紐蒙特黃金公司 (NEM) 2004 Q2 法說會逐字稿

Good afternoon and thank you all for standing by. At this time, all lines have been placed on a listen-only mode throughout the duration of today's conference. Today's conference is being recorded. If you do have any objections, you may disconnect at this time. Welcome to the Newmont Mining 2004 second-quarter earnings conference call.

At this time, I'd like to turn the call over to Mr. Russell Ball, the Group Executive, Investor Relations.

Good afternoon, and thank you all for for joining us on Newmont's second-quarter earnings call and midyear exploration update. The call and presentation are being simulcast on our website at www.Newmont.com and will be available for playback for a limited time.

As we shall be discussing forward-looking information, you should be made aware that there are risks unique to our industry that are described in detail in our filings with the SEC. During this call, we will be referring to non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is included in the supplemental information section of the second-quarter earnings release.

In particular, reference will be made to total cash costs per ounce and per pound, both of which are non-GAAP measures. These are included to provide investors with information about the cash-generating capabilities and profitability of Newmont's operations. These measures differ from earnings determined in accordance with GAAP, and should not be considered in isolation or as a substitute for measures of performance or liquidity determined in accordance with GAAP.

On today's call we have Wayne Murdy, 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 of Worldwide Exploration; and Jeff Huspeni, Vice President, Mineral District Exploration.

With that, let me turn the call over to Wayne Murdy, our Chairman and CEO. Wayne, please go ahead.

Thank you, Russell, and good afternoon, everyone. On today's call, we will review our second-quarter financial and operating results, and then Steve Enders will provide an exploration update, and Pierre will also give us his thoughts on the gold market.

Newmont reported $37.5 million or 8 cents per share in net income for the second quarter, after non-cash impairment charges totaling almost $48 million or 11 cents a share. We generated net operating cash flow of $243 million in the quarter on equity gold sales of 1.64 million ounces. As we had warned early in the second quarter, equity gold sales were approximately 10 percent lower than the first quarter.

Higher total cash costs of $240 per ounce were the result of lower ore grades in Nevada, at Yanacocha in Peru, Kalgoolie, Pajingo and Yandal in Australia, and lower production was due to noncore asset sales and mine closures. This will be our lowest output quarter for the year, as we gear up for what has been a common theme at Newmont, the strong second half of 2004 weighted towards the fourth quarter. A comparison of this year's earnings with the year-ago quarter shows the impact of, obviously, a lot of noise last year due to cleanup process and, of course, these two impairments this year. As I said, net income for the second quarter was impacted by non-cash after-tax charges relating to an impairment at Ovacik, in Turkey, and for an other-than-temporary decline, as defined by the accounting rules and the value of our investment in Kinross Gold.

As for the second quarter of 2003, you can see from the slide that we had a number of largely non-cash transactions that had the net impact of increasing net income for the year-ago quarter by $19 million or 4 cents a share. So, on a normalized comparison, it's 19 cents this year versus 18 cents in the quarter a year ago.

Now, I'd like to hand the call over to Bruce Hansen for a more detailed discussion of our second-quarter operating results, then I'll be back on to talk about some projects.

Thanks, Wayne, and good afternoon. For the second quarter, total equity gold sales were 1.64 million ounces, at a total cash cost of $240 an ounce. In the year-ago quarter, almost 100,000 ounces of gold sales did come from non-core assets that we have since sold -- namely, Mesquite in California and Wiluna in Australia, or at the end of their mine life, as is the case with Bronzewing in Australia, as well. In addition, there was a significant drop-off in gold production from Kori Kollo, as it also nears the end of its mine life.

Nevada operations sold 560,000 ounces in the first quarter, which was up 5 percent from the year-ago quarter, as increased mill throughput, inventory reductions and higher leach tons more than offset lower-grade ores. Total cash costs, however, were up 8 percent as a result of processing lower-grade ores from stockpiles, as stripping fleets were deferred to Gold Quarry and Twin Creeks, Section 30, which are in a significant stripping phase.

For 2004 in aggregate, Nevada's expected gold sales are slightly lower than prior guidance, at 2.5 million ounces, at a 5 percent higher cash cost of $280 an ounce. Lower expected equity gold sales are attributable to selected negative grade reconciliations, lower-grade ores and slower-than-planned ramp-up of production at Turquoise Ridge. The decrease in full-year gold production, along with increased labor, fuel and consumable costs, also have impacted total cash cost guidance.

In Canada, our district optimization efforts took another step forward, with our agreement with Barrick to acquire the Holt-McDermott mill and related facilities in the fourth quarter of 2004. As you are aware, ore from our Holloway mine is currently being toll-milled at this facility.

Turning slides and going to Peru, and Yanacocha, we sold roughly 318,000 equity ounces in the second quarter, at a total cash cost of $147 an ounce, a reduction from the leach tons placed, increased stripping and lower ore grades, were largely in line with our mine plans. Yanacocha is geared up for a much stronger second half, with a full-year 2004 guidance of 1.54 million equity ounces to Newmont, at a cash cost of $135 an ounce. Some production from the La Quinua pad has been deferred into 2005, as a result of slower-than-expected gold recoveries. However, we do not expect an ultimate reduction in that gold recovery.

Our Australian operations for the quarter sold 378,000 equity ounces, at a total cash cost of $302 an ounce. Second-quarter gold sales were impacted by lower sales at Pajingo, due to a temporary shortfall in production related to a ground disturbance, along with lower ore grades at Tanami, the sale of Wiluna and the closure of Bronzewing that I mentioned earlier.

For the full year in Australia, equity gold sales are expected to be slightly higher than previous guidance, at 1.73 million ounces, at a total cash cost of $240 an ounce, based on an Australian dollar exchange rate of 69 cents for the remainder of the year.

As a reminder, effective January 1, 2004, the Company began consolidating Batu Hijau based on requirements of FIN46R, or Financial Interpretation Number 46R. Batu Hijau had another quarter with increased mill throughput, as a result of modifications made to the crusher circuit in 2003, along with higher copper and gold rates. On a co-product accounting basis, Batu Hijau sold 170 million equity pounds of copper at 46 cents per pound, and 111,000 equity ounces of gold at a cash cost of $174 per ounce.

For Batu Hijau, our guidance has been adjusted slightly upward, to reflect higher copper and gold output of 380 million equity pounds of copper, cash cost of 53 cents per pound, and 388,000 equity ounces of gold at a cash cost of $170 per ounce. Total cash cost guidance has been adjusted to reflect the cost allocations, in proportion to estimated and projected copper and gold revenues. As previously disclosed, when Batu Hijau reports positive retained earnings, which we expect in September of this year, Newmont's reported economic interest at Batu Hijau will decrease from 56.25 percent to 52.875 percent.

Our other operations contributed equity sales of approximately 192,000 ounces, at a cash cost of $191 an ounce for the second quarter. The largest contributor was Zarafshan, which sold approximately 69,000 equity ounces, at a cash cost of $144 per ounce. At Ovacik, in Turkey, we have a preliminary sales agreement with Frontier Pacific, which required (technical difficulty) to the current permitting issues.

I won't go through the rest of our operations' sales and cost, which are described in significant detail in our release, but let me turn it back over to Wayne for a quick update on our project development efforts.

Thank you, Bruce. Let me quickly review the project in development that will replace our maturing higher-cost mines over the next three years and enable us to organically grow our equity sales while lowering our total cash cost in the 2007-2008 period.

Beginning in Nevada, the Leeville Underground Project is on schedule for gold production in the fourth quarter of 2005. Total capital expenditures for the project was increased about $15 million to approximately $205 million, primarily as the result of additional dewatering wells and pumps, as we encountered slightly more -- or more water than anticipated during the shaft sinking.

At the Phoenix project in Nevada, we're on schedule to commence production in mid-2006. Engineering is approximately 12 percent complete, and the actual construction there will begin in early 2005. Later, you will hear Steve Enders talk about the potential to grow the Phoenix reserve base. At Boddington, in Australia, the feasibility update by the three joint venture partners is now on track for completion in mid-2005. Current activities include finalizing additional metallurgical test work, refining the geologic model and preparing updated cost and schedule estimates.

In Ghana, development of the Ahafo project is on schedule for 2006 gold production. Site access and infrastructure construction have commenced, with land use and crop compensation efforts progressing well. Akyem -- the feasibility study is being expanded and updated, while the mineralization continues to grow. We expect to make a development decision by late 2004 or early 2005 on that project. Ghana continues to look extremely attractive to us, and Steve will also talk a little bit about that. I think I find myself referring to the Ghana as something that has really grown and we don't know how big it's going to get, but it's going to be a significant contributor to Newmont's earnings and cash flow in future years.

For the full year, guidance for 2004 is unchanged, at between 7 and 7.2 million equity ounces and between $225 and $235 for total cash cost per ounce. Stronger sales in the second half are weighted towards the fourth quarter. In copper, equity sales are expected of approximately 420 million pounds, at total cash cost for the copper portion of 56 cents per pound.

I think that, as we look at the guidance, we feel comfortable with the spread, I think, on production. It's going to probably be at the lower end of that range, although we have a great history, the operating team -- Dave Francisco and his people are pulling things out at the end. So we are comfortable with saying that we are within the guidance. I think reality is that it will probably be at the lower end of the guidance.

The guidance breakdown is also in the news release. Keep in mind that these numbers reflect 100 percent of Batu Hijau, as it is now consolidated. The biggest change has been in exploration, research and development, which Steve Enders will cover.

So let me now turn it over to Steve for an exploration update.

Thanks, Wayne, and good afternoon, everybody. Our exploration and development geology teams are having another successful year in advancing discoveries to reserves, and we are optimistic about our ability to grow reserves from exploration in 2004. I'm going to highlight here some of the more important areas for reserve additions in 2004 -- these are specifically Ghana, in Indonesia and in Nevada.

The Ahafo and Akyem projects in Ghana added significant ounces in doubling the combined reserve base to 11.9 million ounces last year, and we are optimistic in reserve additions continuing in 2004.

This inset map shows our 1.1 million acre land position in Ghana, and the larger map shows 11 deposits in the Ahafo property that occur over a 40-kilometer strike link (ph). At the Ahafo project, where construction is underway, up to six drills are being used in a 250,000-foot exploration and development drilling program this year.

Positive results have expanded several of the Southern area deposits, such as Kenyase East, Kenyase Central and Area E. Specifically, drilling at Area E has encountered higher-grade and thicker mineralization at depth, and this is deep in the $350 model pit, and expanded it along strike to the Northeast. Similar positive results are emerging from the Akyem project, where three drills are currently being used in a 125,000-foot exploration and development program this year. This is a long (technical difficulty) showing gold grades through Akyem, and you can see that results to date have extended mineralization at depth and along strike, deepening the $350 model pit beyond the reserve pit reported at year end 2003. And you can see that mineralization in the higher-grade chute is still open at depth.

Shifting to Indonesia, it's possible that we could have year-end reserves for the first time from the Martabe project in Northern Sumatra. This style of mineralization is similar to that at Yanacocha deposits in Peru.

Now, we reported inferred mineralized material not in reserves for Martabe last year, totaling almost 51 million tons at 0.062 ounces of gold per ton (technical difficulty) Purnama deposit. This is a plan (technical difficulty) for the core area of the project, where development programs this year are focusing on expanding the Purnama deposit and advancing drilling on the (technical difficulty) to the North. But at the same time, (technical difficulty) exploration is advancing some satellite targets to the North (technical difficulty) and to the South at Pelangi, and this includes flying a regional airborne and molecular magnetic survey using Newmont's NUTEM (ph) and HOISTEM (ph) system to define additional targets on the contract of work land package.

Next, let's move on to (technical difficulty) Dos Equis layback in the Gold Quarry pit in Nevada. We are optimistic that we could expand reserves at Dos Equis at year-end 2004 in this area. This is a plan map of the Gold Quarry pit. Our successful drilling program, initiated in 2003, added approximately 2 million ounces of reserve additions, mostly along the southern edge of the Gold Quarry pit. The 2004 program is testing for potential pit expansions to the East and along the northern (technical difficulty). The key here is to replace historic mud rotary and reverse circulation data with more accurate core drilling results in the model. We are pleased that our initial results are similar to that what we saw in 2003, giving us more oxide material and (technical difficulty) more coherent zones of higher-grade material shown here in red, at plus 0.2 ounces per ton. The 2004 program is advancing in two phases sequentially, to determine the ultimate pit geometry.

Finally, (technical difficulty) turn to the Phoenix project under development in Nevada. Phoenix is a (technical difficulty) gold system we have been optimizing over the last few years, and we are optimistic also about reserve additions in this area in 2004. This is an aerial photograph of the Phoenix project area, showing the 2004 drilling program, which is focused on infill and extension drilling of several targets in the Fortitude area to the North and in the Glory Hole/Superior Hills/Minnie area to the South. Condemnation drilling intended to clear the way for construction facilities has also encountered mineralization. This will be followed up with offset drilling. We are also seeing encouraging results from new core drilling and assaying of previously drilled areas. Approximately 600 new holes have been drilled with data for a new resource model due by year end.

So, these are just a few of the highlights. We also have aggressive development and exploration programs elsewhere in Nevada, Peru, Australia and at Batu Hijau, and elsewhere to (technical difficulty) our pipeline and projects. As you'll see in the 2004 guidance in the news release, we have increased exploration, research and development costs from approximately 165 million to somewhere between $180 and $200 million, reflecting expanded feasibility studies at Minas Conga and Peru, and Akyem and Martabe, as well as increased drilling at Phoenix and Yanacocha.

With that, let me turn this presentation over to Pierre Lassonde, who's going to tell you about Newmont's black gold, and to give you a brief gold market commentary.

Thank you, Steve, and welcome, everybody. The increase in our exploration expenditures from 165 to the 175-180 million is in fact a direct reflection of the number and the quality of opportunities that we have in developing reserve and resource in this Company. It's a reflection of our land position worldwide, which is one of the absolutely best-quality land positions, and the largest of any gold company. And I think that, as we have progressed over the last two years, we are finding even better opportunities to go from -- and it is a direct reflection; we are very, very happy with the current results. And I can tell you this year, we're going to be drilling something like 900,000 meters of drilling, and we hope that the result would match at least last year's results.

Now, just to switch topics for a second, we'll talk about black gold. As some of you may know, we have an oil project in Alberta, and last year we completed a 3.7 million phase 1 drilling program to come up with some in situ resource, and we received an independent report that shows that we have about 544 million barrels of oil in this project. Our neighbors, like EnCana Resources at Christina Lake and Devon Energy with its Jackfish project, are (technical difficulty) and they project recovery of about 60 to 65 percent. In fact, the most similar project would be (technical difficulty) Jackfish project, which is very, very similar; in fact, their numbers are slightly less than our numbers.

Based on these promising results, we will embark on a further $4 million drilling program this coming winter, when the Muskeg area freezes over. And if you look at the evaluations on these projects from analysts on what either Devon's or EnCana barrels are worth, you will agree with me that this is a very good project to put our money in, and it also gives us a natural hedge against rising fuel and energy prices.

Now, let me just turn very briefly to the current gold market. They (technical difficulty) strengthened in the last few months, and I would say that it is mostly because of Federal Reserve Chairman Alan Greenspan's remarks that the US economy is very strong and, notwithstanding (technical difficulty) prices, interest rates are likely to go up substantially. Now, (technical difficulty) know what numbers and what statistics he looks at because, when you look at job creation in this recovery, it has been well below normal regarding previous recoveries. And when you look at manufacturing capacity, it is also still well below the average for this period of time in the recovery. However, that being said, the market has decided that he's right, and we have to acknowledge that the dollar has been a lot stronger than we had expected at this point in time.

However, the fact is the US needs a lower US dollar to rectify the very large financial imbalances, both in the trade deficit, the current account deficit, that we are currently running. And at the end of the day, it's the rubber band effect. The longer that the dollar stays strong, the worse the financial imbalances are going to get. And when the rubber band breaks, you're going to have far more nasty surprises that if we had a very slow deterioration in the dollar. So, for the time being, we just acknowledge that it is stronger (technical difficulty) continue to look at $380 to $450 gold band (ph) for the next six months to possibly nine months, but after that, we believe that the gold price will continue to rise going into '05.

And with that, I will pass it on to Wayne for concluding remarks.

Thank you, Pierre. In summary, then, when we look at the second quarter, it will be the worst quarter for the year. Nonetheless, despite taking some impairment write-downs, we had very strong cash flow. When you look at first-half cash flow of $567 million, you really see the cash-flow-generating ability of the Company. Again, we expect a stronger second-half production within our guidance of 7 to 7.2 million ounces, probably towards the lower end, and costs between 225 and 235. We're extremely excited about the continuing success of our exploration program and the ability to grow our reserve base with the drill bit.

With that said, I'd like to turn it over now to the operator so we can take any questions you may have. Thank you very much for your attention.

(OPERATOR INSTRUCTIONS). Alberto Arias.

It's Alberta Arias from Goldman Sachs. A couple of questions -- the first one on the oil sands project that you mentioned. What is Newmont's strategy with regard to these projects? Would you be considering selling it at some point, or is there any other plan of bringing it into production?

Alberto, thank you for the question. I think as we look at this, this is obviously an asset that has real value. I think the original acquisition which was done back a few years ago by Franco -- I think it they put about $2 million into it -- the drilling program we just ran was about 3.7 million. Our view is we'll spend some money again this next year to bring it to a point that it -- I'm not sure that it will meet approvement or probable reserve category, but darn close. We've got a lot of interest from both our neighbors. When we have a real sense of what the value is, we'll make a decision as to what to do with it. We are a gold company, but we enjoy extracting value out of every piece of asset that we have, and I think the team shows a good track record to that.

So a little too early to say exactly what we're going to do, other than we'll spend a little bit more money this next year in the drilling season and have a much better sense of what's going on. I mean, it is -- and Canada is developing their project, and Devon. Both companies have shown a lot of interest in what we have, also. So we've got a number of alternatives.

A second question -- with regard to the areas where you are identifying sources of reserve additions this year, I was surprised at not seeing Yanacocha or Peru being mentioned there. We were visiting Yanacocha, and the operators were very excited about several key leach (ph) being redrilled this year. Has there been any additional permitting problems in the drilling program that perhaps have postponed the expectations of reserve increases at several key leach?

No, quite the contrary. In fact, we started going there yesterday, or started preparation for drilling. I think the drill bit hit today. But no, we are very excited about that. Again, this was a midyear report, and so we focused on things that we see that we've already accomplished but expect to have good results for the year at Yanacocha also. So you shouldn't infer anything negative that we didn't mention it now -- it's that we had to wait for those drilling permits.

John Hill.

John Hill, Smith Barney Research. Thank you for a great presentation, as always, everyone. Just a quick question about your copper realized price in the quarter, $1.08. I was just curious about that. Does that represent or capture some prior-period adjustments, such as we've seen elsewhere in the States recently?

Yes, John, that's correct. The second-quarter realized copper price was $1.08, compared to an average market price of $1.27 for the quarter. This was due to the fact that the spot price of copper from the end of March, when it was $1.39, dropped down to $1.21 at the end of June, and the provisional payment adjustments that go along with it.

Okay. So it's strictly a matter of customer contract pricing, rather than anything more involved in that?

That's right. It's really open contracts, where they have been shipped but they haven't been finally settled.

Very good, and next question -- I just noticed that you spent 94 million in the quarter on marketable equity securities. Could you just tell us what's in there?

Yes. We spent money on marketable securities, and we're not prepared to talk about it beyond that at this point in time. Again, we've got a lot of cash, and we're attempting to increase our yields. And so we are developing a portfolio there that we think will work for us longer term, but we are in that process, and so we don't really care to comment on exactly what we're doing at this point in time. But it is a move to improve the yield on our cash in this time period.

Terry Ortslan.

Actually, let's come back to the oil sands. I'm not (technical difficulty) apply for a rough calculation of in situ value.

Maybe you should talk to your confrères that are in the oil and gas business. I think, if you look at the recovery rates 60, 65 is what -- actually, Devon is using 65 percent, I believe, and EnCana is also using the upper end of that level. And it is SAGB (ph) technology, which is what Christina Lake is developing. The costs are a little high. They are probably going to be in the US $15 to $17 range, higher than the conventional tar sands. At least at the beginning, I think the technology will evolve with time, and I do believe that these costs are going to come down, mostly because of the use of gas to get the energy down, to get the recovery. So I do believe that these costs are going to come down, but that's about what you are looking at. When you take today's price, and you can make an estimate of what these barrels of oil are worth in the ground today.

That's a good guidance, because you guys made a good investment at the time when nobody wanted those things.

Well, that is correct. When we acquired these lands in the mid-90's, the value of these lands was next to nothing. We just applied for them, and as Wayne pointed out, we acquired these (technical difficulty).

On the Boddington, is this study that has been going on for a while, and I think now it's mid-2005 -- on the work that has been done, number one, is there a progress report, just beyond the preamble that you put in there, the Milledgeville (ph) test work and (indiscernible). Is there any more details in that, number one? Number two, is there anything discouraging from Newmont's point of view?

Yes, I'd say that work is progressing. We're working on the process design. We are actually quite pleased with the test work that we have done showing the viability of HPGRs. We're working on the models right now. Things are looking, actually, quite good at Boddington. But, as everybody knows, you have three owners, and getting everybody forward at the right pace is a little bit of a challenge. But I think all three owners are intent on pursuing the project, and we're reaching a good consensus on a technical basis. I'm optimistic about (technical difficulty) doing well (ph).

Nothing discouraging from Newmont's point of view so far?

No, no.

So you are not doing the work times three for everybody's sake, are we?

No, no. But there is -- you have three people with three different opinions, and developing consensus sometimes takes a little bit of time. And you have three people with different timetables and (indiscernible). I'm quite pleased with the progress.

Maybe one last just general question. Given the spending this year, can you use historical numbers of Newmont, in terms of reserve resource addition in relation to spending, or will you be a bit more out of scale this year?

I assume you are referring to finding costs and trying to extract where you think our reserves will end up. And I would just caution; it's the middle of the year. We feel very good about what's going on. We have got a number of feasibility studies going, and that will impact -- I mean, getting those done in a timely manner so that all these reserves qualify under SEC rules is a project. We may not get them all done, but that doesn't mean the reserves won't be there right afterwards. So I'd just be a little careful. We feel good about where we are at. We report reserves at year end, and that's when we'll give you a real number. But we did want the market to know that we are having good exploration results again this year. Pierre?

Well, I was just going to add Wayne feels good. I feel very good.

That makes me feel good. That's great. Thanks.

John Tumazos.

John Tumazos from Prudential. I was also interested in whose marketable securities you might have bought. I respect your confidence.

In terms of exploration trends, Paucer (ph) also has had success in Nevada this year, and there's a ballot initiative in Montana in support of open-pit heap leach mining with cyanide for gold. Do you think things are improving to an extent that you might put a bigger fraction of your resources back in the United States, and possibly have less theaters of operation around the globe to simplify the Company?

We are going to put our exploration monies where we think the probabilities are highest for us to find deposits that can give us the yield that we're looking for, and we have not ruled out working in the United States. But how that balance works out, in terms of percent of our exploration funds devoted to North America or somewhere else, is going to be based on a program-by-program basis at this point.

Steve, do you think things are getting better in America?

My opinion is maybe we are finding ways to work through this; as opposed to things necessarily getting better, we're just finding ways to work with it.

John, it's a good question. We are always very cognizant of our balance between the developed world and the developing world. So we can't do exact forecasts on exploration success; we have to go where we have to go. But as a Company, we do want to maintain a reasonable balance between the two. We said we'd like to maintain a 50/50 balance, so it clearly enters into our thinking.

Mike Jalonen.

From Merrill Lynch. I just had two questions -- I guess, more to try to clarify things. First, I guess you note that the Company is optimistic that you'll be able to grow reserves from exploration in 2004, and then you mentioned about feasibility studies. Is that growing reserves before or after what's mined this year? I'm just basically trying to see if you're going to replace reserves? That's my first question.

Okay. No, we are talking about growing it over and above depletion. Our gold every year is to replace depletion with the drill bit, and what we're talking about is growing it over and above that.

That's the goal, that's your objective. I guess I was just wondering if -- I guess we won't know until year end if you will, I guess?

No, you won't know until year end. But I guess what we're saying today is we're fully confident and we are very optimistic that we will grow reserves over and above the depletion.

I guess, just going back to Boddington, I guess the feasibility study being completed in mid-2005 -- how does this impact the 2006 production startup that Newmont noted last September at the Denver Gold Show? It seems like a pretty tight time to build a mine. I guess, does it impact your production expansion curve you talked about back then?

Yes, it will. I think we had -- since last September, with some of the delays that we encountered with the partners, we had indicated that that will not be in production by the end of 2006. So it will extend it out. And I would expect that, again, probably at the Denver Gold Show this year, we'll give a little bit more information, and certainly by year end we will be in a position to give better definition to that.

How long will the construction period be for this mine, once you make that decision?

I think Dave is signaling to me -- it's about a two-year construction period.

Victor Flores.

This is Victor Flores from HSBC. On Yanacocha, it seems that when a quarter comes through that isn't, perhaps, quite what we expected, the issues come back to logistics and managing a project of that magnitude (technical difficulty) your leach pads and leach pad construction and whatnot. It seems that this quarter, with the issues at La Quinua was similar. Could you give us a sense for how these (indiscernible) are being managed? Because when we were there recently, there was certainly a focus on putting a lid on costs, now that the operation has matured somewhat. But I'm wondering if you could perhaps give us a bit more flavor on how you are managing this big logistical issue that this project represents.

Yanacocha, as you know, is a very large and very interesting and very productive project. Those are probably the largest leach pads in the world, and we have a great ore body there. And leaching in general is a little bit unpredictable. And when you are putting the tonnage on these pads in the way that we are, with multiple lifts, sometimes you're going to have slow quarters, and sometimes you're going to have quarters that do well. Our production actually is variable with the weather. It's variable with how many stages of the leach pad have been built that year. It's variable somewhat with how many levels of leach pad material we have. If you have a -- putting a new layer on, and it's right next to the plastic, the gold comes out quickly. If you are putting a new layer of ore on and you're five lifts up, it comes out more slowly. It's a very strong project; we're producing a lot of gold, and making significant strides there in maximizing the value of that project. But it is subject to natural variability, because of the size and the weather and the location.

Do you get a sense that you might revisit the decision not to agglomerate the ore at La Quinua?

Say that again, please. I didn't quite get that.

The question was whether you might revisit the decision not to agglomerate the ore at La Quinua?

No. All of our results right now, indications are that agglomeration is not providing the benefit. And as we learn more about the ore body, we have no plans right now to start agglomerating again.

Barry Cooper.

CIBC World Markets. Dave, just wondering if you could flesh out a little bit further on the Leeville development there. You've run into water. Is this is situation that, once you go ahead with the drawdown on the (technical difficulty) and everything like that, then in essence, there is no concern on the mining side of things? Or is this going to perhaps change how you look at mining, and indeed influence the cash operating costs on a go-forward basis?

No; we are actually drawing down the cone very nicely. We don't anticipate any impact to mining at all. In fact, that's why we have recently decided to put in two more wells and do a little bit more pumping. But the cones are going down nicely; it's just there's more water to dewater the area than we thought. And we have been watching the water level drop, and it's very much dependent on the pumping rate. We are dewatering now to the point where that Carlin East drive is now dry. We are well below the designated bottom of the bedshaft. It's just that it's taken us a little bit more water to sort of steep mine (ph) out of the area before we can start production.

And we're actually anticipating a little faster startup of production than we had anticipated, with perhaps more ounces even in 2005 than we had previously forecast. So it's simply a matter of getting the water drawn down, and I'm not worried about Leeville at all right now.

And then, Bruce, sometimes you're able to break out the influence of FX (ph) versus grade (ph) kind of versus volume. Obviously, the Australian assets cost jumped $50 there. Any sense that you can kind of give us as to how much of that might have been FX versus, say, the more operational issues?

Well, Barry, when you look at quarter over quarter, you had about a 7 cent change in the A-dollar, about 10 percent. And the predominant component of our Australian operating costs are Australian-dollar-based. So I would say around maybe 8 to 10 percent of the step-up, or 8 to 10 percent off of the 2003 costs, are A-dollar related.

Okay, good enough. And then finally, Ovacik -- should we assume that it's gone or not? Obviously, issues have arisen there as of late (technical difficulty) the country obviously putting a few spins (ph) on things.

At this point, we have an agreement with Frontier Pacific on Ovacik. However, it is subject to a number of undertakings, including getting government permissions, of the permitting that is currently a question mark, getting that resolved, and a number of other issues. So in principle, it is. However, we do have to get through all of these to consume the transaction, and this could take a few months as we know it today. So the answer is we'll tell you when we know ourselves.

Okay, good enough. But I guess you have agreed upon a transaction finalization date of July 1st; is that correct?

That would be retroactive, yes.

Patrick Chidley.

It's Barnard Jacob Mellet. And my question is on Minas Conga. Just maybe, could you give us a bit more information about what's been going on there? Is it in drilling stages, or is there -- really just in desktop studies type stuff?

This is well beyond desktop studies. We are drilling; we have a feasibility study underway. The project is going really very well, and we are working very hard to have that feasibility study complete by the end of the year, and this is real work with a real project. Now, it's also tremendous assets, and there is true exploration potential in the area. And this is a project that will be a while in coming, as we work to optimize it.

Are you chasing some great improvements there at that project?

There are some great improvements, yes. And actually, we've got a fairly significant-sized resource to deal with, and so we are working with the models right now, to come up with a production schedule and a mining plan that optimizes the asset.

And is that project sort of a key area where you'd expect to, or you are hoping to add to reserves this year, in that case, if it's a feasibility study?

It's very likely could be, yes.

And just roughly speaking, how important would that project be compared with the other exploration projects globally?

Well, it's a good project, and it's, of course, individually not as important to us as Ahafo or the projects in Ghana. But it's important to (indiscernible) Yanacocha (ph), and it's important to Newmont in Buena Ventura. So we are giving it proper attention.

Actually, sorry, I meant in terms of what you are going to do to reserves this year.

We expect to complete the feasibility study.

And the other question was on Ovacik, just in terms of the write-down. Could you just explain which assets were written down, and what was the reason for that?

Patrick, I think you know at the end of the year, we warned people that we were taking a re-look at Ovacik from a carrying-value prospective. I think the more recent events, in regard to permitting, and along with some of our evaluation work, indicated that the carrying value simply needed to be reduced. And we took a hard look at it, and it includes plant (ph) property equipment and the mineral interest as well, on a gross basis. We took $16.3 million off the book value.

Jim Copeland.

Goldman Sachs. Just one on the drilling at Nevada. It seems at Gold Quarry, and now at Phoenix, that you are able to perhaps get a better grade by using diamond rather than RC. I mean, you are bringing Nevada for quite some years now (ph). Is this -- I don't know if you can just provide a little bit more color to that, and why you think you are getting much better representative grades out of the diamond versus the RC?

Actually, that's a great question. And it's a credit, really, to a team effort that we have got going on in Nevada, with not only the geologists but mining engineers and the metallurgists. The specifics are we took some bold step-ups on the Gold Quarry pit, and drilled those holes in the mid-90's with a mud rotary. We had highwater flows, and we started smearing, if you will, some of the samples. In coming in mining on the edge of the Gold Quarry pit, we found that we had more oxide material, the grade was a little bit higher, and we began to question the quality of some of those step-up holes. So we went out and started to drill some of the core holes and found that in fact we increased the grade and had some broader zones of higher grade that hung together.

So it was a good new story, and we are now following that around the north side and the east side of the pit.

Right. So it was because of the water contaminating the RC stuff earlier, or was it some other sort of function of oxide versus sulfide, do you think?

Well, what happens, when you have the higher water, it just has a tendency to smear things out. And so your distinction between oxide and sulfide gets a little blurry, and then your grades get a chance to be moved around, compared to what they really are in situ. And the core drilling just alleviates that, and gives you a better sample.

Is that at all changing (ph) -- are you going to do more core drilling going forward, rather than the mud rotary?

Well, what we've done is we are more cognizant of where the water tables are at. You can drill RC above the water table and get a good sample that's usable and reliable. But in areas where you may have water, then you are more reliant on the core.

Dave Gagliano.

Credit Suisse First Boston. I just have a quick question. What's the gold price, just coming back to the reserve comments earlier? What gold price assumption do you plan to use for your year-end reserve calculation?

Consistent with the SEC guideline here, we use basically a three-year rolling average, which we are estimating will be at 350 this year end. But I would just add that the increases we see in reserve growth this year is not as a result of using a $25 higher gold price. That will have some impact, but it's not going to be a significant portion of the increase.

Roughly how much of the expected increase -- how many ounces would you say would be attributable to the $25?

We can't tell you, because we haven't done those calculations yet. That will be in the year end. But when we talk about good drill results, we are basing on what we're doing with the drill bit right now, not a re-valuation of existing reserves.

Okay. With that, we thank you all for your interest. Again, if individuals have follow-up questions, feel free to contact the investor relations group. Wendy and Russell will be pleased answer any questions, and again, we are not pleased with the quarter, but we could see it coming. And the write-downs, of course, were items that always bother us, but it's part of the accounting world we live in. We do feel very good about the cash flow this year, and feel good about what the normalized earnings will look like for the full year. So we expect a good second half and, again, good long-term prospects because of the continued success with the drill bit. Thank you all very much.

Thank you. That concludes today's conference.