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Newmont Mining Corp. (NYSE:NEM)

Q1 2009 Earnings Call

April 30, 2009 10:00 AM ET

Executives

Richard O'Brien - President and Chief Executive Officer

Guy Lansdown - Executive Vice President, Development

Roger Johnson - Vice President and Chief Accounting Officer

Brian A. Hill - Executive Vice President, Operations

David Faley - Vice President, Corporate Development

Russell Ball - Executive, Vice President and Chief Financial Officer

Analysts

Victor Flores - HSBC

David Haughton - BMO Capital Markets

Barry Cooper - CIBC World Markets

John Bridges - JP Morgan

Patrick Chidley - Barnard Jacobs Mellet

Operator

Good morning and thank you for standing by. I'd like remind all participants your line will be on a listen-only mode throughout the presentation. (Operator Instructions). This call is being recorded. If you do have any objections, you may disconnect at this time.

And I would now like to introduce your host for today's call, Richard O'Brien, President and CEO. Sir, you may begin.

Richard O'Brien

Thank you very much operator. Good morning everyone. Thank you for joining us on our conference call today to discuss Newmont's Financial Results for the First Quarter of 2009.

With me in the room today are several members of our management team. We're also joined by Russell Ball; Guy Lansdown and Brian Hill, who are joining us in... from Nevada, where they are participating in our safety summit. All of those members of management will be available for questions at the end of the presentation.

Before we get started, I need to remind you that we will be discussing forward-looking information involving a number of risks, certain of which are unique to our industry as further described in our SEC filings, which can be found on our updated website at www.newmont.com.

For those of you with access to our simulcast presentation, I'd like to start with some comments on slide three. As we look at the first quarter highlights, I am pleased to report solid operating and financial results, with our ongoing focus on our operational and project execution. Our first quarter performance provides a good foundation for us to deliver on our operating plans for the full year in 2009.

As we discussed at our Investor Day in March, we believe our primary driver of long term value for Newmont is cash flow generation. Our first quarter results demonstrate our focus on driving this value. During the quarter, we generated cash flow from continuing operations of $387 million or $0.82 per share.

Our adjusted net income for the quarter was 208 million or $0.44 per share, and we reported net income on a GAAP basis of 189 million or $0.40 per share.

This compares with GAAP net income of 365 million or $0.81 per share for the first quarter of 2008. This reduction in earnings is primarily driven by lower realized copper prices, which reduced revenue by about 240 million, and slightly lower gold production and lower gold price, which reduced revenues by about 120 million.

Our operations delivered equity gold sales of approximately 1.3 million ounces for the quarter at costs applicable to sales of $435 per ounce.

Also, during the quarter, we sold 43 million pounds of copper, primarily from our Batu Hijau mine in Indonesia.

A critical performance driver for us in 2009 is completing our Boddington project by the middle part of this year and successfully ramping toward commercial production.

I'll provide a bit more detail about Boddington later in the presentation. But I am pleased to say we continue to expect start-up in mid 2009. Importantly, we are maintaining our annual equity gold sales and costs applicable to sales outlook for 2009.

As we turn to slide four, looking at our equity gold sales and costs applicable to sales by region, we're generally performing in line with our expectations. In Nevada, we sold 518,000 ounces, slightly above expectations, primarily due to higher throughput at Mill 6 and the Sage Autoclave and higher underground production at Leeville, Chukar and Carlin East. These gold sales combined with lower input costs resulted in costs applicable to sales for Nevada of $509 an ounce, somewhat lower than expected.

At Yanacocha, changes in mine sequencing during the quarter resulted in gold sales of 241,000 ounces for the quarter, slightly lower than expected. Costs applicable to sales of $324 per ounce at Yanacocha were adversely impacted by a higher than anticipated royalties and production taxes, due to higher gold prices.

In Australia, equity gold sales of 293,000 ounces were also above expectations due to higher grades and recoveries at Jundee and Kalgoorlie. Higher sales and favorable Australian dollar exchange rates during the first quarter generated costs applicable to sales of $492 per ounce, again below expectations.

Of note, our higher than expected costs applicable to sales of $551 per ounce in the other category, which includes La Herradura in Mexico and Kori Kollo in Bolivia. This increase is primarily due to leach pad and inventory write-downs at Kori Kollo during the first quarter.

As we stated earlier, our operating performance for 2009 is skewed to the last six months of the year, as a function of the ramp up of Boddington, mine sequencing at Yanacocha, no shut downs in Nevada for planned maintenance activities during the second quarter of the year and the traditional production benefits from the dry season at Batu Hijau, which we see in the third and fourth quarters of the year. We're expecting our financial results for the second quarter to be negatively impacted by some one-time transactions, including stamp duties of approximately $60 million associated with the closing of the Boddington acquisition.

Again, I would like to reiterate that while we've recognized the quarterly fluctuations will occur, we continue to drive our business toward meeting and exceeding our annual targets. As it was in 2008, continuing to meet or exceed our annual outlook for 2009 is still job number one here at Newmont.

Turning to slide five for the gold industry as a whole, gold grades continue to decline. Since 2003, grades have decreased by approximately 27%. As operations mature, gold producers, including Newmont, are forced to extract ores with lower grades that are often accompanied by higher separations.

In addition, our costs were impacted by market fluctuations. The graph on the right hand side of this slide demonstrates our updated costs applicable to sales for 2009. In comparison with our original expectations, our costs will be adversely impacted by higher anticipated gold prices due to higher royalties and taxes that will peg to gold prices. And cost increases to our original outlook are being offset by lower than anticipated Australian dollar foreign exchange rates and oil prices.

We're, therefore, maintaining our costs applicable to sales with our original outlook that we shared earlier this year. It is still early in the year, and we're continuing to see lots of fluctuation in input costs.

Slide six demonstrates our ability to deliver leverage to gold prices. The graph on the right hand side of the page displays what our costs applicable to sales would have been, if we were able to use our copper revenues at Batu Hijau and our cash distributions from our investment in the Canadian Oil Sands Trust, as a credit to our costs.

For the quarter, we reported costs applicable to sales of $435 per ounce. As illustrated in the chart, our costs applicable to sales would have been $383 per ounce, net is a $52 per ounce credits from copper revenues and a $4 million that we received from Canadian Oil Sands Trust distributions during the quarter.

While our actual costs applicable to sales of $435 per ounce were lower than our internal expectations for the first quarter, they may appear somewhat higher than expected by external stakeholders due to lower input costs realized during the quarter. This warrants some commentary.

As previously discussed, higher expected gold sales in the second half of the year will drive our costs applicable to sales down closer to the mid-point of our annual outlook. And our cost and production guidance again is annual, not quarterly.

In addition, there is a lag effect with input cost reductions being realized in our numbers. We generally see a one to two quarter delay as we work through our inventories and stockpiles. We continue to work with our vendors to ensure our input commodity costs closely reflect the current costs and labor environments.

And finally, as you would expect, higher realized gold prices over the quarter negatively impact our costs as royalties and production taxes increase. We'll take that high class piece of the increase any time.

With, despite of variability in input cost, primarily oil prices and Australian dollar exchange rates and with Boddington starting up in the second half of the year, we've positioned ourselves to realize significant margin expansion, if gold prices continue to remain strong.

As shown on slide seven, during 2009 we remain committed to delivering on our plans in a safe and environmentally sound manner and to doing what we say we're going to do. This is the cornerstone of our business and as mentioned previously, should allow us to deliver long-term value to our stakeholders.

During the second quarter, we continue to focus on transitioning our Boddington project operations. Happy to report that we're on schedule for this critical deliverable.

Another key deliverable for us in 2009 is to work with the government of Indonesia to fulfill our commitments in regard to the recently announced arbitration panel's decision regarding the Batu Hijau divestiture process.

But those who attended or listened to our Investor Day in March, we outlined our disciplined approach to evaluating the investment opportunities. Under this approach, we'll continue to actively evaluate and pursue the best available internal and external investment opportunities to sustain our business, with an ongoing focus on Conga in Peru, Hope Bay in Canada, and Akyem in Ghana.

Finally, during 2009 we are enhancing our focus on improving operational and business efficiencies throughout the organization with the goal of delivering superior leverage to gold prices and improving our financial returns.

The current status of our internal project pipeline is displayed on slide eight. During our Investor Day, last month we went through the majority of the projects. So, instead of project specific, we'll highlight our North America and Africa regions.

Within North America, we're advancing multiple projects, both large and small with low geopolitical risk. Our total expense advance project and exploration spending in the region is about $110 million, which includes over 200 kilometers of drilling split equally between major opportunities and multiple smaller near term opportunities.

Major programs within North America include 60 million directed towards our exploration focused Hope Bay program and multiple near mine opportunities, for short-term resource additions and production, including Gold Quarry West Wall and Turf.

In Africa, we're also advancing multiple opportunities and evaluating new near mine exploration results to optimize this region. We have positive drill results under the Subika pit Ahafo operations. We're evaluating opportunities there for both open pit and underground expansion. We're also evaluating the team given the recent receipt of the environment impact assessment permit, coupled with more favorable project development conditions in the current market. We should see results from these efforts as the year progresses.

As shown on slide 9, Boddington capital and start-up estimates remain on schedule. Currently, overall progress is approximately 95% complete. Pre-commissioning work has been initiated in the wet plant with the first environmental motors completing test runs last week. We will complete further pre-commissioning of the wet plant over the coming weeks.

From a safety perspective, Boddington is still a benchmark project in Australia. The project just received Akersolutions 2008 P&C Just Care Award for overall health and safety and environmental performance.

Safety is still very much our focus going forward, especially as we're moving into commissioning phase. However, we have the people and systems; we will continue to make safety our first priority.

Slide 10 provides a current photo of the processing facilities at Boddington. Although this photo still does not do this project justice, it does provide a view of the size and scale of the project.

I'll highlight a few areas for your reference. The dry plant is shown on the right side of the photo. Construction work in this area is approximately 99% complete. Our EPCM contract has officially turned over to our operations team, the primary crusher, conveyor and of course all feeders, and is currently in the process of turning over the high pressure grinding rolls.

The wet plant which includes the majority of the remaining facilities in the photo includes two separate trains. Mechanical equipment associated with the first train is currently in the punch list phase with some remaining piping to be installed.

The second train will follow in the coming months as planned in our stage turnover and ramp up of the overall plant.

Pre-commissioning work on the mill (ph) conveyors and screening systems has been completed. Motors associated with the first mill have completed test runs and several water tests have also been completed.

Overall, as you can see from photo the project is in the final stations of completion. I continue to be impressed by the dedication and caliber of our employees at Boddington and from around the globe including the team from Phoenix and Nevada, who are all committed to the successful transition of this project into operations.

Turning to slide 11, as most of you know the arbitration panel ruled on the divestiture issue on March 31. Importantly, the panel ruled that the contract of work remains in full effect. As we have always maintained, we're committed to honoring the sale down provisions defined in the contract of work.

The arbitration ruling provided clarification, of to whom we should sell. The panel also directed its pledges to the senior lenders must be removed before qualifying offers can be made.

Newmont and our partner, Sumitomo are committed to complying with this requirement. In fact earlier this week, we received confirmation from the senior lenders, the pledges on the 31% of PTNNT shares subject to the divestiture requirements will be removed.

Pending approval of the necessary changes to our PTNNT project financing facility by our partner, Sumitomo, this confirmation will allow us to transfer the required shares if any obligations within the 180 cure period provided by the arbitration panel.

Starting with slide 12, the next few slides demonstrate some of the competing tensions that we believe are currently driving the gold market and consequently influencing our share price.

Once -- since last fall, we have seen a decoupling of the traditional relationship between a weaker U.S. dollar and stronger gold prices. We believe that this has been driven by a continuing flight to quality, as investors seek the safety of gold and gold stocks. U.S. dollar strength is benefiting from deflationary pressures resulting from below potential economic growth, distressed credit markets and massive retrenchment of energy prices.

We do expect gold prices in the U.S. dollar to re-couple in the near future as fiscal and monetary policies began to work, the sign that the credit markets are lifting consumer confidence. As this occurs, we expect inflation risk to return with U.S. dollar weakening and the lifting of gold prices.

As shown on the chart on the right hand side of the slide, the Federal Reserve has injected over $1 trillion in liquidity into the U.S. financial system by expanding the Fed's balance sheet.

The Fed proves flowing with China's liquidity. Once an economic recovery is underway or cannot due to political pressures, this has potential to send inflation toward 1970 levels and beyond.

Turning to slide 13. As demonstrated by increasing the ETF demand for gold, investors are continuing to flock to gold in light of the uncertainties in global financial systems and currencies. Gold is still viewed as the safe-haven investment.

In addition, we believe that many central banks around the world may be more likely to acquire gold at this point due to their over exposure to the U.S. dollar, principally China and the oil exporting countries. In fact last week, China revealed that it is over 1000 tons of gold in reserves, much higher amount than previously estimated.

In dollar terms, jewelry demand is in an all time high. However, physical demand remains under pressure as the direct result of reduced global discretionary spending, especially in many jewelry demanding countries. For example, during the last twelve months the Indian Rupiya (sic)[Rupee] has lost 25% of its value against the dollar, thus adversely impacting jewelry demand in that country. This situation should reverse with any U.S. dollar weakness.

To summarize our view on gold market conditions, pending U.S. dollar weakness coupled with industry supply and demand fundamentals provide for significant upside in gold prices and our stock. The key for our management team and employees is to manage our business with a focus that allows for cash flow generation, margin expansion and higher returns on invested capital as gold prices increase, thus providing long-term value to our shareholders.

In closing, slide 14 provides a longer-term vision for Newmont and a summary of our strategic direction to deliver value to our stakeholders. We recognize we are in a long-term industry and we'll operate our business accordingly. As such, it is important to have a vision for where we want to be over the next five years.

We'll continue to develop better operating plans with longer-term delivery horizons. One success criteria we have established for the company, and upon which every Newmont employee will be evaluated is three-year accountability.

Variability within the quarters is still expected but we plan on a longer-term basis to deliver sustainable, operating performance and hold ourselves accountable to these metrics.

We are developing and further refining robust analytics to assure that we are investing our limited capital into the highest ranking opportunities that enhance the strategic direction of our company. These opportunities may be from exploration, project development and/or acquisitions.

Operating our business with focused discipline is at the heart of our company. We're pleased with our operating performance during the first quarter. However, we remain focused on the work we have to do during 2009 and beyond to deliver long-term value.

And with that I'll turn it back to the operator and thank you for listening and open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Victor Flores. Sir, you may ask your question.

Victor Flores - HSBC

Thank you. Good morning. I have a couple of questions. First, if I could begin with the team. I realize that not a lot of time has passed since the Investor Day, but I was wondering if you could give us a sense of what new information you've assessed in that past month or so that would lead you to be more or less encouraged with respect to the potential of the delivery team?

Richard O'Brien

I am going to turn that over to Guy Lansdown. Guy, do you want to take that one?

Guy Lansdown

Yeah, I can do that. Thanks, Richard and thanks Victor. Victor, we haven't learned much more since we talked at the Analyst Day, but we are working very hard with the team to look at both achievements to be here. We're looking at what realistic capital cost estimates and operating cost estimates are in this current market environment. And we'll continue to do that over the course of the next several months. So, we'll partly answer, but at this point in time, we haven't run much more than what we told you during Analyst Day.

Victor Flores - HSBC

Okay, great, thank you. Second question goes to a comment made in the introductory remarks about the $60 million stamp duty on the purchase of Boddington coming through the income statement in Q2 '09. I think the comment was made that there were other items. So could you tell us what those items are, if they're material?

Richard O'Brien

Yeah, I am going turn that over to Roger Johnson, our Vice President and Controller.

Victor Flores - HSBC

Thanks.

Roger Johnson

Thank you, Richard. Victor, the main items that will be coming through other stand, so there will be some other transaction costs associated with Boddington, the normal expectation in our legal fees and advisor fees coming through. And as you probably are aware, these are result of the changes in the business combination accounting rules in the U.S. that previously these costs would have been capitalized, but the new rules require us to charge them to the earnings statement.

Victor Flores - HSBC

Okay. That's fine. And is there an order of magnitude on those transaction costs?

Roger Johnson

I think you can use the 60 million to 65 million as a owned encompassing number.

Victor Flores - HSBC

Okay. So that would be more or less the total amount ?

Roger Johnson

Yes sir.

Richard O'Brien

Yes.

Victor Flores - HSBC

Okay. Great, thank you very much.

Richard O'Brien

Thanks, Victor.

Operator

Okay. Our next question comes from David Haughton. Sir you may begin.

David Haughton - BMO Capital Markets

Good morning and thank you. I've got a few questions. Firstly, at Yanacocha, the great going through the mill was pretty healthy looking. And I am wondering what sort of outlook you have for that, especially when it's combined with the previous statement that you made that you expect Yanacocha to be backend loaded on grade.

Richard O'Brien

Sure, Brian Hill, do you want to answer that one?

Brian Hill

Sure, thanks David. In Yanacocha, it's really a function of we're into some higher grades in the pits than we had predicted or expected coming through from the model. So that's performing quite well. The backend loading that we have not really related to grade, it's more related to ounce flow coming out of the pad. We're heavier in the front end of this year in terms of pad loading. So we're actually seeing more ounces come out in the second half of the year than the first half.

David Haughton - BMO Capital Markets

All right.

Richard O'Brien

And then David, just to finish up on that, I would say that the gold mill continues to operate at or above capacity and with head grades, which are at or above what we'd planned on. So everything's going pretty well with respect to the gold mill.

David Haughton - BMO Capital Markets

Thank you. And also through the gold mill, you'd be recovering silver. It's not mentioned in the report. What sort of grade are we looking at for the silver and your recoveries?

Richard O'Brien

Brian, do you have that, I don't.

Brian Hill

I don't have that right off the top of my head. I knew that from Analyst Day, we were sort of within that 85 to 90% range, I believe. And we're also in silver recoveries in that range.

Richard O'Brien

We can get back to you with more info on that David.

Unidentified Analyst

David I'll follow-up with you on that. I mean I guess the important thing is that we're getting much higher recoveries on the silver, the grade is probably the same as it was obviously going on our leach pad. I'll get back to you with a number on that.

David Haughton - BMO Capital Markets

And I'll take it that silver production's acting as a credit for your cash balances.

Richard O'Brien

Yes, that's correct, that's correct.

David Haughton - BMO Capital Markets

Okay. Also in your 10-Q, I noticed that you had a small acquisition, nearby property at La Herradura. Can you explain what that entails? And also the amount of holding stack was higher than what we've seen previously? I'm wondering if you can give us an outlook.

Richard O'Brien

I am going to ask David Faley, our Vice President of Development to take a look at that.

David Faley

Sure, thanks. We acquired with our partner Brass Mills (ph), Yanacocha property which is on strike with La Herradura. It's a development opportunity and has exploration potential. And so it's within the joint venture property itself.

David Haughton - BMO Capital Markets

And the increased stacking right that we saw during the quarter. Can we expect that going forward?

Richard O'Brien

I don't think we have, we don't have any answer to that. When David, we'll comeback to you at that one.

David Haughton - BMO Capital Markets

All right. Well, thank you very much guys.

Richard O'Brien

You're welcome.

Operator

Okay. Our next question comes from Barry Cooper. You may ask your question.

Barry Cooper - CIBC World Markets

Yeah, good morning everyone. Just wondering if you can walk me through what you anticipate to be kind of first the steps for Batu Hijau. I know that there have been some prior agreements on valuation. And I'm just wondering how those valuations hold in the current market. Obviously, copper changed, and gold prices changed. Are you stuck with those prior valuations? Or you're going to get the benefit of those prior valuations? Or just how is this thing going to hold and fall over the next 180 days?

Richard O'Brien

Let me give a little a little bit on the unfolding. And then I'll Russell to jump in on the valuation. But basically as a result of the arbitration order in addition to confirming that the contract of work is still in force, the arbitration panel did say that the Newmont, think of it this way, pretty much needs to sell to whomever the government tells us to sell to.

And before we had tried to move into the business, the business phase, instead of the business, the government phase, because we've had certain periods that are expired under the contract. The panel said none of that applies. You will just sell to whoever the government wants you to sell to. And you will do it with shares that don't have any leans or pledges against them.

So as I mentioned, we are in the process of removing the pledges. We will then re-offer the shares to the government. The anticipation is that the ruling from the panel we believe, suggests that the 2006 and 2007 prices are still what they were when we offer them and because we did not complete 2008 offer in the way that the panel and the government had anticipated.

And we've not completed 2009 pricing. Those are probably still out for discussion. As a consequence to that, I would say that we're still in the process of confirming with the government, the right way forward in terms of valuation, but Russ, do you want to add some of that?

Russell Ball

Yeah, thanks Richard. Barry, yeah, you have to break it into '06 and '07 which we believe the price has been agreed. The tribunal panel never ruled on that specific issue, and we're working through discussions of the Indonesian government to clarify that. But we believe the '06 and '07 price was set. As Richard said '08 to '09, given that we filed for arbitration in March last year we never actually agreed those prices with the government. So, we have a team that has begun discussions around valuation.

And just to go back and refresh, remember the '06 valuation was 3.6 billion, went up to 4. It went up to 6.1 and then our most recent is around 4.9 billion. So, to your point earlier, yes we have reflected lower commodity prices, certainly in the short-term in those valuations. And that's why you see the decrease from 6.1 to 4.9. And we also have a lower valuation in that. It will be a long project which is deposit of 60 kilometers to the east. So those will be items that get discussed. And we have started that process. We have a team, the government appointed a team. And we're going to through '08 and '09, with them, hopefully the next month or so.

Barry Cooper - CIBC World Markets

Hypothetically, if somebody came up with the cash, as an example, for purchasing these. And it's hard for me to describe them, how that would happen. But would you have to go back and then repay them an awful lot of the profits that you would have generated over the past couple of years? And indeed if you would have been hedged in some of those years for the copper, would you conceivably have to wind up paying for unhedged copper production that would have occurred during those prior years?

Richard O'Brien

No. Larry?

Unidentified Company Speaker

Barry, yeah, Richard is correct, no. We believe and this issue was addressed in some point in a claim for damages that was a part of the contract of work. And the panel ruled clearly that in addition to the contract of work not being canceled that damages were not entitled, so we believe that any transfer would then apply on a prospective basis to future earnings.

Barry Cooper - CIBC World Markets

Right. Okay. And then another and separate question, you've had Hope Bay now for a year and half or so and you spent a fair bit for it. And I think probably more than 100 million since you got it, we've had virtually no news. When do you think we are going to get some sort of information flow from that asset?

Richard O'Brien

Yeah, actually we did have a brief update at the Analyst Day, where we talked about what the progress going forward was for this year, but Guy, do you want to recapture that because there we don't have a lot to add in addition to that, but Guy, do you want to bring that up?

Guy Lansdown

Yes, I can do that sure Richard. Barry, as you've correctly said, we've invested a fair amount of money setting up sort of the infrastructure wise, so that we got a good platform from which we can work safely to continue exploration and development activities in the area. That was bulk of that effort last year.

This year, we have a multi-pronged approach, where we are aggressively going after our exploration activities both on the generative side, where we're looking at the targets across the whole region, the whole 80 kilometers strike length, or belt length. And we'll continue to define the answers or the potential around the existing resources.

In addition to that what we got going on is our team that we also built last year is busy looking at many options to develop the projects, looking for the optimal way to develop it. And so, through the course of the year, we'll a lot more, and we would continue to update or provide update as meaningful information becomes available.

Barry Cooper - CIBC World Markets

And any kind of changes to the prior resource numbers or anything in terms of what you found so far? Are you substantiating the numbers or better or worse or any comment that you can make on that?

Richard O'Brien

Well, I'd say we're busy going through the process of confirming them. Going through the process of looking at the data, we will know more once we've drilled more, and too early to really say meaningfully whether we've got anything to report on this stage.

Barry Cooper - CIBC World Markets

Okay. I guess we'll look patiently for a while longer then.

Richard O'Brien

Yes. Thanks Barry.

Unidentified Company Speaker

Thanks Barry.

Operator

Okay. (Operator Instructions). And our next question comes from Kaushik Mitra. Sir, you may ask your question.

Unidentified Analyst

Hi. Good morning. Thanks for taking my questions. I had two questions; first, is there any provisional pricing adjustment term in your copper sales and how that might change in 2Q if copper stays above $2? And the second, you've mentioned briefly about the power situation in Ghana has improved. Could you talk about that little bit more? Thank you.

Richard O'Brien

I'll take the power one and then I will ask Roger Johnson to talk about the provisional pricing one. So on power, the improvement that we are talking about is, there is more hydro than perhaps we had expected in our -- when we set our guidance for the year. And hydro power versus diesel power for us results in lower costs applicable to sales, so that's really the reference.

In terms of the going forward, the government -- new government in Ghana is reviewing energy infrastructure, but what I'd say is these are really temporary reductions in power costs because of increased hydro availability, it doesn't reflect for instance the new building of a substantial power station in Ghana. So that's probably still to come.

Roger, you want to talk about provisional pricing?

Roger Johnson

Yeah, thanks Richard. At the end of the quarter, we had approximately ₤86 million of copper provisionally priced at $1.83. So, we will have a significant amount that will be priced in the second quarter. Just to call your attention to the fact that we hit a similar favorable variance coming in the first quarter, there was about a $29 million favorable impact from the provisional pricing that was at the end of the year.

Unidentified Analyst

Thank you.

Operator

Our next question comes from John Bridges. You may ask your question sir.

John Bridges - JP Morgan

Good morning, Brian and everybody. Just wondering if you could square circle. Reading one of Ventura's report last night, they were making the points that, the production at Yanacocha was similar to Q1 '08. But the difference was the build up of inventory and just the sales reduction. That's a bit different to what you're saying. Could you explain where we're going wrong here?

Richard O'Brien

Yeah, let me just try square that circle. As you say, we're actually comparing to expectations, not to the prior year quarter. I think their description of the prior year quarter is actually correct. We're just comparing it to where we thought we were going to be for the quarter.

John Bridges - JP Morgan

Okay. So, is there any build up in inventory? Or was there a build up in the leach pads?

Roger Johnson

This is Roger Johnson. There is a slight build in the inventory at Yanacocha. So one of Ventura's representation, we agree with.

John Bridges - JP Morgan

Okay and then maybe one for Brian. You, at the investor presentation, were talking about how you're able at the comfort of surveying the scene and figuring out whether you're going to go ahead with your projects, your resource projects or maybe be in the position to buy something. I just wondered from a couple of months on, any changes, any enhancements?

Brian Hill

I think John, there are some processes we're still working our way through in terms of having a look at, at how we rate and rank both our smaller internal projects and some of the ones which Guy has spoken about. And that sort of coupled with, with some of the works that Randy's doing in terms of looking at other strategic opportunities. So that's still a work in progress, as far as we're concerned.

John Bridges - JP Morgan

Okay. That's understandable. Any -- have you given yourself any deadline as to when to come to conclusions on that?

Brian Hill

No, not really. That's just going to be an ongoing process that we're just discontinuing to look at them, and advance them as best we can.

John Bridges - JP Morgan

Okay. Great. Congratulations on the quarter guys. Good luck.

Richard O'Brien

Thanks John.

Operator

(Operator Instructions). And our next question comes from Patrick Chidley. Sir you may ask your question.

Patrick Chidley - Barnard Jacobs Mellet

Thanks. Good morning everybody. I wanted to ask about particularly sort of the long-term outlook you have for Yanacocha, being as the reserve life, I don't think to be that long anymore. And whether or not -- what sort of timing we might expect on Minas Conga in terms of the development decision in the light of some of these -- indicating some of the Chinese companies in the district or --

Richard O'Brien

Couple of things, Patrick. First, the Conga decision is one that as Guy referenced on a team. We're seeing some reduction in capital cost estimates. We're still pushing that project through our pipeline and we'll continue to evaluate that one. There are some other things going on in that district. And so it's something that we're looking at as well.

In addition to that, at Yanacocha, we mentioned this again at Investor Day, but we do have several projects going to continue to push the life of Yanacocha out. In particular, we're drilling the Sulfides underneath the pits, examining additional ways to process those Sulfides economically. And if that can be done, there will be a much longer life at Yanacocha.

We also have the potential over time to take back from our NRM and put into reserves the Cu Leach deposit, which is going to take quite a bit of work and some social discussions that we need to have to bring that back into reserves. All in all, we continue to look at Yanacocha, which is clearly in the back half of the slides. And if we're able to put the Sulfides and Cu Leach in, we clearly have the ways to run. If we're not, I'd suggest by the mid-teens we're going to see a pretty good decline at Yanacocha.

Patrick Chidley - Barnard Jacobs Mellet

Does Sulfides -- they are not in your reserve at the moment and they are not in your -- are they in your mineralized material or not?

Richard O'Brien

They are not in any, I think at this point as we continue to find ways to economically process those, and as I said, really defining the reserve base there.

Patrick Chidley - Barnard Jacobs Mellet

Is there a geological resource on those Sulfides that through the years of drilling -- I know you've been drilling that for a long time in those Sulfides. Any sort of estimates?

Richard O'Brien

I'm sorry I missed the last word, any?

Patrick Chidley - Barnard Jacobs Mellet

Any estimate?

Richard O'Brien

No, that's precisely what we're doing at this point. We have not put a resource up, we're continuing to explore and investigate.

Patrick Chidley - Barnard Jacobs Mellet

Yeah.

Richard O'Brien

Very early stages.

Patrick Chidley - Barnard Jacobs Mellet

Okay. Good work. Thanks very much then.

Richard O'Brien

Thank you. So, thank you all for attending today. We appreciate your questions and your attention and we look forward to talking to you again in July. Thanks.

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Source: Newmont Mining Q1 2009 Call Transcript
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