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Executives

Richard O'Brien - Chief Executive Officer, President and Executive Director

John Seaberg - IR

Cindy Williams - Investor Relations Manager

Brian Hill - Executive Vice President of Operations

Russell Ball - Chief Financial Officer and Executive Vice President

Analysts

John Bridges - JP Morgan Chase & Co

Wilfredo Ortiz

David Christie - Scotia Capital Inc.

George Topping - Stifel, Nicolaus & Co., Inc.

David Haughton - BMO Capital Markets Canada

Newmont Mining (NEM) Q3 2010 Earnings Call November 2, 2010 11:30 AM ET

Operator

Thank you for standing by. [Operator Instructions] I'd now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Sir, you may begin.

John Seaberg

Thank you, operator. Good morning, and thanks for joining us on our third quarter earnings call. With me today are members of our executive leadership team who will be available for questions at the end of the presentation.

Before we begin, I'd like to refer you to our cautionary statement on Slide 2 as we will be discussing forward-looking information which is subject to a number of risks, certain of which are unique to our business as further described in our SEC filings, which can be found on our website at newmont.com. And now, I will turn the call over to Richard O'Brien, our President and Chief Executive Officer.

Richard O'Brien

Thanks, John. For those of you with access to our webcast presentation, we'll start on Slide 3.

If you've been following Newmont recently, the themes of execution, cash flow, flexibility, margin expansion and leadership will sound very familiar to you. That's by design as we believe consistent delivery creates sustainable value.

Our consistent focus on production and cost management applied across our portfolio of assets gives us the ability to deliver the most cash flow leverage per share of any gold company in the world. That cash flow in turn gives us the flexibility to fund exploration, by far, the cheapest source of new reserve growth and to fund our considerable project development pipeline with an expectation of favorable real returns. And our free cash flow generation provides us the confidence to return capital to shareholders as evidenced by our 50% increase in our dividend announced in the last quarter and sustained this quarter.

While we continue to focus on optimizing the results from each of our existing operations, we're also transitioning our Boddington project through ramp-up and into steady-state operations. During the third quarter, we strengthened our senior management team at Boddington to support this transition. And we are now forming a special project team to optimize and de-bottleneck the mine and process plant as we complete that transition into ongoing operations.

An initial component of this optimization process has been the installation of a sixth MP-1000 secondary crusher, which will be commissioned this month. As a 20-year-plus asset with compelling exploration potential, our expectations for Boddington continue to be high. Alongside optimizing our existing operations and transitioning Boddington to full capacity, we're also simultaneously preparing for our next significant project development campaign, which includes Conga and Peru, Akyem in Ghana, Hope Bay in the Canadian Arctic and several near mine development opportunities in the Carlin Trend in Nevada.

Moving to Slide 4, you'll see a snapshot of our global production in the third quarter. Newmont produced 1.4 million equity ounces of gold at an average realized price of $1,221 per ounce and cost applicable to sales of $477 per ounce. Our North American region contributed 35% of our total quarterly equity gold production. South America contributed 13%, and Africa contributed 11%. Our Asia-Pacific region contributed the remaining 41% of our quarterly gold production and all of our 83 million pounds of equity copper production.

Within our APAC region, our newest mine, Boddington, produced 180,000 ounces of gold and 14 million pounds of copper in the quarter. With the first three quarters of the year behind us, we've narrowed our overall outlook for 2010 equity gold and copper production to 5.3 million to 5.4 million ounces for the year. We've also reduced our 2010 capital spending outlook by about $100 million to $1.3 billion to $1.5 billion.

And as we suggested in our July earnings call, higher gold prices and unfavorable exchange ratios have led to higher costs in the third quarter. We've expanded our outlook for gold cost applicable to sales to a range of $485 to $500 per ounce for 2010, still below the gold industry average and highly influenced by higher gold and a higher Australian dollar rate. You can find more details on our 2010 outlook in the appendix to this presentation.

I'd like to now turn the presentation over to our Chief Financial Officer, Russell Ball, to fill you in with more details on our financial performance.

Russell Ball

Thanks, Richard. Slide 5 summarizes our third quarter performance compared to the prior-year quarter. We recognized record revenue of $2.6 billion on higher equity gold and copper production and average net realized prices of $1,221 an ounce and $3.67 a pound, respectively. Looking at the screens earlier this morning, we were trading at $1,356 and $3.80, so significantly higher than the averages realized for the third quarter.

With significantly higher operating margins, we reported adjusted net income for the third quarter of $1.08 a share, an increase of 37% from the year-ago quarter and some $0.10 to $0.12 above consensus. Reported net income was slightly higher than the adjusted net income due to a small net gain on an asset disposition which we backed out.

I didn't want to ignore the two red arrows on the slide, namely costs applicable to sales for both gold and copper, which were up 18% and 46%, respectively. And we'll cover this in more detail on Slide 7.

When you look at industry-wide cost trends as reflected on Slide 6, you will see that while we are faring better than the industry average, we are all experiencing upward cost pressures as mines age, the complexities of the ores we treat increases and average ore grades decrease. On the slide, Newmont's costs applicable to sales are shown in blue, and that compared against the GFMS average in gray.

Our third quarter CAS of $477 an ounce is below the GFMS average of $535 per ounce for the second quarter, the most recent available. And we'll undoubtedly be well below the average for the third quarter when all producers have reported. The 61% operating margin for the third quarter, the highest in recent memory, what others will likely be eclipsed in the fourth quarter given where metal prices are trading today.

On Slide 7, we've highlighted our costs applicable to sales outlook from February 2010 to where we stand today. Our original guidance, as Richard mentioned earlier, was based on a $900 gold price and an AUD $80 exchange rate assumption. The higher realized gold price and stronger Australian dollar or maybe that should be a weaker U.S. dollar in today's context, collectively added about $19 an ounce to operating costs. And as I've said on the second quarter call, these are higher operating costs we don't mind paying given the increase in margin.

Lower production volume and higher spending, primarily at Boddington and Batu Hijau contributed another $11 per ounce in higher costs. Our copper CAS outlook remains unchanged at $0.85 to $0.95 per pound, with lower production costs from Batu Hijau offset by higher costs from Boddington.

Slide 8 focuses on free cash flow generation, as we believe that this metric is the ultimate determinant of value for this and any other business. We delivered operating cash flow in excess of $850 million for the quarter. And this was off the funding of pension obligations in the amount of approximately $60 million and $130 million prepayment of income taxes, which we expect to be refunded next year. I should note that included in operating cash flow for the third quarter of 2009 was $175 million of income tax refund.

So in summary, strong operating cash flow generation, but some big working capital movements that are not always to forecast. The chart on the right reflects third quarter operating cash flow as reported on a per-share metric for a number of our North American peers. The numbers speak for themselves.

And with that, I will turn it over to Brian Hill, our Executive Vice President of Operations, to discuss the regional operating results for the quarter.

Brian Hill

Thanks, Russell. As you can see on Slide 9, North America produced 495,000 ounces of gold in the third quarter. Production was lower than the year-ago quarter as a result of lower leach tons placed at Twin Creeks and Carlin and lower ore feed at Mill 5 due to the Gold Quarry slide that occurred in late 2009. On a positive note, we experienced higher mine production at Leeville, which offset some of the impacts of Gold Quarry. We saw production increases at La Herradura, which benefited from the commencement of production at the Soledad and Dipolos pits.

Costs applicable to sales in North America were $565 per ounce due to a higher proportion of underground mining and additional surface mining costs due to the Gold Quarry slide, partially offset by copper and silver by-product credits. Twin Creeks' cost per ton was unfavorably impacted by the timing of leach ore placed at the end of 2009. And additionally, mining optimization work at Twin Creeks has focused on accelerating mill ore as opposed to leach ore to help offset the Gold Quarry slide.

In South America, we produced 187,000 equity ounces, a decrease of 33% as expected from the prior-year quarter, as shown on Slide 10. Production included contributions from Chaquicocha, which partially offset lower placed ore from La Quinua where paleosoils limited our leach ore placement. Costs applicable to sales were $420 per ounce, up 43% from 2009 due to lower production, higher waste mining and higher maintenance costs, production taxes and royalties as a result of the higher gold price. This was partially offset by favorable silver by-product credits.

In the third quarter, commercial production began at our La Zanja joint venture with Buenaventura who is the operator. La Zanja is located about 40 miles west of Yanacocha, and is expected to produce 15,000 equity ounces in 2010.

Turning to Slide 11. In the Asia-Pacific region, we produced 570,000 equity ounces of gold at costs applicable to sales of $451 per ounce. At Batu Hijau, we encountered a dry season that was uncharacteristically wet, affecting our access to the bottom of the pit during the third quarter. On a positive note, we experienced higher grades in recoveries at KCGM, as positive mill reconciliations for July and August were coupled with good grade from the reward ore body. We also experienced solid overall performance at Jundee and Waihi. Costs moved upwards in the third quarter due to higher drilling, loading and hauling costs at Boddington, as well as higher proportion of underground mine operating development costs at Jundee.

Moving to Slide 12. We continue to work towards consistent production at Boddington. While we report Boddington as part of our Asia-Pacific region, we thought it would be helpful to also understand its contribution on a stand-alone basis relative to the rest of our portfolio. For the third quarter, gold production was 180,000 ounces, virtually unchanged from Q2. And copper production was 14 million pounds. We did have issues with the main circuit breaker and tailings stiffener [ph] in August, which did adversely impact mill throughput during the quarter.

Since the end of the quarter, we had a good October at Boddington with 2.8 million tons milled. Our processing plant continues to perform in line with our expectations and should achieve nameplate capacity in the first quarter of 2011. As I mentioned earlier in my Asia-Pacific remarks, costs applicable to sales have been higher than anticipated due to a stronger Australian dollar and higher-than-expected mining and milling costs during the ramp-up.

Let's turn to Slide 13. On the positive side, we continue to see solid performance from the high-pressure grinding rolls and wet plant at Boddington, while recoveries and concentrate quality continue to be better than expected. Our challenges still involve lower gold grades, though that is based on less than 3% of reserves mined to date, dry plant wear rates and higher mining costs as a result of fragmentation issues and the stronger Australian dollar.

Turning to Slide 14. I would like to discuss Batu Hijau briefly, which is another component of our Asia-Pacific region. As an update to our ownership position, no shares were divested during the quarter, and our effective economic interest remains at 48.5%. We offered the final 7% ownership stake for sale in March. We have reached an accord on price with the central government. And it is important to point out that the final settlement price will be net of dividends paid in 2010.

With regards to operations, we experienced unseasonably heavy rainfall in the third quarter, limiting our access to the bottom of the pit and requiring us to have higher-than-expected production from lower grade stockpiles. We've had a dry October, which has allowed us to extend Phase 5 mining through October as the rains have held off.

We typically plan to be out of the bottom of the pit by October 15, so any production we derive from the pit bottom beyond this date is a bonus. For the balance of the year, ore grades at Batu Hijau are expected to move lower when we suspend mining at the bottom of Phase 5 and begin processing ore from stockpiles as mining will be primarily for Phase 6 waste removal. We expect Phase 6 ore to become the primary ore feed commencing in 2014.

On the expansion front, Indonesia's Forestry Minister approved the permitting of another 198 hectares at Batu Hijau. This permit was issued a few weeks ago and is valid until April 2025. It's important for operations moving forward as it allows for waste dump expansion into the newly permitted area starting in the second quarter of 2011.

Moving to Slide 15. Our Africa region had a solid quarter, producing 156,000 ounces, up slightly from the same quarter in 2009 due to higher grades in recoveries as we mined the higher grade ore from the Apensu pit. We also had a small contribution to our production total from the Amoma pit in the third quarter, which started up ahead of schedule. Costs applicable to sales decreased 5% to $422 per ounce due to higher production, partially offset by higher diesel and royalty costs.

I'll now turn the call back over to Richard.

Richard O'Brien

Thanks, Brian and Russell. I'd like to now shift our focus from the quarter to the future. We have a number of exciting projects that will, over the next several years, bring reserves and resources into productive capacity, extending our mine life and providing incremental gold and copper exposure to our investors.

Normally, Guy Lansdown, our EVP of Discovery and Development, would cover this section. But he is in Ghana at the moment, so I'm going to take this over.

Africa is our fastest growing region where we have three projects underway in addition to our existing operations at Ahafo. The first project is Akyem, which is expected to double our current annual production in Africa. We believe it has a potential for 8 million to 9 million ounces of gold. After some additional drilling, infill drilling in the first half of the year, we've refined our view of the ore body and completed our metallurgical test work. We've provided further updates on Slide 17. And as you can see, we're advancing towards completion of detailed engineering by the end of 2010 and expect the full funds decision in the first half of 2011. We're also in the process of developing mine planning and processing options with a goal of production startup in late 2013 to early 2014.

Moving to Slides 18 and 19, you'll see a picture of our underground decline at Subika, which is another compelling growth story within Newmont's Africa region and, in fact, within our Ahafo operation. The ore body is open at depth and strike with a current potential estimate of 9 million gold ounces. Work continues to advance on the decline, which is currently at approximately 1,050 meters.

As you'll see on Slides 20 and 21, we continue to advance our iron ore project at Nimba, where we are in a joint venture with BHP Billiton. We estimate there is current potential for up to 1.3 billion tons of iron ore at Nimba. We're advancing mining and transport agreements with the local governments and also implementing environmental and social responsibility programs. We expect to begin a pre-feasibility study by mid-2011.

Turning to Slides 22 and 23 at Conga in Peru. We recently received approval for our environmental impact assessment. Construction planning is underway supporting our efforts to extend the region's life for decades to come. With current potential of 15 million to 20 million gold ounces and 4 million to 6 million pounds of copper, Conga is one of our most compelling new projects, offering a longer-term productive capacity and creating a bridge to other potential projects and opportunities at our existing Yanacocha facility and within this burgeoning mining district. At Conga, we've procured mill engineering, camp buildings and treatment plants. Community relations and environmental work continues to strengthen our long-term relationships in the region.

We've also made significant progress at Hope Bay this year. Our 2010 drilling program was completed on schedule and on budget. The Doris North portal has been collared and the decline initiated as demonstrated in the picture on Slide 24. Our massive Sealift was successfully completed in late summer, and we're well provisioned for the next two years there. We believe the current potential at Hope Bay is up to 9 million ounces of gold as seen on Slide 25.

I'll round out my discussion on our gold projects with the most recent development. In late September, we received our exploration permits at Elang in Indonesia. And on Slides 26 and 27, you get a glimpse of the potential size and scope of this opportunity. As some of you may know, Elang is located about 60 kilometers east of Batu Hijau and is covered under the same contract of work.

Now with the permits on hand, we're anxious to resume our resource definition drilling in June of 2011 when the dry season returns. Our previous exploration results and our preliminary scoping study suggests that Elang is a substantial opportunity with deposits that could ultimately exceed the size of Batu Hijau, which contain about 19 million ounces of gold and 18 million of copper in reserves and NRM. Although it's still early in the development process, we're excited about this significant copper and gold opportunity in Indonesia.

Turning to Slide 28, you'll see that Newmont is well positioned to support these growth projects and to support our future. Our balance sheet continues to strengthen, with nearly $7 billion in total available liquidity as of September 30. Our financial position enables us to be involved when we want to be involved, and look both externally and to develop core products internally and still return cash to shareholders, as evidenced by the 50% increase to our quarterly dividend announced on July 28.

Over the next quarters, we plan to fund development of our Conga, Akyem and Hope Bay projects, as well as continue our development of the Nevada growth projects around Leeville and Gold Quarry, all of these from our exiting liquidity. In addition, we took the opportunity in the third quarter to show up our pension funding, and we expect to be nearly fully funded by the end of the fourth quarter, entirely from existing liquidity.

We look forward to providing our full year 2011 outlook in the first quarter next year in our Investor Day in April. We also plan to update the market on the progress of our major projects at Conga and Akyem as we move towards full funding approvals in the first half of 2011.

I'll conclude on Slide 29 by highlighting that Newmont is consistently generating industry-leading cash flow in a strong metals price environment. Our financial results emphasize that our business captures the full costs of production, not just cash costs, but cash costs plus sustaining a new project capital, allowing us to develop compelling new growth opportunities, invest opportunistically and return capital to shareholders, while providing opportunities for our employees and the host communities where we operate. As a management team, it's our goal to consistently deliver those results, while providing a compelling investment opportunity.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from John Bridges from JPMorgan.

John Bridges - JP Morgan Chase & Co

I just wondered what you used to the idea of Newmont's fourth quarter being the strongest one of the year. And you've got this maybe a conservative guidance number. You point to grades at Boddington being stronger in September. And have you got any color for us on what happened in October?

Richard O'Brien

I'll let Brian answer that.

Brian Hill

John, it's Brian. We were pretty much in line with the forecast that we had expected for October. I think September, we looked at September, that was a month where we did see higher grades. And I think as we go through this continual ramp-up process where we're still reasonably high in the ore body, we're going to see some of those swings and roundabouts. But October was pretty well in line with what our forecast had projected.

John Bridges - JP Morgan Chase & Co

And that's based upon the slow buildup to the design

grade?

Brian Hill

That's correct, and to throughput.

John Bridges - JP Morgan Chase & Co

And Batu Hijau, you're still in the bottom of the pit.

Brian Hill

Yes, we are. We're still in the bottom of the pit, so we're about almost three weeks beyond our expected date of exiting the bottom. So as I mentioned earlier, it brings a significant boost to us for everyday we can stay in the bottom beyond October 15.

John Bridges - JP Morgan Chase & Co

And what's the weather forecast for the next couple of weeks.

Brian Hill

I would say probably raining, so we'll hope people keep doing the no-rain dance.

Operator

Our next question comes from David Haughton from BMO.

David Haughton - BMO Capital Markets Canada

Just to follow on with those Batu Hijau questions. Given that you have got additional stockpile ore coming in through fourth quarter and not likely to remain at the bottom of the pit for a while. What sort of grade should we be thinking about going into the balance of the quarter and also into next year, given that you'll be focusing on some stripping?

Richard O'Brien

I actually don't have the stockpile grades, David. But we'll get John and the team to get those out to you. All we can tell you is that it's going to be not as good as what we see. And the main part of the pit were more in the bottom of the pit. And we'll be into that grade for the next several years as we work to get through the pre-stripped 4 [Phase 4] getting down into Phase 6.

David Haughton - BMO Capital Markets Canada

And once you're in Phase 6, Richard, what sort of grades would you expect to see there?

Brian Hill

David, it's Brian. We'll see the grades come back to where we are with being in the bottom of Phase 5. And essentially, as I've mentioned, that will come back around 2014 or so when we get down to the bottom of the pit again. It's one of the issues that came with the delay in the Pinjam Pikai and not being able to get the Phase 6 stripping started when we wanted to. It's got us a little bit out of sequence.

David Haughton - BMO Capital Markets Canada

Now just thinking about Elang, are you thinking here about a stand-alone operation or more as a satellite feed for Batu Hijau?

Brian Hill

I think it's open to look at all possibilities. But I think the preferred option for us to consider would be to look at -- we've got significant infrastructure that exists at the Batu Hijau operation, and it would be for us to look at how we can best capitalize on that infrastructure that we have, particularly with just looking at doing a mill expansion at Batu where it could potentially support the addition of another SAG mill.

Richard O'Brien

And we've already got a site for a third SAG mill to be put in place.

David Haughton - BMO Capital Markets Canada

And the ownership structure is the same as what you've got at Batu Hijau?

Brian Hill

Yes it is. It's covered under the same contract to work.

David Haughton - BMO Capital Markets Canada

And if you were to commit capital to its development, would the shareholders contribute pro rata or is there some other arrangement that you're thinking about?

Russell Ball

Yes. David, it's Ross. We would look at maybe doing some project financing, but the shareholders would be required to fund pro rata or risk dilution.

David Haughton - BMO Capital Markets Canada

Two other projects. Subika, what do you expect to be your startup for underground production there?

Richard O'Brien

Let me ask Cindy to try to answer that.

Cindy Williams

We anticipate that our production at Subika will start likely in the 2012 to 2013 time frame, assuming that test stoping goes as planned and that, that will bring on in the range of 150,000 to 200,000 incremental ounces at the Ahafo operation.

David Haughton - BMO Capital Markets Canada

And the sort of capital required to get that up and running, what are we looking at there?

Cindy Williams

Ballpark in the $200 million to $300 million range, dominantly comprised of underground drift development.

Operator

Our next question comes from David Christie from Scotia Capital.

David Christie - Scotia Capital Inc.

Just while we're still talking about Subika, when would you make a decision there to start spending the big money?

Richard O'Brien

We're advancing this underground every day. And I think we're looking at good ground conditions at this point. We don't seem to be facing some of the water issues that we anticipate that would slow us down. So we're actually ahead of schedule, which is a good thing. So I'd anticipate probably sometime in mid next year, we'll be making a decision about how we push this forward. At this point, I'd say it looks very favorable in terms of the conditions. We are stockpiling ore, and we're getting ready to see how that ore will go through the mill and just to get a view of what comes out. So we've still got some preliminary work to do. But at this point, all looks pretty favorable.

David Christie - Scotia Capital Inc.

On the things like Nimba, are you spending much money there?

Richard O'Brien

Yes. We've spent some money this year on some of the community development. And in particular, as we remediate some of the drill sites and make sure we keep up our environmental and community impacts in the right way, next year will be a significant increase for us as we start to move forward and commit, I'd say, somewhere in the $40 million to $50 million our share as we start moving forward to progress this. And it's a very keenly located site for iron ore production, really targeted for that European market. And so I think it's favorably located. The biggest thing for us is getting the infrastructure right to make sure that we can get the ore out at a favorable rate and get it to a port. And I think all of that is worth it that Guy and Cindy and the development team are working very closely with BHP. The money will be destined, as I said, largely to do study work and to make sure that we are working with the government and the communities hand-in-hand in this way to make sure that, that site is developed appropriately.

David Christie - Scotia Capital Inc.

So you guys are sort of committed to pushing this thing forward and staying involved, is that what I'm getting from this?

Richard O'Brien

Absolutely. This, we think, is one of the highest returning projects in our portfolio. It helps to bring us a further blend of production. And while it's a longer-term project, I believe that many years from now, people will look back on this as a very cash flow positive investment for the company, which provides us additional flexibility in our portfolio.

David Christie - Scotia Capital Inc.

And just on Hope Bay, I didn't really get a sense of where we are towards production there or towards making that kind of decision. What's the -- where are we...

Richard O'Brien

Let me just say that, I think, at this point, we have set ourselves up for continuing our advanced exploration work there. And now with the deep climb [ph] going in and with the ice buildup over the next couple of months, you can expect us to start talking some more about exploration results. And as we drive drift, we'll get a better assessment of what the size of this project could be. I don't want to just limit to Doris North though because, I think, the big thing that we're working on is to reach out into that district, which is, we've talked, a significant greenstone district. So you can expect us to continue, on both hands, drive the drift, see what's underground, continue to do advanced exploration. We don't have a particular target for production today that I'd be comfortable giving you. What I can tell you though is every day we're up there, we get to know the district better. We still appreciate this is a world-class district, and we'll talk more about development as we drive drift and continue the exploration work.

David Christie - Scotia Capital Inc.

And on Elang, you talked about 116 drill holes there. What kind of grades are we getting out of those holes and what kind of wits [ph]?

Richard O'Brien

Again, I don't have that data today. It's something that we can provide you.

Brian Hill

Yes, David, I'll get back to you on that. I think what we can say is it looks like at this point early on, it's bigger than Batu but lower grade. But it's still early days. But we'll get the whatever information we can provide.

Operator

[Operator Instructions] We do have a question, David Christie from Scotia Capital.

David Christie - Scotia Capital Inc.

Just one more question on Boddington. On the gold grades there, when do you expect that we're going to start to see them reconcile by what we had in drill holes?

Brian Hill

David, it's Brian. Just let me give you a bit of a history of what we've been doing. We've actually been refining our modeling assumptions and the methodology that we've been using to generate our production planning model. We think we're at a point where we've got much better reconciliation now between the model and production as we look across a number of the different domains. So that's basically going to become the modeling assumptions around which we're planning our 2011 business plan. And we'll be coming back to you in February when we come back with guidance next year for 2011 on Boddington. What we've been trying to do is use the sample set we now get out of production and helping us to sort of reconcile that with modeling so we end up with a better modeling approach going forward.

Richard O'Brien

I'd just add one final point on this which is when we put this mine plan together, we actually planned for higher grades in the first five years, and then grades would be declining to a lower mine grade average over the remaining 15 years of production. At the same time, we continue to believe in the district. I think it's important to note that overall, the grades that we're realizing in the first 3% really correspond with longer-term rates that we believe for gold grade. So what we're really experiencing, as Brian said, is these higher pockets of ore grade that we were anticipating in the first five years and trying to make sure that we can get those out. And we will, as Brian said, come back to you. I want to just emphasize though that over the long term, we do expect that gold grades will still be at the mine average that we'd anticipated for a longer period of time.

Operator

Our next question comes from Wilfredo Ortiz from Deutsche Bank.

Wilfredo Ortiz

I know you mentioned that in February you're going to be reiterating your guidance. However, in the previous quarter, you have sort of mentioned that for Boddington, you were expecting for 2011 to reach between 850,000 to 925,000 ounces. How do you stand compared to the results that you're now getting in September-October versus that prior guidance provided?

Richard O'Brien

Again, we'll provide guidance for the whole portfolio in February. And at this point, that's where we stand.

Operator

Our next question comes from George Topping from Stifel.

George Topping - Stifel, Nicolaus & Co., Inc.

A question on Elang. Previously there has been local unrest there that resulted in the camp being front out [ph] back in 2006. Can you give us an update on the local politics as it stands currently?

Richard O'Brien

Yes, I'd just say in general in Indonesia, we have seen, I think, since the arbitration rule in early 2007, we have worked hand-in-hand -- or sorry, it was 2009, sorry. Since that arbitration decision, we, I think, have worked hand-in-hand with the government to ensure that the arbitration proceeding is enacted in a way that the arbitrators foresaw, which means we had to work closely with the government. I think the disposition process has gone very well. And I think in general, the relations with the central and regional governments have improved, as a result of that. I think that we see support for the local exploration, although we won't know until we get on site. What I would tell you is we wouldn't get the exploration permit or move on there unless we felt that we would get favorable support from the Kabu-paten, from the people in the communities. I think people everywhere in the world today are looking for great job opportunities. And I think this is one of those where long-term production capability within that contract to work really just assures that we'll continue to be part of that community and the fabric of the government for some time.

George Topping - Stifel, Nicolaus & Co., Inc.

And has there been polls taken among the local population? I'm just wondering what lies behind that, whether it's a top-down approach or whether you have people on site that have this feedback for you?

Russell Ball

George, it's Russ. Maybe just to adding to Richard's comments. I think two other developments that have helped, as you're aware, in the divestiture process, the local governments have an ownership interest in Batu Hijau to the PTDMB stake. So I'd say there is far greater alignment in common interest at the ownership equity level. In addition, the Kabu-paten of Sumbawa is broken up into two districts. And the one where Batu Hijau is has seen the economic benefits. Elang is in a different Kabu-paten. And the local government is very keen to attract the investment. I would submit that some of the unrest back in the 2005 time frame was related to the impending divestiture. And as Richard said, we've worked through that process. We have alignment, while never in total agreement with the local governments. And we have their support, particularly at the regional level. But to Richard's point, we're planning to be underground next year, and that will be the test.

Operator

Thank you for participating in today's conference. I would now like to turn the call back over to Richard O'Brien, President and CEO.

Richard O'Brien

Thanks, everybody, for joining us today. And we look forward to seeing you in the near future.

Operator

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

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