Newmont Corporation (NEM) Q2 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to the Newmont Mining Second Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If anyone has any objections, please disconnect at this time. I would like to turn today's conference 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. Welcome to Newmont's second quarter 2011 earnings call. Joining us today are Richard O'Brien, President and Chief Executive Officer; Russell Ball, Executive Vice President and Chief Financial Officer; Brian Hill; Executive Vice President, Operations; Guy Lansdown, Executive Vice President, Discovery and Development ; Randy Engel, Executive Vice President, Strategic Development; and other members of our management 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, which is subject to a number of risks, as further described in our SEC filings, which can be found on our website at newmont.com. And now I'll turn the call over to Richard.

Thanks, John. For those of you on the webcast, we'll begin on Slide 3. In the second quarter, we continue to focus on delivering growth, generating profits and returning capital to shareholders. On April 6, we closed the Fronteer Gold acquisition and began our drilling program at Long Canyon, Nevada. We've now completed over 20,000 meters of drilling at Long Canyon, some encouraging initial intercepts identified earlier this month. At the same time, our discovery and development team remains focused on advancing several key projects in our growth plan as evidenced by Wednesday's announcement of full funds approval for our Conga and Tanami projects. As you may remember, we also announced full funds approval for our Akyem project in March. Collectively, those projects, Conga, Tanami, Akyem and Long Canyon will deliver over 1 million ounces of annual gold production when completed. Meanwhile, our existing top rating teams continue to focus on execution and cost control, providing our shareholders with continuing margin expansion in a rising gold price environment. Our second quarter highlights included an average realized gold sales price of 1501, allowing us to boost our dividend to $0.30 per share for the third quarter. This is a 100% increase over our third quarter 2010 dividend. On an annualized basis, Newmont's dividend yield is now an industry leading over 2%. This is higher also than the current S&P 500 average yield. We're also maintaining our outlook for production and cost attributable to sales and capital expenditures. And although capital spending through the first half of 2011 has been lower than expected across the portfolio, we do expect to accelerate capital spending in the second half of the year. Now I'll turn the call over to Russell, our Chief Financial Officer, to discuss our second quarter results.

Thanks, Richard. Turning to Slide 4, you will see our second quarter operating results, which benefit from continued strong metal prices, solid production that was slightly ahead of budget and good cost containment across the portfolio. As Richard mentioned, we're maintaining our full year 2011 outlook, and we're on track to meet our goal of 5.1 million to 5.3 million attributable ounces and attributable copper production of between 190 million and 220 million pounds. We're also maintaining our outlook for costs. Despite upward pressure from assumption changes we made in respect of the gold price, the Aussie dollar exchange rate and the oil price, which are key drivers of our costs. So we had a very good first half, maintaining cost pressures, and we think we're on line to deliver for the balance of the year. Focusing on Q2 operating costs, we did see pressure from a weaker U.S. dollar and higher labor commodity and royalty costs, partially offset by higher by-product credits. As expected, our second quarter costs applicable to sales of gold are towards the higher end of our annual outlook due to a combination of scheduled roaster maintenance in Nevada, which required a shutdown of approximately 30 days, and processing of lower grades in Nevada as a function of mine sequencing and the final remediation of the Gold Quarry slide that occurred in December 2009. Copper cost applicable to sales for the second quarter were higher than last year as expected due to higher waste stripping related to Phase 6 at Batu Hijau and an extended mill maintenance shutdown at Batu. In order to provide better comparability with our peers, last quarter, we also began reporting costs applicable to sales on an attributable and net attributable basis. Second quarter costs applicable to sales on a net attributable basis were just under $500 an ounce. Slide 5 highlights some of the key financial metrics for the quarter. Revenue of $2.4 billion was 11% higher than the year-ago quarter, driven by higher realized gold and copper prices. In respect of earnings, we had another strong quarter, generating net income attributable to shareholders and continuing operations of $523 million or $1.06 a share, up from $382 million or $0.78 a share for the year-ago quarter. During the quarter, we closed on the Fronteer acquisition and expensed transaction costs of approximately $20 million. In addition, during the quarter, we incurred a copper provisional pricing mark-to-market loss of approximately $16 million. At the end of the second quarter, we had 84 million pounds of copper provisioning priced at $4.22 a pound. It is interesting to note that if you look at quarterly adjusted net income over the past 3 years, you will see that we have a distinct seasonality effect to our numbers, with the second quarter approximately 15% weaker than the other 3 quarters due to a combination of factors, some of which are covered above. And while we don't run the business on a quarterly basis, we will try to do a better job providing quarterly direction in respect to production since in the absence thereof, the quarterly expectations become the annual guidance divided by 4, which is not how the regions perform. Operating cash flow for the quarter was $414 million after an Indonesian tax payment of approximately $300 million for the 2010 year. Operating cash flow was also impacted by a timing issue related to concentrate shipments that occurred right before quarter-end, for which provisional payments are only received in early Q3. For the first half of the year, we generated cash from operations of $1.4 billion, and if current metal prices continue, I expect we will deliver very strong operating cash flow and earnings in the second half of the year. Finally, bottom line earnings were negatively impacted by an after-tax loss from discontinued operations of $136 million related to the finalization of litigation related to our royalty on the Holt mine, currently operated by St. Andrew Goldfields. The St. Andrew royalty and our obligation to pay the sliding scale royalty is a legacy of the former Newmont capital business that we divested at the end of 2007. We previously announced details of the expected charge for this quarter in an 8-K filing on July 15. On Slide 6, you will see the significant gold margin expansion experienced over the past 10 quarters, with a 90% increase in margin on a 66% increase in gold price. It is this margin expansion on current attributable production in excess of 5 million ounces that enables us to fund a truly unique combination of aggressive internal growth, increased investment for the long term through exploration and the ability to return additional capital to shareholders. Slide 7 provides evidence of our commitment to returning additional capital to shareholders, and you'll see a 200% increase in dividends over the past 6 quarters. On Wednesday this week, in line with our stated gold price-linked dividend policy, the board approved a $0.30 per share dividend payable for the third quarter, payable on September 29 to shareholders of record on September 28. As Richard mentioned, the yield of the current stock price is an excess of 2%. With that, I'll turn the call over to Brian Hill to discuss our regional operating performance in a little more detail.

Thanks, Russell. An overview of Q2 results by region can be found on Slide 8, with a view of performance versus the prior year quarter. Russell detailed the key production variances from the quarter in his remarks, and full variance explanations on our year-over-year performance can be found in this morning's release or in our 10-Q. For the current discussion, I'd like to focus my remarks on relevant updates from each of our 4 operating regions. Turning to Slide 9, our North American Q2 results were down slightly from last year's second quarter due to mine sequencing at Leeville and the temporary suspension of mining at Chukar, which was partially offset by the initiation of mining at Exodus. As you can see in the picture, in July, we completed remediation work at Gold Quarry, and we have recently recommenced mining ore from the pit. There is significant development activity underway throughout our Nevada operations, including Exodus, which is an underground refractory deposit that commenced commercial production in May and is expected to produce about 65,000 to 75,000 ounces per year for at least 5 years and provide a platform for further underground exploration. Emigrant is the near-surface oxide leach deposit which is anticipated to be begin production in 2012 at about 80,000 ounces per year, while Pete Bajo, another underground refractory deposit which delivered its first ounces in July, is expected to produce 60,000 to 70,000 ounces in 2012 and will also provide underground exploration access between Pete and Carlin East. At Twin Creeks, we are expecting regulatory approval to initiate mining of the Vista 7 layback later this year. Approximately 600,000 ounces in total are expected to be mined from this deposit over the next 4 to 5 years. At our Phoenix operation, we continue to see opportunities for increasing production. We are permitting and preparing to construct the copper leach project, which should add 20 million to 25 million pounds of copper production per year beginning in the second half of 2013, and we are studying options for a second mill, which would substantially increase in-excess copper and gold production. At Long Canyon, drilling is focused on in-fill, mineralized extensions and district exploration, and our extension drilling program continues to highlight growth potential. In Mexico, construction of the Noche Buena mine in La Herradura is progressing according to schedule. We are also supporting our partner as they consider developing a gold mill that will have a capacity of 8,000 tons per day and could result in an average additional gold production of 60,000 ounces per year on a consolidated basis. Moving to Slide 10, South American production was up over the prior year due to the contribution of the new La Zanja mine in Peru, partially offset by lower leach placement at Yanacocha. On the development front, we have re-sequenced the mine plant at Yanacocha to deal with geotechnical and paleosol issues at La Quinua. And as previously announced this week, our board approved the Conga project, which Guy will speak to in more detail in a moment. Turning to our Asia-Pacific region on Slide 11, regional volumes and costs in the second quarter were impacted by the Phase 6 stripping campaign at Batu Hijau. At Boddington, production was ahead of budget at 205,000 ounces of gold for the quarter, and optimization study is advancing. CAS was slightly higher than planned in Q2 related to a conveyor belt maintenance at Boddington. However, we are still on track to meet our guidance range of $580 to $620 per ounce. This region is making good progress in achieving its strategic planned goals and is moving forward with the Tanami Shaft project after this week's board approval. In Indonesia,PTNNT signed a memorandum of understanding allowing resumption of exploration activity at Elang and at other locations in eastern Indonesia. At Elang, we are reestablishing the exploration camp in advance of initiating our drilling program later this year. I'll wrap up the regional discussion on Slide 12 with Africa. While Richard mentioned future milestones to growth, I'd like to recognize the significant milestone in our African region. On July 18, we celebrated the fifth anniversary of our first full gold core at Ahafo. In its short history, our Ahafo operations have become the base for the fastest-growing region in our portfolio. So far, Newmont Ghana gold has safely produced almost 2.5 million ounces, contributing significantly to the overall value of our company since 2006. In addition to job creation, many community development projects have come to the area due in part to Newmont's social investments, including programs dealing with malaria treatment and prevention, HIV/AIDS awareness and education and community infrastructure projects. Ahafo demonstrated another strong quarter of gold production growth due to higher grades and recoveries at the Apensu and Amoma pits. Recent development activities include a successful public hearing with respect to our Subika underground project, which paves the way for advancement towards issuance of the production permit, while construction is well underway at Akyem after our Board of Directors approved the project in March, 2011. Both of these projects are important contributors to our growth plan. I'll now turn the call over to Guy Lansdown, who will speak to the recent board approvals for Conga and the Tanami Shaft.

Thanks, Brian. On to Slide 13. Earlier this week, we announced that the Conga and Tanami Shaft projects received full funds approval from our board. Collectively, these projects are major steps towards achieving our goal of growing to 7 million ounces of gold production by 2017. I'd like to shed some additional light on those projects. On Slide 14, you'll see a picture of the drilling activity at our Conga project in Peru. Conga's size and quality of its current reserves and NRM make it one of the premier gold and copper mining projects in the world. In addition, we have established relationships with the local communities and an experienced base of employees and stakeholders. Furthermore, Conga provides a bridge to the future of Yanacocha, allowing time for the potential development of the sulfidic and underground opportunities and continued exploration exposure on our 300,000-hectare land package. Conga will also provide a strategic advantage to develop potential surrounding opportunities with our construction of the first copper concentrator in the region. We're planning for near-term production of 300,000 to 350,000 ounces of gold and 80 million to 120 million pounds of copper per year at cash costs of $400 to $450 per ounce and $1.25 to $1.75 per pound. Capital spending attributable to Newmont is expected to be in the range of $2 billion to $2.4 billion. This is an increase of our previous guidance of $1.8 billion. The cost increases are as a result of scope developments, estimate refinement, as well as Forex and escalation. We have a great team on board and ready to execute the projects under the leadership of Pol Guzman, who will serve as our Project Director. Pol has tremendous experience and a great track record of successfully delivering large projects around the globe and, in particular, in South America, where he successfully delivered the Escondida and Antamina projects on time and under budget. On Slide 15, we provided an update on the Tanami Shaft project in Australia, which also received board approval on Wednesday. The shaft will increase Newmont's gold production from the Callie underground mine at Tanami to greater than 340,000 ounces per year in a sustainable, profitable and responsible manner. We expect it has the potential to increase the resource through reduced cutoff grades and improved access at depth. The shaft will also reduce our CAS by around $100 per ounce by increasing efficiency. It will strategically position Newmont to potentially expand existing mine reserves through access to the ore and orebody and other exploration targets while leveraging off Newmont's existing position at the Tanami, including existing infrastructure and positive relationships with regulators and traditional owners. We're encouraged by Wednesday's board approval of the Conga and Tanami projects, and we hope to bring more projects through the development pipeline over the next several quarters. Richard?

Thanks, Guy. So to summarize, Newmont continues to execute on both our operations and development plans, and we continue to deliver solid results. We're advancing our growth plan across our portfolio with 2 key project approvals announced this week. We're maintaining our outlook for 2011 production, CAS and capital spending. We've increased our dividend over 200% over the second quarter of 2010 dividend, enhancing our shareholders' exposure to the rallying gold price. We now have the highest return of capital through our gold price-linked dividend than any gold company in this space. And notably, based on an ROIC measure, we have the highest return on capital as well. We've heard your feedback that you'd like more information on project updates and milestones, and hopefully, some of today's materials were accepted in that regard with respect to responding to that feedback, and we will communicate periodic updates as is practicable on all of our growth projects going forward. So with that, I want to thank you for listening to our call. And operator, we'd like to open the call for questions.

[Operator Instructions] Our first question is from John Bridges, JP Morgan Chase. John Bridges - JP Morgan Chase & Co: Just wanted to look at Conga. Obviously, CapEx escalation has become a big topic. Just wondered how much of your current budget is solid now and locked in?

John, this is Guy. John, we've locked in a substantial amount of our major equipments. We've placed orders for those last year, so the bulk of that, which would be tens of millions of dollars, is locked in. In addition, we've got our earthworks contractor onboard and ready to go. We've got our EPCM contractor onboard and ready to go. I guess the bulk of the work to come is -- or the costs to come are around the bulk materials and, of course, the construction contracts. John Bridges - JP Morgan Chase & Co: So percentage-wise, how much is locked in? How much is still open to further inflation?

John, we'd guess -- estimate at the order of 20% to 30% of our costs would be locked in at this stage. John Bridges - JP Morgan Chase & Co: Okay, that's helpful. It's interesting, the timing of the decision to go ahead with the developments in Peru. I just wondered if you could make some comments about your comfort with what's going on down there.

John, it's Richard. I would just say that this is a company which has been in Peru for a very long period of time. We have undergone several changes of not just presidents but political styles, from revolutionary through left- and right-leaning. And I think as we look into the future, this company -- this asset, based on reserves today, will be producing, I believe, 20 to 30 years Conga, not to mention Yanacocha, we believe will have a second life as we get into sulfide ores. And with all that, we expect that we will see political changes in Peru, just like we do everywhere else around the world. I would say specifically, with respect to the change of presidents in Peru, one, it's always, I think, good to note that in any country in the world, where changes happen in a democracy and things go without really any revolution or anything to go with that, Peru certainly qualifies for that. I think people in Peru pride the vote that they get, and they use it appropriately. I hope that President Humala will be a president who values the contribution of business in general and mining in particular. And at this point, I think given the ministerial staff that he has selected, I think he is looking for experienced individuals who will help guide the government of Peru in exactly the same direction that it's been driven. And I think what we could expect is to see some ongoing thoughts and discussions around how best to close the gap between rich and poor and better share some of the wealth of Peru. And I think we're all for that, done in the right way. And so far, what I would tell you is we expect, just as when President Garcia came to into office, that there will be some discussions about what we will do as mining companies on royalties. I don't expect that gold or Yanacocha and Conga will be picked on in particular. I think it will be industry-wide. And I think we have a pretty good sense of what that is, and we've incorporated that into our economics. I won't tell you what our assumption is, but we have made some assumptions. And what I'll tell you is going forward, John, we learned how to live around the world in changing political environments and will continue to do so. John Bridges - JP Morgan Chase & Co: Excellent. And if I might squeeze a final one in. Boddington, you've gotten throughput up to 8.9 million tons in the quarter. I just wondered if that was on soft rock or if that is something that is sustainable?

No, John. That's not on any rock that's uncharacteristically soft compared to what we normally expect to see at Boddington. That's just a reflection of the plant continuing to ramp up and perform at capacity where we expect it to be.

Our next question from Jorge Beristain, Deutsche Bank.

My question is, again, just following up on the CapEx inflation. And just big picture, in April, you guys announced a $7 billion CapEx plan for an incremental $3.2 million gold ounces or about $2,200 an ounce. These 2 projects, Conga and Tanami, to your account, would be about $2.6 billion for roughly 600,000 ounces of gold equivalent or around $4,333 per ounce. So I'm just trying to square how these 2 projects which represent about 40% of your next 5 years' CapEx budget will amount to 20% of incremental production. Do you expect, in the coming projects, to have significantly lower average cost per ounces, or do you think that, that $7 billion baseline that you gave in April will start to creep up just because of the new information on these projects?

Jorge, it's Randy. A couple of points, there are certainly a number of projects that sit around existing infrastructure, certainly, in Nevada, that will contribute significantly, which will help bring that per ounce number down sequentially. The Conga project, being a very significant greenfield with considerable earthmoving, is certainly going to be on the higher end of that. But you'll see those 2 types of projects on both sides of the spectrum balance out. We, of course, like everyone else in the industry, are experiencing pressures, though. We're experiencing pressures around labor, input commodities, energy, and we will do our best to manage against those, but those will afflict us as they will the entire industry.

But, I guess, in summary, are you saying that you're still comfortable with the kind of holistic $7 billion gross number that you gave in April?

Well, for the time being, we're going through our plants. We're taking a look at how pressures will affect the rest of the projects, but I think it's fair to say that some of the pressures you saw on Conga and Tanami will pressure the rest of the portfolio.

I think it's fair to say, Jorge, that in this environment, we could expect some escalation. Remember, this is a project plan which has projects going all the way out into 2017 and beyond, actually, because we do have other plans than just the ones that were included to get to the $7 billion. We do expect there will be escalation pressures. We also expect that at times, there won't be. So I think this is a longer-term view for us. I would also say that when we look at these projects, we are trying to do so in the light of ensuring that we incorporate today's environment into the numbers that we give you with respect to projects which are approved. So these are obviously further along in the maturation process, now moving into Stage 5 for us than some of the others which are earlier on. And as we announced about those, we'll tell you exactly what those will be as well.

It's Russ. Just let me add a comment because it's specific to the Tanami investment. If you look at that with the exchange rate moving from $0.95 to $1.10, that added $40 million in capital to that project. So as Richard says, as we go in to execute, we will take our assumptions and update them for the best information that we have at the time, and we'll give you that. But we had an additional capital expense of about $40 million just solely related to FX, and that's been in the last 3 months.

And I guess what I'm trying to get at is what's the offset in your thinking on these projects? Like Conga, for example, roughly, I think you tucked in about by 20% the expected attributable gold. The cost went up by 50%. But are you now expecting a much higher longer-term gold price or lower OpEx in the out years as the offset to that? Has something changed in your thinking, or are you maybe on some projects reaching the point where you'll actually say no because of this kind of cost inflation we're seeing?

No, Jorge, with the portfolio that we discussed at Investor Day, the gold prices that we're seeing in the current environment certainly would allow for us to move forward on the vast majority of those as profitable projects. But again, as Russell echoed, we will continually come back to the street and share with you any inflationary pressures that we're experiencing, and we'll let you know as we go.

Just to conclude, I would say everyone of these projects goes through a screen, obviously, its strategic importance, economic returns, and we don't shy away from balancing those, but generally, we continue to see these projects even at prices lower than a $1,500 gold price. We definitely see that these projects are economic, clearly exceeding our weighted average cost of capital. And as with Conga, if you do the net on production cost as both cost for gold and cost for copper and you look at the revenue stream, I think a lot of companies would tell you that they're producing gold for free, the way this comes out. So I think when we look at the cash flow returns on this and we look at the near-term payback, these are just the kind of projects that we ought to do. And more over, we're basing that on what we know today in terms of reserve and resource base. And having the first copper concentrator in the district, we know there's going to be more. So are we willing to pay up a little bit for the option? Absolutely. We think it's the right thing to do.

[Operator Instructions] Next question from David Haughton, BMO Capital Markets.

It's good to see that you have stuck with your guidance for the year, although it does suggest quite a bit of extra lifting on your part in the second half, particularly at Nevada. Can you give us a bit of an outline as to what your plan is there to lift that production in second half?

Yes, David, Brian will do that. Let me just say I think the team in Nevada has absolutely a great plan that they've got in place -- they've had in place. We're, as far as we're concerned, on budget for Nevada. We get your angst, and Brian will talk about it.

Thanks, Richard. I guess there's a few things going on in Nevada which are giving us some confidence for production in the second half. First, we're going to have significantly more roaster days coming into the second half of the year after the shutdown. We're also going to see some significantly higher-grade material getting delivered into the plants. With the Gold Quarry slide being remediated, we're going to be back into the higher-grade ore in the bottom of Gold Quarry for the second half of the year. We're also going to see higher grades coming out of Twin Creeks as we go deeper. The other 2 areas where we're also going to see production coming in higher -- I already did mention was with the startup of Pete Bajo and Exodus in Q2, we'll see those underground operations ramping up over the second half of the year. So we're probably going to see in the order of 25%, 30% increase in production coming out in Nevada over the second half of the year for roughly around the same global total cost. So not only are we going to see the ounces go up, which should bring us into the guidance range, but we're also going to see our CAS come down over the second half of the year as well.

On a similar vein, Boddington, also a faster or higher production rate in the second half compared to the first half. Is that mostly driven by grade, or do you have some throughput expectations there as well?

A combination of both actually, David. The throughput's been very good, running at capacity. We're also seeing grade reconciliation, which is essentially lining up with what our model has expected. So I'd like to say we're going to see similar quarters in 3 and 4 that we've seen in Q2.

Okay. With regard to the throughput being over 8 million tons for the quarter?

That's our expectation, yes.

All right. Similar kind of question but this time on capital. It looks like the spend rate in Africa, really, at both Ahafo and Akyem looks low compared to your guidance. Do you have a big spend expected in the second half, or would we see some of that split into next year? And what does that mean for the delivery of those projects?

David, it's Russ here. Likely, we will see some of it slip over. I mean, the full cost we received shows that it's largely catching up by the end of the year. But we continue to manage that. From our perspective, no implication on the second point of your question, which was around the expected startup date. Kim and the team, they're doing an outstanding job, and my expectation is that they'll come in under budget ahead of schedule, but it's still early. They're a very good team, and they're executing. So on issue from a spend perspective. I'd say we do have some irrational exuberance around our ability to spend capital, so what you end up seeing towards the end of the year is some of that capital shifts into the following year.

All right. Without any delay to delivery?

Correct.

I'd just say on Akyem, we were just out there a couple of weeks ago. They are beginning to pour first concrete out there. We have this project over 95% engineered. When they're in the dirt, this thing is going to go like heck. We preordered some equipment, remembering that this mill has actually been on-site at Ahafo for quite some time. I think we're ready to get going on this thing, so I expect this project, as Russ said, this one will hit the straps in terms of its budget and its delivery dates.

All right. At Batu, sell-down is behind you. Do you expect an inflow of cash as a result of that?

David, Russ. Just to clarify, we entered into the agreement with PIP, an arm of the Indonesian government, on May 6. That transaction has not closed, so our ownership interest has not changed. We're still at the 48.5%, and we still continue to work to close that transaction on the final 7% of divestiture. But you need to remember that those funds will go to existing shareholders, so it's a secondary, in effect, versus additional capital going into PTNNT. What we did complete in the quarter was a $600 million non-recourse to the sponsors' financing at the PTNNT level, and that provides that entity with significant capital flexibility to fund ongoing operating and capital costs as we continue to evaluate our third sag and then starting to spend on the Elang project, which we've spoken to you in a small amount of detail. But we're hoping to progress that. So you won't see additional capital going in, but you should rest assured that they have the balance sheet underneath them at the subsidiary level.

Just to add to that, David, when we signed the agreement with PIP, we knew it would take some time to get government approval, so we actually have, I think, until November, mid-November, to complete the transaction. And the expectation is that they would pay cash to the foreign shareholders for that piece, and that, as Russ was saying, would come out of PTNNT directly to the foreign shareholders.

All right. Final question, Yanacocha grade over the last couple of quarters and this one as well has been quite strong. Can you expect those kind of grade levels going forward?

David, we've had some positive grade reconciliation coming out of Yanacocha in the first 2 quarters of this year. It's probably not going to be as strong as we look over the balance of this year. One of the issues that, as I mentioned, we've had to do is just some of the mine sequencing readjustment with some of the geotechnical issues that we've seen at La Quinua, along the north wall, towards the latter end of the year. The one item that we could get some grade bumps on would relate to getting back into the bottom of El Tapado, where we've typically seen the higher grade ores that we deliver to the mill. But a lot of that is going to be contingent on geotechnical stability as we bring the north wall down at La Quinua.

And also, the stacking rates appear to be coming off compared to where they've been previously. Should we be thinking about the current Conga stacking rates going forward?

Well, that stacking rate was coming off because of some of these issues with La Quinua and the stability. We've had to move more waste as opposed to get the ores stacked onto the pads. So as we get back that area under control with a proper geotechnical program, we should probably see some of the stacking rates come back up.

I could just try to maybe connect the dots between the stacking rates and the higher grade, I mean, just come back from Yanacocha. What we see down there, and this is, I think, a tribute to how Newmont's doing projects today and turning them over to operations, but we built that gold mill for about 5 million tons of throughput a year. And it looks like this year, we'll be close to 6 million tons. And I think with that, we're going to really see the capability there to continue to produce out of the mill a lot more than we'd anticipated.

Our next question from Patrick Chidley, HSBC.

Just a couple of questions. First, I just want to drill down on some of the detail of the Conga project as it is now because there have been a number of changes. Now you mentioned the scope change, but it looked as if the production level has actually gone down. I'm wondering if the throughput rate is still around 95,000 tons and what the difference is in terms of why the gold production rate's gone down.

Patrick, this is Guy. We've updated our models, Patrick, to include the latest drill results, the latest metallurgical test results, so we've got a new mine plan. And we've incorporated our best estimates based on our lessons learned from other projects around what we forecast the production to be. It has increased the overall production and the mine life. The mine life's actually gone up a year or so. We do believe there is some upsides around the current projections that we have, but the bulk of it is really an update to the mine plan.

So would that be basically planning for lower grades than you previously did in the first 5 years?

What we do is we drive the mine plan around a revenue model, so we're not necessarily targeting higher copper or gold production. And with our current metal price assumptions, this is where we land up. The copper price -- sorry, the copper production is about where we had anticipated before, gold, slightly lower, so using slightly higher gold prices would drop the gold production but increase mine life.

And I would just add to that, Patrick, that one of the things we've tried to do, as Guy said, based on lessons learned, we've done quite a bit more infill drilling than we have at other projects in this stage. I think we know more about the grade as well as the quality of concentrate that we're going to produce out of this. And I think Brian and his team have been working closely with Guy and the construction team to ensure a clean handoff of construction into operations. And I think it's great that at this point in the model, we've actually got more detail than we had, for instance, at Boddington. I think we're starting to scope this plan out so that we have a much higher level of confidence of actually delivering this production rate.

Right. And the production throughput rate is still the same, 95,000 tons a day?

Yes, that's right, Patrick. We still got the same throughput rate.

Okay. And you mentioned a strip ratio of between 1 and 1.5. Is there any sort of a timing on that, I mean, in terms of the schedule? Is it going to be lower in the early years or higher in the early years?

That's just a pretty good average. I can try and get you more details down the road, but this is a pretty good average strip ratio.

Okay. And then on Conga, you've been already spending quite a lot of money, I think over $300 million in the last 2 quarters. Is that included, what's been spent in the latest update of $4.5 billion?

Yes. The numbers through the start of the year are included in the capital projections.

Okay, that's included now. And what else do I have? You mentioned that you got one of the highest returns on invested capital. I wonder if you -- what that would be, I guess, on an annualized basis?

Patrick, it's Russ. It's 12 for us if you go back and look at the last 3, 4 years, and we have an interesting slide I was going to show, but we just ran out of time. I'll get John to put it on the website, and he can share that with you. It shows our return on invested capital against our peers, and it's not a metric a lot of people have historically spent a lot of time on in this space, but we think it's an important metric, and it's one we are watching closely.

Our final question comes from Brian MacArthur, UBS Securities.

I just want to follow up a little bit on the last question because maybe you can answer the question this way. Obviously, if we take the low-end, Conga's production is down about 20% on the gold, copper's flat. And I realize the range is higher. Costs are up at both. And you mentioned some of that updated data which is grade. Some of it is different assumptions. Some of it is maybe just, as you said, making sure it delivers. Can you tell me how much they change your NPV? Because obviously, we've taken out 0.5 million ounces at the low end over the first 5 years, which is significant with the capital going up, and you're still saying it's good project and I get that. But the economics must have changed a little bit if you're going to bring the gold production down that much. Is it really great, as Patrick said, as half of it, and the rest is offset by price assumptions? Or just can you flush that out a little bit more, please?

Brian, it's Randy. Rough rule of thumb, you're going to see about a 1% change in your rate of return for about a 10% change in the CapEx. And for about a 5% change in your production profile, and I'm talking all straight lines, so these are very rough rules of thumb, you're going to see about a 1% change in the rate of return.

So that's -- exactly. Is this fairly straight line in the first 5 years when you give these averages, or does it move around a fair bit?

Reasonably straight line.

Okay, that helped. And second question, just a bit of an argument, though. Reclamation was $43 million this year, which I know that's going to hop around over time. Is there anything special in that? That doesn't look like that's a run rate going forward, or that was up a fair bit versus history?

Yes, Brian, I'm not sure special is the word I'd use. We took a $30 million charge related to Dawn Mining. And there's a fair bit of disclosure in there. We are very close to a settlement on that with the federal government, and that's our best estimate. You'll see an incremental $30 million there, and there was $4 million related to some in perpetuity water treatment at another project. So yes, clearly not our run rate and not something I would expect to see going forward.

At this time, I'd like to turn the call back over to Richard O'Brien, President and CEO.

Okay, thanks for your questions and your attendance today, and we'll talk to you again next quarter.