紐蒙特黃金公司 (NEM) 2002 Q4 法說會逐字稿

Welcome to the fourth quarter and 2003 results conference call. All participants will be able to listen-only until the question and answer session. At that time I'll instruct you on how to ask a question.

Today's conference call is being recorded. If anybody has any objections you may disconnect. I will now turn the call over to 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’s fourth quarter and 2002 results. This call and presentation is being simulcasted from our web site and will be available for playback for a limited time. As we shall be discussing forward looking information, you should be made aware there are risks unique to our industry described in detail in our filings with the SEC. The information we are discussing today March 28, 2003, is relevant for the current period. For the most up to date disclosures refer to our SEC filings and news releases.

During the course of the conference call reference will be made to total cash cost per ounce or pound, both of which are non-GAAP measures of performance. The total cash cost per ounce or pound measure is intended to provide investors with information about Newmont's cash generating capacity. Newmont’s management uses this measure for the same purpose and monitoring performance of mining operations. These measures differ from earnings determined in accordance with GAAP and should not be considered in isolation or as a substitute for measures of performance or liquidity determined in accordance with GAAP. These measures were developed in conjunction with other gold mining companies associated with the gold institute in an effort to provide a level of comparability. However Newmont's measures may not be comparable to similar types of measures of other companies.

With me for today's call is Wayne Murdy, our Chairman and Chief Executive Officer, Pierre Lassonde, President, Bruce Hansen, Senior Vice President and Chief Financial Officer, Thomas Enos, Vice President of International Operations, Jeff Huspeni, our Vice President for mineral district exploration, and David Pete, Vice President and global controller.

Wayne, please go ahead.

Thank you, Russell. And good morning, everyone. For those who have had the chance to read our earnings release, you will see that Newmont Mining had a very good year. 2002 was remarkable for the pace of change within the company. We made great strides accomplishing our goal of creating value with every ounce. At a strategic level, the Normandy and Franco-Nevada acquisitions are essentially complete and we have taken a best of the best approach to truly transform the company.

We ended 2002 with a far stronger balance sheet. Our net debt to total capitalization ratio fell from 42 percent a year ago to 20 percent at the end of 2002. We have a long-term goal of reducing this ratio to approximately 10 percent. We want to have an extremely strong balance sheet as we move this company forward to its next phase of growth.

The exploration group had a very good year altogether as did our operations group, replacing depletion of more than 9 million ounces. I want to point out that we take reserve replacement as a shared responsibility in the company. Everybody works on it. The team function, and I think the teamwork was displayed between the exploration group and the operations group this last year was as good as I've seen in the ten years I've been here. People are really charged up at every location. Year end reserves were 86.9 million ounces, all of which meet U.S. reporting requirements. Pierre will speak fought exploration program in more detail later. But as a look to 2003 I'm increasingly confident in our ability to grow reserves from the drill bit.

When we acquired Normandy, we inherited a sizeable hedge position. In accordance with our well known no hedging philosophy, we have systematically and opportunistically reduced this position. On a pro forma basis for 2002, we reduced committed hedged ounces from 9 million to 5.1 million ounces, a 57 percent reduction. Subsequent to year-end, we have further reduced committed ounces to 3.9 million ounces. Bruce will speak to the hedge book reduction in more detail later.

January 2003, we announced an increase in the quarterly dividend to reflect our positive outlook for the company and the gold market. Going forward our board of directors will continually evaluate increasing the dividend as our financial position continues to strengthen.

Now let me briefly cover the financial and operating highlights for the fourth quarter and the year.

For the year 2002 we earned net income of $154 million or 42 cents a share. Obviously a significant improvement from the net loss of 54 million or 28 cents a share in 2001. This is after a non-cash loss on derivative instruments of some $40 million pretax which translates to a 7-cent per share after-tax impact.

As a result, we ended 2002 at the high end of our previous earnings per share guidance of 40 to 50 cents per share before mark-to-market adjustments. We generated 670 million or dollar 81 per share in operating cash floor on equity gold sales of 7.6 million ounces. Total cash costs were up 3 percent from 2001, largely reflecting the impact of a stronger Australian dollar during the year and higher fuel costs. The fourth quarter results were equally impressive, and clearly demonstrate our leverage to the gold price. But the realized goal price of $328 an ounce in the fourth quarter, we earned $75 million or 19 cents per share, and generated operating cash flow of $225 million or 56 cents per share.

Equity gold sales were very strong at 2.2 million ounces as we had previously indicated that they would be skewed towards the end of the year. Our total cash costs were $178 an ounce, reflecting the high volume.

Looking forward to 2003, we expect our equity gold sales to be between 7 and 7.2 million ounces at a total cash cost of between $193 and $200 an ounce. The lower sales primarily reflect the January 31st, 2003 closing on the sale of the TVX North American joint venture interest and the conversion of our 45 percent equity interest in Echo Bay to a 13 percent -- 13.8 percent interest in Kinross which will not be accounted for in an equity basis.

The higher cash costs are a function of the stronger Australian dollar and continued higher fuel cost assumptions. In regard to price sensitivity for 2003 the planners here and the accountants made it really easy for me so I can understand this very simply. A dollar change in the gold price, all other factors constant, increases our annual earnings by a penny a share. And cash generated by operating activities by approximately $5.3 million.

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

Thank you, Wayne, and good morning. As Wayne noted, we sold in excess of 7.6 million ounces at a total cash cost of $189 an ounce. As you can see, North American Australia makeup about 64 percent of our sales, again reflecting our stable political risk profile.

Now let me spend some time and review the results and outlook for our major operating sites. First of all, in North America, Nevada remains the key driver of our North American results where we sold 2.72 million ounces in 2002 at a cash cost of $225 an ounce. 66 percent of our product came from high grain refractory ores, reflecting that the high grade underground production is becoming more and more important in Nevada. We are also very focused on unit process improvements, one of the big successes this year was improved recovery at the Carlin Roaster, up 2 percentage points by installing an expert control system.

The two major expansion projects or development projects in Nevada, G.Q.S.L., the Gold Quarry South Lay Back and Levill Products are on schedule and on budget. And will combined over their life produce over 6.5 million ounces.

Looking to 2003, Nevada will contribute 2.55 million ounces at a cash cost of $215 an ounce. Moving down to South America, Yanacocha is our key driver in South America and really remains our low cost crown jewel within the Newmont crown. Yanacocha and Aggregate sold 2.3 million ounces in 2002 or roughly 1.2 million equity ounces to our account. Total cash costs there were $125 an ounce. Driven by decreased tonnage placed on the pad, more than offsetting lower grade at Yanacocha. We achieved what we believe is a steady stay operating rate of about 600,000 tons a day in the fourth quarter and our focus is going to be continuing to drive unit operating costs down in Yanacocha with this steady state of production of level.

In 2003 Yanacocha will grow and contribute roughly 1.3 million equity ounces to our account at a cash costs of $115 an ounce. Swinging across the Pacific to Australia, Australia contributed 1.7 million equity ounces to our account over a ten and a half month time frame. Total cash costs were $191 an ounce. We continue to work on rationalization and development opportunities in Australia. We're working with our partners at K.C.G.M. to fully optimize that project, and we should report on that somewhere around mid year 2003.

We are also continuing the technical development work-related to the [INAUDIBLE] projects. We have some high pressure grinding roll tests ongoing at our Lone Tree operation in Nevada to help us with our decisions and our costing going forward. We expect the development decision in regard to Boddington toward the end of the third quarter of this year.

In 2003 for a full 12 months, we expect to produce and sell roughly a little more than 1.9 million ounces at a cash cost slightly higher than $220 an ounce. This is going to be driven -- this is being driven by a stronger Australian dollar and to align our cost approach with our existing Newmont sites, we are pushing down shared services cost, the operation, will add roughly 8 or 9 dollars an ounce.

Now, stepping up to Indonesia and Batu Hijau. Fantastic year for Batu Hijau exceeding our expectations, with equity sales contributions from Batu of 362 million pounds of copper and 278 thousand ounces of gold. Very impressed with the cash cost performance of Batu Hijau. Next, cost after by-product credits up 31 cents per pound, really positions Batu Hijau as one of the worlds lowest costs net cash-cost copper producers. We have a fairly extensive deep drilling program at Batu to evaluate whether it's possible to develop an underground block cave opportunity there. And in 2003 our outlook is Batu will contribute 340 and 360 million pounds of copper and roughly 270 thousand ounces of gold at a net cash cost at or under 30 cents a pound.

Now, Wayne briefly touched on the progress this year in regard to eliminating the acquired Australian gold hedge books. In the fourth quarter we reduced committed ounces by 434,000 ounces and uncommitted ounces by a further 105,000 ounces. At year-end as Wayne mentioned committed ounces stood at roughly 5.1 million. Uncommitted hedged ounces were 1.5 million. With a corresponding negative mark-to-market valuation of 433 million. Since year-end we've continued with even further hedge book reductions. So far this year we've eliminated more than 1.25 million committed ounces. Leaving those at roughly 3.9 million ounces, reflecting deliveries of approximately 450,000 ounces and the repurchase of approximately 800,000 ounces at a cost of $25 million so far this year.

As you'll note, the mark-to-market valuation at the end of February was a negative 313 million, a $120 million improvement from the end of 2002. And as we stated previously and as we are demonstrating, we'll continue to prudently and opportunistically reduce this liability.

Bruce, before you carry on I would like to take a few minutes to discuss the situation at Yandal. For those of you that might not be familiar with this particular subsidiary, the company comprises the former great central mines of Jundi, Vanswing or Luna in western Australia. Approximately two-thirds of the negative mark-to-market hedge book valuation at year-end or 288 million dollars relates to Yandal hedge book. We talked about the fact that within Normandy there were actually three different hedge books. Certain of the hedge counter parties have right to break clauses. And in December 2002 and in January 2003, our counter party chose to right to exercise to break option. In addition to the hedge book liability, Yandal also has a $300 million U.S. dollar issue of bonds outstanding due in April 2008. Both of these liabilities are nonrecourse to Newmont.

With limited reserves and a limited ability to access additional sources of liquidity, creditors have expressed concerns as to whether or not they will be repaid. We share these concerns and it is our intention to sit down with Yandal’s creditors and see if there is a way out of the current predicament.

Currently Yandal generates positive cash flow and we project that out for the next year. If counter parties continue to exercise their right to break provisions, we could see a liquidity issue in the summer of 2004. Our goal is obviously to look forward to be fair and transparent in whatever solution is reached, and cognizant of the fact that we have a fiduciary duty to what is in the best interest of both the creditors, but primarily the Newmont shareholders.

We've been very conservative in how we have treated this on our books and we have 100 percent of yawn Dell's liability currently consolidated on our balance sheet. But we currently reflect if you will the worst case situation from a shareholder Newmont perspective. We will look at how we work out of this and do it in a way that is fair and equitable to all parties.

Right, Wayne. Thanks.

Now I would like to briefly cover the various accounting statements required as a result of the completed reaudit. In previous releases we disclosed the restatement of a prepaid forward transaction and corrections related to depreciation calculations at Batu Hijau and Yanacocha. In completing this reaudit two further corrections were required. First to exclude impit non-reserve mineralized material from the deferred stripping calculations of Batu Hijau and secondly include depreciation as a cost of inventory. In regard to the latter, Newmont has historically taken what we believe is a conservative long term approach to depreciation which we believe is common in this industry and treated depreciation as a period cost rather than running it through stockpile and leach bad inventory.

As you can see in the press release and also on the slide, the net cumulative impact of all these restatements was actually a net increase of 17.3 million in retained earnings. For more information and detailed schedule, please refer to page 10 of today's earnings release.

In addition, we are also pleased to report that we have completed our discussions with the SEC in regard to the allocation of the purchase price of Franco-Nevada and the Normandy acquisitions. And we are very confident in our methodology going forward.

Now, I know many of you people are -- have asked the question as to why this process took a significant amount of time. And it took longer than we anticipated as well. And I attribute this to the questions that emerged, unfortunately on a sequential rather than in a parallel fashion. Each of these that required significant research, analysis, and discussion.

In addition, we saw a review on what is really the first major purchase accounted transaction in the mining industry. Now, with that I'll turn it over to Pierre for his thoughtful insight on exploration, Newmont capital and the gold market.

Thanks, Bruce. And good day, everyone. Our exploration team last year, as Wayne said, had a very, very good year. With the merger taking place in mid February, the exploration effort really only started in earnest in April. And despite the scene, was able to replace depletion of 9 million ounces. As you can see from the slides the year-end reserve are up to 86.9 million ounces, and that is calculated at 300 dollar gold price assumption. 60 percent of these reserves are in North America and Australia.

We also have provided reserve sensitivity to change in gold price, that 350 gold price assumption excluding the 3.7 million ounces of reserves that were sold in the beginning of the year in the TVX transaction, reserve would increase by 12.4 million ounces or 15 percent.

Now, having said this, when we were calculating the reserve sensitivity, it became clear to us that on a number of properties we were what I would call drill hole constrained rather than mineralization constrained. And this is not all together surprising given the extended period of low metal prices and the reduction in exploration budgets over the last five years. So we are highly confident that these numbers could expand as we do more drilling.

Some of the highlights of the 2002 program include the following. In a common trend for the first time since 1996, we -- it replaced depletion. This is -- we are very proud of this fact and I can tell you the team down there -- I was there, in fact, yesterday and they are very, very keen and they are on a roll. And I think you're going to see some good things coming out of there.

In Peru, the Kori Kollo deposit was brought into reserves at Yanacocha. In Australia, one of the really nice discoveries this year was the west side at Jundi. It's proving to be very high grade and we probably are going to have a few good years at Jundi because of this discovery. At Batu Hijau the copper and gold reserves increased by 13 percent, and this is despite lowering our copper price assumption quite dramatically down to 75 cents a pound vis-a-vis 95 last year. And finally in Ghana we started work on the [INAUDIBLE] deposit. And this year we had, you know, enough to bring 1.6 million ounces of equity ounces to reserve.

I would just like to spend a couple minutes discussing the Ghanaian exploration results. As you know, both Ghanaian projects [inaudible] properties came through the Normandy acquisition. And originally they were on our grow or go list.

Well, grew they did. Our focus in 2002 was achieved, where we had a resource, but no reserve. And as I just said, we did add 1.6 million ounces to reserve last year.

In 2003 we will be spending 5 million in Ghana on near mine district exploration and these costs will be expensed in 2003. Now, in addition we'll be spending another 16 million on reserve definition drilling and feasibility [INAUDIBLE]. These costs will be capitalized as part of the project development cost.

While Newmont has not made a formal development decision, despite what you may have read in the press, I am confident that Ghana as the scope to be a fifth core business for Newmont with potential annual production in the 700 to 800,000 ounce range. Our exploration budget for '03 is 85 million. 36 percent of this will be spent on near mine exploration, 34 percent on operating district exploration, and 18 percent on green field exploration. You can see the zones of exploration interest in our budgeted expenditures by region. I’ve told the exploration team if you need more money during the year to follow-up on encouraging results. They sure know where they can come and get it.

One of Newmont’s capital roles is to continually optimize our asset portfolio. That means focusing on the assets that we believe fit our long term strategy and, of course, disposing of those that don't.

Now, last year Newmont capital had a very busy year completing over 40 transactions and contracting 421 million in non-core asset sales. The largest of which of course was the 180 million received in January of this year for the sale of our TVX joint venture interest.

In total, if you look at what Newmont capital was able to accomplish, it crystallized close to three quarters of a billion dollars of value into Newmont last year. And I might add that all of this was achieved without paying one single dollar in investment banking fees. We're proud of that. In addition, the group is currently working on acquisitions that total about $140 million. We are cleaning up minority interest at Newmont N.F.M. in Australia and other gold mines in New Zealand. This will allow us to de-list these two publicly listed companies and realize additional G&A synergies. In addition we recently agreed to purchase Moydow’s 50 percent interest in the [INAUDIBLE] property in Ghana for 20 million. All of these transactions are part cash and part Newmont stock.

As I mentioned earlier, we are excited about our projects in Ghana and this is just part of cleaning up and our interest and making sure that we are focused.

We said it would take us two years to rationalize the company and optimize the asset base. Well, our focus in 2002 was non-core asset sales, but in '03 we will look to grow the company organically by focusing on developing our project pipeline.

In this regard we will shortly be providing the market with updated information on our project pipeline.

And then finally the raw income stream, our natural hedge against low metal prices generated 36 million in revenue last year and this will grow to about 40 million in '03. During '02 30 new oil fields were add through property transactions and asset sales, mostly in Canada, as part of rationalization of Newmont's exploration holdings. A land lease program in Nevada is accelerating exploration of non-core lands, with Newmont retaining royalties and future participation rights. A similar program is planned for Australia in 2003.

And finally, I'll just give you a few of my thoughts on the gold market. My first impression is that the Iraq war has become a weapon of mass financial distraction. When you look at the gold price, it rose to $380 in the early stage of the war, and it has retreated by as much as $50. Now, the fact is that the fundamentals of the bullish case for gold are tied to the fate of the U.S. dollar. And that trend will reassert itself with renewed vigor once the side show is over.

When you look at the situation of the dollar, it is quite evident that it follows Stein’s law which says that things that can go on forever stop. When you look at 500 billion current account deficit which accounts for 5 percent of GDP, this represents about 60 percent of the world's savings. It can't go on.

With the Iraqi war the GNP deficit will grow this year close to 400 billion. You can't go on forever like this either.

And finally, when you look back at 100 years of financial history, what you find -- and you find that the reserve currency had the same financial predicament as in 1934. The reserve currency, the dollar at that point, depreciated against gold by 70 percent. In the 1970s, the dollar, again the reserve currency of its days, depreciated by 900 percent from 35 to a normalized $350 gold price. And the question is in this day over the next three to five years, where will the gold price go in relationship to the dollar? I suggest that it's going to be substantially higher.

And with that, we'd be happy to take any questions.

Thank you. If anybody would like to ask a question, please press star 1 on your touch tone phone and I will announce you prior to asking your question. To withdraw your question please press star 2. Once again if anybody has a questions please press star 1 now.

Operator, we're ready to take questions.

Thank you, sir. Please stand by just one moment.

Okay.

[Pause]

Our first question comes from John Hill from Salomon Smith Barney.

Good day, gentlemen. And thanks a lot for a characteristically detailed and polished presentation.

I was wondering if we could revisit the subject of good will, which obviously was the cause of the delay in reporting. We see good will go up by several 100 million dollars to 3 billion on balance sheet as well the allocation of almost 600 million to the Normandy undeveloped mineral industry interest. I was wondering if you could describe both the increase and then the key components of that rather surprisingly large allocation for those mineral interests.

Thank you. I'll ask Bruce to answer that.

Absolutely, John. As you recognize the initial good will and allocation was preliminary, and we have a year to refine that.

We finalized asset valuations in regard to the acquisitions. We also increased some contingents -- contingent liabilities there. We increased some deferred taxes. We looked at -- he we looked at the asset valuations. And, you know, quite frankly, we bought this deal for the up side in Normandy and Franco. And I think we are very comfortable with the numbers we're dealing with right here.

Okay. And in terms of the nearly 600 million dollars for the exploration, a couple larger components there?

We looked at really three additional classes. We looked at Class 2 which we call resources, Class 3 which is resources that are not as highly confident and class 4, Exploration. And all that aggregates to roughly around 500 million dollars.

Very good. And then one final quick question and I'll get off the line and leave it to others. Obviously a pretty significant tax benefit in the quarter. I was wondering if you could kind of give us a clean tax number for the quarter, excluding the benefit from resolution of prior years, issues outstanding.

Well, it's I little bit difficult, John. I would point you to pages 65 through 67 in the 10(k). We've got a very extensive tax disclosure.

Our tax rate situation is relatively volatile. It changes as prices change and the ability to utilize foreign tax credits change.

In regard to the fourth quarter in particular, it was really driven by the ability to look forward and see the access to greater degree of percentage depletion versus cost depletion. Our ability to restore previously impaired NOLs and we during the quarter had a $10 million positive settlement with the IRS.

Thank you.

Our next question comes from John Bridges of J.P. Morgan Chase.

Good morning, everybody. Yeah, a bit of a follow on really. You have a comment there that you published these new allocations, but the SEC is not -- hasn't formally approved them. What does that exactly mean?

Effectively, you know, what you do with the Securities and Exchange Commission is you get effectively a negative assurance. They do not approve anything. They review and ultimately do not object. And so that's an appropriate disclosure that one has to make, that we made it very clear we were talking with the SEC. We had those discussions over an extended period of time. Unfortunately, the purchase accounting model doesn't work very well for this industry. And I think that's become very evident both from -- in the mining industry especially gold mining industry we've also see it in natural resources industry. It's the first transaction, we had to be very careful as we went through this. But the model itself isn't particularly attractive, but those are the rules we have to play by.

So you're not afraid they're going to come back and for another restatement.

There will not be another restatement because now you're dealing with estimates going forward.

Okay. There's a comment in I think the 10(k) that you're making progress with regional rationalization, Nevada, Canada, Australia. I don't know if there is anything you can say on that?

Well, again, I think going back to some of Pierre's comments, this is a pretty dynamic year of change for us. As Pierre pointed out we entered into some 40 transactions. We've had a lot of people putting in an awful lot of hours. I guess it would be inappropriate for me not to acknowledge that. A tremendous teamwork, all aspects of the company. The emphasis this last year was in getting rid of the assets that don't fit our fiscal going forward. And I think now people are, you know -- it's much more exciting being on the balls of your feet rather than on your heels. We had to do a lot of fairly quick assessment, make some decisions and move on. But I think we have those behind us.

You know, there will be continued fine tuning of our operations going forward. Again, we said it would take us two years to fully rationalize this. I would say we're ahead of schedule. I think getting rid of the minority interests within the former Normandy is a big plus for us, and probably happened sooner than we thought we'd have that opportunity. We've got some system things to do this year. You know, frankly, I guess one of my disappointments we probably spent more money in the G&A area than we had anticipated up front, because we do need to do a number of these infrastructure things, but they really position us for going forward for organic growth and our ability to fine tune this machine.

Great. I'd like to say thanks on behalf of analysts for the [INAUDIBLE]. Your reserves are a bit meaningful than most.

Thank you.

Thank you.

Our next question comes from John Tumazos as from Prudential Financial.

Good morning, and congratulations on getting the progress this far. Could you explain some knew vocabulary, the difference between property and plant and equipment in producing mine and mineral interests which generate revenues? You have this new 1.4 billion dollars mineral interest etcetera account. Could you secondly explain the intangible within mineral interests and how that differs from good will?

John, I would, but I'd get in trouble if I explained it because I have some strong views on this. So I'll let the accountants talk about it.

Okay. Yeah, we have some different classification. This has come out of our review in regard to purchase price allocation. Obviously plant property and equipment is more of the physical assets. The mineral interest is broken down and shown on page 105 of the 10(k). You've got preapproving of probable reserves has a certain asset valuation. You have undeveloped mineral interests which are both properties that have resource and exploration potential. And then we also diagram out and talk about the royalties as well.

Just an expanded disclosure, John. I would say, and really hopefully it's helpful to the analyst community and the investor, but just something that's required at this point and going forward. And we'll probably be required by the rest of the industry as well.

I don't mean to be dumb, but I really don't understand. The plant is a physical asset and mineral interest, then, may be a reserve or non-revenue? But the royalties are revenue.

Let me give you my layman's view of it. You have the physical assets, then you have -- you know, when you buy a company like this, you're looking at -- we don't use the term in the U.S. resources, but non-mineralized material. Some of it you have a high confidence in and it's just a matter of the drilling intervals. Some of it you have list, and some of it is raw exploration acreage.

And, you know, we put -- you know, as a business and looking at an acquisition, we put values on all of those. The SEC is taking the position, and the accounting profession, that if you don't have proven and probable reserves on a property, it has to go into these other categories, including intangibles. So even though we have a real property interest, what you would be familiar with calling, you know, land and exploration property, we have to put it under this category of intangibles.

Would it be fair to summarize the goodwill as an outright premium and the intangible as something in between goodwill and proven and probable, then?

It's a fair way to say it.

This is a new hybrid category.

That's exactly right. And what we have to do is we have to put a value, you know, what we ultimately think is a realizable value on these categories. The difference between that and, you know, if you will, the value we put on it on the day we close the transaction, we have to amortize over some period, you know, depending on how long we have legal title to it or, you know, what our exploration view is. And that will have to be re-looked at every accounting period, every reporting period.

That's why I opened up saying the model isn't very good for our industry, and we're a bit of a trail blazer here. We will try to expand the disclosure and make this more understood, frankly, as we get more experience with it.

If I could ask one more -- I apologize, this will be the last one. When Felps Dodge bought Cypress at the end of '99 and put it in P.P. and E. or Bearic in their variousacquisitions over the last four years never used pooling and always wrote up P.P. and E. Those were purchase accounting, but you're saying that purchase accounting of that era is obsolete, and we're now in a new world?

No, it's two things. I mean historically in the old purchase accounting, natural resources companies couldn't have good will. Okay. That did change. We also wrote up the asset of both Normandy and frank owe the way you historically did on purchase. But again, given the valuations, you've got -- that gold companies fell at, you've got to do a net realizable test on that at, you know, given gold price. Which when we did this transaction was a $300 gold price, and discount that. So you're left with the good will.

I think, you know, this is the first year you've also seen goodwill in oil and gas acquisitions. I think Burlington's acquisition this last year they report recorded very large goodwill. That historically never happened.

Thank you very much.

Next question comes from Barry Cooper from CIBC.

I'll ask a mundane question here to start off with. Just wondering, what kind of quarterly variance should we expect in your production number for '03?

Barry, it's, you know, typically we produce substantially more than the second half of the year due to a number of factors. I think it will be a little flatter this year than it has been historically, so I think we have a little bit more smoothing. But a lot of that depends on what happens with, you know, any additional dispositions we might have.

Again, this year, you know, we feel very comfortable with the range we've given on our base operations, the cost factors and that sort of thing. But there will continue to be a lot of noise quarter to quarter. As we're buying down debt, we'll have some premiums there that will get charged to earnings. We'll have some gains from some of these dispositions and we'll also have some -- with the hedge buy back, we'll have some hits there. But, you know, so some of it, there will be some timing issues between quarters that might affect the bottom line. But we do expect a little smoother quarter to quarter production profile than we've had the last few years.

Okay. So a lumpiness remains, but not as rocky as perhaps we’ve seen in the past?

Not for now. Not anticipating 2.2 million quarters this next year.

Right, right. Pierre, maybe I can just play Devil’s advocate a little here. You mentioned that you had drill hole restraints with respect to basically budgets not being available in the past. What might take the approach and say well, if you opened up the pockets a bit and given the guys some more money, that's indeed the easy ounces would come naturally first and indeed that's how you are able to achieve the 9 million ounce addition in 2002. How would you respond to that, given that, you know, you've sort of set a goal that, guess what, in 2003 you expect to expand it?

Well, you know, for this year we have our budget -- you know, about 85 million to replace, you know, approximately 9 million ounce of depletion. Now, to be able to grow on the reserve, from there you have to add, you know, a bit more money to the exploration budget. I mean basically if you look at last year, we are able to replace our depletion for somewhere between 10, $11 an ounce. And we think that that number is a pretty solid number. And we just have to, you know, go from there.

Now, if you look at where, you know, the incremental ounces are likely to be, well, they're likely to be around our big large open pit operation that, you know, we just -- it just needs a lot more drilling. And we are looking at that. We are putting budgets together on how to get there. And probably over the year you'll hear a bit more about it. But it is on our radar screen.

One of the things that, you know, we want to basically, as management, is to know what this company could look like at, you know, $400 or 450 gold. I can assure you that we're very keen as management to know that and we're going to put -- a program to get there.

Just a clarification on -- you gave us reserve leverage which is great. If we were to say average gold prices in 2003 of 350, are there any constraints from a legal standpoint in terms of what gold price you could use at year-end 2003 or reserve? Do you have to go back and can you use those prior three years as an average, or can you say, no, we're going to base it on 340 or whatever number you choose?

You know, Barry, this is Bruce. I mean, the SEC has indicated some concern about price in terms of reserves. I would think that, you know, even if we kind of ended the year at roughly 350 gold price, you know, the most we would kind of push the price at which we calculate reserves would be something like 325.

Okay. Good enough. Then one final question, again probably back to Pierre. Can you give us a bit more details on Akim in terms of what is the development plan at this point in time?

I'm sorry, you said earlier, Barry, we will be coming out in the next few months with, you know, a program not only about Akim, but Ghana in general, [INAUDIBLE] in particular which will probably be the first project to go. And about several of our other projects will give you complete update with Boddington, what's happening there, and Phoenix which we have high hopes. I mean, we have like 8 projects in the pipeline and in the next few months we are working on putting together something for the analysts and the shareholders so they can understand this company a lot more going forward. But it's all good news, I can assure you that.

Well, what allows you to bring the 1.6 million ounces in reserves in Akim? Presumably if it's reserves that has to be a game plan in place, does there not?

Barry, there was feasibility study, but very fortunate for us Akim [inaudible] continue to grow and expand. And our people are continuing to refine and optimize that feasibility work. And I think, you know, to come out and talk about where it was, you know, when we completed it at the end of the year would be a bit disingenuous because it's just continuing to look better.

Okay. Well, we look forward to those results coming out in a few months then, I guess.

Okay.

Thank you. Our next question comes from Terrence Ortzlin from T.S.O. & Associates.

Thanks. A couple of benchmark questions, guys. One is 2003 depreciation/amortization number. Your CAPEX numbers, and three, which Australian currency figure you estimated for your cash -- for your cost estimates 2003? And fourth I have a Newmont capital question after that.

Okay. If you have access to the press release, I think we give some fairly fulsome disclosure in terms of what we're assuming in terms of ranges in regard to DD&A royalty revenue, a lot of what you're looking for. I don't know if it's specifically stated, but our assumption on the Australian dollar for our planning purposes was 59 cents, which is pretty close to where we are right now. Now, you can follow on with your question associated with Newmont capital.

Yes, okay. Is there any targets set for Newmont capital this year in terms of your expectations, what are you going to generate from that? And are there anything pending in terms of deals that you haven't announced yet which you probably will announce or realize?

No. Terry. We don't give Newmont capital a target as you I'm sure realize this is an industry where opportunity may happen one week and disappear the next week. And so it's a very opportunistic mode that we work in. Last year we had an opportunity to create the seventh largest gold company in the world, be part of it, and we did it. This year we see a few opportunities, so yeah, we will have some dispositions. And we think we're going to have quite a few purchases as well, but no, we don't have a fixed number.

Fair enough, thank you.

Thank you. Our next question comes from Jim Copeland from Goldman Sachs.

Good day guys. First on Yandal. You mentioned the liquidity crisis was going to be summer ’04. Is that summer in America or Australia?

[Laughter]

We're looking at June, July '04 time period.

This coincides with some right breaks out there.

So the liquidity crisis is more triggered by the right to break rather than any cash flow implications from the operations and sales?

Exactly. I mean, those operations are, as I said, they're generating positive cash flow now, we continue to spend money as Pierre talked about on exploration there. And, you know, there's some possibilities. But realistically the production is scheduled to decline, and, you know, nobody triggers the right to break. This can go on for some period of time. But, you know, we have tried to put it all out there for everybody and take a very conservative approach and we’ll work through that.

How much cash is on the Yandal balance sheet roughly?

I don't know that number, Jim. I think it's 20 or $30 million at the end of the year.

All right. And just finally, the guidance you've given for depreciation for this year of DD&A, that's based on the amortization of the mineral interest John was talking about, but not on any amortization of any good will, is that correct?

That's correct.

All right. Thanks very much, guys.

Thanks.

Thank you. Our next question comes interest David Christensen from Credit Swiss Boston.

I think my friend at Goldman just asked part of that. If I understand correctly, the mineral interest will be depreciated on a quarterly basis point going forward and that is included in the depreciation guidance provided. If so, what portion of that depreciation number that was provided is for those mineral interests? That's the first part of the question.

Well, I think somewhere in the ten to $20 million range. Now, David, you need to understand that we don't depreciate all of the mineral interests. We depreciate it down to an appropriate residual value. So it doesn't all get straight line depreciated.

Okay. So what residual value or what value are we depreciating to on those assets?

Well, it depends on the confidence in the particular assets done on a property by property basis. And I can't give you --

Aggregate?

…there.

You know, what will happen is every quarter we'll look a it. We'll look at our drill results. As we move properties from these categories -- if we get to a point where we can declare a proven or probable reserve, then you stop amortizing it and you move it into -- into the more traditional property count. If, however, you have a drilling program on a property and you condemn that property, then you would take a write-off. And the art of this for the industry now is to try to estimate what the realizable value is and make those adjustments as we go through. So, just like everything else that seems to be going on in the accounting profession, there is nothing here that is going to make -- make for smooth results. This will be choppy. But we try to take a very conservative view of the -- of these properties, put value where we see real value, and then move these things. Hopefully well continue to have success in drilling, be able to move into traditional property categories.

You actually answered part of where I was going. That quarterly or annual charge off just to coin a term, if you will, that might relate to abandoned properties that might have been valuable today but maybe a year from now aren't, will that be run through the exploration expense item or will be separate line item as a write-off?

It will show as a write-off.

Okay.

We'll try to put as much light on this as we can.

I think we try it with pay 10(k). We have a full some disclosure. This year's 10(k) is 197 pages compared to 109 last year.

Likewise, the projections you provided in the quarterly release for tax or estimated tax expense for the year, does that include the potential benefits of any tax cost carry forwards?

It's our best estimate at this point in time, David. But I will caution you that tax rates for this industry and this company can be highly variable.

Understood. For some companies, more than others. And lastly, the question has been asked regarding Ghana. I've heard no reference to Boddington in the conference call and yet a couple or one of your joint venture partners has included in their long-term mine plans. Could you give us some kind of an update as to what you're including in your plans now?

Yeah. We continue to work Boddington. We're very encouraged by what we see there. We are doing some pilot work on the -- on the -- this high pressure rolling and crushing. So we expect that by the second half of this year we would have some results there. It's very large deposit. It is low grade. Has some characteristics that we're familiar with. And so getting the processing costs nailed down is extremely important to us and we're moving forward on that. But good cooperation with Anglo, and I think we're encouraged by what we see, but we have a ways to go before we want to lay that all out for the world.

I'm sorry, one last follow-up in regards Yandal. What is the carrying cost for Yandal carrying costs in aggregate for Newmont, or carrying value, I'm sorry?

I don't have those numbers right at hand, David. You can call in and we can get you that. But like Wayne indicated from Newmont's standpoint, I think we're reflecting the worst case scenario on our balance sheet.

The carrying cost is substantially less than the liable. Let me put it that way.

Thank you.

Our next question comes from Shaun Keenan of B.M.O. Nesbitt Burns.

Hi, fellas. I've just got a question that relates to the oil and gas royalty assets. I'm just wondering certainly in light of the high oil and gas prices what your plans may be for them?

Well, thank you. Actually this is one in the -- what he's referring to here is in Franco days back when the oil price was about $15 a barrel and nobody wanted to have the oil. Franco-Nevada acquired 12 sections of land in Alberta and next to the Christina Lake 70 thousand barrel a day development project. And there was a very long court case that went on for four years and it was resolved last week in favor of Newmont. It was about the gas rights.

And this property, when Franco had it, we had engineers look at it and it has -- it had a potential of close to a billion barrels of in place oil, you know. That's what the engineers, anyway, at that point said to the Franco people. So anyway, now we have the court case has been resolved, we've gone back to the engineering firm and asked them to give us a program for drilling this property, to maybe bring a certain amount of oil to the proven, probable category, and Newmont capital can see how we can best maximize the value of this property. As I said, just being next door to Christina Lake where the operator there is spending about 500 million U.S., we think that it has quite a lot of value going forward for Newmont and we will maximize this little gem.

I mean, it's not slated for sale, is it, in the immediate short term, is it?

No. I think the idea here is definitely to improve the value of this property by doing a drilling program. I don't think it costs much because most of the oil is within 300 meters of surface. So it's not a huge program. And the property next door is using SAGD the steam assisted gravity recovery system. And which would be applicable here. So there is no rocket science. And the point here is to bring it up to a point where we can maybe, you know, look at a partner and maximize the value of this asset. We just think what's in place and what could be recoverable here, you could have enormous value to Newmont.

Okay. Well, thanks for that, then.

Thank you. Our next question comes from Tanya Jakusconek from National Bank Financial.

I've got to change my name. Okay. I think that's me. I have three questions, if I could.

Yes.

The first one is on the hedge book. Actually they’re mainly for Bruce. On the hedge book the 3.9 million ounces, at what price are they at now in the contract?

I think the contract is roughly the same average price as you see in our table associated with the hedge book. If anything, maybe slightly higher because we've been unwinding the non-Yandal component of it.

Yeah, okay. And would it be possible to get like what a break even would be on that 3.9 million ounces?

Well, we're not going to put out some interim detail on that, Tanya. I think you have a sense of where we are and we'll give you sensitivity. You're getting a picture of the trend at the end of the first quarter we'll update that.

Okay, all right. I'll leave, then, the hedge book. Maybe a quick one, just what are the reclamation obligations at Yendal?

I think probably 25 million U.S., but obviously that's not something that we've updated recently and we're in the process of relooking at it.

Okay. And then lastly, maybe this is all described in your 10(k), I'm sorry, that I haven't had a chance do go to, but I wanted to ask about the goodwill on the balance sheet. The 3 billion, now that you've allocated it, perhaps you can give us some idea of some of the testing criteria that we're going to have to look at as you view this value annually for impairment. Do we have an idea of what you're looking at and how we're going to do that?

Yeah. What page are we on? Page 102 is where we show the allocation of good will. But on a book per basis, Tanya, I would say the key things we're going to be looking at in terms of the testing on good will is where the gold price is, where the industry is in terms of market multiples, and probably more particularly what is our rate of success in the exploration area and what is the rate of success in terms of value added deals in the merchant banking area.

Okay. So it's not an option value pricing or anything?

Oh, no, no. You know, quite frankly, if you did an option value pricing, I would think that the commission would classify that as an intangible and have you amortize it.

Yeah. Okay. I'll take another look at that. Okay. Thank you.

Operator, this is Russell. We're running a little late. If we can take three more questions and call it a day. Thank you.

Thank you. Our next question comes from Brett Levy of Royal Bank of Canada.

Hey, guys, I apologize if these are all Yandal specific, but can you talk a little bit about your view of the security of the hedges versus the security of the bonds? I mean my sense is that probably the hedges are ahead. Then I have two more questions.

They're Perry pa sue.

All right. Secondly you mentioned sort of wanting to have a sit down with all of the interested parties. Can you give a rough sense as to what the timing of that might be or your target timing for it and whether or not anyone has retained advisors at this point?

You know, I'm not sure what the purpose of your question, so if you're one of the lenders in this, we'll communicate directly. You know, what wire trying to do here is make the market aware of the overall situation. There are substantial liabilities. We can see that potentially there is a liquidity issue here. From a Newmont standpoint everything is, you know, we've been very clear in our disclosures. And we think that, you know, at the appropriate time as we pull together all the information for people, we'll sit down and there is a deal to be cut that we think would be in the best interest of all the parties.

That has not been formulated yet. Obviously there is, you know, it takes -- there will be two sides to the table and we just have to work through it. So, you know, again, you can get a lot of questions on this. I think from a Newmont shareholder standpoint, we've been very whole some in our discussion. And to get into specifics of how we're going to negotiate is not in Newmont shareholders' best interest.

I agree. I was actually just asking for sort of timing really. But the last piece of this is if you look at the remaining hedges there, at about what price, gold price sort of Australian dollar neutral do the hedges no longer become a problem? And about what Australian dollar gold neutral -- I don't know if you've done that analysis -- do the hedges become not a problem?

Just to give you a sense associated with that component of the hedge book -- as we indicated it's a negative $288 million at the end of 2002. It has roughly a sensitivity to U.S. dollar gold price of, for every $1 change, it has a plus/minus $4 million impact. And in regard to its Australian dollar exchange rate impact, I would say it's probably for about every penny, about $25 million. So you can do the calculations.

Thank you. That's very helpful.

Thank you. Our next question comes from Adam Graf of Bear Stearns.

Thank you. My questions have been answered.

Thank you. Our next quest comes from Don MaClean of Beacon.

Well, done, guys on the reserves. I guess as far as the pulp and paper industry is concerned, delighted to see the additional disclosure. Could you touch on what are the key things on the exploration up side in the areas you'd like to see? And maybe you could just touch on Twin Creeks at the same time. And then lastly if we could get a production outlook over the next few years for Zarafshan, Batu, and Tanami.

Well, in terms of exploration, Don, the one asset that Newmont has to my mind is one of the key, key assets of its company is the 60 million acres of land that we have worldwide. And these lands are in the best gold trends of the world. In Nevada we have 2 million acres. As I pointed out, I was there yesterday. And spent three hours with our G.O.s looking at the program. And, you know, it's just amazing after 40 years of being in Nevada how we continue to find new deposits. And I think that, you know, Nevada will continue to surprise our shareholders for a long time. And we've done the first part of our -- we had a 67 hole program planned for the first half. We've done 61 holes as of yesterday. And I can assure you the news is very good.

You look at Australia. We have a very good program there as well, and it's, you know, it's one area where we have a lot of land, again, in the best trends you're going to expect some good news.

Ghana has been a really, really nice surprise to us. When we started in Ghana, the [INAUDIBLE] deposit had a few million ounce reserve and a few million ounce in resource, examine there was just a bit of resource that achieved. And by year-end, you know, when you saw that between the two we had 5 million ounce of reserve and 5 million ounce of resource. And this very likely to continue to grow.

We have a very aggressive program. I mean, last year at the peak we had over 100 drill rigs -- we have over half of those working. We're very confident things are going well this year, and we're certainly optimistic we'll be able to, you know, continue to replace depletion and our goal this year is to do more than that, actually start increasing reserves again.

Touch on what's happening in Twin Creeks as far as reserves there?

Twin creeks. Last year we only added about 300,000 ounces or so reserve at Twin Creeks so we did not replace depletion. This year our guys there, I think they can do, you know, better. We are working at both ends of the pit there. And there is to the east of twin creek a very large resource that we started to look more -- you know, focused this year. And so the prospects there are looking very good. The idea this year is we'd like to see both the west and the east part of Nevada replace depletion.

I think twin creeks has very significant price [INAUDIBLE] as well.

Yes.

Okay.

All right.

Our next question comes from Joe Hamilton of RBC Capital Markets.

Hi, gentlemen. I just had a couple of quick questions. I know it's run much and you've run on a little bit. But at yawn deli noticed you replaced 500,000 ounces of reserves there over the course of the last year. Is that a trend that's likely to continue?

Well, it's hard to say. The reason why we were able to do that, as I mentioned earlier, is because of the west side discovery last year. This is a very high grade discovery. It's an ore chute found under the -- one of the existing pits. And it's very narrow, but very, very high grade. And a little bit difficult to estimate, you know, what the ultimate size is going to be because you have to do a lot of drilling. It is a very discrete area and, you know, whether or not it can expand a lot more we can't tell you at this point.

What we put out is what we know as best as we know. We are continuing drilling in the area, and we'll update you. But at this point, you know, it was a very nice discovery, because otherwise, I'll tell you, you know, that operation was also going to be in a bit of difficulty. So it came at a right time. And can't tell you whether or not, though, it will grow further.

Okay. As far as Yanacocha is concerned, in the 10(k) that you filed you indicated there is about $260 million in CAPEX in South America for next year. That's effectively going to mean as far as my calculations are concerned Yanacocha is going to have a very small contribution to the free cash flow for the company. Is that correct for next year?

I don't know what gold price assumptions you're using, but I think Yanacocha will contribute to the -- to free cash flow. I don't have the specifics here to give you.

That's fair enough. Bruce, maybe you could just fill me in, because I'm sort of looking at the numbers I've got. And the Nevada operations in Batu Hijau have a significant contribution to the free cash flow of the company for next year, but both of those are dependent on power and oil costs. Maybe you could give me a -- what your oil price assumptions and your power cost assumptions are for Nevada and compare those to what your costs were for this year.

Our assumptions are pretty much based upon what we saw toward the end of 2002 and in terms of power costs we're paying roughly somewhere around 7 to 7 and a half cents per kilowatt hour. In terms of diesel, I think we're paying somewhere in the 70 to 80 cent per gallon range.

Any significant hedges in either of those items?

Well, what we do in regard to both Nevada and Batu Hijau is on kind of a rolling basis we hedge up to roughly 50 percent of our fuel consumption. One year and sometimes 18 months out. We haven't found -- we have some basis risk at Yanacocha. We haven't found a way of getting around in terms of diesel is consumed there.

That's very good. That's all my questions. Thanks gentlemen.

Okay. Well, thank you all very much for your questions and for attending this call this morning. Again, it's been an extremely exciting time here for us. Lots of activity within the company. I think as we look out over 2003, we at these gold prices, today's gold prices, we see a significant bottom line growth. We've contracted our operations as we said we would, and are now in a position to really build a platform for organic growth going forward and we're all very excited about that. So, thank you all very much.

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