The air crackled with excitement during Newmont Corporation's Q1 2024 earnings call. Analysts peppered CEO Tom Palmer and his team with questions about divestitures, cost improvements, and the tantalizing prospect of share buybacks. But amidst the cacophony of financial jargon, one crucial detail seemed to slip past the scrutiny of even the most seasoned Wall Street veterans: the colossal water treatment plants being constructed at Yanacocha. These silent giants, designed to treat water in perpetuity for a site the size of three-quarters of Manhattan, may hold the key to unlocking a share buyback bonanza sooner than anyone expects.

While the divestiture program garnered the lion's share of attention, with analysts eagerly dissecting the potential $2 billion windfall, the water treatment plants represent a different kind of financial alchemy. Accrued as a liability, their cost bypasses both the capital and sustaining capital budgets, flowing directly through working capital. This accounting maneuver, while seemingly mundane, could have profound implications for Newmont's free cash flow and, consequently, its ability to execute share buybacks.

Newmont has meticulously outlined a shareholder return framework, with a $1 per share annualized dividend forming the bedrock and a $1 billion share repurchase program poised to reward investors once specific debt and liquidity targets are met. The company's current debt hovers around $8 billion, with an initial target of reducing it to the same level before unleashing the buyback program.

Here's where the silent symphony of the water treatment plants enters the equation. Karyn Ovelmen, Newmont's CFO, projected the cash outflow for these plants to peak at a staggering $700 million in 2025, before "starting to come down" in 2026. While the exact figure for 2026 remains shrouded in ambiguity, it's safe to hypothesize a substantial reduction, perhaps in the range of $400-$500 million. This implies a significant free cash flow boost in 2026, as the financial burden of the water treatment plants lightens.

Coupled with the expected proceeds from divestitures, this cash flow surge could propel Newmont towards its debt target with remarkable speed, paving the way for share buybacks to commence well ahead of schedule. Imagine this scenario: divestitures yield the anticipated $2 billion in 2025, and the reduction in water treatment plant spending adds another $400 million to the free cash flow pool. This $2.4 billion, after accounting for the minimum cash balance requirement, would significantly chip away at the debt, potentially bringing it close to the $8 billion target.

Projected Cash Outflow for Water Treatment Plants at Yanacocha

Of course, this is a hypothetical scenario, contingent on a multitude of factors, including gold prices, operational performance, and the successful execution of divestitures. But the silent symphony of the water treatment plants at Yanacocha, working in tandem with the divestiture program, creates a powerful narrative of accelerated debt reduction and a potential share buyback windfall that seems to have eluded the radar of most analysts.

While investors are rightfully enthralled by the prospect of immediate returns from divestitures, the astute observer will recognize the subtle, yet potentially potent, influence of these water treatment plants. They are the silent orchestrators of a financial symphony that could resonate with investors for years to come.

"Fun Fact: Newmont's Yanacocha mine, perched high in the Peruvian Andes, produced its first gold bar in 1993. Since then, it has yielded over 40 million ounces of gold, contributing significantly to Peru's economic growth. The construction of these monumental water treatment plants underscores Newmont's commitment to responsible mining and environmental stewardship, ensuring a sustainable legacy for Yanacocha and the surrounding communities."