so much. I'll let someone else ask.
Thanks, Tanya.
Thank you, Tanya. Our next question comes from Lawson Winder with Bank of America. Lawson, your line is now open.
Hi again. Thank you, operator. Good morning, Tom, Nancy, and Rob as well. Thanks for the update today. If I could maybe just go back to the cost guidance just one more time and sort of get some very specific clarity on the exposure to fuel and just verify that, you know, if we were to mark-to-market WTI at $100 per barrel versus your $60 per barrel, and all else sort of, you know, stayed within the assumption ranges, that you still believe you'd be able to stay within your guidance. Is that correct?
Good morning. Good morning, Lawson, and congratulations on your new role. Yes. When we're talking about that guidance range, staying within our guidance range, but certainly seeing us push towards the top 5%, that is making assumptions around current fuel levels and incorporating that in our costs. Probably the other piece of information to have at hand when looking at the Newmont portfolio is that every $10 per barrel change in oil price, our free cash flow is impacted by $15 million per year. For every $100 increase in gold price, we generate an additional $400 million of free cash flow. The revenue side is certainly compensating for the additional cost of diesel or oil.
The assumptions we're making around current oil prices and as we're thinking about what oil's gonna do going forward this year, that is being incorporated into that indication we are giving around the move to the top end of our guidance. Obviously we wanna understand this world a bit more through this quarter and or as I indicated in our remarks that we'll provide a further update with the Q2 earnings.
Okay. That's excellent color. Thank you. On the cyanide cost, typically cyanide pricing is very regional. I'd be curious to know if you're seeing inflation across all regions or are there particular regions where you are seeing that inflation more than others? In particular, in reference to the 20%-30% increases in those prices that you're seeing.
We're pretty much seeing that across the board, and it's being driven by what's happening with the price of natural gas across the board. It's a little bit different driver than, I guess, normal because of the circumstances.
Okay, that's great. Then, also if I could follow up on the working capital build. Nancy, you mentioned that part of that is inventory build. I'd be curious to what extent might that inventory build be, you know, sort of structural or supply chain related? You know, in that same vein, to what extent might that build unwind through the rest of the year?
Yeah, that was truly just a quarter-end convention that happens from time to time. That will release all of those sales that would have already taken place into April. Sometimes we have a little bit of a build up at the end of the quarter and sometimes we don't. Yeah, I wouldn't think of that as a consistent variable for modeling throughout the year.
You would expect the typical unwind?
Yes, absolutely.
Great. Okay. Just one final question. Maybe just to get your latest thoughts on the buyback. Obviously, I understand you intend to be opportunistic with that. What are the indicators that tell you that it's a good time to repurchase your shares?
Yeah, we always look at a myriad of factors, including current valuation, our own forecast, trading among our peers, and some of those kinds of things. We'll always think about what's proper value and when is a good time to get out and buy shares. In the volatility we're seeing today, we're certainly just evaluating as we always do. We do continue to use that as a tool at opportunistic times and appreciate that we still have some runway left on that current program.
Okay, excellent. Thank you all very much.
Thanks, Lawson.
Thank you, Lawson. Our next question comes from Greg Barnes with TD Securities. Greg, your line is now open.
Thank you. Tom and Rob, all the talk about supply chain issues and cost pressures across the board. Are you seeing impacts on your capital projects timing and CapEx wise?
Morning, Greg. I'll pick that up and maybe Rob might walk you through a bit more color. The key capital projects, I might maybe just talk through the three of them, Greg. The three key ones that really drive that development capital spend. Tanami Two, we are certainly seeing impacts on that specialized labor that we will need to line that shaft. We are now only a matter of a month or two away from having completed the reaming of the 1.5 km. The headframe is nearing completion as well, and we're set up then for the next couple of years to line that shaft in order to complete it.
Getting that specialized labor to site, set, ready to go for what is a very specialized job in mining that shaft is key. We have an important milestone as we finish the reaming and that shaft to pause and understand that program of work, both schedule and cost, to hit that out. I would say in the Q3 we're in a good position to say, "This is what the run to home looks like." I think the fact there will be some impacts, but we'll have a pretty good view of that within a matter of a couple of months. It's more gonna be on the specialized labor that we need to get there, that's gonna drive Tanami too. Greg, I'll pause on each one.
Rob, did you wanna give any color on Tanami too?
I think the only other color I'd add, Greg, is that we have done 85% of the engineering and the procurement. That just highlights the good planning work and the good supply work that we've done. As Tom said, it really is around that labor availability, in particular in Australia. We're pleased that the borders are open. That helps. These are very specialist skills and the rates that we are seeing creeping up further than that.
On Ahafo North, engineering's 90% complete and procurement's 60% complete. As Rob indicated in an earlier answer to a question, we've got a lot of the key heavy mobile equipment landed in Ghana now. We are really we're getting the land access. We're getting into the serious business of breaking ground and starting to do the civil works, and then start to build the, you know, open up the mine, build the processing facility. Again, for that one, getting that clear date where we have unfettered access to that land, which will happen through the Q2 , that's the important milestone for us to then step back and understand what that schedule looks like to have that equipment that's there.
The engineering gives us more definitive pricing to then have a clear view of that project, both scheduling and cost. Probably similar timing to Tanami too. During the Q3 , I think we'll be in a good position to give an update based upon those two key milestones. Rob, I'll again pause there. Anything to add on Ahafo North?
I think the only other one, Greg, that I'd add is just a significant milestone that I mentioned in my preamble about the road. That's a road that goes through the lease. You know, we've got full cabinet approval to move that. Again, in terms of schedule, that was a very positive step.
Then the third one is the Yanacocha Sulfide. I think given what we're seeing in the world, fortuitously, the decisions we made that were driven by the pandemic to delay the full funding approval, but to continue committing to move forward with 23 major equipment packages. We've locked in factory slots and in a lot of instances, pricing for key pieces of equipment, oxygen plants, mills, electric motors. The autoclave, the core part of the pressure oxidation circuit, the autoclave vessel, will actually be on the ground at Yanacocha by the end of this year.
We've been able to de-risk a number of elements of that project by making the decision to commit to some of those packages of work. Engineering's around 50% complete. We've got camp construction well advanced. There's a bunch of stuff we're doing to de-risk that project while we move toward full funds. We're working very closely with Bechtel to understand the inflationary pressures around the other things that come with that project as we gear up with both a labor construction workforce, and then all of the other pieces that you need to build that facility as we take that detailed engineering and work out detailed costs. That's important input to the full funds decision later this year.
Rob, anything to add for that?
You covered the majority of it well, Tom. I think the only other thing, Greg, just as a way of an update, the construction of the camp continues to go along really well. Obviously, that's key to allow the workforce to come in and start the major construction of the autoclave, and the rest of the process plant facilities. That is proceeding, very well.
Greg, does that give you the sort of color you're looking for?
Yeah, that's exactly it. On Yanacocha Sulfide, do you think we're gonna get a Q3 update on what that project looks like as well? Will that be more of a Q4, early 2023 event?
More of a Q4, Greg. What we'll flip, as the engineers say, we'll flip the line on the engineering in the next month or so. Drop out all of those detailed schedules. Then you've got quite an extensive piece of work to do basic cost and schedule estimate to build towards the full funding decision. That'll consume the Q3 . It'll be into the Q4 before you have all of that come together. Certainly the other two projects, the Q3 .
Okay. Just to finish off, others of your peers have talked about CapEx inflation in the range of 15%-20%. Is that what you're seeing or do you think you've avoided the worst of that, at least on Tanami and Ahafo North?
There's certainly elements that the mining industry are talking about in terms of that cost escalation we've been able to avoid because of the procurement we've got underway, and the engineering that we've done and the like. However, the issue for us is more that the pandemic has impacted the pace at which you can do the work. For us, it's going to be as we pause at those milestones and understand the work going forward, and you look at what the schedule is against what we assumed it to be. It's probably gonna be more an issue of the indirect costs that you carry for potentially a longer period of time than you'd assumed.
That's gonna be a factor for us. We'll see elements for the lining of a shaft and that specialized labor that will have some cost escalation in it. Sort of jumping around it a bit, Greg, I think there'll be an element of it, and it's an element that's pandemic related, given we're into those projects. I don't know, Rob, whether you wanted to-
I would just reinforce, Greg, that the biggest issue, and obviously the cost of labor goes into our capital as well. That's the biggest risk that we've got, is that I think we've been very good with our pre-planning and the decision making around the long lead time items and the advancement of the engineering. But it's the cost of labor which is going to provide that risk to the upside. As Tom mentioned before, we're seeing it in particular in Australia, you know, there's no doubt that's something that we're managing closely and gonna have to keep an eye on.
I don't want to belabor this, but in terms of the specialized labor costs, can you give an idea of how much it's going up percentage-wise? This is what perhaps you expected, or is it too early to say yet?
Greg, I think given the capital projects, we hit those milestones and have those definitive schedules and then costs. I think probably better to wait and give you the definitive numbers as they apply to those two projects, rather than sort of just throw out a number that's a bit more generic.
Yeah, fair enough. Thanks, Tom.
Thanks, Greg.
Thank you, Greg. Our next question comes from-
Operator, please.
Go ahead.
Just before you move on. We'll stay on the line until we've exhausted, sorted every everyone's questions. More than welcome to stay on, but we'll stay here until everyone's asked their question. Sorry, operator.
Understood. Thank you. Our next question comes from Fahad Tariq of Credit Suisse. Fahad, your line is now open.
Hi. Thanks. My questions have been answered. Thank you.
Thanks, Fahad.
Our next question comes from Anita Soni with CIBC World Markets. Anita, your line is now open.
Hi. Good morning, Tom, Nancy, and Rob. I just wanted to follow up on Greg's question related to CapEx. Like I was looking back through the transcript, and previously you guys had said in Q4 that it would be a 55-45 split on capital this year. What I'm sort of understanding and what I assumed was that if the spending's not happening, you only came in at 18%. It's kind of moved into the second half of the year now because that's the rate of spend.
Is it safe to assume that, you know, next, because of the rate of spend, because you can't get the labor or whatever delays that you have, that next year and perhaps the year after, you might see the budgets go up a little, but because the work has been moved out. You know, as we think about Yanacocha sulfides, like reasonably, if you're saying that you know, the timelines might be impacted by this, should we be thinking about perhaps a delay in the startup of Yanacocha sulfides?
Good morning, Anita. Yeah, I think you're in terms of that spend profile, I think you're describing it well. I think you're still gonna see that similar weighting first to second half. The nature of these projects, that spend will just flow into the following year, and the following year will flow forward into the year after that. I think there'll be an element of maybe a bit more spend next year. But I think you'll also see that, it'll move into 2024 as well. It's just that bell curve moving forward. Still progressing towards the end of the year, full funding decision for sulfides. Once that full funding decision is taken, camp will be complete. We'll have beds for 4,000 people.
Bechtel are gearing up and basically Bechtel hire the workforce directly for a lot of that work. We would, with the assumption we get a full funding decision at the end of the year, gear up and start to ramp up into 2023. I wouldn't see a delay in us starting to break ground seriously on Yanacocha sulfides.
The second question is a bit big picture. As I look through all of the assets and the operations, for the most part, the grades, like I would have thought it was more of an impact on tonnage with, you know, Omicron, but there are some assets where grades came in substantially below. I was just wondering if you expect that to rebound, you know, closer to reserve grade, you know, at most of the operations. Like I'd name Éléonore as one of them, definitely Akyem and Ahafo. Peñasquito, the recovery rates were actually quite low versus the prior quarter, but that may be a grade-weighted decision. Then the last one, CC&V.
That heap leach, that grade is really low compared to what you had in the prior quarter. If you could give a little bit of color about grades at some of these operations, that'd be great.
Thanks, Anita. What I might do is give you a bit of a general overview on that and maybe get Rob just to give a bit of a color on some of those operations. I think it's we talk about the direct impacts from the pandemic, the Omicron surge in terms of labor availability in a particular quarter and costs and the like. You're also seeing what I'd call the indirect impacts, where this pandemic has been chronic, and so your mine sequences are different from what they would have otherwise been if you were able to just have unfettered access to run your business as normal.
Some of that grade discrepancies is the mine sequence and where you are in a particular month or quarter compared to where you assumed you would be. We're certainly as we get the stronger second half of this year, part of that is linked to moving into higher grades. Rob, I don't know if you wanted to pick up a Peñasquito or a Cripple Creek & Victor. Anita, I'm more than happy to go offline with you and get you some of that detail for you as well.
Yeah. I think, Tom, you know, you've covered the key things. Anita, just to reinforce what Tom said, we're not seeing any major grade challenges. It truly is the timing that, you know, with the challenges through COVID, some of our developments got behind. We haven't had the availability of the stops. As Tom rightly said, we're out of sequence, you know, in particular at those underground mines in Canada that you mentioned. At Peñasquito, there's nothing major or nothing different that's happened there, and you'll certainly see that rebound quite quickly in the coming months. At CC&V, in terms of the heap leach, the heap leach is lower at the moment, but again, as we uncover the fresher ore, we'll see that heap leach grade raise.
It is around the timing, it is around the sequence, and we can underplay, especially on those underground mine sites that were affected by the Omicron, just the lack of development has impacted, you know, getting to some of the stops at the time we expected. No major issues. The grade is certainly still in the ground, and you'll see that rebound later in the year.
Okay. As we looked at these assets, if we were trying to, you know, compare where you would be, it's basically a two years culmination of, you know, slightly getting behind on development work on some of these things. Right?
Yes. You know, up to 2 years. You know, there's other operations which have been, you know, relatively unaffected. You know, it's the worst is up to 2 years. There's some which may only be 6 months.
All right. Okay, thank you very much.
Thanks, Anita.
Thank you, Anita. Our next question comes from Adam Josephson with KeyBanc. Adam, your line is now open.
Good morning, everyone. Thanks for taking my questions. Tom, a couple questions for you on cost, if you don't mind. If your gold CAS ends up being, call it $850-$860 this year, just given the general stickiness of inflation that you and many others are experiencing, how, if at all, does that affect your thinking about your gold CAS guidance for next year, which would imply quite a healthy decline in cost per ounce? It just-
Yeah.
Amid this highly inflationary environment.
Good morning, Adam. When you look at our out year cost guidance, we don't assume any inflation in those numbers. So they're unescalated. If it was a standard year that we were seeing before this pandemic, we would typically have 2%-3% escalation would then get built into that number as we build towards guiding for next year. What we're seeing is unprecedented in terms of what's playing out in the world with the combination of the pandemic and the war in Ukraine. In terms of what CAS might look like next year, I think we've got to see more about how a few key events play out this year. What's gonna happen with the pandemic?
Are the supply chains gonna settle down? Is what's gonna play out in Ukraine? As we start our work actually next week with our key leaders around the business, starting to map out our business plan, and we build towards an October board meeting to approve the plan and then we guide in December. The coming months are ones in which we will step back, look at what's happening on a macroeconomic sense, what's structural, what's cyclical, what is 2023 looking like? Therefore, what are our unit costs gonna look like next year. That's how we think about it.
Yeah. No, I appreciate that.
How we look at it through a sustainability lens. Yeah.
Yeah. Just relatedly, I mean, as you said, this is unprecedented. No one, none of us have seen inflation like this. Just drawing on past cycles that you've been through, how long would you expect this inflationary cycle to last for? Or is there no way to answer that question because we're seeing things that we've never seen, and consequently, drawing on past cycles is almost meaningless in this environment.
I think we are in uncharted territories, Adam, and it's as I think you're seeing throughout, you know, in terms of what I'm observing in the mining industry is folks are out reporting very similar commentary. Uncharted territory. I still, as we look at macroeconomics and have the debate, still see it as more cyclical and a long cycle than structural. We are in uncharted territory, so I say that with some caution.
What has the duration been of those previous inflationary cycles just for you? Just roughly speaking.
Roughly speaking, a couple of years inflationary cycles. I'm really drawing on straws here.
Yeah, no, I-
It's just a circumstance that is unprecedented in modern history.
Yeah. No, understood. Thank you, thank you very much, Tom.
Sorry I can't help you, Adam.
No, thank you.
Thank you, Adam. Our next question comes from Mike Parkin with National Bank. Mike, your line is now open.
Thank you guys for taking my questions. Most have been asked. Just one on the follow-up in terms of delays and challenges with sourcing equipment. Can you just speak to, is it a function of delays in manufacturing the equipment, or is it more of a function of, you know, securing containers and getting it shipped to site? Can you just give a bit more color in terms of where the underlying delay is situated?
Good morning, Mike. The delay to some of that key equipment, the drills that have been particularly problematic for us is manufacturing. It's actually getting the drill in the queue and manufactured. It's the labor availability within those shops and then having the materials that you need to fabricate those drills and then have them come out the door. Once, as Rob was indicating, we've got all of the heavy mobile equipment for Ahafo North on the ground in Ghana. Although there are challenges with logistics and freight, we can get from a manufacturer's warehouse to our facilities, albeit with some delays.
The key issue is within the manufacturing shop. Rob, do you want to build on that?
I'd just add a couple of points there, Mike. I think it's very similar to what you hear in the automobile industry. We know that there's significant delays for new cars, whether it's the microchips, whether it's capacitors, et cetera. You know, each one of the equipment manufacturers, you know, they can get some things, but not all things. You know, they're managing their supply chains very, very carefully. It's nothing different to what the car manufacturers are seeing. You know, again, one of the advantages in Newmont is that we have got a global supply chain. We've got excellent relationships with our equipment manufacturers. You know, it's just staying abreast of their challenges, whether they're from China, whether it's from India, et cetera.
Those key electrical components as well as those ones which are manufactured elsewhere.
Great. Thanks, guys. Really appreciate the color.
Thanks, Mike.
Thank you, Mike. Our next question comes from Cleve Rueckert with UBS. Cleve, your line is now open.
Oh, great. Thanks, and thanks, everybody, for staying on the line. We appreciate your generosity with the time. I have a couple questions that hopefully we can work through pretty quickly. I wanna just first ask the inflation question a little bit differently. You know, at what point would you reevaluate the gold price assumed for budgeting?
Yeah.
When could you possibly move from $1,200 an ounce?
Good morning, Cleve, and a very good question. We are actively debating that now. I think it is, we are now seeing, I think, the same way that, we're working our way through the inflation pieces you indicate and Adam was trying to explore and understand, that inflationary piece is driving gold price. We're now seeing gold price at current levels. As we start to get in amongst our macroeconomics and start to have our internal debate, start to do our business planning work, where is gold price heading and what does the floor look like for gold price is a debate that is active with us now.
We'll be having that debate over the coming months as we think about whether we're getting into a zone where it's time to look at resetting the floor for gold price.
I guess just in terms of timing, that sort of sounds like it would be a year-end budgeting sort of decision.
It's certainly something we are actively debating around, whether it's something we incorporate into our planning processes this year. As you unpack the macroeconomics around gold, you are seeing some fundamental shifts.
Right. Okay. Just, you know, following up on the CapEx. You know, Tom, I think you said that, say it again, that Bechtel is doing the Yanacocha work for you. You know, I don't know if you can give us any color. Are those engineering and construction projects being done on a fixed price basis at all, or is it cost plus? I mean, is there any shared risk on the cost side with your subcontractors?
Yeah, it's a bit. I might just pass across to Rob, who manages the very close relationships with those two EPCM contractors. Yeah, it's a bit variable across our projects, I suspect.
It is, Cleve. You know, depending on what we're doing, there's some things that you lock in without a doubt. You know, we much prefer making sure that we've got that confidence and clarity. You know, we've got other areas, such as we've explained before, where the labor costs have gone up, the materials are capped, the manufacturing's capped, but it's the labor costs which are flexible. We typically like to have full confidence and full knowledge of what we're planning, but it's a little bit variable depending on the work that we're doing.
In the big project, Cleve, Yanacocha Sulfides, our supply chain team and the Bechtel supply chain team are working hand in glove as we understand, obviously, those 23 key work packages that are out there now. But as we look at all of the, you know, all of the steel and the fabrication of that steel and the other things to assemble a processing plant, working hand in glove in terms of understanding that all those elements around the world, what's the status of those workshops and their capacity to take work packages.
There are elements of, as Rob says, variable, but there are elements where you actually want to be working hand in glove with that contractor to get the best outcome, to deliver the project on time and on budget and deliver the value they're expecting from it. Good horses for courses.
Got it. That's, yeah, that's very clear. And then just, you know, finally, again, a little bit unrelated, but I'm just wondering if you're able to kind of adapt your COVID protocols to, you know, I guess the changing circumstances of the virus. I mean, Tom, I think you said it at the very beginning of the call that the severity of Omicron that you saw in your sites was much lower than the previous variants. I'm just wondering if you're able to, you know, adapt the protocols that you have in place to varying severity.
Thanks, Cleve. A very important decision we took, and I think very few other companies have taken, but I am so glad we took the decision, is to require every person who works at Newmont to be fully vaccinated. We've lost 25 colleagues to this virus over the last two and a half years. Through the Omicron surge, we had one person hospitalized with an underlying health condition. You saw the spike in those positive cases. Us having made that decision has saved lives. That is gonna put us in good stead going forward for future waves because we have a workforce that is now highly resilient. That is gonna put us in a good position.
Rob, did you wanna maybe talk about how we think about managing our ability to open up or tighten up our protocols? Obviously, an underlying workforce fully vaccinated gives us a lot of confidence in decisions we make.
Certainly, Cleve. It's a great question. We have a COVID committee, which we meet on a regular basis for exactly that. It's to respond to make sure that as things, you know, open up, that we open up the measures that we have. Just as an example, when I was in Ghana a couple of weeks ago, for the last two years, everybody's been wearing masks, everybody's been sitting separately at lunch. There's no longer the need for masks. There's no longer the need for people to sit separately at dinner and lunch, et cetera. The same as at CC&V. You know, at Peñasquito, we've got a clear plan in terms of how we start relaxing those metrics. In Canada as well, we've relaxed at Porcupine.
Similarly, at the likes of Éléonore, because of the First Nation that Tom spoke about, we are making sure that additional precautions are taken to protect those First Nation. Similarly, we are constantly monitoring through our health partners the different variants which are coming up. We are very able to quickly ramp up those protocols as and when needed. Because of the vaccination, it has allowed us to utilize less vehicles because we can get more people in the vehicles, we can get back to more people on planes, we can get people back onto the buses, et cetera. We're really responding to where the virus is at, but at all times, we can quickly go back if need be. It's something that we assess on a very regular basis.
Very clear. Thanks again for taking the questions, guys. Appreciate it.
Thanks, Cleve.
Thank you, Cleve. Our next question comes from Michael Dudas with Vertical Research. Michael, your line is now open.
Good morning, gentlemen and Nancy. You guys have done a terrific job this morning of sharing your thoughts and being very frank on what's going on in the industry. My questions are all done, and best of luck. We'll talk to you next quarter.
All right. Thanks, Mike.
Thank you, Michael. Our next question comes from Brian MacArthur with Raymond James. Brian, your line is now open.
Good morning, and again, thank you for taking all of the time today. Most of my questions have been answered on this costing, and I think we've been through it a lot. Can I just check one thing? We're talking when you're saying 3%-5%, if I put it this way, is gross dollars up on the cost base. Where I'm going with this, maybe I guess it's the only silver lining in any of this. When you did your guidance, I mean, you used $1.15 for zinc and $3.25 for copper. So we're not talking on a perGEO basis or anything here? Because you should get a pretty big credit if zinc prices stay where we are and copper prices stay where we are.
I mean, is there not a, I mean, on a margin basis, at least a $200 million plus offset to all of this still? You're not factoring that in your guidance when you talk 3%-5% up.
Yes. Thanks, Brian. You are honing in quite nicely. It's predominantly cost driven. If you were to model on all-in sustaining costs per gold ounce, I'd probably use 5%. I think we will get some benefit as we then come back to our total metal profile with another 1.5 million ounces of gold equivalent ounces of how those metal prices play out in terms of how you calculate a GEO. That'll give you some benefit in the unit costs, and maybe a bit lighter than the 5% as you are quite rightly pointing out.
Great. Thanks very much.
Thanks, Brian.
Thank you, Brian. Our next question comes from Tanya Jakusconek with Scotiabank. Tanya, your line is now open.
Oh my God, thank you so much for taking another question from me. I'm just thinking as I listen to all of this on costs, and I know at the beginning of the year when you gave guidance, Tom, in December, you know, you were thinking an embedded 5% within the cost structure. Now we're looking more at, you know, 8%-10%, you know, in the structure. I'm just kind of thinking as, you know, a lot of what we saw in Q1, we didn't really see the full impacts of the oil price come through the cost structure, I think for most of the companies. You know, I know that yours is quite low.
You've given guidance from $60 a barrel, and it's only a $2 per ounce move or a $10 per barrel move. I'm kinda just wondering at what point do we get through that $2? Like, when are we gonna get to actual spot pricing? When we do, am I looking more at a sensitivity of $6 per ounce or a $10 per barrel move? I'm just trying to see as we work through the hedges and get to full exposure, so I can kind of look into my 2023 numbers. Thank you.
Yeah. Thanks, Tanya. You're certainly seeing what we saw play out in the Q1 was an escalation of inflation at the levels that we'd assumed. It's really as we. It was more of a production story related to the Omicron surge that is around Q1. We now pivot into more of a cost story and additional inflation as we move into the remaining three quarters of the year. You're starting to see in this quarter those higher diesel prices flow through. Just to clarify, we don't hedge any of our oil, so it's spot price that you'll see flow through in our cost base.
You, you're certainly seeing that oil price in our costs as we're into the Q2 and moving forward.
That $2 per ounce is a good number to use going forward?
Yep. That's absolutely.
Okay, great.
-Tanya.
Okay, great. Thank you so much.
Thanks, Tanya.
Thank you, Tanya. There are currently no further questions in the queue. Again, if you have a question, please press star followed by one on your telephone keypad.
I think we might be good to finish up, operator, by the looks of it.
Let's see. Okay. If you would like to close out the Q&A session, we can do that. One moment. This concludes the Q&A session. I would now like to turn the conference back over to Tom Palmer for closing remarks.
Thank you, operator, and thank you everyone for taking the extra time to work through our call with us today. Please have a lovely weekend, and I look forward to catching up with you on our next analyst roundtable in a couple of weeks' time. Thanks, everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.