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Newmont Mining Corp. (NYSE:NEM)

Q3 2007 Earnings Call

October 31, 2007 4:00 pm ET

Executives

Richard O'Brien -President and CEO

Russell Ball - SVP and CFO

Guy Landsdown - SVP of Project Development

Analysts

John Bridges - JP Morgan

Oscar Carbera - Goldman Sachs

Victor Flores - HSBC

John Hill - Citigroup

Mark Smith - Dundee Securities

Patrick Chidley - BJM

Barry Cooper - CIBC World Markets

John Tumazos - John Tumazos Independent Research

Operator

Good afternoon and welcome to the Third Quarter 2007 Conference Call. I would like to remind all parties today's conference is being recorded if you have any objections you may disconnect at this time. All parties will be in a listen-only mode until the question-and-answer session of today's conference. (Operator Instructions).

I would now like to turn the conference over to, Mr. Richard O'Brien. Sir, you may begin.

Richard O'Brien

Thank you, operator. Thanks for joining us today on our third quarter conference call. With me today are Russell Ball, our Senior Vice President and Chief Financial Officer; Guy Landsdown, our Senior Vice President of Project Development; Randy Engel, our Senior Vice President of Strategy and Corporate Development; and John Seaberg, Group Executive, Investor Relations.

While we get started I just want to remind you that we will be discussing forward-looking information involving a number of risks certainly which are unique to our industry as described in our SEC filings.

On today's call we will focus on our third quarter financial results and we will also take the opportunity to provide you with an update on our continuing progress with respect to our strategic initiatives.

In the four months following my appointment as CEO, our team is focused on execution and decisiveness enabling us to successfully create the world's premier unhedged goal company, while renewing our commitment to our core gold business.

I would remind you all that it's only been four months, and that while I am very pleased with the team, the team efforts, and the focus that we've generated here in Newmont, we still have a lot of work to do.

As we begin to see the benefits of our strategic efforts, we also remain focus on our day-to-day activities: including stabilizing our operating cost profile, improving our operational performance, developing our existing projects and creating value from our prospective pipeline.

We are also taking a renewed approach to sustaining our business through a combination of exploration, development and from time-to-time where appropriately accretive acquisitions. We also know that success will not come overnight, but we'll achieve it through consistency, commitment and successful execution year-after-year, quarter-after-quarter and day-after-day.

As previously mentioned, and shown on this slide, our strategic foundation has five main components focusing on; first: financial strength and flexibility, second: operational execution, third: project execution, fourth: exploration and commitment and fifth: leveraging the scope and scale of our global operations.

We'll cover each of these initiatives throughout the rest of this call. Before we review the results from our third quarter, I want to spend a few minutes viewing our outlook for the remainder of 2007. With only three months remaining in the year we have held our outlook for equity gold sales to between 5.2 to 5.4 million ounces. Reflecting previously announced lower equity gold sales at Batu Hijau, the suspension of operations at Midas and ongoing challenges at Phoenix, which I will cover in more detail later.

In addition, we are implementing plans to reduce our traditional fourth quarter push, which should over time result in a flatter production profile on a quarter-by-quarter basis. Don't expect us to keep the foot on the accelerator here in the fourth quarter of every year going forward. We do expect that, over time, we will flatten out this production profile.

More over, this quarter we've benefited from Batu Hijau being at the bottom of the pit. That will not be the case throughout all of the fourth quarter and we still have some additional work we are completing in Nevada to continue to move the Nevada profile up to the expected production levels at Leeville. We still have some work to do here to continue to get our production profile where it needs to be.

Equity copper sales, the second line on this slide, have decreased slightly from our initial guidance and this as well as the equity gold sales at Batu Hijau were both reduced as a result of lesser economic interest that we have at Batu Hijau, due to the repayment by our minority partner there carried loan. But this is consistent with the guidance that we provided in the second quarter after that loan was repaid.

We now expect 2007 costs applicable to sales to be 400 to 430 per ounce, up from 375 to 400, as we told people at the Denver gold show. We were expecting CIS to be beyond the upper range of the guidance. This is the new guidance.

This change in outlook reflects the impact of the ongoing challenges at Phoenix, lost production at Midas, higher input costs primarily fuel adverse exchange rate movements. The remainder of the items are largely in line with our initial Q1 outlook, or slightly positive, in the case of capital expenditures and the effective tax rate.

As this chart illustrates, higher diesel fuel and consumable costs represent approximately half of our increase in cost applicable to the sales for the year. If you move from the guidance to the prior outlook on the left, to our current outlook on the right, you can see that on the chart.

The other major factor is the higher cost in Nevada, at Phoenix, and reduced production at Midas, both of which are reflected in the production segment of the chart. In addition, as we benefit from a higher gold price, we do see a negative impact on our costs in the form of higher royalty payments and workers participation at Yanacocha in Peru.

The adverse changes in foreign exchange rates, primarily in the Australian dollar, essentially represent the balance of the change in our outlook from the beginning of the year till now.

Tied from our challenges with Phoenix and Midas in Nevada, the operating cost escalation, illustrated in this chart, is probably reflected of the issues faced by the entire industry.

Shifting our attention from operating results to financial results, this chart illustrates the absolute change in our operating margin 2003 through Q3 2007. This is slide number 7. As this chart illustrates, gold is up over 85% since 2003, while our margins have grown by roughly 75% during the same period reflecting the impact of industry-wide cost pressures.

These pressures, when coupled with the mature nature of the world's gold deposits, have somewhat suppressed the industry's average operating margins. Ours have been impacted similarly with our margins remaining consistently between, 40% to 50% of average realized gold prices over the past several years.

As a result, gold equity evaluation remained under pressure with multiple contractions evident across the entire sector. We are keenly aware of these pressures and are focused on addressing them through the initiatives I continue to emphasize each time I have the opportunity to speak with you.

Our offer, compelling value proposition for our shareholders, we know we must remain vigilant and focused on cost control, operational execution, as well as new ways of exploring for and developing new projects.

With the gold price today now significantly higher than the 681 shown for the third quarter of 2007 on this chart, we continue to focus on operational execution and cost containment as we are successful at that, we and our shareholders will benefit from higher margin expansion going forward.

So we have committed to keep the market informed with respect to our progress at Phoenix and on slide 8; I am going to talk about that for a minute. Phoenix continues to be the most challenging operation in our portfolio, while we continue to make progress and advance our improvement plans, it will still take time to successfully work through each of the issues inhabiting the success of this long term asset.

For the third quarter Phoenix's equity gold sales were 46,000 ounces at cost applicable to sales of $605 per ounce. For the year Phoenix's gold sales were just over 130,000 ounces at cost applicable to sales of $743. So improvement in the third quarter clearly but we still have our ways to go at Phoenix.

During the quarter we made modifications to the blasting process, which led to improved ore fragmentation, enhanced recoveries and process efficiencies. Phoenix now also continues to perform well and has recently been running in excess of 90% availability.

Even with these changes we will not know whether significant improvements in operating costs and production can be achieved until we redefined the ore body and metallurgy.

Our re-drilling program is well underway with approximately 46 of the 183 planned drill holes complete. We remain on schedule to finalize this drill program in the first quarter of 2008. The drill data will then be used to create a new life of mine plan, which we currently anticipate will be completed by mid 2008. We're also addressing ore hardness issues that have plagued us in startup with the installation of a new crusher, which should be in place in the first half of 2008.

Also at Phoenix we continue to evaluate a copper leach program that could allow us to process the oxide copper ore that sits on top of the sulphide ore body. Copper leach project is incremental to the existing Phoenix operation and has the potential to reduce the overall operating costs at Phoenix by generating positive net revenue from material currently characterized as waste.

Although we remain optimistic about the possibility of this project becoming a reality, it still remains subject to considerable review and optimization studies with permitting on the critical path. Our current estimate is that the copper SX/EW plant could start up in 2010 pending permitting and other factors. We'll continue to keep you informed in our progress on this project.

So, in summary, for the third quarter I am very pleased with the progress that the team has made with respect to the operational side of the business. I think people continue to exhibit all that I could ask for them to do to really focus in on keeping their operating costs in check and trying to move the business forward at the same time. I think that reflects positively on results, because some people in the company are listening to this call, I'd just like to take the opportunity to compliment people for keeping their heads down and getting the job done successfully.

So with that I want to turn it over to Russell who focusing on financial strengths and flexibility is going to walk through the highlights of the third quarter.

Russell Ball

Thanks, Dick and good afternoon all. I will start with the financial highlights for the quarter noting that the details are contained in our earnings release and our 10-Q, which we expect to file later this afternoon. In addition, for those who are watching our filings, you will see we will be making three filings related to the proposed acquisition of Miramar also hopefully later this afternoon. The extent of detailed questions on your results, I am sure that John Seaberg and his team will be happy to walk you through the numbers.

We had a strong third quarter, earning $0.88 a share. Essentially doubling our earnings from the year ago quarter. It is driven largely by higher commodity prices, as we realized the benefit of being completely unhedged both on the gold and the copper side as well as increased production as Dick discussed earlier from our Batu Hijau operation. We generated approximately $520 million in cash from continuing operations, which is up about a 150% from the previous year's quarter.

Maybe it's important to look, just briefly, at the negative operating cash flow number that you see on slide 10. We are about $100 million for the year-to-date, because this hedge is reflecting a number of the strategic initiatives that we have implemented since the change in leadership at Newmont.

We have used about $580 million to eliminate the gold hedge book in Q2. We also spent about $280 million to settle a pre-acquisition tax contingency related to tax contingency Normandy and about $180 million to settle the copper hedge obligations which expired in the first half of 2007. So when you look at operating cash flow for the year, essentially we consume just over $1 billion getting out of those hedge positions and settling a pre acquisition contingency.

For the quarter we realized an average gold price of $681 per ounce, which is up 11% from the year ago quarter. Costs were $388 an ounce, which is an increase of 22% from the year-ago quarter and I will speak of that in some detail following. As Dick referenced earlier, the continuing operating cost pressures are not particularly unique to Newmont.

For those following the slides on slide 11, you'll see that the reported net income for the quarter was impacted by two transactions.

The first was a reversal of foreign tax credit valuation allowances of $84 million. You might recall that in the second quarter we provided valuation allowances so it reflected a charge of approximately $109 million, which is essentially what we reversed in this quarter due to tax planning opportunities related to the sale of our merchant banking assets and the royalty portfolio in particular.

As you know note, I would appreciate our tax calculation is complex and is, as these last two quarters have proved, they can be very volatile on a quarter-to-quarter basis. This is particularly so in light of our discontinued operations reporting for the merchant banking portfolio and as their share in Newmont expropriation and subsequent gain.

As we look in turning at our business and for those of you crunching the numbers in your spread sheets. We use an effective tax rate of 32% for our planning purposes and while you will continue to see volatility going forward that's the number that we are comfortable with that reflects the attributes that we have and the assets we have in the locations we operate currently.

In addition, during the quarter we received $80 million pretax related to the settlement of the Zarafshan expropriation, which again essentially reverses the $100 million pretax charge we took in the third quarter of '06 to reflect that event.

You'll note that the third quarter of 2006 benefited from the gain of our Alberta Oil Sands sale and the sales of Martabe project in Indonesia and that's the $193 million that you see in parenthesis for Q3 '06.

So, again a strong quarter, but clearly, as Dick alluded to earlier, the $0.88 is not sustainable when you have a look at the gains that we have reflected here, in particular the two highlighted on this, and the fact that Batu had an outstanding quarter and I'll speak to that in a little more detail.

For the quarter we sold approximately 1.3 million ounces of gold and when we look at the portfolio as a whole, our production was essentially in line with our initial outlook. On slide 12 and 13, we will be presenting a different view of our results from what you've historically seen and we will compare this quarter's results not only with the third quarter of '06, which has been a traditional comparison, but also with our internal outlook for the year which we communicated to you at the beginning of the year in the form of our Q1 guidance.

Quite frankly, in my view, the comparison with the prior year is less meaningful, particularly in our industry given grades strip ratios and other mine plan changes that most of you on the call are intimately familiar with and I will be focused on comparing our internal results for the third quarter with what we told you at the beginning of 2007.

As we look at the third quarter results for '07 showing here in the green bar compared to our initial outlook for the third quarter showing in the blue bar. Again the portfolio is generally performing as expected. Nevada continues to be a challenge as we work our way through the issues at Phoenix and Midas, that dick alluded to earlier.

For the quarter Phoenix was short approximately 27,000 ounces and Midas was short approximately 28,000 ounces as the operation was effectively shut down for the quarter. Excluding Phoenix and Midas Nevada is largely performing in line with expectations.

Though we are substantially lower than the year ago quarter Yanacocha is performing as expected and is actually doing a great job transitioning to lower production.

In Australia beside from the adverse impact of the Aussie dollar we had a good quarter and exceeded production expectation. The KCGM operation continues to be an area of concern and we continue to work through issues and potential solutions to that with our joint venture partner Barrack.

At Batu Hijau in Indonesia our production is right on target on a 100% basis and when you look at equity production after adjusting for the effects of our reduction in our economic interest that we reported to the market in Q2. The significant increase from last year's production was driven by both higher grade and higher throughput, as we were in the bottom of the pit and not only did we have higher grade and recovery, but that's after all we were able to process additional throughput for the quarter.

At Ahafo in Ghana we remain slightly above expectations, as we continue to benefit from higher power availability from the grid and slightly higher grades than what we had modeled.

Moving to slide 13, a similar format here and again I will focus more on the initial guidance in blue versus what we actually did in green for the quarter and the comparative number for the year ago quarter, that information will be provided at ad nauseum in the 10-Q.

For the quarter CAS was $388 per ounce which was an increase of 22% from the year ago quarter. Beside from the previous mentioned challenges in Nevada and the FX rate in Australia, we are generally in line with our original outlook for the year as the bars on this chart will attest to. The challenges we face and quite frankly the challenges the industry face is that our assets are maturing. Grades are falling and stripping continues to increase as open pits mature. This coupled with the inflation in labor, diesel and other consumables is adversely impacting costs.

Nevada costs for the reasons discussed previously are above expectations, the impact of Phoenix was approximately $15 per ounce in 2003 or $23 an ounce for the year-to-date miners shutdown impacted CAS through the fact that it produces significantly lower than average cost ounces by about $3 per ounce in the quarter, so not a huge impact.

Yanacocha continues to perform according to plan and has done an outstanding job managing costs in a very challenging environment. Keep in mind that in 2007 Yanacocha will move essentially the same amount of material for approximately 38% less ounces than we saw in 2006.

Australia and New Zealand is outside of our original outlook as the Aussie and New Zealand dollars continue to appreciate. Our initial outlook for the Aussie was based on $0.75. While we have started a disciplined Aussie dollar hedging program we are essentially fully exposed to the Australian dollar for the remainder of the year.

For the quarter the stronger Australian dollar increased CAS by about $49 an ounce so not an insignificant increase. On an Aussie dollar basis, however the region is actually under budget when you look at it in Aussie terms we had a budget of 607 for the quarter and we actually delivered $573 dollars Australian so positive FX issues aside.

Batu Hijau exceeded our original outlook as we access more of the higher grade portion of the ore body in the third quarter. As we had communicated previously the third quarter at Batu is generally our strongest, given the fact that we are in the bottom of the pit and are able to deliver more high grade softer ore to the mill.

As the rainy season approaches and we are forced to retreat from the pit bottom, we increase our stripping and process lower grade ores in stock piles. So in short we want to see another quarter like this one at Batu for a while.

Our first costs were better than expected due to the increase in production discussed earlier and favorable power costs. There is no question that we must continue to focus our cost containment efforts, but all things considering our operations generally performed in line with our original expectations set at the beginning of the year despite significantly high oil prices in Australian dollar now approaching parity with the U.S. dollar.

That's the bad, if you want the good is that the higher costs are now more than offset by higher gold price, which is translating in to increased margin as Dick showed earlier on the slide with margins. The weak U.S. dollar while herding in respect with CAS is helping in that as a key factor driving the gold price higher and resulting in net margin expansion discussed earlier.

With that I am going to turn it over to Guy Landsdown for an update on our project executions.

Guy Landsdown

Thanks Rus, and good day to everybody. Leading to project execution the construction of our wholly-owned 200 megawatt coal-fired power plant is approximately 82% complete and continues to be on schedule for start up around the middle of 2008. Project's capital cost estimates remains at between $620 and $640 million. All significant contracts including rail, coal and operations and maintenance are substantially complete.

When fully operational the power plant is expected to reduce Nevada's total costs applicable to sales by around $25 an ounce. As you can see in the picture first coal was delivered to the project in September and we are currently planning first fire on oil late this year or early next year.

Turning our focus now to Peru the gold mill project of Yanacocha is approximately 85% complete, with capital costs remaining on budget between $250 and $270 million. This processing facility is expected to start up in the first half of 2008 and will have a positive impact in Yanacocha's operating performance as we move in to the next generation of the storied mines life with a processing of high grade oxide and transitional ores.

Shifting our focus to Australia, Boddington remains one of the largest undeveloped mines in the world with substantial exploration upside in current gold and copper reserves of around 9 million ounces and 840 million pounds respectively. Boddington at present is approximately 50% complete and remains on schedule. It will start up around the end of 2008 or early 2009.

Located only 130 kilometers from Perth, our ability to attract scarce skilled labor to this desirable location has been favorable, at the same time we are building Boddington. We are also taking innumerable steps to ensure we maintain a competitive on going operating cost profile. To that end we find a long term agreement at competitive power costs for the life of the project.

We are also in the process of completing our definitive estimate to confirm our capital costs including the impact of escalation and a stronger Australian dollar. This estimate is expected to be finalized by early 2008 and we will communicate it to you at that time. Given its scale and the exploration upsides this asset represents the corner stone of the next generation of our Australian operating portfolio.

Shifting our focus to our developmental assets, our Conga copper, gold coal free project, located approximately 80 kilometers from the Yanacocha in Peru is one of our more advanced development opportunities. Equity reserves at Conga currently stand at approximately 6 million ounces of gold and 1.7 billion pounds of copper. To date we have continued discussions with the local community and the permitting process with the goal of making a development decision in 2008.

Also among our perspective development assets our 100% owned Akyem project in Ghana is in the evaluation and optimization phase. With gold reserves of around 8 million ounces we continue to work towards the development of this project with a watchful eye on the power situation in Ghana and anticipate making a development decision on this project in 2008 as well.

It's a brief overview of our developmental project with that I will hand it back to Dick

Richard O'Brien

As I have emphasized since assuming my current role we recognized that we can't change the mature profile of our asset base overnight nor can we change it by simply focusing only on our internal initiatives and projects. As a result we continue to take a fresh look at exploration development and growth opportunities across the globe.

We're evaluating prospects that might have been considered too small or situated in potentially challenging locations historically.

This slide shows, as part of these efforts we recently agreed to offer to acquire all of the outstanding common shares of Miramar Mining for Canadian $6.25 cash per share. Our robustly valued offer reflects among other things a premium that affords Miramar shareholders of the friendly transaction that is fully and unanimously supported by Miramar's Board of Directors and its senior management.

The offering circular will be mailed today and subject to satisfaction or waive of applicable conditions including investment in Canada approval. We could begin to take up deposited shares on December 6th.

This investment provides us an opportunity to establish a new core mining district in Canada with strong exploration potential. Leveraging new mines technical and financial resources with the outstanding were completed today by the Miramar team. We believe we are best positioned to maximize the true potentials of Hope Bay assets.

Once the transaction is finalized in early 2008, we'll review all of the technical data within the context of our stage-gate process and determine which development decision is best for the relevant stakeholders.

In addition as we announced on July 5th, we plan to monetize components of our royalty portfolio preferably later this year, to a dual track process to maximize for our shareholders to realized value of our discontinued merchant banking portfolio. To-date the interest in these assets through both tracks and the associated values have been robust, with potential alternatives including a possible public offering and/or private sales transactions. We will continue to work this dual track process hard. We'll anticipate and identify the best options for our shareholders before the end of this year.

As I have indicated before we intend to apply the proceeds from the value realized through this process, to fund, the development and growth of our gold business. We could not have picked a better and more opportune time to sell these assets.

In closing I'd like to thank you for your interest in our company and for taking the time to listen to our call today. With the completion of our early initiatives over the last four months, they have been full but there's only been four of them. We have created the world's premier fully unhedged gold producer with a renewed focus on our gold business.

As we now turn our attention to the end of 2007 in to our future I feel very fortunate for a number of things; first we have had a successful third quarter. Second we are beginning to realize the value of not putting the accelerator to the floor every fourth quarter. Look for more levelized production from this company going forward in the future.

Third a rich talented group of employees who support me and support the company in what we are doing. And lastly a very rich asset base and a Board who supports us moving forward with that asset base to make this company the best gold company in the world.

Next chapter in our company's long and established history we will continue to emphasize operational and project execution as well as gold price leverage and a renewed approach to replacing our reserves through exploration and business development. In addition, we are more committed than ever to leveraging our scope, scale and standardized processes, to open new doors for growth, cost efficiency and increased effectiveness across every one of our global operations.

With these strategic foundations clearly established, we look forward to the opportunities that lie ahead for this company. It's upon these foundations that we engage with confidence in our efforts to continue to rebuild Newmont as the gold company of choice and in turn we realize its our responsibility to earn your trust everyday through consistency, commitment, communication and execution.

And with that, let me open the call up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from John Bridges with JP Morgan. Your line is open sir.

John Bridges - JP Morgan

Hi, Dick, everybody. I wonder if you can give us a better guidance as to the scale of the copper operation that you envisage, just sort of ballpark estimate so we can at least put something into our model?

Russell Ball

Yeah. John, we are still early in the stage-gate process and it's depending on cutoff. It can be anyway from 50 to 150 million tons, which is what we are looking at right now.

John Bridges - JP Morgan

Okay. And what sort of grade of copper are you looking at in there?

Russell Ball

It's about a 0.2 to 0.25 plus or minus. Again, a function of cutoff capital costs and when we said it, we have a number of people focused on that right now. The beauty of this operation and this opportunity John is right now a lot of that oxide is what's causing us the problem as we treat some of those ores, because of the lack of flexibility right now in the mine plan. And then in long term those times will have to get moved anyway so we are able to convert waste if you want into revenue producing. So there is some nice synergy the issue for us quite frankly in the critical pop is most operations will go to permitting and we're through the EIAs with the BLM and the relevant authorities out there.

John Bridges - JP Morgan

Okay great any sort for order magnitude on the CapEx, what are talking sort of $50 million, $100 million or something?

Russell Ball

Of the order of $150 million to $300 million

John Bridges - JP Morgan

So, inflation comes again.

Richard O'Brien

John, I'd just say it's still early days on this project lot of work to be done on it. I just think in the light of keeping you informed on Phoenix we felt it was important to let you know, that there is this opportunity out there, it's several years away but we'll keep informed when we make progress.

John Bridges - JP Morgan

I appreciate that the numbers are fuzzy, but just wanted to get something. And just as a follow-up on Ahafo. The cost there have the costs been sort of abnormally high because the stripping is going to come down or what sort of strip ratio should we expect going forward?

Russell Ball

John, just trying to normalize, what we had in the big quarter last year remember we started this up in the third quarter last year.

John Bridges - JP Morgan

Yeah.

Russell Ball

So we had commercial production; we were capitalizing those initial mining costs.

John Bridges - JP Morgan

Okay.

Russell Ball

The costs last year were artificially low as we only charged and effect the incremental costs through CAS until we reached commercial production. The stripping in Ghana again with the deferred stripping accounting is going to move and be pretty variable going forward, given the number of pits in that operation. It's a string of pearls if you want on necklace, as opposed to one large pit. So as you get into new pits you may have some deferred stripping and capitalization, so it's going to really going to move around over the life of that project. And again, we can get you through John's groups, some of the stripping numbers for the quarter and you can have a look there. But don't consider Q3 '06 as indicative because again we were able to capitalize some of those startup costs until commercial production.

John Bridges - JP Morgan

Okay, how do I get to an indicative number, can you tell me what the strip ratio was in three, and what we should look forward…?

Russell Ball

Well, John, we'll get you that. We have the numbers for the quarter in the attachments. We will get you to John's groups and look at posted on the website on the deferred stripping numbers or the strip ratios if you want.

John Bridges - JP Morgan

Okay excellent, congratulations on the quarter, and I am really forward to Q4.

Russell Ball

Thanks, John

Operator

Our next question comes from Oscar Carbera with Goldman Sachs

Oscar Carbera - Goldman Sachs

Good afternoon, gentlemen; congratulations on the results. Dick, this is related to your management team. We have talked about, in the past, about the hiring of a COO and adding to the core team at Newmont. Just wondering what those plans are now, the fact that the operations are, some of them appeared to be reaching a point where their stabilizing is very encouraging. But how you guys are thinking in terms of just building forward as you get, Boddington and you saw there are opportunities. That's the first one; I'll follow up another one?

Richard O'Brien

Thanks, Oscar, for your question. As I mentioned at the Denver gold show, I clearly realized that as CEO, I can't put in 24 hours a day, and even if I could, we need some additional operating strength in the company. One of the five priority task that we have for this year is to get the organization structure right by the end of this year.

An acknowledgement in that organization structure is twofold. One, we need additional operating strength--but not just at the COO level, but at almost every level in the company. Like a lot of other mining companies, we are competing for the best talent and we are finding it difficult and we are also being poached of some of our best talent.

With respect to the COO in particular, my senior leadership team, which is composed of 11 folks have all agreed that the company needs to get the chief operating officer or someone that looks like that and has that responsibility and we are all over that. The timing of that really is only reflective of how long it takes to attract the right person and get him into the company.

We want to make sure we have somebody that fits the concept that I have for running this company, which is wholly oriented towards the company and towards team performance and it might take us a bit to find somebody. But we are going to find the right person and they will help take the operations to another level and I acknowledge what you said that some of the companies operations have reached a bit more stability. There is no question that we are in a challenging industry environment and we need to continue to stretch our capacity and capabilities.

Oscar Carbera - Goldman Sachs

Thanks, Dick. Now the other thing was. I was wondering if you can help us put into context--during one of Bonaventure's conference calls, basically Bonaventure stated that they were maintaining their guidance for 1.6 million ounces during 2007. How can we think of that project going into 2008, do you still expect the mill or completion of the mill in the second of next year and how should we think about the mine ramp up following that? Thanks

Richard O'Brien

Yeah, Oscar what I would say is we continue to stick with the guidance we have put forward in our 10-K language, which basically says we're looking for a stable production over the next several years. Think of the mill as really bringing forward economic wealth to the company through quicker processing of the oxide ores. It really doesn't add tremendous capability on a year-to-year basis in terms of incremental allowances, it will help on the cost sides some, and it will help enable us to better process more complex ores later.

So there is lots of positives and it's a very positive economic for us, because we are processing these higher grade oxide ores more quickly rather than putting them on the leach. So we clearly have economic benefits but don't think if it as adding incremental capacity, think of Yanacocha as stable over the next several years.

Guy Landsdown

Yeah, Oscar I'll sort of add, we had some guidance out there for a while as Dick alluded to of that 1.6 to 1.8 range and again that's just a function of stripping in grade as we mine different deposits, so that's the range you should be think of Yanacocha.

Oscar Carbera - Goldman Sachs

Okay. Great. Thanks very much

Russell Ball

Thanks, Oscar.

Operator

Our next question comes from Victor Flores with HSBC

Victor Flores - HSBC

Yeah, thanks. Good afternoon I have a question related to a Akyem. It seems from what you are saying that you've had another look at this project and I guess perhaps some of the concern that you had with respect to going ahead with it have dissipated or changed or something is going on there. I was hoping that perhaps you could just give us a sense of what has changed that's making you I guess a bit more encouraged towards this project?

Richard O'Brien

I guess, Victor, what I would say is we're probably as encouraged as we were a year ago. We just continue to flush out the optimal way to develop this deposit. We did some work with the EPA; they asked us several questions, which we've been responding to. In the meantime, we have continued to do our community baseline studies as we move forward to what an Akyem development might look like.

But this is not just about a one hour of fun while gold prices have really gone up so Akyem looks great. This is more about sustainable commitment to getting value out of Akyem in a form that we feel is sustainable. So with that one of the issues we still have is power availability around the Akyem and we are still narrowing down the options that we have for the particular mine plan to get the best part of the deposit and to make sure that we can comply with the EPA requirements.

So in summary Victor what I would say is we never really lost the confidence in the project. What we've really said is where the power situation makes it difficult. The increase and inflation both on capital and operating costs requires us to go back and examine what our return profile looks like and in that we will continue to go forward with the right way to take this feasibility study towards. And what we are really saying is we are going to communicate that to you next year.

Victor Flores - HSBC

That's great thanks and if I could just ask a follow up on Hope Bay. The folks from Miramar have put out a feasibility that looks at a fairly small project and obviously you are looking at this as a much bigger project. They had talked at one point in time about a couple of scenarios involving both a large scale open pit operation with some underground and then a fully underground scenario as well. What do you think of those particular scenarios or how are you looking at this project?

Richard O'Brien

As you can imagine, the interest we've held and currently hold in Miramar, we are very close to what they are doing from an operational perspective. We continue to look at the plans that they put on the table, provide them some technical advise around that and I would say that at the end of the day Miramar and us, we see exactly the same thing there, which is the long-term perspective at greenstone belt and what we are really trying to do is to optimize what's the best way to get started.

I don't have the answer to that today nor does our technical team, but when we take ownership of this we will look at the plans they currently have. We evaluate those in the context of what else we could do and we will make a decision. But I think it's clear that what Miramar has on the table works. The question for us, is there something that might work better, we are not in a position to answer that today.

Victor Flores - HSBC

That's fine. I understand that. Just let me ask one final question. When do you think that you will have a sense of how to develop Hope Bay?

Richard O'Brien

Well, clearly we are going to have a little bit of winter time here when we can think about it and we will comeback.

Victor Flores - HSBC

A long winter up there.

Richard O'Brien

Yeah.

Victor Flores - HSBC

Yeah.

Richard O'Brien

Yeah, and that's when we're going to hold the mine to or for everybody too.

Victor Flores - HSBC

Great, I will send my associates. Thank you.

Richard O'Brien

Welcome.

Operator

Our next question comes from John Hill with Citi.

John Hill - Citigroup

Yes. Thanks, everyone, and thanks for the detail on the call. I was just wondering if you could update us. Where we are at in terms of Phoenix recoveries, and then secondarily on that, why so long to get the crusher onsit? This was supposedly a priority when we visited the site in September of 2006?

Guy Landsdown

I can talk to the crusher, John. The crushers schedule is driven primarily by the delivery time on the crusher itself and as a result that we'll have it onsite towards the first or second quarter of next year.

Richard O'Brien

With respect to the first question with respect to recovery, grade, processing all of those things John are things that we will answer in more detail when we have the definitive mine plan coming up next year. In the mean time what we are seeing is more efficiency in what we do. As I said, I think fragmentation has lead to a little easier processing both through the crusher and into the mill. The mill as any mill startup you know that we're still in a period where Phoenix is not even on for a year, so we are still working through some of those issues, but the mill is operating better than it has historically. We continue to see more availability, but with respect to recoveries mill or grade or the rest of that we will continue to provide more details as we get into next year.

Russell Ball

John, Russ for the quarter we were somewhere between 65 and 70.

John Hill - Citigroup

Okay great and then if one of you could just branch off and talk a little bit about the merchant banking assets. There has been some discussion early on that gold, assets, gold, leveraged assets and royalties would be cheaper, now it appears that potentially the gold strike royalty is going. I was just wondering whether that's correct and what exactly we would plan to invest and that's going to be more sort of gold exposed and unique and long-term in the world of gold and that royalty?

Richard O'Brien

Yeah, I guess with respect to that we have been pretty definitive in almost every presentation we made that we were selling the royalty portfolio. When you look at the royalty portfolio you are right, gold strike is in that portfolio, as well as exposure to oil, palladium, copper, base metals any number of other things. When we sell the portfolio obviously we are trying to get the biggest dollar value that we can. Gold strike helps with that, so I think its absolute key component to where we are going forward. Where we are going to reinvest? Well, we have a number of opportunities inside our own portfolio in a way you could think of our reinvestment in to Miramar.

Our job is really to operate gold mines and I'm definitive about that. We are going to operate, our job in some respects, the carry over activity out of Newmont capital that we will continue to look at, is looking into junior companies that have exposure to gold, where we can find things in the earlier stage. Gold strike, not one of those, so as we look forward, look for us to find earlier opportunities, opportunities that we believe have upsides and opportunities that come to us with operating gold exposure, that's our deal.

John Hill - Citigroup

Okay, very clearly stated,. Then if I could just quickly…how do we plan to stamp seasonality out of the Nevada system, that's been a pretty long standing feature, year in and year out?

Richard O'Brien

It's a good question; we will not stamp it out in any one year--there will be something we'll have to do over time, but you have my management team's word on it. It's something we are going to work through. Now, part of the variability, we have is seasonal right? But Nevada is not one of those generally, but in Nevada we do have to manage through the many processing plans that we have, making sure that we both fuel them as well as get the processing through them.

So there is a little bit about, we shut down during the second quarter, we'll always do that, but I think with respect to trying to levelise between the others, we are going to try to work harder to get that done. I would say, come back to us at the end of 2010 and say, hey, you've done a great job, flattening this out, its going to take us a bit to get there but we're going to get there.

John Hill - Citigroup

Got it, thanks

Russell Ball

John, Russ. Sorry, let me just add something. As we've gone through a change in our planning horizon, historically, Newmont had planned on a calendar basis or a twelve year basis, four months sorry. And that had driven behaviors, but we have gone out for this planning cycle, which, again, we're right in the midst of that we'll communicate to the Board in the middle of December and to The Street in January, February timeframe, is what we are asking our operators to do is to give us a three-year plan that they can deliver on. So extending that time horizon to three years reduces that incentive to make this year look good by stealing from next year, which is not a particularly unique trait for Newmont.

So I think part of it is behavior-driven. And as we look to the regions to deliver on the three-year plan, '08 to '10, in line with the mission and vision that we have communicated internally and externally, I think you will see a change in behavior.

Richard O'Brien

And one quick indicator of that might be if you look to the fourth quarter of this year or next year to see what sort of inventory we might be carrying over into the next year, I think we'll try to work through this in a systematic way.

Guy Landsdown

And John, the key for us, quite frankly, is to look at the portfolio rather than just Nevada. I mean we can obviously look at Nevada and that is the area that has historically been the one that's had the fourth quarter push. But what we really need to do is to look at the portfolio and balance it across the entire region.

For example, Boddington in '09 help fill some of that gap in the yearend. That's the issue that we have as management to manage around the portfolio just like an analyst or a PM would do with their portfolio. We need to look at the contribution by region, and then balance that. And it needs to be for a longer time period maybe than we've done historically.

John Hill - Citigroup

Very good. Thank you.

Operator

Our next question comes from Mark Smith with Dundee Securities.

Mark Smith - Dundee Securities

Yeah, hi. I guess this question is mainly for Russell. Maybe you could help me a little bit with some of the movements of deferred taxes on the balance sheet and how that reflected to the quarter? You had about $300 million added to deferred tax assets in the period?

Richard O'Brien

Yeah, Mark. As we alluded to earlier, the tax calculation is pretty complex and we have a number of moving parts. What we will commit to is through John to get you a greater breakdown on the tax calculation, including the split between current and deferred taxes. As you've seen, we had some significant movements negative in the second quarter, if you want, through the income statement and then positives. We'll get you that through John. And again, we can get that posted up on the website.

I think the key going forward for folks to realize is the 32% number. And yeah, you will see movement both into deferred and current in and around that. But for the long-term, as we see it today with the assets and attributes we have, 32 is a good number for a tax basis for modeling purposes. We will get you more detail when you need through John's group.

Mark Smith - Dundee Securities

Okay, good. Just following up that a little just a little bit, you had $125 million in payable and in the operating cash flow line. Is that a reasonable number to go below the line go forward?

Richard O'Brien

Yeah, Russ. You have to be a little careful. Remember that those payments are lagging.

Mark Smith - Dundee Securities

Yeah. But there is not a big lag coming, right?

Russell Ball

And a lot of the tax payments that we make on the consolidated basis are coming out at Yanacocha. So with that profile coming down, it will look different going forward. So again, we'll get something to you that give you an indicative number, at least, based on the current asset that you can plug.

Mark Smith - Dundee Securities

Okay. Thank you very much, sir

Russell Ball

Take care Mark.

Operator

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

Patrick Chidley - BJM

Hi. Good afternoon, everybody. Just wanted to ask about your oil prices that you've been experiencing through the quarter, have you hedged any oil or would you have been exposed to the spot price for all of your diesel and what price are you looking for in the fourth quarter? What you are planning for in terms of your plans?

Russell Ball

Patrick, you cut out a little bit. But I think your question related to any hedging activity around oil, is that correct?

Patrick Chidley - BJM

Yes, right

Richard O'Brien

Okay. So I'd just say that we don't currently hedge oil on an accounting basis. We do have a hedge for oil with respect to the cash distributions that we receive from Canadian oil sands and the principal appreciation or depreciation that comes along with that investment. So that's the way to think of it.

At this point, we consume about 3 million barrels of diesel, 3 million barrels of oil a year. That gives you some range of the exposure that we have. And relative to that, Canadian oil sands covers with the distribution that we currently receive about 60% of the upside in price that we might have related to that. While it doesn't show up on the income that way, that's generally the way we're hedged.

Russell Ball

And Patrick, rest for '08 budget assumption at least as of today was $80 oil and tied into that was 87.5 cents on the Australian dollar. So that's what we are thinking currently now for '08, again we will assess that before we finalize numbers present to the Board and present to you. But clearly, both of those will put cost pressures on CIS. But again, the hypothesis is driven by weaker dollar is good from the margin prospective seen in the gold price.

Patrick Chidley - BJM

And your Canadian oil sands investments, do you intend to continue holding that?

Russell Ball

Yeah, we have that, Patrick. The book value is roughly just over a billion. We paid about $300 million for that service. So as Dick said, a nice gain, it has been a nice hedge that worked that well. Obviously, we can't book that gain in the hedge from an accounting perspective at least, but it is an economic hedge.

As we said earlier, in the third quarter we will continue to evaluate that asset. And when the time is right and we have the opportunity, we will convert that asset into cash and reinvest it in our core gold business. And we've been pretty consistent in telling investors that since the restructuring and reorganization, if you want.

Patrick Chidley - BJM

Okay. Just one more question, if I may, on Ahafo. You just appear to be warning that ratio below in the fourth quarter, was that because you are not planning to have positive grade reconciliation as I think you talked about in the third quarter or is that because you really think that that's maybe the case?

Russell Ball

Patrick, I think the question was Ahafo and fourth quarter, where you see more certain grade. It's just the impact of stripping as we move into new pit in new areas. So it's more driven by the mine plan and the function rather than any negative issues if you want with grade.

Patrick Chidley - BJM

More stripping than throughput?

Russell Ball

Yes, exactly. Or more stripping and maybe lower grade. The throughput is largely affixed again. The throughput issue on the power side, which has been the issue, Ghana has improved, the rains have come and the dam levels are up so, we do expect to generate less power ourselves and more through the grid. However, for those who have been watching the power situation in Ghana there was a public announcement, I think it was this week or it might have been last week of rate increases. And obviously that will impact us and we will have to work that through in the economics on achievements as well.

Patrick Chidley - BJM

Okay. Well, thanks a lot. Well done and a good quarter.

Russell Ball

Thanks.

Operator

Our next question comes from Barry Cooper with CIBC.

Barry Cooper - CIBC World Markets

Yeah, good day. A few questions. First of all, fairly simple one, maybe, could you explain the drop in the depreciation rate for Nevada. You basically dropped at $40 amount quarter-on-quarter, about $30 from first half. That seems to be quite a bit for what we would normally consider a stable area?

Russell Ball

Well, Barry that's good question. We had two things going on. We looked in the second quarter and you'll see that in our Q where we reassessed assets lives, particularly on the whole fleet. We had been using an assumption of I think it was seven years on our large equipment fleet with some of the improvements in the maintenance function. We have extended that to 10.5 year, which is probably equates about 75000 hours on a whole truck round numbers.

So that was part of it and the rest was in moving with production. Again, the split is about 50-50 and it varies by region between units of production and on the straight line message. So, again, some of it is the mix of production whether it's coming from underground or open pits and affect where we are processing it so. You will see that for the Company we have backed off on the guidance for DD&A for the year by about the same number $40 million to $50 million.

Barry Cooper - CIBC World Markets

Great. Okay. So going forward what you suggest we look at them?

Russell Ball

Yeah. I think, Barry, this quarter is pretty indicative. Again, we had a lot of production coming out of bars and that will take some DD&A with it, but so that revised number seems to be a reasonable estimate as we look forward in the planning process, you know, with answers around 5.4 million round numbers.

Barry Cooper - CIBC World Markets

Okay. Good. And then on your other guidance on the copper production 190 million pounds to 210 million pounds you add 183, I am just wondering, I realized you don't like probably changing guidance all that much, but that seems to be a pretty slow pitch their?

Russell Ball

Sorry, Barry for the year and I am just looking at the release on page 11 of page 21. We are about 170.

Barry Cooper - CIBC World Markets

Yeah. Are you quoting sales, or are you quoting production?

Russell Ball

Sales.

Barry Cooper - CIBC World Markets

Okay. So there's a slight difference there okay.

Russell Ball

There is a difference, Barry and that's what Dick alluded to earlier with inventories moving around. And again, we are still currently today in the bottom of the pit; the rains have not coming in. I don't know if its alumina or lumina, but we still have a shovel in the pit. So, again, we will look to balance the production throughout the portfolio and that means, you may see some operations sitting on more inventory at yearend. Again, the next is the function of how long we can access that high grade in the bottom of that pit.

Barry Cooper - CIBC World Markets

Okay. Then the final question I have is, just wondering what your view is, and maybe its not a view, maybe it's a defensive position that you undertake of the overall, the 1872 Mining Law, where defense are talking about imposing a 4% royalty on all federal land. How much of your production comes off of nonpatented land in Nevada?

Richard O'Brien

This is good for exciting us. I believe that our reserve in Nevada, only 4 million assets are on federal land at this time and our expectation is that in final bill, you won't see a royalty on existing reserves.

Barry Cooper - CIBC World Markets

Yeah. I think it will get washed down to nothing, pretty much by the time, it gets beaten around there.

Richard O'Brien

That's certainly our hope and our expectation at this point.

Barry Cooper - CIBC World Markets

Yeah. That would my guess as well but you never know sometimes. Okay. Thanks a lot.

Richard O'Brien

Sure

Operator

Our final question comes from John Tumazos with John Tumazos Very Independent Research. Your line is open.

John Tumazos - John Tumazos Independent Research

Congratulations on the improvement. I've several questions, and maybe you can address some of them. How much output do you expect to get from miners in the fourth quarter first. Second, is it right to assume that part of Miramar's availability was the difficulty of staffing management and other positions in the far north, and will there will be more acquisitions where Miramar's ability to bring talented staff moves the project along as a unique synergy, and finally in the Phoenix redrilling, what is the data you are looking for. Are you trying to exactly characterize ore hardness, oxide mix, sulphide at a vertical character or is there an uncertainty as to the gold or copper content or some other attribute?

Russell Ball

Right, I will take those John, so, first on Midas. Think of Midas as a 10,000 ounce a month producer. As we ramp up during the fourth quarter recognizing that it's already the end of October, at best, we have two months at 10,000 ounces, at best. I would suggest that we are moving into new ground, new stoping, still trying to get it right out there. It will come in less than that. But think of it in that range; that's our capability on that same. We will do 20 that is it at the most. So, think of it that way. With respect to Miramar, Miramar was not really available. Miramar was something that we understood the project, we understood the potential of the Green Stone belt, and we just worked with the old, with Miramar a company that we had an invested in for sometime. I think they have done a pretty extraordinary job of keeping their team focused on drilling, on putting the mine plan together. Clearly one of the things that Newmont does bring to this operation and answer to your sub part to this, I think that Newmont does have the capability, the technical capability and other capabilities to really work through some of these issues that maybe, some other companies don't have.

We also have the balance sheet strength, and we have a solid base of production that allows us both in Canada and in other places throughout the world to take some risk. I think that that's one of the things you give when you buy a major gold company. We can take ahead and we can still keep on taking just like we did with what happened in East Pakistan.

Now I would suggest going forward when I talk about scope and scale benefits. That is exactly the kind of thing that I hope we can take other places. Does that mean more acquisitions? I don't know quite frankly, because if the market gets frothy we are not going to be there. If the market makes things available that we think makes sense, that we can do on an accretive basis, that we can do in a way which is respectful of our shareholders and our, because we all have an investment, the share price that we have, we'll consider that, but that's the calculus. It's not just get bigger, it's get better to make sure that we're bringing something to the table that we bring a unique aspect that maybe not everybody else does. That we can bring this development into production in a way that brings value to our shareholders.

And lastly, with respect to your subpart three question on Phoenix, the data we're looking for is all of that that you suggested. It has to do with some older drill holes. That's why we receive data on those older drill holes. We're finding that we need to go back and update those drill holes for a variety of reasons, but we are looking for our harness, we are looking for metallurgical content. We are through that drilling, going to continue till we look at the reserve content for copper, gold. All of those things are on the table at Phoenix right now, and that's precisely why we're going to be drilling these 150 years old or so holes over the balance of this year and in the next year.

John Tumazos - John Tumazos Independent Research

If I could follow-up concerning Phoenix for the first 46 holes suggesting net-net better or worse data, and concerning Miramar, just cruising their website there were a lot of job openings. It seems like there were more jobs in management vacant and that may be filled. And I didn't get the impression they have any material undisclosed with that because it was all up on the web. So it didn't give the impression like they were going to be on schedule with the small those north ones.

And I would think there must be a lot of companies and situations where they can't really stop their projects that would be opportunities, not really bidding more situations.

Russell Ball

That could very well be respect to Miramar. I haven't had the time to cruise other people's website to see if that's the case, but we do have a group that keeps their ears to the ground here, so we'll keep looking for those opportunities. And with respect to Miramar's, as I said, I think we'll work a complimentary process here to keep the people they have to add our people and move this project forward so that's sort of a last answer to that, and with respect to Phoenix, again, we've drove those holes. That doesn't mean we have had time to assay all of them, it doesn't mean we have any conclusion at this point, still preliminary as we keep saying when we get the mine plan together, we will update analysts.

So with that, I want to thank everybody for their attention today, and again, if you other questions, John Seaberg and the IR team would be happy to follow up with you. Thanks again.

Operator

Thank you for participating in today's conference call. You may disconnect at this time.

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Source: Newmont Mining Q3 2007 Earnings Call Transcript
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