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Newmont Mining Corp (NYSE:NEM)

Q4 2012 Earnings Conference Call

February 22, 2013 10:00 a.m. ET

Executives

Russell Ball - Executive Vice President and Chief Financial Officer

Randy Engel- Executive Vice President, Strategic Development

Grigore Simon - Senior Vice President, Exploration

Gary Goldberg - President and Chief Operating Officer

John Seaberg - Vice President of Investor Relations

Analysts

John D. Bridges - JP Morgan Chase & Co.

Jorge M. Beristain - Deutsche Bank AG

Michael Jalonen – Bank of America Merrill Lynch

Greg Barnes – TD Securities

Garrett Nelson – BB&T Capital Markets

Dave Hove – Stifel Nicolaus

Robert Reynolds – Credit Suisse

Patrick Chidley - HSBC

Stephen Walker - RBC Capital Markets

Tanya Jakusconek - Scotia Bank

Michael Dudas - Sterne Agee

Brian MacArthur - UBS

Operator

Good morning and welcome to Newmont Mining's Fourth Quarter and Full-Year 2012 Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. If you have any objections, please disconnect at this time. And I would now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Sir, you may begin.

John Seaberg

Thank you, operator, and good morning everyone. Welcome to Newmont's fourth quarter and full-year 2012 Earnings Conference Call. Joining us on the call today are Gary Goldberg, President and Chief Operating Officer, and other members of our executive leadership team who will be available for questions at the end of our call. Including Russell Ball, Chief Financial Officer; Randy Engel, Executive Vice President of Strategic Development; and Grigore Simon, Senior Vice President of Exploration.

Turning to slide two. I'd like to refer you to our cautionary statement 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'd like to turn the call over to Gary.

Gary Goldberg

Thanks, John, and good morning everyone. Before we get into the quarterly results I would like to make some introductory comments and spend a few minutes speaking about safety. I would like to take a moment to recognize and thank my predecessor Richard O’Brien, as well as our CFO, Russell Ball. First of all I would like to personally thank Richard for the solid foundation that he has built here at Newmont and I am honored to take the company into the next phase of development.

Richard can take great pride in what Newmont has accomplished under his leadership. He has built a solid operational foundation, a talented team and a strong balance sheet. He instilled a more rigorous financial discipline that resulted in industry-leading per share performance in gold reserves, gold production and operating cash flow. He also led the introduction of an innovative gold price linked dividend that gives our shareholders direct leverage to gold price.

Similarly, as most of you would have seen last night in our earnings release, Russell Ball, has also decided to step down and will leave Newmont later this year. He plans to continue in his current capacity to ensure a smooth transition as the company seeks its new CFO. I would like to thank Russell for his tireless contributions to Newmont over the better part of the last two decades.

Like Richard, Russell can take great pride in Newmont’s accomplishments with his leadership as CFO. Russell helped the company build a solid financial foundation with a strong balance sheet and the financial flexibility needed to position Newmont as an industry leader. Thanks to Richard’s and Russell’s hard work, contributions and leadership, Newmont is well positioned for the next stage of its growth and development.

Safety is our most important value and I’ll start on slide 3 with a look at our performance. In 2012, we reduced our total injury rate by 6% and the number of serious injuries by 36% compare to 2011. In the last quarter of the year, we achieved a new company record as we drove our total accident frequency rate below 0.5 injuries per 200,000 worked. In 2013, we’ll work to lower our total injury rate by an additional 10% as we move our focus towards our goal of zero harm. Safe operations are productive operations. Conversely, less safe operations create distracted management teams, performance volatility and compound safety risks. Safety has and will continue to be a passion for me and I believe it will deliver economic and social benefits for all Newmont’s stakeholders.

Turning to slide 4. We are committed to maximizing value for our shareholders by focusing on mining fundamentals from technical competency to safety and social responsibility. This will lay the groundwork for profitable growth and stronger cash flow generation. Over the next few years we expect capital spending to decrease with the completion of projects such as Akyem in Ghana, Phoenix Copper Leach in Nevada and reduce spending on Conga. These new contributions to our production profile, combined with increased production from Batu Hijau should positively impact Newmont’s free cash flow in 2014 and 2015.

Newmont generates over $300 million in after-tax operating cash flow for every $100 increase in the realized gold price. And with our focus on total cost management, we think we can further improve our leverage to gold. We will continue to return capital back to our shareholders, with our gold price linked dividend. Since its introduction in April 2011, we have returned over $1 billion to our shareholders, with another $210 million in distributions planned for the first quarter. We return more cash per share and offer more leverage in our dividend policy than any company in the gold industry. We also plan to maximize value of our assets by maintaining a strong balance sheet, sustaining a dedicated workforce and reducing our total costs.

Turning to slide 5, we show Newmont’s all-in sustaining cost under the evolving World Gold Council’s definition for 2012 and 2013. This emphasizes our commitment to managing the total cost of production and providing greater transparency to our stakeholders. Our 2012 all-in sustaining cost of $1,149 per ounce was favorably impacted by $130 million in cost reductions last year. Looking forward, we expect all-in sustaining costs to remain flat from 2012 to 2013. This will be accomplished by reducing our combined general and administrative costs, exploration, advance projects and sustaining capital expenditures by approximately 15% to 20% compared with 2012. These costs will offset a roughly 5% increase in expected 2013 CAS from inflation and the impact of lower grades. This is a step in the right direction, but still is not good enough and one of my key areas of focus will be to reduce these costs even further across all of our operations.

On to slide 6. Earlier this week we announced a quarterly dividend of $0.425 per share based on last quarter’s average P.M. Gold Fix of $1,718 per ounce. This equates to a yield of about 4% at our current share price. We are committed to maintaining our gold-linked dividend policy which provides gold leverage without the cost of holding physical gold or ETS.

Turning to slide 7. We have a geographically diverse asset portfolio and nearly 100 million ounce reserve base in a land position covering over 75,000 square kilometers. I will highlight each of the regions individually, but the point I want to make is that this scale will support our success for years to come.

On slide eight we have summarized our fourth quarter and full year operational performance. Attributable gold production quarter-over-quarter was stable while our year-over-year production was down 4%. For the year, the decrease is a result of continued Phase 6 stripping at Batu Hijau, lower throughput grade and recovery at Tanami, and mine sequencing at Waihi. Copper production for the same two periods was down largely due to the Phase 6 stripping campaign at Batu Hijau. Our gold CAS per ounce was $720 for the quarter, full-year CAS of $677 was within our previously announced range of $670 to $680.

The increase of 15% for the year is due to lower production, higher mining and milling costs and lower byproduct credits. Copper CAS per pound increased 86% for the year due to planned lower production as we worked through Phase 6 stripping at Batu Hijau and higher mill maintenance costs at Boddington. We expect copper CAS to improve significantly once we are back in the bottom of the pit at Batu Hijau. Finally, all-in sustaining cost increased for both the quarter and year as higher CAS and lower copper byproduct credits were spread over lower gold production.

Our financial results are summarized on slide nine. We continued to generate significant net income and cash flow from operations. Our adjusted net income was approximately $550 million for the quarter and $1.9 billion for the year. We generate cash flow from operations of approximately $850 million for the quarter and $2.4 billion for the year. We also continued to return capital to our shareholders with total dividends paid of $1.40 per share. Reported net income was favorably impacted by a gain from discontinued operations, a gain on the sale of assets including the (inaudible) property in Australia as well as some favorable tax benefits due to internal restructuring.

Now turning to slide ten. During the fourth quarter, North America's production was lower while performing in line with plans. While Africa's was growing, APAC's production was slightly higher, offset by expected lower production in South America. CAS increased to $720 per ounce due to lower production from North and South America, higher royalties in North America and Africa, and higher waste mining costs in APAC.

Turning to slide 11. Our North America region continues to be the big driver of our business, contributing 42% of Newmont's production in the fourth quarter. Full year gold production from North America increased slightly over 2011, to just under $2 million ounces, as we saw higher throughput at Mill 6 and Twin Creeks in Nevada, along with contributions from the new Emigrant leach pad which began production in the third quarter. At La Herradura in Mexico, production was in line with a year ago. North America CAS increased 7% over last year due to higher diesel contracted cost and royalties in Nevada, as well as higher waste tons mined and higher commodity prices at La Herradura.

Looking forward, due in part to extremely cold winter weather in Nevada we experienced in December and into January, we are about 30,000 ounces behind plan as of the end of January. We intend to make this production up as the year progresses and we are maintaining our 2013 production outlook for Nevada of between 1.7 million and 1.8 million ounces.

Turning to slide 12. We continue to develop the district potential surrounding the Long Canyon deposit in Nevada. Yesterday we reported an initial inferred resource of 2.6 million ounces and we continue to see the long-term district opportunity for 3 to 4 times that initial resource. We have an additional 65,000 meters of drilling plan for 2013. We plan to submit our draft environmental impact study to the BLM at the end of this year and we are continuing with our selection and confirmation study.

Moving to slide 13. Yanacocha’s fourth quarter performance was in line with expectations. Full year production was higher than 2011, which favorably impacted CAS. Our 2012 guidance for Yanacocha reflects a 25% decrease in production from 2012. We expect to maintain these production levels for the next few years. Those volume impacts are also reflected in Yanacocha’s 2013 CAS outlook. You’ll see that capital is reduced by more than half due primarily to lower spending at Conga.

At Merian, we completed a feasibility study at the end of 2012 and declared reserves of 2.9 million ounces. With those results, we’ve now met the requirements to achieve an ownership interest of 80% of the project. Our investment agreement is now in front of the Suriname’s National Assembly pending its approval, which is expected in the first half of this year.

On slide 14, we’re still on track with the water-first approach at Conga. We expect to complete the Chailhuagon reservoir later this year and we are refreshing our approach to stakeholder engagement in the region. Conga will only move forward if we have local community and government support as well as acceptable returns.

Moving to slide 15. Our Asia Pacific regions fourth quarter performance was positively impacted by a strong finish at Boddington. Other Australia/New Zealand production was down due to the lower throughput in greater Tanami as well as lower throughput at Wahi, both of which we had discussed previously. At Boddington and other Australia/New Zealand CAS increase due to higher strip ratios, higher mill maintenance costs and the impact of the carbon tax being implemented in Australia. Capital expenditure is down in Australia/New Zealand due to the reassessment of the Tanami shaft project we announced last year.

Batu Hijau’s fourth quarter production was impacted by geo-technical issues that we expect to have addressed this month. These issues impacted our weight stripping capability. Full year performance was a function of processing lower grade stockpile material, lower throughputs and recoveries. For 2013, we are separating reporting for APAC into Australia/New Zealand and Indonesia to align to our management structure. Our outlook for Batu in 2013 is similar to 2012. We are working through the Phase 6 stripping campaign and plan to reach higher grade ore later in 2014. Upon completion of this stripping phase, we expect gold production could increase by as much as 10 times by 2015 over our 2013 outlook.

Just a quick update regarding the divestiture process at Batu Hijau. Our current economic interest is still 48.5% and discussions continue with the Indonesian government in regard to divesting the final 7% stake. The fifth extension of the closing deadline of the purchase and sale of this stake was signed in January, extending the deadline to 26 April. Our effective economic interest will be 44.56% once the divestment is complete. We will keep you informed as we look to the Indonesian central government to designate the ultimate purchaser of the divestiture share.

Late last year, we also negotiated a new labor agreement in Indonesia in exchange for benefit improvements and wage increases of 3% and 4% in 2013 and 2014 respectively. We negotiated work practice changes that will positively impact safety and productivity. We employed a good process around the negotiations with great cooperation from all involved and specific goals we hope to achieve. I would like to offer my compliments to the management and worker representatives involved in the negotiations.

On slide 16, Ahafo contributed 561,000 ounces of production in 2012, in line with 2011. CAS was up from a year ago, primarily as a result of higher labor, commodity and royalty costs. Capital costs are up in 2013 as we complete the construction of Akyem.

On slide 17, Africa’s production is expected to grow over the next few years, primarily through the development of Akyem where we expect production to begin in late 2013. I had the opportunity to visit Akyem last week and I am happy to report that we remain on schedule and on budget to meet the target. In addition to reviewing construction and mining progress, I had the chance to visit with some of our Akyem apprentices, you can see here in the picture in the lower right. These young men and women are from the ten local communities that surround the project and are in various stages of their four year training program. Once their training is complete they will fill various skilled positions at Akyem.

Moving on to slide 18. We are pleased to report that we have covered depletion and increased our gold reserve base to 99.2 million ounces. Our reserves were calculated at $1400 gold, up from $1200 gold last year, which added about 1.5 million ounces due to the higher gold price. Additions come primarily from North and South America, in particular at Merian and Leeville-Turf. Revisions came from Boddington, Tanami, Ahafo, and Twin Creeks.

As part of our total cost management effort, we reduced 2012 exploration spending by 12%. In 2013, we will trim exploration cost by a further 25% compared to 2012 as we focus on our best opportunities. On slide 19, you will that copper reserves were calculated at $3.25 per pound in 2012 compared to $3 per pound in 2011. Copper reserves decreased to 9.5 billion pounds as we depleted reserves from production without significant additions.

Turning to the final slide. Newmont has turned in a good performance in 2012 but we can and we will do better. I have been in mining for 30 years and at Newmont for just over one. What I would like to do is share a few observations about the sector and my vision for the company as I take up the reins as CEO. Like all gold miners we face significant headwinds. First, input and labor costs are rising and the cost of getting an ounce of gold out of the ground has doubled in the past five years.

Second, the industry has a tradition of chasing reserves growth rather than cash flow. Third, new deposits are expensive to develop and in increasingly difficult jurisdictions. As an industry, our total return performance has been poor. Especially against the backdrop of more than a decade of year-on-year gold price increases. Our investors and our board understandably expect to see better returns and so do our management and our employees. I see these trends as a call to arms for me and for Newmont. We have a tradition of creating wealth to shareholders, delivering value from our assets and working safely and responsibly in tough operating environments. None of that will change on my watch.

However, we are not content to stay in the middle of the pack and business as usual is not an option. Our cash flow potential is strong, our cost cutting program is gaining momentum and we are making real progress and tightening our capital discipline. We also have a solid asset portfolio, reserve base and team. This is why I am excited about Newmont and you should be too. But I am also excited about making some changes that will help us breakout of that pack. Our attention to safety is good but we need to get better. We are shift the managerial focus of the business to maximizing our profitability and I intend to inject a much greater sense of urgency into how we do that. We need to change the trajectory on our cost and productivity.

We have been increasing the rigor of our capital allocation processes. I am saying no to capital requests quite regularly and we will continue to do so until our business cases warrant funding. We need to built flexibility into our plans so that we can manage through the inevitable gold price changes without needing to make kneejerk adjustments. In this context, our shift to a total cost focus is a better reflection of our true performance. I continue to be impressed by the commitment and hard work of our employees and contractors. And I know they will support me in achieving these goals. On this note, I would like to recognize the accounting, finance, tax and internal audit teams who have put out an extraordinary effort this time of year.

I know that our investors appreciate timely, quality audited financial statements, as do I. To sum it up, I want to build a Newmont that regularly delivers on expectations and is focused on execution. I know you will need to see some results before you’re ready to credit Newmont for delivering on its full potential, but I invite you to watch this space.

Thank you very much and I’d like to open it up for questions now.

Question-and-Answer Session

Operator

(Operator instructions). Our first question today is from John Bridges from JPMC.

John D. Bridges - JP Morgan Chase & Co.

You laid out succinctly all the challenges the industry is facing. Just wondered how you felt that your policies would differ from those of Richard and Russell who we congratulate and wish best of luck in their new endeavors. Any comments on that?

Gary Goldberg

Sure thing, John and I appreciate the question. I think first of all I’m building off of the great foundation that they’ve helped to build here over their years of service at Newmont. I clearly come with an operating background and years of experience in a variety of businesses, but had my start here in the copper business in Utah in some difficult times. I started when Bingham Canyon had 7,000 employees and five years later we had 90 employees. So I’ve seen the swings and roundabout and with that comes an experience base that really wants and helps me focus people on looking at the long term in terms of delivering value which is not different than Richard, but it really brings a push for me on that. And also making sure you’re prepared for the inevitable swings we’re going to get along the way. You’re seeing the focus and continue to see the focus on safety and safety results. I think the approach to capital rigor and how we go through and assess projects and make sure that we’ve got good, sound technical basis, the reserves, the right plans in place to be able to effect value are some of the areas that you’ll begin to see. So carrying it is in some ways heightened, but it also brings my experience base to the fore.

John D. Bridges - JP Morgan Chase & Co.

Well, I hope by giving that detail of the employment fall at Utah you haven’t given any of your people heart attacks. I wonder if you – just as a follow up, a geology question, Long Canyon has been – the ounces have been slow to come. I wonder if you could detail a little bit as to why that’s happening and why it’s taking so long. Thank you.

Gary Goldberg

Thanks John. Just so I don’t give anyone a heart attack, that was a significant decrease in price. We closed Utah Copper. As you look today it’s running pretty well. Moving on to the Long Canyon question, actually the reserve, actually the resource that we reported is in line with what we would have expected at this phase in development. We’ve got a lot of drilling which we said we needed to do when we acquired the asset. We continue to do the drilling. So it’s not out of line with what our expectations are for being able to announce resource at this stage. We continue to work through the different phases of the process, but it also I would expect it’s going to take a number of years to get to where we do expect to achieve the final numbers that we painted as the potential future. Right now our focus is making sure we have what’s an appropriate amount of reserves to be able to declare when we begin production. So that’s really where our focus is now. But I also want to make sure people are aware of the full potential of the deposit. So it’s not just putting drilling in to fill up the resource bank. It’s putting it in where we need to put it in and it will come with time.

John D. Bridges - JP Morgan Chase & Co.

Excellent. Congratulations on the results and replacing your reserves. Thank you.

Operator

Our next question is from Jorge Beristain from Deutsche Bank.

Jorge M. Beristain - Deutsche Bank AG

Good morning, Gary. My question is just following up a little bit on the exploration front and in terms of the return that you’re seeing on the exploration dollars that Newmont’s been spending quite heavily in the past few years. I think if we strip out the gold price effect, you’ll agree that there wasn’t that much change in actual proven and probable for Newmont year on year. And I was just wondering about your thinking in terms of if you’d still rather be heavily funding that kind of expenditure or if you’d rather put the money into other things. And if you could also comment about this Tanami shaft project being suspended, if that’s along the lines of the capital rigor you’re talking about.

Gary Goldberg

Okay. First on reserves and thanks for the question, Jorge. Clearly that’s why we’re transparent about what the gold price increase is, so yes, without that increase it would have been about even from year-to-year. But a lot of good hard work has been done by the exploration team to get to the additions that you see there. And I see that as a very effective, cost effective way for us to add to our reserve and resource bank going forward. So Grigore and his team and a number of us spent a lot of time last year, taking a look at our priorities and making sure that we are focused on where we think are the best areas to put the money and the most effective ways to spend our exploration dollars.

So I have looked at it as a bit of belt tightening. Making sure we are effectively spending the monies that we do have targeted. So I do see this as a continued important part for our future. In regards to the Tanami shaft, last year we announced that we are really putting that whole project on hold, pending the ability to make sure we delivered good operating results. So we made that decision last year and I do see that as part of the capital rigor. It's important that we get the good returns on our existing assets before we make the investment and further expansions.

Jorge M. Beristain - Deutsche Bank AG

Thank you. And may be if you could also comment a little bit about your move to this cost, all-in cost as is generally in the industry now. Could you talk maybe about the other side of the equation as well? I think that perhaps we are focusing too much on the numerator and not the denominator which I am also trying to understand from companies. The all-in invested capital, do you see any push from the industry to start to be more forthcoming about what ultimately goes in projects both in terms of land value and CapEx.

Gary Goldberg

Yeah, I think first of all, my view of it, and that comes back to the rigor we put into the investment analysis. We take a look and clearly we are NPV driven. We have a view on gold price that goes in and we have ways that we go through those different analysis and look at the ups and downs. I think we are pretty transparent, Jorge, in what we provide to the market and what we expect the development capital cost to those projects to be. I think the other piece, and one of the things that I am looking to drive not only all-in sustaining cost but what's the return on capital employed, and getting those numbers out in front and across the business. It is a critical metric that I am used to using and we are using here at Newmont.

Jorge M. Beristain - Deutsche Bank AG

Great. Well, I look forward to more of that disclosure about the return on capital employed on a go-forward basis. Thank you.

Operator

Your next question is from Patrick Chidley from HSBC.

Patrick Chidley - HSBC

Gary, I just wanted to ask you about where you see cost pressures this year going forward. Are they labor, are they energy, are they reagents, for example. And a follow-up question to that is, where do you see productivity improvements in Newmont. Given your [present] experience there and given your past experience in the mining industry, do you see Newmont as -- do you see any low hanging fruit there in terms of productivity or is it just really quite tough?

Gary Goldberg

Okay. Thanks for both questions, Patrick. In regards to where we are seeing the cost pressures, I think clearly labor costs which tie back to your question on productivity, are related. The changes you saw in our contract at Batu Hijau reflect a real effort by the team there. To make sure that we share with our employees what the business case is and what the issues are that we face at each of the operations in regards to cost. So making sure people are aware of the issues that the industry faces within our businesses, an important part I think of managing that cost effectively so that we do control. So that’s one piece you see and I think that’s our job to manage that piece.

The second piece in regards to increase in cost, probably cyanide is cost is one that we see a bit of an uptick more this year and it's one we are working with our global supply chain team to look at how we manage and how we might approach it differently. But I think, with my background, and I was involved in some global supply chain deals with my past employer, I think there is some opportunities there to look at how we do contracting. I think we have done a good job historically but I think it's time to revisit those things again across the business.

In regards to productivity, we have launched a process and it's begun at Boddington, that we are calling our full potential process to review costs really from the mine plan right through gold production. Including G&A costs, all the operating costs and productivity. That began last month. I will actually be visiting Boddington here in another week to see how that process is proceeding. But the plan is to begin there using our internal experts as well as a little outside assistance. But looking at what we can do to really extract the full potential from the business. So I wouldn’t say that there’s easy, low hanging fruit by any means. You’ve got to work at this in this business, but we’ve got to get on with it. We’ve got the process going and the plan is to roll that across all of our regions through the course of this year.

Patrick Chidley - HSBC

And just a follow up. I know Newmont had for many years quite a significant technology investment and technology center there in Denver and I’m wondering if anything has come out of that in terms of new technology that might bring down costs in future at the mines.

Gary Goldberg

Patrick, that’s one area we’re always looking at. I think we invest both in new innovation as well as making sure we’re applying existing technologies effectively. We’ve made some changes in management there just recently. We have Scott Lawson who’s joined as our Senior Vice President of Technical Services and with that we’re combining with the technical group here in Denver the business excellence group so that we really combine those resources and in fact the project I mentioned, the full potential is being resourced out of Scott’s team. So we do look at that. I think there’s some things we can apply. I know we’ve had a team over to take a look at the operation center in Perth that Rio Tinto runs to take a look at how we might apply that at our Nevada operation. So we are taking a look at those sorts of things, but probably more so not bleeding edge technology changes, but fast follower.

Patrick Chidley - HSBC

Just one final question. Just can you just confirm or re-confirm that the focus of Newmont is still on gold and you wouldn’t be thinking about diversification?

Gary Goldberg

I think, you look at where 90% of our revenues come from our focus is clearly on gold. I know I’ve got a background in coal, but I’m not going that direction.

Operator

Our next question is from Mike Jalonen from Bank of America.

Michael Jalonen – Bank of America Merrill Lynch

Gary, welcome aboard there and I guess officially March 1 and your new role. But this is question on Merian. I know that you have a reserve feasibility study. I guess could you share with us any capital costs, production costs for Merian for that feasibility study?

Gary Goldberg

At this stage we’re still going through the process of reviewing the results of that feasibility study internally. We actually have our investment review process which will come forward here in another – for detailed review here in another month. I did have the benefit of visiting there a couple of weeks ago and looking at this potential operating sites. Along with it I visited the Rosebel operations of Iamgold just to get a flavor of what it’s like to operate in Suriname and I’ve got to say I’m really impressed with the work that our team has done on the ground in understanding this resource and what we might be able to do with it. So we’re working with the government. As you may or may not know, the government would be a partner in this project going forward or at least has the opportunity to become a partner and getting the investment agreement details reviewed and approved by their parliament is the next phase in that process.

Michael Jalonen – Bank of America Merrill Lynch

Just one quick question. What kind of infrastructure would you need for Merian once you make a go ahead decision? Power lines, whatever?

Gary Goldberg

Yeah. The power and our power situation is a little different than Iamgold’s because they get power off the grid. We would be independent of the grid because we’re located away from the grid. So it just doesn’t make sense to build the power line there. So we would be powering through our own self generation at the site.

Operator

Our next question is from Greg Barnes from TD Securities.

Greg Barnes – TD Securities

Just want to get a better feel for how Yanacocha is going to evolve over the next several years. I know you said production would be maintained at 2013 levels for a couple of years. What happens after that?

Gary Goldberg

Good question, Greg. I think a couple of things as we look at Yanacocha and Yanacocha has really been founded on all the oxide deposits there and we’ve been both milling and leaching as you know for almost two decades. As we look to the future, the amount of oxide deposits are decreasing, but we’ve got a fantastic sulfide resource. So we’re looking at where we can take that and expand that and it’s not just gold. We also have copper there too. So we’re going through a variety of things. One of the projects we’re doing right now is a test of bio leaching for copper recovery from the sulfide copper deposit. So lot of technical work going in too because of the quality of some of the reserves and basically the arsenic that would be in some of the concentrates if we were to produce the copper or gold concentrate, to make sure that we can properly process it and cost effective, we obviously do that as well. At the same time we have got to Conga where I mentioned we are continuing with the water first project there. But looking at the ability to get through the social acceptance, and a lot of work is going on in the ground there. We have made some changes with management and we have moved our headquarters up to Cajamarca, which I think is an important place for us to be located because it's an important for the overall business going forward there in Peru.

So I think that’s critical for us as we look at getting the social acceptance we need to be on the ground. And then clearly we have got to hit the financial numbers. So how that all fits together is part of the work we are doing here this year and as we re-prioritize where Conga fits into that mix.

Greg Barnes – TD Securities

Yanacocha [process] then, does production step down in stages over the next five or six years?

Gary Goldberg

Yeah, we have really taken a step this year to realign based on what our reserve base looks on the oxide deposits and then look at how we will supplement that through some satellite oxide deposits and then fill in with the sulfides I mentioned after that.

Operator

Your next question is from Stephen Walker from RBC Capital Markets.

Stephen Walker - RBC Capital Markets

Gary, two questions. The first is a follow-up to Mike's question on Merion. Where are you in the process of negotiating with the government and are there any milestones here in the near-term that we could expect from those negotiations. And then as a part of that, if you were to get negotiations with the government finalized and an [operating] agreement in hand, how long would it take for the board or at what stages it at with respect to board approval and construction start?

Gary Goldberg

Okay. In regards to the government negotiations, we have actually been through a very productive set of negotiations with the government. We have reached an agreement and that agreement is what's in front of the parliament for approval. The government is going through a process of vetting that with various parties, and it's not a process that has a specific timeline to it that’s why I say we hope to see it by midyear. But I know that the government and the different parties are actively reviewing that. So I think the milestone really is the parliament's approval.

In regards to board approval, obviously having the government approval is a critical piece. Permits is a critical piece, but most importantly having the financial returns that justify the investment is the critical piece that we would be putting in front of the board. So that could come as early as the first half of this year or it could go into the second half of this year. And then once we get that approval, as soon as we get that approval, we would move right on in. The team is set up and has looked at different ways to execute and begin construction of that project, which is not an extremely long time. I think from the time we get all the necessary approvals, we are looking at about a two-year window to get that developed and get first production.

Stephen Walker - RBC Capital Markets

Great. Thank you for that. And just a second question. On Batu Hijau there is going to be a fairly material impact as you finish the way stripping phase here and going to the higher grade copper-gold, gold-copper core again. Can you give us a sense over the next 24-36 months sort of the ramp up and the tail-off, of how that material gets blended into the mine sequence.

Gary Goldberg

Yeah. It's probably more complex to do over the phone than with a little picture. But I think we do start to run in to [deposits] of the higher grade ore and some of the sub-grade ore along the way and we will be processing that through a little bit here in '13 and we run into more of that in '14, until the end of '14 when we get into really the full ore body. So you will see bits of it start to show up more in '14 and it will really grow through '14 and then '15 will be into the full new ore, fresh ore.

Operator

And your next question is from Tanya Jakusconek from Scotia Bank.

Tanya Jakusconek - Scotia Bank

Richard, Russell, just wanted to wish you the best for your future endeavors and welcome Gary. I wanted to come back to Yanacocha. I am just looking at the reserves that you currently have in place and assuming that we keep it just sort of stable production level, it looks like we only really have four years left of the mine life, including that’s maybe a bit longer with the stockpile. I’m just wondering, are there any results from the pilot plant testing that was being done on the Yanacocha sulfides and what’s the status of Cerro Quilish? I think we used to have a resource of over 2 million ounces there. Just wondered where that was and yeah, maybe just that.

Gary Goldberg

Okay. Well, in regards to the pilot plan testing, we’re in the final stages of completing the pilot plant and then it takes a good year to 18 months to run effective tests to make sure we get the recoveries. We've had great lab results and pilot scale, what we call column leach test to confirm recoveries and actually it looks quite attractive from that standpoint. But we need to go through this process of confirming through building and these aren’t small leach pads. These are million ton leach pads that we’re building to be able to test that we are able to get the recovery. So I would see that’s still out about 18 months. We'll get indications earlier, but that's still about that long.

Tanya Jakusconek - Scotia Bank

And maybe just coming back on Cerro Quilish, where are we on that deposit?

Gary Goldberg

Yes. Sorry. In regards to Quilish, Quilish is still a resource that's there, but it's not one that we have in our current development plans. We, as you may know, we had issues in looking to develop it at one point in time and actually have made a commitment to the local communities not to pursue that at this time. So we’re still keeping with that commitment.

Tanya Jakusconek - Scotia Bank

Okay. So that's not one of these ones that you're looking in terms of supplementing then for the – when Yanacocha oxides fade off?

Gary Goldberg

That's correct.

Tanya Jakusconek - Scotia Bank

Would it be fair to say then, Gary, that we're looking at a four year mine life and a little bit longer on the stockpiles at Yanacocha if we kept this current rate?

Gary Goldberg

If we were to not have any success with the sulfides which I'm still confident, the team is working on and has good potential to extend, that's correct.

Operator

Our next question is from Garrett Nelson from BB&T Capital Markets.

Garrett Nelson – BB&T Capital Markets

You've obviously made a significant cut to the CapEx budget versus what the company spent last year, but development CapEx still represents about 40% of the total. Will you continue to take a look at the returns on these growth projects or should we consider the CapEx guidance a definitive total of what's been approved and what you plan to spend this year?

Gary Goldberg

Yeah. Thanks Garrett. I think in terms of the projects that we have going out there, clearly, Akyem is coming on board later this year and that one's going to move through the completion. The Phoenix Copper Leach project, also looking for later this year to come on. You've seen the decision made with Tanami and I think that's the right thing, but I've done the scan across all of our operations and we'll continue to do and put the rigor behind assessing our capital investments and development capital investments to make sure we get the return on capital that we need to do the projects.

Operator

Our next question is from Dave Hove from Stifel.

Dave Hove – Stifel Nicolaus

Good morning, Gary. My question is first on the $700 million for the exploration in advanced projects. What are the major – which projects are the major consumers of this expense and how should we think about it going forward? I know for 2013 the guidance is $600 million to $700 million?

Gary Goldberg

I’m sorry. Just a minute.

Russell Ball

So your question is the combined exploration in advanced projects of $600 million to $700 million in total, correct?

Dave Hove – Stifel Nicolaus

Yes.

Unidentified Company Representative

So we expect that in the next few years we have opportunities, particularly in the advanced projects area to tighten up our spending there as well. That's part of our overall effort to reduce total costs. And I think as you see, the capital discipline that Gary has been referencing throughout the call, advanced projects is probably one of the areas that we have some additional opportunities.

Dave Hove – Stifel Nicolaus

So right now, which are the major projects which consume that?

Unidentified Company Representative

The major project to consume most of our advanced projects you’re going to see some of the projects in Africa, the likes of Subika. You’re going to see some of the projects in Nevada, the likes of Long Canyon. Those are going to be the two main areas where you'll see advanced project spending.

Gary Goldberg

And a little bit in the Long as well in Indonesia would be the other one I would put in there. Sorry, Dave, I haven't picked up where you are pointing with the number.

Dave Hove – Stifel Nicolaus

All right. Not a problem. Okay. Then a second question on Long Canyon, how much was spent for exploration there in 2012 and what is the budget there for 2013.

Gary Goldberg

Okay. I've got Grigore here to give an update on that.

Grigore Simon

Hi Dave. Yes, this is Grigore. We have spent $12 million in exploration at Long Canyon and for 2013 we have $16 million allocated.

Dave Hove – Stifel Nicolaus

Okay. And are the development plans still for -- I think there was a date before 2017 or something like that, it is still part of your plan?

Gary Goldberg

Yes, that’s still the plan in terms of once we're submitting the permit later this year to the BLM, and we would expect that the timing of that review plus our own, obviously, internal reviews of the capital approvals would target first production in 2017.

Operator

Our next question is from Michael Dudas from Sterne Agee.

Michael Dudas - Sterne Agee

Gary, how do you think about, going forward how you and the board are going to allocate for external investment opportunities? Is it going to differ much than what Newmont has done over the past few years? And on the other side, have you gone through a full review, I know you are going to start I guess officially next week, of the asset base and the reserves? And how much more opportunities there would be monetization or joint ventures or outright asset sales as you're trying to improve those capital returns?

Gary Goldberg

Okay. Thanks for that. I think in terms of external opportunities, we always scan the horizon but at this moment there's nothing that's on our radar screen. So I think that's where I'd put it. I'm also sensitive to having been involved in the mining industry for 30 years to how those things work and how you deliver value from those things, and that's important. I think the internal portfolio, it is something I've spent the last year looking at and looking at where our business is set. I've heard a lot of talk out in the industry of people looking to dispose off assets and with all of these eager people that are out there to buy them. My approach is to understand your assets, understand where the issues are, give the teams an opportunity to address those where we are on the high-end of the cost side, and work through that in the first instance before looking at what we might do in terms of asset disposal. So that's the approach you'd see for me in this process. But clearly, you've got to take a look at what's delivering versus what's not delivering and get after it.

Michael Dudas - Sterne Agee

So we think that'd be a 2013 process for you or could we, maybe have something from you sooner than that.

Gary Goldberg

All right. I think from my standpoint, it's a process that's ongoing in terms of assessing the performance of our portfolio.

Michael Dudas - Sterne Agee

And finally, the longer term outlook for production from what Newmont put out last year, are you willing to still commit to that or is that something again as evolving as you are figuring things out, and what targets would be going forward relative to your re-found focus on rates of return on invested capital.

Gary Goldberg

I know our longer term view showed a range of 6 million to 7 million ounces. And I think the key piece that goes with that is it's got to be profitable production and that's the focus that we have within the business. So as we review that and review our longer term plans, we'd let people know if that changes that range, but really our focus is on profitable production going forward.

Michael Dudas - Sterne Agee

Terrific. Just wondering if I could get a gold price forecast from Russell before he leaves?

Russell Ball

Thanks for that, Mike. Long-term bullish as ever, short-term clearly some headwinds, lot of liquidation. Maybe what are you seeing is some -- we can't [big] margin called out. But, yeah, we can't run this business on the quarters, Mike, and long-term we're still very bullish. The fundamentals are there and it's just a question of time before the debt issues start rearing the head again.

Operator

Your next question is from Brian MacArthur from UBS.

Brian MacArthur - UBS

I just want to go back to Batu Hijau for a minute. You did make a comment about potentially getting the final 7% settle down where you'd end up with 44% afterwards. Has anything changed with price given all the discussions in Indonesia about new taxes, whatever? Is that a fixed in stone prices that drags on or what's the update? Or we're just still waiting for them to tell you who you can sell it to?

Gary Goldberg

Brian, I'm going to hand that over to Russ to address.

Russell Ball

He gives me all the fun ones here. Yeah, we have a contractual price. However, I’d submit in reality there's been a lot of order under the bridge over the last two years. If you think about it even the four month dividends out or capital reinvested. So at this stage we have a firm contractual commitment. As Gary mentioned earlier we have continued to renegotiate that. I'd say that when this transaction closes, or I should say if and when this transaction closes there will be a further discussion around price, I have no doubt in my mind.

Brian MacArthur - UBS

Okay. And maybe just a follow-up in that. So again we're going to finish the stripping, we're going to go under the bottom pit, have lots of good years through '14, 15, '16. Maybe just a comment on what the longer-term view is on Batu Hijau and obviously it will depend on all these other things, but structurally what the view is there. Has that changed? We talked about Elang everything else. Just what may be your views are on that, Gary?

Gary Goldberg

Yeah. I think, clearly there's a Phase 7 stripping process to come in behind. So that is one that we're evaluating clearly the economics, but right now it would look attractive to come in and following behind with that, looking at the timing, we'll still have what we've gone through this last time. We're going to through a period of feast and then a period of working through the stockpile. Elang is one that we continue to drill. I was out at site last year to take a look at what's there. Great resource, but how we put that into practice will be the one that we’ve got to work through here over the next year or two and figure out what to do and what the next steps might be there.

Operator

And our final question today is from Robert Reynolds from Credit Suisse.

Robert Reynolds – Credit Suisse

Just to go back again to Batu Hijau. I'm wondering, you mentioned of course 2015 you'll be into the full ore. How does the production look in comparison to these high stripping years once you’re back into the full?

Gary Goldberg

I’ll hand that to Russ.

Russell Ball

Robert, if you go back and look at Phase 5, and I think it was 2009 and 2010, you'll get an indication order of magnitude. As Gary said, it very much is feasible for them at Batu. The last time we were in the bottom of the pit was 2009 and 2010 and that will give you an indication as to what that middle looks like. Obviously there's mining variation when you get down to the bottom. It is interesting, as you get into the bottom it is far more gold dominant than copper. So you tend to see the relative weighting of gold increase significantly when you are in the bottom of the pit.

Robert Reynolds – Credit Suisse

Okay. So the similar grade to those years or is that – will that change?

Russell Ball

Yeah. I'd say plus or minus 10% to 15%, it will give you an idea of what it'll look like.

Robert Reynolds – Credit Suisse

Okay. And then just moving to Boddington, the measured and indicated resource there declined by about 3 million ounces. I’m just wondering if you could comment on what happened there.

Gary Goldberg

Yeah. Happy to take that one on. Bottom-line, it's the cost increases we've been experiencing in the business that we took into account in calculating the resource and we had to make a reduction. These are marginal ounces as you can imagine at this gold price that dropped out. So that's what caused the reduction.

Robert Reynolds – Credit Suisse

Were those ounces, would they require significantly more stripping than the ounces currently in the reserves or is it just the lower grade?

Gary Goldberg

It's significantly more stripping. It would be basically the next shale in an ultimate pit if you were to look at it that way.

Robert Reynolds – Credit Suisse

Okay. And then a final question on Waihi. Is the golden link mine life extension, is that still in your plans?

Gary Goldberg

Yes. We’re still moving ahead with that at this stage.

Operator

Thank you. And I would now like to turn the call back to the speakers for closing remarks.

Gary Goldberg

Okay. Well, thank you everybody. I appreciate all your questions and your patience here as I go through my inaugural earnings announcement here with the Group. I really just want to come back and re-emphasize the appreciation I have for both Richard and Russell and their contributions, the team that's been putting together all the numbers that we go through here at the year-end, and most importantly, to all the employees and contractors across Newmont for all your efforts to continue to work safely. I am looking forward to next week at BMO and a chance to talk more with our investors about the future and great future here at Newmont. Thanks very much.

Operator

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

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