Barrick Mining Corporation (B) Q1 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Barrick Gold Q1 2011 Results Conference Call. [Operator Instructions] I would like to remind you, today's call is being recorded, Wednesday, April 27, 2011. And now, I have the pleasure to turn the call over to Mr. Deni Nicoski, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Before we begin, I will bring to your attention the fact that we will be making forward-looking statements during the course of this presentation. For a complete discussion of the risks, uncertainties and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statement, please refer to our year-end report or our most recent AIF filing. With that, I will hand it over to Aaron Regent, President and CEO of Barrick.

Thanks, Deni, and good afternoon. And thank you for joining our call. I'm joined here today by Jamie Sokalsky, Peter Kinver and Kelvin Dushnisky, as well as other members of our senior management team who will be available to answer questions at the end of the call. What I thought we would do today is cover the highlights of our first quarter results, provide an update on our projects and then of course talk at length about our proposal to acquire Equinox Minerals. [ph] I'll turn the call over to Jamie who can take us through the financials, as well as provide an outlook on the gold market. After which, we'll be happy to take your questions. First, looking at the quarter, we had a strong quarter. Net earnings were $1 billion or $1 per share. Adjusted net earnings were up 32% to $1 billion or $1.01 per share. That translates into annualized return on equity of around 20%. Our operating cash flow is up 27% to $1.44 billion. Our cash margins were up 32% to $952 per ounce, and our net cash margins were up 32% to $1,081 per ounce. We produced 1.96 million ounces in the quarter at a total cash cost of $437 per ounce. And net cash costs were $308 per ounce. Our North American region performed ahead of plan, producing around 862,000 ounces at a cost of $396, mainly due to higher production from Cortez and Goldstrike. The Cortez mine has exceeded plan with production of 366,000 ounces at a cost of $220 per ounce on higher-than-budgeted grades. Both the Goldstrike operation performed strongly, contributing 286,000 ounces at a cost of $461 and also on better-than-expected grades from the open pit and the underground. Our South American region also came in ahead of plan, contributing 498,000 ounces at a cost of $340 per ounce. The Veladero mine produced 260,000 ounces at a cost of $312 due to higher-than-planned drawdown of the leach pad inventory, while Lagunas Norte contributed 193,000 ounces at a cost of $282 per ounce, which is in line with our expectations. Australia Pacific produced 459,000 ounces at a cost of $585 per ounce, and African Barrick Gold production attributed to us was 129,000 ounces at a cost of $658 per ounce. To the next slide, our strategy. I'll just like to give you an update on our exploration side. We have a significant exploration program, which has been very successful in adding reserves and resources to the company. I think the success we had last year has caused us to increase the budget by more than 50%. Last year, our budget was around $210 million. This year, our budget is around $330 million. We've had a lot of success. The budget has increased because of the success we've on the exploration front, and we're very optimistic about the results that we will be able to hopefully share with you through the course of the year. I'll give you a brief update on our projects. The first slide talks about Cortez, which is the newest mine that we brought into production. And as I mentioned earlier, Cortez continues to exceed our expectations, performing ahead of plan and we are already benefiting from its significant attractive cost profile. 2011, we expect to produce about 1.3 million ounces at a cost of around $235 to $265 per ounce. Cortez has been a terrific addition to our portfolio and based on a gold price of $1,500 per ounce, this one mine alone will produce about $1.5 billion of pretax cash flow. I think significantly, the Record of Decision approving the Supplemental Environmental Impact Statement was issued by the BLM in mid-March, which allowed us to revert, allowed this operation to revert to its original scope. Pueblo Viejo, commissioning -- it continues to be expected in the fourth quarter of this year. Overall, construction is about 55% complete. All 4 of the autoclaves and the oxygen plant have been installed and 2 of the 4 autoclaves, which you can see in this photo, have been brick-lined in preparations for operations. 85% of the planned concrete has been poured and about 85% of the steel has been erected and more than 3.2 million tons of ore have been stockpiled. Our environmental permits for temporary power sources were secured during the quarter and work continues toward achieving key milestones, including the connection of power to the site. And as a reminder, about 80% of the preproduction capital of around $3.3 billion, $3.5 billion has committed and our share of production, we own 60%, our share of production in the first 5 years will be between 625,000 and 675,000 ounces at a cost of around $275 to $300 per ounce. So like Cortez at today's prices, our share of the cash flow will be roughly $800 million per year. At Pascua-Lama, initial production continues to be expected in the first half of 2013. Earthworks are more than 65% complete and preparations are underway to begin pre-stripping in the fourth quarter. Construction of the power transmission lines is progressing and the new access road is expected to be available during the second quarter. In Argentina, platforms for core ore [ph] stockpile and grinding areas are nearing completion, which allow first concrete to be poured for the process plant in the second quarter. Occupancy of the construction camps in Chile and Argentina continues to ramp up with more than 3,200 people now housed on site. And currently, about 45% of the preproduction capital budget, which is around $3.3 billion to $3.6 billion, has now been committed. Our share of the annual gold production in the first 5 years of operation will be around 750,000 to 800,000 ounces at a very low cash cost of $20 to $50 per ounce, but that's based on a $16 silver price. And as we highlighted before, for every $1 per ounce increase in the silver price, total cash costs are expected to decrease by about $35 per ounce. So today's silver prices, this would be close to a negative $1,000 per cash cost buy or looked at another way, at today's prices, Pascua could generate around $1.8 billion of pretax cash flow. Briefly touching on our other projects, specifically in Cerro Casale, Donlin, Reko Diq and Kabanga. And just a reminder, these projects contain a middle inventory of around 63 million ounces of gold and 20 billion pounds of copper and about 1.7 billion pounds of nickel. At Cerro Casale, which we own 75%, preparation of the necessary permitting documentation for the Environmental Impact Assessment is underway, alongside discussions with the government and meetings with local communities and indigenous groups. An update on the project capital will be provided with our second quarter results. The Donlin Creek feasibility study indicates that it has the ability to produce over 1 million ounces of gold per year. The focus right now is to continue to complete the work on the natural gas pipeline option in the second half of this year. Then at Reko Diq, the initial mine development feasibility study and EIS are both complete and the project has now applied for a mining license, which we're currently working through with the authorities. In the past, we talked about our focus on trying to identify and service additional opportunities within our asset base to enhance the amount of minerals and gold that we could develop, as well as create other opportunities to pull our capital. The one area we had great success was with respect to Turquoise Ridge. Here, we have identified several new opportunities and if you recall, Turquoise Ridge is a high-grade underground deposit, surrounded by a low-grade halo. And the potential is to increase the production from Turquoise Ridge from around 150,000 to 200,000 ounces to around 800,000 ounces, given that the mineral resource will increase from around 5 million ounces to over 20 million ounces. Currently, the scoping study has assumed acid autoclaving with CIL processing at a rate of around 15,000 tons per day to the existing autoclave facility at Goldstrike. And the expanded operation would be expected to have a 25-year mine life. The pre-feasibility study is underway and it's expected to be completed in 2012. In support of the study, and pit optimization, we are currently conducting infill drilling of the lower-grade halo with 9 rigs: 6 of which are on surface, 3 of which are underground to upgrade mineral inventory and resources. I'd say initial results are positive and are confirming our expectations. For 2011, the total budget spend is just over $60 million for a work plan that includes ongoing infill drilling and geotechnical drilling, metallurgical testing and process option trade-off studies, as well as environmental baseline work to support future permitting efforts. This next slide shows you a feel for the scope of the potential expansion. The current high-grade underground reserve is shown in the yellow, inside the conceptual pit, which should also mine the lower-grade halo shown in orange. And this is a potential 800,000 ounce per year producer and it's in our portfolio located in Nevada. Now the Zaldívar copper mine. We've identified the potential to add significant resources and production from the primary sulfide, which sits below the current life of mine open pit. A total of 68,000 meters of exploration drilling has been completed on the sulfide material. The conceptual engineering study on the treatment of the primary sulfide material has been completed, which indicates production could potentially increase by approximately 300 million pounds of copper per year for about 25 years. The pre-feasibility study is expected to be completed in the second quarter of 2012, along with an associated environmental baseline study. And the full feasibility study is then expected to commence that will progress through detailed engineering, providing the information and details necessary for a decision on this project. And then at our Lagunas Norte Mine, we are advancing at an opportunity to add a potential 3 million ounces of gold production which could extend the mine life by about 5 years. During 2010, the metallurgical process to treat in-pit sulfide and carbonaceous refractory material was defined. The scope of the study is expected to be completed in the fourth quarter this year, advancing the project into a pre-feasibility study in 2012. I'd now like to comment on our plans to acquire Equinox Minerals. On Monday, we announced an agreement to acquire Equinox for $8.15 per share for a total purchase price of around $7.3 billion. And as we've said before, this offer has been unanimously supported by the Board of Equinox and we have various deal productions. So cash offer, which utilizes our balance sheet and as such, we are not issuing any common shares. And for Barrick, we see this as a unique opportunity to acquire a large copper producer, the Lumwana mine and a near-producing asset, Jabal Sayid. The Lumwana copper mine is a high-quality, long-life producing copper mine with significant expansion potential and a likelihood of substantial resource growth. It's located in Zambia, which provides us with a major presence in one of the most prospective copper regions in the world. This next slide gives you a brief overview of Equinox. It highlights the 100% Lumwana mine. It began operations in 2008. Lumwana produced 323 million pounds of copper in 2010 but we believe it has a potential to expand this production level to over 550 million pounds. Jabal Sayid is currently under construction and is expected to produce over 100 million pounds beginning in late 2012. Copper reserves total 5.7 billion pounds and total inferred copper resources were 5.5 billion pounds. But as I said, the exploration potential is exceptional, the resource base is expected to grow significantly. There are a number of factors which support our investment decision. First, we believe the copper fundamentals are very positive and prices will continue to be well supported for the foreseeable future. But it's really on the supply side where Barrick has good insight into the mine construction environment, particularly in South America and Africa. These 2 regions are projected to account for over 70% of new mine supply in the next 5 years. Our view is that there is a reasonable probability that many of these projects will be delayed due to permitting challenges, competition resources, infrastructure limitation and capital cost increases. The industry is challenged to provide a supplier response in the face of growing demand and we expect this to continue. Current copper price is around $4. What's interesting to note is that the 5-year forward curve for copper right now is at an average of around $4 per pound. Second, as mentioned, Lumwana is a large resource with substantial upside. There's currently 11 billion pounds but we expect this to increase significantly. It also positions us into the highly prospective, under-explored Zambian copper belt. Zambia and Saudi Arabia are both mining-friendly and have attractive country profiles for foreign investment. In addition, there are also regional opportunities. And as I said before, after South America, Zambia is the second most prospective copper region in the world. We'll have a major platform there. Third, we are acquiring a producing asset with expansion potential. This allows us to benefit from today's copper prices and receive earnings and cash flow immediately. The financials of these assets are strong. If you take the 5-year average copper price based on the forward curve so using $4 copper price and assuming production of around 400 million pounds once Jabal Sayid is in production, these assets will generate around $1 billion of EBITDA, and this has the potential to increase over $1.5 billion with the expansion of Lumwana. So given our $8 billion purchase price, this equates to around a 5x to 6x EBITDA multiple. There's a large -- ability to generate a large amount of cash flow, this will be another significant earnings and cash flow generator for our company and will be meaningfully accretive to our overall earnings and cash flow. By utilizing low-cost funding, this investment alone has the potential to increase our overall returns on equity of the company by 200 to 300 basis points from the current 20%. This was a unique opportunity. It's a rare that an asset like this is available. Most major mines are tied up in the portfolios of major mining companies. Also, we were able to work with the company to carry out due diligence and complete a friendly transaction. And finally, it provides further growth for Barrick and does not constrain us from building out our pipeline of gold projects. This actual position builds on our existing copper business, where we currently produce about 300 million pounds from Zaldívar. This will double our production to around 600 million pounds, which would then increase to over 700 million pounds with the completion of Jabal Sayid. Expansion in Lumwana, the potential of doubling of production from Zaldívar and the contribution from Cerro Casale has the potential to increase our overall copper production to about 1 billion pounds. When combined with our growth in gold, production of 9 million ounces, we will have in-hand resources and projects that have the ability to provide significant growth in our production and in our earnings of cash flows. This next slide, this gives you a sense of our revenue mix, pro forma for this transaction. There have been some concerns that have been raised to us about the impact that this would have on the company, and I want to state quite strongly that Barrick is a gold company. That's our core business and we continue to be focused on developing our pipeline of gold projects. When you look at our revenue mix, pro forma of this transaction were 82% gold and 18% copper. And similarly when you look at our reserves, we're 82% gold and 18% copper. And so when you compare us to Newmont, Goldcorp or Newcrest, we are very consistent and in line with our peer group from a revenue mix. One of the questions was, is this transaction going to hurt our multiples? Well, I think it's hard to imagine how somebody would suggest that we are not a gold company and so as such, I don't think our multiples should be impacted. Now with that, I'd like to turn the call over to Jamie to talk a bit more detail about our first quarter results.

Thanks, Aaron. As Aaron mentioned, we have had a great start to the year. The first quarter average realized gold price was a new record at $1,389 per ounce, up from the $1,114 per ounce in the first quarter of 2010. On a total cash cost and net cash cost basis, our cash margins increased 32% to $952 per ounce and $1,081 per ounce, respectively, versus gold's 25% rise. And copper margins also increased 33% from $2.25 to $3 per pound. And that's a result of not only the gold price increase but our ability to keep our cash cost low. In fact, our first quarter cash cost at $437 per ounce were below our full-year guidance. And as you can see, we are still maintaining our full-year guidance but we're very pleased with the overall cost performance of the company in the quarter. And as you know, we're currently trading at a new record price today, which is more than $130 per ounce, above our realized price in the first quarter. If we look at that difference on 8 million ounces, that's another $1 billion in revenues on a pro forma basis. So those expanding margins are continuing to translate into very strong earnings and cash flow for the company. Adjusted net earnings of $1 billion in quarter 1 were 32% higher than the prior year, while adjusted operating cash flow rose 27% to $1.44 billion. In the quarter, we also generated free cash flow of $364 million, even after investing in our development projects. Our margins have expanded consistently over the last number of years as a result of the rise in the gold price and a good control of our cash costs as this slide shows. For 2011, assuming our net cash cost guidance of $340 to $380 an ounce and gold prices of about $1,500 per ounce, our net cash margins would be over $1,100 per ounce. And assuming our total cash cost guidance of $450 to $480 per ounce, cash margins would continue to be well over $1,000 an ounce. And we use a variety of input cost hedging to contain the cost, which also give predictability to our earnings and I think we've been quite successful at it. On the currency side, about 60% of our consolidated production costs are denominated in U.S. dollars. And as you know, the largest single currency exposure outside of this is the Aussie/U.S. exchange rate. We are almost fully hedged on our expected remaining Australian operating and capital expenditures in 2011 at 95% of that exposure, at an effective average rate of just $0.78 and have substantial coverage for the following 3 years at rates at or below $0.75. In fact, we have 75% -- more than 75% of the next 2 years hedged at that rate. We've also mitigated the impact of higher oil prices, both through the use of financial forward contracts and also the production from our Barrick Energy unit, such that a $10 change in the WTI crude oil price is only expected to impact our 2011 cash costs by about $1 per ounce. The Barrick Energy contribution, together with our financial contracts, provides hedged production for approximately 84% of our expected remaining 2011 fuel consumption. So you can see that even with the inflationary pressures and the pressures from currency and higher energy prices, we are well protected as we move forward for this year and in the following years. Beyond 2011, financial contracts provide substantial hedge coverage, and production from Barrick Energy continues to provide longer-term natural offsets to expected energy costs. As you can see from this next chart, Barrick continues to demonstrate exceptional leverage to the gold price. The company's adjusted earnings and cash flow have substantially outpaced the rise in the gold price over the past 6 years. Since 2004, gold is up just over 200% but Barrick's cash flows per share have increased by over 400% and earnings per share are up over 600%. So a robust financial results also drive a positive trend in our underlying return on equity, which increased to 19% in 2010, up from the 12% we earned in 2009. And if we look at our quarter 1 adjusted net earnings, on an annualized return basis, we would generate about 20% for 2001 (sic)[2011], and that's again at a gold price that was a lot lower than where we are today. I'd like to make a few comments on why we continue to remain bullish on gold, given both the macroeconomic picture and the supply-demand fundamentals. We continue to believe that the macroeconomic factors, which drive the investment demand and support, are still in place: Monetary inflation, fiscal policy, sovereign debt concerns, current account imbalances. There continues to be Middle East and North Africa geopolitical turmoil, continuing low interest rate environment in the U.S. In fact, you saw what happened to the gold price today after Bernanke spoke. He emphasized lower growth outlooks from both the Fed and private economists and noted that long-term unemployment was far too high. In essence, he signaled that the Fed should maintain stimulus as we move forward, and that had a very positive impact on the gold price. As well, we expect further U.S. dollar weakness, following S&P downgrading its outlook on U.S. debt to negative, a significant event in the market. And we've started to see rising inflation in China and India, and this should provide further support to demand for gold in those key markets, which both had record imports in 2010. And against this positive backdrop, gold's rise in the last decade has really actually been orderly and modest in comparison to the bubble in gold 30 years ago in the NASDAQ tech boom. We don't think gold is in a bubble. In fact, it has been a very orderly rise. We haven't seen the same kind of volatility that we've seen in previous bubbles. And as you know, in inflation-adjusted terms, the 1980 high creates to a level that's almost $1,000 more than where we are today. And if you look at gold versus other commodities like copper and oil, they're right in line with the 30-year averages. So we think that gold still has plenty of upside potential and the market does seem to want to continue to move the gold price up and we certainly ascribe to a more bullish view -- continued bullish view on gold. I'll now turn the call back over to Aaron to wrap up.

Okay. Thanks, Jamie. In summary, we have made good progress against our strategic objectives and continue to be well-positioned to be one of the major beneficiaries of a continued rise in the gold price with our large production base and stable costs. This has been reflected in our expanding margins, record financial results and high returns in our equity. We are pleased with the progress we made in the first quarter. We reported strong results, put us on track to meet our full-year guidance. Our production is underpinned by high quality asset base and a track record of replacing and growing our resources. Our focus on maximizing the value of our assets continue to surface new opportunities to deploy cap of high rates return. With a deep pipeline of world-class projects, which we are continuing to advance, this pipeline is complemented by the acquisition of Equinox, which would add another world-class asset to our portfolio. So in conclusion, we feel the Barrick story is a compelling one and an attractive investment for our shareholders. And so with that, we'd be happy to take your questions. Operator?

[Operator Instructions] And our first question comes from the line of Jorge Beristain with Deutsche Bank.

Congratulations to the team on the good results. My question, I have 2 questions actually. One is, given the stock reaction that Barrick has seen since the announcement of the Equinox deal, what is it in your opinion besides the obvious potential from diversified slightly out of gold that the market is not getting in your opinion about the Equinox deal?

It's a great question. I think there are probably 2 main themes that have come back. One is what are the implications to our strategy and then the second is, touches on valuation. And I think with respect to our strategy, the question has been asked, is this the first of many? And if so, what is the potential impact on our multiples? And then with respect to valuation, there's different perspectives on it. And I would say this is not unanimous as many who are fine with the valuation, but there are those that suggest that, wonder whether the valuation is appropriate. So let me talk first about the valuation issue. As I talked about in my remarks, clearly what's underpinning our financial analysis is a bullish outlook on the copper market. And as I said, it's really underpinned by what we see as a challenge for the industry to provide a supply response to increasing demand. And we see it across the board. There is just resource scarcity. There's very little new discoveries. Even if you discover something, it takes time to put it into production. And this is I guess an area where we have particularly good experience given the fact we have a deep pipeline which we're currently advancing. And so this is a factor at play. So even if the industry wanted to respond, it's very difficult to bring on new supply rapidly. And so we think that copper prices are going to be well supported for the foreseeable future and frankly, the markets think that, too. As I said, the forward curve averages over $4 a pound for the next 5 years. So we could -- if we chose to, we could go lock in the copper price the next 4 years at about $4. So if you use that as a data point and as I mentioned in the production side, when you look at the production of these assets, they increase [ph] about 400 million pounds at a 250 margin, that's a $1 billion of cash flow and with expansion potential at Lumwana, you can get a business which is going to generate about $1.5 billion of cash flow. They are very few and it's rare to find a business that has that type of earnings and cash flow generation potential. So we can buy this. We're using our balance sheet. Our balance sheet has significant capacity and as a result, we can issue debt in an environment where interest rates are near record lows. And so this becomes a very accretive transaction to our earnings and cash flow and our overall returns on equity. So from a valuation perspective, again, if you take the $1 billion, $1.5 billion on a multiple perspective, that I think equates to how the existing copper producers are trading. So we think that the valuation that we paid is well-supported. But with respect to strategy, our focus is on gold. That is our core business and we are the world leader in gold. We have a production profile, which we're targeting 9 million ounces. Our project pipeline are predominantly all gold projects, other than potentially the expansion of Zaldívar. So that's the core business of the company. We reacted here because it was a unique opportunity. We have a large producing copper mine with a significant expansion potential in terms of resources and production. These things just don't come on the market very often. And so that's why we have the capacity to do it. The skill sets of managing copper mines and gold are very similar and so we were reacting to that. But I want to get clear, we are a gold company. Our revenues pro forma reflect that. We are 80-20 gold, non-gold. Our reserves and resources reflect that. We're 80-20 gold, non-gold and we recognize that as a gold company, gold company do trade at a premium multiple and that's something that we're very aware of.

The next question comes from the line of Steve Butler with Canaccord Genuity.

Aaron, on the Equinox acquisition, again, I mean given your bullish comments on copper, is it fair enough to say that with or without the Equinox, a unique situation being presented, would you have still looked at a sole copper mine acquisition regardless of the Equinox situation? I mean, I know it's presented itself on the M&A situation but would you have looked at copper regardless of Equinox?

I think we've been building out, I guess, our copper exposure more organically. We've been, particularly with Zaldívar, and we already are -- it's important to highlight, we already are a copper producer. We produce over 300 million pounds and as we build out Casale, that's going to add 200 million pounds. Reko Diq would add more pounds. So we are already in the copper business. But it's been more of an organic focus, looking how to develop the sulfides at Zaldívar, which we've made real progress and so there's the potential to maybe double that mine. From an exploration perspective, we have the El Indio land position in Chile, which is probably one of the best land positions you could have in that region and so we are exploring for copper there. This is a land position that has been held by gold companies for 25 years. So it's never been explored for copper and so we're looking for copper there. So I think our focus has more been organically but it's based on a theme of what we've been pushing as a management team with all of our assets, how do we extract as much value out of them as much possible. And so it's not just within Zaldívar that we have opportunities to grow that asset. I mentioned Lagunas Norte, there's about 3 million ounces there that we've had a breakthrough in the metallurgical side. So we can now get those ounces. Those will be new ounces. They're not in our current resources. So those will be new ounces to us. Turquoise Ridge is an example of that, where the underground would be complementary with the open pit and that will grow the resource to over 20 million ounces of gold. We've increased our exploration budget and as I mentioned -- and that's largely, I would say, 95% gold focused on the exploration side. So as I said, the focus has been looking at external opportunities but I would say a particular emphasis on internal ones. But the situation with Equinox was a unique one and so we responded to it.

Okay. Aaron, the Lagunas Norte, you talked about 3 million ounces, is that the end of mine life extension or is it stockpiled refractory ore that's been achieved perhaps even being stockpiled today? Are we going to see an incremental expansion to the profile of Lagunas, is that correct?

Steve, I'm going to answer that one. What we'll do, we won't wait until the mine is finished. We'll kind of phase it in as Lagunas' profile kind of tapers off a bit. The tapering will remain more leveled as these additional ounces come in.

Okay. And lastly, guys, on Cortez, you talked about Record of Decision coming through -- received in March, enabling operation to immediately revert to original scope. So it actually seems as though Q1 was a pretty good scope already because it sets you up to meet your guidance. So is there even a better scenario here for Q2 or Q3, Q4 as you go throughout the year? How high does production head at Cortez as you go throughout the year?

Steve, the current forecast is roughly the same, still at level of production. We're going to have pretty good Q2 and then it comes down a bit as we move in and out of the ways [ph] phases but it's more or less the same sort of performance.

I think the scoped constraints we had before was with respect to trucking ore over to Goldstrike and dewatering levels. And so we were able to operate the mine without being able to -- without having to or not having to do those activities. But now we're not restricted anymore so we can dewater as originally planned and we can ship ore across to Goldstrike as we originally planned.

But Cortez Hills itself was actually, obviously a pretty big contributor and working at a pretty decent level in the first quarter, is that correct?

Yes, we got -- the split was 366,000 ounces in Q1, 258,000 came from the new pits, 70,000 from the new underground mine and 39,000 came from the pipeline mine.

And the next question comes from the line of Barry Cooper with CIBC.

Probably a couple of questions for Peter as much as anything. The sulfide component for both Lagunas Norte and Zaldívar that you're talking about for the expansions, I'm assuming none of that material is in any of your resources. Certainly, it wouldn't be in your reserve numbers but it's not in your resources either, is that correct?

Let's start with Lagunas Norte. We've assumed some of those ounces will come in at about year 5. So they would be categorized as -- we'd probably call it a Tier 3 type production. So it's not improving improbable [ph] but it's a Tier 3 type category. Then on the Zaldívar sulfides, we've done insufficient engineering to categorize as a reserve yet. But as engineering gets completed, then we will -- and the drilling is well to complement that, then those sulfides will be recategorized as resources and reserves.

Okay. Peter, I'm just not quite familiar with the terminology Tier 3. I know exactly what you mean but I was trying to relate it to the numbers that you have in the tables that you put out for reserves and resources. So just as a refresher, Lagunas Norte has a mineral resource, exclusive above of the reserves obviously of about 750,000 ounces. Clearly, that's not anywhere close to the 3 million that you talked about and then for Zaldívar, let me just get the number here. So Zaldívar, the resource number for Zaldívar is only like somewhere around I guess 750 million pounds. So I'm just wondering, obviously there's a large component there that I guess you're calling Tier 3 that doesn't make it even into your M&I or even into your inferred, is that correct?

Maybe I can jump in. We have a categorization of our projects around here Tier 1, 2 and 3. And 3 is one which we sort of internally characterize as a bit further out and more at a scope and study type level. But I think to answer the -- maybe to clarify, the 3 million ounces at Lagunas are not in our resources and similarly, the Zaldívar pounds are not in our resources right now. So these would be new additions.

Right. Okay, good enough. And I understand the circumstances, legalities and everything, all like that with respect to having to report them. Just one other question, Peter, you indicate 55% construction completed at Pueblo Viejo. I'm not an expert on this construction, that seems low at this point in time given that you want to be putting some sort of material through towards the end of Q4. Are you indeed happy with the time frame on the construction level at this point in time?

Yes, I think 55%, I mean if you calculate on different things like quantities and volumes and man hours. We've actually gone to the site. Now, most of heavy lifting has been done and we now have a lot of man hours, which are going to be linked to shredding cables, putting in walkways, that sort of stuff. So most of the heavy lifting is actually being done.

Okay, good enough. We'll look forward to some start-ups there come at year-end.

The next question comes from the line of Anita Soni with Crédit Suisse. Anita Soni - Crédit Suisse AG: Just a question with regards to the revenue split that you have there. Does that 9 million ounces include Cerro in 2015?

No. Anita Soni - Crédit Suisse AG: Okay. And so some of the 1 billion pounds of copper that you were estimating, was that -- it doesn't include Cerro either?

The 1 billion is kind of a buildup where you take Zaldivar's 300 million pounds, you take Equinox, we contributed about 400 million and then an expanded Lumwana would add another 250-ish million and expanded Zaldívar would add 300 million and then Cerro Casale would add 200 million. So that gets you to about 1.4 billion or so. Anita Soni - Crédit Suisse AG: 1.4 billion pounds of copper?

Yes. Anita Soni - Crédit Suisse AG: Okay. So that's it for my question.

The next question comes from the line of Kerry Smith with Haywood Securities.

Aaron or maybe Peter can answer this, you talked about cash costs in the copper business trending higher towards the back half of the year, you didn't actually give any reason as to why that would happen. I'm just curious what that's related to, if it's general cost inflation because you have your asset cost kind of locked in?

Sorry, Kerry, were you talking about copper cash cost or gold cash cost?

No, copper. Like in the MD&A, you talked about gold cash costs trending higher in the second half but you do give a number of reasons for that. But then you talked about copper cash costs trending higher, but there are no sort of reason as to why that's the case. I'm just curious why the copper cash costs are going move higher in the back half.

Kerry, it's Jamie. I have a couple of reasons for that. There's a high sulfuric acid used and there are different prices all over. We're hedged on sulfuric acid. Those prices will change a little bit and also some additional energy costs and also the grade will change a little bit. So those are really the 3 factors that are going to slightly increase the cost at Zaldívar over the course of the year. But we're still very comfortable with our overall guidance.

Okay. And secondly, for Casale, with this expectation at the capital cost is going to be, say, 25% higher. I'm presuming when you look at that project and decide whether you go ahead with it or not, you'll be using slightly higher metal prices as well. I'm just curious what sort of metal prices you would use or the Board would use to decide on a construction decision for that project?

Well, I think we'll -- like we do with all of our projects, we'll use a range. We'll look at things like spot pricing, forward curves and then we have our kind of internal, what we call our treasury numbers and then we'll stress test them, up and down just to again understand the robustness of the project.

Okay, I guess it's somewhat helpful. Okay, I'll leave it at that. And then just maybe the last question if I could. Just on Equinox, when would you have first started to look at that opportunity?

We were familiar with the company. We -- obviously, from a corporate development perspective, we like to stay abreast on what's going on in our industry and Equinox is in Africa where we have a presence as well. So we were familiar with the company, what they were doing. But I think that it was really when the Lundin transaction happened that, that's when we intensified our analysis of the company and then clearly what mid metals did [ph] that accelerated things that much further.

Okay. So it kind of started with the Equinox bid for Lundin. Okay. That helped.

Our next question comes from the line of David Haughton with BMO Capital Markets.

I have a question with regard to Turquoise Ridge. You've got a JV there with Newmont. The 800,000 ounces that you suggested as an annual production, is that 100% or is that your share basis?

That's 100%, David.

And that is all coming from the open pit or the blend of the existing operation and the open pit?

* It's a combination of the two.

And is that included in your 9-million ounce target for 2015?

No.

And have you got some arrangement as to how you're going to treat the ore? Will you take all of that ore and treat them [ph] on behalf of Newmont or would they take a portion of it? Has that been worked out at all?

That hasn't been decided yet, David. That will be part of the analysis in the pre-feasibility study.

Okay. And then just reflecting on your exploration, you have significantly lifted that budget this year. A big chunk of it, if I'm reading that chart correctly, is in North America. You've already said that 16 million of that is Turquoise. What are the other major targets that you're after in North America?

David, it's Rob Krcmarov here. We've had success at just about all of our mine sites and also some of the exploration probably is away from our mine sites. So the next largest one would be the Cortez property. Also significant expenditure at Ruby Hill, where we've also had some recent success and Bald Mountain as well, and probably around about $7 million at Spring Valley.

Rob, could you talk a little bit more about what you're after at Cortez?

At Cortez, we have multiple targets. You'll recall several years ago that we found the Cortez Hills' lower zone. So we've been drifting out there to do some infill drilling and the more we drill out there, the more we find. We've been adding a little bit of extra tons and also grade. We're also looking at optimizing and looking for expansions to the pipeline pit, exploring under the pavement between pipeline and Cortez Hills, as well as exploring directly south of Cortez Hills. That's an area that's been very sparsely tested and an area of some significant pediment cover but not all of it is thick, and the structure goes through there and I think there's some interesting work to be done there.

So this is extension of mine life potential or expansion kind of potential?

I think there's opportunities for both as well. We're also exploring around hill top as well and doing a preliminary economic analysis on that one.

Our next question is a follow-up question from the line of Jorge Beristain with Deutsche Bank.

Just a follow-up. I wanted to also ask about the dividend policy. I noticed that your dividend declared today at $0.12 was the same as it has been for the past 2 quarters and in light of the rising gold pricing, what some of your other peers have been doing under gold dividend policy, I was wondering if you could just talk to that point.

Sure. Look, our policy approach is one where we want to have a progressive dividend and so we do have a goal of 1 to 2 increase of dividend in a regular basis. We did that last year. We increased the dividend 20% and so it's something that we'll look to continue to do.

Do you think that the current deal for Equinox in any way would prohibit a dividend hike in the next few quarters? Would you like to maintain some fiscal conservatism until the deal gets done?

I think practically speaking, we are taking on and levered up our balance sheet somewhat to this do. I think we still have very strong financial metrics, but it probably is. And this is something we discussed with the Board. There's, I think at this point, probably a propensity to keep the dividend where it is for the next 2 quarters, but then we'll reflect on it as we do reflect on it every quarter and the Board will continue to review it. Now clearly if gold keeps doing what it's doing, then the debt that we've taken on is going to get paid even more rapidly. And so our financial capacity and our ability to ramp up dividends will be that much more improved.

Sure. Sorry, I just didn't catch the point on your financing costs. Did you say you were looking at about a 3.5% pretax cost of debt?

If we combine the use of our revolving credit facility and new revolver 5-year type revolver, plus some long-term bonds that we'll use to take out the bridge as soon as we can, that weighted average cost of debt is, based on the current market, is under 3.5% pretax. So after-tax, potentially under 3%.

Our next question comes from the line of Richard Gray with Cormark.

I just have a quick question on your cash costs. With the adoption of IFRS on January 1, did that impact your reported cash costs from Q4 to Q1?

Yes, it did. There are a couple of major items and you can actually then see some of the comparisons in 2010, where we're comparing apples-to-apples with IFRS. So the major items that changed additional deferred stripping, which reduces the cash costs and also a change in reporting of royalties that are now -- some royalty-type expenses are net profits taxes that are tied with the gold price are more categorized correctly as taxes and that's why our tax rate has gone up slightly. And so it's really those 2 items, which are the biggest adjustments to our cash cost. But as I mentioned, to see what that impact is, you can -- given that we've adjusted 2010, you'll have a better idea of what that impact is on an apples-to-apples basis.

Okay. And then just on that, the $450 million to $480 million guidance for 2011, that was assuming the changes with IFRS?

That's correct. Yes.

Our last question comes from the line of Anita Soni with Crédit Suisse. Anita Soni - Crédit Suisse AG: I just want to clarify 2 things. First, you were saying that Turquoise is not included in the 9 million ounces. I think when you first introduced that 9-million ounce target in September, one of the areas that you cited was Turquoise Ridge being one of the areas of increase. Is that correct?

No, Turquoise is not in those 9 million. Turquoise is one of the project we still have work to do in terms of pre-fees and fees. So that gets us outside the 5-year time frame. Anita Soni - Crédit Suisse AG: Okay. So then perhaps you could just give me a really quick summary of where the increase, the 1.2 million would be coming from.

Well, the biggest increases will come from our new mines, Pueblo Viejo and Pascua-Lama. So that's the biggest jump and then we'll have some -- the benefit of some of our existing mines, which had previously thought to have been depleted like of Pierina, for example. We're going to get some more years out of Pierina. Hemlo, more years out of Hemlo. Bald Mountain, we're going to get some more years of that. So a combination of that. Plus there are some additions to some of our smaller lines, which adds on the ounces as well. But the bulk of it really is coming from PV and Pascua and then mine extensions to some of the shorter mines that previously would have ended sooner. Anita Soni - Crédit Suisse AG: And then the second question is with regards to the timeline now for the -- could you just give a -- I'm sorry, for the acquisition of Equinox, could you give us a brief, I guess a little synopsis on how you see that playing out over the next few months?

Well, our offer was started yesterday officially and that got the clock going and we can take out shares. We can't take out shares within 35 days. So that basically gets us to the first week of June.

I will now turn the call back over to you. Please continue with your presentation or closing remarks.

Okay. Well, again, thank you for joining us today. We appreciate your questions and look forward to updating you at our second quarter conference call. With that, I guess we'll terminate the call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Have a good day, everyone.