紐蒙特黃金公司 (NEM) 2003 Q3 法說會逐字稿

Good afternoon and thank you for standing by. All participants will be able to listen only until the question and answer session of the conference. This conference is being recorded. If anyone has any objection, you may disconnect at this time. I would like to introduce your host for today's conference, Mr. Russell Ball, Group Executor of Investor Relations. Mr. Ball, you may begin.

Thank you, operator. Good afternoon and thank you all for joining us on Newmont's third quarter conference call. The call-in presentation is being simulcast on our website at www.newmont.com and will be available for playback for a limited time. As we will be discussing some forward-looking information, you should be aware that are risks that are described in detail in our filing with the SEC. The information we are discussing today is relevant for the current period. For the most up to date disclosure, please refer to our latest SEC filings and news releases.

During the call we will be referring to financial measures not prepared in accordance with Generally Accepted Accounting Principles, or GAAP. A reconciliation of the nonGAAP financial measures to the most comparable GAAP measures is included in our news release which is available in the investor information section of the website. In particular, reference will be made to total cash costs per ounce and net cash costs per pound, both of which are nonGAAP. The total cash cost per ounce is intended to provide investors with information about the cash generating capabilities of Newmont's mining operations. Newmont's management uses these measures for the same purpose and for monitoring the performance of its mining operations. These differ from GAAP and should not be considered in isolation or as a substitute for measures of performance or liquidity in accordance with GAAP. They were developed in conjunction with other gold mining companies associated with the Gold Institute in an effort to provide a level of comparability.

However, our measures may not be comparable to similar title measures of other companies. With me today for the call I have Wayne Murdy, Chairman and Chief Executive Officer, Pierre Lassonde, our President, Dave Francisco, Executive Vice President of Operations, Bruce Hansen, Sr. V.P. and Chief Financial Officer, and David Peat, Vice President and Global Controller. With the formalities over with, let me turn the call over to Wayne for his opening comments.

Thank you, Russell. Good afternoon, everyone. Before I get started with a review of the third quarter, I would like to congratulate my good friend and our President, Pierre Lassonde, for receiving Canada's highest honor, The Order of Canada this past week. And he's told me that we don't have to call him sir. Newmont had a terrific third quarter.

Overall the results showed the strength of our portfolio of core operating districts, especially the record-setting quarters for gold production at Yanakoja in Peru and the very strong cash costs in Indonesia, obviously driven by both very efficient operations and the gold credit that we inherit there. Net Income, revenues, the average realized gold price and margins all increased significantly for the third quarter of 2002. Higher gold prices and significantly higher margins are being reflected in strong bottom line Earnings per Share growth and Cash Flow generation. As you may have seen in the news release that we just issued today, the Board of Directors has increased the regular quarterly dividend by 25 percent to $.05 cents per share payable December 17th to holders of record on December 10th. This follows our January 2003 increase to $.04 cents a share. We're pleased to again increase the Dividend reflecting our strengthened Balance Sheet and our positive outlook for Newmont and our continued positive outlook for the gold price. Third quarter Net Income of $114 million dollars or $28 cents per share increased some 450 percent over the year ago period. Revenues of almost $900 million dollars were 25 percent higher than a year ago. The realized gold price of $366 dollars per ounce was some 16 percent higher than the year ago quarter.

Equity gold sales were essentially flat at 2.1 million ounces, a total cash cost of $201 per ounce, a 6 percent increase over the prior quarter -- over the prior year. With the higher realized gold prices, margins increased almost 50 percent from $68 dollars an ounce a year ago to $101 dollars per ounce in the third quarter. For the nine months revenues totalled $2.4 billion dollars on equity gold sales of 5.7 million ounces. Total cash costs of $205 dollars per ounce were slightly higher than the year ago comparable period but were more than offset by the 16 percent increase in the realized gold price to $357 dollars per ounce. Net Cash provided by operations totalled $555 million dollars before utilizing $121 million for the settlement of effective derivative instruments. Executing our goal to reduce debt and strengthen our Balance Sheet we again lowered our Net Debt to capitalization ratio at the end of September to 13 percent from 16 percent at the end of the second quarter. I think we have lowered it every quarter since we completed the transaction merging Normandy and Franco and Newmont in February of 2002. Today we will complete the early redemption of the $100 million dollar Battle Mountain gold 6 percent debentures. And earlier in October we announced two further tender offers that Bruce Hansen will speak to later.

So, we continue to lower our debt in fourth quarter. As the post-merger process -- post-merger clean-up process nears completion, the Income Statement is becoming less and less noisy. This quarter, however, was impacted by the following items: We had about a $13 million dollar or $.03 cent per share loss on investments. This primarily related to the executed sale of $28 million shares of Kinnross after earlier under accounting rules being required in the first quarter of this year to record a gain of $84 million dollars. We also had a $32 million dollar or $.08 cent per share after- tax loss for the change in the fair value of gold derivatives that were outstanding during the period that did not qualify as effective hedges. This primarily related to the last of the Andal Hedge counterparts. At a $14 million dollar or $.04 cent per share after- tax gain on the extinguishment of the Andal bonds and a $21 million dollar after- tax gain on the extinguishment of the remaining Yandal derivative liabilities, $3 million dollars of miscellaneous charges. These transactions had the effect of reducing Net Income for the third quarter by about $14 million or $.03 cents per share. As you can see, we are delivering on our earnings leverage to our shareholders in accordance with our unhedged philosophy. We will continue to grow our bottom line.

Following the exceptional third quarter, we expect to finish up the year in a very strong manner. While production will not be at the same level as the third quarter, given the higher gold price we should do very well. For the full year we expect to be at the higher ends of our previous forecast of 7.2 to 7.4 million ounces. We've updated our forecast and expect to be between 7.3 and 7.4 million ounces. Our guidance per total cash cost is in the mid range of our previous forecast with an updated forecast of between 202 and $208 dollars per ounce. Total consolidated copper sales are now forecast at something north of 415 million pounds at a net cash cost of between $.29 and $.32 cents per pound. Royalty revenue has been very positive this year as we've benefited from higher oil and gas prices and higher precious metal prices. Our forecast is now between 45 and $50 million dollars for the year. Where nine months in the bag, we've also lowered our DD&A forecast to approximately $560 million dollars and Exploration and Research in G&A shows a slight increase from previous guidance.

As Pierre will discuss later, we're happy to increase exploration spending based on positive drilling results and advancement of our pipeline of projects which we described in our September 24th release in conjunction with the Denver Gold Forum. Again, we continue to enjoy very successful drilling results and expect to more than offset the depletion this year and grow our reserve base with the drill bit. Our updated Capex forecast is lower at 525 to $550 million dollars. Let me now turn the call over to Bruce who will discuss the second quarter results in a little more detail.

Thank you, Wayne, and good afternoon. As Wayne mentioned earlier, third quarter equity gold sales totalled approximately 2.1 million ounces at a cash cost of $201 dollars an ounce. Cash costs were 6 percent higher than the year ago quarter, largely attributable to higher cash costs at our Australian and North American operations, offset by lower costs at Yanakoja. Rising cash costs were due to a stronger Australian dollar, increased royalties, along with higher energy-related input costs and contractor costs in Nevada.

In addition, as Wayne had mentioned, we had record low net cash costs at Bataishu of $.10 cents per pound after by-product credits. For the first nine months equity gold sales totalled 5.7 million ounces at a cash cost of $205 dollars an ounce. Increased sales in 2003 over 2002 reflect the February 15th, 2002 acquisition date of Franco, Nevada and Normandy along with a 37 percent higher gold sales from Yanakoja. Now let's take a look at our performance at our core operating districts beginning with Nevada. Nevada options sold slightly less than 700,000 ounces in the third quarter, a decrease of 3 percent. Total cash costs of $240 dollars per ounce were 7 percent higher than a year ago, primarily due to higher reagent costs, contractor services and [inaudible] deep post-underground mine due to ongoing ground remediation efforts. Recoveries at the Roser and Auto Place were excellent during the quarter, continuing favorable trends that we've seen throughout the year. In addition, we're augmenting our biomilling process at Mill 5 in Carlin with a biofloatation circuit that will start up fourth quarter of 2004.

This is being done to boost recovery from approximately 55 percent to more than 70 percent. And more importantly, this will provide us with just another economic process to treat mid-grade refractory material that could have otherwise been considered waste. The gold quarry south lay back is in production this quarter while the development of the Leeville underground mine is proceeding on schedule and on budget with the construction of surface facilities essentially completed. At Twin Creeks, the section 30 lay back project commenced in August with gold production scheduled to begin in 2005. Our forecasted Nevada sales for 2003 and aggregate remain unchanged from prior guidance at 2.55 million ounces, although at slightly higher cash costs of $232 dollars per ounce. In Peru, Yanakoja had a record-breaking quarter with equity gold sales of 451,000 ounces at a total cash cost of $113 dollars per ounce. This represents a 37 percent increase in sales and at a 5 percent lower cash cost than the year ago quarter. Higher grade ore, more rapid leach recoveries from the Karachugo leach pad and the completion of additional [inaudible] positively impacted production. I would caution the fourth quarter sales will be lower than what we saw in the third quarter, as we expect total Yanakoja equity sales of approximately 1.47 million ounces at a cash cost of $120 dollars an ounce for the full year.

Now moving to Australia, we sold in Australia 512,000 ounces in the third quarter, an increase of 8 percent from a year ago. Total cash cost of $235 dollars per ounce were up 17 percent year-over-year, largely attributable to the strengthening in the Australian dollar. The Aussie dollar has risen roughly 25 percent against the U.S. dollar in the past 12 months. In terms of ounces sold, Calgurli, Pachengo, Tannami - all had higher gold sales -- while [inaudible] gold sales were down about 11 percent from the third quarter a year ago as [inaudible] continue to ramp down as they are maturing operations. Our 2003 forecast for Australia shows unchanged sales for 2003 at approximately 1.9 million ounces at marginally lower total cash costs from previous guidance of $241 dollars per ounce. Indonesia, Batahishu is having an excellent year, an exceptional quarter. Equity copper sales were 103.2 million pounds, again at a record low net cash cost of $.10 cents per pound.

As the mine benefited from significantly higher ore grades, higher gold by-product credits and lower treatment and refining charges. I would indicate that the higher gold grades in the third quarter are over the long-term mine plan, which generally accesses high other grade ores during the dry season, the second and third quarter, and tends to move up into lower grade ores in the fourth and first quarter. The operating results combined with a 36 percent higher average realized copper price of $.84 cents a pound at Batahishu allowed it to contribute Equity Income to Newmont of $36 million dollars in the third quarter. For 2003 in aggregate we expect equity copper sales from Bhatu to total between 340 and 350 million pounds and net cash cost between $.22 and $.24 cents a pound after gold by-product credits from approximately 315,000 projected ounces. Now, as Wayne touched on briefly, we remain very committed to reducing our long-term debt and we've made net debt reductions in every quarter since the merger. Our net debt to total capitalization ratio at the end of September was 13 percent, an improvement from 20 percent at the end of 2002. And I'd also like to point out at the end of the quarter our net debt fell below $1 billion dollars at $954 million. Today we'll pay approximately $105 million in principal and accrued interest to bondholders for the redemption of the $100 million dollar Battle Mountain 6 percent convertible subordinated debentures. We've also received tenders for approximately $124 million of a subsidiaries 8 and 3/8 senior debentures due in 2005. This offer will expire on November 7th unless extended.

In addition, on October 23rd, we announced a tender for $90 million dollars outstanding of a subsidiaries 7.5 percent notes also due in 2005. The offer for these notes will expire on November 19th, again, unless extended. With that, let me turn it over to Pierre Lassonde, Sir Pierre, for an update on Newmont Capital Exploration, and of course, as always, insightful views on the gold market.

Thank you very much. I'd just like to comment that indeed it was a great honor to receive the Order of Canada. The irony of it all is that now that I live in the United States, nobody knows anything about this, so it's business as usual. I'm still a nobody. But this company is a somebody, and it is going somewhere. And I just want to touch on a few things this afternoon with you all. Newmont Capital.

The Newmont Capital Group has been executing on portfolio optimization. You look at what it has done in the last quarter. We've sold some of our Kinross holdings for net pretax proceeds of over $224 million dollars. We also completed our sale of our Mountain Woods joint venture to Minotaur Resources in which we've taken an equity stake of approximately 13 percent, and we've also engaged into the sale of our Willuna Operation, which as Bruce pointed out is ramping down. In terms of district consolidation, we've talked about it in the past, and you've seen that we have done a deal with Placer on Turquoise Ridge or [inaudible] property in Nevada adjoining our Twin Creek operations. Now Newmont has a 25 percent interest in this property, and we process the material at our Twin Creek plants while Placer is the operator and 75 percent owner of the property. This is an excellent deal for both companies. It does -- it shows that we can cooperate and we can maximize the efficiency of our Capital and return to our respective shareholders. We've also completed the purchase of the Moidau interest. They had an interest in the Haffle property in Ghana.

That has now been done. In terms of joint ventures, we also have completed in something like 10 days a joint venture with Southwestern Resources on their Liam gold/silver project in South Central Peru, as well as taken a small equity position in the company. We believe that that particular property has a great deal of attraction to us and it is currently drilling. Some of the results have already appeared in the press. In other joint ventures, we completed another one with Adley Resources in Australia as well as with DN American in Peru and Axman in Mali. All these have been announced, and you can see that our guys don't let much grass grow under their feet. The royalty income, that has been a really positive story this year. Wayne mentioned the forecast. We've upped it from the 40, $45 million to 45 to $50 million. And as a matter of fact, by the end of this quarter, the third quarter, we were already up at $41 million. So, this division is also doing extremely well.

As you may have seen in our announcement of September 24th, the Exploration Group is having another banner year. I think what -- I like to refer to our Exploration Group as our discovery machine. These guys are absolutely hitting the ball right out of the ballparks. And we are very driven by results. If you look at our third quarter, our expenditures on Exploration was $31 million, a 21 percent increase from a year ago. And for the nine months we're at $82 million or a 48 percent increase from a year ago. We currently have 64 drill rigs in operation around the world. But the results speak for themselves. When you look at Ghana, we fully expect to double our reserve by the end of this year in Ghana from about 5 million ounces to 10 million equity ounces in Ghana.

And as I pointed out at the Denver Gold Show, we still have to drill a hole below 300 meters. All of these ounces are literally within the first 250 meters, and they're open pit reserves. In Ghana these systems go down at Obowassi. They are another down at 1,600 meters, going to 2,000 meters. And now while we don't know if, you know, any of the systems we have have got that kind of depth, they do have the potential of going certainly a lot higher, and they're still for the most part all open depth. We do have very high confidence based on the positive results that we continue to get. We're updating the feasibility studies, and we expect in terms of Ghana to have a development decision by this board by year-end. Of course, pending the finalization of an acceptable foreign investment contract with the government of Ghana. In Nevada we expect to replace our reserve once more this year and we can see reserve addition coming from Gold Quarry, Twin Creeks, the Sage lay back and Midas. In fact, in Midas we are getting some very nice results and it's looking pretty good over there. At the Denver Gold Forum, as I just mentioned, on September 24th, we provided our five-year plan to the street and further information on our project pipeline. There are three things that are very key to retain from our presentation. The first one is that we have top line growth. We expect to increase our annual gold sales from the current level to over 7.7 million ounces between now and 2007. That's number one. The second important point, and I think to our mind it's even more important, is the fact that we fully expect from the wave of new projects, the new generation projects that we're gonna put on the books that we're gonna decrease our cash costs and increase our margin.

And we expect our cash costs to decrease from the currents 202-208 guideline to somewhere around $175 dollars to a maximum of $190 dollars by 2007. So, we're looking at top line growth, higher margins, a double benefit for the bottom line, earnings. And the final point is the efficiency of Capital at Newmont. If you add the Capital costs of all of these projects, the five projects, the two in Ghana, two in Nevada, one in Australia, we're looking at Capital costs over the next five years of about $1.2 billion to give us a total of somewhere between 2.4 to 2.7 million ounces of gold per year. Now, some of that will be replacement ounces, but with lower cash costs. Therefore, a bigger margin. But the bottom line is we have very high efficiency of Capital when we compare to some of the other projects or companies in this business. We're very proud of that. And I think another point to be made is the very real benefit of diversity of operations. I mean, in this quarter Bruce and Wayne pointed out that Batu and Yanakoja had really great quarters. At Batu the cash cost of $.10 cents a pound, Yanakoja a record production. You can achieve that. While in Nevada we've had a bit of struggle with the deep underground posts, when you have the benefit of a multi-mine and multi-jurisdiction companies like Newmont, you can have quarters like we have this one that gives this company the extraordinary strength that it has.

And I think that the street certainly recognizes that, but I tell you as you are in management and you see that, it's a great benefit to the company. And finally, I'll just make a few comments on the gold price. In the 80/20 rules, 20 percent today of the value of the gold price is determined by supply/demand and 80 percent is determined by its relationship to the dollar. In terms of the 20 percent the supply/demand, on the production side we continue to see very, very flat production no matter what the gold price does over the next two to three years simply because it takes two to four years to permit any operations these days and then another one to two years to build them. So, even though the gold price is continuing to go up, we don't see the trend changing at all for the next two years for sure, if not three years, very much like Newmont's own production profile. On the demand side, the upturn in the world economies is good news. That means that people have more money. And as it has always happened, jewelry demand always turns up in the economic recoveries. And this is what's happening today, and we're seeing it on the demand side. We talked about China in the last quarter. We continue to believe that China, with its gold industry deregulated, is gonna see an increase of three to 500 tons per year over the next five years, and that is going to have a very major impact on the gold market. On the 80 percent side, the dollar side, our thesis a number of years ago was the U.S. dollar was overvalued. We had different metrics. We talked about current account deficit, trade deficit. The fact is that on a trade-weighted basis, the dollar was 20 percent overvalued as a minimum.

It's down about 8 percent, mostly against the European currencies, but it needs to fall another two and a half times what it has fallen, mostly against, though, the Asian currencies. However, this will take time. China or some of the other Asian countries that have pegged their currencies to the dollar are not gonna give up that easily. So therefore we believe that the adjustments are gonna be made over a period of three to five years and not three months. When you look at the entire picture, it continues to be very supportive of the gold price continuing to go up and we still expect the gold price to trend upward over the next year based on all of these factors.

Thank you, sir. At this time if you would like to ask a question, please press star one. I will announce you prior to asking your question. To withdraw your question you may press star two. Once again, if you would like to ask a question, please press star one. One moment, please. Please stand by. One moment, please. Our first question comes from John Hill of Smith Barney. You may ask your question.

Yes, everyone. Congratulations on a great quarter and the Dividend increase following through on your statements in Denver. I was wondering if you could provide us with just a few incremental comments on the progress on the fiscal regime in Ghana and, as well, anything new and different over the last month with regard to discussions on the Boddington ownership structure? Thank you.

Thank you, John. I think with respect to Ghana we continue to work with the government there. We have people on the ground as we speak, and we see nothing that's gonna change our ability to get to a position to make an investment decision by year-end. I don't think we have anything startling to announce in that regard. We continue to work at it, we continue with finalizing our feasibility study. That's going well. Pretty much everything is on the timetable that we had previously laid out. With respect to Boddington, I don't think we have anything new to report there.

We again continue to work on the studies, on the project. We think it's a project that has great potential, both initially and in the long-term, and, you know, we'll continue to push to get that to an investment decision. I think we've talked about the middle of next year. And we don't see any change in the timetable there.

Very good. Thank you.

Our next question comes from Michael Dudas of Bear Stearns. You may ask your question.

Good afternoon, everybody. Just talking about your five development projects and the $1.2 billion in Capital, an early indication maybe, Bruce, on how creative, what kinds of mix of financing we're gonna see over the next few years for those developments?

Yes, Mike. You know, I think we're really comfortable with the cash flow generating capability of Newmont going forward in terms of current price. But obviously, you know, on an ongoing basis we will monitor our Capital structure, look at funding requirements, look at funding sources, you know, with the focus on how we're gonna accrete long-term value to our shareholders. So, it's a dynamic situation.

We have access to Capital in many forms. In regard to development projects in Ghana, we will probably look for a small amount of limited nonrecourse project financing there from either multilaterals or commercial banks. It's our view in emerging market countries to have other partners, financial partners involved with us in regard to those types of projects.

Makes sense. One follow-up. Batahishu, is it a one quarter deferred bases on the realization of the copper price? And I don't assume there's any hedging or anything going on with the metal there.

Yeah, it's provisional payments that stretch over three months. And so, as prices ramp up, we get a little bit more benefit from kind of our realized copper price. As prices go down, we get a little bit hurt. In regard to hedging, we're not doing any hedging currently. We do have a little bit of copper hedging at Batahishu, and never more than 50 percent of projected production out in a 12 to 24-month horizon.

And are the production levels going to adjust much over the next couple years? You talk about a little higher gold grade, etcetera. Is the copper output going be to be roughly in the 360 million pounds per year?

I think we're looking at a little better copper production for next year and we're looking at actually next year higher gold production modestly there. When we talk about grade, you know, we've had overall grade improvements as we've done additional drilling at Bhatu. And then we have this factor during the year.

In our second and third quarter we're at the bottom of the pit because that's the dry season, and when it gets wet we mine higher on either side. I think next year we're going to produce well over 600,000 gross. I want to say something approaching over 650 gross. And so, of course, we'll get our share of that. Of gold, I'm talking about. I'm sorry.

Terrific. Wayne, Bruce, thank you very much.

Our next question comes from Barry Cooper of CIBC World Markets. You may ask your question.

Just wondering if you could do a double check on what I have. What is your sensitivity to the Australian dollar movement give than that you've got about a quarter of your production coming from there?

For every $.01 cent change in the Aussie dollar it has about a $3.50 cent impact on the Australian cash cost per ounce and about a $.90 cent per ounce impact on a consolidated impact basis.

And then I was wondering if someone could maybe talk a little bit about the underground conditions at Deep Post and how they might compare and contrast with those at Getchel, and maybe if you could elaborate, take that a step further for perhaps some other operations that you've been to and have been looking at across Nevada.

I'll ask Dave Francisco to comment on that.

First of all, I think the situation at Deep Post is something we've reacted to, but on the other hand we're working our way through it and we're rehabilitating our accesses. Most of the disruption has been through actually deterioration along the ribs and some of our access drifts which prevent access to the stokes. But in general I think it will be back to a hundred percent full production in mid-2004 Deep Post and we continue to mine there successfully. The grounds conditions at Deep Post are, you know, of course, much different from the experience of most Canadian mines and most mines in the United States. It's actually, I think, a little bit better at Getchel, but I think both have teams that can successfully deal with those ground conditions.

So, Dave, is it primarily dilution issues that you get hit with, or is it just extra cost in shock reading and doing various things for ground support?

Actually, extra cost for grounds support. If you were to go into one of our access drifts, you'd see that in our previous support method we used [inaudible] wire from about shoulder height to the back and shoulder height on the next rib. What we're finding is in areas where we haven't shock [inaudible] we have a little heaving and graveling. So, it's a simple matter of going in and stripping out the ground support and reshockreting, not particularly serious.

And what about Leeville, would you anticipate that it's going to have any of the same sort of issues?

I think Leeville is fundamentally different in that a lot of our issues at Deep Post related to grounds stress conditions around the pit. I think we will have a better situation at Leeville.

Our next question comes from Jim Copeland of Goldman Sachs. You may ask your question.

Good afternoon, everybody. When the gold price was, a year ago, say, it was a lot lower than it is today, a lot of companies were able to cut their unit costs by mining high grade material. At 380-plus certainly there's a lot more comfort there and it makes previously marginal material economic to mine now. I'm just trying to get a sense, particularly in Nevada, but globally, too, is this something that you're doing at the moment? You're probably putting through perhaps some lower grade but still economic materials. And if that's the case, what dollars per ounce effect does it have on your costs?

I would say we're not materially changing the grades that we're processing except in the case of our normal plans. In fact, you know, we're -- when we lay out our pits over recent years we're basically using a 275 pit. And we have not really changed that. We have to take in all of these cases, especially with open pits, very long-term views of price. And obviously you're conservative in that regard.

I think when we look at the drill results that we've seen in a place like Gold Quarry, the grades we're finding to expand that pit are, in fact, just as good or better than some of the current grades that we're mining. So, that has not really materially changed in this kind of time period. I think as you look at other projects, and I think that's why when Pierre talks about, you know, globally what's gonna happen, you don't turn these things on very quickly. And so, sure, it -- at these gold prices, you know, there's a lot of material out there that may be more economic than it was a year ago, but it's gotta be permitted, planned and constructed. And it just takes time.

Thank you. And perhaps on Nevada again, can you please describe a little bit more, perhaps excluding Deep Posts, what sort of cost pressures you're facing there and how that might affect the costs going forward?

Yeah, this is Dave. I think one of the things that we're fighting right now in Nevada is energy costs. This has affected industry in general. But our energy costs are going up significantly. They've gone up over the last two or three years significantly. That seems to be the issue that gets most of our attention.

We do have increases in costs of energy-related items where energy cost is rolled into the price that we pay. But I would say energy cost is the main concern that we have right now. Other costs I assume to be pretty well in line with our expectations.

Would you be prepared to put a number on what sort of cash costs per ounce we might expect going forward? I think in the past we've looked at between $200 and $220 dollars an ounce. Would that be a fair range?

Are you talking about for the company in total, or are you talking about Nevada?

I'm sorry. I'm talking about Nevada.

I think given all things remaining the same, with the addition of Leeville coming online, with some of the exploitation of Gold Quarry that we have planned, with Phoenix coming online, I think that we have an excellent chance of reducing our costs in Nevada.

Okay. Thank you very much.

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

Thank you very much. And good afternoon. I wanted to ask a few questions about Yanakoja. Some of the things that happened in the quarter are fairly permanent, like adding new columns, some like the high other grade ore and maybe some of the leach dynamics might be a bit more temporary.

But it seems a bit odd to me that the production, having done so well in the third quarter would essentially plummet in the fourth quarter, at least judging by the updated guidance that you've given for this year's production coming out of Yanakoja. Can you elaborate on what went really well in the third quarter that is not going to go as well in the fourth, and then perhaps give us a sense of what the real long-term production capability of this Asset is? It seems to me it continues to exceed everything we expected.

We like Yanakoja, Victor. It's a very good property for us and it generates significant net income for both us and our partners there. So -- but, you know, I'll let Dave address it. But there were -- always when you have new leach pad construction come on, and this is the season when that happens, those first lifts pour out gold pretty quickly.

Yeah, I think if you take a look at the carbon columns, carbon columns actually are not permanent. They're primarily a facility we have to reduce inventories. And so, they have a -- maybe a greater initial impact than they will in the long-term. As far as the new plastic that we've got in the short list, the gold tends to come out relatively quickly.

The higher you go with those leach pads the longer it takes to get that newly placed gold out into solution. Further, we're coming up to the rainy season. So, again, I don't think production is plummeting at all. I think what we see is a good long-term stable production rate probably in the neighborhood of 725,000 ounces per quarter. Some quarters we're gonna be up; some quarters we're gonna be down, depending upon rainfall, leach pack conditions, inventory reductions and mining productivity. So, I think you're just gonna see a normal quarter to quarter variation around that figure, about 725,000 ounces.

Great. Thanks. When I said "plummet," that was perhaps a bit of an overstatement, but certainly --

It sounds like we screwed up or something.

Yeah. Sorry. But the full year number minus the -- that you're projecting minus the nine months you've achieved, you know, leads to, let's say, a lackluster fourth quarter.

I wouldn't call it a lackluster fourth quarter at all. We've had just an absolutely banner third quarter. And you do have some normal production variation. We're gonna do very well at Yanakoja this year and next year. You're just gonna see some quarter to quarter variation.

Right. And that 725,000 ounces per quarter, that puts you on a run rate of 2.9 million ounces a year for this Asset now. So, clearly you're confident that you're optimizing this Asset once again to a higher level.

That's correct.

I think, Victor, you know, something we've been saying over the last several years with respect to Yanakoja, we went through a period there where we got into some lower grades, higher strip. And then we got that behind us. We have stabilized the mining rate there, and so, there's a big push on getting really good efficiencies out of the work force and out of the facilities. And that's what's driving the lower cost this year.

Not only that, we would expect Yanakoja operating costs to drop as we achieve these increased productivity.

Okay. Could you give us a sense of how much?

I'm watching Dave. I want to see him be real aggressive here, but I know he'll be real conservative.

It will come down several dollars an ounce.

Great. Thank you very much.

Our next question comes from David Gagliano of Credit Suisse First Boston. You may ask your question.

Hi. Just somewhat related to the previous question from Victor, I'm just curious in terms of the Nevada operations in the fourth quarter, if my math is correct, it looks like you have a rather substantial decline in the cash cost expectations coming from Nevada versus the currents quarter and given some of the issues you've run into, that makes sense. But I'm wondering if you could give us a little more clarity in terms of what's behind the expected decline in cash costs out of Nevada for the fourth quarter?

You know, I guess I didn't quite follow that question. We do plan on good production, and our cash costs are again variables. We do plan on some slightly higher grades out of the underground.

I I guess I should -- let me just try and clarify. Just in North America in general, it looks like if I back into the numbers you have a full year cash cost target. You've got a nine month Year to Date figure. On a weighted average basis I come you up with a decline of about 13 percent in the fourth quarter versus the third quarter and I'm wondering what's driving that 13 percent decline in the fourth quarter versus the third quarter?

I can't give you a definitive answer right now. I'll ask you to call Russell Ball. We'll have the answer for you shortly.

Okay. Fair enough. Thanks.

Our next question comes from John Bridges of J. P. Morgan Chase. You may ask your question.

Good afternoon, Wayne, Pierre, everybody. Just following on from Victor quickly, the -- let's try it another way. You're focusing on productivity, and I seem to remember the truck fleet and the loaders weren't gonna change very much. Can you give us some indication as to how, you know, the productivity, that sort of thing have improved over the last year and whether you think you can get them?

Yeah, I think we are going to larger equipment at Yanakoja. We are getting better efficiencies out of our truck fleets. We're reducing our loading times and increasing the truck speeds. We're doing a much better job on maintaining the roads, so our maintenance costs are going down. And we're also doing a better job in the pits in terms of drilling efficiencies and making sure that we keep the dilution down. We've been on this program now for a couple of years. We're starting to see the benefits of that. And we expect those benefits to continue.

Any idea on how many tons you're gonna stack next year?

Yeah. I do. I don't have it right in front of me, but actually it's a little bit less next year than it is this year because of strip ratios [inaudible].

Okay. Now that the Yandel thing is sorted out and with Waluna now apparently being sold, could you give us some guidance as to what we can expect in terms of production out of that Asset, when Waluna is going to drop out of it to give us a bit of guidance for our models?

I mean, Waluna, we hope to close that transaction by the end of the year. I think Waluna is currently producing about 120,000 ounces. So, we'll no longer see that. You'll see Bronze Wing continuing to produce over the year. Steady state over the long-term, Jundee is a -- probably 200, 250 to 300 thousand ounce producer with some decent exploration upside.

And the decline at Bronze Wing, any sort of guidance on that one?

It's probably done mining by February, March of next year.

Okay. That's great. Thanks a lot.

Our next question comes from David Mallalieu of Scotia Capital.

I have a question with regard to Indonesia. What's the status of the feasibility or prefeasibility study on the underground?

Let me just touch base on that. I commented earlier we've had very good drill results there this year from that deep program. But what that is showing us is some better grades in the walls and good grades at depth but accessible by the open pit. We are -- we probably, as we're looking at it now, will get a very pleasant surprise from an income standpoint because I think we'll be able to -- and this is maybe premature to say, but we'll probably be able to eventually have a 7th lay back there as opposed to an underground deposit. And from a return standpoint, that's much better.

Okay. So, if we can stay on that, what would potentially be the timing of the 7th lay back and the Capital involved with regards to that?

Oh, that's beyond my life expectancy. You know, it's -- again, at the year-end we'll put out our new reserve figures. But I think what it's gonna show is a much better NAB answer than if we were to develop an underground mine.

Okay. Just a very general question. This is with regards to the SEC, so I don't even know if you can answer this. What's the status of the negotiations, if we can call it that, between yourselves and the SEC and getting everything cleared up? I'll just keep it very general like that.

Okay. Well, I would call it -- first of all, I don't know if it's negotiations. It's dialogue with the SEC. We feel we've answered all the questions that they've asked of us. We've expanded disclosure and we've refiled past documents and amended those documents.

Any time of when you might come out of the potential penalty box?

You know, we would hope that they accept what we filed and we could move forward fairly expeditiously.

In other words, no one knows?

I think we're making incremental progress.

Okay. And last question is with regards to the biomilling process you're doing in Nevada. 55 to 75 percent is pretty impressive. Do you want to elaborate whether or not you're going to be using Biox or are you going to be using the organics on leach pads? Just some elaboration on what's going on.

I mean, that's free milling ore. It's sulfide, but it's not rerefractory. It doesn't really need to be preoxidized. At the current depths we're at in the models, it may be sulfide down deeper.

But the 55 to 75, that's a pretty impressive move. So, what's the procedure to do that?

I believe it's biooxidized on pads, it's picked up, run through a floatation circuit. The material that is -- that bypasses the floatation circuit as I recollect goes to a normal CIL and the floatation concentrates are treated in either the roaster or the autoclave.

Is this the same procedure that was being considered for (inaudible ]?

I'm not absolutely certain, David. Are you talking about [inaudible] and [inaudible]?

Exactly.

I'm not exactly certain what the prior plans there were. I mean, we're just about done with mining Coricallo. We've mined some additional [inaudible] heap leach resources there. And we don't have any significant development plans for sulfide material there.

Okay. Thanks a lot.

Operator, this is Russell. We could take two more questions, please.

Thank you, sir. Our next question comes from Brian MacArthur of UBS. You may ask your question.

Good afternoon, gentlemen. I just wanted to follow up with respect to the sensitivity to the gold price. In the second quarter you indicated that a $10 dollar change in the gold price was worth $58 million dollars, bottom line. In the third quarter a $10 dollar change was worth only $50 million. I also see you've increased your tax rate guidance from 20 to 30 percent to just 30 percent. Is that decrease in leverage just fully a function of the increased tax rate?

Brian, let me address that. I mean, obviously -- we get incrementally higher tax rates as the gold price goes up. So, we do have slightly higher tax rates, which does have an impact on flow-through leverage. But beyond that, the forecast is always looking at sensitivity for the -- for the next 12 months. Obviously we had a very robust third quarter, you know, producing 2.1 and selling 2.1 million ounces. You know, when we looked forward to the next 12 months, we laid our our five-year plan, and we're looking at 2004 in the kind of 7 million ounce-type range. And so, you have some natural decreases in leverage due to the fact that production and sales is slightly lower on a roll forward basis than it was last quarter.

Great. So, it's a combination thing; it's not just as you go higher obviously you pay taxes at different rates and in different jurisdictions.

Right.

Obviously jurisdictions will eventually max out and some rate. What would your maximum tax rate ultimately be,ie, let's say the gold price was 450, you know, $10 from 450 to 460 I assume would have a different leverage.

The maximum tax rate would be the U.S. Tax Code rate of 35 percent.

Okay. So, 35 would be the max you'd ever get caught on?

Take about 3 percent off of that.

Great. Thank you very much.

Our final question comes from Alberto Arias of Goldman Sachs. You may ask your question.

A quick question on copper. The market seems to be telling us that copper market fundamentals are continuing to improve. You have exposure on the copper markets through Bhatu, but also through some projects. If you could please tell us if this change in sentiment for copper might have any change in your product development pipeline? If you could give us an update on where you stand on [inaudible] and also, is there any copper/gold project within your seven-year or five-year production plan?

Alberto, again, I think our focus is gold. But that being said, we've been encouraged by what we see at Minas Conga for several reasons, not just copper price. And right now we have no projects within our five-year business plan that are copper/gold, but we expect to aggressively pursue reserve replacement in the area, and that would include Minas Conga. It's premature to say anything at this point other than that we'll pursue that project.

Are you [inaudible] at Minas Conga at this time or not even there?

Are we in feasibility? No. What we're doing, we're basically updating prefeasibility work at this point in time. And I think, Dave, it's looking relatively encouraging.

We are very pleased with the way Minas Conga is shaping up. The material that we have there [inaudible] are not fully explored. We have still excellent exploration potential, and we're actually looking at it quite closely right now and we're very pleased with the initial results.

All right. Thanks.

Hey, Alberto, I stand corrected, too, with respect to our five-year business plan. Obviously we have Boddington in there, and that has a copper component.

As does Phoenix.

Yep.

Okay. Great. Thanks.

Okay. Well, thank you all very much for your interest. Again, we're very -- we've got our heads down, working on a lot of things. We've got a lot of projects within the company. We feel that, you know, we've substantially completed the -- a lot of the noise and the clean up that came out of the transaction that we completed a year and a half ago. We are on track to have very good earnings for the full year and expect good, strong earnings growth again next year. So, thank you very much.