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Newmont Mining Corporation (NYSE:NEM)

Q2 2009 Earnings Call

July 23, 2009 10:00 am ET

Executives

Richard O'Brien - President and CEO

Brian Hill - EVP of Operations

Guy Lansdown - EVP of Development

Tom McCauley - Project Manager

Russell Ball - EVP and CFO

Analysts

John Bridges - JPMorgan

Heather Douglas - Thomas Weisel Partners

Patrick Chidley - Barnard Jacobs Mellet

Barry Cooper - CIBC

David Haughton - BMO

Operator

Welcome, thank you all for standing by. (Operator Instructions). Today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the meeting over to Richard O'Brien, President and CEO. Thank you, sir, you may begin.

Richard O'Brien

Good morning, and thank you for joining us on our conference call to discuss Newmont's financial results for the second quarter of 2009.

With me today are several members of our management team, who will be available for questions at the end of the presentation, and I'll ask them to identify themselves when they do so. As with our previous earnings call, 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 website at www.newmont.com.

I'd just add to that an continued interest in providing increased timely and visible information to our business. Our 10-Q was filed last night. I just wanted to acknowledge the hard work of our accounting, financing tax staff (inaudible). Thanks to all of you, and some of you are probably on the phone.

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 second quarter highlights, I am pleased to report solid operating and financial results and result of our ongoing focus on operational and project execution.

Our second quarter performance builds on results from the first, and provides the base from which we can deliver on our operating plans for 2009.

Completing the successful transition of Boddington Project construction development to startup is our major focus during this first half of 2009. During the second quarter, the dry plant of Boddington was commissioned, which is now operational. Commissioning of the wet plant was initiated and is continuing, while the schedule for this work has put by approximately one month, we are expecting further concentrate to be produced in August, followed by first gold production (inaudible).

With the startup of the first two mills at Boddington underway, we continue to anticipate a 12 months ramp up schedule towards the full production from all 4 mils. I'll provide more details on Boddington later in the presentation.

In terms of our second quarter financial and operating results, we delivered equity gold sales of approximately 1.2 million ounces at an average realized price of $915 per ounce, and costs applicable to sales of $423 per ounce, which is down about 4% from the prior year's quarter.

Also during the quarter, we sold 47 million pounds of copper at an averaged realize price of $2.17 per pound and our costs applicable to sales of $0.58 per pound from our Batu Hijau mine in Indonesia.

We have made considerable progress with regards to our divestiture obligation to Batu Hijau, which I'll cover later. We continue to believe that a primary driver of long-term value for Newmont is cash flow generation. During the quarter, we generated cash flow from continuing operations of $503 million or $1.03 per share.

Our adjusted net income for the quarter was $213 million or $0.43 per share, compared to $0.50 per share for the second quarter of 2008. This reduction is primarily driven by lower realized copper prices and the significantly higher tax rate, partially offset by higher sales volume and lower unit costs.

Net income from continuing operations on GAAP basis was $171 million or $0.35 per share compared with GAAP net income of $270 million or $0.60 per share for the second quarter of 2008. The primary driver of the difference was the $0.28 per share income tax recorded a year-ago quarter as well as the items I just mentioned related to adjusted net income.

As we turn slide four, our equity gold sales and costs applicable to sales by region, we are performing in line with our expectations. In Nevada, we sold 415,000 ounces slightly below our expectations, primarily due to lower throughput and grades at Mill 6 and for lower production at Midas due to the suspension of mining activities following a ground failure which curtailed production for most of April.

Costs applicable to sales were lower than expected to $549 per ounce due to higher by-product credits and lower milling costs, partially offset by lower than gold sales.

At Yanacocha higher leach pad production as well as higher grades and throughput at the gold mill resulted in higher than expected gold sales of 274,000 ounces. Costs applicable to sales at Yanacocha $323 per ounce were in line with our expectations, as the benefits from higher gold sales were offset by higher royalties and worker's participation cost, resulting from higher realized gold prices and lower by-product credits.

In our Australia/New Zealand region, equity gold sales of 283,000 ounces were also above expectations due to higher grades and recoveries at Jundee partially offset by lower production at Waihi in New Zealand, following an electrical fire at the mill in early May, which halted production for the remainder of the quarter. We expects the mill repairs to be completed in August. Higher gold sales during the second quarter favorably impacted costs applicable to sales of $500 per ounce.

At Batu Hijau in Indonesia, equity gold sales of 48,000 ounces were in line with our expectations while costs applicable to gold sales of $229 per ounce were lower than expected due to lower allocation of cost to gold as a result of higher copper prices in co-product accounting.

Equity gold sales and costs applicable to sales at Ahafo in Ghana with 132,000 ounces at $428 per ounce were in line with expectations. Equity gold sales in our other category, are primarily from La Herradura in Mexico, which contributed 31,000 ounces at costs applicable to sales of $398 per ounce.

As noted in our press release this morning and in our 10-Q, we sold our 88% interest in Kori Kollo in Bolivia to a company controlled by our long-time Bolivian partner will assume all obligations at the operation exchanges for royalties on future production. As part of the transaction, we will establish a reclamation trust fund in the amount of approximately $14 million, the proceeds of which will be made available only to pay for closure and reclamation costs when operations eventually cease.

As mentioned on our first quarter call, our operating performance for 2009 is skewed for the last six months of the year, primarily due to the ramp up of Boddington mine sequencing at Yanacocha, , no shut downs in Nevada in the second quarter for planned maintenance activities and the traditional production benefits from the dry season at Batu Hijau in the third and the fourth quarter. Again, I would like to reiterate that while we recognize that quarterly fluctuations will occur, we continue to drive our business toward meeting and exceeding our annual guidance.

Slide five demonstrates our ability to deliver cash flow. Newmont is the world's largest unhedged gold producer provides our investors with [good exposure] to the gold price.

During the second quarter, we generated over $1.6 billion in revenues with over 85% attributable to gold sales. This exposure to the gold price coupled with our drive towards cost discipline into a continuing focus on plan execution and delivery allowed us to generate $503 million in operating cash flow and continuing operations during the second quarter.

Turning to slide six, we have revised our outlook for both gold sales and capital expenditures for 2009. We have updated our equity gold sales outlook to 5.2 million ounces to 5.4 million ounces, from 5.2 million ounces to 5.5 million ounces in consideration of operating results in six month's of actual production and volume since July 3.

For 2009, our outlook for consolidated capital expenditures has been updated to $1.5 billion to $1.7 billion from $1.4 billion to $1.6 billion in consideration of item start-up that was partially offset by lower than expected capital expenditures across the rest of our portfolio. For the year, our outlook for costs applicable to sales remain unchanged as between $400 and $440 per ounce with our current forecast assuming oil prices of $70 per barrel and Australian exchange rate of 0.75.

As shown on slide seven, we continue to focus on delivering on our plans in a safe and environmentally sound manner and then doing what we say we are going to do. This is the cornerstone to our business and allows us to deliver long-term value to our stakeholders. With the successful turnover to dry plant operations and wet plant commissioning advancing rapidly, we have successfully started to transition Boddington from project construction to startup.

Another key deliverable for us is to fulfill our obligation to Batu Hijau as outlined in the arbitration decision delivered in March of this year.

I'm happy to report that we have made significant progress on all of our arbitration obligations. I'll provide further detail on this in a few minutes. We continue to grow and establish our disciplined approach after reevaluating and pursuing 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 we remain committed to improving our operational and business efficiencies throughout the organization with the ongoing goal to delivering superior leverage to gold prices and improving our financial return.

As shown on slide eight, state chart of Boddington is underway. The dry plant which includes the primary crusher, conveyer, [of course] ore feeders and high-pressure grinding rolls has been successfully turned over to our operating personnel. With the delay of the commissioning of the wet plant, we have lowered our expectation for 2009 gold sales from Boddington, primarily as a result of lower productivity associated with a slowdown in the contractor labor market as well as wetter than expected weather conditions.

With the introduction of waste rock to the plant, the ramp-up phase of Boddington has commenced. We are expected concentrate to be produced in August followed by gold from leaching and we're still anticipating a 12-month ramp-up schedule for full production. I know many of our employees from around the world listen to our earnings calls, and I want each of you to know how proud you should be that we are bringing up the largest gold-mining operation in Australia, and it has been a combined effort of our team from around the world, and I want to recognize each and everyone of the people at Boddington who have really worked in difficult conditions over the last several months to bring this plant up.

And I know everyone down there is looking for the successful completion and transition of the full operation. So, I want to compliment the construction operating teams who have really been slaving away down there to get this done, and it is getting done in style.

Slide 9 provides additional details on the current outlook for Boddington. On a 100% basis, capital costs for the construction of Boddington are expected to be between $2.8 billion and $2.9 billion. This compares to the previous outlook of $2.6 billion to $2.9 billion. The increase related is just in the [bottom end] is because we are closer to startup, and we have more information available in one month later than previously planned.

For the first full five years of production, we still expect annual gold sales of approximately 1 million ounce per year. As viewed on the previous slide, as a result of the change up in start up, we're updating our outlook for gold sales for 2009 for Boddington to between 200,000 ounces and 300,000 ounces from the previous range of 375,000 ounces to 450,000 ounces.

We continue to anticipate cost applicable to sales net byproduct credits to be less than $300 per ounce for the first full five years of production. As of the end of 2008, gold reserves at Boddington were approximately 20 million ounces.

During the second quarter, following the receipt of Australian and South African regulatory approvals, we completed the acquisition of the remaining 33.33% interest in Boddington from AngloGold. Associated with the closing, we incurred acquisition fees of approximately $59 million during the second quarter, primarily associated with Australian [boot camp]. The valuation date for the transaction is January 1, 2009, $182 million was repaid in cash to Anglo during the second quarter for their share of year-to-date capital expenditures.

Slide 10 provides a brief update on our Conga project in Peru. During 2009, we continue to revalue the project costs under current account or conditions. We are also evaluating synergies associated with leveraging necessary infrastructure and facilities within our existing operations in Yanacocha as well as the neighboring projects in the region. To recap, the project currently has equity reserves of over 6 million ounces and approximately 1.7 billion pounds of copper.

During visit to our [exploration camp] in Peru, we had the opportunity to meet many of the residents and leaders of the community surrounding Conga. I was impressed by their strong desire to see this project move forward.

Turning to slide 11, in our Akyem project in Ghana we are working with the government to obtain the necessary mining permit following the environmental permit we received later this year. We are currently evaluating development alternatives to focus on leveraging our existing infrastructure and personnel. During 2009, we're completing am infill joint program at Akyem to confirm the resource of over 15,000 meters of drilling completed today.

Slide 12 provides an update on Hope Bay. We just completed the regional framework study that identified 22 new targets across the 80 Km greenstone belt, where we are finding priority targets with additional fieldwork including a ground-based geophysics for drill targeting. We anticipate first pass drill testing on the highest priority targets by the end of this year.

Given the existing deposits and exploration upside of the district, we're also focusing on evaluating a range of project-development scenarios to best development potential in this district. These include large open pit to smaller underground and hybrid scenarios with a range of potential mill through puts and locations. We have also completed 35,000 meters of an expanded 45,000 to 55,000 meter development drill program centered around our known deposits of Madrid, Boston, and Doris.

Results of this program are anticipated in the third and fourth quarters of this year. All of our exploration programs are being completed safely and efficiently based on our 2008 expanded infrastructure investments at Hope Bay.

So in summary, we're moving three projects along. They are all moving along very nicely, and we expect that several of them will progress through our stage-gate through the balance of the year, and we will be giving more information as they do so.

Turning to Slide 13, as mentioned on our prior earnings call, the arbitration panel ruled on the Batu Hijau divestiture issue on March 31 of this year. The arbitration ruling outlined multiple obligations to be implemented by the foreign shareholders of PTNNT, ourselves and our partners Sumitomo by the end of September.

I'm very pleased to report that we have made significant progress on our obligations. We reimbursed the Government of Indonesia $1.7 million for costs associated with the arbitration. We've insured the release of pledges on 31% of PTNNT shares previously held by the senior lenders. In addition, the 2006 and 2007 shares have been reoffered to the local and regional governments for a $109 million for 3% and $282 million for 7% respectively.

Earlier this month through a very collaborative effort between the Government of Indonesia, Sumitomo and ourselves, we agreed on evaluation for Batu Hijau of $3.526 billion. This corresponds to a price of approximately 494 million for the total 14% for the 2008 and 2009 divestiture shares. We offered the 7%, 2008 divestiture shares to the Government of Indonesia, and we're now prepared to transfer the 2006, 2007, 2008, and the 2009 shares as we move forward.

To summarize the status of the divestiture obligations to government, we have reached agreement on the price of the 2008 shares. We're now awaiting the national, and regional, and local governments to designate buyers for these buyers to actually pay for their respective divestiture shares. As noted on this slide, the Government of Indonesia must transfer the shares. They have to approve those transfers, and we do expect that they'll work cooperatively with us, as we continue to move forward.

Throughout the divestiture process, we've been committed to working with the Indonesian government for the divestiture provisions as defined in the contract to work with (inaudible). As we've always said, we are willing to live up to our obligations under the contracted work, and we just need to know to whom we need to sell these shares, and at this point we have done everything that we need to do and we are waiting for the Government of Indonesia now to provide us with additional instructions.

So, we appreciate our relationship with the Government of Indonesia, and the fact that we are able to reach agreement on several of these matters in a very timely fashion. So we now look to focus on the long-time success of Batu Hijau while maintaining the same high operating and safety standards that we have adhered to since that operation began over 10 years ago.

Finally, on slide 14, with everything that we do, making sure that all of our operations perform as expected, we continue to focus on our environmental and social responsibility and obligations, as well as ensuring that each of our employees goes home uninjured at the end of the day, our first priority.

And with that, I'd like to thank you all for listening, and open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question is from John Bridges, JPMorgan.

John Bridges - JPMorgan

Just wanted to say, congratulations on the progress at Yanacocha. This high level of production, is this something which we can expect to carry on into subsequent years, or is that just a one-off?

Richard O'Brien

John, let me just say, first, we're not really giving estimates out beyond the end of this year. We did have a good production quarter at Yanacocha. Let me turn it over to Brian. He can just talk a little bit about how our gold mill is operating and why production is up a little bit this quarter. So, Brian?

Brian Hill

We had a good start for the gold mill and it does continue to outperform. It is performing for a 5% to 10% range on throughput, little higher than expected, and we have been experiencing some higher ore grades to the mill. It's not a trend, as Richard reiterated, that we are expecting to see on a longer term. It's really just more of function of sequencing and where we are in the various pits at the mine.

John Bridges - JPMorgan

As a follow-up, you are further down the line with investigating your projects at Conga and Hope Bay, what do you think Richard now in terms of build or buy in this crazy market that we're participating in?

Richard O'Brien

John great question, build or buy, I think the answer is, these big [64-65 can], because I think it really is important. As we've talked about before that we build this business through a combination of exploration, project development, and selective M&A, and I think we continue to look into the marketplace to see if there are available opportunities. There have been several out there, none of which have really interested us to-date, but I guarantee you, we look hard every day to see if there is something out there that we should avail ourselves of and we hope that as we continue to perform on the operating side that our share price reflects the success of that and we enable ourselves to do more overtime in that marketplace.

John Bridges - JPMorgan

I'll look forward to seeing Boddington up and running at year-and the results will come out of that.

Operator

Your next question is from Heather Douglas, Thomas Weisel Partners. Your line is open.

Heather Douglas - Thomas Weisel Partners

I have a question about Boddington, I was wondering if you can give us a little guidance on how you expect the throughput to ramp up over the next 12 months to 18 months, and the same with recoveries? And the other question with Boddington, can you remind us what the average copper production will be in the first five years?

Richard O'Brien

Let me turn my question over to Guy Lansdown and Tom McCauley who is our Project Manager down at Boddington.

Guy Lansdown

Hi Heather, this is Guy. Heather, as far as the ramp-up goes, we are currently in the process that we're undertaking and process has started. We've got the dry plants up and running. As Richard said the next goal is to get the wet plant up and running. It is a 12-month ramp up period to get a full production. We're looking around a year from now. We would expect the plant to be up and running at full capacity.

Heather Douglas - Thomas Weisel Partners

Is it a straight line though. I don't think it is but Q1 tends to be at 50% throughput achievable by that point.

Guy Lansdown

No, it's not a straight line, Heather. It's a stiff curve. There are about 4 mils we started sequentially and we expect to ramp-up gradually, although it appears that it won't be a straight line.

Richard O'Brien

At this point, Heather, I'd say we're probably estimating commercial production later in the year, potentially in the November timeframe. So, if you think about, as things start to ramp up, that's sort of our expectation at the moment.

Heather Douglas - Thomas Weisel Partners

What about on the recovery side?

Guy Lansdown

On the copper side, Heather, to answer your question, we're expecting around 30,000 ton a year of copper.

Heather Douglas - Thomas Weisel Partners

Okay. 30,000 tons of copper.

Guy Lansdown

That's for the first five years.

Heather Douglas - Thomas Weisel Partners

Okay. Metallurgical recoveries, does it ramp up as well, like should we expect them to be quite weak initially?

Guy Lansdown

It would be lower initially and the ramp-up curve takes account of that. The ramp-up curve is focused on gold production, copper production, but (inaudible) initially not be as in line with ultimate expectations.

Heather Douglas - Thomas Weisel Partners

I do have a final question. Overall, can you tell us what your third quarter guidance for production and costs will be?

Richard O'Brien

We actually don't give guidance by quarter for our production. I think if you take the balance of the year, you could assume that we have higher production at Batu Hijau as we move further into the year. You could also assume that Boddington, of course, will have higher production as we move further into the year. Probably no real changes in Nevada at the rate of operation, although the second quarter is generally lower due to mill maintenance. The Yanacocha will be experiencing wetter weather during the year. So, we probably will see lower production in Yanacocha as we move the year down.

Q4 likely to be greater than Q3 when you just look at it that way at the balance of the year. Figure out we're going to hit our estimates, because we are, then you can kind of get to that.

Heather Douglas - Thomas Weisel Partners

And on Slide 4, you showed us what your expectation is for Q2, but of course we didn't know what your expectation is for Q3?

Richard O'Brien

Right , but we do. We manage very closely to our expectations. We give you an expectation for the year.

Heather Douglas - Thomas Weisel Partners

Thank you. Have a good day.

Operator

(Operator Instructions). Our next question is from Patrick Chidley from Barnard Jacobs Mellet. Your line is open.

Patrick Chidley - Barnard Jacobs Mellet

Hi, everybody. Just a couple of questions, just quickly on Nevada. So you have upgraded your forecast for the year by about 100,000 ounces, and I'm just wondering if you could give us more detail on why that is the case suddenly and what did you do there?

Richard O'Brien

Sorry, Patrick, I didn't exactly hear the question, but I think your question is why we changed our production estimate by 100,000 ounces on the high end?

Patrick Chidley - Barnard Jacobs Mellet

Yes.

Richard O'Brien

Yes, we brought back the estimate as. A result we really have been able to move Nevada production up, as you'll note in our summary financial outlook. We brought the bottom of the top end down by 100,000 just because of the delay in [bonds]. So, in Nevada, we're expecting a little more production from the Deep Post than we would have originally expected during the year. That operation continues to go well. We still have access to the portals. So that's going a little longer than we had planned and that's probably one of the bigger reasons for why we are where we are in Nevada.

Patrick Chidley - Barnard Jacobs Mellet

So, mostly Deep Post and high production at Deep Post?

Richard O'Brien

Mostly and a little bit around some other operations in Nevada. It's a larger operation. I'm just giving you the primary reason in Deep Post, but there are other operations in that that are pushing up their production slightly as we move into the second half.

Patrick Chidley - Barnard Jacobs Mellet

Okay. That's taking into account the fact that Midas has been affected.

Richard O'Brien

Yes, Midas is already back in operations. I mentioned it was shut down for most of April, but in the beginning of May its come back on, no issues, things continue to go. Brian was just telling me actually no operational performance and Nevada is expected to continue to being optimized over the balance of the year, and that will help as well.

So we've got a number of things going on in Nevada as you know. It's a complicated operation. There are a number of things that go into both things that could happen and both positive and negative. As we look towards the balance of the year, we have more positive things than we were expecting, and that's the primary reason.

Patrick Chidley - Barnard Jacobs Mellet

Correct. Just quickly on exploration., I thought I noticed that you've increased the budget for exploration slightly, and this quarter it was quite a lot more than last quarter. Is there any new projects going on there or is this just a reevaluation of the currently ongoing projects you'd identified at the beginning of the year?

Guy Lansdown

We have increased our guidance slightly and that's because of our focus on Hope Bay. There we're putting more dollars into exploration. We're increasing our targeted drills mainly from about 35,000 to about 55,000 meters for the year.

Operator

Thank you. Our next question is from Barry Cooper, CIBC. Your line is open

Barry Cooper - CIBC

Just wondering the September deadline for activity at Batu Hijau there for a while, what happens if that passes?

Richard O'Brien

Barry, that's a good question, and it's one that I wish I could give you a definitive answer to. What I will tell you is that so far the government and Newmont have both been working, knowing that there is a deadline out there. I think that everybody realizes there's a deadline out there. I see lots of support to get things done on this side of the deadline.

Anything can happen though, and I think we continue to look at what might happen. At this point, I'll tell you both the government and Newmont, as well as our partner Sumitomo are really focused on hitting the deadline. If something does happen, we'll update you then as to what options are available. I hope that we don't reach that. That's my ultimate desire here. I don't like hope as a business plan. So that's why we work very closely with the government to try to effectuate this in a timely manner.

Barry Cooper - CIBC

So, there is no mechanism for a resolution then in the event of an overrun of the time date?

Richard O'Brien

Yes, actually that's not what I said. What I said was we're working to try to avoid that. I think that there are any number of potential places where we could go for either judicial redress, or if need be, back to the arbitration panel. I don't believe that that's going to be necessary. As I said, I see a high level of cooperation here. We're not spending our time trying to get ready for that event. We're really trying to spend our time making sure that we get this deal done with the government.

As you point out, this is a very valuable asset to Newmont. If things don't show the direction that they need to by that time frame; we will, of course, consider every option necessary to protect that asset. That is a backup strategy, though, as opposed to our frontal attack at this point in working closely with the government to make sure we do what they want.

Barry Cooper - CIBC

So, let's assume things get resolved and September 30th deadlines are met, the 24% transfer of ownership, I assume your guidance does not include any of that transfer of ownership in terms of loss of ounces in your guidance numbers. Is that correct?

Richard O'Brien

That is correct. Our guidance doesn't assume the production change, which of course would be a reduction. It also doesn't assume any of the capital or cash that will come in to the company as a result of that sale.

Barry Cooper - CIBC

Right. Then I guess your guidance also includes the non-commercial production coming from Boddington. Is that correct?

Richard O'Brien

Yes. That's true.

Barry Cooper - CIBC

Okay. I guess just based on a couple of other things, I thought that usually July, August were good times for Batu Hijau in the sense that, that was the dry period where you get down to the bottom of the pit and what not. Is that not taking place this year because you implied earlier that Q4 was likely to be better than Q3?

Brian Hill

This year in Batu we're not down in the bottom of the pit. We were in the bottom of the pit last year in Phase 4, and we're expected to be back in the bottom of the pit next year in Phase 5. So, this is the year where we do see the lower copper and lower gold grades because we are higher up in the profile.

Barry Cooper - CIBC

Okay. Good. And then final question, now that Boddington is built, what's the biggest risk that you see in terms of completing it, as I would describe, which basically means that it's up and working?

Guy Lansdown

Barry, our challenge and our big focus will be ramping it up as quick as possible.

Richard O'Brien

I think with 4 mils, I think this will take some time to get up and running smoothly, but one thing I would say is that the question that I was asked along the way here a number of times around the technical complexity of the HPGR, the High Pressure Grinding Rolls. That's probably the number one question, and Guy, you might just talk a little bit about our experience on those at the moment.

Guy Lansdown

The dry plant has been running, was being in operation since May, so we got a little bit of a chance to see how that performs. We are pretty comfortable with the way the major equipments has operated. We've had waste material run through the entire plants, and when we had to look at our major equipment, we were [to-date] we were pretty comfortable with how they were performing.

As Richard said, the HPGRs were one of the bigger risk items. We do have Cerro Verde in Peru, which is run with the same flow sheet and the same HPGRs and they have had some pretty good experience there. They ramped up reasonably well. We've also got a good relationship with our (inaudible) and they have set up to support our maintenance needs which is going to be the big ticket item, the big area of focus for us now, specifically set up (inaudible) project, Tom do you want to comment anymore on HPGRs, Tom McCauley our Project Director is with us and (inaudible).

Tom McCauley

I think Guy and Richard summed it up well, but if you can see the dry plant production very well, and the initial stuff that's gone through the mill has come out very well, so, very encouraged by that, as Guy said it’s early days, but going through the plan really well.

Guy Lansdown

We have a very long conveyor system out there, we have been running for sometime. We've had a few issues initially, but we've had plenty of times to fix those up. So having the dry plant running and operational, and really shaken down, I think it has increase the confidence level that we have with respect to the moving into the wet plant we acknowledge it is still in process as we move into ramp up and into commercial production, while we keep ticking away those areas that might have been risks, and with that, hopefully Barry we'll have you down there next year, and you can walk in front of these things, see it producing ore and going all the way to gold production.

Barry Cooper - CIBC

All right. Just a clarification so that I understand, you say you've put material through there, but I would assume that that material that you are putting through is from the upper parts of the ore body, which being oxidized and what not, I wouldn't expect to have anywhere near the hardness of material that will form the bulk of the ore body there. Have you indeed been able to put through some of the harder ore?

Richard O'Brien

That's a real good question, and you are right on it. the existing ore body was oxide material or the (inaudible). We have indeed put hard ways through the plant. We haven't put any of the soft oxide material through and that's the material that we are talking about that is working pretty well. Obviously it was waste material. We don't want to be putting any ore through, but we have got ore on the stockpile already to run through and we're hoping to introduce that shortly.

Barry Cooper - CIBC

So the work index on that would be typical what you would expect for the bulk of the ore body than I guess.

Richard O'Brien

Barry, it's actually a little bit harder. Some of the waste is actually harder than some of the ore, that's why we're actually pretty satisfied with the production.

Operator

(Operator instructions). Our next question is from David Haughton from BMO. Your line is open.

David Haughton - BMO

Yes, good morning, and thank you. Richard, you had mentioned in the commentary, and I missed the data, that there is some sort of catch-up payment of AngloGold in relation to Boddington.

Richard O'Brien

Yes, I did all that. Russ will talk about that.

Russell Ball

Yes, the transaction took effect January 1. So, as we went to and closed, they were funding their share, which essentially we refunded approximately $200 million. There was some working capital adjustment, but those numbers are included in our capital in the second quarter, that catch-up, and the full cost for the full year at 100%.

Richard O'Brien

We knew going into the year that we weren't exactly sure of the date, but we knew we were going to be responsible for 100% of the capital expenditures for 2009. So, that was worrying our estimates, and what we have done now is with the closing, this is really the payment of that accrued capital.

David Haughton - BMO

So, when I have a look at the CapEx for the first six months at Boddington, it's $684 million, is that letting out the 200 mil that you are expecting back from AngloGold?

Russell Ball

No, that includes Anglo's roughly $200 million on a capital to-date. So, you should think about that as roughly $400 per hour of historic [fees] this year, and then on the 200 round numbers for the [AngloGold] effective January 1.

David Haughton - BMO

All right. So you are getting that money back?

Richard O'Brien

No, actually we're not getting the money back. We're paying them back as our ownership really became effective January 1. As we have been spending capital during the year, they have been paying their share because we weren't sure when the date was going to close.

Now we've closed. Now we're paying them back. So, what Russ was saying is 200 in the capital in this quarter actually should be over the full six months if you want to look at how Boddington is ramped up during the year.

David Haughton - BMO

I understand now. And how much is left to be spent for completion of Boddington?

Richard O'Brien

It's probably in the order of $150 million to $200 million.

Guy Lansdown

About $200 million

Russell Ball

David, this is Russ. Just to be clear, the final capital number will be a function of commercial production, which, as Richard said, we estimate to take place late in the fourth quarter. Commercial production is roughly at 75% of (inaudible). So we've had this question earlier, it's not 100%. So we'll see when that occurs.

The longer that date goes, the more operating costs will shift to capital. It's not incremental spend. It's just under the accounting provisions we will be required to capitalize on certain of the mining costs, the G&A and other costs we are incurring after that commercial production date.

David Haughton - BMO

Offset by whatever revenues you gain?

Russell Ball

Correct.

David Haughton - BMO

I also noticed in one of your slides that the Boddington life is extended from 20 years to 24 years. Is that in anticipation of a reserve upgrade?

Richard O'Brien

That's based on our latest reserve estimate which was updated at the end of 2008, early 2009.

David Haughton - BMO

Changing topics for some new development projects that you've highlighted in the commentary, in case of Midas Conga and also Hope Bay, what do you expect to spend in those two projects in 2009?

Richard O'Brien

At Hope Bay, we are looking at spending of the order of $60 million, and at Conga we are looking at the order of $20 million to $30 million.

David Haughton - BMO

Is that total for the year or remaining?

Richard O'Brien

That's for the year. Total for the year.

Russell Ball

For both projects.

Richard O'Brien

Yes, for both projects.

Operator

Our next question is from [Paritosh Mishra] from Morgan Stanley. Your line is open.

Unidentified Analyst

Two questions. First at Boddington, would your copper production start up pretty much at the same time as gold production? Second, if you have any updates on any projects related to longer term out for Yanacocha? I know you talked about Conga, but in the last conference call, you mentioned some other projects like sulfides and Quilish deposits. Any update on that will be appreciated. Thank you.

Richard O'Brien

On the Boddington production, the copper does come out together with the gold and the concentrate that we have produced. There are few production strings. We wanted a [gold door] and the other the copper/gold concentrate. So, they will be produced simultaneously.

Guy Lansdown

With respect to other projects in and around the Yanacocha, we continue to do some drilling around the sulfide projects. That's really related to continuing development of the technical path that would be necessary to process that. So, we continue to spend some money on that and we continue to look at that over a longer term opportunity base.

With respect to the Quilish, as we continually said, Quilish is in our NRM, not in our reserve base, and the reason it is because we continue to know that we will have to get a community and government support to be able to bring that in. What I can tell you is that it's an important deposit for us, but not so important that we want to override the local, social, and political environment around Cerro Quilish. So, we hope that it will come overtime, but it will only come with and when we get the right level of social excitement. So I don't want to give you the impression it's out there in the very near term, it's not.

Finally, around Conga, we continue to refine the plan for development and there are a number of other companies in the area. We are also looking at similar comparable (inaudible). We are in the process of trying to figure out how we can in effect reduce the level of total infrastructure payments. So that's one of the things we continue to try to optimize with others.

Richard O'Brien

With that, we appreciate everyone's attention and taking time for us today. Thanks a lot.

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Source: Newmont Mining Corporation Q2 2009 Earnings Call Transcript
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