Newmont Corporation (NEM) Q1 2008 Earnings Report, Transcript and Summary

Welcome to the Newmont Mining Cooperation First Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. Today's conference is being recorded. If you any objection you may disconnect at this time. Now I'll turn the meeting over to Mr. Richard O'Brien, President and Chief Executive Officer. Sir you may begin.

Thank you operator. Good morning everybody. Thank you for joining us today in our first quarter 2008 earnings conference call. With me today on the call are several members of Newmont's management team who will be available for questions at the end of the presentation. Before we get started, I need to remind you that we'll be discussing forward-looking information involving a number of risks certain of which are unique to our industry as described in our SEC filing. On slide 3 you can see the quarter highlights. In July of 2007 a new management team took charge of Newmont. We wasted no time in demonstrating our commitment to improving our business results and focus by making several key decisions. The results of these decisions are evident this quarter in our financial operational and project execution results. Execution on our turnaround plans is leading to the intended results. We still have much work to do that we are very pleased with these results and believe they suggest that the efforts of our management and dedicated employees are yielding sustainable improvements in our business. In July of 2007, we eliminated our gold hedges. In the first quarter of this year, we realized a record goal price of $933 per ounce. The buyout of our hedge book positioned Newmont to take full advantage of the current gold bull market. Had we not taken that action, we would have had to deliver in 2008 approximately a million ounces at $384 per ounce. This move has clearly provided value for our shareholders. The higher effective gold price in the quarter combined with equity gold production of almost 1.3 million ounces led to record quarterly revenues of $1.94 billion. Last year we also committed to an ongoing focus on reducing operating costs and increasing our global efficiency and effectiveness. In the first quarter of this year, our costs applicable to sales were $396 per ounce, down 2% from the first quarter of 2007, and well within our plans for the quarter. Our results for the quarter are in stark contrast to be industry trends over the last two years, as reflected in the most recent GFMS gold survey, which shows 2007 total cash costs up almost 25% from 2006. We are committed to continuing to contain our profile at all levels of the company. In July of last year we suggested to shareholders that we intended to smooth out our production profile over the year rather than relying on our historical fourth quarter production push. In the first quarter of this year our production is about one quarter of our production estimate for the full year. While we are not suggesting that our production will occur straight line over the year we do anticipate less reliance on that big production push in the fourth quarter as historically been the case at Newmont. Quarter-to-quarter production shifts will still result from the timing of the Nevada's annual mill maintenance in the second quarter of the year, the seasonal impacts of weather particularly at Batu Hijau and Yanacocha, and of course the usual fluctuations driven by stripping a grate. And at the margin line for the quarter the benefit of our cost containment efforts and higher commodity prices generated the gold operating margin of $537 per ounce, up significantly from the first quarter of 2007. Our efforts to arrest the operating cost inflation combined with favorable gold prices have dropped right to the bottom line, true [ph] gold leverage, as we realized and adjusted net income of $386 million or $0.85 per share, substantially outperforming the consensus of $0.54 per share and an increase of 865% from a year ago quarter. As the final line on this slide shows the true bottom line, we delivered almost $600 million of cash flow from continuing operations for the quarter, as a result of higher effective gold prices, production in line with our forecast and an improved operating cost profile. Two related strategic decisions in 2007 while not leading to immediate financial results, which show up in the first quarter of this year, on this slide do continue to provide us with the necessary gold focus and an improved project pipeline. As previously reported we monetized our royalty portfolio raising about $1.3 billion and almost simultaneously acquired Miramar in the end of the year. We completed the minority interest acquisition of Miramar in March of this year giving us control of world class Hope Bay deposit in the AAA rate country Canada. Moving to the next slide, this slide graphically demonstrates some of the points that I just made. You can see on the top left, average realized prize up almost 44%, cost applicable to sale down almost 2% resulting in an operating margin increase of almost 119%. As a wrap on this slide I would note that we believe that Newmont offers the highest leverage to operating margin per share of any gold company, realizing the midpoint of our production guidance and CAS for the year a $100 change in the gold price increases our pretax margin by approximately $1.15 per share, again we believe more than any other gold company. Moving to the next slide you can see the continuing improvements in the third and fourth quarters of last year as well as this year. As a result our renewed focus across our operating businesses with gold and copper production generally exceeding market estimates and an improving cost applicable to sale. The decisions we made in our improved operating results in the last half of 2007 have clearly provided momentum carrying us into 2008 and our operational and project execution efforts are beginning to pay real tangible rewards, as clearly evidenced by our strong first quarter operating results, and as I'll come to in a minute, our successful project execution efforts in what is probably the most challenging project environment ever. With that, let me turn over to Russell Ball, our CFO for a couple of comments on the next few slides.

Thanks Richard, good morning. For those who haven't had a chance to take a look we did file our 10-Q last night and there is a lot of detailed information and I'll try and focus on the highlights of the equity sales for the quarter with a brief look at the full costs for the year and CAS for the quarter as well. We'll be using the same format we started in Q3 where we will compare in green on slide six the actual results what was in our budget and in for the quarter in gold and blue being our guidance for the year. Starting in Nevada you will see equity sales slightly below budget but there was obviously a timing issue with a significant inventory build that put production right in line for the quarter. I would like to comment on Phoenix briefly. For the quarter Phoenix produced gold at $401 an ounce significantly below our prior year numbers and in fact, our budget which was roughly $545 an ounce for the quarter. So we continue to see solid progress. Clearly the work is not done, but we have had 2 months in February and March where we exceeded a million tons milled. We still are dealing with some recovery issues, but we are feeling more and more confident about the direction in which Phoenix is headed. At Yanacocha, we were slightly ahead of budget, partly due to the inventory drawdown again we sat on some inventory, fourth quarter last year as we spoke to on the year end call about. We didn't place the ounces in the fourth quarter and early into the first quarter as we have seen a shift in production at Yanacocha to the second half of the year which does increase our risks slightly. On the positive side as Dick will speak to later, the gold mill was actually turning in the first quarter and that ramp up is going well. So we will production from that, we expect commercial production in Q2. In Australia you can see we were significantly ahead of budget driven by some excellent grades and operating results at the Jundee operations in Australia. But it hit you again slightly ahead of budget largely due to inventory drawdown from year-end. Dick will speak to you in a little bit on the issues we face because as we look at our guidance for the year Batu Hijau really represents the biggest risk that we see today and we'll provide some color on that later on the slides. Ghana, you will see was about 30,000 ounces, below budget. A couple of factors, there was some unplanned mill maintenance and we continue to see power interruptions in Ghana. The power issues are clearly not behind us and we did have some unscheduled downtime as a result of that. We expect to be caught up all but 15 to 20 ounces of that shortfall by year-end as the management team has put in a mitigation plan. Turning to slide 7, cost applicable to sale, you'll see for the quarter we were at 396. We are maintaining our guidance for the year at 425 to 450. I'll speak to that in a second but looking at Nevada you'll see costs largely in line, again a solid quarter from Phoenix versus our expectations. And as Dick will speak to in a little bit we should see some benefit from power plant which will be hopefully in commercial production by the end of the quarter. Yanacocha just continues to deliver in line with the numbers that they have committed. Australia again driven by Jundee with a significantly lower CAS versus what we had in the budget driven largely by higher grades and production. We do however continue to struggle at KCGM and for those who are looking to the derails you'll see we were in excess of $750 an ounce for the quarter. At Batu Hijau, higher cost, a function of some stripping and lower production, again sales a little higher than what we had a expected but that was largely due to timing of inventory. And as I mentioned early this really represents the biggest risk to us for the year. Ghana costs were down largely due to lower stripping and some vacancies that haven't been filled. If you look at our full cost for the year at 425 to 450 it's important to realize that when we put out initial guidance we had assume a $700 gold price. In this roughly 900 gold price environment we do see cost pressure resulting from increased royalties, workers' participation and the like that will be about $10 to $15 dollar higher. We are also in a $115 oil environment versus 80 in our original budget prepared last October, and the full cost assumption of $90 for the first quarter full costs. So we do have some exposure there. On the Aussie dollars we are starting to hedge our exposure to the Aussie dollar but again we had budgeted at $0.875 and we are in a roughly AUD $0.95. Again in our earnings release we've provided the sensitivity to those. So you can pick your oil price in Aussie dollar and get a pretty good idea of the impact on our CAS. On the positive side the higher commodity prices have resulted in us seeing better byproduct credits in particular proper at Phoenix and Nevada, and silver largely from our Midas operation in Nevada and in Yanacocha. So we... as Dick said we have a keen focus on costs, but clearly inflationary pressures are there but we have plans in place to mitigate that, and we still feel comfortable with our original guidance of 425 to 450 an ounce,

Thanks Russell. Moving to the next slide, our major projects update. As you all know we are seeing across the industry continued cost escalation and scheduled extensions on major projects. Guy Lansdown, our senior Vice President of project development and technical services and his team are working hard everyday to continually manage our major projects, and several minor projects as well. This slide provides a brief update on our three major capital projects. As you can see the power plant in Nevada began commissioning work in Q1 of 2008. It's about 87% complete at the end of the first quarter, and should be fully operational in the second quarter. First, fire on oil and first fire on coal were both ahead of schedule went well and we continue to anticipate an on or before time delivery this project. Projected annual savings to Nevada will be approximately $60 million or about $25 per ounce. Of course that depends on production levels. So this project is going very well, in the project execution and turning it over to project operational phase and we are very hopeful that it will lead to ongoing cost savings in Nevada. Second project, the gold mill in Peru is already ramping up. We were down there a few weeks ago and the mill is operating as expected. As we ramp it up, we still anticipate commercial operations in the second quarter, higher recoveries from the mill compared to the leach pad, expected to add between 100 to 150,000 ounces of gold annually to Yanacocha's production. This project will be delivered on schedule and remains on budget with capital costs of $250 million to $270 million. And finally Boddington in Australia continues to advance although we've had to work hard everyday to keep the project on schedule and within our current capital guidance of between $1.4 million and $1.6 billion to our account... our share. We continue to expect the project to start up in late 2008 or early 2009, and as we have indicated previously when fully operational this will be the largest gold operation in Australia with our share of production between 650 and 700 ounces of gold, 700000 ounces of gold, our cost applicable to sales in the low to mid 300 per ounce. Moving to the next slide our advanced projects update. I mentioned earlier we completed the acquisition of Miramar on March 17th and we now have control one of the largest undeveloped gold deposits in the world. We are actively investing and updating the current infrastructure to accommodate a more aggressive exploration program planned for this year and beyond as we try to move the resource designation into our NRM. We're excited about this asset and we'll continue to keep you updated as the project advances through advanced exploration and into our capital effectiveness program and comes out with a project feasibility study as early as late this year or the first part of next year and we will continue to work on that project and keep you updated. Conga in Peru is now stage three of our capital effectiveness program. That reserves if you know to account current stand at 6.1 million ounces of gold and about 1.7 billion tons of copper. We continue with our evaluation process and optimization process around the development of this project. Continue to build on our relationships within the community. We continue to work with our contractor on making sure we have the best development plans that we can come up with. And we anticipate a development decision on this project by the end of the year. And with respective to Akyem in Ghana the only new news that we have filed with and the Ghanaian EPA has accepted of our submittal of a revised draft environment impact study that was completed on April 23, 2008. That permitting process continues and again we expect and hope that we can make a development decision on this project at the end of the year as well. In addition to completing three major capital projects, the power plant, gold mill in Boddington next early this... late this year early next year, we have an exciting pipeline of advanced projects that represent the next generation of our major capital projects and the next generation of our production. As Russ indicated moving to the next side on Batu Hijau we have revised our 2008 production guidance downward slightly at Batu Hijau. This slide provides the explanation for that revision. Higher than forecasted rainfall, in fact, rainfall well above the P90 levels will impact our production during the remaining portion of the year. As you can see from the chart on the right, the red line represents the cumulative P50 rainfall in the pit area and the blue shaded area is the actual amount of rainfall. At these levels we'll spend more time pumping water out of the pit we have been with less production time during the dry season at the bottom of the pit. Additionally this year we were impacted by the fact that we were not able to secure the renewal of our forestry permit and because of that we had to divert additional water into the pit. There has been some minor damage to the pit infrastructure sloughing due to water and as a result of that, we'll have some more time in the bottom of the pit to clean out the remains of that sloughing that has occurred at the bottom of the pit. So production will really be impacted by the extent of the dry season access that we have in the second half of 2008. Notably as we indicated in our press release potential production shortfall due to restricted access in 2008 are expected to be recovered in 2009. And you can see the revised guidance for Batu Hijau with respect to both gold sales and copper sales at the bottom of slide 10. Moving on to slide 11 with respect to divestiture, one piece of news on this and that's really in the third bullet point where you can see that with the divestiture process continues in parallel with the arbitration process we have offered under the terms of the contract of work 7% this is what we referred to as 2008 vantage 7%, for $426 million or at the 100% level at $6.1 billion valuation for our investment in Batu Hijau and a long contract of work. I would say that with respect to international arbitration, both for government and Newmont continue to follow the contract of work in each of the areas and we continue to work forward on the arbitration process, both of us having appointed our arbiters and the process continues and we will work expeditiously to get to the result that we both feel is there. So in closing, moving to slide 12, this quarter reflects strongly our management's commitment to do what we say we are going to do. We said in 2007 that if we were gold company we should provide exposure to gold price, outside off the hedges you can see the impact of that. We said we needed to further focus on cost, you can see the cost improvement profile in the business over the last three quarters. We said we have to successfully execute on our project pipeline, as you have heard, on both the Power Plant and Yanacocha Gold Mills, we are delivering at or in front of our schedule and at or below the projected cost. We still have challenges in delivering on Boddington, which we will continue to keep you updated on, but I can assure you the Guy Lansdown and his team are absolutely focused on bringing this project in the best way possible in what is, as I mentioned before, a very competitive environmental project. All of that means that we are on plan for what we need to do. We also know that our plans had to be sustainable, that we have to be committed every day to our results and that one quarter doesn't make a successful turnaround. We now have three quarters in a row that we are hedged down, focused on execution and if we continue to successful in that we do believe shareholders value will increase. And we would encourage to continue to hold your investment in what we believe is the highly leveraged... the most highly leveraged gold investment that you can make. Thanks for your attention and we will take your questions. Question And Answer

[Operator Instructions] Our first question is from John Hill.

Thank you, good morning and congratulations on a strong result. It must be great to see all the hard work staring to pay off?

It is, thank you, John. I appreciate that.

Obviously, there were something that went you way in the quarter, thinks like inventory draw down and price participation, but it seems like you get some positives coming in the back part of the year with the new Mill at Yanacocha, way though... doesn't that make the swing operations, the really key ones, in other words maintain that performance at Phoenix and in Ghana, so that we can really benefit from the new Mill later in the year. How confident are you that we can sustain this kind of results in these operations, which have been challenging but look somewhat better here?

Well as Russ, indicated at Phoenix, we had a good quarter at Phoenix, but again a good quarter doesn't necessarily say that we got this so we turned around. I would tell you, as we said at our analyst meeting as we said last year, we are focus on delivering the mine plan at Phoenix mid-year, so we will give an update in July when we next release earnings and this tell you how we really feel about Phoenix. What I will tell is that Brant Hinze has led a tremendous effort over there, in Nevada, not just at Phoenix, but across the Nevada operation. His team at Phoenix has being clearly focused on delivering through operating results, high melt throughput that we had to-date. The team is really focused on recoveries. We have finished all the drawing that we need to do at Phoenix and I think we will see some sustain improvement at Phoenix, again we'll communicate those results later in the year. But across the Nevada operation, Brant and his team are really doing and excellent job of really leveraging the portfolio, looking for areas of improvement, so it's not just Phoenix, it is all of the operations at Nevada that have to deliver and I think Brant and his team are committed to doing that. With respect to Ghana, clearly, power availability will continue to effect our performance over there. We continue to look for opportunities to deploy the power plant that we imported and have built over there, we hope that over the next period, that the government and Newmont can continue to work on ways to allocate power appropriately and we have just seen some infrastructure investment which hopefully will allow some of these power strikes that we had to endure in the first quarter to go away. So I hope John, that as you said, the outright production from Ghana, the production from not just Phoenix, but not all of Nevada will be in line and we will continue to be able to benefit from those improvements that we see from the other operations.

Great, great prospective and just a quick follow up, do you... at current gold prices see the company being cash flow neutral on go forward basis or do you still see cash capacity for year as being subject that needs to be addressed.

At these Gold prices, John we will be cash flow positive for the year, net Cash flow positive for the year.

Great, thank you.

Yes.

The next question is from John Bridges.

Hi, Dick, everybody.

Hey, John.

Well done with the progress. Just wonder, what happened with Ahafo, just wonder what's conspired to give you grief there.

Couple of things, I will do one and Russ can talk about it as well, but we had a mill motor that went down in the first or second week of the quarter and it took us a little bit of time to get a repairer in there, and that just took... took some time for us to give the inventory through the mill once we got it up and operating. Also we had some power spikes Russ you want to say some more.

That was it, John and we had some issues with the gear box, we do have some warranty claims in but the warranty claim doesn't get that production back, so we repaired the box and, we have used some of the material that we have on site for Alkem as a short term plug if you want and we are back ordering that, but that's all behind us as Dick said, the biggest issue quite frankly was an additional transmission line, that was put in so we now have a back up or redundancy in the transmission line into the plant from the grid which really is only coming up, I guess its still coming up in April, which is going to make a big difference. The up and down is what causes those big gears, gear boxes to really have a problem, once they get up and running, they are fine, it's the stop start on an unplanned basis that just causes high maintenance issues.

It's bit about luck because the Ghanaian operation, Jeff Huspeni, our Regional Vice President over there, Trent Temple the operating guy over there have really done a good job of just continuing to deliver over there and there was bit about luck, I think without that, we clearly would be on plan and they have every expectations to get those ounces back, if we don't get them all back this year they will be available next year.

Okay, any update on Phoenix, there is a study that was going on, I believe you are going to have some output from that, about now.

Yeah, again John, I think we will be prepared to talk about that in July, this year we will have on the earnings call, mine plan should be complete. It's on schedule to be available then, again good results for the quarter, we just got to get the mine plan out there.

Okay, great, congratulation again on the progress, and good luck, guys.

Victor Flores, you may ask your question.

Thank you, good morning. I was hoping you could give us a bit of more detail on how you see the ramp up at Yanacocha progressing throughout the year. Just looking at what you have achieved already in the first quarter, unfortunately paints a rather ugly picture for the rest of the year, given higher, much higher costs and lower production. Yes, you have the mill coming on stream. I was hoping you could perhaps give us a bit more of an idea how you expect production and cost to perform throughout the year?

Yeah, I will just say Victor, remember that this is not a quarter-to-quarter business as we described in our 10-Q, Yanacocha this year expect its production to actually be back end loaded, they have got some stripping that they are in to the first quarter of this year. They didn't get as much down on the leach pads in the first quarter as they will throughout the balance for the year and really the mill is going to be an additional, and it is as we said on schedule, so should provide additional production towards the end of the year. So at this point with our plans we see we are just where we expected to be at Yanacocha.

Yeah Victor, Russ, just in particular on the ramp-up, the ramp-up is going well. We are slightly ahead of our curve that we had plotted to get it into commercial production. We have had the usual start up and teething issues, but the team is quietly confident that they will deliver at least what they said in the budget, despite a couple of weeks delay in actually getting the mill turning, and the ramp up is going very well. We have people from a number of Newmont operations around the world, quite frankly that have gone in on a short term basis to assist with that ramp up. So it is going very well and it's really testimony to the efforts of Tim Hackney and the projects group down there that this project is being delivered in the fashion it is.

Can you give us a sense at this point as to how many tons you expect to process from the mill, say in the second half and roughly sort of grades and recoveries of --.

It's a little early for that, but we will commit to provide that you on the second quarter call along with Phoenix. We are still ramping up we were about 30% to 40% by the end of March, so it's still too early really to tie that down, but we'll definitely give that you in the Q2 call.

Or we will ask the guys on the site visit.

You are welcome.

All right, great. Second question goes to Leeville, I was reading through the Q and it looks like tonnage has improved a quite a bit relatively, at least to a year ago. Can you just give us a sense of how you see that operation performing, going forward.

Yeah, again, I think a tribute to Brant and his team over there, they have got the back fill situations going the back fill plants are operational, really were at the end of the year. We are really starting to see as a result to the ramp up through 2007, the careful and expected ramp up of Leeville, but we are now in the operational phase of really being able to get after what we see at Phoenix. So we continue to see great levels that are at or above what we expected, tonnage movements underground are going well and we're actually getting very comfortable with the backfield methodology and being able to move too in our drifting programs in a very acceptable way. So at this point it's really going pretty well.

Victor, I would like to add Brant's team has done a good job getting underground workers trained up and we are transitioning contractors out and transitioning that to employees which obviously is going to impact positively on the cost structure and then some interesting explorations results, quite frankly just outside of Leeville toward the turf deposit that you may remember from one of your visits out there. It's starting to show some interesting results. So we're excited quite frankly in that the direction which Leeville's headed.

Great. Thanks. That was going to be another sort of follow up, which was, you have sorted out the infrastructure but the labor issues sound like are those are getting sorted as well.

Yeah and this goes back to a program Brant started over two years ago, to really put a number of resources into the training department and reinvigorate that effort, but again it's a long lead time to get people trained up, but we are starting to see the benefits of that and will continue to see this move from contractors to employees.

Great, thank, thank you very much.

Yeah, thanks Victor.

Your next question is from Brian MacArthur

Good morning, just reading through the Q, I was wondering if you can clarify this, you mentioned in your presentation that permit you have to get for by June of this year and its sound like you sort of think you get it, but exactly what has to go on there and how that could impact things in Batu Hijau?

Yeah, so this relates to our pinjam pakai, Brian is the forestry permit that we need to disturb pregrowth in the area and really its more about the maintenance of water and erosion, then it is about cutting the trees. But we have a permit actually, that we secured early in the life of the operation. That permit came up... is supposed to come up every five years for renewal, it has come up in 2005 and we have been working on but just have not received renewal that we need at this time. With that, we are in a position where we can't cut trees, we can't disturb areas where we actually need to expand the waste dump, as a result of that we are in a position where we once had water go in to the pit because we weren't able to divert in and around, in back into the jungle, we had take the water and put it into the pit. Secondly if you don't get the permit in a reasonable amount of time, we will be in a position where we probably have to lay off some employees and shut down some trucks and as a result of that have changed the longer term nature of the plan, we don't have the full impact of what that would do to the life of mine, but in the next few years we really don't anticipate a big change in production. We are working very closely with the Indonesian government at all levels and we do hope that we will be able to secure the permit here and in the next little bit. If we don't get it early in the dry season, there will be some other impacts as we are working at several projects over there, that would take a longer term commitment towards having the pinjam pakai and those projects relate to both the third sag mill at Batu Hijau as well as a pit water tunnel that we are working on to... a pit water shaft to try to remove water in a more efficient way. So that's those couple of things that really going to be combined here and Russel Ball and myself, our Associate General Counsel Blake Rhode and we have all spent time over there working on this permit as well as continue day-by-day up with our Indonesian office. All I can tell you is I think we get support at all levels of the government, and we are hopeful that we are going to get it soon.

Okay and may be just another question, just for Batu, you have now got a third tranch to parts of the Indonesian government, is this new tranch storing to the same potential buyers as the other today two previous tranches that all have different valuation methods, or I mean could you are just moving up the date, you got three separate valuations, three different points in time, you have got three different parties here that are all negotiating or how does that all tie together now.

Yes, Brian, Russ, the 3% from those 6 to 7% from '07 those are the one subject to arbitration

Right.

We have identified parties that have expressed an interest in regards to the '08, 7% at the 6.1 billion 100% valuation. We received notification from the Indonesian government that they intended to excise their right of first refusal on that and acquire the shares. However they have not provided us with which branch of government would be buyer. So we are working through that process as we speak.

Okay, so the first two that there are all set up you have two parties you just debate how you are going to do it, you debate price, you debate how you pay it. Well as this ones kind of further behind in the process.

Yeah, and got to the phase II, the price is fixed at the109 and the-- what is it, 286 for the 3% and the 7% respectively.

Right.

We still are debating who the buyers of those would be, and again that's really the gist of the arbitration.

Right.

In regards to the 7% from '08, the government has clearly said within the thirty day period that they intend to exercise their right, however we don't know which particular arm of the government will acquire the shares, but they have indicated that they will be acquiring and we still need to finalize the valuation for those shares.

Okay, great thanks very much.

Thanks, Brian.

The next question is from Oscar Cabrera

Good morning, gentleman, congratulations on the stronger sales, just following up on Brian's question on Batu Hijau, so just to let me understand, if you don't receive this permit in June then this would get delayed but in case you do receive it, how long you think it would take for you to complete the pumping system or the tunnel system, so that you don't have the same occurrence if you has same amount of rain next year, is this a 12 month project, or is it more than that.

There is actually, a couple of projects Oscar, if we get the pinjam pakai in relatively short order, we can go in and do the dry season work this year and mitigate a lot of the impact by getting that in order at or around the pit. The pit water tunnel is a two year project and as Dick alluded to is a roughly $50 million to $70 million for the first phase project, but that would take two years to get that out. But the water tunnel has let us pump from the bottom as opposed to have the pump out at the ramp and have to move the parts in the pumping system as the pit develops, so its really an efficiency which will give us more time in the pit and reduce cost to reduce that water. So there's really two different projects. One, the pit water tunnel which is the long term solution, short term we have put additional resources to get the pumping out. The issue for us quite frankly and the rainy season has just ended. We are pumping that the draw down slightly ahead of where we expect it will be. The issue is really when the next wet season starts. And the wet season in Indonesia, at least on Batu is roughly October 15th. So if the wet season is little late, we would actually be able to get into the bottom of the pit and get a lot of that production back. If the wet season starts early, we will just have a much shorter time in the bottom of the pit. The key issue is that the ounces aren't lost, the ounces and the pounds aren't lost, we will just go back next year and get them, but they would be pushed out from '08 into '09.

All right.

The other piece of pinjam pakai as Russell mentioned is really timed to established the waste dump for future waste that comes out of the pit, if we don't get that, we will just have to figure out whether we actually move into a stripping program for phase 6 or whether we just go, forget the stripping program and go for production and delay the stripping to a later date. So we have a lot of flexibility of Batu Hijau but importantly for our mine planning efforts we really need to get the Pinjam Pakai here in the next a little bit or we will make some decisions and move on.

Right, just to clear, there would be no production impacts through 2011 which is the bottom of phase five, because essentially what we would is the delay stripping on phase six. The area where this waste needs to go is for the next big lay back. So it's a little ironic because our results would actually be better through 2011, because we would have effectively park trucks and not do stripping and essentially dive to the bottom of phase five. That's obviously not optimum for the long term operations, but there are some of the flexibility that Dick alluded to.

In other words, like lower production, better costs, the alternative that you get every single lined up, what type of production do you think you can get to?

We really haven't given those estimates for future years. Really our estimate for Batu for this year is the estimate we have given. And at this point what I'll tell you is what we really anticipate as Russ said is probably better results as we would. If we are stripping wastes, we are producing from stockpile. If we are not stripping wastes, we are producing from the pit, and if we are at the bottom of the pit we are producing the highest ore possible.

Oscar we'll be in a fairly big strip campaign for phase 5, through '08 and '09. We will be in the bottom of phase 5 in '010 and '011. So when you look at '07, we had significant production that was coming out of the bottom, '010 and '011 is the bottom of phase 5. And that's when we will be really be in the sweet spot once again, so 8 and 9 we are going to have another production levels, just because of the nature of the ore body.

Okay, great Russ, that's very helpful. Thank you very much.

Mark Smith, you may ask your question.

Yes hi I have got a couple questions. For Russell... Russell perhaps if you could just help me with the... what were realized prices for Q1 before the inventory adjustments?

Before which inventory adjustments Mark, sorry?

Before the adjustments from fourth quarter.

Yes I mean the really one inventory adjustment we just held that and sold in the first quarter so we did see a slight pickup because obviously the gold price and copper price was up. But the production from that inventory is reflected in the numbers the 933 for gold and the copper. The copper number is impacted by the provisional mark to market again right at the end of last year and you saw this with Freeport's results a couple of days ago. Copper prices were down, March 31, they were up. So we marked that provisional pricing to market. So we had for the quarter and you will see this on page 29 roughly of the Q, I am not sure what the final page was on the version we launched last night. But the spot price we received before hedging was $363. We had a provisional mark to market gain of $0.78 for 440 and we had $0.30 in treatment and refining to put us at about 410 for the quarter.

And the gold I mean you are also on the gold...

[indiscernible] $4, $5 of treatment and refining otherwise the 933 is effectively the price we got.

And it wasn't also in that same concentrate.

We had a little gold and concentrate at Batu but in the scheme of the Newmont its de minimus.

Okay. All right, okay, well congratulations, I mean $10 above spot. Just... and the second question is did the original guidance include that adjustment in moving community development administration... regional bend royalties and so on so forth out from cash costs into the other expenses, such about 32 to 38 [indiscernible]?

I think it's about $12 plus $4 of accretion mark for the quarter, and we... so just stepping back you are right. We moved those that weren't in the budget. So what we've seen is effectively the higher metal and FX being offset by that reduction. All the numbers in the Q are we stated, we classified at least to reflect that change. So when we compare numbers year-on-year they do reflect a similar transfer from the previous years.

No I understand they are like that now but I am just trying to get a hand on the original... the guidance you gave me at year end that did not include that change?

It did not include.

Okay, so we're over and above that. And then finally just on Kalgoorlie, just could you give me a little bit of an idea why it were up nearly $800 an ounce?

Yes Mark that's a great question. And Brian Hill, who recently joined us in February and his team in Australia are spending sometime there really to understand that. There are a number of issues related to that not the least of which is the exchange rate, the legacy nature of the operation, some increased stripping, we have seen some grades, model grade bias is down obviously, some availability issues with equipment. So there are a number of issues quite frankly, and I would say that part of those issues are the only substructure in the way in the operation is managed. So we have been on our list if you want Brian is actively pursuing that with his counterpart down in Australia from Barrack [ph] and we have committed jointly resources to really evaluating the operation from a long term perspective. But it is a concern to us and it is getting to our attention right now, little early Mark to give anything definitive on the way that's going

Okay, but I guess it's not just a significant labor issue as well...

No it's not a one time event but it's something that we just have to really go in and dig into and figure out what we are going to do with that operation.

Is your new... is your FX position or your FX hedge is going to help with you at all?

It willhelp... we have started to layer into that program. We have about $600 million already normally hedged and we continue to layer into that program. So it will offset or mitigate some of it but again at these levels of spot significantly higher than we had in the budget. So even if we lock everything today we'd still be above where we were on our budgeted assumption.

All right thanks Russ...

Thanks Mark.

[Operator Instructions]. David Haughton you may ask your question.

Yes, good morning Dick and Russ. I've been checking over various questions running through so far but something that caught my eye was Nassau in Suriname at the analyst day, you had some positive words to say about it but text does describe some further exploration but didn't appear in your slide show, do you have any update on that?

Steve Enders I think you are online, do you want to just give a quick update on those projects?

Yes, sure. Can you hear me? Yes, David we talked about Nassau at our analyst day presentation and this is our joint venture with Nassau with Alcoa in Suriname. And it's currently in our stage two of our stage gate process headed for the decision whether we declare non-mineralized reserves at the end of that state and probably fourth quarter or not. And we are encouraged with our results so far. And we'll see where that one goes. So it's progressing as planned right now.

Okay, so it's a little bit behind the other three that we saw in the slide presentation then.

Yes it is.

Yes it is as a matter of fact. I mean it was a greenfield discovery and those always have a longer timeframe to get to this point.

Okay.Another question going back to Ghana, that's been fairly topically lately. Do you have any perspective on the documents that we've seen coming out of the minister recently with regard to the government wanting a little bit more exposure if you like to the revenue coming out of mining?

Yes I would just tell you, we've seen those announcements. We have not seen anything definitive come out, that that would impact us directly. We do have a relative to our original investment, and investment agreement which protects us from increases like that. I would just tell you that when we find out what the direct impact would be, of course we'll sit down with the government. We'll talk with them about what their intentions are. What the results would be for us, and we'll figure out right way forward. But that's what we'll do everywhere, not just in Ghana. So hopefully as a result of those discussions we'll come up something that makes sense relative to about their commitments to us and our commitments to them,

All right, while still in Ghana can you explain a little bit more about this power situation? I thought that the hydropower had got back to normal, are we getting back into a drought situation, again?

Yes, actually levels in the hydro facility are at pretty good levels. Unfortunately, they produce a lot of power from hydro, this is the year where they seem to be producing some earlier in the year. We'll just have to see what happens with the continued rainfall later in the year. At this point what's really impacting our operation is not so much power unavailability as it is power spiking, and that's led to some issues with respect to the mill as we talked about as well as power availability. But over time we're just going to have to continue to manage the power situation in Ghana, there is no silver bullet here.

All right and I guess that feeds into what the decision might be for Akyem going forward?

It does absolutely.

All right. Thank you very much.

Thanks David.

The next question from John Tumazos [Prudential Equity Group].

I don't want to set the bar too high after the good performance. But Phoenix continues above expectation and the water issues at Batu Hijau can be rectified. Is there possibility that you come in at the low end of your budget?

With respect to costs.

420 to 450 range.

John there is a lot going on as you know with respect to escalation in other areas of the business. Pretty early in the year for us to forecast that, I'd just say we continue to be comfortable with our guidance --

There had been the power plant venture among the several gold companies operating in Ghana, presumably with below budget output in mill throughput in the March quarter, there must have been some other base level of the power supply that gone under mine that sort of diluted the efforts, presumably the group power plant, is that the case?

No the group power plant is in place. We did have some issues ramping it up and we're still working on optimizing the production out there. We had a fire at one of the units. We've gone in and fixed that. But again this really... our production at Ahafo was not so much power shortage as that was really just the inability of the system to manage power in ways which delivered clean power continually and that led to some ramp up and ramp down issues at Ahafo.

It was atransition rather than generation system.

Yes, over time and as I mentioned additional infrastructure has been completed by the Ghanaians and we expected that issue now that we have two ways of bringing power into Ahafo should be improved going forward. That improvement in the transmission system will not bring additional generation capacity but hopefully cleaner power. To your point the MRP that the power plant that four gold companies has put in place is still planned to bring additional production into Ghana we hope that that will allow us to continue to benefit from allocation of power shortages consistent with allocations to the general public. There will still be power shortages in Ghana over the near term as we have not seen any new generation back for what we brought in coming into the country.

thank you.

Our final question is from Mark Smith.

Yes hi guys. Just a quick follow up, your exploration spending and development spending was a little lower than sort of a quarterly average for the year. Is that just due to waiting to get on to the Miramar property and then also when would you add the current 43-101 Miramar 10.7 million ounces to your resource base.

Mark its Russ. I'll raise phase product [ph] and it's really due to the ramp up that we see at Hope Bay that really we got to go in late March. We do have the drillers on the ground and we are seeing spending increase in line with our numbers. So really it's just a timing issue. As far as 43-101 equivalent I'll ask Steve Enders to give you an update on that.

Yes Mark. There is a significant difference between 43-101 versus what Newmont declares as NRM, certainly a lot different than what we declare as reserves. And at this point we are looking at completing stage 2, end of this year or early next year which would get us NRM, and it would be some subset of the 10 million or so ounces in Hope Bay... pardon me... in Miramar's 43-101 resource base and we'll gradually convert those over time, as we continue our exploration program.

Okay well perhaps u will actually get more than that?

Well that's the whole plan, but you can't get it all in one bite right?

I think it's important to note that we won't book any reserves this year. We just physically can't get the work done, given the infrastructure upgrades and requirements that we need and the amount of drilling that's going to take. So, don't look for reserves this year but as Steve said, we will just be working them through, with the passage of time.

I was just looking for MNI and inferred.

Keep looking, we'll bring it in.

All right thanks.

Thank you very much for your attention today and we will look forward another call in July.

Thank you participating on today conference. You may disconnect at this time.