紐蒙特黃金公司 (NEM) 2004 Q1 法說會逐字稿

Welcome to the Newmont Mining Corporation, 2004 first quarter earnings conference call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Russell Ball. Sir, you may begin.

Thanks operator. Good afternoon. Thank you all for taking the time to join us on Newmont's first quarter earnings conference call. The call and presentation are being simulcast on our Web site at www.newmont.com and will be available for playback for a limited time. We shall be discussing forward-looking information. They should be aware that there are risks unique to our industry and that are described in detail with the files with the SEC. The most up-to-date disclosures, please refer to the SEC filings and issues. During the call, we will be referring to non-GAAP financial measures. Reconciliation of the non-GAAP financial measures and the most directly comparable GAAP measures are included in the supplemental information in the first quarter earnings release, which is available on our Web site. In particular, reference will be made to total cash costs per ounce, and net cash cost per pound, both of which are non-GAAP measures of performance.

These are intended to provide investors with information about the cash generating capabilities and profitability ever our proper rations. These measures differ from earnings determined in accordance with GAAP and should not be considered in isolation or substituted for performance in liquidity determined in accordance with GAAP. On today's call, we have Wayne Murdy, the Chairman and Chief Executive Officer, Pierre Lassonde, President, David Francisco, Executive Vice President of operations. Bruce Hansen, Senior Vice President and Chief Financial Officer, Steve Enders, Vice President, Worldwide Exploration and David Peat, Vice President and Global Controller. Let me turn the call over to Wayne, the Chairman and CEO. Wayne. Please go ahead.

Thank you, Russell. Good afternoon, everyone. Newmont had a solid first quarter generating net operating cash flows in excess of $328m on equity gold sales of 1.8m shares. Total cash costs for the quarter or higher $231 per ounce. Largely due to higher cost in Nevada. We’ll talk about that more detail in a few minutes. To those of you who have had the opportunity to review the earnings release in detail you will see one change this quarter and the full consolidation of part issues (ph). The impact of this is most clearly reflected on this slide in the increase in revenues this quarter. I think the full consolidation of part issues will make our financials much easier for people to read and analyze and understand and also the tax -- the tax rates.

A comparison of this quarter's results with the year ago quarter, particularly at the EPS level has made more difficult due to a lot of noise in the last year's first quarter as we continued to rationalize the portfolio after the three way merger. We incurred a non-cash after tax charge of $47.1m in the first quarter of 2004, to recognize the cumulative effect of the change in accounting principles required at part issue to perform depreciation elementary valuation to Newmont's accounting policies in those areas. As you can see from this slide, we had a number of transactions in 2003 that had the net effect of increasing reported net income for the first quarter of 2003 by some $42m, or 10 cents per share. Most significant of which was the completion of the transaction with KenRoss, a merger with Echobay and the sale of our interest in the TBX joint venture. That added significantly to income last year as we had to mark the new investment to market. As we look at the underlying earnings power of the company's assets, we see strong year on year growth at the bottom line, when one takes these items into account.

As a result of the strong earnings and cash flow generation of the company, the board of directors today approved, and we announced a 50% dividend increase earlier this morning. We will continue to evaluate the level of dividends in light of higher gold prices, stronger production and cash flow generation from operations, and our ongoing CAPEX requirements. But we're determined to continue to raise the dividends, so long as we can do so in a prudent manner given the various demands on the business. The first quarter of 2004 saw continuation in margin growth with the margin of $110 an ounce based on total production costs of $299 per ounce, and a realized gold price of $413 per ounce. While we are working hard to control rising costs, we remain focused on returns to shareholders, and if we can increase earnings, cash flow, and net asset value per share by higher -- by mining hirer incremental cost ounces in times of higher metal prices, then that is something that we will do. With that brief overview, I'd like to hand the call over to Bruce Hansen for a more detailed decision of the first quarter operating results and the updated 2004 guidance.

Thanks, Wayne. Good afternoon. For the first quarter again, equity gold sales totaled $1.81m ounces, at a cash cost of $231 per ounce. Sales were in line with expectations cash costs were impacted by higher than budgeted cost in Nevada. Nevada operations sold 617,400 ounces in the first quarter. That was down 2% from the year ago quarter at a total cash cost of $287 per ounce. Production during the quarter was negatively impacted by an unscheduled down time at the roaster facility as we reported on March 26, along with adverse weather conditions in eastern Nevada, in January and February, which caused a shortfall in which caused a shortfall in higher grade open pit ore that was planned to be mined at the Carlin and Peat open pit operations. This resulted in processing lower grade stockpiles in the quarter to make up for the shortfall and consequently, the increased reported cash costs. In addition, costs were impacted by higher labor costs, including a one-time select signing bonus to settle the labor dispute in Nevada.

In addition, we have also seen some higher field costs, and some higher unscheduled maintenance costs. In April 2004, we did sign an agreement with our neighbors, BarRick, a mill roaster feed through their roaster in Nevada. We see this as another win-win deal with our neighbors. Percentages are expected to range annually between $250,000 and m tons. This really is a win-win agreement, which allows both companies and their respective shareholders to realize operating synergies along the Carlin trend. For 2004 for the full year, we expect gold sales to be unchanged from prior guidance at roughly $2.2.6 m ounces. However for the full year, total catch costs have increased from the prior guidance of $250 an ounce to $265 an ounce, really reflecting some of the costs issues that we have dealt with in the first quarter.

Turning south to Peru and Yanacocha, where we sold 410,000 equity ounces in the first quarter at a cash cost of $133 per equity ounce, increased sales were driven by planned inventory drawdowns as we discussed on our year-end earnings call, partially offset by lower grades and fewer tons placed on the leech pads, all in accordance with our mine plant. You may have noticed significant increase in the reported DDNA in the first quarter for Yanacocha per ounce of $71 per ounce, which is up from $58 an ounce from the year ago quarter. This is largely due to timing and -- in terms of ounces placed on the pads. And we basically place ounces on the pads and are depreciated on a straight-line basis and we applied the depreciation to the estimated recoverable ounces as they're placed on the pads, and as they come off, we have had lower ounces placed on the pads, and as they come off, we have higher DDNA per ounce as each of these ounces will produce. In the first quarter.

For the full year 2004, Yanacocha is expected to sell approximately $11.57m equity ounces at a total cash cost of $135 per equity ounce. Our Australian operations had a very strong first quarter selling 521,000 equity ounces and a cash cost of $251 an ounce. We saw strong production at Kalgoorlie, and Tanami and Yandle, and costs were in line with expectations despite a stronger Australian dollar. At Tanami, we saw the full benefit of a full quarter of 100% ownership and higher grades. At Yandle, the high grades deposit at John Dee offset the divestiture of – in the fourth quarter of 2003 in and the closure of brown swing during this first quarter. I wouldn't mention that the feasibility study of Bodington in which we have a 44% interest is currently being updated, and is expected to be completed in early 2005, and I would also add that we have been very encouraged by the ongoing cooperation between the partners on the project, and on the schedule.

For the full year 2004, our guidance calls for Australia to have equity gold sales of roughly $1.73 m ounces at a cash cost of $276 per ounce, with an exchange rate assumption of 74 cents Australian dollar to U.S. dollar exchange rate. Effective January 1, as Wayne mentioned, the company has begun consolidating bot Tohishu based on the requirements of financial interpretation number, or fen, 46-R, issued in December of 2003. Previously, bot Tohishu had been equity accounting. The most visible impact is the increase in the sales along with the increase in costs applicable to sales, and also on the balance sheet where you see the increase in consolidated debt. As a result of consolidation of bot Tohishu you said debt increased before $849 m of which $749 m is project debt, senior debt, non-recourse to Newmont and balance is $109 m subordinated Nated note from affiliate of Sumatoma Corporation, which is again also non-recourse to Newmont.

At the end of the quarter with the step-up in the balance sheet our net debt to total capitalization was $4.2%, again, well below our 10% threshold that we have discussed on an ongoing basis. As always, we'll continue to opportunistically look to reduce debt on an ongoing basis. On consolidation, also as Wayne mentioned, certain changes were necessary to conform bot Tohishu's accounting policy to Newmont's accounting policies.

First of all, we changed from a units production depreciation methodology to a straight-line depreciation methodology, which resulted in a non-cash, after-tax charge of $15.1 after-tax charge of $15.1 m, or roughly 3 cents per share. We also had a change in terms allocating costs to stockpiles which were previously based on allocating costs on a per ton basis, to/locating costs on a recoverable, equivalent pounds of copper basis, which resulted in a charge of $32 m, or roughly 7 cents per share. In addition, effective January 1 2004, the company has commenced reporting cash operating costs at bot TOHISHU using a coke product accounting methodology, because we believe this provides a more meaningful and transparent measure of performance for this polly metallic ore body such as bot TOHISHU. For more details, prefer refer to supplemental information which is attached to the presentation in the earnings release. In addition, our Form 10-Q, will be filed later this week with the S.E.C., and has significant and robust discloser on the consolidation of -- disclosure on the consolidation of bot TOHISHU.

First quarter performance of bot TOHISHU was largely in line with the expectations. From the sequencing and seasonality I standpoint, we generally see lower copper and gold production in the first and fourth quarters of the year, due to increased stripping and staying up high in the pits. We have seen production pick up as anticipated in April, and for the full year, we expect equity copper sales of roughly $370 m pounds of copper, at cash costs of $60 cents per pound, along with the sales of -- 60 cents per pound along with the sales of 360 equity ounces at cash costs of roughly $160 per ounce. The other international operations contributed equity sales of roughly 111,000 ounces at a total cash cost of $215 an ounce. The largest contributor was Zarifshan, which sold roughly 56,000 ounces at a cash, cost of $148 an ounce. In turkey recent legislative changes have eliminated V.A.T. or vat refunds related to gold ore experts. As a result the company has inventoried approximately 30,000 ounces while we attempt to lobby and address this issue. However, these legislative changes, if maintained, could obviously decrease the projected economic return from the country to increased operating costs. And the potentially reduction in reserves. Depending how these issues are resolved, it is reasonably possible that Newmont could recognize a charge for some or all of the assets in 2004. That being said, we're very confident in working with the Turkish government to resolve these what we believe to be non-competitive issues.

Turning to project development, we have three major projects, which we're currently under development, Leeville in Phoenix and Nevada, and the HOFFO project in Ghana. All of these projects are currently on schedule and within budget. Obviously, with prigs pressures, we continue to evaluate our --price pressures we continue to evaluate our capital cost estimates in light of increases in steel prices, freight and other costs increases along with looking at 9 original level of -- the original level of contingency in the capital cost estimates for each of the projects. We believe that all of the projects are progressing well, and we believe that they all are very robust projects from a rate of return and a return on capital perspective.

Looking at guidance for the full year, we have updated our guidance, which basically shows unchanged gold sales through --for the full year of between 7 to 7.2 m ounces. Cash costs for 2004 are expected to be modestly higher, in a range between 225 and 235 an ounce, really based upon the first -- first quarter cash cost impacts that we saw in Nevada, along with ongoing pressures related to other consumables. Copper sales are expected to be in the $240m equity pound range at a cash cost of roughly 63 cents per pound on a could product basis. This includes copper production from gold and growth as well. Oh. Let me back up. It's 420 m equity pounds at a cash cost of roughly 63 cents a pound. With respect to other guidance provided, please note that all of the amounts that will be providing -- we'll be providing you to will now on a go-forward basis include the impacts of consolidating bot TOHISHU. You will note for the guidance for 2004 that we have a at least our guidance in terms of expiration expenditures by approximately $20 m reflecting increased opportunities in regional expenditures, particularly at Yanacocha along with bringing in Batu Hijau exploration expenditures. With that, I will now turn it over to usually what is the most entertaining part of our call, to Pierre on his thoughts and insights into the gold market.

Thank you, Bruce. Welcome everyone to the call. I am sure that you are all aware that the gold market had a bit of a bad here day today or a bit of a hiccup. It's down about, over $13 in our share price were down at least five minutes ago about $250. So I feel a bit like a bottle of, Fapto Bizmo (Ph), I am here to soothe your stomach a little bit. And I can start to explain the vast majority of the difference in what we have seen in the last couple of weeks. The specks were long about 450 tons of gold as of three weeks ago. In the last ten day, we sold down about 250 ton, and I would suspect that in the last few days, we have seen another 100 tons go by the board. When you look at a movement of 350 tons of gold in a space of less than two weeks, and with a dollar price of about $5 to $7 per 100 ton, you can see that that explains somewhere between $18 and $25 in the difference in the gold price. And that explains basically the entire move in the gold price that we have seen. And so, our view is very much that the gold price this year is going to trade between 380 to 450 band (Ph), and we are the lower end of the band.

There are a number of positive events that have occurred in the past quarter. If you look at the renewal of the Washington agreement by the 15 European central banks for 500 tons a year for the next five years, that's very positive. It renews the fate of the central banks in gold as they reserve currency, we mention that. As well it gives predictability to the gold sales from these central banks. Another positive event, if you want, is gold fields in its annual report predicts that hedge book will be reduced by a further 300 to 400 tons this year, and I would suspect that our competitors who want to decrease their hedge book will find 380 very attractive, and it will more than likely provide a very strong floor for the gold price. In terms of our overall economic views, they haven't changed.

The world economy is in a very strong recovery, led by the US and China. And in regards to China, there's been a bit of a backup in inventory, particularly in copper, and people are all a bit worried, because the growth rate of China is going to be lower this year. But I think one has to keep in mind that when we talk about reduction, we're talking about instead of growing at 15% to 17% per year, they're looking at 8% to 9% per year, which is still enormous. So, believe me, the U.S. or any other country in world would love to grow at 8% per year. So what you are looking at is simply a reduction, and what's happened is that the most of the inventories in China are, what we call, on wheels. It's all on time and the minute that you have a bit of a backup, what happens is they stop buying for two weeks or three weeks and it basically has a very important effect in the market. That's what we have seen in copper and other metals. But this is only temporary and also, there was a bit of a game playing where the local companies instead of holding US dollars would buy US denominated commodities simply to play the game. That if the MMD (ph) is re valued, it would rather on commodities and we have seen a lot of that in the past six months.

The world economy is being re-flatted. That scene is still very much alive and it is a worldwide re-flat-ion (ph). It's encouraged by very low interest rates, and interest rates may move up sometime in the next 12 months, but they're not going to move up very much simply because there's too much debt in the economy. So, we don't see that as a huge hindrance for the gold market. In fact, it's a bit ironic, because inflation in the past, as I understand it, has always been good for gold and this would be the first time in history that inflation is not good for gold. So, I don't quite understand that view.

The US dollar has had an impact on the gold price as well lately. It's been in a rally in the bear market. As the dollar has been in a bear market for three years. We have had a couple of rallies over the last three years in a bear market. We are seeing one right now, but again, the irony of the growth that we are seeing in the US is that all it's going to do is make the current account deficit, worse than ever, and when the dollar finally realizes that, it's going to have an even, stronger move to the down side than what we are seeing at this point in time. So, I would characterize the relationship between the dollar and gold as the manic-depressive couple and it got good days and bad days. Today gold has been a bit on the down day. It needs a volume (Ph), I think, it's going to get it. You are also going to have a lot more volatility in those markets because of the geopolitical events, the oil price and that volatility is not about to disappear in the good, in the markets. So, overall, our view is very much the same as it's been for the past six months. We are looking at a stable to higher gold price throughout the year in a band of about 380 to 450. With that, I'll turn the meeting over to Wayne to conclude this part of the meeting.

Thanks, Pierre. In summary, then, just like to recap, we have had a solid first quarter, very strong cash flow generation. Although the headline EPS numbers may not give that you impression, when you really cut through it, you're in $0.30 a share this year versus $0.19 per share last year from our business. We do continue to face cost pressures as the whole industry has and we were cognizant of that. We continue to work very hard at that. We will also obviously be looking at the opportunity to increase the bottom line through processing some lower grade materials as longs we can continue to increase margins. And we have now over the last couple of years been talking about increasing margins. If you go back over that period and look at the margin growth it's really been dramatic, hence the strong emphasis on profitability in the company.

Our project development is proceeding on schedule, and basically in line with guidance. It's early in the year to talk about reserve replacement, but we continue to be very optimistic and that we will again have very good reserve replacement. We have got good targets, you can see that we have increased some of our spending, and that's because of the number of opportunities that we have on the our core land based position. Finally, I can tell that you, what we did with the dividend, we continue to back up the confidence we have in the basic fundamentals of this company, and our belief on the strong future of the gold market. We'll continue to monitor that dividend rate, as they said, and we hope to be able to provide future increases. About that, operator, I think it's probably very appropriate to open up the line for questions, and we have a number of people here in addition to those that were announced, so we'll be pleased to answer any questions that you may have.

[Operator Instructions]. Our first question is from John Bridges with J.P. Morgan. You may begin.

Hello, John.

I'm sorry sir, that’s Patrick Chidley with Barnard Jay. You may begin, sir.

Yes, am I on the line? I just have a quick question about the impact, I wondered if you could just go over the impact on average cash costs, of the change in accounting procedure for Batu Hijau.

Bruce, why don't I tell the impact?

Patrick, we're looking at actually calculating cash costs per ounce for bot toHISHU in our guidance is roughly $160 an ounce. Our bot toHISHU full year equity gold sales are going to be about 360,000 ounces, or about 5% of the consolidated total. So, you know of course -- you know, that really translates if you do the math that, will translate into the impact on the consolidated basis. Which would -- that would be maybe $2 or $3 an ounce.

Thanks very much.

Thank you, sir. Next we have John Bridges with J.P. Morgan. Sir, your microphone is open.

Hi. Back again. Could you give me a bit of a refresher, because I -- of what happens to the power costs in Nevada, the rainfall I believe in northern California has been low, so we could see some outward pressure on power costs there. Does that come through in the price that you are going to be paying, and maybe you could give us some indications as to where you are with your own independent power source?

Yes. Let me talk to that, John. Our basic assumptions right now are diesel at about $130 a gallon, electricity about $1.30 a gallon and about 7 cents per kilowatt-hour for electricity. Sensitivities for every 10% change in diesel, that would be about a $1 an ounce change in Nevada’s cost and a 10% change in electrical power rates would be about $2 to $2.50 per ounce opinion.

I think, John, specifically -- specific to your point of the rainfall and probably the northwest, the south area of --at Carolina is impacted by rates that come out of Bonneville, but we don't see any significant changes this year to our guidance 7 there. That is lower power costs there. It works into our blended rate of just under about 7 cents a kilowatt-hour for Nevada.

You have got contracted price prices of 7 cents a kilowatt-hour.

Subject to rate increases.

Right. If they ask for rate increases. Right, but I will -- over what time period could they ask for a rate increase, if things went crazy this summer?

I think your utility and your state. They have to go through the same process. It takes at least six months to go through a rate increase?

OK. That's helpful.

On the other front, we continue to work on permitting of power plants. In Nevada, and we don't have any specific benchmark to report on right now, but we have been encouraged by the state within that process. We would be helpful that late they're year, we would be in a position to describe what may come out of that process.

OK. Great. Any chance of bit of guidance as to the sort of grade and stripping profile on Yannacocha’s so we can sort of factor that into our models?

We would suggest that you just give Russell a call and heal talk you through some of that.

OK. Thanks a lot, guys

Thank you, sir. Our next question is from Terry Ortslan with PSO & Associates. Sir, you may begin.

Thanks. Two questions. Bodington's visibility. You indicated it's going to be completed sometime early 2005. Could you give an update on the progress of the -- of the process, what's been eliminated, what is the focus is from Bodington?

I think with respect to --with respect to Bodington, we're looking at we have done the testing on the high pressure grinding rolls. I think we're building some technical consensus within the group on the best way to process -- process those ores. You know, we will do full feasibility. We're also looking at permitting issues, and I think it's fair to say that that permitting for the full project will take a little longer than was originally projected, and that's why we talk about 2005 before we are going to have that work done. But it's not going to have a significant impact on schedule. We don't see anything in the permitting process that's going to be detrimental to the project. It's just going to take a little longer.

So, Wayne, the feasibility is presented sometime early 2005, we'll go to the boards and all, decision time will be in the second half of 2005, I would estimate?

It could be. I don't get into predicting dates.

OK. In other words, this will not be in production until 2008 sometime at the earliest?

I think we feel this could be producing gold in 2007.

Second question, Wayne, is the Bruce or Pierre, is the changing atmosphere. Changing psychology in some of the key mining country, and the Chile stuff on royalties have been discussed, and I -- its kind of advancing forward. Actually, there's a little noise about it as well. You have an agreement with the government, but obviously, the countries can do whatever they want to do. What is the status, just basically, the government or political winds blowing in Peru?

I think with respect to our existing operations projects, we have long-term tax stabilization agreements, and you know, when we do projects in the developing world, we utilize multilateral agencies that are part of those -- of those projects. They have ownership interests or debt interests, and so, while political winds may blow in Peru they blow in the United States and Australia and everyplace else in the world, too. We do not see anything there that would significantly impact our current projects in any meaningful way. These countries continue to want so see foreign investment, so when they -- when the politicians blow them away, that would have a negative impact on future capital investments, or usually we're able to talk to them, not in all cases, but certainly in a lot of cases, and I think, you know, that's part of the beauty of the global economy.

Thank you.

Thank you, sir. Our next question is from Geoff Stanley with BMO Nessbit Burnes. You may begin.

Thank you very much. Question for you, Bruce almost an administrative question. Wondering if you could give us the commodity price assumptions that you are using in determining your costs and royalties and assumption behind the split up of revenues by TOHISHU to come up with your cost assumptions there, et cetera?

I mean, we typically just when we do our re-forecast look at the spot prices at the time. We did this as roughly $400 gold.

And copper at the time was closer to $130 than it is today.

OK. Great. So if we want to split revenues and costs on the basis of different commodity prices, whatever assumptions, we just split them according to revenue on our own calculations.

Right, co-product accounting you will get that volatility as the prices move in differential directions or differential rates.

OK. Understood. Thanks a lot.

Thank you, sir. Our next question is from Jim Copeland with Goldman Sachs. You may begin.

Good day, everyone. Very, very tough day today, but on bot TOHISHU you have on bot TOHISHU you have consolidated the accounting statement, is there any scope for making economic changes to the corporate or economic structure or the debt structure.

With respect to the ownership structure, it's something that we always look at. Obviously, we like that asset a lot. With respect to the get structure, you know, we have long term -- long term facilities in place with the export credit agencies, and schedules laid out. If we see an opportunity to do something different, we would. But very honestly, you know, again, it goes to my earlier comment, we use multilateral agencies for a specific reason in developing parts of the world. We have seen great benefit from doing that in the past. So, I don't see anything significantly different there. The one thick that I would say on the -- thing that I would say on the financial statements that Bruce referred to the subordinated debt of SUMITOMA Corporation. We also have on a proportionate basis, the same type of arrangement, and that had to do with the whole finance model and structure and tax opt medication optimization that went into the original capitalization of bot TOHISHU. Obviously, when we consolidated, our piece of that is eliminated out.

Great. Thanks. Thanks, Wayne. Perhaps one for Pierre. Pierre, perhaps to get your thoughts on what the catalyst was for today's selloff in the gold prices, whether it was related to the base middle selloff of the dollar or that sort of stuff, and how you see that affecting sentiment in the near term on gold?

Well, I don't really have a good answer on that one. I suspect that it has more to do with the copper selloff in Shanghai and there's been a bit of a rise in inventory in the LME last week. The first one in many, many months, and I think that it's spooked the whole commodity complex, and that spilled over in the gold -- that's the only thing that I can think of, because the dollar actually is quite stable today, and the 4X as well is just sort of going sideways. That's the only thing that I can think of. Once -- you know, as you know, the technical guys are -- you know, the specks are all working off the same technical charts. As soon as you take out one level, then they all pile in through the door and the door is just not big enough, and so what happens is just the whole thing collapses. They one level after another until you find very solid, physical demand, and usually you find it in Asia, and once more, this is what's happening, is that the technical takes it out and starts in you're up and goes through New York and bit time it gets into Asia, you find real physical support. Also, I would add one more thing is that typically, end of April, May, is the weakest seasonal spot in the year for gold prices. The wedding season is over, in India, and the Italian manufacturer basically start pulling back on their purchase as they go on holiday in July, and so seasonally, beginning of may is always very weak, and I think we're -- we're seeing some of that in the market today.

All right. Thanks very much. Thanks, gentlemen.

Thank you, sir. Our next question is from Larry Straus with GMP Securities. You may begin.

Hi, guys. Question on your dividend payments. Over the past year or so, we have seen Yanacocha start to pay out dividends as the capital was paid off as the gold price ran up, and as the operation was expanded. More cash flow is coming out and more dividend payments. In the second half of this year, we will start to see the beginning of dividend payment at bot TOHISHU. Could you describe any regularity as to those dividend payments, and if we assume constant stand prices of say $1.20 copper and $4 coin 20 gold, approximately what you are looking at per year on dividend payments assuming, for example, this year's CAPEX at both operations?

That's subject to a lot of assumptions, Larry, because obviously, we -- in addition to just cap ex, we're always looking at our tax situation there, and I want to hospital mix that, and -- both the host counsel trend the parent here. But -- the host country and the parent here. But, bot TOHISHU, we're looking on 100% basis and very significant dividend depends out of there this year. Could push $200m.

That's on 100% basis.

Yes. And but again, you know, it's pretty earlier in the year to start doing that, and also, you know, for tax reasons, some of that may overlap the cash may be generated this year, may actually come here next year. We look at all of those. Yanacocha is also looking at pretty significant dividends this year. We have not sat down and laid out our specific timing on that schedule with our partners, so to be presumption us with of me to -- pump us with of me to jump ahead on that. Comparable kinds of numbers. Significant numbers

We paid about $60m on 100% basis dividends in –

At Yanacocha.

The reason I asked the question is if you look at your cash flow, they can jump around quite a lot, because you consolidate 100% except when dividends are paid. So if we have a better sense on dividend payments or the regularity, we can get a better sense or estimate as to what your cash flows are going to do?

It's a fair comment. Let us see if we can start giving a little bit more guidance, if that's -- on that point. I think that's a very fair point.

Thanks a lot.

Thank you, sir.

Our next question is from Michael Fowler can Desjardins Securities.

I have three questions. One is a check one. The check of the V.A.T. legislation, what effect does that have with that -- would that have on your cash costs of the check.

It's 18% not refundable V.A.T. So –

On the revenue.

On the revenues. So, 18% times roughly $400 an ounce, and it's about almost $80 an ounce.

OK. Yes. It's significant. Wayne. Just apparently Newmont is being rumored to take over everybody else in the gold industry. What's your latest view on consolidation?

We continue to believe that this is an industry over the longer term that can -- that can benefit the shareholders can benefit by continued consolidation, and we think that that will probably happen. We're no different than most of the other natural resources businesses. That being said, when we look at the kind of drilling opportunities we have in the company and our land position, we think in this environment, probably the best value add we can give is when we -- when we have exploration successes. We don't comment on acquisition rumor, and we won't start today, but we enjoy reading all about what we're thinking.

Right. OK. Just you mention exploration, but you didn't talk too much about exploration in the quarter. You are drilling a hell of a lot. I mean this is a huge exploration budget that you have got. Any color on that?

Well, you know, that’s right as this is pretty early in the year to start, you know -- to start talking about -- about how the year will shape up. We were optimistic going in the year. We have had great opportunities. Pierre, is there anything specific that you would want to comment on right now?

No. We don't really want to get into business of quarterly update on reserve and -- and you know, exploration. All I will add to this is that a couple of things -- last year, we had a great year. We spent $120m in exploration, and from the drill bit we added $12m ounces of gold. That's $10 an ounce all in. I can assure you that's best way to increase share older value in the natural resource company. -- shareholder value in a natural resource company. This year, we have start the year aggressively, we have drilled over 220 kilometers of core, and RSC's. That's 720,000 feet. And we have approximately 75 drill rigs working right now around the world, and it's going to ramp up to well over 100 by June. And our exploration budget total this year is about $160-somem. So, that gives you an idea of what management thinks we can do in terms -- and what we think the opportunities are, and I suspect that like most of the years in the past, 80% of our ounces will come from the four major operations centers that we have, or the five, including Ghana, the five, and 20% will be from more than likely new discovery or new addition to the portfolio.

OK. You have added $40m in exploration this year, so that's -- that means to say that you must be encouraged by a lot of your properties. Any -- any focuses on that extra $40m?

Part of that, of course, is that now we do have -- fully consolidate about TOHISHU (ph) , so that had been on the equity line before, but, yes, we have increased our budget this year and again, we have a number of initiatives going. Nevada continues to look very good to us. Ghana is -- you know, one of those assets that it's still growing, and we -- we don't have a good sense of where -- how big that's going to -- that's going to get, or -- and we're doing some things that, Yanacocha this year again with adding reserves, it's not just drilling. A lot of it adds up metallurgical too, which plays to another one of our strengths. Some of the things down at Yanacocha clearly fall within that realm. So, we'll see where we have said before that we're taking a much harder look this year at Minas Congo, we think there's real opportunities on the east side of the Yanacocha properties. So, we're excited about that, whether that all happens this year or takes a couple of years to get that in reserve. Nonetheless, we have a long history. We don't put things in resource unless we think we can put it into reserve. We don't put it in reserve unless we think we can mine it. With that kind of a company, and so, just giving drill intercepts doesn't mean very much to us. It's about making money for the shareholders.

OK. Thanks very much.

Thank you, sir. Our next question is from Alberto Arias with Goldman Sachs. You may begin.

Good afternoon, gentlemen. A couple of follow-up questions on the comments that you just had on Minas Conga. Is it through true the feasibility study should be finished by this year or could you give as you little bit of a sense of when should we expect the feasibility study of Minas Conga to be finished?

It depends how the work goes itself. You know, it's metallurgically complex. There's a lot of issues at Minas Conga that have nothing to do with mining and processing, because, you know it's a huge deposit. It's inland. There's transportation issues. There's just a lot of things to look at, so we -- we have got a schedule where certain parts of the study just depend on what we find out, and may require extensions. So, it sounds like I'm avoiding your question, and I don't mean to avoid it, but it's not just a simple straightforward feasibility study. There's so many aspects to that. The magnitude of it. You know how many ounces we have in resource there. The magnitude of that project is such that, again, we'll be very careful. We're very good. I mean, I -- I am very proud of our technical team. At handling these complexes, low grade deposits. That's why whether it's a bot TOHISHU or Bodington or Minas Conga, we think we can make value for shareholders, but you have to be careful how you process those. It's little different than the -- than a lot of our straightforward gold oxide projects or leech pads. I -- you know, again, we would hope that we would be in a position to add reserves this year. But it's way too early to say, and it may very well be 2006. But it works -- we're, sited about Mansas Conga, and it's not driven by better copper and gold prices. As we have studied that deposit and got into it more and we'll be doing more drilling down there, we're getting excited about it.

There was some plans to install the processing facility at Yanacocha to process the higher grade material that you have been finding recently, and I believe that one of the plans was potentially transferring some of the, you know, processing facilities that you have in Bolivia to Peru, and --you could -- could you update us on -- you know, if that were the case, what the time frame that we should be expecting a -- a processing facility of Yanacocha.

Let me ask David Francisco to address that. He has a special passion for that part of the world and this project in particular.

Thank you, Wayne. Let me start off by saying that Yanacocha has diverse assets and there also and at Minas Conga and we have the facilities at other places. We are putting together a look at how to bust of best utilize the assets and maximize the value, but it is too early to say exactly how the assets are going to be signed. There were very positive and pleased with how the initial work is going out, and going on in South America.

This seems to make sense to us that if we could develop an oxide mill there first, and maybe do some of this in stages such that that could grow into the ability to process transition orders, which are higher grade and ultimately sulphide ores on the Yanacocha property. That would make sense and that's the path we're going down right now. We are, as Dave said, encouraged but as soon as we come to some conclusions, we will make an announcement.

And the final question, also related to Yanacocha. With regards to several key issues, the issues that you had with regards to being able to continue to drill that ore valley, what is the status of that, are you being able to drill -- to exploration drilling at this time or is that the old delay?

Thank you, sir. Our next question is from Ona Rooten (ph) with Scotia Capital.

Good afternoon, gentlemen. Two questions. First of all, on Ghana, mention is being made on the report of the land acquisition progress there. Could you elaborate on the schedule and any risks that are presently regarding the schedule?

Yes. I think it's interesting. We just had a report to our board this morning on that aspect of the project, and it's going -- it's going very well. We are negotiating both compensation for crops and for land, and relocation of personnel, and you know, I think in a project like this, that's probably the biggest wild card that one would see, so we're very pleased. We feel we're right on schedule in that project. We're enough into it now that we -- you know, our comfort level is increasing.

OK. Thank you. And the other question is more with regards to the closing remarks that were made with regard to accessing lower grade ores as long as there's a margin. Could you elaborate especially in the context of Nevada, whether first of all the existing mine operations -- at what gold price assumptions are. The big shell is currently there and the how are the blocks actually being mined under which gold price assumptions, and going forward, are you looking to open up the big shells towards a gold price of $400 an ounce. What's the planning?

We have not significantly altered any of our -- any of our pricing on our pit shells. We are at about $300 an ounce there. We have some -- the reserves were done at 325, but we haven't changed the pit shells, although one case we were looking at a possible layback that would require, you know, higher pricing. A lot of this has to do with --to do with average grade, how selectively your mining is within the existing pits. And you know, as far as -- as far as significantly changing the pit shells be that's something that's made over a longer period of time. We're doing a lot of work, started last year, on -- on what can be accomplished at higher gold prices, and I think as we disclose the sensitivity on our reserves last year, there is a lot of up-side here, but most of it is we're drill-hole con strained. We're working on that around selective pits right now. Probably the best example of that, and it's not just price, but the significant expansion potential we see at gold quarry pit in Nevada.

OK. Thank you.

Thank you, sir. We'd like to turn the conference back to Mr. Wayne Murdy for any closing remarks.

Well, thank you all for your interest. Again, I think that for us, it was a very strong quarter given accounting reporting requirements when one first looks at the headline numbers. And the S.E.C. and the financial accounting standards board haven't made it any easier on all of us to discern sometimes what really happened. But when you cut through it, and you tried to provide as much information as possible, you know, we saw our earnings from our standpoint go up over 50% in the quarter, and we think we're on track for another very strong year, and -- very strong cash flow quarter, and question that wasn't asked, but I think thinking about Larry's question about $45 m of that increase in cash flow this year was quarter. The quarter, was the --of the consolidation of bot TOHISHU. Without that, it would have been a strong quarter from a cash flow standpoint. Good opportunities. We will continue to optimize the asset base we have and be opportunistic in looking at other opportunities around the world. Thank you all very much for your attention.