紐蒙特黃金公司 (NEM) 2005 Q3 法說會逐字稿

We welcome everyone to today's Newmont teleconference call.

[OPERATOR INSTRUCTIONS]

I would like to introduce our presenter for today's conference call, Mr. Randy Engel. Sir, you may begin when ready.

Thank you, operator. Good afternoon and thank you to everyone for joining us on Newmont Mining third quarter 2005 earnings conference call. Please note that this call is being presented in simulcast on our website at www.newmont.com and will be available for playback for a limited time. Before we start, we need to remind everyone that we will be discussing forward-looking information and that you should be aware that there are risks unique to our industry that are described in detail in our filings with the SEC.

On today's call, we have Wayne Murdy, our Chairman and Chief Executive Officer; Pierre Lassonde, our President; Tom Enos, our recently appointed Senior Vice President of Operations; Bruce Hansen, our recently named Senior Vice President of Operations, Services and Development; and Richard O'Brien our recently named Senior Vice President and CFO. Wayne Murdy will speak and provide a bit more context on some of these recent management changes shortly.

And with that, let me turn the call over to Wayne.

Thank you, Randy, and good afternoon, everyone.

Before we start let me just make a couple comments about our management changes. I'll start with Tom Enos, whom many of you know. Tom is a long-time Newmont employee. He's been with the Company over 35 years, although he doesn't look that old. And Tom ran our Nevada operations for a number of years in the '90s and then in 1998 went down and started up -- very successfully started up the Batu Hijau mine. In recent years, Tom has had responsibility for both Indonesia and Yanacocha; and with Dave Francisco's decision to step down because of health reasons, I've asked Tom to run the operations day-to-day.

Bruce Hansen has -- has -- of course, many of you also know he's been our Chief Financial Officer for the last six years and given the number of new projects in our pipeline and the emphasis on best practices and engineering, Bruce has taken over in a position that will deal with operations support, technical services, feasibility studies and engineering and construction, in addition to a number of other responsibilities we've given Tom that will really move -- given Bruce that really have to do with the mining Company in the future and how we evolve.

Taking over for Bruce, as we announced a few weeks ago, is Richard O'Brien. Richard has joined us from A.G.L. Resources in Atlanta, professional -- finance professional who brings a great deal of experience in the natural resources segment to Newmont.

We also made two other appointments, Brant Hinze who has been general manager over the last several years, achieved tremendous results at Yanacocha in managing costs, has been promoted to Vice-President of North American Operations. And Brant will take over out there, in fact, next week. And Bill Zisch, who has been developing the -- the -- our Ghanaian assets, who's been promoted to Vice President also. And in light of what's happening in the energy field, I've asked Bob Bush, who is one of our Senior Vice Presidents to focus 100% of his energy on Newmont's global energy management procurement and conservation practices. Bob has extensive experience with the industry -- with the Company in a wide -- a wide range of roles. He also has responsibility for the development of the power plant in Nevada.

Now let me turn to the operating results. During the third quarter, Newmont generated $126 million in net income or $0.28 a share, our best quarter of the year. Our net income in the third quarter was positively impacted by a $25 million gain on the sale of our remaining interest in Ken Ross. There are also an couple of unusual items which we'll talk about, offsetting part of that gain. Our consolidated gold sales were approximately 2.2 million ounces, at costs applicable of sales of $238 per ounce. For the first 9 months of the year, we've now earned $260 million or $0.58 a share on consolidated gold sales of 6.2 million ounces and costs applicable of sales of 240. We continue to feel the effects of higher diesel, commodity and labor costs, although we are benefiting from higher realized gold and copper prices. Given our U.S. dollar cost base, we continue to maintain our competitive cost structure when compared with the rest of the industry. With higher expected gold prices in the fourth, quarter we anticipate improving margins in that quarter. Finally, our balance sheet remains super-strong. Cash, short-term investments, marketable securities total over $2 billion, offsetting nearly our $2 billion in outstanding debt and giving us unsurpassed financial flexibility in the gold industry.

I will now turn it over to Pierre to discuss the gold market which continues to be very interesting.

Thanks, Wayne. I know it's a bit unusual, but I have to leave a bit early today for personal reasons. So I indulge your patience.

On gold the most, I think, important event in the last quarter actually happened earlier this week. That's been the appointment of Ben Bernanke to replace Mr. Greenspan as Fed chairman. Mr. Bernanke is a monetarist of the University of Chicago conviction. And that's very good for the gold market, long run. He will be a reflationist. I think he's in a paper in 2002, he's already shown his color in that respect. He was quoted that if you get into a jam, you can even go into a helicopter and drop dollars on the population to reflate the economy. I don't think it's ever going to come to that, but it's a good image of what could happen to the gold market. I think in the U.S. with oil prices that we've seen in the past quarter, we are going to see a slow down in the U.S. economy. And with the amount of debt, particularly at the public level, it is very likely that the Fed will become very commoditive. Because of that we -- in part because of that, we continue to be very positive on the gold prices.

I was in China last week, and I can tell you that the Chinese economy continues to defy expectation. I visited, for example, the largest retail jewelry store in Beijing. And this is a store that by itself does over $100 million a year in gold sales. And the general manager was telling us that their sales continue to rack up at plus 15% per year, which is very indicative of what's happening. In fact, in some lines, they're up 30% this year. And it's very indicative of what's continued to happen in China. And the other side of the coin, on the demand side is supply, and supply continues to be challenged. I was noting in Gold Today was saying that their year-over-year production was down 2% in the case of Newmont as you all know, year-over-year will be down approximately 4%. And if you look at the rest of the industry it continues to be challenged. So with all of that, we continue -- we continue to be optimistic and we've said in the past year that -- or since May of this year that we believe we're going to see 525 gold by early next year. That continues to be our forecast. With that I'll turn it over to Dick to talk to you.

Thanks, Pierre. Revenues for the third quarter were 1.2 billion with an average realized gold price for the quarter of $435 an ounce. This compares to revenues for the prior year quarter of 1.1 billion at an averaged realized gold price of $403 per ounce. The 8% increase in gold price more than offset slightly lower gold sales.

Moving to the next slide on net income, we can see the results for the third quarter were impacted by the following items which had the effect of increasing that income by 10 million or $0.03 a share. As Wayne mentioned earlier, we recorded a $25 million or $0.06 per share gain on the sale of our investment in Ken Ross. We also expensed 15 million or $0.03 per share for litigation and reclamation costs related to Minahasa.

Before I turn it over to Tom for a review of our operating results, I wanted to cover two things. First, I want to talk about EITF 0406 then want to quickly cover Newmont Capital.

Related to EITF 0406, the Company will no longer capitalize post-production stripping costs, as you know. Instead, we will expense these costs as an proponent of inventory costs applicable to sales in the period that revenue from the sale of such inventory recognized. The most significant change to our financial statements will be the elimination of deferred and advanced stripping costs from our balance sheet. The cumulative effect of this charge will be recorded as a charge to beginning retained earnings and will be recorded net of tax and minority interest where applicable. This time we estimate that the accumulative effect will reduce opening to retained earnings by 60 to $100 million. The change will have no impact on the Company's cash position and will not require a charge to current earnings for prior periods or restatement for prior periods. The details of that change will be provided in the Company's -

Related to Newmont Capital on the next slide, royal and dividend income for the quarter, $18 million. We expect between 60 and 70 million for the full year. The marketable securities portfolio had a market value at the end of the quarter of 881 million which is up $370 million from the year end of the 2004. Finally, related to Newmont capitals -- post results. [inaudible]

Thanks, Richard. For the third quarter, consolidated gold sales were approximately. 2.2 million ounces at costs applicable to sales of $238 per ounce. For the first 9 months of 2005 consolidated gold sales were approximately 6.2 million ounces at consolidated cost applicable to sales of $240 per ounce.

Looking at Nevada, third quarter gold sales were flat from the year ago quarter at 590,000 ounces. The flat sales were primarily the result of a 11% decrease in mill ore grade which offset a 21% increase in mill through put and an 23% increase in heat, leach, or place. The lower mill grades were caused by poor underground mining conditions and underground labor shortages which impacted the production rates of higher grade underground ore zones. Cost applicable to sales increased from an year ago quarter due mainly to increased diesel and input commodity prices. The higher underground contracted services costs. We expect Nevada's consolidated gold sales to be approximately 2.45 million ounces for 2005, at cost applicable to sales of $330 per ounce.

Shifting to Peru, Minera Yanacocha sold 770,000 consolidated ounces at cost applicable to sales of $144 per ounce in the third quarter. Gold sales remain constant from the year ago quarter as a 32% increase in ore placed on the leach pads and an 5% increase in ore grade were offset by timing of flows from the leach pads and increased inventory. Cost applicable to sales also remain constant from the year ago quarter as increased labor and commodity costs, including diesel, were offset by the increase in production and the allocation of cost inventory. Our 2005 guidance for Yanacocha calls for sales of 3.25 million consolidated ounces at cost applicable to sales of $145 per ounce.

As Wayne indicated, we will be providing 2006 production guidance at a later time. However, as we reported last quarter, gold sales are expected to decline at Yanacocha by 10 to 20% in 2006 due to lower grades and increased strip ratio. Of course, these estimates are subject to an number of factors including ongoing exploration and mine optimization efforts. We are also planning to construct an oxide mill at Yanacocha which will increase our production and flexibility. We continue to work on feasibility studies to develop sulfide deposits as well. At Kori Kollo in Bolivia, we expect to produce 85,000 consolidated ounces at cost applicable to sales of $215 per ounce.

Moving on to Australia and New Zealand, consolidated gold sales decreased 18% from the year ago quarter to approximately 377,000 ounces, at cost applicable to sales of $321 per ounce. Consolidated cost applicable to sales for Australia and New Zealand increased 16% from the year ago quarter as a result of higher diesel and other input commodity costs. Higher underground contract services costs at Jundee and the appreciation of the Australia dollar for 2005, Australia and New Zealand are forecast forecasted to sell 1.6 consolidated ounces at cost applicable to sales of $318 per ounce.

At Batu Hijau, consolidated third quarter copper sales decreased 4% and gold sales increased 21% from the third quarter of 2004. Cost applicable to sales per pound of copper remain constant from the year ago quarter while cost applicable to sales of gold increased 8%. Cost increases were primarily the result of increased fuel, maintenance, consumable, power and labor costs. Batu Hijau has done an excellent job of recovering from the minor pit wall slide in the first quarter and the mine is back on track. Batu Hijau is expected to sell 625 million consolidated pounds of copper at $0.47 per pound and 750,000 consolidated ounces of gold at $150 per ounce.

At Zarafshan in Uzbekistan, consolidated gold sales decrease 37% from the year ago quarter to 29,000 ounces due to a 3% decrease in ore grade and fewer tons being placed on the leach pads in the first quarter. Cost applicable to sales of $214 per ounce were 27% higher than the year ago quarter as a result of lower production and higher energy costs.

Now I will turn it over to Bruce Hansen to talk about Newmont's development projects.

Thank you, Tom.

First of all I'd like to talk about Leeville in Nevada which remains on schedule with initial gold production commencing during the fourth quarter of this year from concurrent production development and with ore coming out of the ventilation shaft. The production shaft excavation is 94% complete to an depth of 1710 feet currently. Current plans call for the production shaft to begin hoisting ore in the second quarter of 2006. Overall, construction is approximately 80% complete with the latest facility, the Shaw Creek plant coming online in November. Leeville is expected to produce roughly 450,000 to 550,000 ounces per year at a steady state production rate. But we will have a ramp up to those levels that will occur through mid 2007.

At the Phoenix project in Nevada, overall construction is approximately 70% complete. We've finalized our commissioning plans and some of the first systems will be mechanically complete in November. The entire facility is on track for commissioning in early 2006 and initial gold production is expected by the second quarter of '06.

Turning to Ghana, the Ahafo project remains on schedule for initial gold production in the second half of 2006. The process plant is actually over 50% complete currently and the overall project construction is approximately 60% complete. Mining equipment is now being assembled on schedule and mining and stockpiling will start in early 2006. Annual gold sales from Ahafo on a steady state basis will range between 500 and 550,000 ounces per year.

In July our board approved our second Ghanaian project called Akyem. We're currently awaiting final approval over environmental impact statement, after which we will begin construction. We expect Akyem ultimately to produce approximately 375,000 ounces per year on a steady state basis and are targeting first production at Akyem in 2008.

In Australia, at Boddington, actually contrary to some reports you may have seen in the media, we are still awaiting completion of the feasibility study update and the outcome of new crass sales process. We will evaluate the feasibility study update when it is complete and the partners will likely make a final decision in 2006.

Now let me just touch a little bit on exploration for an moment and give you a sense of where we're seeing the contributions to our positive outlook for reserve replacement. Exploration expenditures for the third quarter were $41 million compared to $28 million for the year ago quarter. First of all, down in Peru at Conga, formerly called Minas Conga, we've completed further infill drilling of both the Perol and Chailhuagon deposits with the objective of adding to Conga's reserves. Follow-up infill drilling at the nearby Amaro prospect will not report to reserves this year but also continues to yield very encouraging results. At Ahafo in Ghana, we again expect to add reserves this year as we advance our understanding of the deposits both in the north and the south areas of the projects. We're also identifying new exploration targets and extensions of known mineralization with encouraging early results. In Nevada we're also seeing positive trends, positive results on the Carlin trend at Phoenix and also continuing to explore in Australia with early positive indications at Tanami, Jundee, and Martha in New Zealand.

Now back to Wayne for some concluding remarks.

Thank you, Bruce, and for the year then we do expect consolidated gold sales of approximately 8.6 million ounces at cost of about $240 per ounce. We also expect to generate consolidated copper sales of 625 million pounds at cost applicable to sales of $0.47 per sound. This does not include 25 million pounds that had been sold from Golden Grove which of course we sold that asset in the second quarter.

We're currently in the process of finalizing our -- evaluating and finalizing our mine plants and our budgets for next year and will provide guidance for 2006 at a later time. The guidance break down shown on this slide is relative to 2005. You can see that we are spending a very large amount of capital. I would expect that we'll probably be closer to the lower end of that range this year. And the important thing here, these are the projects that will be coming on over the next several years. Several of them are very long-lifed projects. As you look Ahafo with the reserves we see right now, we have a current mine life in excess of 20 years. Phoenix is also a very long mine life approaching 20 years. In both of these cases, we continue to have very positive drilling results and we'll expect the reserves to be part of that increase for the year. As we said, we've seen very positive exploration results. At this point in time we're ready to say that we're confident that we will again this year replace depletion with the drill bit and modestly grow our reserves from where we were last year. We look forward to contributions from these new projects in both Nevada and Ghana.

Thank you very much for your time. And now we'll open it up for questions.

Thank you.

[OPERATOR INSTRUCTIONS]

First question comes from Geoff Stanley with BMO.

Thank you very much. A couple of questions. Firstly, I'm wondering if you can give us a little more guidance on why the significant increase in guidance for Yanacocha. You've had some swings and round abouts and Nevada's guidance dropped a little bit, but in Yanacocha, the guidance seems to have come up quite a lot over the course of the last three months. I'm wondering if you can give us an indication of what's happened there to change the outlook? Hello?

Yes, Geoff, Russ. Could you repeat the question? We lost the end of it.

Okay. Certainly. Guidance for Yanacocha has increased a fair bit, essentially offset a reduction from Nevada. Can you give us a indication of exactly what's happened to at Yanacocha to push the guidance up so materially in the last three months?

Primarily, what's going on there is a reduction of inventory. We've been drawing down inventory both the third quarter and we'll draw some additional down in the fourth quarter. It's just a more efficient operation.

Very good. Batu Hijau -- I'm having a little difficulty reconciling the Batu Hijau cost guidance with the metal split. Can you tell us what commodity prices you're assuming in the proportional cost allocation and give us some idea of what kind of influence we're seeing with TC and OC recently?

I'll ask Russell to comment on that.

Thanks.

For the split on the revenues, it was based on on the realized prices for the quarter. So we can get you the calculation if you'd like also. But it's essentially metal sold by realized price. Again, we'll be filing the queue on Friday there will be some details in there. If you need anything else give us a shout.

I've got that historically but I'm thinking more of the cost guidance. I can't get the guidance to work. You've got another quarter to go. I'm just wondering what assumptions you're making with respect to commodity prices to provide your guidance.

I'll have to check that, Geoff. We will get back to you.

That would be great. Thank you very much. And finally, the Phoenix startup, dialogue's a little mixed. Just wondering, it seem seems as though the startup's moving around a little bit. Is there any issues that we need to be updated on in terms of the progress there, whether it's been pushed back a little or whether that's my imagination playing games with me?

It's roughly on schedule, Geoff. I think we've said that we thought it was going to be in the first part of -- starting up in the first part of 2006 and we're holding to that. So we're very confident we'll be able to deliver gold in the first part of 2006.

Okay. But there's been no kind of significant issues of any sort that's pushed back into the second quarter? I thought at one stage it was a possibility it may get going in the fourth quarter. That seems to have kind of wound back a little bit.

Not Phoenix. I think we've always said first half of 2006 there.

Okay. No. There was some mutterings about some excellent progress being made earlier in the year but it seems as though you've -- what you've gained on the swings, you've lost on the round abouts. But it's insignificant. I'll leave you with it. We'll press on with other questions.

We did see significant and impressive progress there. But it's always been the first half.

Okay. That's excellent. Thanks very much, guys.

In answer to your question quickly, the metal prices we assumed were 450 and $1.60 copper spot but then back out the hedge positions that we have for the copper. So we can work you through the calculations that you need. But it was run off of 450, $1.06.

Very helpful. Thank you.

Next question comes from Michael Dudas of Bear Stearns.

Good morning, gentlemen. Or good afternoon, rather. It's been a long day. Maybe Tom can handle this question. Could you give us a overall sense with nine months in and what the annual guidance looks like relative to Nevada? Maybe you can look on a global basis. What did Delta's bend for total energy cost increases through the P&L versus maybe what you expected the beginning of the year and versus what it was an year ago? And are we basing our early thoughts on next year relative to current electricity, diesel, labor rates or is there some sort of change in that process as we move through next year?

Hey, Mike, it's Randy. On the fuel price increase, really what we've seen is that was accounting for roughly 15% of our cost applicable to sales running about this time last year. We've seen with a significant increase in cost of diesel that really represents closer to about 20%. And then energy on an total basis is going to be pushing roughly a full quarter of our costs applicable to sales when you factor in electricity.

And versus probably 15 to 20% a year ago as an total -- ?

15 was fuel, 20 is fuel now and 25 for the full year. You would have seen energy being about a maximum of 20%, energy and fuel last year on total. Across the board it's up about 5% as an component of cost.

And you recently had some labor wage increases. Is that flowing through into your budget for next year?

Yes.

Absolutely.

And we gave increases -- out of cycle increases this August to our hourly workers in Nevada. And that's the reality of what's going on for those trade skills.

Terrific. Thank you, gentlemen.

Next question comes from Mr. Barry Cooper of CIBC.

A couple of questions. First of all the drilling at Conga, I guess, now, as opposed to Minas Conga. You've got a couple of deposits there where you say you're converting into reserves. Can you tell us what we were starting with? You say you why upgrading it on reserve minimalization into reserve. What were we starting with in terms of non-reserve minimalization? I realize you can't give us ounces but if you can give us tons, that's great. I can figure it out.

I'll ask Steve or Bruce. Steve?

Actually, our recorded reserves at the end of last year for Conga was roughly 4.5 million ounces. We're seeing good results there, potential increase of somewhere 20 to 30% above that.

Okay. Good enough. That gives me a good indication. And then on Leeville, is that where the problems with underground mining conditions are? Or where else would you be referring to you were talking about deep star or something like that where the ground condition issues that -- ?

I mean, the primary underground mining condition and shortage of labor issue from a contemporaneous production standpoint has been predominantly at the Deep Post ore body. As you're aware it's right adjacent to the Betsy Post pit. The ground conditions there have always been difficult. We've got stresses that are a little different to deal with, given the pit next to it. So the focus is really on continuing to integrate and embed ongoing drift and roof remediation into our plans. But it is a dynamic situation. Deep Post has three years left and it's getting into more of a fragmented part of the ore body at depth. And it's just becoming a little tougher. But we've got some good people there. And we continue to just manage through these issues.

Bruce, is the reduced guidance for Nevada primarily the result of the underground conditions that you've experienced?

Yes. Yes. And that translates to grade. Deep Post is very high grade, 0.8 to 0.9 ounces per ton. You miss a ton of that, you're into 0.1 type stockpiles. It does have a material impact.

Okay. I've always gone by the adage that a underground mine never had a bad quarter. It will have a bad year by the time you get everything squared around. How much should we anticipate this carrying on into 2006?

I mean, like I said, I think we've got a good team there. I think the guys are focused on it. It is a serious priority. And we're taking as aggressive action as we can to get that mine producing the way we would like it to produce.

Okay. And then finally on reserve leverage to gold price, and I won't ask you for the firm as an whole but just in Nevada, Leeville and Phoenix, I assume there's not much leverage at Leeville if you are to using the 400 to 425 gold price where as Phoenix there could be. Any idea of that sensitivity? Or am I right in that conclusion in that I proposed to you?

Well, I mean, you're you're dealing with Leeville as an underground deposit that doesn't have a lot of lower grade kind of margin halo to deal with. And the success of Leeville's going to be predicated on further step out drilling as we get down there with underground drilling platforms. Phoenix is an open pit, lower -- obviously, low grade. But I think it will be ultimately a very highly profitable line. It does have more gold and to a certain degree copper price leverage.

Okay. Thanks a lot.

Next question comes from Alberto Arias of Goldman Sachs

Good afternoon, gentlemen. Just a quick question on Conga. If you could give us a update in terms of the permitting process and social situation in Yanacocha given that you had to take out of reserves your advanced project at Cerro Quilish. What gives you the level of confidence that you can upgrade Conga reserves and get the support of the local communities? Do you see a risk that some of these reserves that you are talking of is very important to replace your current production might be suffering the same situation that Cerro Quilish suffered a year ago?

Alberto, this is Wayne. I would say the situation in Conga is very different. Cerro Quilish was because of the closeness to Cajamarca. It kind of took on an life of its own. And again, we continue to learn by our experience. Conga is a long-term development project. We've already started programs there in a social way. We've done baseline medical studies and are working with the communities on a long-term medical plan there. It's just a completely different time and space. But it is a long-term development project. This is something that's going to be out there in the 2009, 2010 period but it looks like it has very significant scales. So in addition to the feasibilities that we're doing -- that we've done, we continue drilling and we continue to modify our views on how best to develop that project. But I think it is a very different situation. We're doing other drilling at -- is it Cerro -- Sanitario. We've had very good success there in working with the local community. Started off very negative. You get some of the same detractors but we were able to work with the local community there and we've gotten great acceptance in that area. So I really do look at Quilish as an outlier and I think we've taken the lessons learned there.

Just a follow-up on the production guidance that you're giving on Yanacocha, saying it can come down 10 to 20%. It's the same number that you netted in the 10Q of the previous quarter; however, you have increased your production guidance for Yanacocha. Should we use -- ? When you say 10 to 20% should we incorporate that inventory adjustment that has increased your guidance for Yanacocha or is it relative to the more normal level of 3 million ounces that is we should expect a 10 to 20% decline in production?

I think you can look at the production guidance. We're still giving a pretty wide range. As I said, we haven't finalized our budget for next year. But you can do it off of the guidance numbers and still end up in the range we're probably looking at.

Final question. That guidance assumed that there is no progress on Cerro Quilish or on the Oakside mill that you were planning to install there, right?

That's correct.

All right. Great. Thank you.

Next question comes from John Bridges of J.P. Morgan.

Good evening. On Leeville, I seem to remember Getchell was going to be a very tough mine and then when they got the water out of it, it was just reasonably tough. Have you got Leeville de-watered yet? Is that giving you problems?

It's actually causing us no problems. We have de-watering underneath all of the levels that are currently operating and being developed and the bottom of the shaft. So there's ongoing pumping there to continue to bring the water table down as we will develop ultimately further down dip. But currently water is not a significant issue.

But it's not dry yet?

I mean, it's dry from a baseline, water table perspective. Just as you have with any underground mining situation you have some perched type water zones and so there is a little bit of water that's coming from the roof and from the ribs and obviously we introduce water in the drilling and the dust control process as well.

Okay. I wonder if you could give us a bit of a break down as to what you put into the other income bucket, the 66 million this quarter.

John, I thought you'd never ask.

I'm working it out.

It's a royalty and dividend incomes 18 odd interest income from the cash that you see on the balance sheet. And Wayne spoke to you about 17 in the gain on the Ken Ross sale netted off by some miscellaneous others and a small foreign exchange gain of around 8. There's some rats and mice at the bottom of that, but nothing significant.

Okay. Great. We hear a lot about difficulties in permitting, things. How is the permitting of the power plant in Nevada coming along? What's your expectation as to timing?

It is meeting expectations. It's slower than desired. We are in the final phases. We have the last air quality permit. It was appealed by a group out of California. We could get resolution of that. It is not a substantive appeal in our view. And we could get results on that I'm going to say any week. My general counsel is saying any day but I've heard any day for the last month. So I'll say any week. But we clearly expect to have that before year end. Importantly, we're moving ahead with the engineering, moving ahead with our negotiations at the rail and coal companies. And this is not going to impact our time frame of getting this plant built and up and running in 2008.

Okay. Thanks, guys. Good luck.

Next question comes from John Tumazos of Prudential.

Congratulations on the earnings. It's always good to see so much profits. With regard to reserve replacement at year end, I presume your guidance is independent of the gold or copper price basis you might use? If you have reserve replacement at constant prices. If you were to adhere to the SEC maximum of the downturn of the three year metal price and the upturn you could use some very big assumptions, though. I don't know if you want to use plus 125 copper or plus 425 gold sorts of numbers. What sort of metals price do you think you'll use in calculating reserves at the end of the year?

Right now our view is we're going to use $400 gold and we're going to use $1 copper. And when we look at it, John, obviously our emphasis is on replace and depletion with the drill bit. Clearly, price plays a role. But this year, even though we're increasing the gold price we're utilizing, we're also having to increase all our forecasts on cost structure. So there's really almost no quote net net benefit. Obviously, we need the gold price to cover those consumable increases.

What oil or gas price you will use, given that you have some oil development that's relevant for both the reserve as well as cost side?

We're using a west Texas intermediate at 50 and over the next couple of years.

Thank you.

Thank you. Your next question comes from Victor Flores of HSBC.

Yes. Thank you. When Richard was giving his presentation there was an lot of static on the line. I think I heard you say that the impact of EITF 0406 will be 60 to $100 millions. Is that correct?

Right. To the opening earnings.

When will that charge be taken? And can you just walk us quickly through how you arrive at that number? Because looking at the balance sheet I thought that the deterred stripping and assets liabilities would basically net out leaving you with a much smaller charge.

Victor, Russ. What we've built into that number where we expect to be at the different operations at 12-31-05. Again, that's based on the stripping that will occur in the fourth quarter. The way we see is Nevada and to a lesser extent at Kalgoorlie with some deferred stripping assets and then those are both offset by Batu Hijau which has a deferred stripping credit. When you look at the fourth quarter and as we look forward the Kalgoorlie to lesser extent but particularly in Nevada, the deferred stripping assets will increase and then at Batu Hijau as we get out of the bottom of the pit and get on to the top of the hill with the rains coming, we'll see that balance come down. That's where we expect to be. Somewhere between 60 and 100. And that is off the tax numbers as well. If you want, Victor, we can talk you through what we have on the balance sheet at the end of the quarter and when we file the Q.

The charge occurs really at the end of the year before you start the next year. So it will not be a charge. You won't see it as an charge to earnings in '04 or '05.

Having said that, Victor, needless to say the various accounting firms are still grappling with the technical application of this and we have heard some conflicting opinion. We have spoken to Richard at Barrick and a few of the other accounting folks around and are trying to come to as an industry a consensus and some consistent accounting on this. But there are some accounting firms that have expressed different opinions. We're still working through those issues prior to implementation.

Okay. Great. Thank you. Just moving on to Leeville, it sounds like there's some production coming through in this quarter but full ramp up doesn't happen until the shaft is hoisting or in the second quarter. At what point in time you will declare the asset commercial and begin to run everything through the income statement?

Well, you're right. I mean, we'll have a small amount of production here in the fourth quarter of 2005. Production shaft should be operational mid-2006. And I think that pretty much corresponds to when we'll start running the revenues on this.

Victor, what we do until that commercial production date is the ounces, for example, we expect about 20, 25,000 ounces in the fourth quarter. But we have received directions from our asset accounting firm and from the SEC is that we would recognize the revenue from that and the marginal costs of producing those 20, 25,000 ounces in the fourth quarter through the income statements in the other income line as opposed to in the revenue and the cost applicable to sales line. So you will see those ounces coming through. They won't show up as revenue. In the old days I think you were probably aware that some of those incremental revenues during construction would get credit, but again, the capital costs. That model is no longer in favor with the SEC. The direction we are pursuing is to show that as an net under other income in the fourth quarter and then until Bruce said to commercial production probably first of July, realistically based on the current schedule.

Great. One final question back to this issue of the oxide and or sulfide mill at Yanacocha. There's been a fair amount of discussion about the desire to have a mill there. And I guess studies ongoing trying to scope the actual correct size of such a mill. But it always seems to get pushed out into the future. I'm just kind of wondering when it is that there will be some final decision one way or another on the desirability of a mill at Yanacocha.

I anticipate, Victor, and I'm going to have a review with the team there in the next 3, 4 weeks that we'll sit down and we'll take a hard look at it this quarter in terms of making a final decision on that capital investment.

Great. Thank you very much. And we're standing by waiting for that helicopter full of money to come our way.

Yeah. Yeah.

Next question comes from Neil Greenberg of Smith Barney.

Thank you. My question has been answered already.

Next question comes from Patrick Chidley of BJM.

Hi, everybody. Just a question about the reserve increase that you foresee at the Ahafo project. And specifically any idea of what kind of magnitude that might be and what kind of work has been done? Is this going to be open pit type material or are you thinking about reserves that might be an underground plant?

It's all open pit. And clearly, we're continuing to be relatively aggressive in Africa both at Ahafo and Akyem in terms of our drilling programs. We think it will be a material increase but have not finalized those numbers.

Okay.

Next question comes from John Hill of Citigroup.

Very good. Good afternoon, everyone. Just a quick question while we're on the subject of reserves and resources or N.R.M. I guss we should say. Not an lot of talk about Batu Hijau. Is there anything that's going to be coming in from Batu either in the reserve or resource category? And if so, is it at the main pit or from some of the satellites you've been looking at a bit further afield?

We don't a see a significant change at Batu for this year. As you know, we've had some very good infill results over the last two years. We think we've got a pretty good handle on what that is. As far as other explanation on the contract work, we're excited about some things that we see in the e-line area but it's very, very early days. So there won't be anything that would impact non-reserve mineralization this year.

Okay. Then just switching gears a bit to the gold refinery business, what do you see in your gold refineries and what is it telling you about the gold market or the appetite for physical gold buying, et cetera? Are you having more orders? Fewer? Working harder? Working lighter? Are we learning anything there?

I'm going to ask David Harquail to address that.

Thanks, John. I'm filling in for Pierre and I was wondering if I would ever get called on.

The gold refinery business is actually out of our Switzerland operation. It's a very good cross-feed for Italian application demand. Also a bit into Turkey and India. It's very strong in terms of -- we're at full capacity in terms of value added products and actually we probably booked out for the next 4 months. So we are actually in the process of expanding capacity to Switzerland at this stage. The Australian business, it's been steady state. I can't tell you what the end market demands are because we're seeing a bit of competition out of China at least on the fabricated market. That's actually been hurting us in sales within Australia. We're competing against the Chinese there. But in terms of boullion products, it's still a profitable business for us.

Okay. So then combining the two, would you say you're seeing more orders and backlog rather than versus a few months ago or about the same or how would you characterize any shifts in the business, just in what it can tell us about -- again, not so much the contribution to the net income of Newmont, but what can it tell us about the physical gold market?

Simple, John. It's extremely strong physical demand.

Okay. I guess that's good. Any numbers you'd care to wrap around that ?

Again, what we do is we measure ourselves at least on the percentage of gold that's processed worldwide. So I can't give you a number in terms of a gold demand proxy for the industry as an whole.

Great. Thank you, everyone.

With that we've taken all the questions that were queued. We'd like to thank everyone for joining us on the conference call today and again remind everyone that the simulcast on www.newmont.com will be available for a limited time for playback. Thank you again.

Thank you.

Thank you. That concludes this day's conference call. At this time all sites may disconnect.