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Newmont Mining Corporation (NYSE:NEM)

Q4 2009 Earnings Call Transcript

February 25, 2010 10:00 am ET

Executives

John Seaberg -- VP, IR

Richard O'Brien -- President and CEO

Brian Hill -- EVP, Operations

Russell Ball -- EVP and CFO

Guy Lansdown -- EVP, Discovery and Development

Randy Engel -- EVP, Strategic Development

Analysts

John Bridges -- JPMorgan

David Haughton -- BMO Capital Markets

Barry Cooper -- CIBC World Markets

Patrick Chidley -- Barnard Jacobs Mellet

Lane Adler [ph]

Brian MacArthur -- UBS Securities

Operator

Welcome, and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions). I would now like to turn the call over to Mr. John Seaberg, Vice President of Investor Relations. Sir, you may begin.

John Seaberg

Thank you, operator, and good morning, everybody. Thanks for joining us on our Q4 and year-end 2009 earnings call. Joining me today are the members of our executive leadership team, who will be available for questions at the end of the presentation. Before we get started, as usual, 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. I will now turn the call over to Richard O'Brien, President and CEO.

Richard O'Brien

Thanks, John. I would like to start today's call by revisiting Newmont’s strategic priorities outlined on slide 3, for those of you with access to our simulcast presentation.

In 2009, we continued to execute well in our operations and drive significant improvement in our financial performance. As we look forward, we believe that successfully executing on the key benchmarks that we set out for the company at the beginning of each year will lead to increased value for our shareholders. Less execution risk should imply a higher value for our portfolio of operations and projects. We continue to work tirelessly to achieve our strategic priorities every year, and we are pleased that 2009 to a significant degree solidified our foundation of doing what we say we will do. Our continuous focus on disciplined planning in operational and business excellence enabled us again to deliver on our annual operational guidance for 2009, just as they did in 2008. The operating results, along with the robust gold price environment led to record financial performance, including the generation of almost $3 billion in operating cash flow, which Russell will speak to later.

Now that we have reached the construction completion and commercial production milestones at our Boddington project in Australia, we are focusing our efforts on advancing our next generation of projects, 30 million to 40 million targeted ounces of development opportunities, of which approximately 20 million ounces are in proven and probable reserves at this year end, with the remainder being at earlier stages of definition. Guy will review a number of these opportunities a little later in the presentation. Importantly, the strength of our balance sheet, combined with expected future cash flow should provide the funding we need to develop these world-class mining projects.

And finally, we consistently aim to improve our safety record and commitment to environmental stewardship, and social responsibility. That said, 2009 was a somber year for Newmont, as we mourn the loss of four co-workers who died as a result of fail accidents in our operations. Because of our relentless commitment to creating the safest possible work environment, we recognize that fatalities are simply unacceptable. We continue to believe that we must get to a zero injury, not just zero-fatality workplace. Safe production is the bottom line here at Newmont.

2009 did offer some high points in our environmental, social and community relations efforts. We completed and published the findings from our unprecedented Community Relations Review, and brought together a global workshop held in Washington DC late in the year for many of the participants to hear feedback from the communities who had a chance to review the CRR. However, our work doesn't stop with just a review. We are in the process of developing standards and pushing them throughout our organization to build better relationships and more sustainable relationships with our host communities. We are also pleased to be recognized as an industry leader in sustainability for the third consecutive year, by our selection to the Dow Jones Sustainability World Index.

We also recognize the challenges facing the world related to climate change. As such, we continue to look for ways to make our operations more energy-efficient and take an industry leading role on this critical issue.

Turning to 2009 performance highlights on slide four, we had an excellent year, setting records for revenue, adjusted net income, and operating cash flow. In 2009, Newmont generated $7.7 billion in revenue, a 26% increase over 2008. We also generated record operating cash flow of $2.9 billion, a 109% increase over 2008. And our adjusted net income increased to $1.4 billion, or $2.79 per share, as 60% improvement on the year. Our equity gold sales reached 5.3 million ounces at costs applicable to sales of $417 per ounce, both within our guidance announced at the beginning of 2009. While realized gold prices grew 12%, our margin on gold increased 28%, demonstrating our ability to deliver strong financial leverage to the gold price. We also sold 226 million pounds of copper at costs applicable to sales of $0.64 per pound.

In addition to record financial results, our combination of excellent 2009 exploration results and the acquisition of Anglo’s one-third interest in Boddington, resulted in equity gold reserves of 92 million ounces, an 8% increase over 2008. This marks the highest level for our equity gold reserves since 2006, and equity copper results of 9.1 billion pounds, a 17% increase over last year. We are excited about these results, as this forms the foundation for future growth to our existing operations and our strong pipeline of products. 2009 marks a significant milestone in Newmont’s transformation and positions us to further emerge as a leader in the mining industry.

Turning to slide five and focusing on our fourth quarter results in particular, our operations generated consolidated revenue of $2.5 billion, a 90% increase over the fourth quarter of 2008. Net operating cash flow was approximately $1 billion, a 323% increase over 2008. Our net adjusted income rose 379% to $561 million, or $1.14 per share, an improvement of 338% over last year.

Equity gold sales for the quarter were 1.5 million ounces at costs applicable to sales of $413 per ounce. This quarter's costs applicable to sales were 7% lower than the fourth quarter of 2008, thanks to a continuous focus on cost control and higher production. These operating results, paired with a 38% realized gold price increase, led to a 94% increase in our gold operating margin. Copper, as in the third quarter, also contributed significantly to our success. In the fourth quarter of 2009, we sold 72 million equity pounds of copper at $3.24 per pound with costs applicable to sales of $0.64 per pound. I want to acknowledge the dedication and commitment of our employees worldwide. We had a superb 2009.

Our total equity gold sales for the year, focusing on slide six, were 5.3 million ounces, falling in the center of the range for our original outlook. Our full-year costs applicable to sales of $417 per ounce also comes in the lower half of the original outlook range of $400 to $440. Due to the delayed completion of Boddington, our consolidated capital expenditures were $1.8 billion, above our original outlook range, and above our third-quarter outlook update of $1.6 billion to $1.7 billion. As we mentioned, the delayed start up of Boddington pushed this number higher for the year, as we continued to capitalize pre-commercial production and interest costs, until we achieved commercial production in mid-November.

I will now ask Brian Hill, our Executive Vice President of Operations, to take us through our operating details on a regional level.

Brian Hill

Thank you, Richard. Slide seven illustrates our regional performance as compared to our outlook for 2009. We are proud that across our entire portfolio, our focus on operational education produced equity gold sales and costs applicable to sales results in line with our original expectations, which speaks to the hard work, alignment, and dedication of our employees in each one of our regions.

In Nevada, we sold more than 2 million ounces of gold, just slightly ahead of our outlook, due to higher underground tons mined at Leeville and Deep Post, and higher leach recovery at Carlin North and Twin Creeks. Costs applicable to sales in Nevada were $521 an ounce, lower than our expectations due to higher production, fewer tons mined, partially offset by higher royalties, higher net proceeds taxes, and higher underground mining costs.

At our operations in Australia and New Zealand, we sold 1.3 million equity ounces of gold, below our original guidance of 1.5 million to 1.6 million ounces, due to the delayed start up at Boddington. Gold sales at Jundee again came in higher than expected, as we continue to have higher ore grade at this operation, which was offset by lower-than-anticipated sales at Tanami, due to lower ore grade and at Waihi, as a result of an electrical fire in the mill earlier in the year. Costs applicable to sales of $508 per ounce were above our original expectations, but were in line with our third quarter updated outlook.

At Yanacocha in Peru, equity gold sales reached 1.1 million ounces, beating our outlook due to higher mill throughput, ore grade, and recovery. Costs applicable to sales were $311 per ounce, just outside the top end of our original expectation of $290 to $310 per ounce, as higher gold prices resulted in higher royalty and workers’ participation costs, partially offset by higher mill production, and by product credits.

Our Ahafo operation in Ghana sold 546,000 equity ounces of gold, well above our expectations, due to higher ore grade and throughput, and a drawdown of finished goods inventory. Ahafo’s costs applicable to sales were $445 per ounce, better than expected due to lower mining costs as a result of lower than expected waste material mined and lower power costs.

And finally, equity gold sales at Batu Hijau in Indonesia were 239,000 ounces at costs applicable to sales of $214 per ounce, which was lower than expected, due to lower diesel and mining costs, and higher co-product allocation of costs to copper.

Across the portfolio, we are very pleased with our operational performance, and continue to look for innovative ways to improve upon these results.

Now, I will turn it over to Russell Ball, our CFO, to highlight some of the more interesting financial results for the year.

Russell Ball

Thanks, Brian. On slide eight, you will see our gold operating margin for 2009 grew 28% on an average realized gold price increase of 12%, demonstrating our ability to deliver gold price leverage to the bottom line. In 2009, gold operating margin of 57% is an all-time high, and this does not take into account any benefits from our copper sales, which as Richard mentioned previously, grew significantly in 2009 and we look forward to an even stronger 2010.

As you can see from this chart, historically, our margins were in the 45% to 50% range, not too dissimilar from the rest of the industry. Now, with the continuing focus on cost control, and full of exposure to rising gold, copper, and silver prices, we are seeing substantial earnings in operating cash flow growth. For the 2005 to 2009 timeframe, gold margins increased by 175% on an average realized gold price increase of 122%.

On slide nine, you can see our operating cash flows in absolute dollar terms. 2009 was a record year, as we generated almost $3 billion of operating cash flow, an increase of 109% from 2008. Looking at the chart on the right side of this slide, you can see that we have an extremely strong balance sheet with over $3 billion in cash and cash equivalents. We have approximately $1.6 billion available under our revolving credit facility, plus approximately $1 billion in marketable securities. The $6 billion of available liquidity positions us well for funding internal growth to the development of our project pipeline, and potentially through acquisitions.

Now, I will turn it over to Guy Lansdown, our EVP for Discovery and Development, to talk about our 2009 exploration results, proven and probable reserves, and advanced products.

Guy Lansdown

Thank you, Russell. Looking at slide 10, as we mentioned earlier, our proven and probable gold reserves grew 8% in 2009 to approximately 92 million equity ounces, the highest result there was since 2006. At the same time, our copper reserves grew 17% to 9.1 billion equity pounds, our highest level on record. Our exploration programs alone replaced over 90% of our gold production depletion. Gold addition came from all regions, with notable new ounces at the Gold Quarry pitch in Nevada, Boddington in Australia, underground operations across Australia and New Zealand, and at Ahafo in Ghana.

In addition to our 2009 equity copper reserves being the highest on record for Newmont, our equity copper NRM is at the highest level since 2003, largely due to the Boddington acquisition completed in January of 2009, and a greater economic interest in Batu Hijau in Indonesia. These increases, combined with our general exploration opportunities, will support future sustainability and growth in each of our operating regions. We have focused our exploration efforts across the full breadth of the (inaudible). We will continue to strengthen our reserve base, as we have budgeted $190 million to $220 million for exploration in 2010, a 10% increase from last year, 75% of which has been budgeted for new mine opportunities.

Turning to slide 11, we are excited about these two major projects in our African region, the Akyem project, which is up for a final development position and full funding approval in the third quarter of this year and as a beta expansion opportunity near our existing Ahafo operation. With respect to Akyem, as mentioned earlier this year, we recently received the mining lease from the Ghanaian government, and have commenced the necessary crop compensation and relocation work. We are committed to implementing industry-leading environmental and socially responsible practices, as we bring this project into production in late 2013 to 2014. We are extremely excited about this project, as we have come up with some innovative ways to reduce the project's capital costs and increase the return on capital. Current initial capital estimates are between $700 million and $1 billion, to produce between 480,000 and 550,000 ounces of gold per year, at average costs applicable to sales of between $350 and $450 per ounce. We are aggressively moving this project forward, and plan to spend approximately $100 million this year, 2010, on basic and detailed project engineering, land access, and building out on this team. As mentioned, we will be looking at making a go-forward decision in the third quarter of this year.

Looking at the Subika expansion project, we have identified a target of approximately 7 million to 9 million equity ounces of gold, of which approximately 3 million ounces are in proven and probable reserves, and the remainder is at earlier stages of definition, including underground operations. We began construction of an exploration beacon in February of this year, and are conducting simultaneous exploration drilling from both the surface and underground to further delineate this deposit. The Subika project will be our first underground operation in Ghana, and demonstrates the potential in and around our existing Ahafo operation.

Slide 12 highlights two other major projects, Conga in Peru, and Hope Bay in Canada. At Conga in 2010, we are advancing the permitting process in basic and detailed engineering, with a gate for full funding decision targeted for the end of the fourth quarter, depending on permitting. Conga is a large copper gold field, with consolidated reserves of approximately 12 million ounces of gold and over 3 billion pounds of copper. First production is currently anticipated for late 2014 to 2015, with average annual production of 650,000 to 750,000 ounces of gold, and 160 million to 210 million pounds of copper at competitive operating costs. The current initial capital estimate stands at between $2.5 billion and $3.4 billion, on 100% basis. Buenaventura is our partner on this project, and as with Yanacocha, Newmont earns 51.35%. We are very excited about this project. First, because it has an expected mine life in excess of 20 years, and because there is tremendous exploration potential in the district.

We are also excited about our vision for the advancement of our Hope Bay project in Canada. Positive 2009 drilling and regional exploration results, combined with a favorable review from our Jundee operations team in Australia, have reinforced our positive view of gold resource potential across the 80 kilometer Greenstone belt. We are advancing development with an underground focus, to be initiated with a decline at the Doris north deposit. Although still in the early stages, we are energized about this opportunity and we now have an experienced team and key contractors in place. With near-term development plans and district exploration for years to come, Hope Bay is a significant asset within our portfolio. We have $140 million to $170 million budgeted for 2010, primarily for exploration infrastructure and to advance the decline. We look forward to updating you on Hope Bay’s progress throughout the year.

Now, I will turn it over to Richard.

Richard O'Brien

Looking at our 2010 outlook on slide 13, equity gold production is expected to be between 5.3 million and 5.5 million equity ounces, driven by higher production from the Asia-Pacific region, as a result of the ramp-up of Boddington to full production, partially offset by lower production from Nevada in North America, and at Yanacocha in South America, as a result of increased stripping and lower ore grades.

Total costs applicable to sales are expected to be between $450 and $480 per ounce, including the impacts of accounting for Boddington on a co-product basis. Total costs applicable to sales would be expected to be between $440 and $470 per ounce, including the impacts of accounting for Boddington on a by-product basis. Costs applicable to sales are up in 2010 from 2009 as a result of lower production at Yanacocha, and low production at Nevada. By the way, Boddington, on a standalone basis, would be about $295 to $315, announced on a by-product basis; and about $375 to $395, announced on a co-product basis.

Our copper production in 2010 is expected to be 350 million to 380 million pounds, at costs applicable to sales of $0.85 to $0.95 per pound, driven by higher production at Batu Hijau, and the ramp-up of slightly higher cost production at Boddington. We also expect to spend on a consolidated basis $1.4 million to $1.6 million in capital expenditures in 2010. This figure includes the capital related to aggressively advancing the development of our projects, which Guy spoke to earlier, and there is a chart in our earnings release, which goes into detail on the spending on those projects.

Moving to slide 14, at the time of our third-quarter earnings call, we announced that we believed our 2010 production would be up 5% to 10% from 2009 levels. Our outlook, as presented today, is at the bottom of that previous guidance, and I wanted to describe the major factors affecting this shift to the lower end of that range. As mentioned earlier, the biggest incremental contributor to our production profile in 2010 is Boddington, which we anticipate will produce 800,000 to 875,000 equity gold ounces in 2010. And that is slightly below our targeted 1 million ounce run rate, as we continue to ramp up to full production throughout 2010.

As you know, our Yanacocha operation continues to mature, since commercial operation began there in 1993, and we expect its production in 2010 to decline to between 750,000 and 810,000 equity gold ounces. Incrementally, this represents a decline of approximately 300,000 ounces from 2009. The primary reasons for the decline in production is lower leach placement, and lower mill ore grade. Looking forward, we expect South America’s production to remain near 2010 levels.

Turning to Nevada, our production outlook for 2010 is 1.6 million to 1.7 million equity gold ounces, approximately 17% lower than our 2009 production, due to lower production from the Carlin operations and the closure of Deep Post, partially offset by increased production at Leeville. The lower production at Carlin is due to a geotechnical event we experienced in late December at Gold Quarry, limiting access to ore that was originally scheduled to be mined in 2010 and 2011. Following the series of geotechnical mine planning and ore blending analysis conducted in January and February this year, up to approximately 150,000 equity ounces of gold production are expected to be deferred from Gold Quarry in 2010, with potential additional ounces deferred in 2011. We continue to study opportunities to safely accelerate the production of the ounces currently scheduled to be produced in 2012 and 2013. Of course, this event will not likely affect our life of mine plants for Gold Quarry, but it does defer the production of those ounces to 2012, 2013 timeframe. In total, we are expecting 2010 equity gold production to be between 5.3 million and 5.5 million ounces, which represents production growth potential of up to 5%.

Turning to copper, we expect to produce between 350 million and 380 million equity pounds of copper in 2010. That is up approximately 60% from 2009 levels. This is driven by the ramp-up of Boddington, as well as an assumed economic interest of 52.44% in Batu Hijau.

Looking at slide 15, our 2010 costs applicable to sales outlook compared to the 2009 actual figure, is that higher costs are primarily driven by lower production at Yanacocha and Nevada, as well as the change in accounting for Boddington from a by-product credit basis to co-product accounting. Boddington's low-cost production will benefit our 2010 costs applicable to sales as well, bringing the total costs applicable to sales for the year to between $450 to $480 per ounce as I mentioned earlier.

Our costs applicable to sales for copper will be slightly higher in 2010 compared to 2009, as a result of more costs being allocated to copper at Batu Hijau, as well as co-product accounting treatment at Boddington.

As previously mentioned, our consolidated capital expenditure outlook for 2010 is $1.4 billion to $1.6 billion, with approximately 30% invested in each of the North America and Asia-Pacific regions, and the remaining 40% at other locations. Approximately 60% of the 2010 capital budget is allocated to sustaining investments, with the remaining 40% allocated to project development, including the development of Akyem in Ghana, Conga in Peru, and Hope Bay in Canada. We will continue to provide additional information about our projects throughout the year.

In closing, our achievements in 2009 provide Newmont a strong and enduring foundation for strong operating results and project development capacity for decades to come. We have demonstrated that we have the ability to consistently deliver on our plans and do what we say we are going to do. We have also demonstrated our ability to deliver significant margin growth, and leverage to an increasing gold price. Our existing production base and focus on responsibly containing our costs have given us strong operating cash flow generation and a strong balance sheet to fund the development of our next generation of major gold and copper projects. As we embark on our next major mine development campaign, Newmont is well-positioned to take advantage of ongoing strength in metal prices. We are inspired by Newmont's ongoing transformation, as the changes we have implemented begin to yield noteworthy results for our shareholders and stakeholders.

And we are not done yet. As I stated at the beginning of this presentation, we are all committed to doing what it takes to make Newmont the most valued and respected mining company through industry-leading performance. Lastly, I again want to express my gratitude to our employees for delivering a record year, and for the foundation they are creating to ensure the future success of our company.

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

Question-and-Answer Session

Operator

(Operator Instructions) John Bridges, your line is open.

John Bridges -- JPMorgan

Thank you. And good morning, Richard.

Richard O'Brien

Hey, John.

John Bridges -- JPMorgan

Hi. Just wondered if I could get a better sense of the status of the go ahead on these projects? You are talking about CapEx as if you are going ahead with these things, but you are going to put them to the Board during the year, I would guess. Is some of the spending provisional on the Board go-ahead?

Richard O'Brien

No, John. Really, where we are is we have authorization to move forward on these projects, but in our disciplined stage gate approach, we are really trying to signal to you that in the case of Conga, we don't have a permit yet and in the case of the development at Akyem, we are still moving forward with land access to make sure we finalize that as well as completing the final feasibility for the project. So, that is the status, we are moving forward on both of these. We are careful though to make sure that we have milestones, so that we can keep these projects on track and keep them in front of the Board as well as our shareholders.

John Bridges -- JPMorgan

Okay, that is helpful. And then, as a follow-up, Hope Bay is probably a little bit more difficult for us to understand than the two big projects. I wonder if you could give us a little bit more of a sense as to what you hope to develop there?

Richard O'Brien

Yes, let me turn it over to Guy and he can give you a current update on what we are doing at Hope Bay.

Guy Lansdown

Good morning, John.

John Bridges -- JPMorgan

Good morning.

Guy Lansdown

John, what we have is a revitalized team at Hope Bay, and we have just built up a team of folks who are very experienced in the Arctic, and we have drawn on the resources in Jundee, where we have a geological formation which is similar to Hope Bay, which has given us confirmation and the ability to start notching out a more detailed development plan for the project. What we plan on doing is pulling on from the positive exploration results that we have had is to start driving a decline. We would like to understand the resource better, understand what the extraction processes are, set up the infrastructure to continue exploring and developing, and from that point on with positive results, our plan is to go in with a phased approach with regard to putting in our processing facilities, perhaps a smaller plant down the road, but our first step is to get in with the decline this year and set up infrastructure. So, we are very excited about the project and the -- both the exploration results that we have got, not only from the drill but also from our regional (inaudible) study.

Richard O'Brien

Yes, I would just add to that, John, that I think we have an exceptional opportunity at Hope Bay, and it is an opportunity with some risk, and that risk we can only really refine our understanding of that by driving a decline and moving forward. But remember, we have a large district here, which we own 100% of the rights to. We are beginning to understand that district more and more and I think Guy and Cindy Williams and the team have put together a really good plan for us to step out and I hope that when we meet with analysts in May of this year, we will have a better opportunity to talk with you in detail, is that right, is it in May, when are we meeting in Boston? May. Yes, we are going to have a May Analyst Day, and maybe reread you some further disclosure on what is going on at Hope Bay, but I would say, as Guy said, I think we are re-energized about the opportunities there.

John Bridges -- JPMorgan

Those are game plans to get your hands around the one project and then you can go look at the other targets.

Richard O'Brien

Yes, I think the idea is to get in and the only way we are really going to refine this is to get underground and start to follow these narrow high-grade veins and I think that is why we are really leaning more and more on our global knowledge, particularly out of the people at Jundee, who as you know, over the last couple of years you have heard Russell refer to Jundee as the little engine that could, it just keeps going and we are hoping that those people will help us here as well.

John Bridges -- JPMorgan

Okay, excellent. Well done, guys. Thank you.

Operator

David Haughton, your line is open.

David Haughton -- BMO Capital Markets

Good morning and thank you. Just following on from that Hope Bay discussion, I noticed in the slides that the capital expenditure was $140 million to $170 million and yet in the document that we are looking at, it was about half that level. Just wondering what that difference might be and whether it is attributable to exploration versus CapEx?

Richard O'Brien

That is it exactly. Actually, in total, we are looking at probably $200 million or so in both infrastructure, which will relate to pre-ordering equipment and driving the decline to actually begin this effort as well as continued exploration and development expenses related to that.

David Haughton -- BMO Capital Markets

And I am presuming with the decline that that is on the Doris ore body?

Guy Lansdown

Yes, that is correct, David. That is our intention as we start the decline in the Doris north area, where we have got a better understanding of the resource and as Richard said, of the total $140 million to $170 million, about half of that is for capital for infrastructure on the decline. The remainder is for study work and exploration.

David Haughton -- BMO Capital Markets

Just switching now to Gold Quarry, I had noted the geotechnical issue you confronted there. I am just wondering whether the deferred production impacts the strength of Nevada royalty, or whether it is outside of that footprint.

Brian Hill

David, this is Brian, good morning. At this point in time, we expect that there will be some impact on the royalty. We haven't got a final number in terms of quantifying what that might be and when we do, we will be moving forward and talking with our royalty holders about what that impact might be.

David Haughton -- BMO Capital Markets

Thanks, Brian. And finally, on Batu Hijau, just a little bit confused about your expression of ownership at 52.44%, because after sell-down, it ought to have gone to something in the order of 31.5%. I wonder if you could talk me through that logic.

Russell Ball

David, hi, it is Russ Ball. What we have in Indonesia is a 35.44% equity interest as of the end of 2009 and we have a 17% economic interest in our Indonesian partner, who we loaned a significant amount to address some of his issues. So what we have is a 35% economic equity interest, plus 17% based on economics which will accrue to us. The loan is entirely -- the only recourse we have is to future production and so that is the way we have accounted it. This is similar to the accounting, David, you remember from 2000 to roughly 2007, when we had a similar loan facility outstanding with our partner.

Richard O'Brien

David, it doesn't show up this way, but I think if you view it as a carried interest as Russ said we had earlier, it is almost identical; the accounting is somewhat different, but the economic results are very near to that, picking up that additional 17%.

David Haughton -- BMO Capital Markets

Now I presume that through time, that 17% would work its way down to zero, as the full gone revenue would make up that difference at the line.

Russell Ball

Yes, David, we will stay at 17% until the loan in, including a 14% interest and accrued interest on that loan is fully repaid.

David Haughton -- BMO Capital Markets

Do you have an expectation when that might be, Russ?

Russell Ball

At these metal prices, sometimes in the next couple of years.

David Haughton -- BMO Capital Markets

Okay. All right, thank you very much. That concludes my questions.

Operator

(Operator Instructions) Barry Cooper, your line is open.

Barry Cooper -- CIBC World Markets

Yes, just wondering if you could flesh out a little bit more. You indicated that Boddington didn't live up to your expectations, just how is it going and are your expectations, were they modified at all for 2010.

Richard O'Brien

When we say it didn't live up to our expectations, I think it is solely the fact that we had about a four-month delay in terms of getting the project to construction completion. I would say we did better-than-expected in terms of ramping up to commercial production, really getting the project from construction completion very rapidly into mid-November, surpassing that 65% plus sort of level of operating. I will tell you, over the last couple of months, from a mill operation standpoint, things are going very well. We have run the mill at or near capacity on several days, and I think the team is really executing very well. So in that respect, it is actually going probably beyond our expectations.

Back into the mine, I think we still have some work to do, you know, from the pit to the primary crusher, and I think we will continue to optimize this facility over the next couple of years to ensure that we have got the right balance between mine production, all the way through to refining both copper and gold, and I think, you know, overall, we feel good about where we are on Boddington, I think emphasizing that the purchase of the Anglo interest was very economic for us and I think owning 100% of that, with current operations, we feel very good about that and I think the potential on that district will I think lead us to beyond a 20-plus year mine life that we have. So at this point, I would say it goes very well for us, and we are going to be happy to have some of your guys down to take a look at it, because I think when you see the facility and how operations are going, you will this is a pretty amazing facility and we are actually doing a really great job there and compliments to the team around the world for really supporting ramping that operation up as quickly as we did.

Barry Cooper -- CIBC World Markets

Right, Richard. Well, I know it did beat my expectations there a little bit, so congratulations to that. What is the grade reconciliation that you are seeing so far, are you seeing any surprises there and what should we ultimately look for in terms of the recovery?

Brian Hill

Barry, it is Brian Hill, I will answer that for you. It is still pretty early days, you know, with respect to grade reconciliation, but what we are seeing so far as we are down a little bit on the gold grade reconciliation, but we are up on the copper grade reconciliation. From a recovery perspective, we are actually performing a little bit better than the low 80s that we had on gold and copper recovery in the middle. The other nice pleasant surprise we are seeing is we are also seeing little higher concentrate grades than we had expected. So really, from a metallurgical performance perspective, we are seeing results that are a little bit better than expected.

Barry Cooper -- CIBC World Markets

Right, okay. And maybe you could just remind me, because I know Doris had a resource before and you have obviously done enough lot of work. What is the resource that is attributable to Doris now?

Guy Lansdown

Yes, this is Guy. At the moment, we have got a resource of up to about 300,000 ounces on the Doris area specifically, and we continue to explore around it and below it. So we will determine more of it as we get exploration results throughout the year.

Barry Cooper -- CIBC World Markets

And the grade of that would be, roughly?

Guy Lansdown

The grade for that is in the 20 gram to 25 gram per ton range.

Barry Cooper -- CIBC World Markets

Right, okay. And then just one final question. Throughout the release, you talk about, and kudos to you for giving us some guidance out to 2011 and 2012. I just want to ask a question so that I understand it correctly. You used the term production should be near the 2010 levels, the word “near” is used quite frequently. Near to me would mean less than 5% change, is that what you would interpret the word near to be as well?

Richard O'Brien

Nice test, Barry. I think near for us means -- you know, given all the vagaries of mining, you know, we are going to be pretty close to where we are today in both in those areas where we use the word near.

Barry Cooper -- CIBC World Markets

Okay, good enough.

Richard O'Brien

Yes.

Operator

Patrick Chidley, your line is open.

Patrick Chidley -- Barnard Jacobs Mellet

Hello, I didn't hear that. Hi, everybody. Congratulations on a great quarter.

Richard O'Brien

Thanks, Patrick.

Patrick Chidley -- Barnard Jacobs Mellet

I wanted to actually look at some of the new projects, but you have obviously spent a bit of time talking about it. In particular, Subika underground, I thought I saw a resource of 7 million to 9 million equity ounces. Has that changed last year and is it the reason you had tremendous exploration success there?

Guy Lansdown

Patrick, this is Guy. We have to give you the split of 3 million ounces in the pit in the form of a layback. There is about 4.5 million ounces in NRM, which is split between a pitch and an underground tunnel to work out the optimal set up for uptick versus underground. The remainder is pre-NRM material, but to answer your question, yes we have improved from those results of our drilling progress throughout 2009.

Patrick Chidley -- Barnard Jacobs Mellet

And the total number of that for just this particular area of Ahafo.

Guy Lansdown

The (inaudible) and the surrounds.

Patrick Chidley -- Barnard Jacobs Mellet

All right. And then, how deep underground does that take you in terms of what you are seeing there in the resource?

Guy Lansdown

Well, at the moment, we have drilled down to about 500 meters, but the intent of that decline is to get down deeper, not only to understand the resource and the extraction costs, but to set ourselves up to explore further and deeper.

Patrick Chidley -- Barnard Jacobs Mellet

All right. And in terms of underground, how are you modeling your whole body in terms of sort of dimensions that you might expect sometimes, so the average grades.

Guy Lansdown

Well, that is the process we are going through right at the moment, because it is in stage II of the study, so we are trying to optimize the size of the pit versus what the underground is going to look like.

Patrick Chidley -- Barnard Jacobs Mellet

So would you -- I mean basically, would you anticipate any underground operation as being quite a bulk mining to this situation as opposed to narrow vein sort of mining.

Guy Lansdown

Yes, that is the invested case, but we are looking at different options at the moment. Patrick, again, it is stage II in our capital effectiveness process, so pretty early on, so difficult to say exactly how we are going to extract the material.

Patrick Chidley -- Barnard Jacobs Mellet

And then, at Akyem, I think it was just touched upon there earlier, but you mentioned the CapEx number of $700 million to $1 billion, and then separately, you mentioned that you are looking -- you should have found some improvements to the CapEx. Is that range including the improvements or is that the improvements may be pushing those numbers around.

Guy Lansdown

Well, that is our previous number, Patrick, while we go through the development of stage IV, we would anticipate in co-operating our reductions, if there are any, with talk to tighten up the range a bit. But we are not only looking at improving the capital, we are also looking at improving operating costs, so we are trying to add to the bottom of the line from a value perspective.

Patrick Chidley -- Barnard Jacobs Mellet

Right. And at Akyem, if you do have a construction decision in Q3 this year, when would production sort of be expected or what is the sort of time horizon there?

Guy Lansdown

Yes, at present, we are targeting late 2013, but that could float into 2014. The critical part for us is going to be relocation and land access. So we will get a better feel for that through this phase of the project.

Patrick Chidley -- Barnard Jacobs Mellet

Have the power issues been sorted out in terms of the reliability and quality of power that you need here?

Richard O'Brien

Yes, this is Richard. I think, Patrick, the answer to that is yes and the reasons are varied, but at this point, we have not really had issues with respect to the power at Ahafo, and a lot of that is power or hydro availability has gone up. But in this timeframe, most importantly, there has been a significant discovery of oil and gas off the shore of Ghana, and under the rules that Ghana uses with respect to the UN, they will be not allowed to flare that gas, bringing it on board, there is permitting going on for gas plants. So we actually see additional infrastructure investment in electricity generation in Ghana. So I think the confluence of that timing and the production of the team, I think we will line up pretty well. We will have backup diesel facilities there, but hopefully, we won't need to use them.

Patrick Chidley -- Barnard Jacobs Mellet

Excellent. And just a final one on Boddington. You touched upon some extra success you are getting. Could you give us an idea what sort of scope that would be in terms of you know, size potential or grade?

Guy Lansdown

Patrick, this is Guy. We are currently focusing our exploration efforts on the Northeast part of the pit, where we are hopeful that we will get some material of higher grades than current, and from our initial exploration results, we are pretty hopeful that it will turn out that way.

Richard O'Brien

I would just add to that that I think in the larger district, one of the things that the team down there has been able to do is get some work on the tenements, which as you know, if you have been in Australia, is an important thing to be able to get completed with bauxite and some of the other issues in the area. For us to proceed with exploration outside of the existing operating pit, and I think those are plans that you will see the benefit over the next couple of years.

Patrick Chidley -- Barnard Jacobs Mellet

Okay, great. All right, thanks very much.

Richard O'Brien

Thank you, Patrick.

Operator

(Operator Instructions). Lane Adler [ph], your line is open.

Lane Adler

Hey, good morning and congratulations on a good quarter. I realize there is a limit to what you can say here, but could you review your M&A strategy and how motivated you are, what kind of targets, what kind of timing we can expect?

Richard O'Brien

Our aim is to dominate the world. What I would say is that -- and I can turn this over to Randy in a minute, but as a broad brush look, we understand that to build this business, we have to both develop our own projects, we have to continue to explore our end and Guy mentioned about $200 million on our exploration on our own stuff, both Greenfield and near mine, but we also know we have to do acquisitions from time to time. We are going to continue to be value-oriented; it is not as if we haven’t looked. Last year, we completed a $1 billion acquisition pretty quietly I think, at a very good price when we got the Boddington deal. I think going forward, Randy and his team, the rest of the management team, we are committed to building the business and at some point, we will do a deal. Randy, you want to talk for a minute about what it might look like?

Randy Engel

Yes, I think we would just look for the usual characteristics that just about all of our peers are looking for, looking to enhance our grade. We are looking to extend our average mine life. We are certainly looking to do those in more favorable jurisdictions. You see, our last two transactions were done in AAA-rated jurisdictions like Hope Bay, like Boddington, but we are willing to go into places we haven't gone before. And we look for synergies, and we look to do that on an accretive basis. So it is a fairly common checklist, we recognize we won't hit all of those on any given transaction and we are willing to take some risks.

Richard O'Brien

And just to be clear, I was kidding about the world domination thing. For those of you on the record.

Lane Adler

And second question, if I could get a follow-up. What are your thoughts on hedging; I can understand why you might not want to hedge gold, but how about diesel or currencies, what is your latest thinking on hedging?

Russell Ball

Yes, hi, this is Russ. We do have an active Aussie dollar hedging program in particular, that is nice end of money. We do a little bit on some of the diesel and energy, and have looked at a number of other options. I guess the high level of strategy is trying to manage the volatility around costs, so we are looking to not time the market as much as we are looking to remove the peak, install the valley. So you won't see us taking any huge one directional bets, but over time, managing volatility we think adds value as we continue to deliver on what we say we are going to deliver.

Lane Adler

And I assume there is no change in that. That is sort of your strategy and you are sticking with it and you are not more excited or less excited about that?

Richard O'Brien

Yes, I think Russ’ team is really focused on a disciplined execution plan, which means that every once in a while, we might do something other than just reach out a few years in Australia if we see something that we think is opportunistic, but it won't be a big bet. I think legging in is the way we will do this, and clearly, as Russ said, we are looking at hedging the input cost, we will not hedge our outputs relative to gold and copper. And I think importantly, just there is plenty of information on our hedging in the 10-K document, which was filed last night or this morning, and just there is a lot of disclosure in there around what we are doing and why and you can look at it and see it is fairly consistent.

Lane Adler

Thank you.

Richard O'Brien

Additionally, I would say that we do continue to hold our interest in Canadian Oil Sands, and as we have talked about before, while it provides a current cash distribution stream, importantly, the notional value goes up and down, the market value really depending on what the price of oil is. So we have a little bit of an internal edge on that as well.

Lane Adler

Thank you.

Operator

Brian MacArthur, your line is open.

Brian MacArthur -- UBS Securities

Good morning. Not to beat the accounting for Batu Hijau to death here, but can you confirm the $287 million in the fourth quarter going out to buy some shares, I is soon there is nothing else in there that is the $287 million invested in your Indonesian partner. And secondly, I realized you are now giving production and everything on a 52.44 basis. With your CapEx numbers, are they coming in at 52.44, and do you actually fund the partners’ capital first and recover it or how does that all work?

Russell Ball

Brian, Russ. So the $287 million was the advance at 12/30/09. Subsequent to year end, we have had a small additional advance that was part of a delayed payment. In addition to that, we have had a dividend distribution. So that is roughly about $260 million today. As far as capital, there is significant cash flow coming out of Indonesia, so external financing at least for 2010 and into 2011 is not an issue. So the project self-funds if you want.

Richard O'Brien

The capital number themselves, in our presentation, are all consolidated.

Brian MacArthur -- UBS Securities

Great. Thank you very much, that helped.

Operator

I would now like to turn the call over to Mr. Richard O’Brien.

Richard O'Brien

Thank you very much for your participation on the call today and if you have questions or want to follow up, please don't hesitate to call John or Randy or anybody on the team here, and we look forward to seeing you in the near future. Thanks.

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Source: Newmont Mining Corporation Q4 2009 Earnings Call Transcript
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