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Newmont Mining Corp (NYSE:NEM)

Q2 2013 Earnings Call

Jul 26, 2013, 10:00 am ET

Executives

John Seaberg - Vice President of Investor Relations

Gary Goldberg - President, Chief Executive Officer, Director

Tom Mahoney - Interim Chief Financial Officer, Vice President, Treasurer

Randy Engel - Executive Vice President - Strategic Development

Chris Howson - Vice President, Controller

Analysts

John Bridges - JPMorgan

David Haughton - BMO

Patrick Chidley - HSBC

Stephen Walker - RBC Capital Markets

George Topping - Stifel

Jorge Beristain - Deutsche Bank

Anita Soni - Credit Suisse

John Bridges - JPMorgan

Paretosh Misra - Morgan Stanley

Farooq Hamed - Barclays

Brian MacArthur - UBS

Adam Graf - Cowen & Company

Operator

Good morning, and welcome to Newmont Mining second quarter 2013 earnings conference call. All lines will be on a listen-only mode until we open it up for question-and-answers. Today's conference is being recorded. If anyone has objections, please disconnect at this time.

I would now like to turn the call over to Mr. John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Sir, you may begin.

John Seaberg

Thank you, operator, and good morning to everyone. Welcome to Newmont's second quarter 2013 earnings conference call. Today, our speakers are joining us from our office in Elko, Nevada, as our directors and executives have been out visiting our North America operation this week. Our President and CEO, Gary Goldberg and other members of our executive team are on the line and will be available to answer questions at the end of our call.

Turning to slide two. I would 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 could be found on our website at newmont.com.

Now, I will turn the call over to Gary in Nevada.

Gary Goldberg

Thanks, John and good morning, everyone. I will start by discussing our safety performance. Safety is our most important value and I am pleased to report that we have kept our reportable injury rate at or below 0.5 injuries per 200,00 hours work for three quarters in a row. Our goal is to eliminate all workplace injuries and our projects team in Peru is proving this is possible by reaching a new milestone of 40 million hours working safely.

As context, the small mines such as Waihi would have to run for nearly 40 years without a lost time injury to reach this milestone. Unfortunately this performance is overshadowed by the loss of our colleague, Corey Vasquez, in June. Corey was operating an underground loader at our Exodus mine in Nevada preparing a stope for backfilling. This loader traveled over the edge of the stope and Corey did not survive the fall. Our thoughts and prayers are with his family and co-workers and a full investigation is underway.

I will walk you through the highlights of our second quarter performance on slide 4. Our operations are performing in line with expectations and our cost improvement efforts are really gaining momentum. Our quarterly revenues were U.S.$2 billion and cash flow from continuing operations was $293 million, or $0.59 per share We reduced spending by $362 million, or 10% compared to the first half of 2012, excluding development capital.

Our capital expenditures were also down $458 million, or 29% compared to the first half of 2012. In accordance with U.S. GAAP, we wrote down the value of our assets, stockpiles and ore on leach pads, by $1.8 billion on an attributable basis net of taxes. Tom will walk you through the details later in his presentation. Including these write-downs, our production, CAS, and all-in sustaining costs, remained in line with guidance.

I would like to now take a minute to cover what we are doing to strengthen the business for all cycles and turning it to slide 5. We have been taking action to respond to the volatility we face today. At the same time, we believe that the long-term gold and copper demand outlook remains bright.

Our work to build the more resilient business includes accelerating the pace and magnitude of our cost and efficiency improvements, strengthening our fundamental technical skills from resource modeling through reclamation, optimizing our portfolio, exploration strategy and project pipeline and investing in only our most promising growth opportunities. Finally, preserving financial flexibility.

Let's turn to our production performance for the quarter summarized on slide 6. As we recently announced, second quarter gold and copper production was in line with the prior year and sales were slightly higher. We remain on track to meet full year guidance of 4.8 million to 5.1 million ounces of gold by year end and we expect a stronger second half performance due to improved mill throughput here in Nevada and new production at Akyem in Ghana. Copper production in the second quarter was in line with our plans and we are maintaining our annual outlook of 150 million to 170 million pounds of production.

Let's turn to slide 7 to see the regional details. North America gold production is in line with the second quarter of 2012, and as I mentioned, expected to improve as the year progresses. Gold production at La Herradura in Mexico was down for the quarter due to lower leach recoveries. Mexico production will be lower for the balance of the year, due to a land dispute and we have adjusted our attributable gold production outlook for La Herradura, down 25,000 ounces from original guidance.

Australia and New Zealand delivered higher production compared to the previous year's quarter and compared to plan. This performance was driven by the team at Tanami who delivered higher mill throughput and higher grade to exceed 2012 production levels. I am pleased with the work that Carlos Santa Cruz and his team are doing to improve our operational performance in the region.

As expected, South America production was lower than second quarter due to the ramp down of mining at El Tapado. In Africa, gold production was slightly higher than the prior year on the back of higher mill throughput and recovery. Finally in Indonesia, gold production was negligible as we continue with our Phase 6 drifting which we expect to be into or later in 2014.

Copper production decreased 11% due to lower mill throughput at Boddington and lower throughput in grade at Batu Hijau. These production levels were in line with our plans. Absent the impact of write-downs our all-in sustaining costs remained in line with expectations.

Turning to slide 8. This waterfall chart shows the factors affecting our all-in sustaining costs. We continued to reduce our costs and have lowered our overhead and sustaining capital by about $250 million compared to the second quarter of last year.

I am pleased to report that our all-in sustaining cost are tracking 10% lower than the second quarter of 2012 and in line with guidance for 2013 excluding the write-downs. We have also updated our full-year guidance to adhere to the recently released World Gold Council definition of all-in sustaining cost. The only real change is that we now include reclamation and remediation cost in the metric. We also presented our regional all-in sustaining cost in our 10-Q filing.

Let's turn to the slide nine for more detail on capital spend. So far this year, we have reduced our capital by 29% compared to 2012. Key elements of this include completing the Emigrant project here in Nevada which is now producing about 85,000 ounces of gold per year, reduced spending at Conga with the completion of the Chailhuagon reservoir, our milestone and our water first development approach, we are nearing completion of our team project in Africa with first production expected in Q4 of this year and reducing our sustaining capital spend across the entire business. This is reflected in our lower overall capital spending guidance for 2013.

I would now like to hand over to Tom Mahoney to walk you through our financial performance beginning on slide 10.

Tom Mahoney

Thank you, Gary and good morning. We reported quarterly revenues of $2 billion and operating cash flow of $293 million or $0.59 per share for the quarter. Taking into account the non-cash impairments, this translates to an adjusted net income of $0.45 per share.

Let's turn to slide 11 for more detail on those impairments. Attributable impairments to our long lived assets at Boddington and Tanami totaled approximately $1.5 billion net of tax. We also realized attributable impairments to our stockpiles and ore on leach pads of $272 million also net of tax. The same factors that impacted these operating assets also affected our deferred tax assets. As a result, we have recorded a valuation allowance of $535 million, reflecting uncertainty of our ability to utilize future foreign tax credit.

Now I would like to cover how write-downs impacted our cost applicable to sales and turning to slide 12. Excluding the impact of impairments, CAS was the quarter was $724 per ounce, in line with our original outlook. This number was impacted by higher input cost and inventory change, partially offset by higher sales and lower royalties due to lower gold prices.

Let's turn to slide 13 for the regional impacts. Stockpile write-downs affected South America, Australia, New Zealand and Indonesia. Once again, excluding the impact of these write-downs, we are inline with our original guidance for the year. Higher numbers in Indonesia are related to the lower production levels as we continued Phase 6 stripping at Batu Hijau.

Moving to slide 14. Despite the volatility facing the sector, Newmont retains its financial flexibility. We continue to manage our liquidity position and capital structure to an investment grade profile. Most of new of Newmont's debt is long dated with favorable terms. We currently have approximately $5 billion in available liquidity and investment grade credit rating and ratios that demonstrates the health of our balance sheet. Our focus is on preserving financial flexibility throughout price cycles. Financial strength also allows us to return capital to shareholders.

Turning to slide 15. Our dividend policy increases and decreases as the gold price rises and falls. The second quarter average London PM Fix price of $1,415 per ounce resulted in a $0.25 per share dividend as approved by our Board.

With that I will turn it back to Gary.

Gary Goldberg

Thanks, Tom. Turning to slide 16. Making Newmont a more resilient business has been my top priority since I started as CEO in March. I will take just a minute to walk you through what we are doing to accomplish that.

In July, we realized net total proceeds of CAD 608 million through the sale of our Canadian Oil Sands interest. The transaction represents a net gain of $300 million, which will be recorded in the third quarter. We have also launched an intensive operational improvement program called Full Potential. This program has been deployed at our major sites and is designed to deliver a step change in cost and efficiency improvements. You might recall, I mentioned that at the Q1 earnings call.

Having spent time here in Nevada operations this week, I am pleased to see the enthusiasm and progress that Tom Kerr's team is making. We are also on track to reduce our corporate workforce by more than one-third and we are already addressing a regional overhead cost. Finally, we are taking steps to optimize exploration, procurement and projects. Capital discipline is another aspect of our work to build the more resilient business and I will update you on our major projects on slide 17.

In Nevada, the Turf Vent Shaft project leverages existing infrastructure to increase production. Our Phoenix Copper Leach project will begin production in the fourth quarter this year converting waste to ore and adding incremental copper production. We are progressing Long Canyon through ongoing exploration and expect to declare first reserves with our 2013 results.

In South America, the water first approach at Conga continues and we completed construction of our first reservoir this quarter. The mineral agreement for the Merian project was approved by Suriname's National Assembly in June and we continue to work with the government to progress this project. In Africa, our team is nearing completion and construction remains on schedule and on budget. First production is expected by the end of this year.

I will now turn you to slide 18 to wrap up.

While we cannot control metal prices, we are managing what we can control, I am pleased with our progress toward improving operational cost and efficiencies, raising our technical standards and advancing only our most profitable projects. I also remain committed to preserving the financial flexibility we need to address our challenges and make the most of emerging opportunities.

Newmont's executive team and I will be hosting our Annual Investor Day on August 1st in New York to discuss our strategy, goals and projects in greater detail and I hope that you will join us there next week.

Thanks very much. Operator, please now open the floor to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We have a question from John Bridges with JPMorgan. Your line is open.

John Bridges - JPMorgan

Thanks for the opportunity. We put a note out on hedging a week or so ago and also the debt right yes, so I thought I would push my luck here. You mentioned that you can't affect the metal prices, but for short period maybe you could. Are you going through a weak spot in second half of this year before you get the bigger revenues coming in from Ghana in 2015 from Batu Hijau. Have you thought about protecting your metal prices just a little bit?

Gary Goldberg

John, thanks for the question. Of course, we discussed that potential, but that is not something we are looking to do. I think we have got strong business fundamentals underlying and sure there is cycles happening in price, but looking to hedge our gold or copper positions is not something we are considering taking on at this time.

John Bridges - JPMorgan

Okay. Bit of an accounting question, the impact of the write-downs on DD&A we should use going forward?

Gary Goldberg

I will ask Tom to provide that. We do have the guidance and we have shown that both, with and without the impact I would refer you to the right page. Page six of the earnings announcement last night has an update on DD&A. Excluding write-downs, we are still looking at [$1.50 million], $1.1 million, including the stockpile write-downs increases that [$1.25] billion, so $1.3 million.

Randy Engel

John. It's Randy. That's on a consolidated basis. You will see the attributable equivalent of that next to it.

Operator

Our next question comes from David Haughton with BMO. Your line is open.

David Haughton - BMO

Good morning, and thank you for the update. With the impairments taken on the stockpiles, what price is imputed in the current carrying value of these stockpiles?

Tom Mahoney

The carrying value that we are suggesting, first of all, we use the long-term gold price assumption of $1,400 per ounce of gold and $3 per pound of copper. So that filters through in terms of the valuation that we use for the impairment.

David Haughton - BMO

What events would be required for you to revisit those carrying values? Would it be a lower metal price than where we are at today, for instance? Or is there some other trigger that would make you revisit these numbers?

Gary Goldberg

Where we sit today it would primarily be a change in metal prices. If we did have a substantial change on our operating cost then that could also affect our evaluations.

David Haughton - BMO

Okay. Changing now to the operations, which performed pretty well really for the quarter. Just thinking about the development projects. You have got Phoenix coming up with the leach. Do you intend to report that separately, so that we can get an idea as to what the contribution is of the investment there?

Gary Goldberg

David, at this point we would be including that as a byproduct in the region. So it is something we have been discussing in terms of making sure we have got visibility in what the actual production of copper is from the leach as it's a pure copper stream there.

Randy Engel

Yes, David, we will do a trend or we could do something supplemental and try and break that out supplementally.

David Haughton - BMO

Yes. So it looks like a reasonable investment day. So it would be get the visibility that Gary had over '13. Now, switching over to Merian, as I mentioned, we have received parliamentary approval of our mineral agreement. We are now awaiting basically signature for us and the government to sign that agreement.

That then triggers some other government approvals that we would be waiting for. Once we have received those, we would be in a position to assess given where we see the current price is in the marketplace, whether this is a project that we are ultimately going to move forward with now or whether we make a decision to hold.

I think part of it, like people have been, we are waiting to see where near-term prices settle out at before we move forward with the project. So we are continuing at a low level of spend in the region until we can get, really the government approvals and then be in a position to make the final call on economics.

So we are done. The feasibility study is done and that's been submitted to the government for their review and all that work is done.

Operator

Our next question comes from Patrick Chidley with HSBC. Your line is open.

Patrick Chidley - HSBC

Just in terms of cost reductions that you mentioned. Can you outline maybe what areas are you seeing these costs reductions coming in. I know you have reduced overheads and it seems like a large amount of it is reductions in sustaining capital. So are there any other input costs coming down that you have noticed such as, I don't know, contracts and sign item and that sort of thing?

Gary Goldberg

Yes, I think we are covering really everything in the process here, Patrick. I think I outlined last quarter some of the things that Boddington are looking right through ultimate pits, pit design, changing our strip ratios. We still have the step out capability but shrinking in the medium term the size of the pit which gets back to mining efficiencies.

We are looking at really all the operations in terms of what we might do on an improved recovery. We met with the full potential team here on Wednesday at Carlin and they are looking at ways to improve efficiency and recoveries that Mill 5 and Mill 6. So that's an example where you don't have to do any mining if you get extra recovery that flows right through to production.

In terms of input costs, we are reviewing our supply contracts for cyanide, tires, diesel, all explosives, all the main input costs and going back to our vendors, where we feel that those costs are out of line of what current market conditions are for us. So, really, on top of what you outlined in terms of overhead cost, sustaining capital it's about making sure we are spending the right amount and may be getting a little more out of what capital we do have in place before we replace things, so everything is on the table, Patrick.

Patrick Chidley - HSBC

So, in terms of what you are seeing in the market for prices for input. Are you seeing those coming down explosives, cyanide?

Gary Goldberg

I think, we have seen a trajectory in the last couple of years of those going up probably higher than what at least I think they should have been going up that, so we are revisiting all of those to bring those back down in line with what is a more reasonable amount.

Patrick Chidley - HSBC

Right. Then in terms of the reduction sustaining capital, is that sustainable itself or is it just you are pushing, sort of you are not replacing certain equipments and maybe next year we are just going to see that come back?

Gary Goldberg

It's a good question and it's part of as we go through our planning process looking forward, I want to make sure it isn't just turning into the role in the carpet as I say to folks here every role to carpet of 2014 as it bumps and so it has got to be things and really is putting a priority what's critical, what are things that might have been nice to have that absolutely that we have to take out of the plan going forward.

Patrick Chidley - HSBC

You mentioned higher grades at Tanami, and looking at potential mine life of some of the mines, Tanami, Jundee and Yanacocha, what are you thinking about mine lives now and if you get to the end of the year and you having mine at high grades. Are we really at very much shorter mine lives here?

Gary Goldberg

Yes. At this stage, and given current conditions, we haven't really changed significantly the cut off grade parameters, so we are still mining generally to those cut off grade parameters. At Tanami it really was a matter of actually intersecting higher grade ore at the deposit itself at this part of the sequence which was in the plan, so it wasn't a change from the original plan.

Patrick Chidley - HSBC

Okay. Good, I will hand over to someone else. Thanks very much.

Operator

Our next question comes from Stephen Walker RBC Capital. Your line is open.

Stephen Walker - RBC Capital Markets

Thank you very much. Just a question circling back as a follow-up on David's questions on the carrying value of the write-downs for leach and the stockpiles, you booked reserves at $1,400 at year end and I am just curious did you consider adjusting the carrying value of the leach stockpiles at year end. And, was it just a sharp drop in gold price that was a catalyst for this adjustment now?

Gary Goldberg

We reported reserves at $1,400 gold and $325 copper at the end of the year for business planning purposes and we would have listed this in our guidance at the beginning of the year we used $1,500 gold, so at the $1,500 gold price that we ran that through the stockpiles and it didn't have an effect on stockpile valuations or asset valuations.

Stephen Walker - RBC Capital Markets

Again, out of curiosity I didn't go through the Q yet, but what's the carrying value of the leach and the stockpile accumulated now?

Gary Goldberg

As of the end of June, I show that at just under $3.5 billion.

Stephen Walker - RBC Capital Markets

Just as a follow up, if you drop that gold price by $100, $1,300 what sort of delta could we expect on the potential drop in value? If you don't have it at your fingertips that would be an interesting number to know what the $100 change?

Gary Goldberg

I pointed to a place in the Q, page 70. Actually I have got the wrong page. We have to find the page, but it is in the Q. What we did was give a 10% reduction to the $1,400 price and to the $3 gold price. The overall range we gave was $650 million to $700 million in the Q, and that's on a consolidated before tax basis, so it doesn't have that back to an attributable or after-tax basis. When you look at that, the biggest impact that we would see is about two-thirds of that is Batu Hijau.

Stephen Walker - RBC Capital Markets

Okay, that's very helpful. Thank you for that. Just one last question. At Conga, you finished the one reservoir. I believe there has been some local protests, on and off here, over the summer. Are your plans still to continue with the second reservoir and the capital spending that was laid out at the beginning of the year?

Randy Engel

Thanks, Steven. We have been working with the team and I have to say, here is another area where I am very pleased with the work the team have been doing to get out in the community and to really clarify the work that we have been doing in building Chailhuagon and the progress we have made.

We have had, and you have seen the reports there around concerns and protests around de-watering a lake that's called Perol. What we have done, we have finished the Chailhuagon reservoir and we have now moved to building and completing an access road between Yanacocha and Conga. So we can actually reduce the impact we have on driving through local communities to access the site.

That looks to take through the middle of next year and then beyond that would be the work to construct the Perol reservoir. We are really waiting right now. We don't have the permit to be able to dewater the lake into the new reservoir. So that's one of the key items. Then, of course, we need to continue to work on getting local support.

It is interesting to see that here just a couple of weeks ago, there was a march in support of the project and in support of development in the Cajamarca region that went on. So it's nice to see that people are recognizing the impact that our business has in a positive way on jobs in the region and we still remain sensitive and committed to our water first approach at Conga.

Stephen Walker - RBC Capital Markets

Okay. Gary, it's a little early to be thinking about planning for 2014 and gold price assumptions, but in using $1,400 this year, you were slightly below the three year trailing. I am just thinking, what are your thoughts looking out into 2014 with respect to gold price assumptions for reserves and resources? How conservative will you continue to be, I guess? And how you look at with your booking as reserves and resources?

Gary Goldberg

Yes, and you spot on it. It's early to make the commitment on reserves and resources but as we are doing some preliminary work, of course we have looked at a variety of different pricing scenarios to understand the impact on the business, both up and down, to make sure that we are positioning the business properly to work through the cycles.

As we look through 2014, we are in the middle of the planning process with the regions and going through the details. So we have got them still working off the $1,400 price, longer-term price for reserve and resource. You will recall, we had $1,600 as a resource for this year when we reported resource.

For planning purposes in the short term, which is the next three years, we have been using a $1,200 price. Not because we believe that's necessarily the right answer but to make sure we are building some conservatism and the understand the impacts here over the next two to three years what that might look like. So that's one of the things that we are testing with the team in terms of pricing assumptions.

Stephen Walker - RBC Capital Markets

That's very helpful, thank you very much Gary.

Randy Engel

Stephen, it's Randy. Just on your first question, the sensitivity. It's on page 76 of the Q and the number is 10% change in the long-term metal price. It would result in $650 million or $700 million change in the overall write-downs on the leach pads.

Stephen Walker - RBC Capital Markets

The 3.5. Okay, that's helpful.

Randy Engel

Yes, and that's before tax and no interest.

Operator

Your next question comes from George Topping with Stifel. Your line is open.

George Topping - Stifel

Most questions have been answered but I am interested in the lay-offs at Boddington. Will there be a production impact at some of these operations where you are laying people off, maybe lower production at lower cash cost perhaps?

Gary Goldberg

George, a good question in terms of how it effects production. At this stage, we don't see it effecting the production here over the next couple of years. I mentioned some of the redesign we are doing on the mine plans there. So we do look at the long range stripping, what makes sense, but just like the question on sustaining capital, you don't want to put the corporate rollout one year and bend it yourself into a buying, stripping wise. So we need and continue to make sure we are building in the right stripping patterns for the future.

So I think what you saw there is really looking to drive efficiency. We need to make sure we have got the right folks working efficiently at the mining phase, but also to make sure the organization structure is efficient, so some of what you may be seeing there is some of the support people that are there.

George Topping - Stifel

Also, I noticed you did a deal with Veris in Nevada. Is there scope at other operations to look at processing old dumps?

Gary Goldberg

I think, we are always open to look at opportunities and they come and go from time-to-time, but bottom line my view it can become a distraction to the main part of the business that we have and it's got to add value and so it's looking at what the impact is to the business.

George Topping - Stifel

Right. Good. Okay. Thank you.

Gary Goldberg

Welcome George.

Operator

Our next question comes from Jorge Beristain with Deutsche Bank.

Your line is open.

Jorge Beristain - Deutsche Bank

Good morning, Gary and team. Jorge Beristain with Deutsche Bank. My question is, really, how should we think about how you intend to fund growth CapEx into 2014? If we just kind of take current spot gold prices in your latest 2Q all-in sustaining cost, you seem to be clearing about $200 announce free cash flow, but that's before the payment of dividends and interest expense and taxes which seem to be covered by that amount but you are not able to really effectively fund the growth CapEx. so I just wanted to get an idea of what you are kind of targeting for our growth CapEx number for 2014 or conceptually, how you would be funding it. I did pick up that you sold this oil asset, so that could be a source of funds. Would there be other portfolio [ledgering] that you could see to free up funds to find your next generation growth CapEx?

Tom Mahoney

This is Tom Mahoney. Good morning. When we look at our growth plans and our business plans, we obviously consider all the various sources of capital and we continue to hold on the balance sheet marketable securities.

One of the things that we also consider is the slightly longer outlook in terms of our production profile and business plans. As you would know, we have a team coming on stream in 2014, so that's going to help our production and our cash flows going forward as well as the mining sequence at Batu Hijau. So, again, we take all these into consideration. We feel we are well positioned to fund grow capital and we also would always have excess to debt capital markets given our investment grade rating.

Jorge Beristain - Deutsche Bank

Okay. In terms of the Conga asset as you are still proceeding with this water first strategy, if you get to a point where you decide not to develop that mine, would that be a triggering effect that could lead to further write-downs there, where you have to write-off the value of invested capital to-date?

Tom Mahoney

Jorge, yes, if we decided to discontinue moving forward at the water first, the development of the project that would be a triggering event.

Jorge Beristain - Deutsche Bank

Roughly how much have you spent to-date on Conga and how much is pending?

Tom Mahoney

I believe, where we have the numbers today it's about $1.5 billion year-to-date on a 100% basis, and pending that number and we will have that detail next week, so I am thinking ahead to the slide on that, but we are in the $3.5 billion to $4 billion range for that. It might be a little bit more.

Jorge Beristain - Deutsche Bank

Sorry. I just meant the pending on the finishing of the water reservoirs?

Gary Goldberg

Sorry. We will have the details on that next week. We are looking, basically we finished the one. We have about $15 million to spend to complete this access road and then we are looking at about an annual spend of about  $40 million to $50 million a year to continue to do our ongoing social work, maintain the existing pieces of equipment we have got up in different locations, so we have pulled the spend back quite a bit on that at this point.

Jorge Beristain - Deutsche Bank

Okay. Great. Thank you.

Operator

Our next question comes from Anita Soni with Credit Suisse. Your line is open.

Anita Soni - Credit Suisse

Hi. Most of my questions have been asked and answered, but could you just talk about the working capital changes this quarter and what those were driving of and then how you see that playing over the next quarter or two?

Gary Goldberg

Okay. I am going to call, we have got Chris Howson, our Controller on the line there in Denver. Chris, can you address that question on working capital changes for the quarter?

Chris Howson

Yes, so we inventory cost into our inventories and then release those in the CAS. Those reflect the direct mining cost and output forecast, and then also release the depreciation of mining equipment into DD&A.

Operator

Our next question comes from John Bridges, JPMorgan. Your may ask your question.

John Bridges - JPMorgan

It's like a round about. Isn't it? Just a couple of loose ends. I was pleased to see you are still spending on the buy leach down there in Peru. Are you getting anything from that or you are still building it?

Gary Goldberg

We were just actually completing construction of the plant. The dumps have actually been placed. So the leach pads, we will test the different size materials that have been placed and we have actually got to bugs cooking, as I like to call it, but the bacteria that's use to breakdown and help release the copper and that's moving along and we have started to circulate solutions. So we should have something more to report here later this year on how that's starting.

John Bridges - JPMorgan

You are not having to giving them oxygen then?

Gary Goldberg

Well they have oxygen but we are not going to do any extra oxygen injection even though they are at altitude.

John Bridges - JPMorgan

Then, as you are in Nevada, any thoughts of cooperation with other parties down there on bringing cost down.

Gary Goldberg

I think that's always something that is out there as a potential but that wasn't the purpose of our visit.

John Bridges - JPMorgan

Okay, well, maybe a next quarter. Thanks a lot guys, good luck.

Operator

We have a question from Paretosh Misra, Morgan Stanley. Your line is open.

Paretosh Misra - Morgan Stanley

Just a question on Indonesia. Any update on the divestiture that was there in Batu Hijau and any update on any discussions you have had with the construction of this smelter? I think some in the government were asking for it.

Gary Goldberg

Good question. In regards to divestiture, we continue to have our 7% stake but we have to worked with the Government of Indonesia to divest. Actually, as of today, that most recent extension would have expired. I got a note this morning as our team is working there.

As you know, they have had some changes in the Ministry of Finance and they are working through and you obviously see a lots of press here and there around it. What we have agreed today is to extend those terms and condition that we agreed now several years ago from an additional six months to see if they can find a path to be able to purchase and acquire that remaining 7%. So that work continues.

With regards to the smelter, we do have several memorandums of understanding with smelting groups or potential smelting groups in Indonesia. We support the concept of being able to process concentrates in country. But at this stage that's not something that we are individually pursuing Newmont in terms of building smelters. That's 's not where our core competencies are. That's not where we would want to invest our money.

Paretosh Misra - Morgan Stanley

Understood, and to the extent you now have any one completed, any recent feasibility study for construct a smelter?

Gary Goldberg

No, I am not across the details of where the different studies are at. So I don't know.

Paretosh Misra - Morgan Stanley

Got it, fair, thanks. One final question, for 2014 CapEx. In the last call, I think Randy was talking about that number falling by about $0.5 billion, any incremental thoughts on that?

Gary Goldberg

No, I think at this stage, and we will going to the plans more in detail here in the coming months and we will give a bit of a flavor next week where that stands. But a lot of that was tied to the completion of construction at the team slowing of work at Conga. So that was the key areas, and we are continuing next year. You will see similar spend I think here in Nevada with the vent shaft is being constructed.

Operator

Your next question comes from Farooq Hamed with Barclays. Your line is open.

Farooq Hamed - Barclays

Gary, earlier in the call you mentioned that you are going back to your planning process and you are using $1,200 an ounce for the next few years. I think that's what you said. So can you just help me understand, how do you think about returns in that environment. I mean, when you say you are going to use $1,200, is that using some baked in return or is that kind of breakeven? What's the thinking around that?

Gary Goldberg

Yes. Well, we have our rates of return for projects and hurdle rates are key and those varied by the region. So, from my standpoint, we are still watching what's happening with gold price. Just like you saw with the reserve price I would like to build a little conservative into the planning price assumptions to make sure that we have got some headroom and that we are not having to make big changes in shifts and mine designs and things like that. We are looking to maintain a cash flow positive operations as we go through that.

Farooq Hamed - Barclays

Okay, so just thinking that all-in sustaining costs before interest and taxes and these things is around the $1,100. At $1200, we don't see much in the way of cash flow. That's why I was just wondering, if we do see gold price weakness, do you see potential ideas. Maybe the question then is, do you see potential to bring that planning number down to a lower number than $1,200.

Tom Mahoney

Exactly, and that's the whole purpose of things like the Full Potential I talked about, the changes in sustaining capital, the work on exploration that we paired back a bit this year and advance projects. So it's early days and we still are working on the targets but we are looking to more than offset inflation and also look to bring our cost down here as we look at our plans for 2014 through the work I have been describing.

I have got good confidence. I have been pleased with how the teams in all the regions have been taking this up and going after and getting after it. They all see what's happening in the marketplace and are doing some good work to address it.

Farooq Hamed - Barclays

Okay. Maybe just a question on your exploration budget. Can you just remind me how much of the exploration spend this year is on greenfield?

Gary Goldberg

About 20% of the total spend that we have shown in there. So we show a range of 250 to 300 on a consolidated basis, roughly 20% or so of that is on greenfield.

Farooq Hamed - Barclays

Okay, and would that be an area that you would consider an area to cut if we do see some more gold price weakness later in the year?

Gary Goldberg

Yes, we have done some trimming and actually Grigore Simon, who is our Head of Exploration, and I have been looking at different alternatives and what we might do to make that spend more efficient, potentially investing with some juniors who actually may be have a need for some support that way but have interesting prospects. So we are re-looking at how we manage that spend and much we spend there.

Operator

Our next question comes from Brian MacArthur with UBS. You may ask your question.

Brian MacArthur - UBS

The Australian dollar has moved fair a bit recently. Can you just tell me, in all this analysis, what you did with the Aussie dollar? Again, I know you did have some hedging, where do we stand on that right now because obviously fair a bit of these effects are in Boddington and Australia. So that's going to have a reasonably big impact.

Gary Goldberg

Good question. As we saw in the quarter, the Aussie came off and we actually saw a period at one point it was below $0.90. For purposes of these valuations we used the number in the $0.93 to $0.94 per U.S. dollar.

Tom Mahoney

Our hedge book goes out five years on that a Australian dollar, roughly we are $0.92 is the rate we have locked in on the hedge book. So again if we look longer-term on the Australian dollar, if you consider may be a $0.95 exchange rate and factor in some of the impacts of the hedge book in the near term, we are landing in that $0.0935 range.

Brian MacArthur - UBS

Okay, and would that all be hedging all your cost based on the original plans at all this mines at higher gold price, all those costs are hedged forward. So if you did cut back production, you have got a gain or loss there depending on what happens? Or how much of that is actually covered 100%?

Tom Mahoney

It's a stage to hedging programs. So as we go further out on the business plan with less certainty around the actual notional amount, we might be hedging. It trails off. So, the near term, I would say the one month horizon, for instance, we are hedged say 90% but by the say a period of six months out its significantly less. So maybe 85% and then trails up from there. So we don't see ourselves being in a position of overheads on any dollar at any point.

Operator

We have a question from Adam Graf with Cowen & Company. You may ask your question.

Adam Graf - Cowen & Company

Just a point of clarification. I noticed in the breakout operating data, it you looks like you guys have included a line item for the write-downs for the individual operations in the production costs. I was just a little confused because on the P&L statement write-downs are below the gross margins. So I am little confused on why you guys are including these write-downs in the cost applicable to sale?

Gary Goldberg

Adam, it's a good question. I am going to have Chris Howson because he is the financial expert. My mining engineers review of it, you have got the write-down on the asset which do go as you stay below the line. With regards to the stockpile, those do pass back through our CAS, but I would ask Chris to clarify?

Chris Howson

Yes, that's right. So the stockpiles coming through in those write-downs reflect the direct portion of mining cost and applicable support cost. So those are really just a delayed operating cost that are coming through.

Adam Graf - Cowen & Company

But it certainly don't reflect the cost of the operations in the quarter?

Chris Howson

That's correct, Adam. It doesn't reflect the true cash expenditures during the quarter, during the period.

Adam Graf - Cowen & Company

Yes, okay. That was the clarification and then since you guys are in Nevada, just maybe you guys could give us some color on how much mine life there is left at Midas?

Gary Goldberg

Midas is clearly one of our shorter life assets here. We are looking at probably three to four years based on our current understanding of the reserve and resource and what's the most recent pricing.

Randy Engel

Adam, it's Randy. That will be without any further investment.

Operator

I would now like to turn the call back over to Garry Goldberg for our closing comments.

Gary Goldberg

Thanks, operator, and thanks everybody for taking the time to join us today. It's interesting times in terms of where prices have gone but I really, really am proud of our team across Newmont and how they have been responding in making sure that we position the business to be resilient for the future. We look forward to spending time with some of you next week to run through more details of the business and what I see as a great outlook for this business going forward. So thanks very much.

Operator

That does concludes today's conference. Thank you for participating. You may now disconnect at this time.

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