Newmont Corporation (NEM) Q2 2008 Earnings Report, Transcript and Summary

Welcome to the Newmont Mining Corporation Second Quarter Earnings Conference Call. All participants have been placed on a listen-only mode until the question-and-answer session. [Operator Instructions]. Today's call is being recorded, if you have any objections you may disconnect at this time. I would now like to introduce Mr. Richard O'Brien, President and CEO. Sir, you may begin. Richard O’Brien - President and Chief Executive Officer: Good morning, everyone. Thank you for joining us on our conference call today to discuss our financial results for the second quarter. With me in the room today are several members of Newmont's management team who will be available and can identify themselves when they answer questions at the end of the presentation. Before we get started, I need to remind you that we will be discussing forward-looking information involving a number of risks, certain of which are unique to our industry as further described in our SEC filings. As we look at slide three, we show the highlights of the second quarter. And I'm pleased to report another strong quarter of operating and financial results, as our focus on operational and project execution continues to pay off. Our adjusted net income for the quarter was $230 million or $0.51 per share slightly ahead of consensus and we reported net income of $0.61 per share. With the benefit of strong gold prices and a continued focus on cost control, we generated substantial operating cash flow, reporting adjusted cash flow from continuing operations of $382 million or $0.84 per share. For the quarter, we sold approximately 1.3 million equity ounces of gold at average realized gold price of $900 per ounce. Costs applicable to sales were $440 per ounce, only 6% higher than a year ago and clearly within our guidance for the year of between $425 and $450 per ounce. In addition to strong operating performance, our ability to execute on our projects is improving as we completed two major projects during the quarter, declaring commercial production at both the Nevada Power Plant and the Yanacocha gold mill. And finally, and probably most notably, in spite of higher energy prices and a strengthening Australian dollar, we are maintaining our original guidance for equity gold sales and costs applicable to sales for the quarter... for the year... for the year, sorry. Slide four is all about delivering gold price leverage and compares some of our highlighted financial results to the year-ago quarter. Our average realized gold price was up 35%, while our operating margin and adjusted net income were up 85% and 122% respectively. In this inflationary environment our costs applicable to sales are only up 6% from the year-ago quarter, which is something we are quite proud about. Looking at our equity gold sales for the quarter by region compared to our 2008 internal budget, we are performing in line with our plans. Our Montreal, Newmont continues to do what we say we are going to do. In Nevada, we sold 554,000 ounces in line with our budget. The story at Yanacocha is the same with equity gold sales of 222,000 ounces with slightly higher production expected in the second half of the year as the tons placed on leach at the end of the second quarter were ahead of plan due to improved mine sequencing. In Australia and New Zealand, gold sales were ahead of budget as we benefited from higher grades at Jundee and Tanami offsetting production shortfalls at Kalgoorlie. At Batu Hijau, sales were below our original expectations due to reduced throughput and recovery. Our team at Batu Hijau was aggressively focused on de-watering the pit, which as previously disclosed, had accumulated an unusually large amount of water from the heavy rains in the first quarter. We are ahead of schedule in our de-watering efforts, improving our chances for slightly higher production in the second half of the year, assuming a normal dry season. At Ahafo in Ghana we sold 134,000 ounces slightly higher than budget as we are seeing higher grades at the Subika and Apensu pits. Looking at cost applicable to sales for each region compared to budget, again we are performing in line with our plans. Our costs in Nevada were slightly higher than budget, primarily due to higher costs for diesel, cyanide, lime and other consumables. The story is essentially the same at Yanacocha in Peru with higher royalties and workers participation due to higher gold prices also adding pressure to operating costs. In Australia and New Zealand, our costs were slightly favorable to budget due to the higher than anticipated production. We continue to feel the pressure of the strengthening Australian currency although higher grades at Jundee and Tanami were helping to offset cost escalation in the region. As of the end of the second quarter, our costs applicable to sales are expected to increase by approximately $3 for every 0.10 change in the Australian dollar exchange rate for the rest of the year. At Batu Hijau the difference between actual and budget is primarily due to the higher commodity prices and lower production volumes. Potentially higher production in the second-half of the year could improve our operating costs for the year if we benefit from a normal dry season. At Ahafo, lower than budgeted costs were the result of higher power availability from the grid versus our assumption of self-generated power and lower labor cost and capitalization of pre-production mining cost. As some of you might be aware, the Volta River Authority in Ghana has proposed an increase in its power tariffs to approximately $0.22 per kilowatt-hour, up from the current rate of approximately $0.10. Our regional management as well as the other Ghanaian mining companies working through the chamber of mines continues to negotiate this rate with the VRA. But as you will see in the next slide, even with the higher rate, we have lowered our cost guidance for the year in Ghana primarily due to higher than anticipated power availability from the VRA versus our assumptions and greater than expected capitalization of the cost of waste rock placed for the construction tails dams and other facilities. As shown in slide seven, compared to our previous guidance, we expect higher production in Australia due to the strong production from Jundee as well as lower cost at Ahafo. Even with a higher assumed oil price for $125 per barrel and an Australian dollar foreign exchange rate of 0.95 for the remainder of the year, we continue to expect full-year operating performance in line with our original guidance. And as further highlighted on slide eight, we are decreasing the low end of our range for consolidated capital expenditure guidance to account for the deferral of capital in Indonesia related to ongoing delays of the renewal of the forest use permit. We are also reducing our range for corporate tax rate to between 22% and 26% from between 28% and 32%. This is due to the benefits of tax restructuring opportunities that we realized during the second quarter. When I became CEO of Newmont slightly over a year ago, I told our employees, our management team, and our shareholders that a new day was dawning at Newmont. Since that time, we renewed our focus on our core gold business, increased our efforts at better planning the business and constantly monitored our execution against our plans. I believe our focus is beginning to pay off. This is the fourth quarter in a row of strong operating and financial results that are solidly within our planned levels of performance. While renewing our focus on planning and execution, we also remain committed to being the leader in safety, sustainability and environmentally responsible practices. We are now the only gold company to be included in the Dow Jones Sustainability Index-World, and we recently received the GE ecomagination Award in Nevada for reducing water usage and environmental pollutants related to road maintenance on our haul roads. As shown on slide ten, our first priority is getting our operations right. This means fixing what was broken and restoring confidence that we can deliver on our plan. As an example, Leeville is now running as originally planned at full capacity of 3200 tons per day. Our cost management efforts are also starting to take hold. From where we ended 2007 to the midpoint of our corporate 2008 guidance, our cost applicable to sales are expected to increase by about 12%, less than half of the projected industry average of approximately 25%. We also continued to work towards the restoration of our divestiture issues about Hijau. While, certain issues pertaining to divestiture are presently in arbitration, we remain committed to fulfilling the divestiture obligations as defined in the contract of work. We respect the government's decision to resolve these disputed issues through the arbitration process, which is expected to provide clarity on how divestitures should proceed. However, we will not allow this situation to distract us from effectively executing on our plans and managing the other assets in our portfolio. At our Phoenix mine in Nevada, we have completed our revised plan. We indicated a year ago that we would talk with you about this plan now. We must now focus on executing this plan. From the first six months of 2007 to the first six months of 2008 tons mined are 18% higher, gold ounces sold are 9% higher, copper pounds sold are 141% higher and costs applicable to sales are 54% lower. Well, how do we accomplish this, the team in Nevada did a terrific job. They drilled 230 new holes one time and under budget. They redefined the ore body. They got a better understanding of the complex metallurgy. We made changes to our drilling and blasting methods that improve fragmentation and helped increase mining, crushing and milling efficiencies. We made improvements in the mill and we added a new crusher. We're seeing the benefits with year-to-date cost applicable to sales of $378 per ounce. On the next slide you can see a quoting to the revised mining plan at Phoenix. We expect the average annual gold production over the next five years to be between 200,000 ounces and 250,000 ounces of gold at costs applicable to sales of between $400 and $500 per ounce based on current commodity prices of $900, gold and $360, copper. These projections do not include any benefits from the copper leach project, which is currently in stage three of our capital effect in this program. This project, if approved, will further reduce Phoenix cost by converting waste material to reserves. We expect to make a development decision on this project in 2009. Moving to project execution, during the second quarter we successfully completed the Yanacocha gold mill and the power plant in Nevada. The gold mill was placed into commercial production on April 1st and the power plant on May 1st. In the next 12 months, our primary focus is on delivering Boddington in Australia, defining our development plans for the Hope Bay deposit and making stage gate decisions on the Conga and Akyem projects. The gold mill at Yanacocha represents the next generation at Yanacocha. For the past 15 years Yanacocha has produced 100% of its gold from leach pads. Now, as we are getting deeper into the ore bodies and into more complex ores, we have added a gold mill to more efficiently continue our production at Yanacocha. The gold mill went into commercial operation on April 1st, ahead of schedule and below our forecasted level of capital expenditures. The transition to operation… from projects to operations went smoothly and the ramp-up was well ahead of expectations. This project is a great example of demonstrating one of the things that differentiates Newmont from a number of its smaller competitors. Across the globe, we have a team with a lot of experience in staring up mills and maintaining mills. Our capital effectiveness project got this project right from the beginning. Peer reviews assured us that we had the right operating conditions assumed and how we were going to run the mill into our capital projects. We had an operational readiness team that made sure that the mill was ready to operate when it was completed. At the mill's ramp-up, we had a combined team of experts from around the world, from Nevada, from Denver, from Ghana, from Australia and from Indonesia. On site, we had experts from around the world to assure a smooth transition from operations… into operations from construction. The power plant in Nevada is another success story, having achieved commercial production on May 1st and now operating at a 100% of design capacity. Final cost of approximately $620 million is at the low end of our forecast and the project was delivered about two months ahead of schedule. This is a 200-megawatt coal-fired plant of which our Nevada operations will consume approximately 130 megawatts. The remaining power will be sold to CR Pacific. In addition to the $120 million we receive annually from our investment in Canadian Oil Sands Trust, this offset further reduces our exposure to high energy and oil prices. The difference between what we were paying to get power from the grid compared to our cost to produce power from our plant will save us approximately $70 million to $80 million per year. With these projects successfully delivered, we are now focused on delivering Boddington in Australia. At the end of the second quarter the project was 77% complete and remains on schedule to start up at the end of 2008 or early 2009. Our current cost estimate of $1.4 billion to $1.6 billion to Newmont's account continues to be pressured by the strong Australian dollar and industry-wide labor and commodity cost escalation. We will continue to monitor the impacts of these factors on the capital cost estimate. We will provide another update during our third quarter conference call. Boddington represents the next generation of our production from Australia. Our share reserves is approximately 11 million ounces of gold and 1 billion pounds of copper, a significant exploration upside. We expect annual average production to our account of approximately 650,000 to 700,000 ounces of gold and 45 million to 50 million pounds of copper. This next slide illustrates the depth of our project pipeline and where each projects fits within our stage gate framework. I won't go into detail on each of these products, but I did want to show you that we have several projects at various stages of our evaluation, most of which are gold projects, but we also have some exposure to copper, diamond and iron ore as the slide shows. Not all of these projects will make to the execution stage, but by using a defined, disciplined process the projects that do each execution will have a greater probability of being successfully completed on schedule and within budget and delivering the expected results. We will keep you updated on these projects as they advance through the pipeline. Turning to exploration, the main accomplishment during the past 12 months was our acquisition of the Hope Bay deposit in Canada. We also discovered a new mineralized zone at Callie Deeps near Tanami in Australia and we have further defined Turf a new high-grade exploration target next to Leeville in Nevada. Looking forward, we'll be focused on converting additional non-reserved mineralization at Boddington as the exploration potential there continues to be robust and we've initiated our drilling program at Hope Bay and expect to report non-reserved mineralization in 2009. We'll also be focused on advancing studies on Nassau, our joint venture in Suriname. We're going through those individually in the next slides on Nevada. We continue to focus exploration on the discovery of additional high-grade zones at Leeville and Turf. At Turf our geologist have discovered about twice as much mineralization as we originally predicted based on surface drilling as shown on this cross section. We're currently driving a drift over the top of the target from Leeville where we will continue to drill on 30-meter intervals. We believe there is significant high-grade potential here and the infrastructure at Leeville is already in place. In Australia earlier this year, our geologist discovered a new mineralized zone at Auron and Asok as shown in the cross-section on this slide. Some of the mineralization occurs as free gold and some with sulphides. So, metallurgical testing is in progress with encouraging initial results. The Callie Deeps project was recently advanced to stage 3 and is focused on increasing our reserves at Tanami and developing new processing facilities and infrastructure to reduce operating costs and support a longer mine life. The Nassau project is in Suriname where we are partnered with Alcoa. Newmont is the operator of the joint venture and we currently have a 50% ownership interest, but are earning up to 80%. Nassau is currently in our stage 2, which we expect to be completed by the end of 2008. Today, we've discovered on the order 280 million tons of mineralized rock at about 1 gram per ton gold with 60 million tons to 90 million tons of grades of approximately 1.4 grams to 1.3 grams per ton. The project appears to be minable using open pit mining and simple milling processing methods. We hope to convert some of this target into NRM this year and we'll spend approximately $11 million this year to do so. In Canada, our focus at Hope Bay is on augmenting our project development team, accessing development options, advancing drilling, geotechnical and related stage 2 studies and improving site and camp infrastructure. This year we're spending $30 million for drilling and exploration that is targeting conversion of resources to NRM in 2009. We're also conducting a $40 million stage 2 study that is expected to be completed in 2009. On the financial front in the last 12 months we have eliminated a 100% of your remaining hedge book when gold was trading at approximately $650 per ounce. We monetized our royalty portfolio for $1.3 billion and notably we are approaching completion of our five-year intensive capital reinvestment campaign. We also made the decision to retain our investment in Canadian Oil Sands Trust, which now generates annual cash distributions of $120 million and has an unrealized gain of approximately $1.3 billion and although we can't report the benefits of these distributions there is a credit to our cost applicable to sales. On a cash flow basis the distributions cover approximately 25% of our total oil exposure. Together the cash flows from Canadian Oil Sands Trust and the saving I referred to earlier from the power plant will cover approximately 1.4 million barrels of exposure or approximately 40% of our global annual consumption of diesel. In that context, over the next 12 months, we will continue to focus on delivering gold price leverage to our shareholders. This means staying unhedged on the revenue side and continuing to aggressively manage our operating and capital cost. And finally we will take advantage of having significantly lower capital spending requirements for the next one to three years to generate substantial operating cash flows. Essentially, we are focused on the continued execution of our plans. This next slide illustrates somewhat if-scenarios around our costs applicable to sales, starting from our reported costs applicable to sales for the second quarter of $440 per ounce of gold. If we used our copper revenue as a by-product credit, our costs applicable to sales would decrease to $383 per ounce for the quarter. Taking this a step further, if we reduced our cost by the cash distributions form our investment in Canadian Oil Sands Trust, our cost applicable to sales were dropped to $362 per ounce in the second quarter. You can also see the year-to-date numbers in this slide, showing a net cost of $281 per ounce. Turning to the next slide, we’d like to use the good work of others to accentuate an important point, our superior leverage to gold price on a per share basis. By having full exposure to rising gold prices and executing on our plans, Newmont offers the highest leverage to gold prices per share amongst our peers. In closing, our continued focus on operation and project execution is beginning to pay off. The second quarter marks the fourth consecutive quarter of successful operating and project execution. We continue to deliver on our plans and we’ve demonstrated our ability to bring new projects on line like the Yanacocha gold mill and the power plant in Nevada. We're the largest unhedged gold company and we see a significant operating cash flow generation from margin expansion. We have a global portfolio of word-class assets with production from five continents and at least one major new project on four of those five continents. This ensures operational flexibility and the opportunity to optimize the total value of our portfolio. And finally, we continue to demonstrate our leadership and sustainability and environmentally responsible practices, which will open doors for Newmont in other areas. With that I would like to thank you all for listening and open it up for questions. Question and Answer

Thank you. [Operator Instructions]. Our first question is from John Hill. You may ask your question and please state your company name.

John Hill, Citigroup. Thanks, good morning and congrats on a strong result to everyone. I was just wondering if we could get a bit more color on Batu Hijau, sounds interesting that you are aggressively pursuing de-watering. There has obviously been some questions about the de-watering shaft, it would be interesting to know whether that is starting up again and as well the impact of any of these... these are practical on the ground impact of the forest permit and waste rock issues? Richard O’Brien - President and Chief Executive Officer: John, couple of answers. First with respect to de-watering, basically we added some pumping capacity, optimized the pumps that we had out there... kept them on line, may be better than we had originally anticipated. We have made no progress on the pit water shaft other than we took it to the end of stage gate 3 and we are going to hold. And we are going to hold until we get the pinjam pakai, because without the pinjam pakai we will not be doing enough pre-stripping to actually utilize the benefits of that pit water shaft for a longer period time to get a payback. So, we continue to wait for the pinjam pakai. There is really been no news on that. And with respect to divestitures, I said we're in arbitration. We really don't have a lot more to say about it. Continued to look at options as we work through this process with the government.

Great perspective, great perspective. Just as a follow-up, on Ahafo the capitalized waste rock moving in and mining in such, can we quantify those impacts?

John, Rhodes, it’s about $60 an ounce for the quarter. And that’s…

Okay, is that expected to continue for a while?

No, it won’t continue for much long. We were doing some self construction rather than bringing in the contractors. So, we just moved those costs from operating to capital. And that's why you see the reduction despite the increase in power in Ghana for the year or the expected increase at least. It’s about $60, $65 for the quarter.

Great. Thanks, Dick. Thank Rhodes, everyone.

Thank you, our next question is from John Bridges. You may ask your question and please state your company name.

John Bridges, JP Morgan. Hi, Dick and everybody. With the Phoenix new plan, is there a more detailed breakdown of how this thing looks anywhere, will you be publishing that? Richard O’Brien - President and Chief Executive Officer: Thomas, will cover this.

John, we are at a stage… this is Russ, sorry, we are at a stage with Phoenix where we had basically taken it. We had taken it out of the management structure, if you want, of Nevada and we're about to roll it back in. Our intent going forward is not to report Phoenix separately. We believe that we, over the last year, have brought the operational on to a level where we are just going to reported it as part of our ongoing business in Nevada. I will say though when you look at the life of [inaudible] at Phoenix which again changes based on metal price assumptions and cost and everything else, we did lose a little bit on the gold side but we picked up at least in equal amounts on the copper side when you look at it from an NAV or a cash flow perspective going forward. So, the nature of Phoenix has changed a little bit from a 80% to 85% gold to somewhere around 60% to 65% gold versus copper and silver on a revenue and NAV basis. Richard O’Brien - President and Chief Executive Officer: John, I'll just add to that that we have given some five-year projections, which we don't normally do, just to give some highlight into what we expect out of Phoenix and then notably I would say that this is a mine that still has, as Russ said, at the current projection of prices somewhere between 20 year and 25 year life. So, this is going to be around with us for a long period of time and we'd be happy to have you all out there and give you some more details at some point.

Okay. The copper that you expect in the first five years?

[inaudible]

How many pounds of copper in the first five years?

About 20 million a year, and again it varies depending on which parts of the old body. It is not like Batu. It had some higher grade and lower grade zones. So, you see more variability, on a year-in, year-out basis.

Okay. Just on the side, the power plant is probably one of your higher yielding projects. I seem to remember there was some spare capacity there. Given the potential to make some money there, is there any way of expanding that plant? Richard O’Brien - President and Chief Executive Officer: So, a couple of things. One we do have some excess capacity. But, we're still on CR Pacific grid. So, of the excess capacity, I mentioned, we use about a 130 megs, of the balance about half of that, I think that goes to CR in exchange for the other set of power requirements that we need including black starts [ph], pending reserves, auxiliary power all the rest of that. So, we have about the remaining portion left to sell into the market, which we share with CR Pacific any profits from that. I would say, going forward that if power plants can be built again in Nevada, we do have a site, right next to the one that we have which could certainly have another power plant next to it. We have water and airshed availability there. So, it is something that in the longer term again, if coal plants are environmentally acceptable in the regimes going forward, we could do something there, not in our current plants.

Okay that's helpful. And then, just looking at the... the move by Barrick follow your lead on buying oil exposure, might they come up with a way of factoring that into the cash cost that might work for you? Is there anything they can do that you can't do because of the Canadian domicile.

John, Russ. You'll have to ask Jamie on that one. But from our perspective, just given the lack of the significant correlation between our distributions on CIS and our oil price exposure, again it's a function of their performance prices as well. And net cash flow is coming out. We don't believe we can account for there is an accounting edge, but again, that's part of why we put the slide out really to show the economic edge. It will fit in a other income line versus CIS for us we believe.

Okay. That's right. And well done guys, pleased to see the progress there. Richard O’Brien - President and Chief Executive Officer: Thanks, John.

Thank you. Victor Flores you may ask your question and please state your company name.

Yes. Hi it's Victor Flores from HSBC. Good morning. My questions go to some of the development stage projects. And I was hoping you could perhaps spend a couple of minutes talking about what some of the key decision or key inputs into the decision-making for the go-ahead on Conga at the end of this year and potentially further work on a team and Hope Bay?

Hi this is Guy Lansdown.

Hello.

How're you doing?

Good. How are you?

Good. The process we are busy going through, our team is in stage 2, is currently headed for the gate. It will go through peer review and after that time we'd look at it as a management and decide on what we're going to do going forward, and obliviously report back to folks like yourself towards the end of the year, early next year. But as it relates to team, we're still working on permits and power challenges that we've got out there. On the Conga project, we're busy in stage 3 with engineering and we're looking to complete that towards the end of the year at which time we'd go through the same process of peer-reviewing it, taking it to up to the gate and then making a decision and communicating on that. As far as Hope Bay goes, Dick mentioned we were looking at taking it into NRM or shooting for NRM next year. And so it's such currently in stage 2, we're undergoing drilling programs, metallurgical testing. We're looking at a number of options for optimizing the value of that asset and that would head in towards the gate sometime next year. Richard O’Brien - President and Chief Executive Officer: And also mention the revamp of the camp.

Yes, we actually have two programs going on, one is the studies, which is the stage 2 work that I've just mentioned to you. We've also got what we call an infrastructure program. And there we're really setting ourselves up to develop the project from an exploration standpoint, provide infrastructure for better exploring in the area and so that we're in a good position when we do go into project developments. And the type of work that we're doing out there is upgrading the JDs, we're building air strips, we're building roads and we have a camp that we've just put in again to better set ourselves from an infrastructure prospective.

Great, thanks. Could I just ask a follow-up question on two projects? First of all with respect to Conga, other than what we know are increasing capital and operating cost, has there been any major change for the development plan for this project, relative to some of the things that have been said in the past about throughput rates in grades and recoveries and so on? Richard O’Brien - President and Chief Executive Officer: At this point there have been no changes to the things like recovery reserves, anything else like that we continue to be on that mine for development.

Yes, we continue to try to optimize it, which is part of the process we're going through at the moment. But yes, apart from escalating cost there is nothing untoward that we see at present.

Victor, it's Russ. At a high-level it's important to realize that even at either in stage 2 and 3, we do spend significant more dollars on these, but internal and external before we taken into gate than we've done it historically. So, when we talk about taking a project to a gate 4 decision, which is essentially full fund approval, we will be at 30% engineering versus historically somewhere around an 8% engineering level. So if you look at that that work is font end loaded into stage two and three. So, while we talk about stage two and three it's a lot more work, there are dedicated teams. For example, as soon goes into stage three a dedicated team is put on them and we do spend significantly more dollars up front that we put at risk. So, while they don't get a full go-decision, we are spending more money than we would have done historically up front putting it at risk. So we have a much better understanding of the project and ultimately what is scheduled and cost will look like.

Fair enough, thanks Russ. And then, just finally on Hope Bay. At what point do you think you'll be in your position or how long will it take to be in a position to get it to I guess, stage 4?

Difficult to tell at the moment because it really depends on permitting and what option we ultimately go for, so we're busy going through the process of analyzing a number of options at present.

Okay, fair enough. Great. Thank you, very much. Richard O’Brien - President and Chief Executive Officer: Thanks Victor.

Thank you. Oscar Cabrera you may ask your question and please state your company name.

Yes, Oscar Cabrera, Goldman Sachs. Good morning everyone. Just, I see that you have increased your assumptions in oil prices .We think that context and it is about $35 a barrel increase. We haven't seen changes in the outlook for your cost or CapEx for the year. So, basically two things. First, can you provide a little bit more color as to how are you seeing the cash cost control that you are having? And secondly, what can we expect for CapEx inflation or cost inflation for next year? Richard O’Brien - President and Chief Executive Officer: So, Oscar let me start and then Russ can add some color to this. But, first it's important to understand that we went into the year, as I hope you would expect with a conservative view of where we have cost we're going to go. So that's sort of the first pillar [ph] upon which you can say the reason that we were able to absorb some higher oil prices and still keep guidance, because we started with a fairly conservative plan. Second thing is, it's fair to say that with the higher oil price some of our cost are actually going into stock pile and inventory and some of those costs will be realized over the next several years as they come out of inventory into production. And that is a main... that were sub-optimizing here to control costs actually the contrary, means that we are putting the highest grade through as we always do, and some of those other costs will stay in stockpile for a bit. The other thing to note is, around the $8 and some of our other costs, we have been systematically over the last year and half... actually the last year... been putting hedges in place to help produce some of our exposure. With the combination of those three things conservatism, inventory and also just some of our hedging activities that helped us to reduce our operating costs from where we thought we would be. With respect to capital, again we had a capital budget which was probably more aggressive or i.e. conservative in terms of what we spended of, then we probably would otherwise have had coming into the year. When we go through those capital expenditures which we do every month, we're always looking for opportunities to optimize and reduce or defer as is the case that Batu Hijau and using our capital effectiveness process to offset some of the embedded inflation. Now, we have said previously of Boddington earlier this year that we did revise of our estimates for Boddington based on higher inflation and escalation, so we have already done that on the project. With respect to the other two projects, we completed a power plant and the gold mill. Luckily, I think we ordered material, we got people on the ground, we were ahead of schedule on both of those projects, ahead of the schedule of higher inflation anyway. And I think we realize benefits by getting those projects done in a little earlier timeframe. Guy or Russ would you add to that?

Oscar just to your last question, I’d say industry wide we are seeing sort of 15% to 25% CapEx inflation annually, and again that's a function of which region you are in. I will say though that, as I mentioned to Victor earlier, we do a... form of rigorous job in the early stage in the Stage-Gate process to stimulate scenarios for capital costs. So, we build in that contingency up fronts, which has served as well as [inaudible] said a little more conservative approach to capital. One other aspect on operating costs that shouldn't be noticed is, we do produce a bit of silver particularly down in Peru and in Nevada and the higher silver prices has helped to offset some of those cost pressures on the CIS side, whether is [inaudible] diesel for that matters. So, we do see some by-product kicking, and particularly in Phoenix the numbers you saw do reflect obviously a higher copper price year-on-year.

That's of course a great answer, thank you. Then, you said one more... in terms of your tax rate, it seems the original guidance at the beginning of the year was between 30% and 34%, were at 22% and 26%. Can you talk about what's impacting that and what should we be looking forward next year going forward? Thanks.

Sure. I'm going to have David Gutierrez, our VP of Tax and Accounting to take you through that.

Yes, in the second quarter based upon our continuing process to simplify our worldwide corporate structure, we will convert a Canadian collaboration to U.S. partnership for U.S. tax law purposes. That generated capital loss what you see for the quarter have given us a fairly low effective tax rate. As that tax rate... as that capital loss could flow it in throughout the whole year, we believe our effective tax rate will be between 22% and 26% for the year. The other reason you're seeing a low rate tool is, because of the high gold prices for depletion purposes in the U.S. we're getting much larger amount of depletion than we otherwise budgeted for.

And Oscar, just on a go-forward basis somewhere around 30% to 32% is a good number to use. And also just turn back to the second quarter adjustment. This isn't just the defeated text adjustment, we will see approximately $150 million in cash, about $60 million this year and $90 million next year through the tax restructuring that Dave Gutierrez and his team led. So, that was a once off event if you want in the second quarter that's what we backed it out on our earning schedule from the GAAP reported number to the normalized number, if you want. But it is cash, and again look for somewhere between 30% and 32% on a long-term basis, that's good.

Okay, great. Thank you very much guys.

Thank you. [Operator Instructions]. Our next question is from John Tumazos. You may ask you question and please state your company name.

John Tumazos. John Tumazos, Very Independent Research. Could you give an update on the drilling in the Hope Bay District to occur this year and that specifically about how many of the holes are intended to be confirmatory to verify the Miramar resources and how many of the holes are new ground to explore and expand resources. And any other details would you provide for us?

Yes, John, this is Steve Enders. The main purpose of the drilling really over the next year, which we say between the start of this year towards the middle of next year. It's focused on two things. The [inaudible] technical aspects that we need to do to confirm project parameters around the design for the pits and the copper dams that may be needed. So, that's a big component of the drilling that's going on right now is to support stage 2 study. The rest of the drilling is really focused on infill and step out from a known resources at Dores [ph] and Madrid and Boston to support the work we have to do around modeling and mine planning to be able to declare non-reserve mineralization at the end of stage 2. That's a lot of work actually between now and sometime in the middle of next year. There is work that's going on in exploration around the district, but it's really a much smaller amount as we focus on the core assets, but in the meantime what we are doing is additional geologic studies to determine what those other targets are so that in due course we explore those in a way that is effectively fits into the project.

Thank you.

Thank you. Our next question is from Patrick Chidley. You may ask a question and please state your company name.

Yes, hi, it's Patrick Chidely with Barnard Jacbobs Mellet. Just a question about Boddington, I wonder if you could maybe give us a bit more detail on... just an update on what the plan is in terms of tonnage throughputs and strip ratios etcetera some more detail that would be good.

Patrick, Russ, could you repeat the question, we just missed the last half of it.

Sorry, just wanted to get some more detail on the Boddington projects in terms of strip ratios and how much tonnage and throughput to produce that, and also what the copper credit might be in terms of your percentage copper that you'll be putting through in the first couple of years?

Hi, this is Guy Lansdown again. As far as throughput goes the plants are designed for round about 35 million ton per annum, but as you'd run up on a big plant like this is actually a one-year ramp-up period to achieve full production. I think that answers part of your question and the other one what is the strip ratio we are looking at around 1.3 to 1.5 to 1, strip ratio, we gave the gold and copper production figures, we're looking at I think 650,000 to 700,000 ounces per annum for the first five years. And I'll remind that there is a one year ramp-up and that is on an equity-basis. So we are not going to achieve that in the first year but that's what we anticipate to achieve over the first five years.

Right and I think the copper grade average is about 1.11% there is... is that likely to be the same in the first two years or higher?

It's of that order, you are in the right ballpark, it will vary some but that's sort of the ballpark we are looking at.

Copper about 30,000 tons a year on a 100% basis.

And I guess, that's just about does that, I mean, all questions have been answered. Thanks.

Thank you. Our next question is from Terence Ortsland. You may ask your question and please state your company name. Terence Ortsland - TSO & Associates: Thanks, Terence Ortsland, TSO & Associates. Given the magnitude of the investment and also the skilled operations and some of the previous history of Yanacocha you think is there any room or leverage to negotiate a long-range social and may be investment agreement per se, try to isolate some of the future uncertainties because you'll be entering a new phase and I think your thing started very nicely but then kind of deteriorated a couple of years ago. So, that's the question?

Terry, the question if I believe I understood correctly, was it Yanacocha a long-term stabilization agreement. Terence Ortsland - TSO & Associates: Yes, in the sense of you can, revisit all issues of the area, the talent and expectations and all in the kind of the anticipated the uncertainty because more money got to go in there, it's going to be different for the scale of operations and as well as different costs. Richard O’Brien - President and Chief Executive Officer: Okay, so let try at to answer that just a big picture. We have been in Yanacocha for 15 years, we successfully worked our way through a number of issues with the community. Some of those issues of our own creation quite frankly, what we see today is Yanacocha which is absolutely involved in the community and trying to do the right things to continue the development at the right pace making sure that we constantly look at how we are interfacing with the community. And as an example of that earlier this year, the President of Peru was on site at Yanacocha and he was there to new dedicated facility that we had put in place where we mined a pit and are collecting water during the rainy part of the year and provisioning that water through existing canal systems to the farmers in the area. And the President was basically suggesting to the community as well as the broader Peruvian community that, mining was a valuable part of the economy in Peru, that so long as the mining companies do their jobs in environmentally and socially responsible ways, that we will continue to have a license and in his administration he intended to see mining growing its contribution to the Peruvian economy. So, I think the fact that the President was onsite, the President was supportive of what we're doing, the community is supportive. Year round provisioning of water for the first time in many of these people's lifetime allow them to produce more goods and services and sell those into the market. And I think as result of that we are valued member of the community. What will that will do for us going forward, hopefully it will allow us to move, although in a slightly different district, we will be able to move forward on Conga and I think we will continue to be contributing member in Peru of the economy for a long time to come. Terence Ortsland - TSO & Associates: That's a good answer. Thank you.

Thank you. Our next question is from Brian MacArthur. You may ask your question and please state your company name.

Brian MacArthur, UBS. I just want to come back to Phoenix for a minute, you made a statement about the value on an NAV basis changing from 80% to 85% gold and 60% to 65% copper. Can you... and you given a 200,000 ounces to 250,000 ounces of gold production for the first five years. Can I just have the copper prices and production that you have done to come up with those statements? Richard O’Brien - President and Chief Executive Officer: Yeah Brian, I think on an NAV basis we were running 900 and 360 and 17-odd silver, just a.. when we revised the project with our Board yesterday, those are the numbers which we base the relative contribution. So, it will move with that.

And... Sorry just the copper production for the first five years? Richard O’Brien - President and Chief Executive Officer: It averages about 20 Brian.

20? Richard O’Brien - President and Chief Executive Officer: 20 million pounds.

Great. Thanks very much. Richard O’Brien - President and Chief Executive Officer: Sure.

Thank you and our final question today is from John Duddy [ph]. You may ask your question and please state your company name.

Thanks and congratulations on a good quarter guys, this is John Duddy a gold stock analyst. I want to congratulate you on giving more color to the copper production and just by the questions on the call other people like it too. I'm a little bit confused always how you're going to be reporting going forward, it appears that Phoenix is now being reported as a by-product but if I had to eat you, and I'm not sure how you are going to do Boddington. Is that going to be on a co-product basis?

John, Russ, I will answer the question. Basically the rule of thumb, and it's not co-defined in GAAP, but it's an understanding with the SEC, when your by-product revenue is more than 10% you will generally go to a co-product type of accounting. So when you look at bar two, it's roughly two-third copper, one-third gold with co-product. In Nevada, we treat Phoenix as part of the overall Nevada operation, and the copper production relative to the roughly 2 million ounces in Nevada is de minimis and we show it as a by-product along with silver in Nevada. In Boddington depending on your assumption is about a 10% copper credit, again based on your long-term assumptions and we will be reporting it next until we'll treat copper as a by-product down there. So, what we really have to look at John and when we decide how our accounting is a relative contribution, if its de minimis which is roughly 10% of revenue, we treated it as a by-product. If it's more will go to co-product accounting.

And so what kind of detail will you be giving us going forward on?

At which operation?

[inaudible].

Yes, in Nevada we will show it net but you will see a net CIA in, Batu you will get both gold and copper. So you will have a $0.01 per pound and a $1 per ounce and in Boddington you'll get a $1 per ounce which will be net of the silver, copper and any molybdenum down the road.

Okay, great. That helps.

Thanks, John.

Thank you. Richard O’Brien - President and Chief Executive Officer: Right. Thank you, very much for your attention on the call today and the last thing I would like to say for any Newmont employees who are on the phone, we truly appreciate your contribution throughout the last year as we have moved the company forward. You all have done a great job, thanks. Keep it up. And thanks to all the analysts out there and holders of the stock. We continue to focus on doing what we say we are going to do and we will tell you more about that in the third quarter.

Thank you. This concludes today's conference. Thank you for participating. You may disconnect at this time.