紐蒙特黃金公司 (NEM) 2002 Q3 法說會逐字稿

Good morning and welcome to the third-quarter results with Newmont Mining Corporation conference call. All participants will be on listen only until the question and answer session of the call. This call is being recorded. Should anyone have any objections please disconnect at this time. I would now like to introduce your host for today, Mr. Russell Ball. Sir, you may begin.

Thank you, operator. Good morning, ladies and gentlemen and thank you for joining us today to review Newmont Mining Corporation's third-quarter 2002 financial and operating performance. First of all, a quick apology for those of you who had trouble calling in. We did have some technical difficulties and I hope you can hear us okay from Denver. The call is being simulcast on our website and will be available for playback for a limited time.

As we shall be discussing forward-looking information, you should be made aware that there are risks unique to our industry and these risks are described in detail in our filings with the SEC. The information we are discussing today, November 12, 2002 is relevant for the current period. For the most up to date material disclosures, please refer to our latest SEC filings and news releases.

On this morning's call, we have Wayne Murdy, Chairman and Chief Executive Officer, Pierre Lassonde, President, Bruce Hansen, Senior Vice President and Chief Financial Officer. And joining us from of all places, Eureka, Nevada, Bruce Kay, our Vice President of Worldwide Exploration.

Wayne, please go ahead.

Thank you, Russell.

As you saw in our news release this morning Newmont reported net income of $24 million or 6 cents a share for the third quarter compared to $19 million or 10 cents per share for the year-ago period. For the first nine months, Newmont earned net income of $87 million or 24 cents per share, a significant improvement from a net loss of $57 million or 29 cents a share a year ago.

Through the third-quarter, we sold 2.1 million ounces of gold at a total cash cost of $1.89 per ounce. Despite solid production in sales, we are seeing some higher production costs in Nevada and Australia which account for about 60% of our sales.

On a year-to-date basis, we have produced 5.4 million ounces, which, when you combine with the improvement in gold price of about $40 per ounce from last year, generated extremely strong cash flow. For the quarter, we generated cash flow of $247 million, and on a year-to-date basis, $445 million.

We had previously provided guidance at the second half of the year which see increased production and cash flow and we are delivering on that. When you look at our overall objectives for this year, I feel very comfortable with where we stand at this point in time.

On a year-to-date basis, since closing the acquisition of Franco-Nevada and Normandy in mid February, we have paid down some $533 million worth of debt. Our goal of reducing debt to 20% at book capitalization by year end is on target.

With respect to exploration, I am very encouraged by the results we have seen at our core operations. Pierre will talk about that in a few minutes.

I think Bruce Kay and his team are doing an outstanding job of filling our project pipeline and we are increasingly confident we will be able to replace our gold reserves, net of production, for this year and look forward to growing that reserve base in the years ahead.

Looking forward on a revised forecast for this year, we still see ourselves producing about 7.5 million ounces at a cash cost, with the higher cost in the third quarter, of between $185 and $190 an ounce. We do see costs coming down in the fourth quarter. Continued debt reduction, as I said, to reach our goal of capitalization of about 20% at year end.

Our capital expenditures are running a little slower than planned, so we should be in the $380 to $400 million range for this year. There is an adjustment there of about $25 million of reclassifying deferred mining from capital expenditures to working capital, which has a negative impact on our working capital, but reduces capital expenditures. From a cigar box standpoint, there is really no difference. We talked about reserve replacement, and we will continue to work very hard in that regard, but as I said, we are very pleased where we stand right now.

As we look at next year, we would expect gold sales of between 7 to 7.2 million ounces assuming a year-end closing on the Kinross, Echo Bay, TVX merger. We would expect our cash cost next year to be between $180 and $192 per ounce. As we finalize our budget program for next year, we will provide more guidance.

As we look at the company with one quarter of 2002 remaining, I am pleased to see the positive effect that the transformation process, combining Normandy, Franco-Nevada with Newmont has had on the attitude and motivation of the entire workforce. This is leading to improved focus on cash flow from operations while the hedge books continues to be decreased.

Let me now turn the call over to Bruce who will discuss the numbers in more detail.

Great. Thank you, Wayne.

As Wayne previously indicated, we did generate 24 million or 6 cents per share in net income for the quarter. Now let me just kind of step back and talk about this 6 cents and some of the impacts to the quarterly numbers.

First of all, we had an $11 million negative mark-to-market relating to the ineffective portion of the acquired hedge book. That's roughly 3 cents a share. We did see DD&A, partially due to some of the accounting adjustments, step up by about 1 cent a share. Corporate charges, one-time costs, related to our transaction earlier in the year, and a $5 million write-down of a stockpile in Nevada, had about a two cent per share impact on earnings. And finally, the final number was about 4 cent a share impact with higher costs of sales.

Now let me talk about that just a little bit. I think that really is timing related. We did have slightly higher costs in the third quarter than expected, but we will have lower costs in the fourth quarter and feel very comfortable about the overall guidance.

Cash flow generation to improve our balance sheet remains our primary focus. And for the first nine months, as Wayne indicated, we generated 445 million in cash flow, and almost 250 million in the third quarter alone.

A number of items will impact our full-year cash flow outlook. As Wayne indicated, we reclassified deferred mining to the operating section of the cash flow statement. Also, Minera Yanacocha declared a $50 million dividend, the minority portion which will impact our consolidated cash flow. And finally, we have used cash and may continue to use cash to reduce our hedge book liability, which also impacts operating cash flow. We actually used 13 million of cash in the third quarter.

After adjusting for these impacts, we will be very close to our target of $750 million of operating cash flow for the full year. Reported cash flow from operations should be in the range of 650 to 680 million, indicating again, a strong fourth quarter. Capital expenditures, year to date, total $238 million, and for the full year should run between $380 and $400 million.

Thus, we have remained on target and feel very comfortable in regard to our net-debt reduction efforts. As Wayne indicated, we've paid off $533 million of debt since the first of the year. And are still on target to have a 20% net debt-to-capitalization ratio by year end, despite declassifying $137 million in the prepaid forwards and $8 million in transaction cost to long-term debt. At the end of the third quarter our ratio stood at 21%.

We have made good progress in regards to reducing our hedge book and reduced the hedge book by 928,000 total ounces during the quarter, 748,000 committed ounces, and 180,000 uncommitted. The committed ounce reduction included scheduled deliveries of 478,000 and buybacks of 270,000 ounces, again using a cash infusion of $13 million. This is consistent with our ongoing nonhedging philosophy and our proactive program to reduce the acquired hedge book. Therefore, at September 30, the hedge book, in terms of committed ounces, stood at 5.8 million ounces, less than 10 months of annual production.

Mark-to-market did grow to $412 million, primarily due to an increase in the gold price at the end of the third quarter. And however, if we look at the recent rise in the Australian dollar exchange rate, the mark-to-market today has settled that back down to the level we reported roughly in the second quarter of roughly $360 million. We will continue to look at ways to accelerate the buyback and deliveries of this hedge book and anticipate to reduce it by at least 300,000 ounces in the fourth quarter.

Now let me spend some time talking about the depreciation adjustments as a result of the reaudit. We have three depreciation adjustments that I will cover briefly. As you can see in our earnings release, we have two restatement adjustments, which reduced historical earnings, and a third, which is an accounting policy change, which increases historical earnings.

The two restatement adjustments that are correct, depreciation calculations at Batu Hijau and Yanacocha. The combined impact of these two depreciation changes is a charge of 7.1 million on a cumulative basis through December 2001, and for the first three months of 2002, the depreciation charges will reduce earnings by 2.4 million. Finally, reflecting preferred methodology in the way the mining industry calculates depreciation at underground operations, the company will record a cumulative positive adjustment net of tax of 7.7 million for the years prior to 2002, and a positive adjustments of 400,000 for the first three quarters of 2002.

We need to put this in perspective. If the depreciation adjustments are considered in the aggregate, and accumulating these charges historically from the inception of operations to the end of the third quarter of 2002, they would only aggregate and add up and result in a historical reduction of earnings of 1.4 million.

I would also like to indicate that the audit that we've undertaken with PricewaterhouseCoopers is substantially complete. We have thoroughly reviewed our depreciation methods and we believe these issues are behind us and have a high degree of confidence in our accounting going forward.

With that, I would like to turn the call over to Pierre Lassonde, who will give us an update on Newmont Capital activities, exploration, followed by some of his thoughts on the gold market.

Thank you, Bruce. And welcome, everyone.

First, let me touch on Newmont Capital's accomplishment for the year. Since the first quarter, and even before the three-way deal officially closed, David Harquell (phonetic), the President and Managing Director of Newmont Capital, and his team in Toronto and Adelaide (phonetic),have been relentless in pursuing noncore asset sales.

We quickly raised the bar of our initial target of between 250 and 300 million up to 400 million. For the year-to-date, we have realized cash proceeds of $221 million in asset sales. We expect a further $180 million from the pending sale of our 49.9% interest in TVX Newmont America's joint venture that is contingent on the closing of the merger between Kinross, TVX and Echo Bay. This transaction is now expected to close by year end 2002 or early 2003, subject to their shareholders' approval. At the close, the $180 million, we expect to see about $90 million in cash and a $90 million one-year note.

We also have several new initiatives in the works that will likely conclude in the new year.

Turning to my second most favorite topic, exploration, I can tell you that we are very excited by the results that we are getting at two of our projects in Ghana. The Hajim (phonetic) (indiscernible) which is the renamed (indiscernible) project. At Hajim, drilling continues to provide indications of down dip extension of the mineralization, with new drilling around the strong geochemical anomalies on strike at (indiscernible). This whole system is getting much larger.

Also, we restarted exploration on the (indiscernible) program and we've drilled, so far, over 78 holes and we expect results in by year end. While these are still early days for us at these two projects, we feel quite positive that they could have the capability to form the critical mass we are looking for at Newmont to basically create a new business unit and a new gold producing district for us.

We have over 100 drill rigs working on 30 projects worldwide. And as Wayne pointed out, the key thing for us when the merger concluded was to replace reserves in 2002, and the new goal is to not only replace reserves in the following years, but to start growing again our reserve base and our mine life starting in 2003.

We believe that that is entirely possible as we bring in a whole new generation of no less than ten new mines and projects over the next five years. We have already announced the go-ahead on two of those, the Gold Quarry (indiscernible) and the (indiscernible) underground mine, both in Nevada. These mines will have low cap ex and, also, low operating costs and they will basically contribute to the renewal of Newmont over the next five years.

Now for my piece d'resistance, a quick overview of the gold market. You should know that my gold discussion always sounds better when I speak in French, but for the benefit of mes ami in New York and elsewhere, I will use English only. But please feel free to add your own intonation and inflection.

Let me recap the recent gold price for you. Newmont's realized price for the quarter has been 315 which is $41 higher than a year ago, which was 274 in the third quarter of 2001. During the quarter, gold spot price gave us the usual volatility that makes watching gold so fascinating, ranging from a low of 302 to a high of 326.

Now I have three simple messages about the gold market. Message number one: It's about the contango (phonetic) people. Interest rates are now at a 41-year-record low. The contango with gold lease rates has but evaporated to nothing and that induces our hedge producer friends to deliver into their hedge book such debt dehedging is creating demand. Gold field mineral services, for example, estimates that the hedge book contraction in the first half of 2002 alone has contributed to 232 metric tons of demand, and for the full year, we estimated that number will be over 400 tons. And that is not about to change over the next few years.

Message number two: Whether you voted Republican or Democratic, we are a reflationary environment in the mid and long term. In fact, our friend at the Federal Reserve Board cut interest rates for the 12th time. Because the first 11 times it didn't do the job of reflating the economy. Do you think it will really do it on the 12th time? We don't think so. All of these measures in the past have never provided a lasting fix in the turning around. And at the end of the day, they only serve to sow the seeds of inflation, which of course, is very good for gold.

Another further sign that the economy is weakening, in October the consumer confidence by confidence board was at its lowest since '93. In addition, the Feds recently released (indiscernible) Book on Economic Conditions for September showed that consumer spending was down, the pace of new home sales is slowing, and manufacturing activity is, at best, sluggish. Well, what could be the likely response? Further increasing the money supply, resulting in devaluing monetary debt, weighing down the broader markets and creating more debt on an already overindebted society.

As I have said before in times of reflation, gold has historically performed not only well, but very well. And if you are concerned about that, gold serves as a hedge and diversifier that preserved wealth even as gold reduces risk in an overall portfolio.

Message number three, and my last: Central Banks in Asia have been adding to gold reserve and could add an awful lot more over the next few years. We have seen the Central Bank of China increasing its gold reserves in the last nine months by 100 tons and we have seen the people of Japan increasing their gold offtake in view of their own monetary situation in Japan.

What else can I say? We remain optimistic, bullish, and passionate about gold, and with that, I will ask the operator that we are happy to take questions. Thank you very much.

Thank you. At this time, if you would like to ask a question, press Star 1. You will be announced prior to asking your question. To withdraw your question, press Star 2. We will wait one moment while the questions register in our queue.

Our first question comes from John Bridges of JP Morgan.

Good morning, Wayne, everybody. I just wondered, the difference between your 6 cents and this consensus of 16. From what you were saying there, it seems as if a lot of those things were one offs that were related to the change in the accounting and that sort of thing. I wonder if you could just elaborate on that a little?

Yes, John. I mean, some of the things were one off. In regard to depreciation and some of the corporate charges, I think you are looking at 3 cents an aggregate there. The mark-to-market adjustment is another 3 cents. And then finally, the other adjustment, when you try to add back to the 6 cents, is about 4 cents and cost of sales or cash operating costs --

That was the change in the deferred stripping?

No. It is just a matter of timing. I will comment that, you know, in regard to kind of looking at our income statement and getting to the cash flow statement, imbedded in our cash costs in Nevada is roughly $20 an ounce of inventory adjustments which are noncash, stockpile, draw down and the such. Those things have an impact, both on the income statement and the cash flow. You have to kind of wash it out as you look over the long term.

Okay. And you mentioned this -- this switch of moneys from cap ex to operating cash flow. How much of an impact was that this quarter?

I think year-to-date it has been about $8 million to $10 million. For the full year it is probably forecasted to be $20 million to $25 million.

Okay. And then in the Australian set, there's additional DD&A. DD&A adjustment, what does that refer to?

That refers to, in conjunction with the acquisition, stepping up the depreciation base.

Okay, gotcha.

Of the acquired assets.

Okay, excellent. I will let somebody else have a shot. Thank you.

Great, thanks, John.

Your next question comes from John Salomon from Salomon Smith Barney.

I guess I have been promoted to Mr. Salomon. No this is John Hill. Thank you very much for a detailed call.

Just a quick question. As we look down the guidance for full year '02 and look at the Nevada operations, it is clear you are calling for some rather aggressive unit cost reductions in the fourth quarter, possibly well below $200 an ounce. How confident are you in that?

We spent, you know, quite a large amount of time with our Nevada team, you know, crosschecking that assessment. You know, and you are right, John, in order to get to guidance, we need about, roughly, $190 an ounce in the fourth quarter, and given what they are working on and how they are focused, you know, we are confident in that.

Is that a matter of grades or through put or purchasing or some combination of the above?

It's really a combination of efforts and really, the mine plan and sequencing in terms of grade and through put.

Very good. Just -- the next question, if I might. Switching gears to the hedge book. If you could give us some insight into the delta on the book in terms of gold price changes in Australian dollar as we sit here, as well as --

Absolutely.

-- a break-even figure?

We have done a great job in terms of reducing sensitivity, particularly related to the U.S. dollar gold price. We initially acquired the book, for every dollar change in the U.S. dollar gold price had about a 9.7 million dollar impact in terms of mark-to-market. That has been reduced to about 7.5 million. In regard to the Aussie exchange rate, when we first acquired the book, it was about 48 million for every one-cent change. That's been dropped about 38 million for every one-cent change.

And -- okay. So we can just straight line to a break-even gold price on that basis?

It gives you a good sense, and I think you can do the calculations.

Yes, absolutely. All right, thanks, guys.

Your next question comes from Victor Flores from HSBC.

Yes, thank you, good morning. First an easy question for Bruce. There's 12.8 million of other costs on the income statement. Can you tell us what that is?

It is a number of things. I would say the biggest impacts are 5.7 million dollars, a writedown of stockpile in Nevada. What we call transformation expenses, charges related to the transaction, and improving our business processes and systems was about 3.4 million of it. Then, you know, some miscellaneous one-time adjustments, you know, that, in total, you know, aggregate to the 12.8.

Great, thanks. I didn't mean to draw that whole thing out. I was just curious about that. Just jumping to operations quickly. You seem to be -- you -- I mean Newmont Mining, seems to be more interested now in what's happening in Ghana. Pierre mentioned critical mass required to, you know, go into this new region for the company. What kind of critical mass are you seeking? And how much more work do you have to do on these projects, given that Normandy had completed feasibilities for both projects?

Pierre.

Pierre, why don't you answer that.

Yeah. Critical mass for us would be at least a business unit that will do, you know, 10% of our overall cash flow, which this year will be about $750 million or, you know, 750,000 ounces or more a year. And we start to see this kind of possibility definitely shaping up in Ghana for us at, as I said, with, you know, low cap ex and low operating costs.

Let me make one comment on the feasibility work there. In fact, we do have Amfo or what we are calling a (indiscernible) in our reserves. We have ongoing feasibility work going in regards to King, that is not currently classified in the reserve category.

Thanks, Bruce. And then can I perhaps get a bit of an update on the work that's been going on in Kalgoorlie to try to optimize the operations? You haven't broken down the Australian ops but it looks, from the cash cost, like -- and from the Barrack (phonetic) results, that Kalgoorlie continues to give you a bit of a headache.

Yes, Kalgoorlie continues to be our -- one of our highest cost operations. We have -- we previously announced, a joint study under way with Barreck, and we have the advantage that nobody has any preconceptions there. We expect to have that study done sometime around year end. So I would expect it sometime in the first quarter we would be ready to, you know, to start talking about actively what we intend to do there.

Thanks. And just finally, if you could perhaps say a few words about the ongoing ramp-up at La Quinua (phonetic) and the overall outlook for Yanacocha.

Those of you that made the recent trip down there, we have reached more of a steady state at Yanacocha. Because of improving grades, we will expect to see production increase again next year, but from a mining rate level, we have reached steady state. La Quinua continues, the glomeration plant there continues to perform well. But we think we can extract more efficiencies out of that operation. We had a significant effort this year in really front line supervision training and are starting to see the benefits out of that. I think you will see the costs the second half of the year lower than the first half and a lot of that is just, you know, blocking and tackling. Nothing real sexy there.

Great. Thank you very much. I will let someone else ask questions.

The next question comes from Terry Ortsman (phonetic) from Ortsman Associates.

Thanks. Just to go on with Australia. The Australian currency is all over the place and you're forecasting 189 for the year at 160 again, and it seems fairly aggressive, cost profile for the fourth quarter. What is the Australian dollar forecast you have for next year, using for budgeting purposes and for the fourth quarter?

When we look at our budget we typically look at what the exchange rate is at the time, and, you know, same thing we do for gold pricing.

Okay. Using 54ish, if that's what you are going into.

We are using about 55.

Okay, okay. Second question is about the -- your strategy talking about (indiscernible) the value from every ounce and the correlation to that is you don't get value from every ounce, Or every ounce is not (indiscernible). I guess, Pierre, I guess what you are referring to is some of the other issues beyond TVX, Echo Bay that you reflected early 2003 that you are going to talk about. Is it going to be ounces thereby. Have you got enough value for Newmont (indiscernible) to dispose of?

I think the focus here continues to be one of rationalization. We look at the portfolio properties we have, and if there is, you know, if there is somebody else that we think can get more value out of it than we, because the scale there of our operations, or the particular location the properties happen to be involved in, then we are going to sell those assets. We want to be, as Pierre said, in relatively few large districts.

When we went into this transaction, we weren't sure that Ghana would make that hurdle. We weren't sure that Turkey would make that hurdle. So we characterized those as "nonstrategic." But in each case, we will take a hard look at the assets before we make a final determination. Today we feel that Ghana does have significant potential to meet our criteria.

Now that doesn't mean we are going to book a lot of reserves at the end of this year. It may be next year we've got to do some feasibility work, but the drilling has been extremely encouraging there. Pierre just came back from a trip to Turkey, where we think Turkey has a lot of potential, but we need to make some judgments there about the political environment.

In essence, all the adjustments that you may make, which is back to the directionalization, the 20% number we are talking about is excluding that for the year. You are only talking about TVX, Echo Bay adjustment before the end the year to get the 20% number, or thereabouts?

Yes, that's correct. We are at 21now. We hope that those transactions close. And we are going to remain focused on that number.

Great. Thank you, guys.

The next question comes from Barry Cooper from CIBC.

Yes, good day. A couple of things. First of all, the higher G&A costs, is that due to the expected synergies amongst the three-company merger not coming through as quickly as what you had expected? Or is there something else there that we should be anticipating going forward?

Yeah, I think we are very happy with how we progressed with the integration. Obviously, we did have some higher costs in the third quarter. Some of that related to audit fees, and some of it related to some employee benefit accruals. You know, we kind of think that, you know, we will look at 110 million for the full year, and I think you will see a smaller number next year.

How much smaller, do you think, Bruce? [ LAUGHTER ]

I mean, we -- Barry, we are going through our budgeting process right now, looking at, you know, what's the right size for G&A and where in the world that should be distributed. We are also looking at our -- you know, our capital budgets and where we want to invest our money.

Okay. On a totally different note, I believe it's tomorrow night that the high court of Australia will rule on the Brunswin South Tenement ground. (phonetic) I wonder if you could, kind of, walk us through what the ramifications are for Newmont in both scenarios, either it's ruled somewhat in your favor, or against you in respect to ownership on that ground.

We are not directly involved with that lawsuit or that ruling, Barry, because the two proponents were the original prospecters and they have been at each other's throat for eight years, and what we have done, though, is talk to both of them over the years, and we have been, you know, in discussion, again, with both of them in the last year as to what we could do for them, you know, should they win. Of course, we have -- you know, a big advantage in that we have the infrastructure in place to do something and so we'll just, you know, wait and see what the court does and then we will be talking with whoever is the winner.

So it doesn't really matter who wins from your perspective then? You figure you have an equal chance dealing with either party?

Well, yeah. We think so. I mean, it's a remote area of Australia. So for anyone else to come in, you know, would have to put a infrastructure in place that would cost, you know, quite a bit -- an awful lot of money and the fact that we are already there. We have the mill and everything else, is a huge plus. So we think it gives us a good advantage to conclude a deal.

Yeah, well, your strategic about it, it is certainly evident there. I wasn't sure if there was any personality differences between the two partners that there that would perhaps preclude a deal of reasonable assumption, you know, nor one party versus the other.

No, not at all. One of the parties -- the party that we bought the bronzewing (phonetic) was bought from and the other party, another one that is, you know, a prospector with whom we have had business in the past and we are on equal good terms with both of them.

Okay, thanks.

The next question comes from Adrian Day from Global Strategics.

Good morning. Two questions. One, I wonder if you have any particular plan force your nongold assets, particularly in Australia, zinc and the magnesium and should I ask my second question now?

Yeah.

The second question is on -- on the hedge book. You know I realize you have done a good job and I realize you are looking for good opportunities and also have alternative use of funds. My question is, are there any contractual restrictions on closing out any of the hedge ounces early or any other kind of difficulties that may not be obvious to us?

Okay. On your first question, let me answer that. You know, that fits into a category where we are -- we have been very excited by the potential at Golden Grove. And so before we would make any decision as to what we do long term with that asset, we want to fully understand the value, and we think there is significant value to be uncovered there. So at the present time, we have no specific plans other than to continue an aggressive drawing program there and fully understand the value of that asset. With respect to the second question on the hedge book --.

Yeah, Adrian. In regard to the hedge book, I am not aware of any specific constraints that would limit us to accelerating delivery and/or buyback of the hedge book. Obviously, you know, we -- when we looked at that, we -- you know, we look at how is the best way and most efficient way of doing that, and sometimes we overlay trades to effectively distinguish positions rather than dealing directly with the counterparties that have the positions.

Okay, great. Thank you.

The next question comes from Michael Dudas from Bear Stearns.

Good morning, everyone.

Good morning.

First question, anybody wants to answer it. On a scale of 1 to 10 being 10 being complete, how far along are you, do you believe, in the rationalization of the three companies?

Probably get three different views here.

That's fine.

I would say we are probably, you know, a 6 or a 7. Again, we've got a lot of things that have been integrated and a lot of things that we are going to want to do longer term that probably don't have, you know, for example, in the systems area and some things like that, that probably are not, per se, integration or -- are integration but are more transformation. So I would say maybe a 6.

Yeah, I would agree with that. I think systems improvements are ongoing. You know, translating our eBusiness procurement effort down to Australia is ongoing. You know, looking at the right size of G&A around the world is an ongoing effort. From an operating standpoint, you know, fine-tuning operations and getting the best ideas from all three companies is an ongoing continuous improvement effort as well.

Any different feelings, Pierre?

No, I don't have any different feeling. The perspective that I have is we have to continue to maximize the value of every single one of our assets. If someone is willing to, you know, pay us more than what we think we could ever extract from it, we would be willing to sell, and then we will be willing to buy if we can find something where we think we can do a heck of a lot better than an existing operator.

So we continue to look at our portfolio on a regular basis and the same with exploration, where do we maximize that value of that dollar and what can we do better than anyone else in that business. If you look at our portfolio of exploration properties and project developments, I think they are absolutely the best in the business.

I think what I have found over the years, over the last few months when I joined Newmont is that when we did our due diligence early on we thought that Newmont had some good asset. But being inside now, I think Newmont is a giant squirrel that has a bunch of acorns everywhere that we are finding out and we are developing. And it's been a tremendous revelation. And you will see the benefit of that over the next five years.

Thank you for your thoughts. Second question is, Wayne, I am sure you will have more thoughts about this when you have your year-end results, but do we believe that the operating financial and market goals for Newmont will be similar to what we have seen this year? Strict capital allocation, generating free cash flow to retired debt. Is that a fair comment or do we expect maybe some different things looking out for next year?

No, what we have said is over the immediate term, and whether that takes one additional year or a couple of years depends on market circumstances and price, obviously. But our goal is to -- we want to end up with a very conservative balance sheet. So we will continue to focus on generating free cash flow such that we can bring our debt down.

We want to get to a 10% net debt to-book capitalization. We'll use project financing in some of the developing countries. That continues to be a good strategy and an integral part of our thinking. But we would like this company in a situation where it is paying a reasonable dividend. I have got a couple of individual shareholders that seem to think that is a good idea and I have always learned that you listen to your shareholders.

Also, this a tough business. It -- again, we have said several times, it is not sustainable at these gold prices. And that's why we are optimistic when we look out. We think there's more out there because, as you look at each one of the major producers, we are still -- if we put it on an apples-to-apples basis you are seeing production declines, if you look at what people have announced as far as their production forecasts for next year, you know, and you know, you account for the acquisitions that have taken place, on an apples-to-apples basis, production is going down.

There needs to be more money put into exploration, but until companies can generate more significant sustained cash flow, you know, that's not going to -- there is not going to be enough spent there.

So that's the primary focus for us, and, you know, when we look at that, we look at all aspects of it. We want to get rid of this hedge book. We will continue to pressure that. If we have an opportunity to do it quicker, we will. We want to be smart about that. We have got a number of items within Normandy, we always said it is a very complex structure. And there is a number of items in there that need to be worked out over the next couple of years and we will maintain focus on those things until we really have that streamlined down to, again, a relatively few, but significant producing regions within Australia.

Thank you for that, Wayne. One final question and I will direct this to Pierre. Pierre, assuming in the next year or two that the contango improves and longer-term rates move higher, do you think that the industry will be -- could go back and say there is even a higher gold price. Will the industry get back to a level of producer-hedging activity that we witnessed in the 1990s?

Well, you know, for that to happen, you would have to, I think, find quite a bit more reserves and new projects, because that was part of what spurred the initial increase, was new projects. And then the second one was basically betting on the gold price going down. Well, the only way you are going to see higher interest rates in the next few years would be, you know, if inflation comes back, and then that would mean, you know, higher gold price. And I just don't see it happening. I don't see -- I mean, I see higher gold price coming. That do I see, by I don't see how the industry would be betting against that. So, no, I don't see how we're going to have an increase in the overall lending market.

Gentlemen, thanks for your thoughts.

The next question comes from Mike Durose from Morgan Stanley.

Yes, good morning, everyone. Just a couple of quick questions. First of all, with respect to your 2003 forecast of 7 to 7.2 million an ounce. I was wondering the 180 to 182 variance in your total cash cost projection, is there one or two operations that you are kind of uncertain with regard to costs next year that's causing that swing? What's causing that variance?

You mean the range?

Yeah.

Because we like to give ranges around -- we are not very good at this. [Laughter]

So there is not one mine or whatever that you are more concerned, or uncertain about the costs, that's impacting that?

No, I don't think any one is -- we are still in the process of budgeting and, again, we will put some aggressive targets out there for our operating people. But at this point in time, this is what we are comfortable with.

Okay. Second question, just with respect to the accounting changes as you have gone through this audit process. You specifically highlighted Batu Hijau, Yanacocha and the underground mines in terms of changes in your calculations. Can you just kind of give us some detail as to what the exact changes were, specifically at Batu and Yanacocha and also with the underground?

Sure. Let me go through that a little bit, Mike. In regard to Hijau, the depreciation calculation, historically included in pit nonreserve material that we were very confident in obtaining over time, but we have revised the calculation only to use proven and probable reserves. We have got ongoing infill drilling programs and seen a lot of that inferred material convert to reserves and we are very confident about Batu Hijau's year-end reserves. So, again, just a change in kind of technical interpretation.

Secondly, in regard to Minera Yanacocha, that relates to changes in useful lives of various assets in terms of depreciation. Some assets we are depreciating too fast. Some assets we are depreciating too slowly. We conformed that based on better estimates of useful lives and conforming to kind of Newmont policy in general.

Finally, in regard to the underground mining depreciation. The practice in the industry for some time has been to estimate total future capitals costs of underground development, and depreciate those costs over the total reserve base. The guidance we have been given most recently and incorporated, is now to exclude future development cost and only use the cost to develop a specific section of an underground ore body and only to depreciate those costs using the reserves that are relevant to that specific section of a ore body.

Okay, that's very useful. I was just wondering lastly, if you could comment on the royalty income for Newmont Capital. Clearly it's down -- seems to be down quarter over quarter and perhaps some of that is (indiscernible) and perhaps some of that is related to Stillwater as well. I was wondering what the outlook looks like there and where you see the royalty income stream coming from in the future. Thanks.

Yes. I think you are quite right there, Michael. We have had lower income from Gold Strike due to lower -- a bit lower production, as well as lower NPI. And we've also had lower income from Stillwater because of lower-than-projected production level mostly. And also, we have had lower income from our oil and gas division because of lower oil prices in that particular quarter. I think for next year we will be looking at level a bit higher than this quarter overall. We are looking at firmer oil prices now than we did and also there's been new development drilling on our oil and gas lands, so we are looking at a better number on that. But from Stillwater and the Gold Strike complex, we think those levels will probably be about the same.

Okay, thank you very much.

The next question comes from Dave Gagliano from Credit Suisse First Boston.

Thanks for taking the question. I was just wondering given the growth in the company, I wonder if you will take us through the internal finance controls process at Newmont, how it relates specifically to, you know, operations and any deviation from the operating plan, feeding back to the senior management team.

Well, I think, you know, obviously, (indiscernible) but basically, each one of our operations we have, you know, a controller, who has a dual reporting relationship that is responsible to the general manager but is also responsible (indiscernible) to the corporate office.

We have a detailed plan that we generate at each operation, and each month, there is a revised forecast that is prepared by each operation to take into account what the actual results are and as they move through the year and see different circumstances, to adjust that. And we get -- we do that about the middle of each month. We have -- you know, we think good segregation of duties. Good authority levels such that anything that is significantly outside the budget, requires, you know, to go through the approval ladder.

We have a relatively flat organization within operations, reporting in to Dave Francisco and then we also have a group here in Denver, technical services group, that is dispatched by Dave, or called upon by the operating units on an as-needed basis, if they see recovery issues with no problems or differences in the mine plan, they can jump into that and Dave is quick to utilize that group, and I think we have got an operating team out there that clearly understands this is not a game of being macho. That if you have an issue, share it. Let's get the best practices going.

We also, of course, have an internal audit group here in Denver, based out of Denver, the head of internal audit reports directly to me. And we have a normal control audit cycle, but also the ability to send those people into professional services.

Okay. In terms of deviations from the plan, the senior management team, Dave Francisco, et cetera, would know of any deviations on a monthly basis?

At a monthly basis at a minimal.

Okay.

If there is something significant that happens at a site, you know, that's called in right away.

Okay. Great, thanks. Just a quick follow-on. At the Denver gold show, there was much talk about the expected production -- or expected contribution from a number of projects, Bottington (phonetic), Hakim (phonetic), et cetera. Those projects are now getting pretty close, about a year or two away. I was wondering if you could give us just a little more color on annual production and cost expectations and things of that nature for those projects?

I think, you know, as we finalize our -- our budget plans here and get to year end, then we will be in a position to update those particular projects. But I think the project pipeline that we presented at the Denver investment forum we feel very comfortable with. I think the earlier ones on that list are moving forward in accordance with our time table.

We will have an updated on the project pipeline and where we are going in our February call.

Oh, okay, great. Thanks very much.

Operator, we are running late, but we will take one more question before we conclude this morning. Thank you.

Thank you. The next question comes from Jarrod Mera from Prudential Financial.

Good morning. I have a couple of questions. First, I was wondering if you could lay out what you thought the impact of the Australian dollar was on your costs in the third quarter? You said higher costs were 4 cents a share, give or take. I was wondering what the impact to the Australian dollar was?

Well, I think if you look at it, I think it had an impact in regard to Australian, only operations of maybe $5 an ounce, given their production rate of about 400,000 ounces per quarter out of 2.1 million ounces. So I think it is about a dollar an ounce on an aggregated basis.

You said, one of the other items you mentioned was that the DD&A was a cent, and that's because of the change you made in the way you are calculating depreciation and that will continue moving forward? Is that right?

It will continue to move forward, but, you know, it will change over time.

Sure.

We have seen, if you look back an all three of these changes, you know, and some time periods it is a credit and some time periods it is a debit. We will give you better guidance in the first part of next year in regard to ongoing depreciation rates.

Sure. And my final question is in regards to Batu Hijau. It looks like -- you reported copper price realizations of about 62 cents a pound. I am wondering if I am missing something. That seems a little bit low.

What you have at Batu Hijau is you have a provisional payment that's made at the time of shipment, and then you have subsequent payments that are based upon the price at the time. And so, what you have when you have a declining copper price is you see that our realized price will be lower than the spot price. And when you have an accelerating or increasing copper price, our realized price tends to be higher than the spot price.

So that was an adjustment from shipments in the second quarter?

That's an adjustment for shipments and that actually occurred in the second quarter.

Great, thank you.

Thank you all very much. We will look forward to updating you with our year-end results. And continue to move forward on achieving our long-term goals of building value for our shareholders with this company's common stock. Thank you.

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