Newmont Corporation (NEM) Q2 2010 Earnings Report, Transcript and Summary

Okay. Then or at least I haven't gone through the whole MD&A section of the 10-K, but just wondering you indicated in your release that there was a lower grade as a result of ore dilution in Australia and New Zealand. I'm assuming that's some of your underground operations, and I'm just wondering what you want to tell us boat that dilution and whether this is something that should be anticipated going forward or not?

Barry, it's Brian again. The issue that we had underground was really at the Tanami, and it really had to do with one large major stope that was the main source of production during the quarter. It had intersected a major fault zone in the hanging wall, and there had been some unraveling. That led to some unexpected dilution on grade coming out for the quarter from the Tanami. We're through and finished with that stope, but we've taken some learning from that operation and done some modifications to the stope geometries, access, etcetera. So that's not an issue that we expect to have going forward coming out of the Tanami.

And then coming back to Boddington, because I'm not quite as convinced as John is. The costs that you're talking about here, now obviously, if you're getting more copper and less gold, that should actually help your byproduct costs the way you report it. And yet, that doesn't seem to be what's happening. And so I'm wondering you identified a couple of things, one being the Aussie dollar, one being the gold production, but there seems to be something else with respect to the high direct mining costs. And what you are seeing there that's going to change? Or, in fact, is that going to be a permanent higher cost going forward?

So, Barry, let me start. First, please note that the cost estimates that we provided are on a co-product basis. They don't include the byproduct credit, and Brian can talk a little bit more about what we expect with respect to the byproduct credits.

Barry, from the cost perspective, what we are seeing is we have been experiencing some higher wear, as I mentioned in the process plant, primarily in the primary and secondary pressures. So we've been seeing shorter life coming out of the bowls, mantles and other wear components. That's led us to be changing some of those out quicker and on shorter schedules than we'd originally expected. I guess what we are seeing is we are seeing that the average hours between change out are increasing. So just as everybody works through getting the right wear material, the right composition of wear material, I think we expect to see those numbers come down on wear in the plant. The high-pressure grinding rolls are wearing as expected, which for us we're really pleased about that. We expected to get around 5,200 hours on those and that's precisely what we're seeing. So we've had some wins in the process plant, and we're also seeing some wear issues there, which wasn't unexpected and we'd actually anticipated that. In the mine, what we've experienced is we've tightened up the drill pattern. We're really trying to get that optimum fragmentation size so that we can get the mine to mill process optimized. Our drill spacing is tighter. We've had to do more drilling than we've expected. We've also increased the powder factor. That's still a learning process we're going through, but that's one of the issues contributing to the higher cost. Another issue, too, is we've been trying to get the highest grade through the mine. So we've actually been going to more selective mining and more stockpiling and more re-handle coming off the stockpiles so we can really optimize the grade that we present to the primary crusher and into the plant. So those are really the principle components that have led to the higher operating costs.

Barry, Russ. I'd just add we're into the wet season down there, and we spent a significant amount this quarter on road base and getting the roads in shape to get the truck productivity up. So those costs, while we will have an ongoing component of those, we had a big effort this quarter really to get the roads in shape. I'd also, Barry, just point you to your earlier question on buying co-products. If you look at Page 12 on the release, you'll see Boddington broken down on both a co-product and a byproduct and the 582 represents the co-product, as Richard said, byproduct it's about 503 for the quarter.

Right. I just noticed that the byproduct was going up about as fast as the co-product costs certainly in your presentation there. Just coming back then for 2011, that was to be a plus million ounce year. Is a million ounces coming from Boddington not achievable in your opinion now going forward?

Well, as we said in our release today, we've brought down the estimates based on what we're seeing to date in the model, and those are our best estimates at the current time. We will continue to do all of the extra work that Brian talked about and try to do everything we can to make sure that this grade issue is well defined and that we do the best job we can in the mine to reduce the amount of dilution. So really, as we do look into 2011, our current expectation is that Boddington will be between 850,000 and 925,000 ounces. That's the level that we project today. I would say with only 2% of the reserves mined to date, all the data that Guy has talked about with respect to how we modeled this deposit initially and with the fact that most of this problem is really mining related, not processing related, I got to say, I hold out high hopes that we'll continue to work our way through this positively. I like to have the problems in the mine. That's what we're good at. We will figure this out. The processing plant is running well, and I think with that, I think the expectation is that we can push the processing plant up beyond nameplate capacity. And if we need to put more ore through the mill at a lower grade to get additional recoveries, I hope that that's the plan that we'll be able to put into effect.

Okay. Then just to clarify then, Richard, so the production profile for Boddington next year has incorporated, say a 12% drop in grades that you anticipate could be recurring?

Yes. That's our estimate for 2011.

Our next question comes from David Haughton.

Just following on from some of those interesting discussions on Boddington, with regard to the 12% lower gold, did you also increase the copper expectation by the 20% that you are anticipating?

David, no, we haven't made that increase. That's really what we've seen on a historical basis so that hasn't been changed.

One of the things that I'd noted was that the recoveries seem to be a touch better than what we had previously seen on some of your testing. Is that what you expect as well going forward?

Yes, that's what we expect to see. We've got no reason to not doubt the improved recovery that we've seen so far.

So should we be thinking about the 82%, 83% for gold as something going forward for recovery?

Yes, I think that's a fair range to assume.

And in regard to copper, moving it up to perhaps the 84% level?

That's a fair assumption as well, yes.

And I was listening to what Brian was saying with regard to some optimization. We had previously anticipated that there could be optimization of being able to process a lot more than the 2.9 million tons per month. Are you going to be looking at increasing the fleet?

Yes, we are. As Richard mentioned, that's sort of part of this whole process that we're going through is looking at additional ways we can debottleneck the processing plant. What we really want to do is to get the bottleneck in the grinding circuit, and what we see is that we still got capacity in the grinding circuit and in the wet plant moving forward. And what we'd really like to do is be able to take advantage of that installed capacity, and we'll continue to work on looking at options to debottleneck to get that bottleneck into that part of the plant.

All right. Now switching back to Batu Hijau, in the third quarter, can we expect a catch up in sales? Sales was lower than production. You had some 30,000 tons of con that had missed a shipment. Would we expect a catch up of that in the third quarter?

Yes, David. It's Russ. Yes, that shipment has actually gone. Like I said, we had a vessel due in right at the end of the quarter, and there was some logistical challenges in whatever harbor it was in and so it showed up a little late. So those sales have already gone. So that will be caught up in the third quarter. As Brian mentioned, the rainy season generally comes mid-to-late October. So the function of the third quarter will be dependent and the fourth, quite frankly, on when the rain comes, but today it looks very good.

Because the third quarter does have a few things working for it. You've got the better grades that you've got access to, you've got the catch up of the sales and then you've got a positive reversal of the price participation.

Yes, the mark-to-market that we saw at quarter end that hurt us about $0.06, we marked to $296. As I said, I think copper was trading $325 this morning so we'll get most if not all of that back and then some. So you're right, it should be good third quarter.

Now, Russ, while you're talking about the mark-to-market and participation, can you just walk us through how you ended up with the $0.62 downward provision?

Yes, so we mark essentially the 90 to 120 days in concentrate sales that are outstanding at quarter end because of the contracts we have in place to the quarter end spot price, which is $296 and then the forward curve out to the next three, four months. So when we did that adjustment as the price was falling during the quarter, we recognized provisional sales, we market to that $296. So we essentially compared what we had on the books versus the spot price. Those price, the final price we'll get on those pounds of copper is a function of the price over that entire 90 to 120 day period. So you're taking an average. We took a point in time, which was close to the low, and you're now seeing the spot price go back up. So that average will climb. So that the final price we get is a function of obviously the date of shipment and essentially the average spot price over that 90 to 120 days. So you can see as copper prices climb, we'll get the benefit not only on sales in the quarter, but that mark-to-market coming through from what was receivable at the end of the quarter.

How many tons of Con and copper were subjected to that swing during the quarter?

It was 174 million pounds that we marked, and we can get you some more details, Dave, if you want, after on the exact mechanics of the calculation, and it is one that can impact the results. And is one that we just need to maybe educate and provide a little more information to you guys on because it is a big number at the end of the day, and it swings pretty quickly depending on volatile spot prices.

And also in your reported $233 colors per pound received was a TC/RC. About how much of that was TC/RC?

It's all TC/RC. So we paid the treatment charge and then a refining charge and it's built in, and that's been pretty consistent at levels you've seen in the quarter over the last couple of years. We net that against revenue so you don't actually see that as a cost. So if you look on Page 45 of the Q, you can see we had for the quarter $313 gross less the provisional we've been talking about of $0.62, gave us $251 and less treatment of refining charges of about $0.18 a pound. There's a flex component of that, and then there's also a price participation piece that's a function of copper price, and that's why you see it down over the previous year.

Okay. And in the early commentary, I think Brian had mentioned encountering transitional ore in Yanacocha. I'm just wondering what the implications of that is going forward?

David, that was we'd actually expected some oxide ore in the Yanacocha pit, which would've been projected to go on to the leach pad. The boundary, they encountered it a little higher up in the pit, and the ore proved to be transitional. So we can't put that on the leach pad, and what we do is, we actually need to run that through the mill. So that ore has gone into the transitional stockpile. So that will be processed through the mill in due course. So that was really just more if you want to call it a one-off event, as they were mining down through this last phase in the Yanacocha pit.

So will we see that then as potentially lower average grade going through the mill for the balance of the year?

No, we won't because that probably won't be processed this year. Our plan has us moving back over into Chaquicocha and into El Tapado, where if you recall, last year, we did get higher mill grade ores coming out of those two pits. And so we're expecting to see the mill grade hold up over the balance of the year as we started to move into those two pits for Q3 and Q4.

I think what it means David, as Brian pointed out earlier, is slightly higher costs at Yanacocha because we had to obviously pay the mining costs to put this into inventory or into stockpile, and it didn't go on to the pads. We're still anticipating we'll be within production and cost guide at Yanacocha, a bit of timing, a little higher into the cost range.

Our next question comes from Jorge Beristain.

My question was more to do with, well you mentioned at the start of the call about your in-house growth opportunities and you mentioned that Leeville, Conga, etcetera, could account for, if I got this right, 45 million ounces of incremental gold proven and probable, of which only 30 million are booked, if I got that right, on your current PMP?

What I said was that those opportunities could collectively represent 30 million to 45 million equity ounces, of which 20 million are in reserves today, that's correct.

And so I was wondering of that net increase of 10 million to possibly 25 million equity attributable ounces, what do you consider the timing on realizing some of those because a lot of them are basically brownfield expansions?

Jorge, this is Guy. Jorge, these projects are projected to be developed over the next four to five years, so we'd see progressively bringing it into place over the next say two to four years.

And I would just say that I think in particular, if you look at somebody's projects like greater Leeville/Turf, which is one of the ones where we have a pretty high expectation of both delivery, as well as one of the wider ranges of the projects we have, we are doing quite a bit there today in terms of putting some additional drilling in place. As we talked about at investor day, we've authorized an additional 25 million of drilling to go into that project today, which Guy, you might want to just describe a little bit more about what we're up to out there.

Yes. I can talk a bit more about Leeville/Turf. At Leeville, as we've said in the past, we've had some really good results in terms of trying to understand the wingspan, that horizontal extent of the deposit. And as we've said just to recap, in the process we see the potential to get up to 6 million ounces of reserve in NRM. As Richard said, we've looked at putting another $25 million of funding into this because of the great success we've had earlier in the year, and that would support 22 new surface holes that would extend the project 3,500 meters or two miles north and about 1,000 meters east and the west from the Leeville shaft. We've drilled six of those holes on the program, with the first three holes complete and results are still pending. But a lot of excitement around Leeville, and still trying to get our hands around what the bigger project looks like. While we're doing that, we're also looking at how to optimize this from a throughput perspective. Do we need more shafts? What's the best way to exploit the asset that we've got out there. So really excited about that one.

And that's a project, which just to remind everybody it's representative of the kinds of projects we're looking to drive higher returns, and in Nevada where we already have infrastructure for processing, and these ounces would bring higher grade with them. It helps us to extend the life of our Nevada reserves, which as you know, if we can bring up the Nevada portfolio over people's expectations of the outward decline for Nevada, that brings up the whole foundation for the company. And there's a lot of good work with respect to costs that can happen as a result of higher grade deposits and the right chemistry, which Leeville provides us with out of Nevada.

And I guess just to build on the projects that sit in that 30 million to 45 million ounces, we've got Conga and Akyem, of which big portions are in reserve already. Gold Quarry West Hall and greater Leeville/Turf at portions that are in reserve and NRM, but those are where we'd expect to see developing more reserve and NRM over the course of the next several years. The other bigger project is Hope Bay, of course, that's early stage and over the course, again, of the next several years we'd look at bringing those into NRM and reserve.

Sure. I'm just trying to kind of dimension of the incremental of what's not counted in reserves right now, it would appear that you could pick up, if we assume about a 25-year mine life, 400,000 to 1 million incremental annual ounces based on these in-house or excess reserve internally identified opportunities. Am I thinking about that correctly of order of magnitude?

Jorge, it's Randy. Now really, when you look at the total mix there between what we have coming out of the Nevada portfolio, what we have out of Conga and Akyem and Hope Bay collectively, there's probably 1.5 million to 2 million ounces of annual production across the entire advanced stage development portfolio. So when you're thinking, when you're trying to break it out between what's in reserve and what's in resource, there will certainly be a conversion effort with a good chunk of that conversion coming out of the ounces out of Hope Bay, as an example. But then over time, those will work their way into arguably incremental additional ounces as time goes on. But out of the gate, I think you should think about it in total as about 1.5 million to 2 million ounces.

And sorry to just keep questioning on Boddington, but just again, bit picture, conceptually Boddington in this current quarter was annualizing production at around 736,000 ounces. Your guidance, even though reduced for 2011, still implies a range of 775,000 as the midpoint, at least 5% higher maybe, 10% higher at the outside guidance rage. What is it that you're sort of pre-preparing for that would cause you to not expect significant fixed-cost dilution as you are able to optimize your production in that year? Are you pre-bracing for further issues from, for example, the Australian exchange rate or energy? Or do you believe that you're leaving a little bit of padding in the latest guidance that costs could surprise to the downside?

Well, look, we're giving you our best estimate for today. It's a wider range because it's next year. We're only 2% of the way into this. I'd tell you, we've given you what we think is our best estimate, but as Brian has said, we are going to work hard, particularly in the mine to see what we can do to reduce dilution in the processing plant, to increase past nameplate capacity. And I would say, if you think a $0.90 exchange rate over the next several years and $80 oil is an appropriate assumption, that's what we've assumed. If you think it could be less than that, and there are certainly things we could do today to make it be less than that if we wanted to hedge part of our further hedge part of our exposure, we could probably bring that cost level down on some of those sort of fixed costs.

Our next question comes from David Christie.

Not to beat this with a pole here but just on the Boddington, a little more granularity for me maybe. On the model of grade versus what you're actually getting there, could you give me what the difference is between the two?

We have said that we've got a 12% effective difference on gold from a contained gold perspective and 23% difference increase on the copper grade. That's overall, if you look at the ore that we've mined to date, the grade itself has reduced on the gold front from between 10% to 15%.

You have both high-grade stringers in there. How often are you not seeing when you expect to see them?

David, what we're seeing is we are seeing the high-grade stringers, but so far, with the relatively small amount of tonnage that we've mined. What we're not seeing is the level of continuity that we had expected to see. So that's really what the issue is on the higher grade. The model would have projected more continuity on some of the high-grade stringers when we actually get in and drill them down to ore control, spacings for blast holes, we're just not seeing the same level of continuity. But that doesn't mean that we may not see it come back again in the future, but that's just what we've experienced so far.

But previous, the reserves drilling was done at what kind of spacing?

50 meters by 50 meters is the reserve drilling spacing.

So that's not uncommon to find things aren't quite as continuous on a 50-meter block on stringer kind of zones. Okay. That's good. And what's the grade rate now in July? Can you give me what the grade is right now?

I believe we're running at about a gram per ton in the first three weeks into July, David.

And what were you hoping for?

Again, just that difference that Guy and others have spoken to, in the 15% range.

Okay. Perfect. And at Yanacocha, you talked about it a bit already, so it's just basically higher grades coming from those couple of pits you were talking about there?

That's right. We're moving into those pits in the second half of this year, and that's traditionally where we've experienced higher mill ore grades. And that's sort of what our expectation is over the second half of the year.

Okay. So the second half of the year. What should the grade difference be between H1 and H2?

It depends really on that mix because of leach to mill, but we expect to see, we normally run the mill ore grades are running sort of in that three to four gram per ton range. When we move into the other pits, what we've historically seen is running more in the range of five.

Okay. So that's a pretty good change. Okay. And the leach side of it? Is that just more tons?

Sorry?

The pad part of it is just more tons?

Yes, the leach side would just be more tonnage.

And what percentage increase are we talking about?

Not a very significant increase because that's really been planned out on about the same basis in each quarter this year. We're not experiencing significant increase in leach tonnage placed. It's fairly well evenly spread over the year. Most of it will come from getting higher grade, and as we continue to debottleneck the mill, more tonnage through the mill.

Our last question comes from Heather Douglas.

So just one last week on with the new financial regulations in the U.S. I think the results in part about incremental disclosure about companies who list in the U.S. that operate in other countries. Can you give us a little bit of an overview of how this will or will not impact Newmont?

Yes, Heather, it's Russ. We've been all following that through our D.C. office, and there's nothing in that legislation we don't do today. So from our impact, it's really de minimis. There's some additional reporting requirements, not only on gold but on a lot of the base metals, particularly around the DRC, those surrounding countries, not an issue for us. We already essentially publish what we pay so we actually welcome it, the transparency. So in this case, we're forcing more legislation, quite frankly

And then just a quick question, can you give us an update on the activity ongoing at Hope Bay?

This is Guy. I can give you a quick update. We're currently on track with our Sealift, bit focus on the Sealift that comprises 12 barges, six tugs and three ships. We've got about 22 million liters of fuel and 20,000 of cargo, which is all scheduled to arrive at Roberts Bay in August/September. So we're going to have a very busy time up there, but in addition to that, key contracts were in place for the decline, which we anticipate starting later in the year, as well as the infrastructure construction. So that includes roads and camps. We've also completed 42 kilometers of drilling, and we'll continue to update our models and advance of our studies. So overall, we are very happy with the progress the project is making, and we're looking forward to making good progress as we go forward now.

Thank you all very much for attending today and for accommodating our change in schedule. So we appreciate your attention and look forward to talking to you again either before or at next quarter end. So thanks again and have a great day, everybody.

Thank you. That concludes today's conference. You may disconnect at this time.

[Operator Instructions] I'd now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Sir, you may begin.

Thank you, operator, and good morning and thank you for joining us on our second quarter earnings call. With me today are members of our executive leadership team, who will be available for questions at the end of the presentation. Before we begin, I'd like to refer you to our cautionary statement on Slide 2, as we will be discussing forward-looking information, including outlook guidance, which cannot be guaranteed and is subject to a number of risks, certain of which are unique to our industry as further described in our SEC filings, which can be found on our website at www.newmont.com. And now I will turn the call over to Richard O'Brien, our President and Chief Executive Officer.

Thanks, John, and good morning. For those of you with access to our webcast presentation, we will start on Slide 3 with an overview of the investment thesis for Newmont. First, our ongoing focus on execution and maintaining our operating track record has been and will continue to be job one for us. With consistent operational execution comes gold price leverage and strong cash flow generating capacity, which in turn, provides us with balance sheet strength and the flexibility to invest in our business. Delivering operating performance today provides us with the possibilities of the future. As we've described before, our current balance sheet and free cash flow generation afford us the ability to essentially pre-fund our $4 billion to $5 billion pipeline of advanced projects. Finally, we continue to focus on maintaining a position of leadership in the areas of safety, the environmental and social responsibility, as well as employee development. These leadership positions are the cornerstone upon which our business continues to be built. Moving to Slide 4, as I noted before, our focus on dedication to operational execution is job one. During the second quarter, Newmont produced 1.3 million equity ounces of gold at cost applicable to sales of $492 per ounce, with our North American region contributing 36% of total quarterly equity gold production, South America contributing 14% and Africa contributing 10%. Our Asia-Pacific region contributed the remaining 40% of our quarterly gold production and the majority of our 80 million pounds of equity copper production. Within our APAC region, our newest mine, Boddington, continues ramping up to full capacity and produced 184,000 ounces of gold and 15 million pounds of copper in the quarter. We are maintaining our overall outlook for full year 2010 gold and copper production, capital expenditures and gold operating costs within the original ranges we provided in February, although lower production at Yanacocha, higher cost ramp up production at Boddington, higher gold royalties and taxes, as well as adverse movements in the Australian dollar continue to put upward pressure on our costs, which suggest we'll end the year toward the top end of this CAS range. Turning to Slide 5, as I noted before, our strong cash flow generation, coupled with over $6 billion of liquidity, affords us considerable flexibility to profitably develop our business and generate returns to our shareholders. In the second quarter, we generated $753 million of operating cash flow, up about 50% over last year and $434 million of free cash flow. For the first two quarters, we generated a total of approximately $1.5 billion of operating cash flow and $875 million of free cash flow. As you may have also seen earlier this week, Moody's upgraded our senior debt rating from a rating of BAA2 to BAA1. As this slide highlights, we intend to continue to invest our free cash flow and available liquidity in a combination of project development, exploration and value-oriented acquisition opportunities. In addition to investing in our business when our liquidity and free cash flow generating capacity allows, we will also look for opportunities to return capital to shareholders. Today, we are pleased to announce that the board has approved a 50% increase in our regular quarterly dividend to $0.15 per share, or an indicated annual dividend of $0.60 per share, effective September 29. We believe that our business is strong enough to both reinvest capital at attractive returns and offer higher dividends in a higher metal price environment, which we feel positions us uniquely in the gold equity market, as well as against the gold ETF. As we discussed during our investor day in Boston, we're intent on providing investors with a sustainable range of gold and copper production over time that offers current and ongoing exposure to gold price, as well as competitive financial returns. We continue to see numerous internal attractive project development opportunities. Akyem and Conga, along with Hope Bay, Greater Leeville/Turf and Gold Quarry West Wall collectively represent up to 30 million to 45 million equity ounces of potential reserve and resource development, of which approximately 20 million are currently in proven and profitable reserves. We believe the combination of our pipeline of projects and our exploration portfolio will continue to allow us to extend the lives of our operating regions for many years to come. I'll now turn the presentation over to Russell Ball, our CFO, who will provide further details on our second quarter results.

Thanks, Richard. Good morning, all. Moving to Slide 6, as Richard previously mentioned, equity gold production for the quarter was approximately 1.3 million ounces, an increase of 10% and at an average realized gold price of $1,200 an ounce, an increase of 31%. Gold operating margins expanded 44% to $708 an ounce, despite a 16% increase in operating costs. Moving to Slide 7. I wanted to spend a little time discussing the reasons for the increase in operating costs. As you can see on the waterfall, lower production at Yanacocha, where we encountered unexpected transitional wall that was stockpiled for future processing through the mill and higher cost production at Boddington, which Brian Hill will cover shortly, were the primary drivers of higher costs for the quarter. Higher silver byproduct credits offset some of the cost increases, which you can see represented on that waterfall. Turning to copper on Slide 8. Production increased 56% to 80 million pounds as a result of Phase V mining at Batu Hijau and the ramp up at Boddington. The average realized copper price of $233 per pound improved by 7% from the year-ago quarter, but included a provisional pricing adjustment of $0.62 a pound. Higher operating costs were due to higher milling costs at Batu Hijau and higher cost Boddington production coming online. Moving to Slide 9. For the second quarter, we generated revenue of $2.2 billion, a 38% increase. Net operating cash flow from continuing operations was $753 million, a 49% increase, and adjusted net income rose to $377 million or $0.70 a share, an increase of 79%. For the quarter, reported net income was negatively impacted by a couple of items. You might have noticed we had a higher effective tax rate of 33.6% versus 29.6% in 2009 and approximately 15% in the first quarter. The difference of roughly 4% quarter-on-quarter impacted earnings per share by about $0.07 a share. Notwithstanding a higher tax rate this quarter, our effective tax rate for 2010 remains unchanged at between 24% and 28%. We had a copper provisional pricing adjustment, as previously mentioned, of about $79 million, which impacted earnings per share by about $0.06 a share. We marked to market at quarter end at $296 a pound. I think this morning checking earlier, copper was trading around $325, so we will see most of that come back in the third quarter. And finally, we had a delayed shipment of about 30,000 tons of copper concentrate from Batu Hijau that was scheduled for quarter end, and it got rolled into the third quarter, which impacted earnings by about $0.03. So you can see the impact of that on the second quarter, and most of that will come back in the third quarter. So when you step back and look at it, I think the key job for us to deliver significant gold price leverage to the bottom line and that's what you saw in the quarter. We had a 79% increase in earnings per share on a 31% increase in average realized gold price. I will now turn it over to Brian Hill, our Executive Vice President of Operations to discuss our regional operating results for the quarter.

Thanks, Russell. As you can see on Slide 10, North America produced 463,000 ounces of gold, up 4% from the year-ago quarter. The increase was due to higher production at La Herradura due to commencement of production in the new Soledad and Dipolos pits, as well as underground increases at Midas and Leeville. This was offset by lower leached ore production and reduced production as a result of the Gold Quarry Slide. Costs applicable to sales were $585 per ounce, up 9% due to a higher proportion of underground mining and additional surface costs due to the Gold Quarry Slide. We continue to expect North America to produce between 1.7 million and 1.9 million ounces of gold for the year within our original CAS outlook range of $575 to $615 per ounce. In South America, we produced 181,000 equity ounces, a decrease of 32% from the prior year. This decrease is due to lower mill ore grade and recovery, combined with lower leach tons placed due to the stockpiling of transitional ore. Costs applicable to sales were $389 per ounce, up 20% from 2009 due to lower production, higher waste mining and higher maintenance costs, production taxes and royalties as a result of the higher gold price. We anticipate Yanacocha to have a strong second half. South America is on track to produce between 750,000 and 810,000 equity ounces of gold for the year. However, we believe CAS may come in at the high end of the original outlook range of $360 to $400 an ounce due to lower than expected leach tons placed and silver byproduct credits. In Africa, we produced 132,000 ounces, a slight decline from 2009 due to lower grade and recovery as we have moved out of the Subika pit and into the Apensu and Awonsu pits, offset partially by higher throughput. Costs applicable to sales decreased 3% to $416 per ounce due to lower milling costs, partially offset by higher fuel costs. We are pleased to report we have increased our outlook for full-year production at Ahafo to between 500,000 and 530,000 ounces, and our costs applicable to sales outlook has been lowered to between $475 and $515 per ounce as we are seeing higher grades than projected. In APAC, we produced 522,000 equity ounces of gold, a 64% increase over 2009, primarily due to production at Boddington, which was not in production during the second quarter of 2009. Additionally, we benefited from higher production at Batu Hijau. Costs applicable to sales in Asia-Pacific were up 17%, primarily due to higher cost production from Boddington during the ramp up, a stronger Australian dollar and lower production at the Tanami due to mill availability issues. Moving to Slide 11, as Richard mentioned, we continue to ramp up production at Boddington, having declared commercial production in November 2009. For the second quarter, gold production increased 16% from the first quarter of 2010 to 184,000 ounces, and copper production increased 13% to 15 million pounds. The processing plant continues to perform in line with our expectations and should achieve nameplate capacity in the fourth quarter. In the first three weeks of July, we saw the plant operating at approximately 97% of capacity. However, costs applicable to sales have been higher than anticipated due to a stronger Australian dollar and higher than expected mining costs during the ramp up. On Slide 12, now that we are several months into the ramp up, we wanted to give you an update on some of the positives and challenges since we started delivering ore to the plant last year. On the positive side, recoveries for both gold and copper have exceeded feasibility study estimates to date. We have also mined 23% more contained copper than modeled, with higher-quality concentrate helped by better than anticipated performance by the high-pressure grinding rolls and the wet plant. However, we have encountered approximately 12% lower than modeled contained gold thus far, offset somewhat by 23% more contained copper. In addition to in the dry plant, we are seeing higher wear in the primary and secondary pressure circuits than we expected. We have also seen mining costs higher than expected due to increased costs related to drilling and blasting and stockpile re-handling. As a result, equity gold production for 2010 is now expected between 750,000 and 825,000 ounces at costs applicable to sales on a co-product basis of $475 to $550 per ounce. For the reasons just discussed, we believe we will achieve the 2010 copper production outlook of between 65 million and 75 million pounds. We now believe copper costs applicable to sales could be between $1.55 and $1.75 per pound. Looking ahead to 2011, as the mine begins its first year of steady-state production, we expect equity gold production at Boddington to be between 850,000 and 925,000 ounces at costs applicable to sales of between $475 and $525 per ounce, which we believe to be conservative given the expected increase in production. Beyond 2011, our outlook for Boddington's operating performance is subject to further data collection and analysis as we gain more experience with the mine. I want to highlight the fact that we have only mined 2% of the reserves of this 20-plus year mine life asset, and feel that it is too soon to draw conclusions on the long-term impact of the model reconciliation experience during ramp up. Turning to Slide 11, I'd like to give a brief discussion on Batu Hijau. The second quarter was anticipated to be a strong quarter as we began to access higher grade ore from the bottom of Phase 5 in the traditional dry season. As you can see from this photo taken on April 25, we experienced unseasonably heavy rainfall during the quarter, limiting our access to the bottom of the pit and requiring us to produce from lower grade stockpiles. We believe that we should be able to make up this delayed production in the second half of the year, assuming a normal dry season pattern and are maintaining our original production outlook. As an update to our ownership position, no shares were divested during the quarter, and our effective economic interest remains at 48.1/2%. We offered the final 7% ownership stake for sale in March, and negotiations of the purchase price are still underway with the Central Government. So what does this all mean for our full-year outlook? As you can see on Slide 14, our portfolio continues to perform as we continue to expect full-year gold production in the range of our original outlook of 5.3 million to 5.5 million ounces. However, we are tightening our outlook for CAS to the narrow range of $460 to $480 per ounce based on the factors we've already spoken about. And now, I'd like to turn the call back over to Richard.

Thanks, Brian. Turning to Slide 15, I want to reiterate that safety, environmental stewardship, sustainability and leadership in corporate social responsibility remain the hallmarks of our business, and we believe these attributes offer us a competitive advantage. For the third consecutive year, we've been selected to the Dow Jones Sustainability World Index. We're also ranked 16th overall on the 100 Best Corporate Citizens list co-filed by Corporate Responsibility Magazine., and Newmont is the sole mining company featured in the top 20. In addition, in May, we were announced as the winner of 2010 Global Business Coalition Award for our Workplace Malaria and HIV/AIDS program in Ghana. And just in the past few weeks, Newmont was awarded the 2010 Secretary of Defense Employer Support Freedom Award. This is the highest honor presented by the U.S. Government to employers who provide outstanding support to employees serving in the Guard and Reserve. We're very proud to support our employees who dedicate their time and effort to the Reserves and to our country, and we appreciate the government's recognition of our employee support. Turning to the last slide, in summary, we continue to generate significant free cash flow in the strong metal price environment. We're pleased to be in a position to increase cash returns to our shareholders in the form of a dividend increase, as well as to continue to drive sustainable longer-term returns, through developing our most prospective projects, continuing to fund exploration opportunities and considering strategic value-oriented M&A transactions. We do anticipate a strong second half of the year as we continue to focus on execution, and we are confident that we can once again deliver on our annual guidance for production, costs applicable to sales and capital expenditures, generating operating cash flow that is leveraged to gold price and allows us to reinvest in our business and return cash to shareholders. And with that, I'd like to thank you all for listening and open the call for questions.

[Operator Instructions] Our first question comes from John Bridges. John Bridges - JP Morgan Chase & Co: Congratulations on raising the dividend. That's a great sign of confidence and I just wonder if we're headed into the old-fashioned bumper Q4 result that we got used to from Newmont?

No, I don't think it's going to be the bumper fourth quarter results. I think with the ramp up of Boddington, with higher leach pad placement at Yanacocha and with Batu really coming into the dry season, I think all of those things over the next two quarters will really put us in the position where we're going to deliver on the year. We will see some ramp up towards the year end. We have had the traditional second quarter shutdown of one of our mills in Nevada, but I don't think it's that traditional fourth quarter big push. This is all well within our plan. John Bridges - JP Morgan Chase & Co: Okay. I'm glad to hear it. Just wondered with the grade issues at Boddington, after having gone through this situation with Phoenix, I just wondered if you can still compare and contrast that situation with this?

I'll start and then I'll turn it over to Guy. First I would say this is a project Boddington, which has been really well within Newmont and previous to that, Normandy's control, and I think based on a lot of data that we have analyzed over time and had many others analyze, I got to tell you, I'm very confident with the work we did in modeling and the reserve work we've done, as well as the design of the process plant. And first and foremost, we had processing issues at Phoenix from day one. We have not seen that at all from Boddington. In terms of recoveries, we're seeing very good recoveries out of the mill at Boddington. We didn't see that when we started up Phoenix. With respect to the reserves and model, I'll turn it over to Guy.

John, just to talk about Phoenix, I believe Boddington is not at all like Phoenix, and there's many important differential. First of all, Phoenix experienced a number of issues related to the oxide zone. There was a much bigger oxide zone in the Phoenix deposit that caused problems in the mill. The mill wasn't designed to handle that. At Boddington, all of our material is primarily sulfide so we're not going to see that issue. Phoenix had a significant amount of historical data in non-core drilling that has proved be biased, and that led an overestimation of gold. At Boddington, most of the drilling is being completed under the control of Newmont and its partners. And finally, Phoenix has coarse gold that led to estimation issues and difficulties in ore control misclassification. The deposit type at Phoenix is SCRUM and those are notoriously difficult to model and predict. Boddington is not a SCRUM deposit, and while coarse gold does exist, the gold particle size is much finer and it doesn't make up as large a percentage of the contained metal as it did at Phoenix. Also building on what Richard said, there's been a tremendous amount of work done on the model itself. There's a number of work done by many, many different sources. We've got a strong underlying drill hole database that we've had numerous external audits and continuous QA/QC programs. The data is dominated by core drilling, which had excellent recovery and check assays during the course of the feasibility study suggested that the database was actually conservative. Now just building on the reviews that have been done, we had 10 external reviews during the feasibility study and eight external reviews since that time. Numerous internal reviews by Newmont and, of course, we had our partners Newcrest and Anglo involved at the same time. So in addition to that, we mine test pits early on, which demonstrated the grade should have been above expectation. Additionally, it's a very large deposit, it's very well drilled and it should be robust, and I have to reemphasize that it's still very early days with only 2% of the ore body mined to date. But we've got a much better database and much more confidence in the underlying data for this deposit.

Our next question comes from Barry Cooper.

First on Batu Hijau, basically when you adjust for your ownership, Q2 was actually better than Q1. So I'm wondering you've made some cautionary statements there that it wasn't a very good quarter relative to what you were expecting. So what should we expect then for Q3? And is the water still in the pit or are we all dried out at this point in time?

Barry, it's Brian. What we had to do in Q2 with the unseasonable rain, we had is without having access to the bottom of the pit, we ended up having to pull most of the ore off of lower grade stockpiles. So that led to lower than what we had expected production to be for Q2. The pit is dry. We are now operating in the bottom of the pit. The other thing that we've also started is we've also started all of the dry season work, including the work we can do now that we have the pinjim cokeye [ph] [12:13] to be in position for stripping in Phase 6 and all the other drainage work and re-diversion work around the pit that we need to do so we can get stripping going in Phase 6.

So Barry, I'd just summarize by saying I think Brian and the team felt at the end of the first quarter that we'd probably be ahead of our estimates for the year just based on first quarter performance, and now it looks like we're probably more likely to be right on our estimates for the year.

So what kind of grades are you encountering there say for the month of July?