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Newmont Mining Corporation (NYSE:NEM)

Q2 2007 Earnings Call

August 2, 2007 4:00 pm ET

Executives

John Seaberg - IR

Richard O’Brien - CEO and President

Russell Ball - SVP and CFO

Brant Hinze - Regional VP of North American Operations

Randy Engel - SVP of Strategy and Corporate Development

Wayne Murdy - Chairman and Members of Manufacturing Council

Analysts

John Hill - Citi Investment Research

John Bridges - JP Morgan

Victor Flores - HSBC

Patrick Chidley - Barnard Jacob Mellet

Barry Cooper - CIBC World Markets

John Tumazos - John Tumazos Independent

Oscar Cabrera - Goldman Sachs

Presentation

Operator

Good afternoon I would like to thank all participants for standing bye. Welcome everyone to the New Mining Corporation Second Quarter Earnings Release Conference Call. We would like to inform all participants that your lines will be placed on a listen-only mode until the question and answer session. (Operator Instructions). We would also like to inform you that this call is being recorded. If you have any objections to this you may disconnect at this time.

It is now my pleasure to begin and to introduce the first speaker for today Mr. Richard O’Brien, CEO and President. Thank you sir, you may begin.

Richard O’Brien

Thank you very much operator. Thank you everyone for joining us today on our second quarter conference call. With me today on our call are Russell Ball, our recently appointed Senior Vice President and CFO; Brant Hinze, our Regional Vice President of North American Operations; and Randy Engel, our Senior Vice President of Strategy and Corporate Development.

I'd also like to introduce today John Seaberg, who working with Randy will head-up our Investor Relations Group going forward.

Feel free to call John and his team with any questions you might have following our call today.

Before I get started, I'm going to turn it over to John to make a few brief comments about the SEC risks or our risks that are inherent in the material we are covering today.

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John Seaberg

Thanks Dick. Before we get started, please remember that we will be discussing forward-looking information, involving the risks that are unique to our industry as further described in our filings with the SEC.

Richard O’Brien

Thanks, John. Now, I would like to start by outlining our path forward as we enter the next chapter of Newmont's storage history, A chapter that's focused on rebuilding Newmont's position as the gold company of choice for investors seeking leverage to rising gold prices.

Like many of our peers in the industry over the last few years, we have faced our share of challenges. And we hold ourselves accountable to you to address these challenges decisively and systematically everyday and in everything that we do.

Over the past several months, and since my appointment as CEO on July 1st, we worked with our Board to initiate a programmatic approach, to recapture our position as the world's largest fully unhedged gold company. To renew focus on and commitment to our core gold business, and to improve our financial foundation, actions are designed to quickly refocus our team on rebuilding the world's premier gold mining company.

As we move forward we also acknowledge that we have much work ahead, including stabilizing our costs profile, improving our operational performance, delivering on our existing projects and creating value from our investment prospects.

This work will require consistency, commitment, and execution in a very competitive environment and we will require that execution and commitment every day, day-after-day and every quarter.

We know that our success will be measured incrementally, just as confidence will be earned through consistent delivery of results. And we are blessed here at Newmont with a rich foundation of legacy from which we can begin these efforts, to rebuild Newmont as the gold company of choice for investors seeking leverage in a rising Gold price environment.

Unlike our conference calls in the past, we won’t be going through every detail of our quarterly results. These details are well covered in our earnings release and in our 10-Q, which was filed earlier today.

So, all the numbers are transparent, and what we want to do is add color on this call. The extent that you have questions after the call regarding the details as I suggest you can call John or Randy and they will be happy to walk you through the results.

Throughout today’s call you will hear us talk about emphasizing accountability, focus, decisiveness and execution. Admittedly these themes are not unique or complex and they are not intended to be, but they are basic building blocks and foundation of any renewal process. Our efforts to-date have been executed from this foundation starting with the decisiveness elimination of our hedge book, the re-focus on our core goal business with the decision to monetize certain merchant banking assets, the successful execution of our 1.15 billion convertible debt issuance.

While these measures represent a solid beginning to our renewed focus on our core gold business, I recognize and my team recognizes that we are only at the start of the race. From that foundation, we turn our attention to aggressively managing costs, delivering consistent results in our operations and in our projects, in our successful exploration endeavors.

During today’s call, I will talk about each of these areas and more importantly, how we intend to capitalize on those opportunities and address the risk in each of our operating regions.

Specifically, our team is focused on a host of world class opportunities, including, the development of our 9.1 million ounce gold deposit at the Boddington mine in Australia, scheduled for completion late next year or early 2009.

The continued ramp-up overtime of production at our high-grade Leeville underground mine in Nevada, and increasing grade and recovery opportunities this year at our Twin Creeks mine in Nevada.

The completion of our power plant in Nevada by mid next year, generating up to $25 per ounce in cost savings throughout our operations in the state.

Construction of our new gold mill in Peru by the middle of next year, increasing gold recovery from transitional ores at our Yanacocha operation, and ongoing optimization of our internal portfolio of highly prospective projects, including Conga in Peru, Akyem in Ghana and Matheson, Ontario.

Our team also remains focused on addressing the challenges, the challenges of Phoenix and Nevada, the challenges of power shortages in Ghana and the challenges of recent adverse exchange rate movements in Australia.

And as part of our renewal process, we recognized it's not sufficient to simply focus on our internal initiatives and our internal projects. Therefore, I have asked the team to take a fresh look at exploration and growth opportunities across the globe, reevaluating some prospects that we might have ignored or considered too small in the past or perhaps situated in challenging locations.

With that context established, I will now touch on the highlights of the quarter and make a few comments about our guidance for the rest of year before reviewing each of our regional businesses by region.

If you see our results for 2007 second quarter, equity gold sales of 1.25 million ounces, at $433 an ounce, average realized gold price is $667 an ounce, and if you haven’t heard it yet completely unhedged going forward.

Respect to the second quarter 2007 earnings, you can note in this table that our reported net loss was $2.062 million and in that loss is incorporated the merchant banking goodwill write-down after tax of about 1.7. The settlement of our price cap forward sales contracts of $460 million, and then related to the company's economic interest being reduced from 52.875% to 45% at Batu as a result of our minority interest partner fully repaying their loan in accrued interest, we took a charge of $25 million. You can note the other smaller charges in this table.

Next slide and it has been three slides, the first focusing on equity gold sales, the second on CS and the third on capital.

The point of the slides is to remind you that we are reconfirming our guidance. First on this slide, we are confirming our guidance of 5.2 to 5.4 million equity ounces for the year, 5.6 sorry, 5.2 -- 5.6.

Now admittedly, we must continue to have operational execution as we are more dependent on production the second half of the year than we'd like to be. One of our tasks going forward is to figure out how to smooth this out a bit more.

I'll focus on each of the regions in a minute but just a few major things. First, Nevada has been and will continue to be a cornerstone of Newmont operations over 40 years. We'll continue to be in Nevada for a long time, and addressing those challenges Brant Hinze is in town today and we've asked Brant to spend some time talking about Phoenix and giving you a rundown on Nevada.

In Yanacocha, the sales guidance is approximately 40% lower than 2006 as we have told you time and again, we are transitioning from the easier to process lower cost oxide ores into a more mature ore body.

In Australia, several maturing mines that we are preparing for the next chapter in Australia, as well, with the building of the Boddington project, and at Batu I mentioned our equity productions now to beginning to be impacted by repayments of the minority interest loan, the balance of this year and into the future.

And then lastly at Ahafo, the mine is operating better than we'd expected with better power availability and again we’ll spend a few minutes on that later.

But looking at the top right of the slide, important to continue to emphasize that over 70% of our production comes from AAA rated countries, very solid performance for the year today, 2007 CAS on the next slide, 375 to 400 per ounce.

Cost inflation clearly impacting the entire industry, we're not alone but we're accountable for our own cost. We've talked before about industry inflations through 2006, Newmont compares to the industry. We have to take responsibility though for moving forward and constantly understanding and controlling our cost driver. On that, I'd just like to address a few steps that we're taking.

First, realizing that year-to-date we have about $1.6 million in consolidated costs applicable to sale of $1.6 billion and year-to-date consolidated cost applicable to sales, it is certainly the case that opportunities exist but it will take us time to programmatically specify the necessary and required actions to reduce those in a responsible way. We do have our renewed commitment to standardize across the Newmont globe. Our internal best practices for mine dispatch, mine maintenance, and mine planning. The IT systems taking the best of what we do across the world. Standardizing, getting more programmatic about how we take cost out, how we improve efficiencies across our operations?

The power plant, as I mentioned in Nevada, $25 per ounce savings. The gold mill in Yanacocha will extend the operating life through additional recoveries at Yanacocha.

The power plant at Ahafo that we are building in conjunction with other mining companies in Ghana should provide additional capacity to Newmont preventing or at least reducing the impact of unplanned shutdowns.

Pre-replacements globally continue to increase our productivity and should lead the decreased maintenance cost over time. We continue to work on training and developing underground miners through both educational and investment programs and continued to hope that that will allow us to displace higher cost contract and services. So everyday we are committed to utilizing every opportunity we have in Newmont to look to reduce cost over time.

Next slide, 2007 capital expenditures guidance on target $1.8 billion to $2 billion. You'll notice our major projects detailed out the power plant. $620 million to $640 million with expense expected completion by mid-2008. The gold mill in Peru, $250 million to $270 million is expected completion by mid-2008 and then the Boddington project.

These projects do make up the majority of our 2007 capital spending, and we continue to be on track to beat those projects on time, on budget, and as I go into the details of these a little bit you'll see that the Boddington project in Australia, company cost structure could be impacted by the continuing run of the Australian dollar. We'll have to see how that goes.

So with that discussion on capital, I am going to turn over to Brant for the next three slides.

Brant Hinze

I would like to startup by saying that the Phoenix, Nevada, the rest of Nevada is on-track with guidance. And the second half of the year, Nevada is weighted toward the second half.

We do have some items I would like to talk about here. Leeville, right now is coming into its own. We are expected to be on plan at 3,200 ton per day production by the end of the year.

We have our Twin Creeks and Carlin operations that are performing in line with plan, with our oxide or high-grade oxide currently being exposed in Twin Creeks pit as well as in the North Carlin, the pit mine coming on strong.

Additionally, as well too we have two leach pads that are coming online in the second quarter, two leach pads expansions that are coming online in the second half of 2007.

As Dick mentioned, we do have the power plant that is under construction and we’ll see the benefits of that next year in 2008, and also the reinvestment into our mining and operating fleets, which were beginning to see some benefits in the second half of 2007 but will realize the full benefits of that reinvestment in 2008.

We do have operating challenges, I will talk a little bit more in detail about Phoenix in coming slides, and we have some of the same challenges that others have in labor shortages and which has resulted in increased contract services costs, some of things that we are doing about that.

Our training programs that we have implemented are bearing fruit, and we are seeing the benefits, in particular in the underground training program as well too our Carlin east mine is coming to an end and we are utilizing the manpower from Carlin east to move over into the Leeville operation and reducing pressure on contracted services underground as well.

We do have active recruitment programs that again are bearing fruit, and we are seeing our shared services model beginning to benefit us from taking better advantage of the expertise and the talent that we do have in Nevada.

You can see on the consolidated gold sales on an outlook we're still and equity gold sales were still in guidance. Our costs applicable to sales for quarter two and year-to-date 2007 are high but at this point right now as stated the rest of Nevada and Phoenix is doing well but our guidance for 2007 outlook has increased and that is primarily the Phoenix issue. We are certainly in guidance on capital expenditure for North America and our exploration expenditures are as well.

The next slide has some of the Phoenix discussions. If we look at Phoenix status right now we have seen improved blasting performance which gives us significant improvement in fragmentation which obviously relates to improved crusher throughput and improved mill throughput.

We are beginning to see the benefits of the mining fleet and the productivity gains and cost improvement as a result of that. We have overall plant availability that is now exceeding 90% and we're approaching the 91% which is still 1% below what was planned but at this point right now the 92% target is we are inline with that.

We have seen improvements in the flotation circuit and our efficiencies in the flotation circuit at this point right now we still do have some challenges in our gravity circuit and our CIL circuit the impacts of those due to variability or characterization.

Additionally, we have begun the drilling program that will get us to a new model and a new understanding of the Phoenix deposit by mid-year next year.

From a timing perspective, we have started the tail ends or in October we will start the tail ends construction program, just a capacity issue. And as I mentioned the supplemental drilling program will be complete in the first quarter of 2008, allowing us time to review and modify the existing models based on the new information for the Phoenix deposit.

The crusher replacement is on schedule for the first half of next year. And then we have our Copper SX/EW Plant progressing through optimization study and internal review. On the upside potential, I would like to say at this point that the copper oxide does provide some upside potential as we go forward and will be able to realize what that potential is as we complete the studies.

Richard O’Brien

Thanks Brant. So moving on to Yanacocha now, the cost applicable to sales for the quarter pounced $426 an ounce was impacted by NRV impairment in our inventory of about $30 million or roughly $38 per ounce for the quarter. This way is noted on the slide, we had the successful renegotiation of a three year union labor agreement, negotiations went smoothly, minimal impact to operations, we do seem to be getting encouraging support from both the local and central governments in terms their support of a national labor movement in support of rational approaches to settlement to these issues. So, we appreciate that going forward. With respect to the gold mill, the project is about 68% complete. It is on track. We do continue to anticipate commercial production to 2008. As we've talked about before, it will extend the mine life and improve recoveries of the transitional ores, and the lower grade oxide ores.

We are focusing on completing the project that costs between $250 million and $270 million as I talked about earlier. And Yanacocha, just as people remember, Yanacocha is still one of the largest, if not the largest gold mine in the world. It is in a transitional state as we've talked about, moving from higher grade oxide ores to more complex lower grade oxide ores. The gold mills the foundation of continuing to make investments in the Yanacocha district, to continue to allow to better process those complex ores, and to give us a peek into the future as we start to move into these transition ores. Our consolidated gold sales from 2008 to 2010, as we’ve indicated before are expected to continue to be in that 1.6 million ounce to 1.8 million ounce per year range.

Moving on to Australia, New Zealand; the Australia mines are performing as well if not better than our expected results considering the nature of these assets, their age or the fact in the AUD only category, our operating costs were inline with budget, clearly the improving AUD has had an impact on our costs, and I would just note that this acceleration in the AUD since May 1 being up about 7% relative to gold price which has actually relatively flat. As you know, there has been a historical relationship as gold prices go up, the A dollar usually goes up. So, right now we are in a position where gold is now running the same way that the AUD is.

We continued to look at the challenge of cost inflation in Australia, Western Australia in particular as we look at, the main challenge it really is AUD strength. Our original cost applicable to sales guidance has been revised for 460 - 500 per ounce, to 490 to 515 per ounce, almost entirely in consideration of the strengthening in AUD.

Now, the second half impact is approximately $5 to $6 per ounce for every further movement in the AUD above 0.8.

With respect to Boddington on the next slide, this is as I mentioned upfront, the cornerstone of our future in Australia. Project is about 44% complete, still on schedule for completion in late 2008 or 2009. I'll remind you that we own about 67% of the project, we are the managing partner, equity reserves at the end of 2006 is around 9.1 million gold ounces and 480 million copper pounds. Boddington should provide a long-term stable asset for us at a competitive cost.

One of the interesting things about Boddington is, it is all about location for us in terms of attracting the right employees, the right contractors, both with respect to construction and with respect to operation.

In a competitive labor environment, location means a lot. And this mine is located a short 80 miles southeast of Perth. It will not be a fly-in, fly-out operation. We believe today, we have shown the opportunity to attract and retain employees in the first applications for some of the more permanent jobs we had, we were over subscribed.

So, at this point, we feel good about the location. We think that will allow us to manage cost going forward and to make sure we have the right talent.

As I said, our share of Boddington's total cost $0.9 to $1.1 billion and spending particularly in the back half of the year and next year could continue to be impacted by the strengthening A dollar.

We continue to have development drilling at Boddington with up to 9 [quarter] drill rate, targeting at our reserve conversion.

With respect to Batu all the details are in line. We are realizing higher copper and gold price. Copper ore grades are increasing and our higher concentrate in and towards at the end of the quarter too, lead us to continue to be well on-track to meet this year's guidance.

And we do have as noted on the slide, ongoing divestiture requirements under the contract of work. We continue to work with our local partners, with Sumitomo and with the government, to make sure that we can effectuate that divestiture in the correct way.

Moving on to Ghana, mill throughput and recoveries at the Ahafo mine are on target. Mill ore grades are actually -- continue to be higher than we had expected. We had less power shedding requirement than we expected year-to-date. But it is likely to change in the second half of the year, even though water behind the dam is currently beginning to move up. We still are very subject to the hydro flows in Ghana.

The 80 mega-watt power plant that we're completing with three other mining companies should be in production by the end of August. That power plant brings to us a couple of advantages.

First; 25% of that capacity is allocated to cover the half of power shedding requirements.

And secondly; it has allowed us to enter into an arrangement with the government to provide for proportionate power shedding in agreement in the same way that power shed throughout the rest of the population and the industrial population in Ghana.

This capacity both the 80 megawatt power plant that we have our share of that plus onsite generation should allow us to meet a 100% of the half of those power requirements.

Lastly, with respect to our future portfolio Akyem, we continue to build an optimization study, and we do expect it will make a decision on Akyem in 2008.

The last couple of slides focus on gold price, you've seen that we have completely unhedged our portfolio, must mean that we have a view that we are bullish towards gold price and we are, these two slides just briefly show why. The first focus is on declining mine supply, you can see from the GFMS study the 2006 numbers down from 2005, with an expectation I think that production will again drop on average over the next several years going forward.

Combining that with the next slide of increasing demand, is we see increasing jewelry demand, gold prices should continue to run with respect to the gold supply and demand and then also with respect to gold as a currency, as we continue to see challenges with US dollar.

With that, I would like to close. Thank you first for your interest in our company and for taking the time to listen to our call today.

As we turn our focus to the second half of 2007 into our future, I feel very fortunate to be building off a foundation of extremely talented people. Our rich and storied asset base here at Newmont.

On this foundation that we engage with confidence in our efforts to rebuild Newmont as the gold company of choice. And in turn, it is our charge to earn your trust everyday through consistency, commitment and execution.

We enter the second half of the year, as the world's largest unhedged gold producer on-track for our 2007 production in costs, while we refocus on our core gold business. We also remain the only S&P 500 and Fortune 500 gold stock with the balanced global portfolio and a strong and liquid balance sheet.

Throughout today’s call, you've heard me emphasize accountability, focus, decisiveness and execution. It’s the foundation of our path forward here at Newmont. And as we focus on the delivery of consistent operating project in exploration results, we hold ourselves accountable as we know you will, the decisions we make and how we execute upon them.

With that, we are going to open up the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from John Hill, Citi Investment Research.

John Hill - Citi Investment Research

Yes. Good afternoon everyone and thanks for a very detailed presentation. Looking at the guidance for Nevada for the rest of the year, it looks like you need to achieve something on the order of $370 an ounce cash cost to hit that overall guidance spend of $400 to $440. How much conviction do you have that we are going to get there. That’s a pretty good step down?

Brant Hinze

You know as I stated earlier, we are weighted to the second half of the year. And with what we have coming online, like I said, the ramp up of Phoneix or Leeville coming into the oxide ores at Twin Creeks, what we are seeing at Pete and North Carlin and the leach pads coming online in the second half. I feel that we are certainly within that guidance on the remainder of Nevada.

John Hill - Citi Investment Research

Okay, great. And just a quick follow-up, I think the commentary in Phoenix on the call sounds quite a bit more hopeful than the press release. The press release really could have been written a year ago, as a whether hard [stone] ore, crusher availability, recoveries of multiple concentrates streams, that’s what we heard. I think it was last August or so on site. I mean, what have we really accomplished in the last year there?

Brant Hinze

Well, I think I went through a list of some the accomplishments that we have seen. And the thing that I also emphasize is that we are in a new drilling program at Phoenix and until we have that new drilling program completed in that new model built, at this point right now, it's hard to give any additional information on Phoenix.

Richard O’Brien

I think it is important John to recognize though, that we have worked hard on metallurgical issues. We've improved the recoveries, cyanide utilization. I think they have made progress in some areas at Phoenix, but as Brant says, we are not out of the woods in Phoenix at all. We still have work to continue to do there. As he mentioned, by next year, mid-next year, we should have a more detailed analysis of where the plan is going to go, going forward. So, not out of the woods, we continue to work Phoenix hard, and as we've said, both in the press release and on the call, it really is probably the number one risk here for us to deliver on production and guidance in Nevada.

John Hill - Citi Investment Research

Very good. Thank you.

Operator

Thank you. And our next question comes from John Bridges, JP Morgan.

John Bridges - JP Morgan

Hi, Dick, everybody.

Richard O’Brien

Hi, John.

John Bridges - JP Morgan

Many thanks for the update on the progress. We heard this morning about sustainable developments and mining companies building wind mills. I thought Brant might be talking about hybrid trucks for later in this year. Maybe next…

Richard O’Brien

We forgot to mention that.

John Bridges - JP Morgan

Maybe next quarter. With Phoenix could you give us a color as to why you're going with this program. It feels a little bit like the difficulties that Newcrest went through with lower grade peripheral or at Telfer. Are they any parallels with that?

Brant Hinze

I can't speak specifically to the orders at Telfer, but what I can say right now is one of the variability's that we are seeing in Phoenix is because of the order characterization and recognizing where we are in the deposits early on in a long-life deposit. We are on the very fringes of it and this variability right now on the characterization, whether its oxide transition or sulfide, I think is one of the major contributors to the difficulties that we are seeing.

John Bridges - JP Morgan

And these fringes tend to be poorly drilled because they represent a small faction of the ore body, I seem to think.

Brant Hinze

That is correct and that is one of the reasons, as well too, that we are going back with the additional drilling program, so that we can better define and characterize the orders.

John Bridges - JP Morgan

Okay, just to follow-up on Nevada. You had a pretty chunky strip ratio this quarter. Is your cost going to come down on a low strip ratio in the second half?

Brant Hinze

Yes, that's true and as I said if you look at Nevada we are in that cycle. In Nevada we tend to be heavy strip in the first half of the year and then we hit the orders and come online with our higher grade orders, like we see in Twin Creeks in the second half of the year. We certainly love to break that cycle. But that's the nature of our operations at this point right now. So we will see these ores come online and coming stronger in the second half.

John Bridges - JP Morgan

From your write-off it sounds if you're back to the old Newmont way of coming through with the bumper fourth quarter. And do you have or could you give us an indication as to what's going to hamper the strip ratio in Q3 and Q4?

Brant Hinze

Yeah. Certainly as indicated, our strip ratio will come down. And you're right, if you look at the second half of the year, in particular from a Nevada perspective, one of the things I will be looking at, going forward, is breaking that second half cycle in future planning.

John Bridges - JP Morgan

Okay. And you're something like six to one this quarter, are we going to four to one. Something like that?

Richard O’Brien

John I don't think we have the number available for today. It is coming down; we'll try to get you the number going forward.

John Bridges - JP Morgan

Okay thanks. I'll look after that hybrid truck next time.

Richard O’Brien

Yeah, do get it.

Brant Hinze

Yes, we are working on it.

Operator

Thank you. And our next question comes from Victor Flores, HSBC.

Victor Flores - HSBC

Thank you. Good afternoon. I have two or three questions. First of all, just turning to the operations, the comment was made that Leeville is, I believe coming into its own which is great. Could you give us some statistics to sort of point us as to how it's coming into its own, perhaps what production was during the quarter and what the cash costs were and where do you see that going, say, in the second half and in 2008?

Brant Hinze

Yeah. When you look at Leeville and saying that it's come into own, we are completing the development phases of Leeville. So, we had the batch plans that came online in July and then we have the second batch plans that are coming online in September. And looking at that, that gives us the full capacity then for back drilling at about 3,200 tonne a day rate. And when we say it's coming into its own, that's what we mean, so we will reach the 3,200 tonne a day rate by the end of the year and this batch plans allow us to get there.

Wayne Murdy

Victor, plus also what we're seeing is with the colony’s mine shutting down. We are moving some of our own employees that Brant talked about earlier who've gone through their training program and replacing the expensive contracted labor that we've had there to get the development, to get the production out. So, we are seeing a shift in that workforce and it is significant, to the bottom line, as far as cost.

Victor Flores - HSBC

Okay.

Brant Hinze

And to answer your other question Victor, we don't give production, separate production cost guidance for Leeville just because the way plant is running in the Nevada operation. We really are looking at a lot of centralized processing and cost.

Wayne Murdy

It's just an indication of what we think for the third quarter and speaking to Brant's earlier comment we will mine about 315,000 tons, about 0.459 will contain ounces of about 140,000 ounces. As Dick alluded to, those ounces get processed at different locations, but we are looking at CAS roughly of about $300 an ounce for those ounces in the third quarter.

Obviously, that CAS will fluctuate quarter-on-quarter based on the amount of production versus development as you well know, Victor.

Victor Flores - HSBC

Okay. That's a good indicator. And then, some other question with respect to Yanacocha. With the mill coming on next year and then having a full year in '09, I believe, when recently I was talking about some production numbers that perhaps were indicative and perhaps new. Mine, as the operator, can you give us a bit of a sense of where that project is going in terms of the oxide mill, and what you see happing to heap leach tons going forward?

Randy Engel

Hey, Victor, It’s Randy. Newmont’s guidance that we have out there right now is in the 10-K is the 1.6 to 1.8 that you have seen. There is as we’ve discussed, recovery upside in the mill. In the gold mill, but really our 10-K language is what’s out there from Newmont for the time being.

Victor Flores - HSBC

Alright, fair enough. Great guys, thank you.

Operator

Thank you. (Operator Instructions). And our next question comes from Patrick Chidley, Barnard Jacob Mellet.

Patrick Chidley - Barnard Jacob Mellet

Hi, good afternoon, everyone. I would like to ask few more sort of general questions about strategy. I think with the opening comments there, you alluded to maybe some different ways of doing business and that would mean perhaps whether you’d be looking to hedge more of your costs in terms of fuel cost, for example, and also in terms of looking, re-looking at exploration projects, which ones would you be looking at? And perhaps would you be looking at demanding a higher rate of return on new projects.

Richard O’Brien

Well, with respect to the first question on hedging cost, I think the last several years have shown the importance of cost applicable to sales per ounce in terms of valuing gold companies. I think to the extent that we can manage our cost through an appropriate hedging program. It is definitely something that we will take under consideration. We'll analyze that, we’ll have some debate about it internally and then we'll make a decision as to whether we're going to execute and I'd say that applies to input commodities whether that's oil or diesel, whether it's some of the other commodities that we need that are derivative of that. We currently already have in place some initiatives in the purchasing side of the business with respect to tyres and other commodities that we need to process.

So, I think we are going to be perhaps more active in evaluating. We'll let you know when as and if we execute something that would be material.

Patrick Chidley - Barnard Jacob Mellet

Alright.

Richard O’Brien

With respect to exploration projects and returns I'd say couple of things; one, I think its important for us when we talk about placing reserves, to focus on exploration but to also focus on development opportunities and other growth opportunities across the world. We can't just rely on exploration.

When we look at returns for projects I think it’s important to recognize that our job is to provide gold options to investors, which partially comes from the return we should expect at an expected gold price in the future. And partly comes from the ability to expand a contract, based on what happens with gold prices, building in some more flexibility into some of our projects and focusing on a more consistent delivery pattern over a longer period in time.

So I think well that is the formula we're considering, again it’s only words at this point and need to put that down in terms of the investment that you see us make, the leverage to gold price that those projects are able to actually show. And we have some work in this regard that we need to do. But I think the view should be that we will make investments in gold, that those investments in gold should lead the gold price leverage and when and if gold prices respond, we should get the proper returns out of those gold projects.

Patrick Chidley - Barnard Jacob Mellet

So, basically adding some flexibility to your investments in terms of being able to switch on overall production as and when the gold price allows or?

Richard O’Brien

Partly that and partly just being responsive to market prices in terms of retaining our cost structure, so that we are not always reaching for that last ounce of cost in the latest pit that we designed. Trying to design how we operate to be more predictable over a series of years, rather than one year focus. And again continuing to look for the responsibility to look for replacing reserves in the out years through that combination of exploration, growth oriented projects around the world and development of some of the opportunities that we have internally.

Patrick Chidley - Barnard Jacob Mellet

Alright, could you maybe highlight a couple of opportunities that perhaps are not at the forefront of the current plan that maybe you could be within in a years time. Would be hearing lot more about?

Richard O’Brien

No, I think I mentioned the ones I am comfortable mentioning, which are those in our portfolio, Akyem in Ghana, Conga in Peru and potentially the NASA project.

Patrick Chidley - Barnard Jacob Mellet

Okay. There has been no talk about the Elang project for a while in Indonesia and I was just wondering whether that would be one of those projects or is that been?

Richard O’Brien

It could potentially be, as you will recall, we were in a drilling program there last year, we had a social incurrence path the drill camp went through some social unrest, the camp was burned, luckily our people were evacuated and there weren’t issues. We are still working out with the community, as we always try to do. How do we get back into along and continue the drilling program that we had in place. Once that’s done, we’ll continue to further look at optimizing that ore body and determining whether or not it's economical at a reasonable copper price.

Patrick Chidley - Barnard Jacob Mellet

Alright, and one final thing, I'd like to ask if you could consider releasing more information in terms of what the future strip ratios that some of the mines will be going forward because its obviously one of the largest variables that in an analyst side here, we just don’t necessarily get that information.

Richard O’Brien

Hey, Patrick, we've noted your request. We'll see what we can do about that.

Patrick Chidley - Barnard Jacob Mellet

Thank you.

Operator

Thank you. And our next question comes from Barry Cooper with CIBC World Markets.

Barry Cooper - CIBC World Markets

Yeah. Good day. A question on -- about the issue with respect to the accounting method, now that you've dropped below 45%, will you go back to equity accounting as opposed to consolidated accounting on that asset?

Russell Ball

Barry its Russ, no, we weren’t and you're right, normally one would expect that a 45% ownership interest and we would be equity accounting. But in terms of the FIN 48 requirements which relate to the special purpose entities that post in on the world if you want, throughout disproportionate share of the economic benefits through the partnership we will still continue to consolidate, but at a 45% rate. And there is some disclosure in the queue which we provided earlier today, which reflects that so we'll consolidate, but it will be at the 45% rather than the 52.85 -- 875% we have been doing historically.

Richard O’Brien

So the minority interest expense on the income stage will go up.

Barry Cooper - CIBC World Markets

Right. Okay then further on that issue, you had a realized copper price of $3.92 for the quarter. I am assuming, in part, that was due to a provisional pricing carry over into the second quarter. But I am wondering, is that $3.92 also include TCRC charges, which traditionally you've deducted from your realized price when you quoted it?

Russell Ball

Yeah, Barry, good question. It’s a little bit both, and if you look on page 37 of the Q, what that’s made up as a gross, which was essentially the spot price of $3.49. Again, we are 100% on hedges bought too and those hedges are done. We had a mark-to-market adjustment of $0.43 based on the increase in the copper price from the Q2 quarter end. And refining charges with $0.39 per pound for a net of $3.53 a pound. And again you will see a table, both based in dollars and cents per pound on page 37 of the Q if you want some more details.

Barry Cooper - CIBC World Markets

Okay. So then when you have the two paragraphs in your press release, the one related to $1.10 to $1.20 for your costs, and then you've realized the $3.92, is that on the apples-to-apples comparison?

Russell Ball

The $1.10 will include the TC/RC, so a better comparison would be 33.

Barry Cooper - CIBC World Markets

Right. Yeah. Okay. Good enough. And then the last question, you indicate that Mitrais is not a big component there and now there is a shutdown and then I am assuming you are not anticipating that it can be done probably. Can you just give us an idea of what kind of production levels in cost were coming from Mitrais. Either historical basis or what you had planned for this year, because we don't get that breakdown anymore?

Russell Ball

Yeah, Mitrais is, round number 120,000 ounce operation a year. So, we will shutdown towards the end of June as everyone knows of that unfortunate incident. And it’s a function of when we will back up and running. The holding cost there for us is about $1.5 million a month round numbers so that kind of puts it into spec but its not a huge driver in Nevada clearly but I'll ask Brant to speak to kind of where the investigation when we may potentially be up an running again.

Brant Hinze

Yeah, at this point right now our maximum exposure for the second half would be 60,000 ounces that's assuming that we're not reopen there before the end of the year. We have completed our reopening plan and have submitted that to the agencies and we're now waiting for a response from them.

Barry Cooper - CIBC World Markets

And the cost on 120,000 ounces would be roughly what?

Russell Ball

340 an once, Barry.

Barry Cooper - CIBC World Markets

340? Okay. And then the final question relates to Boddington. I guess when Phoenix was originally acquired there was expectations that gave us somehow the learning process of Phoenix or conversely Boddington depending on which ever one got build first would lever yourself into a better understanding of how to tackle a second one. And I'm just wondering given the rather unfortunate circumstances about Phoenix how has that changed your view on Boddington and indeed has there been any change of scope or plan there because of what's happened to Phoenix?

Russell Ball

Barry, you're right, I'll address that. When we look at Boddington, very different flow sheet clearly different ore body, we did go to the high pressure grinding rolls as everyone is probably aware, we have looked at how those have performed at severity and are very comfortable with that decision quite frankly. We have done some extended work looking at some of the license learned out of Phoenix and have applied those two to Boddington. But when we look at it an overall process with respect to we have had a number of people coming and look at the flow sheet revisit our plan as far as the meteorological balance and the estimated ramp-up curve and we are very comfortable despite the issues at Phoenix.

I will say that the Boddington project was a little more fortunate in that, we went through more of what I would call as stage gating process, than we did on Phoenix, given the construction schedule. So, we've had more internal and external peer review. Obviously Anglo is a partner on that, as was Newcrest until fairly recently. So, in addition to the Newmont folks looking at it we have had lot of people looking at it from Johannesburg and from Melbourne in the case of Newcrest. So, Barry no real changes but it is a very different flow sheet, we have had people from Boddington and Phoenix to look at it but the issues are somewhat more Phoenix specific than in general to the nature of the copper, remember that the copper at Boddington is a pretty small stream in the schema things.

Barry Cooper - CIBC World Markets

Right. Okay, thanks a lot.

Richard O’Brien

Sure, Barry.

Operator

Thank you. And our next question comes from John Tumazos from John Tumazos Independent.

John Tumazos - John Tumazos Independent

Good afternoon and congratulations on all the busy work you have been getting done. Concerning the Merchant Banking business and I apologize if there was something in the recent disclosure I might have missed, with that business decelerating are the investments and Shore Gold, Gabriel Resources, Energy properties continued long term investments or are they something that is the opportunity came you could use the proceeds to pay for a miner and mill somewhere?

Randy Engel

Hey John, it’s Randy. On the Newmont Capital portfolio really the two sides of the spectrum we are looking at, keep in mind that we try to emphasize divestiture of our non-core assets or reinvestment in our core gold business. So those assets that have gold investment characteristics such as the Miramar, Rosia Montana and although Shore Gold is a diamond play would have some comparable gold investment characteristics to it, those would be assets we’d be more likely to classify in that core gold business. The same that would certainly sit outside that would be the oil and gas royalty streams things of that nature.

John Tumazos - John Tumazos Independent

Thank you very much.

Operator

Thank you. Our next question comes from Oscar Cabrera, Goldman Sachs.

Oscar Cabrera - Goldman Sachs

Good afternoon guys. Just I think most of the points have been covered. But I got two quick questions. With respect to Akyem in Ghana, you are talking about development and optimization studies. Can you remind us what the options there are and when you say a decision expected in 2008, would this be early 2008 or later in the year?

Richard O’Brien

Oscar, it's right. The Akyem project is one that’s going through the Stage-Gate process. We recycled it based on the significant increase in capital cost that not only Newmont is experienced but the industry. We are looking at that, it is a nominal 500,000 ounce a year operation. It’s 1.8 grand and it’s pretty near surface. So, the economics are compelling in addition to which we have a significant infrastructure in Ghana that we can leverage. However, we made a conscious decision to slow down given the capital spend that we have and quite frankly the ability to get resources to develop that project, not only internal resources, but resources through our EPC contractors, whether its floor or ethnic event, you guys know these stories as well as anyone.

So, we continue to evaluate it. The real issue for us, again, still remains the economics, which are looking better as we continue to optimize it. But, also we still don’t have a permit, and we are working through that issue. The issue relates to backfilling of that pit, and I think we've disclosed that over the last couple of quarters. So, it is a two-pronged approach. I would say that from a social and a local perspective, we have strong support for the project and we continue to work that, in addition to at the national level, working through the appropriate channels.

Again, power remains an issue on Ghana and if we brought this project on we would just be adding to the load. So, tied in into the decision to develop Akyem needs to be an overall understanding and whether that means ITP provided down the road or more reliability around the hydro power. We just need to make sure that if and when we do decide to develop this project we have the power to keep the mill churning.

Brant Hinze

And I would say Oscar that decision will probably get may towards a latter part of next year as we work through all the issues. So, with that, Oscar do you have another question?

Oscar Cabrera - Goldman Sachs

Yes, if I may, just a real quick one. On Boddington, you talked about the 44% completion. You gave us an idea of what the type of capital expenditures are you looking for in the project. In terms of the capital expenditures that you need to make, like I mean 44%, does that mean that you have about $450 million spent there and the rest would have an impact based on the exchange that we are seeing now?

Richard O’Brien

No, I would say we're less spent on that, because the bulk of the profit to-date has been earned through engineering. We are really only getting into the field right now. Most of our long lead items have been procured, but a significant spend and particularly the Aussie dollar spend relates to the construction in the field and really that's ramping up as we speak. So, it would be less, I don’t have the exact number, ask it but I'll get them to John and he could forward them later.

Oscar Cabrera - Goldman Sachs

Okay, great thanks very much guys.

Richard O’Brien

Alright, thank you for your attention today. We appreciate you participating in our call and as I mentioned the IR department Randy, John and others are prepared to take your questions should you have some after the call. Thanks again, I appreciate your attendance.

Operator

I would like to thank everyone for participating in today's Newmont Mining Corporation teleconference call and at this time all parties may disconnect.

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Source: Newmont Mining Q2 2007 Earnings Call Transcript
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