Newmont Corporation (NEM) Q1 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to Newmont Mining First Quarter and Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us on our first quarter 2011 earnings call. With me today are the members of our executive leadership team. They will be available for questions at the end of the presentation. Before we get started, I'd like to refer you to our cautionary statement on Slide 2, as we will be discussing forward-looking information, which is subject to a number of risks, as further described in our SEC filings, which can be filed -- sorry, which can be found on our website at newmont.com. And now I'll turn the call over to Richard O'Brien, our President and Chief Executive Officer.

Thanks, John. For those of you on the webcast, we'll begin on Slide 3. First of all, I want to thank all of you who attended our Investor Day two weeks ago, either in person or via the webcast. We've got a lot of positive and constructive feedback from the investment community on our approach to deliver growth with good returns. Specifically at Investor Day, we announced plans to grow from our current outlook of 5.1 to 5.3 million ounces of gold production for 2011 to approximately 7 million ounces of annual production by 2017. And that is a 35% growth net of decline, while simultaneously returning capital to shareholders to enhance their exposure to gold price. We've also heard that you want more color on our gold price link dividend and on the timing of our production from our projects and our growth plan. We plan on covering both of those in our call today. In addition to that, we'll provide highlights for our first quarter results. And our first quarter results were very solid with the benefit of robust gold and copper price environment, combined with strong operating results. We continue to have a rock-solid balance sheet and the potential to generate significant additional cash flow. This, combined with the commitment and enthusiasm of our workforce across the globe, gives me confidence that we will deliver on our growth plan. And now to recap our first quarter performance, I'll turn the call over to our Chief Financial Officer, Russell Ball.

Thanks, Richard. Good morning, all. Turning to Slide 4. As you can see, we had another strong quarter due to a combination of our continued focus on safe execution and delivery and strong metal prices, gold in particular. A few highlights from the quarter. We realized an average gold price of $1,382 an ounce, and while the record is approximately $115 below current spot prices. We generated record operating cash flow of almost $1 billion, a 36% increase over last year on a 25% increase in gold price. It is clear to me that the company-wide focus on operational execution and delivery is being driven to the bottom line in an environment of expanding margins, as reflected in the operating cash flow for the quarter. Attributable gold production was 1.3 million ounces, slightly the same as [ph] last year and slightly ahead of our budget for the first quarter. Attributable copper production decreased to 57 million pounds driven by lower production at Batu Hijau in Indonesia, as we strip for Phase 6 and process lower-grade stockpiles. We should access Phase 6 ore in late 2013. Copper production was, however, ahead of budget for the quarter. As far as the bottom line, there was essentially no difference between reported net income and our adjusted net income figures shown on the slide of $513 million or $1.04 a share, a really clean quarter from an income statement perspective. Continuing on Slide 5, revenue for the quarter was up 10% to $2.5 billion. On the cost side, cost applicable to sales were up 17% and 42%, respectively, with higher copper operating cost driven by lower production at Batu Hijau, as previously mentioned. On gold operating costs. Starting this quarter, we have added 2 non-GAAP metrics that we think will provide investors with a different perspective on our cost structure and one likely more comparable to our peers. The first is attributable to CAS, which represents the operating cost per ounce for Newmont's attributable gold ounces produced. So we eliminate the ounces in cost that are included in our consolidated financial statements that are ultimately for the account of the noncontrolling shareholders largely, again, at Yanacocha and Batu Hijau. Attributable CAS for the quarter was $562 an ounce or roughly $5 an ounce higher than the consolidated CAS number that historically we have reported. The second is net attributable CAS, where we take the attributable CAS number that I just covered and then treat our copper co-product revenue as a credit to operating costs. Net attributable CAS for the quarter was $438 an ounce. As I said, both of these are non-GAAP measures, but I believe they are important for investors to understand, particularly when comparing costs across the sector. The reconciliation of these non-GAAP measures is provided in the appendix on Slides 24 and 25. One last point on costs. I would like to remind you that we will continue to report U.S. GAAP operating costs, which result in us being required to expense significant more cost than we would under FRS accounting. Our estimate for 2011 is in the order of about $40 an ounce. Moving to Slide 6. We've included the GFMS 2010 industry cost drivers to provide some additional perspective on industrywide costs. From 2009 to 2010, average cash costs increased 17%, driven by the factors highlighted on the chart. I would submit that the cost drivers for 2011 are not going to be too much different from what you see here, and I think we will be looking at industrywide operating costs of around $650 an ounce for 2011. Interestingly, our first quarter CAS of $557 an ounce is equal to the industry average for last year. I have no doubt that our relative position on the cost curve will improve in 2011. Moving to Slide 7. Our gold operating margin continues to expand at a greater rate than the gold price. I like what we saw in the early years of this bull market when operating and capital cost increases outran the globe price. If you take the midpoint of our cost guidance for 2011 and the current spot price of gold, you will see continued margin expansion likely for the balance of the year. Turning to Slide 8. As mentioned previously, strong operating cash flow for the quarter, combined with a strong balance sheet at the beginning of the year, resulted in a liquidity picture reflected on the right-hand side of the slide. On a consolidated basis, we reported $4.5 billion in cash and cash equivalents, $1.8 billion in marketable securities and ongoing capacity of approximately $1.8 billion under our corporate revolver. Subsequent to quarter end, we completed the acquisition of Fronteer Gold and utilized approximately $2.25 billion in cash, which left us with still an excess of $2 billion on the balance sheet. I will talk about returning additional cash to shareholders shortly, but first, a few thoughts on gold with spot prices nearing an all-time high, at least on a nominal basis. I've included on Slide 9 Martin Murenbeeld's most recent summary slides on the gold market. For those who don't subscribe to Martin's work, I really believe you're missing out on the most complete and accurate coverage of the gold market. For some history, Martin hasn't always been bullish on gold, and in fact, he was very bearish in late '90s as produced as hedged, central banks sold and the U.S. dollar range to premium. Martin turned bullish in 2001. And for those who haven't been following his work, he's been uncannily accurate in his forecast since then. You can see Martin's bullish and bearish arguments for gold on the slide. And I won't go into them in any detail, as we clearly don't have time on this call. In short, Martin remains bullish and has the probability weighted forecast of $1,546 for the end of 2011 and an average price of $1,573 for 2012. Although as you can see on the bottom of the slide, he does make a point that he makes no allowances for geopolitics in his forecast. On the Slide 10, you will see GFMS's forecast for 2011, albeit with a slightly less bullish average of $1,455, but interestingly, a very wide range of up to $1,620 an ounce. Finally, I've included a quote from Dennis Gartman's research note from Tuesday this week. I think it very succinctly sums up the current gold market, where Dennis notes that gold trade is no longer a commodity but as a currency. We concur, we are bullish, and as outlined in our Investor Day in New York on April 7, we are going to invest accordingly. At that same Analyst Day, we announced our gold price link dividend, which is summarized on Slide 11. In short, we believe that we have an obligation to share this significant cash flow we are generating with the owners of the company, and that is what we intend to do starting with the gold price link dividend. Subject, of course, to regular quarterly board approval, starting with the second quarter dividend, shareholders will receive an annual dividend that increases by $0.20 for every $100 increase in our net realized gold price for the trailing quarter. To take the second quarter dividend as an example, we realized $1,382 an ounce, which corresponds to an $0.80 annual dividend on the chart that you see on this slide. So we will be paying a $0.20 quarterly dividend on June 29. This represents a 33% increase over the first quarter dividend and 100% increase over the year-ago dividend. Looking ahead, it's very likely that our net realized price for Q2 will be towards the high end of the $1,400 to $1,499 bucket, which should equate to an annual dollar rate -- annual dividend of $0.25 for the third quarter dividend payment. This would represent 1/3 of 25% increase. As we have said before, having the financial strength and flexibility we have allows us to both aggressively grow the business and return capital to shareholders. With a bullish view on our own internal opportunities and the gold price, we will continue to look at further alternatives to return additional cash to shareholders. With that, I will turn it over to Brian, who will cover the operational performance for the quarter.

Thanks, Russell. We summarized our regional operating performance on the Slide 12, and year-over-year growth production was essentially unchanged at 1.3 million ounces, with higher contributions from our Africa region. They were offset by lower production from South America, while North America and APAC production was essentially flat. Consolidated costs applicable to sales were 17% higher than last year due to lower production in South America, as well as higher waste mining, milling and diesel costs in North America. And as Russell mentioned a few minutes ago, this is generally in line with our industry as a whole. Commencing our regional discussion on Slide 13 with North America, you'll see a recent picture of the gold quarry area in Nevada where remediation from the slide that took place in December 2009 is nearing completion. Over 40 million tons of alluvium and bedrock have been removed, and all of the equipment that was trapped by the slide has been safely recovered. We are currently mining fresh ore feed for Mill 5, and approximately 50% of the ore going to Mill 5 is direct from gold quarry. Turning to first quarter results. Attributable gold production in North America was 482,000 ounces, up 2% over last year's first quarter. This increase was primarily due to higher leach placement at the Soledad-Dipolos pit at La Herradura in Mexico. Gold ounces produced in Nevada were virtually unchanged in the first quarter of 2011 from 2010, as higher mill production from underground sources was offset by a lower leach placement due to mine sequencing. North American costs applicable to sales per ounce increased 7% in the first quarter of 2011 from 2010 due to higher waste mining, milling and diesel costs, and lower leach production in Nevada. This was partially offset by higher copper and silver byproduct credits. Newmont continues to expect full year North American gold production of 1.98 to 2.1 million ounces at cost applicable to sales of $560 to $600 an ounce. Moving to Slide 14. Attributable gold production during the first quarter in South America region at Yanacocha in Peru was 160,000 ounces. This included 148,000 ounces from Yanacocha and 12,000 ounces from La Zanja. Gold production in South America decreased 26% in the first quarter of 2011 from 2010 due to lower leach placement, mill grade and transitional ore stockpiling at La Quinua. Costs applicable to sales per ounce were $583 per ounce, an increase of 57% in the first quarter of 2011 from 2010 due to lower production, higher labor costs that was partially offset by lower workers' participation costs and higher byproduct credits. Newmont continue to expect 2011 attributable gold production in South America between 715,000 and 775,000 ounces at costs applicable to sales of between $500 and $550 per ounce. Turning to our Asia-Pacific region on Slide 15. Attributable gold production was 514,000 ounces, down 1.5% from the prior-year quarter, while copper production was 57 million pounds, down 37% from Q1 2010. The biggest driver of the change in gold and copper production -- sorry, in Indonesia, where we are currently processing from stockpile while the Phase 6 stripping campaign is under way. At our Boddington mine in Australia, we had a solid quarter despite 8 days of downtime due to a conveyor belt failure. Had we not experienced that unplanned event, production at Boddington would've been ahead of budget for the quarter. As the picture at right depicts, Boddington recently posted its 1 million pounds of gold production. Our Asia-Pacific region reported gold costs applicable to sales of $527 per ounce, up 15% over last year's Q1 and copper costs applicable to sales of $1.11 per pound, up 42%. Costs were impacted by the lower Batu Hijau production, as well as attributable gold production -- sorry, increase over last -- Newmont continues to expect 2011 attributable gold production in the Asia-Pacific region of between 1.86 and 1.99 million ounces at costs applicable to sales of between $600 and $675 per ounce. We also expect 2011 attributable copper production of 190 to 220 million pounds at costs applicable to sales of $1.25 to $1.50 per pound. Regarding divestiture activity at Batu Hijau, Newmont's economic ownership currently remains at 48.5%. The Indonesian government has recently designated an agency of the Ministry of Finance as the entity that will buy the final 7% stake. On April 18, 2011, our subsidiary and the agency reached an agreement to finalize the terms for the purchase and sale, which is anticipated to occur by mid-2011. On to Slide 16. In Africa, Newmont's biggest growth region, our Ahafo mine delivered attributable gold production of 186,000 ounces in Q1, which was a 55% increase over last year's first quarter due to higher mill grade and recovery as a result of mine sequencing. The higher gold production at Africa also had a favorable impact on costs applicable to sales, which were $451 per ounce in Q1, a reduction of 17% that was partially offset by higher diesel and royalty costs. Newmont continues to expect 2011 attributable gold production at Ahafo of between 550,000 and 590,000 ounces at costs applicable to sales of $485 to $535 per ounce. I'll now turn the call back over to Richard.

Thanks, Brian. As mentioned at the beginning of the call, we'd like to provide some additional detail on the growth plan that we announced in our recent Investor Day. First, I'll recap our growth strategy on Slide 17. As shown, we plan to grow 35% to about 7 million ounces of attributable gold production by 2017 from a base of our current outlook of 5.1 of 5.3 million ounces of gold for 2011. In order to get to that 7 million ounce run rate in 2017, we need to bring about 3.2 million ounces of incremental production online over the next few years to offset the decline in the balance of our portfolio. Our growth will be faced in, with about 20% of our new growth reflected in production by 2013, 50% by 2015 and the balance expected to be in production by 2017. On Slide 18, we've added some additional color to the timing of that incremental production by breaking down our growth profile by project. I've noted that several analysts have already got this fairly close, and so we're providing some information that some of you may not need, but in the interest of clarity, we're going to give it to everybody in this format. The sequence begins with the Subika and Nevada expansions where development is advancing, and it goes all the way through the commencement of production at Long Canyon, which we expect, as shown on this slide, in 2017. If you'd like to reference this growth plan against our potential decline, we would direct you to the detailed regional waterfall that we provided in our Investor Day where we gave the regional decline for each of our operations. As we previously told you, 5.1 to 5.3 million ounces is our current base, and we expect the next couple of years to be essentially stable until we get back into higher-grade ore in Phase 6, as Russ mentioned, beginning in 2013, late and then moving into higher grade into 2014 and 2015. At that time, we'll also see the benefits of our new expansion projects, as shown on this slide. The numbers to the left of each represent the initial development capital of each of those projects. This view of our growth plan should allow investors to better understand that we have a fairly solid arc of production growth ahead of us. Moving on to Slide 19. We show our operating cost for these new projects, and you'll note that we plotted them against the GFMS 2010 cost curve. Our forecast are based on what we know today about our projects, and they are unescalated. We're referencing our cost to the GFMS industry cost curve as a reminder that our actual cost will vary from our projections but that we believe the relative position of our projects should remain consistent within their replacement on the industry cost curve as it moves over time. You'll see that our projects span the first of 4 quartiles, reflecting the diversity of our operations. You'll also notice that the companywide CAS we reported today for the first quarter fall squarely near the 2010 industry midpoint for costs, which is in line with our prior guidance. As Russell mentioned, we continue to focus on our execution to ensure that we protect our margins into the future. So to summarize on Slide 20. We believe that Newmont offers a unique combination of production growth, project returns, reserves and exploration upside, balance sheet strength, continued operational execution and the industry's first and only gold price link dividend. 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, JPMorgan. John Bridges - JP Morgan Chase & Co: Many thanks for the information, especially Slide 18. That makes life a whole lot easier. Wish I could run my model of that. Just wondered, the higher grades in Africa at Ahafo, can you give us a little bit more color that and how confident you are that you're only going to make your current guidance there?

John, it's Brian. Towards the end of last year, with some of the mine sequencing changes we made, we stockpiled some fairly higher-grade ore coming out of Apensu. So in the first quarter, we actually ran that higher-grade material through the plant. And with the higher grades, we also saw some higher recovery as well. So we kind of see that as more of a one-off, which we had happened in the Ahafo. So we're still -- even though we did have quite a good quarter, we're still expecting to produce in that original guidance range by year end. John Bridges - JP Morgan Chase & Co: Okay. How much flexibility do you have in the pit to go after higher grade areas, or just accelerate into Subika and sweeten up the feed that way?

We have some flexibility. We don't have a lot of flexibility actually in Subika because, as you know, the portal to go underground is on the one side of the wall where we're doing all the exploration work underground. So we do have some flexibility out of Apensu and out of Awonsu. But for the balance of this year, we don't expect to see any significant changes over the last three quarters that would cause us to sort of look at the significant different production profile. John Bridges - JP Morgan Chase & Co: Okay. And then Australia was a bit ahead of expectation as well. What's going on down there?

In Australia, good results coming out of the Tanami and KCGM, and Boddington essentially performing on par. So we have seen some of the other operations perform extremely well in Australia as well. So really coming out of those two, the switch to owner-operated underground mining at the Tanami is -- we're seeing some significant positive improvement in operation there. So really coming out of Tanami and KCGM. John Bridges - JP Morgan Chase & Co: Okay. Excellent. Many Thanks, congratulations, and I'll get out of the way and make room for somebody else. Thank you.

Thanks, John.

Next question, a question from George Topping with Stifel. George Topping - Stifel, Nicolaus & Co., Inc.: On the Australian mines, I see cash cost go from $560 an ounce in Q1, and I think the guidance is, a midpoint, about $735. Can you give an indication of how that's going to increase through the quarters?

George, sorry, I -- can you repeat the number you said for the guidance because I don't think that it's the number I was looking at. Sorry. George Topping - Stifel, Nicolaus & Co., Inc.: The guidance, $700 to $770 per ounce, other Australian/New Zealand.

George, some of that will be currency. Fairly, we have a decent early dollar hedge book but it's $1.05. You're starting to see the impact of the currency on that. We could get into some more detail, maybe we can take it offline and get back to you there with some inventory movements, and we'll get some more of that. In Batu, we'll have a tougher second half of the year. We'd work through some inventory in the first quarter at least. So a number of factors moving around, largely driven by production.

Just maybe comment on the numbers. It's Randy. We've got $600 to $675, is the cost guidance for the entire region. Now the CapEx guidance on the next column over there is $650 to $750. But you'll see, coming out of Australia, the highest cost figures that we quoted, $700 to $770 for other Australian/New Zealand, that's going to come from some higher cost operations, particularly at Tanami and Jundee. George Topping - Stifel, Nicolaus & Co., Inc.: Okay. Good. That's what I was looking for. Also, I noticed on Slide 18 that the Elang isn't mentioned. Could you give us an update on how the restart of the exploration program is going there?

Sure. This is Guy. We have just recently got the permit to start exploration at Elang. So the focus is now to reestablish camp facilities, start working with the community and then continue with drilling operations. But at the moment, that's what we're going to focus on, and that's sort of one of the project that sits in our pipeline further out in the production profile. George Topping - Stifel, Nicolaus & Co., Inc.: Right. Okay. You have to start the exploration now?

Yes. Correct. And we plan on starting this year with drilling. George Topping - Stifel, Nicolaus & Co., Inc.: Okay. Great. Thank you.

[Operator Instructions] Our next question comes from John Bridges with JPMorgan. John Bridges - JP Morgan Chase & Co: Just follow-on. Given the big building program you've got ahead of you, are you going to get to -- be more aggressive in putting hedges on, on the currencies and oil? Just wondered what you're going to do there.

John, we continue to look at that. We have a small oil book. Historically, the issue's been there around, getting the hedge accounting, so we don't have to take then off from market volatility. I'd say that we're probably going to cross the Rubicon in the not-too-distant future just taking economics on the hedges and letting the accounting move. And so we'll have to explain a little more noise on a quarterly basis. But as we look at the projects here, as we are looking at managing our costs around those projects, you will continue to see more cost-related hedging to not so much be able to pick bottoms but to reduce volatility, because we think of the end of the day, being able to reduce that volatility has values. So we will continue to look at opportunities both on the commodity, FX and interest rates side related to these projects. John Bridges - JP Morgan Chase & Co: Okay. Excellent. Now that makes sense. Thanks again.

Thanks.

And just for the avoidance of doubt, just underlying what Russ said, in the cost side, we do not hedge revenues. So just to be clear with anybody who didn’t understand that.

Our next question comes from the John Tumazos, John Tumazos Independent Research.

While you have a splendid array of projects, there's an anomaly where some gold stocks haven't gone up even as the price of gold seems to make new records almost every week. Long Canyon is a very good example of a transaction close to your infrastructure. Miramar, three years ago, is maybe a good example of a transaction out of your infrastructure. But could we expect further strengthening of the project queue, that's already strong, given that it's easier to find gold on Wall Street sometimes, make [indiscernible] oil industry than to spend time on exploration, et cetera.

John, it's Richard. What I would say is 2 things that first, as you point out, our own exploration program is increased this year. We do know that historically, and as we project in the future, we can discover at the most optimal cost per ounce on new projects through our own exploration activities. So that's the first thing that we're focused on. From time to time, though, as you point out, whether it's Miramar or Long Canyon, we will take advantage of opportunities where we see upside, and perhaps the market doesn't fully appreciate that. But I would say that not a steady diet for us, it's something that will take on from time to time. In addition, I would just remind people that we tended to look at these acquisitions in a cash format, not one where we utilized shares. So that by itself helps define how big or how much we'll do. And lastly, I would just say, with the one-off in junior stocks, I don't think that it's always cheaper to buy things on Wall Street that it is through our own exploration efforts. So it's a combination approach for us. That's what we've shown historically. That's what -- we'll stick to it.

Thank you.

Next question from David Christie with Scotia Capital.

Just quickly on the Batu Hijau, could you give me an idea, you said you had troubles in the second half of the year there, or it's going to be lower I guess. What's a great profile for the stockpiles for the year? Do you have an idea what that is?

David, it's Russ. Just briefly we had inventory at year end that we're working through both in the bond but also ahead of the crushers. So we're seeing that through. We disclose that average grade on the stockpiles, and that was in the table, and they are actually in the appendix to this release. It will move around a little on a quarterly basis depending on where we were accessing in those stockpiles, but you should look to that. And the current year's production profile is a reasonable indication of an annual basis, again, with some quarterly volatility, and that's gets accentuated a little bit by productivity in the wet season. For us, we're going into the dry season, so we have 2 months of nice, dry roads, and in the fourth quarter, a little more challenging. So as we look at our current production profile, we're roughly in there. We also do have a schedule down on the segmental replacement, which will allow a throughput for the balance of the year. So that is an extended down as a fairly significant rebuilt, and we will see that obviously impact the availability in production.

When they're down coming?

In May.

In May. Okay. In the last, what, 30 day or...

It's about a 45-day down, David.

Okay. And just Yanacocha, the tons declined, is that where the -- the tonnage throughput in this quarter that we should expect for the rest of the year?

Yes. That's sort of in line. This was last year, and then this year is a lower leach tonnage placement year. So that's sort of a fairly good projection for where we expect to be. We're still expecting to be within original guidance at Yanacocha by year end.

Great. And recoveries should be similar but tons would be the same as it was in this quarter. Okay. And I think that was it. Thank you very much.

Next question from Michael Dudas with Jefferies & Company. Michael Dudas - Jefferies & Company, Inc.: Russell, great presentation, especially on the cost movement in the industry. As you look out for Newmont the next couple of years, as you're transitioning towards the growth, of the 10 items that impact industry average cost, what are the 2 or 3 that we can look for to focus on for Newmont as that will impact your company on a general basis?

Thanks, Mike. Sure, yes. It's a very interesting perspective, and I would like to remind people, we currently look at the top line, we're going to look at the top end of cost line. And I think what we'll see if that thesis is correct, the weaker U.S. dollar will drive gold production cost curves up, because obviously the majority of gold production is outside the U.S. So I think FX is the one that's going to be industrywide. Again, if the thesis is correct on a weaker U.S. dollar, and you've seen that certainly on a trade-weighted basis over the last couple of modes. The other issues, obviously, fuel for us. Energy costs are about 25% of our cost structure. Again, we have budgeted at $90 oil, and we're sitting today at around $110. And if you think about labor costs, that's about 45% of our cost structure. And labor costs are largely for us non-dollar denominated. So I'd say those in conjunction with our lower grades. These deposits, the average grade has decreased, and you've seen that in the gold industry and in the copper industry, where grades have come up significantly. So I think you've got grade and you've got things working against you. And it is going to be a challenge for us, as Richard said earlier, maintaining our relative position on that cost curve and at the end of the day looking, as John suggested, to try and manage some of the volatility around those cost structures, but clearly some challenges. I think what you will see on the cost is $35 to $45 to $50, who knows where silver prices are going to be. A lot of the producers with significant silver byproduct will be shielded because, clearly, silver has had incredible run over the last 6 to 9 months that will offset some of those cost pressures. But those are ones that I lose sleep over, Mike. Michael Dudas - Jefferies & Company, Inc.: Fair enough. Just wished you had some rare earth to kind of offset some of that. Anyway, thanks a lot.

Next question from Pawel Rajszel with Veritas Investment Research.

It's Pawel Rajszel here. And just working off of the production outlook midpoint, roughly 5.2 million ounces, adding the 3.2 million that you have slated for growth and declining by the 1.6 million, getting to those 6.8 million, and I noticed in the Investor Day, you had the 200,000 of production that was kind of classified under other. I'm wondering if you could just give some clarity on where that 200,000 would come from to get you to the 7 million?

Hi, it's Randy. I'll take that question. If you note in the same presentation, there was a slide that preceded that waterfall chart, and there were a few areas that we noted upside. In North America, the upside, we think there is good upside potential coming out of Hope Bay. In South America, we think there's good upside potentially in our portfolio in Suriname. In APAC, in our Asia-Pacific region, we have good upside coming out of KCGM. And then upside out of Africa, potentially coming out of Akyem. Those are the main areas where we see some of that adding up to 200 or perhaps slightly more.

Okay. Great. And earlier you had mentioned that you're looking for other opportunities to return capital to shareholders. Just wondering what your views are on share buybacks, especially if we get gold prices that are sustaining around the $1,500 mark that we have now?

It's Richard. I'd just say at $1,500 there's a world of opportunity for us, and share buyback is certainly a tool that we could use. I think the gold price link dividend is one that provides some certainty and flexibility in that upward pricing environment, and there's an opportunity to share more with investors over time through that should we choose to do so. And then, additionally, I think with additional cash flow comes the ability to accelerate some of the production that we might have and some of our other projects that aren't even listed here. So I think that additional cash flow is really an opportunity for us to continue to underlie that growth with more certainty over time, provide more flexibly over time and provide the opportunity for our shareholders to benefit through not just upward sloping production but also upward sloping cash return. So a share buyback is certainly one of the tools we could use, but one of many.

I agree. And the just leading into that, I guess Hope Bay isn't in your timeline through 2017. What do you think it would take for that project to start to come in to the profile?

Well, as you know, in our Hope Bay project at the moment, we're driving a decline. We're actually advancing that project, we think, in a very responsible way to ensure that we know how big the deposit can be before we commit significant infrastructure. But we're spending significant dollars on exploration. We believe in the district. We think there's significant upside there. I think our conservative stance here would say, we're now ready to advance this into our production timeline that we have on Slide 18. And as Randy pointed out, it's one of many opportunities to bring into production. We'll keep the street updated on that at the moment. As I said, we are driving decline, and I think things continue to look good for us and we'll continue to keep you updated.

Great. Thanks for that.

Our next question comes from David Christie with Scotia Capital.

One more question for you guys. On silver, you mentioned byproduct credits from silver, but I don't think you guys disclosed your silver grades anywhere. I was wondering if you could give me what your silver grades were at your probably -- your 2 most highest concentration of silver, be Yanacocha and La Herradura; is that right?

David, it's Russ. We'll have to get back to you. We don't track our silver grades, and we don't report them on our reserves. But to your question, we did produce a fair amount of silver out of Midas. If you look at -- in the North America, Midas is the big producer and then Yanacocha, although the recovery is low, we did produce significant silver out of there, but I'll let John Seaberg to get back with you. Nearly at $5 no one paid too much attention to the silver production, but around $40 to $50, it is nice and we'll take it as we get.

Yes, as long as the byproduct credits were increasing nicely. So thank you.

Next question, Adam Golaski with Goldman Sachs.

You mentioned earlier that you are looking at acquisitions in a cash format, not in a format where you'll utilize shares. And you mentioned that, that approach limits your acquisition bite size. But you’ve still got greater than $5 billion of cash and marketables and liquidity on your balance sheet. So I'm wondering, is that the kind of bite size that we should be thinking about if we are thinking about how you might look at M&A opportunities?

Just to be clear, what I said is one where -- I may not have said it clearly as I should have. When we look at acquisitions that don't bring current production, we would generally tend to use cash. And I think you could think of bite size as being kind of what we've done traditionally. Miramar was about $1.5 billion, Fronteer was about $2.3 billion. I think those are the sizes that are probably big enough for us, unless we see something clearly unusual, but again, just to emphasize, what we have on Slide 18 is really a way for us to underpin our growth without having to do additional acquisitions. And I think it's just additional upside for us. So we don't have to buy anything. If we do, we expect we'll buy it for value.

Great. Thank you. The question just has to do with the gold price link dividend. Can you talk about -- and I apologize for not knowing this, because I'm sure you probably mentioned it already somewhere else. But if and when the gold price should ever fall, and let's hope it's a long time away, but how does the gold price dividend behave? Is there any ways stickier on the way down than on the way up?

Adam, if you look at the slide on Slide 11 there, where we've showed a downward $1,100 gold price, we would be at a $0.40 annual dividend. Obviously, the dividend and the level of that dividend is a function of the board's approval, and we discuss that quarterly with them. But as you said, we have a very strong balance sheet, still generating significant cash flow, and even at that $1,100 gold price, as we stress test for the downside, we still have that availability to maintain that dividend. So anything for at least $1,100 are just -- we would obviously take that to the board in light of ongoing other operating costs and financial capability that we have on the balance sheet.

And I'll just underlie that this is a company which just take a dividend for a long period of time indicating both the financial strength and desire to ensure that shareholders have a reason to stay on this stock for yield really. So we'll continue to look at that, as Russ said, every quarter, and that really is the way that our board will approach this policy.

Thank you very much.

Next question comes from Elizabeth Collins with Morningstar.

Can you give us a reminder of what Batu might look like once the ores reach in Phase 6? We have an idea of Phase 7 cost in production, but maybe you can give us a little bit more color on Phase 6 once the ores reach in late 2013?

Yes. Hi, it's Russ. Phase 6 will look very similar to Phase 5. We were right in the bottom of phase 5, so I would use 2010 as a reasonable proxy. What we see is the bottom of these phases of ore is a disproportionately higher gold production versus copper. So both the copper and gold grade increase, but the gold grade increases proportionately more so. I'd looked to Phase 5 as a reasonable approximation for what we'll see in Phase 6 in 2014 and '15.

Thank you.

Thank you very much for your attention today, and we hope you all have a great weekend and a good Easter.

Thank you. That does conclude the conference. You may disconnect your phone lines at this time.