紐蒙特黃金公司 (NEM) 2003 Q2 法說會逐字稿

Hello, and welcome to the Newmont 2003 2nd quarter earnings release. Following today's presentation there will be a formal question-and-answer session and instructions will be given at that time. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would like now to introduce the host today group executive of Investor Relations, Mr. Russell Ball. Sir, you may begin.

Thank you, operator. Good morning, everyone and thank you for joining us today.

As presented, this call and presentation is simulcast on our website at wwwnewmont.com and will be available for playback for a limited time.

We will be discussing forward looking forward looking and there are risk unique to our industry. The information we are discussing today, July 31, 2003 is relevant for the current period for the most up-to-date disclosure relate to our latest SEC filings and news releases.

During the call, we are refer to financial measures not prepared in accordance with GAAP a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is included in our news release available on our website and in particular reference will be mate to. Total cash cost per ounce and total cash cost per pound, both of which are non-GAAP measures and the total cash cost per ounce or total cash cost per pound measures are intended to provide investors with information about the cash generating capabilities and profitability of the Newmont mining operation. Management uses these measures for the same purpose and for monitoring the performance of its operations these measures different from those in accordance with GAAP and should not be considered as a substitute purchasing performance or liquidity. These measures were developed in conjunction with other gold mining companies associated with the gold mining institute to provide comparability however new month's nay moth be comparable to other companies.

I have Wayne Murdy with me, and Pierre Lassonde our President and David Francisco, Executive VP of Operations, Bruce Hansen, and David Pete, Our Vice President and Global Controller.

Wayne, with that, would you please go ahead?

Thank you, good morning or afternoon as the case may be. As many of you have seen now, early this morning, Newmont reported second quarter net income of $90.1 -- point 8 million or $0.22 a share and first half net income of $208 million or $0.52 a share, both amounts were significantly higher than 2002 comparables. For the 2nd quarter, revenue totaled $747 million on equity gold sales of 1.8 and a quarter million ounces. Total cash costs of $212 per ounce were 8% higher than the year ago quarter. Largely due to the stronger Australian dollar, increased fuel and power costs, and higher royalties.

Margins increased by 29% from $59 per ounce a year ago to $76 per ounce for the 2nd quarter as higher cash costs were offset by a $39 higher realized gold price of $353 an ounce. Net cash provided by operations for the quarter totaled $177 million before the settlement of derivative instruments which consume assumed $88 million. For the first half, revenues totaled 1.5 billion dollars on equity gold sales of 3.6 million ounces, total cash costs of $207 per ounce were 6% higher than the year-ago period which was more than offset by the 16% increase in the realized gold price of $352 per ounce. Net cash provided by operations for the first half totaled almost $350 million before the settlement of derivative instruments consuming more than $120 million. The company's balance sheet continues to strengthen with net debt to capitalization dropping to approximately 16% at the end of the 2nd quarter from approximately $20% at year end 2002. Of course, this is a focus that we've had within the company since the consummation of the transaction with Franco Nevada, and Normandy a year-and-a-half ago. The second quarter reduction was driven largely by the debt buyback at Yandal. I'm pleased to report that this is the last earnings call at which we plan to discuss the Australian gold hedge book. Going, going, gone. As you can see from the chart, they were substantially eliminated during the 2nd quarter. Newmont reduced its committed hedge position by 3.5 million ounces in the quarter through closeouts or scheduled maturities of approximately 600,000 ounces and the purchase of approximately 2.9 million ounces, mostly in the Yandal book. The end of the second quarter, the Australian gold hedge books have been reduced to just under 200,000 committed ounces. And with about 600,000 uncommitted ounces, reflecting a negative mark to market of about $19 million. The income statement for the 2nd quarter had a lot -- again as we continue to rationalize the asset base and clean up the various issues with Normandy that we identified during due diligence. Included in the reported net income of 91 million dollars were a number of transactions that reflect -- require further comment. About 64 million dollars or 16 cents per share of non-cash after-tax gain on the extinguishment of the Yandal bonds, I'm not sure it is totally non-cash because it is cash that will not be needed to pay the bonds. A net of $54 million or $0.13 aftertax gain on extinguishment of the Yandal derivative liabilities that I previously referred to. There is a -- about 12 million dollars or $0.03 per share non-cash aftertax gain for the change in the fair value of the other gold derivative instruments that do not qualify as effective hedges and were thus recognized through the income statement. There is about $108 million or $0.27 per share after-tax loss on the impairment on the investment in Australian magnesium corporation which we previously have disclosed and discussed we had other miscellaneous write-downs and provisions about of 2.5 million dollars. These transactions have the net effect of increasing net income for the 2nd quarter, by about $19 million. Without these items, income for the quarter would have been 71.9 million dollars or $0.18 per share versus a comparable 17.9 million dollars or five cents a share in the 2002 time period, if you take out the share gain and some derivative losses from that period. As you can see from the increase over the 2002 comparable net income numbers, higher gold prices, and increased production are driving a strong bottom line earnings growth. Based on the first half performance, we have updated our 2003 forecast. Equity gold sales are projected to increase, and we have adjusted those about another 100,000. So we expect to be between 2. -- part me 7.2 and 7.4 million ounces for the year. And I would say that the leaning there is to the upper end of that ranging and maybe we'll do a little better.

Total cash costs are projected to increase from the range previously provided of 195 to $200 per ounce to between 198 and $208 per ounce. Total copper sales are now forecast at between 405 million and 435 million pounds, that is equity pounds at a net cash cost of between 30 and 32% as we continue to see outstanding performance at our Batu Hijau operation in Indonesia. And the other forecast numbers are in line with previous guidance.

I did want for a minute to discuss G&A costs which for the first six months totaled almost $58 million and for 2003 are forecasted at between 100 and 105 million. As I mentioned on last quarter's call, I am disappointed that we have not been able to reduce our G&A costs as quickly as we had hoped. The higher year-to-date numbers are due to a number of items, including increased compliance and corporate governance costs of approximately $3 million, increased burden costs of approximately $3 million and mainly due to higher -- to really pension fund catchups and increased Australian G&A, which included some severance related costs, and also just the fact that the -- of the complexity of that operation as we've gone through the cleanup period. I plan to address the issue of higher G&A costs over the next quarter, and we look forward to seeing reductions in G&A for the next six to 12-month period.

Now, let me turn the call over to Bruce who will discuss the 2nd quarter results in a little more detail.

Wayne, thank you. And good morning.

As Wayne discussed second quarter equity gold sales totaled 1.82 million ounces at a cash cost of 212 dollars per ounce. Cash costs were 8% higher than the year-ago quarter, largely attributable to higher cash costs at our Australian and North American operations. Offset by lower costs at Yanacocha in Peru and we had an excellent cost performance at Batu Hijau in Indonesia. For the first six months equity gold sales totaled 3.6 million ounces at a total cash cost of 207 per ounce, increased sales in 2003 versus 2002 reflects the February 15th acquisition date of the Franco and Normandy merger, offset by the sale of the TVX N A joint venture and the sale of equity in echo bay.

Let me review the results and outlook for our core operating regions. The Nevada operation sold roughly 335 thousand ounces in the second quarter, a decrease of 11% from the 2nd quarter of 2002. Total cash costs in Nevada were 254 dollars a ounce, which were 5% higher than a year ago, primarily due to higher label costs, higher royalties, lower than planned Deep post underground mind due to difficult ground conditions and maintenance of the Twin Creeks. [ INAUDIBLE ] It was originally planned for the 3rd quarter. [ INAUDIBLE ] Mill production was also lower than a year ago as mill 5 was idle during the quarter awaiting ore from the gold quarry south green back project currently in development. We do continue to see favorable recovery trends continue at the mill 6. [ INAUDIBLE ] As the system helps manage optimal operating conditions. Development of both the GQXL projects and the. [ INAUDIBLE ] Are proceeding on budget and on schedule. At Twin Creeks the section 30 lay back will commence in August. Forecasted Nevada sales for 2003 remain unchanged from prior guidance at 2.55 million ounces. But at an increased total cash cost of 228 dollars per ounce.

Moving south to Peru, Yanacocha had a excellent quarter, equity gold sales totals almost 344,000 ounces at a total cash cost of 118 dollars per ounce. This represents a 40% increase in sales and a 16% lower cash cost from the year-ago quarter. Higher production was the result of both increased tons placed on the pads and higher grades. And for 2003 we now expect Yanacocha to produce 2.7 million ounces on 100% basis with sales of nearly 1.4 million ounces to our [ INAUDIBLE ] At a equity cash cost of 117 dollars per ounce. And our goals for Yanacocha remains managing incremental production growth through increased productivity while lowering unit costs.

Turning to Australia, we sold almost 531,000 equity ounces at a cash cost of $242 a ounce during the quarter. And obviously we, as others, continue to see significant cost pressures from a combination of higher Australian dollar and a higher fuel and power costs. On the production side, however, increased production where we saw lower production at Yandal by 15%. We're continuing to reason some of the benefits of the joint optimization study in terms of increased production and incremental cost efficiencies.

Now, no discussion on Australia for this quarter would be complete without having a brief discussion of the situation at Yandal and AMC, at Yandal the offers to purchase outstanding debt and hedge liabilities at a discount of 50% went extremely well with effectively one hedge counter party that did not accept our offer while 99.9% of the bond holders tendered in. Newmont has made a offer to the voluntary administrator that, if accepted would bring Yandal out of voluntary administration and return it to its -- to the control of its Board of Directors. In the case of AMC, which was acquired as part of the Normandy acquisition, and was one of the cleanup issues that Wayne mentioned, Newmont made a strategic decision not to further invest in the magnesium business but to rather -- but rather to support a dramatic restructuring of AMC's affairs. As a result, the Company took a $108 million after-tax charge on its investment in AMC during this last quarter. For Australia in aggregate, our 2003 forecast shows unchanged sales of between 1.85 and 1.9 million ounces, relative to previous guidance. Cash costs, however, are expected to increase by approximately $20 a ounce, versus previous guidance, to $250 a ounce. Again, primarily driven by the stronger Australian dollar.

The Batu Hijau in Indonesia had an excellent quarter, copper sales totaling 91 million pounds at a net cash cost of $0.21 per pound. Lower net cash costs driven largely by significantly higher gold by-product credited lower. [ INAUDIBLE ] Refining charges and considerable favorable grade reconciliations. The realized copper price for the 2nd quarter at Batu Hijau was $0.77 a pound. Batu Hijau continues strong in operating financial performance, did allow it to repay 130 million dollars in senior debt principal during the quarter, leaving it its debt at 780 million dollars.

With that, I would now like to turn the call over to Pierre Lassonde on an update on Newmont capital, the exciting results we're seeing in the exploration area and Pierre's always informative commentary on the gold market.

Pierre?

Thank you, Bruce. Good day, everyone. It is always a pleasure to have the opportunity to speak with you.

First, I'll speak about Newmont capital. As I'm sure that you noticed, we did not have any big deals to announce this quarter. What the team is doing is continuing to basically clean up the smaller operations and smaller pieces to keep our organization focused on the mines that make the bulk of our production in earnings. We announced the disposition of our mesquite mine, and this will be completed in the 3rd quarter. And we announced the acquisition of the Mouydoyn interest in our joint venture or mine or deposit in Ghana. For the coming quarters, we have put three additional small assets on the disposition lists, and as we continue to rationalize our portfolio.

In the Business we've tightened up our 2003 forecasts because of lower polaidum prices, that is still water, and we've also reduced our expectation that Baric's gold strike operation in terms of our net profit interests because of higher cost pressure that we are all experiencing in Nevada. And so for the year, we're looking at a forecast of 42 to 46 million dollars for royalty revenue.

And in regards to exploration, in the last six weeks I've been to Ghana, Nevada, Peru. And I have to say that at all three places, our near mine exploration teams are doing a fantastic job. And in Nevada we have to compliment Leroy Schuts who is heading our team there, and he is having very good success there this year and the same can be said for our team headed by Cindy in Ghana, and our team in Peru as well. I do not really want to go into more details. We have -- in September, we will announce our five-year plan, and we'll give you a much more detailed update on where we are. But I can say that we are more than confident that this year not only we replace -- replace reserves, but Newmont has started on the path of growing reserves once more. And this is a -- very satisfying.

And finally, I'll just give a few thoughts on the gold market. We are in the so-called dull days of summer, yet last week for example the gold price was up over $18 in one week, from $347 to $363. This is at a time where the Italian jewelry industry is on holidays, there is really nothing going on. And I had a lot of people asking, well, why?

What is going up? Why is gold going up at this time, even though in the next -- the last few days it has been up about $6 of that. It is a very impressive -- impressive performance in the middle of summer. The short answer is that 80% of the move is due to the weakness of the U.S. dollar. Weaker dollar, more U.S. inflation is good for gold. And in the -- in his latest pronouncement, the Fed. has clearly said that it is prepared to cut interest rates to zero to -- and will keep it there for as long as is needed to get President Bush reelected.

Now he did not quite say that. But the message is very clear and the gold market has clearly picked up on that and I think that that, more than anything else, is responsible for why gold is going up. Longer term, and I'm sure all of you have read in the various papers, whether it is the "financial times" or "Newsweek" or Forbes", the U.S. has a trade deficit against the Chinese rimibee and the Japanese Yen of about $200 billion dollars a year. And the Chinese in particular, to keep the Remebee from I appreciating, they are buying as much as $600 million every day, and that is unsustainable, particularly that if you put the two together, their reserve -- the central banks reserves of China and Japan by year end will touch to one trillion dollars. Well, as we've noted before, what can go on forever stops. And that more than anything else will continue to I believe the gold bull market that we have been experiencing for the last two-and-a-half years.

So I think that with that, I will turn over the microphone and, operator, we are more than happy to take any questions.

Thank you. At this time we will begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone touch pad. If you are using speaker q-and-a . Michael Dudas with Bear Stearns, you may ask your question.

Gentlemen, good morning.

Good morning, Mike.

Three questions, one, first two for Wayne, last one for Pierre, Wayne regarding cost pressure in Nevada, cost plus or cost push from labor rates or consumeables or is the management there trying to look at maybe re optimize and look at a little bit of a different way to mitigate the increases? Secondly are you managing things at Yanacocha very differently because very impressive results this quarter, and third for Pierre how do you look at the industry's hedge situation? How do you feel the producers are acting relative to the gold price, and do you believe that the dehedging will continue to be a supportive aspect to the market?

Thank you, Mike. I think that with respect to Nevada, obviously we have seen cost pressures not so much per se from labor, but again some of the burden costs come through there are pension -- we've got some pension catchups. The labor situation is, you no he, we continue to negotiate with the union out there. We have not had a contract in place since last -- since September 30th. You know, we're hopeful we'll get something done at some reasonable time here. But it is -- it is not a huge issue to us in the total context of Newmont. I think that the other pressure there, obviously, are the -- are the fuel and energy costs, and that is going to continue to be an issue for us. We have run into some poor ground conditions at deep post, and I think it is going to take us a few months to kind of get through that, and sort those things out. But we are expecting a better cost performance there in the -- in the second half of the -- of the year.

I think with respect to Yanacocha, you know, this is really in line with our expectations. We're doing a little better. But we had said that we were going to go through a period, we had some increased stripping and we had some lower grades that we had to go through the last -- the last couple of years. We've gotten through those. And we've also done a lot as the -- you know, the growth curve from the stand point of mining rates has finally slowed down there. And we've spent a lot of time over the last year-and-a-half in training and developing people, first-line supervisors and -- and managers there in really running an operation of this scale, and I think we're starting to see a real payoff from that.

And, you know, we're able to draw down -- I think we're getting better draw down on our inventory there through some of the carbon columns that we invested in.

So, again, I think that the -- the direction there is towards lower costs,s -- we should be looking for that. And -- and a little better production profile too. So -- and again I guess really importantly is we're starting to really reap the rewards of a lot of investment over a number of years and we're starting to see really significant pre-cash flow generation here and that is obviously rewarding.

Pierre?

When we announced the merger of the three companies, the total world hedge book was about 4,000 tons. And by the end of the last quarter it was down to 2400 tons. So I think we have had a tremendous impact on this industry with the no hedging philosophy. I mean, we ourselves, Newmont, have closed out, as you've noticed, about 10 million ounces in the last 15 months and we have just been, I guess the leader of the parade here.

How much there is left to go? Probably another year-and-a-half at 400 to 600 tons. The industry does need to land for the jewelry manufacturing, so it is not going to go to zero. But it is -- it is going to go closer to the thousand ton than the 2400 where it is. It has a few more years to go and it will continue to be supportive of the gold price.

Pierre, one follow up, if the gold price were to, say, increase $150 and interest rates widen dramatically, do you think that the industry would come back in and restart the hedging game?

You know, I don't really want to speculate. I think at this point, you know, we have a firm no-hedging philosophy. And it is -- it seems obvious to us that the shareholders of gold mining companies want the full appreciation or the full value in the share price of appreciation in gold. And you look at the performance of the various gold stocks and it is clearly the none hedges who have been the winners. So I think that, you know, we as management respond to that. And I think we've seen a lot of the industry management do the same thing. And I do not know what they'll do in the future. I cannot predict. I can just say what we will do at Newmont.

Wayne, Pierre, thank you very much.

Our next question comes from John Tumazos from Prudential Financial. You may ask your question.

In terms of the 29% 2nd quarter provision for taxes, about half the pretax income was the Yandal closeout gains which I presume was financial income without depletion or other tax benefits. Did that income accrue a full 34% rate, then leaving 24% as the rate for operations and maybe the rate we should look at going forward?

John, we have obviously a lot of noise in our tax provision this quarter. With respect to, you know, the specific items, the Yandal income we did provide at a Australian tax rate, a full 30%. The AMC writeoff, we were able to take very little benefit, if you look at the gross and the net of tax numbers there. Very little benefit there. We had -- obviously, we're giving very wide guidance this year. And we wish that we could do better than that for you all in your model building, but we've got some things that we think that we can bring that down as we get towards the end of the year. But those transactions have not happened yet and we cannot -- you know, we cannot reflect them in these quarterly results. So we apologize for the wide range, but that is just where we are right now in the scheme of things.

Concerning the S.E.C. registration, when did your registration statement become effective?

John, if you did your home work, you would know it is not effective.

So that I would presume that with your stock at $35, it would be a good level to use as currency to acquire other companies if there is other companies with assets comparable to yours. And that you would want to close out whatever these issues are and get on with things? Can you describe what the remaining open items are?

The remaining open items have to do with the fact that the accounting profession and the S.E.C. staff have not decided on how purchase accounting should really be handled going forward, i.e. looking at how you should impair the goodwill number, if there is a change in circumstances. And I think very frankly I think we're just -- you know, we're the poster child here. We're the first one to do a very large transaction. We spent a little bit of time talking about this I think at the last quarterly and we do not necessarily agree with a lot of the guidance given to this industry and how you classify, you know, real mineral interests as intangibles and so some of those items. And I guess, John, we -- you know, it is easy to just say, well, you should roll over. But, frankly, I think we've done a little bit too much of that in the past. And so we are trying to get this resolved. We are very encouraged that the SEC has now referred a number of these questions back to the Financial Accounting Standards board. And we think they've been going through a -- you know, making new rules without going through a rule-making process. I think that this is a positive development.

Does that mean it goes real fast? I'm not sure, but I think that we need to end up with something that makes sense to you all. Both the analyst community and the investors. I'm not sure that we've gotten there yet.

Thank you.

If you denote some frustration in those comments, you are correct.

Once again, that is star-one to ask a question. Our next question comes from Barry Cooper with CIBC World Markets. You may ask your question.

Yeah, Bruce. I was just wondering, can you give us what the approximate cash position you'd have now, given all of the developments there in July with respect to the Yandal closeout?

Well, Barry, Barry our cash at the end of the quarter was roughly $275 million dollars. We spent 198 million roughly in terms of the bond buyback. And I think we settled the hedges earlier. And so I think, you know, we're probably you know somewhere in the 100 to the $150 million cash range.

Okay. Good enough. And I was just wondering if you could walk us through some of the critical paths with respect to what could happen at Yandal over the next two or three months there.

Basically, Barry, it is -- you know, it is involuntary administration. It is being managed by the administrator. He has to go through a process of evaluating our offer versus alternatives. We think that probably what is going to transpire is that hopefully sometime here in August or early September, he makes a determination to put our offer to a vote of creditors and which we do get a vote and hopefully that gets accepted. The alternative is that somebody else comes in, and wants to pay more for the assets and if they want to pay more for it, God bless them.

Okay. Just wondering, can you elaborate a little bit more on the deep post background conditions there? Just how extensive? What are we dealing with here?

I'm going to ask Dave Francisco to comment on that, Barry.

Yeah. I think what we have is movement primarily in the access drifts of the ore body. Probably associated with some relax of the ground associated with the slide that occurred in the pit. Relatively minor. I think we do not need to dwell on them or think that the mine is in jeopardy, but the ground is just moving a little bit. We are having to do some more screening, bolting and shoring up. That's all.

Has it led to any dilution issues or anything else like that?

We have some issues actually in the stops, historically at deep posts we've found better grades and more ore than we had actually modeled or when we actually mined. What we're finding now, it may be something that is temporary, do I not think it is serious, it is just a minor variation, we are actually getting a little less great out of the deep post stones and some of the stones are not as deep as we modeled, now we're getting slightly smaller stops and slightly less great.

Can you just refresh us what exactly you are looking for production this year in terms of tons, grades or ounces or anything like that from the posts.

Actually, we're 35, 34,000 ounces below plan on our total underground ounces and most of that coming from deep post.

And what is the total expected for the year from deep post, or was expected?

Gosh. I do not have that in front of me. It is several hundred thousand ounces.

Barry, I'll get back to you after the call and let you know.

Okay. Good enough. And one final question: you put a statement in here that you are kind of monitoring your holding, obviously I expect that you are doing that all of the time, the fact that you put it in your press release, suggesting anything different now than would have been over the past year or so?

No. We wanted to just put that in because, you know, since where we carry that investment, we are not marking it to market. And at the current time there is probably about a $20 million difference between the carrying amount and the underlying, you know, market price today. So we just wanted to put that in so that everyone see what is going on there. But we -- we are very enthusiastic about the -- you know, we think that stock tracks well with the gold price. So as we see the gold price, you know, we'll continue to monitor that like any other asset.

Okay. Good enough. Thanks.

Our next question comes from Alberta Arias with Goldman Sachs. You may ask your question.

Yes, good afternoon. A couple of questions on Yanacocha and the higher guidance that you are giving us for 2003. In the past you have given us 2.5 as the level in which the medium term production would stabilize. Should we assume that 2.7 is a new plateau that Yanacocha is going to establish? And if you could give us guidance with regards to what are the bottlenecks for further expansions at those operations?

Yeah, I think that, you know, we look at higher -- the production levels we're looking at, we would expect to be able to achieve those over, you know, at least over the next three years as we look out right now. And I'm sure that, you know, we'll continue to do a little better as we continue to drill there. So I think that you can look at that as a new kind of floor. Yeah. And with -- You know, I will say continued upside. Again, we gave guidance several years ago that we're going to go through a period where we're going to have a little bit lower grade and we're going to have a little more stripping, and we've gone through that period. And now we're seeing the benefits of that, Alberta.

On the exploration side, do you feel confident that the exploration results would replace the reserves and the higher production grades? Would you expect an increase in reserves at Yanacocha by year-end given your exploration results?

I think at this point we're willing to say that overall we're very pleased with exploration throughout the Company. And I think that we're -- you know, we feel increasingly confident, I'll go out a little bit further than Pierre, and say not only will we replace depletion but depletion and sales of properties that we've conducted this year. Yanacocha is -- you know, we continue to drill there. We see new targets, and we've had some new successes. Whether we get all of the drilling done to declare reserves that will replace depletion this year or not I think is -- we'll just have to wait and see. And we continue to be very optimistic about Yanacocha long term.

And one final, with regards to the corporate market, improved fundamentals is there any change on the plans for developments of Minisconda given the higher copper prices?

Not at this point in time.

All right. Thanks.

Our next question comes from John Bridges with J.P. Morgan.

Good morning Wayne, Pierre. I just wondered how much of the copper at Batu Hijau have you got hedged at the moment given the strength of the copper price are you thinking of adding anything to that?

John, this is Bruce. We do kind of an ongoing program of hedging not more than 50% of our forward copper, probably not more than 12 months out. You know, obviously as -- as copper prices improve, we look at maybe doing a little bit more than that. But, you know, this is a very disciplined program. And it does not really go out very far. I think we think, you know, we're also very encouraged by the developments in the copper market. And so that is something we'll continue to watch as well.

Bruce, while I've got you, the little adjustment, the miscellaneous gain -- oh, sorry, miscellaneous write-downs, any highlights in there? I'm just trying to get a sense of what it was?

No, not really. It -- you know, I think it was some reclamation accruals primarily.

Okay. Okay. Great. Thanks a lot.

Our next question comes from Tanya Jakusconek with National Bank Financial.

Yes, Susan Muir, just a question for Bruce on the foreign currency losses on the income statement, looking at your cash flow, it looks like it has increased by 14 million after Q1, or 10 aftertax. I wondered if that was a fair representation of the component of 4X on the income statement.

I'm looking for -- for that.

It was about 20 million in Q1 and I see now it is at about 34. A loss of 34 million. And so --

Okay. I think we'll -- we'll just have to get back to you on that, Tania, because I am not exactly seeing the number that you are seeing.

Yeah, okay. It is Susan. If you could, Bruce.

Susan.

I'll get back to you, Susan, after the call.

Thank you very much.

Our next question comes from Geoff Stanley with BMO Nesbitt Burns. You may ask your question.

All right. Thank you very much. A couple of questions. Firstly, about Batu Hijau, it has had obviously a pretty good run of performance here and obviously low costs generating a fair bit of cash and you, I note for the first time really paid back for the first time a substantial chunk of debt can you give us philosophy for the repayment of the debt now? Is it actually -- that repayment, was it a requirement on the amortization schedule? Are you still basically trying to maintain as much debt there as you can given the political risk of the area, or -- or is that improving enough for you to be confident in paying that debt down, independent of the -- of the requirements?

And perhaps a second question that Pierre might like to address, central bank sales, the Washington agreement or so-called Washington agreement drawing to a close there in a little over a year's time. Are you getting any sense of what negotiations are underway at the moment, and what the outcome of that Washington agreement might be in a bit over a year's time, Pierre?

Okay. Jeff, let me tackle the question on Batu Hijau's debt balance and repayment schedule. If you remember last year, we restructured the Yanacocha debt to defer 173 million dollars worth of principal. That was when we saw copper prices getting into the low 60s. With the robust performance at Batu Hijau and also improved copper prices, what we've done is essentially caught up on all of that deferred principal now. And we're back on the regular amortization schedule, which is roughly $43 million every six months. You know, and our intention is to stay on that amortization schedule, continue to reduce debt as we build up a -- various accounts in -- in conjunction with the debt facility, then we're able to make restricted payments to the shareholders. And so our objective is cash to Newmont. And, you know, hopefully shortly we'll be able to see some of that cash coming back to Newmont.

Okay. Excellent.

Okay. On the central bank, it is a very good question. First of all, I've got to say that there was no negotiations involved in the first one. What happened on the very first agreement is the central banks realized that they were having a very negative impact, principally because they were viewed as undisciplined sellers. And when they realized that, they themselves got together and drafted the Washington agreement.

I guess the -- where we are today is, you are right, I mean the agreement runs out in September of next year. And the banks have clearly seen that the agreement has worked. I mean the gold price today is a lot higher. Now it is not -- very little of it is due to the agreement. But the change in sentiment when they did it was very important. And they realized that.

The question today is, "Is an agreement needed?" because at the end of the day, when you look at the market and where we are today, we're in a very different situation than we are four years ago or five years ago. I think the central banks are debating the issue, whether or not they need an agreement, or a accord and at what price and whether or not, if they had one, they would actually use all of it. I think that some of the banks, for example, the bank of England, they are out, they are gone. You know, they are finished their gold sales. Canada, they have about 20 tons left, they were not part of it, in the first place. But a lot of the large banks that were the large sellers are not longer in the market. You are down now basically to a couple of central banks in Europe. And whether or not they need to have a accord to be disciplined or not is what, I think, they would be looking at. So to my mind the relevance of the agreement is becoming less and less with the strong gold price, and whatever happens at the -- the one thing that you know for sure is that the banks are very well aware of their importance, and I think that the -- we'll be -- whatever the message they are going to put out there, whether it is through an agreement or a accord or something, will be that we are disciplined, we understand the market and that is all we need as market participant.

Okay. Excellent. Thank you very much.

Our next question comes from John Hill with Smith Barney. You may ask your question.

Very good. Thank you. I'm just curious if you could offer a few minutes on synergy's yet-to-be realized in the wake of last year's transaction. Investors are naturally pretty cynical about operating costs following commodity price higher, and it is not just in gold, it is across all of these businesses. And I was wondering to what degree you see yourselves able to differentiate Newmont by driving margins independent of the gold price, be that through either operating inputs or through tax cost of capital, et cetera.

Okay. John, I think, yeah, I think we've been very successful in the first year with respect to a number of the areas that we identified from a synergy standpoint, and certainly tax was one of those. And we've seen that in a very real cash way. I think at the time we did this transaction, talked about annualized savings in the 70 to 80 million dollar range. I think that as we did our own scorecard this last year we're probably in the $50 million dollar range.

From the standpoint of where we are going forward, I do not want to make the point that on a Australian dollar basis we were really pretty much right on tarring with respect to our spending in Australia on operating costs. That was largely driven by the -- by the change in the currency there.

The G&A comments that I made earlier do relate to an area that we think that there is substantial benefit to come. We're still -- because of the structures of Normandy, with minority interests and a number of separate reporting requirements, we've had to keep a bigger staff there than we had -- longer than we had intended. We now have minority interests bought in. We still have a number of very complicated structural issues that relate to how the tax structures were put together. And I can tell you that both our Tax Department and our legal department understand we have -- I have set goals for them on the elimination of entities, and when we bought Normandy it had 275, 200 what?

256 subsidiaries. Unfortunately, that costs real money to maintain and we're on a rapid program to get rid of those. We see rapid benefits there.

And I would just say that after a year of operating in Australia, we think that there is some better things though come. We're really looking hard at the organization's structure in kind of the traditional way that a lot of these remote locations were operated, so we do think that not only will we ultimately achieve our, you know, our full valley of the synergies that we've pegged out, I think we're darn close there now but we think that we can probably exceed that which, you know, has been our history in the past.

Very good. Thank you. And one follow up for Pierre, I know Pierre you seem to always get these difficulty macro questions about the destiny of the cosmos, but I was interested in your thoughts on a question we here from investors a lot which is what do you see as the potential for the gold-backed exchange traded funds and their potential impacts on gold stocks, do you see them draining liquidity away and impairing valuations or do you see them as a positive by increased gold demand and therefore higher gold prices than just expanding the pool of investors. Thank you.

Yeah. No. A very good question. And you are right, we've had that question asked of ourselves at Newmont quite a bit. And my view and, you know, look, it is personal, but it is -- I always remember marketing 101, you know, when I was doing my MBA, and the professor says okay you've got a McDonald's coming in and installing a store at a busy corner and it gets so much traffic and then a Wendy's comes in at the next corner, and a KFC, you know is the traffic at McDonald's going up or going down. The answer is always it is going up. Why? Because it became a destination for fast food, if that is what you wanted.

And the -- I believe the answer for the gold market is going to be that one. There is a vast pool of capital in America that cannot access gold in the present form. And this will open up the investment possibility for pension funds in particular. Well, there are funds that would never have looked at the gold sector in the first place. They would never have bought Newmont simply because we are just not big enough as a entity. And now all of a sudden, if the -- the market is big enough for them to look at us, I think what is going to happen, they're going to say, well, gee, if we buy some gold, can we buy some leverage. And if we have to buy some leverage, let's look at some equity? And I think that that side will win over. And I think that what also will happen is that some of the funds today are very long equity because they do not have enough access to bullion and they will dispose of some equity and buy some bullion. There will be some of that. I think that what you will find by a huge factor is the opposite. You will find that this product will enlarge the market significantly, and that is good for the industry.

Very good. I share your views, and thank you.

Thank you.

Our next question comes from Victor Flores with HSBC. You may ask your question.

Yes. Thank you. Good afternoon. Just a couple of housekeeping questions. How much did you spend during the 2nd quarter purchasing back hedge positions? And how much of that was the Yandal and how much of it were other positions?

Spend roughly $88 million by hedge positions in the 2nd quarter. Do we have anything in the investment side?

We had $88 million that affected the working capital, operating cash flow section. But in addition, we spent $25 million that showed up in the investing area of the cash flow statement. So roughly $113 million. That was buying back hedge positions. Of that, $77 million was associated with the Yandal.

Great, thanks. And the mark to market of negative 19 million, is that for the entire remaining book or just the Australian book or is Australia all that is left.

No. That is the Australian book. The -- any -- the other things that we list, we do not mark to market.

These are the pre-paid forwards and what not?

Paid forwards and the capped sales contracts.

Okay. Great, thank you Bruce. And then just a question on the development projects. In terms of the development decision on the Ghanaian projects is the deep required to make this decision between now and year-end due to perhaps technical issues as-yet unresolved, or is it primarily the forward investment contracts that you are working on?

No. We have a very active review going on -- on design and scale of this. And it is -- you know, frankly the drilling has been very good this year, so that is -- a little bit of that has been a moving target. But we've pretty much settled now on our flow seat and the size of the equipment. We do and always have done a lot of metallurgical testing. That is the nature of our organization. And that program will finish up in about the end of October, Dave? And so that is going on concurrent with the negotiations with the -- with the contract with the government.

Right. Okay. So I mean -- so it sounds like what you are saying is that essentially you have made a positive development decision. What you just have not pinned down are some of the particulars in terms of threw putt and recoveries and what not?

No. We do not have a formal agreement that has financial considerations attached to it, which affected rates of return. We like to see all of those things nailed down before we make the decision. So, now, we do have a little bit to go. But the cooperation with the government has been very good. And we're in the midst of those negotiations now. And ultimately, that has to go to the parliament, I guess, for full approval on that. So -- or the cabinet. But it is -- it is -- parliament.

It is very similar to -- you know, what we'll end up with is very similar though what we have in per are you, where we have tax stabilization agreements that fix everything for the life of the project. And that is what we're trying to achieve here. So that is very important. And we need -- we want to get through that. At that point in time, then we'll know the -- the -- you know, we'll have our best technical information, and we'll have the financials nailed down and we'll be able to, you know, take this to our -- first our internal approval process here within the company and then ultimately our board.

Great. Thank you.

Our next question comes from Elliott Glasier with Dupascure Incorporated. You may ask your question.

Yes. On your capital spending, the six months of 215 million, up from 140 million, can you share with us, you know, where that capital spending went and what geographies?

Yes, Elliott. Roughly 50 million of that was in Nevada. And 90 -- roughly 95 million was at Yanacocha. About 30 million in Australia. And then the rest kind of spread around.

Okay. Next, you clearly stated that you brought forward into the 2nd quarter the maintenance of the twin creeks auto crave that was originally planned for the 3rd quarter. What kind of dollars are we talking about? A few million dollars?

In regards to the maintenance projects.

Yeah, how much did you bring forward in terms of costs from Q3 into Q2?

I don't know. Dave, do you have a sense on that? We -- in terms of the rebricking and the things that they had to do there?

Yeah. I think the biggest impact is the impact on production. That was why some of the production numbers for Nevada were lower in the 2nd quarter, rebricking and maintenance like that, the turnaround would be perhaps a couple of million dollars.

Okay. Next, the -- how much ore are you waiting from the gold quarry south back the GQSXL project in development. The idling, what was the effect of that. The oxide mill production was lower than a year ago as the ore was waiting for the gold Carrie currently in development... Trying to get sort of a cost effect of that?

Yeah. The idling of the mill is -- essentially we did not have ore of the right metallurgical type and grade of ore for that. It was scheduled to be down longer than it actually will be. It is not actually a shortage of ore or it does not bespeak to a problem of production in operations in general it is just that you know you have to wait until you get a certain amount of high-grade oxide available to do the mill.

And how long will that take?

I think it is scheduled to start up next month.

That is what I wanted to know. Okay. And lastly, the selling of the mesquite mine in California, which produced about 15,600 ounces, what kind of consideration are we talking about? Would it be let's say under $30 million or over $30 million dollars.

The consideration was $10 million.

All right.

And we do get -- but we do get a 50% profit-sharing agreement on the production of remaining ounces off the leach pad with western gold fields who took over.

Gentlemen, thank you very much.

At this time, we will take one more question. Our last question comes from Dave Gigliano with CSFB, you may ask your question.

It is Dave Christensen and I hope that you do not mind, it is two parts. One of your competitors the other day stated they were having trouble obtaining sulphuric acid in the last quarter, has there been any change that would have negatively affected output during the last quarter.

Dave, Russ Ball, I heard that as well, we spoke with the folks in Nevada, it was nothing untold. Whatever down period we had was scheduled. It was a surprise to us.

Okay. The second one for Pierre, if you do not mind. Conceptually Pierre, given your registration statement that you have out there, kind of tied up now at the SEC for various reasons, and the potential sale of securities that might involve or allow you to do, is it better in your mind to issue Newmont paper or liquefy some of the non-producing assets held by Newmont.

Who is to say we have to do either one of them. That is my question.

I was asking which one was better. I did not say that you had to.

I think it is a hypothetical question. Look, we're comfortable where we are today. We're having, you know, a great year. And I can honestly say I think it is going to get better. The -- you know, normally, as you know, Newmont does better in the last six months. And I think this year it is shaping up to be the same. And we continued to monitor the markets for, you know, to see, you know, what we can do or we do. But at this point I -- you know, I think it is a -- it is a hypothetical question. And we're -- we're happy where we are.

All right.

With that, we'll bring the call to an end. I think it continues to be a very, very interesting time for this company. And obviously for our industry. If you have not denoted, we do feel very optimistic about the gold price environment we're in. And we think that this continues to have quite a ways to go. But -- and I guess, you know, when we look at the things that we control, I think you really do see the benefit of the land position this Company has. We're very excited about what is happening in Nevada. And I think, you know, we find ourselves kind of in a transition period there. I think, you know, we're probably going to be in our third generation of development when you look back over time in Nevada.

And Yanacocha is doing very, very well, and, you know, I think, as we've talked about, we're going to have a couple of slower years there. We are through that period. And the future looks extremely bright there. I think when you look overall at the profitability of the Company and where it is going to go, I think if we do make the decision to move forward with Ghana, we have another operation there that is going to be a lot more characteristic of maybe the kinds of benefits we've seen that Yanacocha can bring with that kind of cost structure and that kind of production profile net to us. And Batu Hijau continues to perform very well. And I think as we get more and more into the Australian operations, you'll see those benefits come to the forefront over time. Again, big land position.

We've done a lot of cleanup and a lot of catchup over the last period of time. And we've had a lot of people working very hard. It will be nice to get off our heels there and get on the balls of our feet.

We thank you for your interest and look forward to talking to you at the end of next quarter.

We would like to thank you for joining today's conference call. If you would like to hear the replay of this call, please dial 1-402-220-4764. Thank you. And have a good day.