Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
Better Than AdSense

Newmont Mining Corporation (NYSE:NEM)

Q4 2006 Earnings Call

February 22, 2006 4:00 pm ET

Executives:

Randy Engel - VP of Planning and IR

Wayne Murdy - Chairman, CEO

Dick O'Brien - CFO and EVP

Pierre Lassonde - Vice Chairman

Russell Ball - VP and Controller

Analysts:

Ankash Shah[?] – JP Morgan

John Hill - Citigroup

Damon Wells - Damon Wells Interests

Presentation

Operator

Good afternoon. We would like to welcome everyone to the Newmont Mining Corp. fourth quarter and 2006 year-end conference call. Operator instructions. Now, it is my pleasure to introduce your first speaker today, Mr. Randy Engel, Vice President of Planning and Investor Relations. Thank you, sir. You may begin.

Randy Engel - VP of Planning and IR

Thank you, operator, and thank you to everyone for joining us today on Newmont's Q4 and full year 2006 earnings conference call. Please note that our call today and our presentation are being simulcast on our Website at www.newmont.com and are available for playback for a limited time. On today's call we have Wayne Murdy, Newmont's Chairman and Chief Executive Officer; Pierre Lassonde, the Vice Chairman of our Board of Directors; and Richard O'Brien, Newmont's Senior Vice President and CFO. Wayne will provide a look back at the last quarter and give an overview of 2006. Dick will then review the financial and operating results at each of our regions and give an update of our project development efforts.

Pierre will provide his views on the gold market and cover our 2006 exploration and merchant banking performance. As a reminder, we'll be discussing forward-looking information that involves unique risks to our industry that we describe in full in our filings with the SEC. With that, I'd like to now turn it over to Wayne.

Wayne Murdy - Chairman, CEO

Thank you, Randy, and good afternoon everyone. We finished 2006 on a high note, financially generating record earnings of $791 million, or $1.76 per share versus prior year earnings of $322 million, or $0.72 per share. That represented 146% increase in our bottom line compared with a 15% increase in revenue. Our leverage to the gold price resulted in a 44% increase in our cash operating margin from the prior year.

For the fourth quarter, we earned $233 million, or $0.50 a share, versus $62 million, or $0.14 a share in the prior year. We produced 1.7 million ounces in the quarter with a realized price of $619. Importantly, we also grew our reserves for a fifth straight year to almost 94 million ounces. During 2006, we continued to reinvest in our business, maintaining our positive outlook for the gold price, which Pierre will discuss shortly.

In 2006, we invested over $1.5 billion as we brought three new mines into commercial production, including the Phoenix mine and the Leeville mine in Nevada, and the Ahafo mine in Ghana. Together, these new mines will provide well over 1 million equity ounces of annual gold production capacity. We also commenced construction on the Boddington project in Australia, which will allow us to begin mining on over 9 million equity ounces of reserves in a highly prospective gold belt upon completion.

We also continued construction of a 200-megawatt power plant that we expect will generate up to $25 per ounce of cost savings in Nevada. We started development and construction of a gold mill in Peru, our first gold mill there, which will enhance our recoveries and expand our reserves at Yanacocha. Yet although we had a record financial year, we continue to be challenged by declining grades at our mature operations. We also experienced significant increases in energy, commodity, and labor costs in 2006.

As we turn our focus to a new year, we expect the first half of 2007 to remain challenging as we continue to ramp up our production at our three newest mines, coupled with the anticipated decline of production because of lower grade at Yanacocha and to some extent our Australian operations. We recognize that our changing industry and the changing characteristics of our Company demand a renewed commitment to discipline. Discipline in the way we explore and grow our reserves and the way we manage our operations and develop our projects.

Before I turn it over to Dick to discuss our financial and operating results, I'd like to highlight the leverage to gold our financials continue to deliver for our shareholders. As the chart here illustrates, for Q4 2006, our net income increased by 260%, growing from $62 million in 2005 to $223 million in Q4 2006.

For the full year, as I said, our net income rose by 146%, while the gold price increased 36% during the same period. With that, let me turn it over to Dick to review our financial and operating performance.

Dick O'Brien - CFO and EVP

Thanks, Wayne. Our consolidated gold sales for Q4 were 2 million ounces, or 1.7 million equity ounces, at an average realized gold price of 619 per ounce and costs applicable to sales of $322 per ounce. As Wayne mentioned, net income grew to $223 million, or $0.50 a share, compared to $62 million or $0.14 per share for the year-ago quarter. For the full year 2006, we exceeded our equity sales target of 5.8 million ounces. Ending the year with 5.9 million equity ounces or 7.4 million consolidated ounces, at an average realized gold price of 599 per ounce and costs applicable to sales of $304 per ounce.

Growing our operating margin to $295 per ounce for the year. At year end, our balance sheet remains strong with cash and cash equivalents, short-term marketable securities and other short-term investments of $1.3 billion. Turning to the next slide. Nevada had a good quarter with 887,000 consolidated ounces sold. Increasing from the year-ago quarter by 46% due to the commencement of commercial production at Phoenix and Leeville during Q4, increasing underground production, and increased access to open pit ore at Twin Creeks.

Costs applicable to sales per ounce increased 3% for Q4, primarily due to higher labor and underground contracted service costs as well as rising diesel, power, cyanide and other commodity prices. The accounting treatment for the Turquoise Ridge joint venture with Barrett changed during the year as a result of an amendment to the agreement effective July 1, 2006.

Starting in Q4 and going forward there will be no difference between consolidated and equity sales reported in Nevada as a result. For the full year 2006 Nevada operations sold approximately 2.5 million ounces on a consolidated basis at costs applicable to sales of $403 per ounce. In 2007, equity gold sales in Nevada are expected to remain stable at approximately 2.35 to 2.55 million ounces. Costs applicable to sales are also expected to remain stable in 2007 at approximately $375 to $400 per ounce. Capital expenditures in Nevada in 2007 are approximately $560 to $630 million, as the lower anticipated spending on Phoenix Leeville is expected to be offset by increased spending on the power plant. Moving to the next slide.

At Yanacocha in Peru, gold sales were 439,000 consolidated ounces in the fourth quarter at costs applicable to sales of $244 per ounce. As projected, gold sales decreased 59% from the year-ago quarter due to a 46% decrease in ore grade and a 33% decrease in ore tons mined and placed on the leach pad. Costs applicable to sales for the fourth quarter increased 68% per ounce as a result of decreased production, increased consumption and prices of diesel and other commodity prices.

For the full year 2006, Yanacocha sold approximately 2.6 million ounces on a consolidated basis at costs applicable to sales of $193 per ounce. In 2007, equity gold sales at Yanacocha are expected to decrease to between 775,000 and 825,000 ounces, primarily as a result of lower throughput and ore grades.

Costs applicable to sales from Yanacocha are expected to increase in 2007 to between $340 and $360 per ounce, primarily as a result again of lower production. Additionally, for 2007, capital expenditures at Yanacocha are expected to increase to approximately $310 to $340 million, primarily as a result of spending on the gold mill and leach pad expansion. Moving to the next slide.

In Australia and New Zealand the Company sold 347,000 consolidated ounces at costs applicable to sales of $387 per ounce. Q4 consolidated gold sales decreased 13% from the year-ago quarter, primarily due to a 9% decrease in ore tons mined and a 7% decrease in mill throughput. Costs applicable to sales increased 23%, primarily due to lower production, as well as increased commodity costs and the change in accounting for open pit waste removal, which lowered the cost from the year-ago quarter by $21 per ounce.

For the full year 2006, Australia and New Zealand sold approximately 1.4 million ounces on a consolidated basis at costs applicable to sales of $384 per ounce. For 2007, equity gold sales in Australia and New Zealand are expected to decline to between 1.275 and 1.325 million ounces, primarily as a result of lower planned throughput and ore grades.

Costs applicable to sales are expected to increase in Australia and New Zealand to $445 and $470 per ounce in 2007, primarily as a result of lower planned production and higher anticipated labor, electricity and fuel expenses. Costs applicable to sales are expected to benefit from the completion of Boddington starting in 2009. For 2007, capital expenditures in Australia and New Zealand are expected to increase approximately $580 to $645 million, primarily as a result of Boddington's higher equity ownership and the increased construction spending for the year.

In Indonesia, Batu Hijau had consolidated sales of 147 million pounds of copper and 169,000 consolidated ounces of gold, at costs applicable to sales of $0.64 per pound of copper and $192 per ounce of gold. The increase in copper sales of 14% was primarily due to an increase in tons mined to 46%, as well as 35% higher copper grade. The decrease in gold sales of 7% from the year-ago quarter was primarily due to lower average gold grades based upon our location in the pit. Costs applicable to sales were higher than the year-ago quarter due to higher diesel, tire, labor and process maintenance costs, partially offset by an increase in byproduct credits.

For the full year 2006, Batu Hijau had consolidated sales of 435 million pounds of copper and 435,000 ounces of gold at costs applicable to sales of $0.71 per pound of copper and $209 per ounce of gold. Equity gold and copper sales at Batu Hijau are expected to remain stable in 2007 at between 230,000 and 250,000 ounces of gold, and between 210 and 230 million pounds of copper. Primarily expected due to higher grades and throughput offset by lower copper recoveries.

Additionally, during Q1 2007, our remaining copper hedge contracts are scheduled to expire. Costs applicable to sales are expected to increase in 2007 to between $225 and $240 per ounce of gold, and between $1.10 and $1.20 per pound of copper, primarily from higher stripping expenses, as well as rising fuel, energy and consumable prices. Capital expenditures at Batu are expected to remain relatively stable at between $140 and $150 million, with higher costs offset by other sustaining capital.

In Ghana, the Ahafo mine commenced commercial production in August after a successful start-up in July. Gold sales for quarter were 125,000 ounces at costs applicable to sales of $326 per ounce. Operations continue to be impacted by nationwide power shortages due to low water levels serving Ghana's hydroelectric facilities. We are installing additional temporary diesel generating capacity at the site and along with our industry peers exploring other longer-term, lower cost solutions to the current power shortages. We expect costs applicable to sales to be negatively impacted by about $50 per ounce or more in 2007 as a result of the ongoing power shortages in Ghana.

In 2007, gold sales at Ahafo are expected to increase between 410,000 and 450,000 ounces as the mine enters its first full year of production. This number is potentially lower than previously planned, as a result of reduced processing grades and recoveries. Additionally, higher costs and potential production interruptions could result from possible future power shortages in 2007.

Costs applicable to sales at Ahafo are expected to increase substantially to between $460 and $500 per ounce in 2007, primarily as the result of lower than previously anticipated production and the higher power costs. Operating costs at Ahafo are expected to increase in 2007 as a result of higher anticipated labor and contracted services expenditures, as well as rising fuel and consumable prices. For 2007, capital expenditures in Ghana are expected to be approximately $180 million to $200 million, primarily related to power generation, mine development and optimization initiatives, as well as continued feasibility work on the Akyem project.

Additional investment may be required in 2007 to provide possible future power generating capacity. Now, let me turn our attention to project development update.

In Nevada, we are building a 200-megawatt power plant, as you know, that we anticipate will improve our operating cost profile by up to $25 per ounce upon completion in 2008. Simultaneously we continue to optimize costs and production at our Leeville and Phoenix mines, which initiated first production in the last part of last year.

In Peru, we are building a gold mill to more efficiently mine Yanacocha's current and future reserve base. We anticipate that our investment in the Yanacocha gold mill can increase our recovery by up to 1 million ounces, while enhancing our capacity to expand our reserves by up to an additional 1 million ounces. We expect the gold mill to be up and running in the first quarter of 2008.

In Australia, construction continues on the Boddington mine. Upon completion in late 2008 or early 2009, the Boddington mine will replace some of the higher cost production coming from our older operations in Australia. The completion of the Boddington project will also enhance our reserve growth potential, while expanding our operational base in this politically stable part of the world.

At our Ahafo mine in Ghana, we're working on solutions to address the impact of national drought-related power shortages. We continue to work with the Ghanaian government and an industry-wide consortium to formulate a series of short term and longer terms solutions to these power supply challenges. Well, with that, I'd like to turn it over to Pierre to discuss our 2006 exploration reserves and merchant banking performance and the gold outlook.

Pierre Lassonde - Vice Chairman

Thanks, Dick, and welcome, everyone. First, I'll start with the reserves and exploration outlook. Our first challenge has been to arrest the decline in our gold reserve grades, which is the clearest, surest indication of better times to come. It's the best long-term cost predictor. In our business grade is everything.

In 2003, our reserve grade was 0.039 ounces per ton. That's a European ton, a ton, which declined to 0.34 per ton by the end of 2005. In 2006, while we increased our reserve to 94 million ounces, the reserve grades stayed the same at 0.34 ounce per ton. What's remarkable, is that over the last five years, we've added 52.5 million ounces of gold reserves for Newmont, in five years. I look at that as an unbelievable feat. I do remember the times where we were told that Nevada in particular was over, it was done, there was nothing left there.

If you look at last year, we added 3.6 million ounces of reserve in Nevada due to our near-mine exploration program. Very proud of that accomplishment. Yanacocha is probably going through the phase that Nevada did a number of years ago, where we're not finding as much as we'd like. We only added 0.2 million ounces last year but Yanacocha, is one of the most amazing mineral districts in the world. We are working on new paradigm of exploration, and I do believe in due time you will see the same kind of resurgence.

Interestingly enough the little Kori Kollo mine, which everybody thought was dead, added another 200,000 ounces of reserve last year, which is 50% as much as what it started with two years ago. In Australia, we added 2.3 million equity ounces of reserve at Boddington and 2.6 million ounces at KCGM in Jundee.

We're doing good, we're doing well and I think that we have an exploration program that is bringing fruit to Newmont. But more importantly, keeping that option alive and well in terms of our gold reserve and continuing to increase it and arresting our grade decline.

So building on the strength of our 23 million square acres of land in the world, we are going to spend about $175 million this year in greenfield and near-mine explorations. As you can see on the next slide, most of it, 54% on the right side, the budget by program; 54% is going to be in the near-mine, 20% in greenfield, 9% in tech support and management, that includes all of our R&D programs that we spend money on. We keep an opportunity fund of 9% to fund better projects through the year that shows up or things that are interesting. We are putting 9% in diamond exploration due to our purchase of a 40% interest in the fourth a la Corne JV, which I will talk a little bit more later.

By location, North America is 24%. Australia at 14%. South America, still a very good place for us, 28%, then the opportunity fund has about end support to 21% of the budget. Then we have 10% in West Africa. So, we're very fortunate to have trends either in Africa or in America or in Australia or in South America that have been able to give us 52 million ounces of reserve ounces over a five year period. I'm pretty sure that that will continue.

Now, I will turn your attention to merchant banking. We had another record year in merchant banking last year. Revenues were 50% higher than the year prior at $120 million in royalty and dividend income. An absolute record and I am certainly very proud of that. The market value of our equity portfolio grew to approximately $1.4 billion at year end. That's after selling one of our Alberta oil sands projects for $280 million, recognizing a pretax gain of $266 million.

We have other goodies in the bag that we'll pull out like rabbits in due time. During Q3, as you know, we purchased that 40% interest in the fourth a la Corne diamond project from Shore Gold for approximately $152 million. Now, this interesting property is located in Saskatchewan, great place. It is one of, if not the largest kimberlite fields in the world by tonnage. In 2007, we expect to spend approximately $18 million on exploration on this project, which is really to decide whether or not to go underground on Orion north and Orion south.

If we go underground and complete these two projects, that will cost essentially $18 million, including the large diameter drilling that we're currently finishing, 20 meter wide holes down 200 to 300 meters. That will provide approximately 2,500 to 3,000 ton of bulk sample, so that we are able to determine the value of the next step. This investment leverages our opportunity to participate directly in a significant district scale diamond project that offers the exposure to potential development, discoveries, and cash flow at valuation multiples comparable to those that we see in the gold industry. But to me, just as importantly, this is a district size that is comparable to Carlin or Yanacocha.

That's what you're really talking about and we're very pleased to be associated with Shore on this particular project. Now I will turn your attention to the gold price. The first slide that I have decided to put up is one that you have seen us put up a number of years ago. I think we last used it maybe two years ago. But this is a slide that we first put - if some of you may remember - in the Franco, Nevada annual report of 1999. I wouldn't claim that we were the inventor of it but I think we were the first use of it, whatever it was.

There were two points that we really wanted to make. One is that we're about 6.5 year in a bull market for hard assets and that's very clear. The top August 1999, here we are February 2007. The last bull market that we can look to is the one in '66 to 1980 that lasted 14 years. It's the closest thing that we have got to compare ourselves. Also, in many, many respects, it is very similar to that. The major differences, though, being between now and then is that today we have China, India and Asia growing at 10% per year, almost 40% of the world population.

They are right at the take-off point in terms of demand for all natural resources. Obviously, they are having a huge impact on natural resources. That growth is not about to stop, mostly because in Asia you have massive central bank liquidity of plus $3 trillion. With the current account deficit in the U.S. of well over $700 billion a year continuing to fuel demand there, this is not about to stop. The second point that we wanted to emphasize is that the bull market in gold peaked in 1980.

If you look that it ratio, it was in the low, low single digits. I think one qualifies as low, low single digits. Not to say that this bull market will end at the same number, but I do believe that it will end in the low single digit, whether it is one or five or two, I don't know, nobody knows, but it is long distance from where we are today at 20.

Now, I'll just look at the last seven years. You can see here clearly that when we put out that chart in 1999, the question that we had in the annual report was would you rather own gold at $250 or the Dow at the time at $10,000? Well, funnily enough, the gold price has not quite tripled since then but almost there at $679 today, while the Dow, in fact, has gone up 20% over that time, interestingly enough. The chart clearly shows that we are in a hard asset gold cycle. This economic cycle will end like all previous ones. Well, how did they end? They all end with higher inflation rates forcing the Fed to raise interest rates. I think we're in a mid-cycle slow down at this point. We're about to enter the second phase of this cycle.

I think that inflation rates are going to continue to rise. The last 12-month number is 2.7% and I find no comfort whatsoever in hearing Mr. Bernanke saying that inflation is on the way down. We don't see it in our business. I'm sure that most of you who are in business see the same thing. We certainly don't see it abroad either. You just look at the inflation rates we're apt to face in Australia and other countries and we just don't see it. So we think that you are going to see the Fed rate head up down the road. But this cycle probably has another two or three years or maybe four years to go. I can't tell that. We'll just have to wait and see.

At the end of the day, though, I fully expect to see the gold price take out the old highs of $850 before the end of this particular part of the cycle. Before we'd have potentially a recession of some kind. Then there is the last phase of the big bull market, and I do believe that we are going to see at least a 12 to 15 year bull market in hard assets. This is far from over. That's all I wanted to say on the gold price. I am bullish. I continue to be bullish. I don't see any factors out there to give me any grief whatsoever on the gold price.

I think that there was another slide, though, that I wanted to point out, sorry. Yes, there were a couple of other points that I think I wanted to clarify. When you look at the barrels of oil per ounce of gold, back in the 1970's, if you forget the first couple of years where the average was well above the 20's, but you just look at the '73 to 1980, the average was probably about 14:1 in terms of gold/oil ratio. Well, in this cycle, that number has been probably a lot closer to 9, if not even a bit below that. The reason I point that out is that energy costs are 25% of production in our business.

I do believe that over the next two, three, four, five years, anyway, that the energy costs are going to - or that we're going to have a more normal return to probably closer to like a 14 ratio. If you were to look at that at $680 gold and a 14 ratio it's $48 oil. But more importantly, at $800 gold and a 15 ratio, it's like $53 oil. If we were to see that, I think you're going to see cash costs being very positively impacted in our industry and giving the industry finally profit margins that are far better than what we've seen in this early part of the cycle.

One of the great things of the '60 to '70 bull market is that you had extraordinary profit in the gold business because you had ratios of 20, 30, 40 in the early part of the cycle when the gold price tripled or quadrupled. We have not seen that in this cycle but I think that over the next two to three years it's very likely that we are going to see that. I think that the OPEC countries are going to try to keep the oil price around $55 to $60 a barrel, while the gold price itself will go up substantially higher. That will have a very positive impact.

That brings me to the last slide, which is the Newmont share performance - just in case our shareholders believe management doesn't look at that, we do. I think what you see here is that from 2001 to beginning of 2006 we had a 250% share price appreciation. Not so bad. The last year has been brutal for us. As it has, I think, for most mining companies because of cost escalation, because of labor, commodity prices, grade, you name it, nationalization got thrown out. But I do believe that if I'm right on the oil scenario, and I know I'm right on the grade scenario in terms of reserve grade; I think this is a great opportunity to get back into the gold stocks. I think we're going to have a much better appreciation and value than the GLD itself over the next two to three years.

That wraps up my comments. Thank you very much.

Wayne Murdy

Thank you, Pierre. As we've talked about, we have certainly seen our challenges in 2006 and management and our Board are very aware of those. Opening three new mines on two continents is never easy but we have continued to keep our focus on long-term results. I think with the completion of these mines, the opportunities we have for expansion in Ghana, and there's clearly challenges in Ghana but we continue to have very good drill results. As we work through some of the challenges we have seen this last year, there is good potential there.

Then the development of the Boddington mine in Australia. The foundation we have built includes established production base with roughly 2/3 of our current gold sales coming from politically stable countries and an ongoing pipeline of new projects, as expansive land positions are being explored by our highly experienced team. In-house merchant banking, we have talked about. Our technical teams are staffed with some of the industry's best talent. We've got a growing investment portfolio. In addition, our bottom line, the financial performance remains highly leveraged to the gold price, as illustrated with this chart here. As we have seep our margin this year increase to almost $300 an ounce.

Just wanted to take a moment before we open up to questions, as many of you saw, we put out an announcement about 1.5 week ago that Seymour Schulich is not going to stand for reelection to the Board because of the time commitments that that requires. But he is going to continue on as he has over the last several years as Chairman of Newmont Capital and as a part-time employee. So, I'm very fortunate, as the CEO, I've got two very high-energy part-time employees in Seymour and Pierre. I think as you can tell by Pierre's comments, he's no less enthusiastic today than he was five years ago. With that, let me open it up for questions.

TRANSCRIPT SPONSOR

Better Than AdSense

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?

This is exactly what Seeking Alpha is offering with transcript sponsorships.

Seven types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Questions-and-Answer Session

Operator

Operator instructions. Our first question will come from John Bridges of JP Morgan.

Q - Ankash Shah[?] – JP Morgan

This is Ankash Shah[?] on behalf of John. I just have a couple of accounting questions. Possibly, could you give us a break up of the other income? Secondly, on the special items, could you please let us know where the $44 in million in tax revision, $26 million of reclamation estimate revision and the $3 million Buyat Bay expense is given under the income statement?

A - Wayne Murdy

I'm going to ask Russell Ball, who is our Controller, to go over those questions.

A - Russell Ball

Were you focused on the quarter or the year numbers?

Q - Ankash Shah[?] – JP Morgan

If you could give us both that would be even better.

A - Russell Ball

Okay. We will be filing our 10-K tomorrow afternoon and there's a lot of detail in the 10-K. If we go to the other income, a lot of that is essentially the gain on the Canadian oil sale that Pierre spoke to and the gain on the Martabe project. I'm sorry, Alberta oil sands and the Martabe project, which was sold in the third quarter. Offset by the write-down at Zarafshan, again in the third quarter. The balance of that is the usual interest income, dividends and royalties from Newmont Capital.

Q - Ankash Shah[?] – JP Morgan

Do you have the numbers, or would we get it tomorrow only?

A - Russell Ball

We can get them to you after the call if you want them in more detail.

Q - Ankash Shah[?] – JP Morgan

Okay.

A - Randy Engel

Ankash, it's Randy. Give me a call after the conference here.

Q - Ankash Shah[?] – JP Morgan

Okay, sure. Thanks.

A - Russell Ball

On the tax question, there was two parts. One was a goodwill accounting adjustment from the 2002 merger transaction related to pre-existing tax contingencies. The other was a $27 million adjustment for the tax balance sheet that we finalized at year-end. We had an increase in our deferred tax assets. Randy and I will give you a call later and we can go into more detail but there is a lot of disclosure in the 10-K that we'll file tomorrow.

Operator

Our next question will be from John Hill, Citigroup.

Q - John Hill - Citigroup

Guys, as we look ahead to 2007, or for the rest of 2007, and we see the unit cost escalation out there, I'm just wondering if you could break it down for us between kind of involuntary items such as power, fuel, labor; and then more discretionary items, such as deliberately taking lower grade material to benefit from a lower gold or higher gold price, etc.?

A - Wayne Murdy

John, I'm sorry, you were breaking up a bit. Is your question referencing operating costs or capital?

Q - John Hill - Citigroup

I'm sorry, the question references operating costs, the escalation. If you could break it down into the discretionary and the involuntary components?

A - Wayne Murdy

When I look at operating costs I don't think very much of it is discretionary John. I'm not sure exactly what you're getting it at. If you're asking if there's higher gold prices, additional marginal ounces we could go after, there's some but really, we base our operating plan on maximizing the throughput through our mills. I wouldn't view that as very discretionary. There might be some additional ounces you could put on a heap leach but again, we're flat out as far as optimizing our production for the year. Again, we're in a period where we're doing a fair amount of stripping at Batu Hijau and that sets us up for some future year gains. But over the next couple of years we're spending a fair amount on stripping because of the geotechnical issues. In Nevada, we're also doing a fair amount of stripping at Twin Creeks and setting that up for the out years.

A - Dick O’Brien

John, maybe another way to frame it would be, if you take Yanacocha as an example. If you look at the dramatic decline in the unit output, we're essentially moving the same amount of material with lower grade and less gold. So when you look at simply the change in the denominator, that increases Yanacocha's costs up from last year's $205, I believe, up to this year $340. The remaining $10 to $15 comes from fuel, commodity and labor escalation. That's a good way to frame the rest of the operations as well.

Q - John Hill - Citigroup

Just a quick follow-up. You referenced some grade and recovery issues at Ahafo. I think we're all familiar with the power supply situation. But I was wondering if you could give us more detail on the grade and recovery issues that you mentioned?

A - Wayne Murdy

I think the issue we were trying to reference is just really related to, we're in start up still at Ahafo. We're trying to make sure that the exploration results and the operating results come in more closely as we try to work those models together. At this point, we don't have any reason to expect it's a long-term issue. But 2007, is just is we're ramping up production, getting mill recoveries and trying to make sure we sync up the exploration results with the operating results.

Operator

Thank you. Our next question will come from Damon Wells of Damon Wells Interests.

Q - Damon Wells - Damon Wells Interests

Congratulations on a good quarter and a very positive forecast. My question is, when is some of this success going to filter down to the shareholder? We have not had a dividend increase since 2005. The dividend today is less than was in 1996 when gold was about $400 and not $680. My message is congratulations but don't forget us.

A - Wayne Murdy

Good point. We're very sensitive to the shareholders and we went through a period coming out of the bottom of this cycle where we increased our dividend, brought it back up to $0.40. But you're right, it's still below the $0.48 that we were in 1996. Very cognizant of that. We are in a period where we're spending significant amount of capital. Our view is that that will, over the next couple of years, as we get these new mines in production, put us in position where hopefully we've got good capital appreciation over that period of time. Then we will be in a position, once we're generating that free cash flow again, to continue to increase the dividend.

Operator

Thank you. At this time we have no further questions, sir.

A - Wayne Murdy

Okay. If we have no more questions, we will go ahead and wrap up the call. We thank you, again, all for joining us. If you do have follow-up questions, please feel free to contact us at the information provided at the back of the release. Again, thank you very much.

Operator

Thank you. That concludes our call for today.

TRANSCRIPT SPONSOR

Better Than AdSense

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?

This is exactly what Seeking Alpha is offering with transcript sponsorships.

Six types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Newmont Mining Q4 2006 Earnings Call Transcript
This Transcript
All Transcripts