紐蒙特黃金公司 (NEM) 2008 Q2 法說會逐字稿

Welcome to the Newmont Mining Corporation's second-quarter earnings conference call. All participants have been placed on a listen-only mode until the question-and-answer section. (OPERATOR INSTRUCTIONS) Today's call is being recorded. If you have any objections you may disconnect at this time.

I would now like to introduce Mr. Richard O'Brien, President and CEO. Sir, you may begin.

Good morning, everyone. Thank you for joining us on our conference call today to discuss our financial results for the second quarter. With me in the room today are several members of Newmont's management team who will be available and can identify themselves when they answer questions at the end of the presentation.

Before we get started, I need to remind you that we will be discussing forward-looking information involving a number of risks, certain of which are unique to our industry as further described in our SEC filings.

As we look at slide three, we show the highlights of the second quarter, I am pleased to report another strong quarter of operating and financial results as our focus on operational and project execution continues to pay off. Our adjusted net income for the quarter was $230 million or $0.51 per share. Slightly ahead of consensus. And we reported net income of $0.61 per share. With the benefit of strong gold price and continued focus on cost control, we generated substantial operating cash flow. Reporting adjusted cash flow from continuing operations of $382 million or $0.84 per share. For the quarter, we sold approximately 1.3 million equity ounces of gold. At average realized gold price of $900 per ounce. Cost applicable to sales were $440 per ounce, only 6% higher than a year ago, and clearly within our guidance for the year between $425 and $450 per ounce.

In addition to strong operating performance, our ability to execute on our projects is improving as we completed two major projects during the quarter, declaring commercial production of both the Nevada power plant and the Yanacocha Gold Mill. And finally and probably most notably, in spite of higher energy prices and the strengthening Australian dollar, we are maintaining our original guidance for equity gold sales and cost applicable sales for the quarter for the year -- for the year, sorry.

Slide four is all about delivering gold price leverage and compare some of our highlighted financial results to the year-ago quarter . Our average realized gold price was up 35%, while our operating margin and adjusted net income were up 85% and 122% respectively. In this inflationary environment, our cost applicable to sales are only up 6% from the year-ago quarter, which is something we are quite proud about.

Looking at our equity gold sales for the quarter by region compared to our 2008 internal budget, we are performing in line with our plans. Our mantra in Newmont continues to be do what we say we are going to do. In Nevada, we sold 554,000 ounces in line with our budget. The story at Yanacocha is the same with equity gold sales of 222,000 ounces. With slightly higher production expected in the second half of the year as the tons placed on leach at the end of the second quarter were ahead of plan due to improved mine sequencing. in Australia and New Zealand, gold sales were ahead of budget as we benefited from higher grades at Jundee and Tanami, offsetting production shortfalls at Kalgoorlie. At Batu Hijau, sales were below our original expectations due to our reduced throughput and recovery. Our team at Batu Hijau is aggressively focused on dewatering the pit which as previously disclosed and had accumulated an unusually large amount of water from the heavy rains in the first quarter. We are ahead of schedule in our dewatering efforts, improving our chances for slightly higher production in the second half of the year, assuming a normal dry season.

At Ahafo in Ghana, we sold 134,000 ounces, slightly higher than budget as we are seeing higher grades at the Subika and Apensu tests. Looking at costs applicable to sales for each region compared to budget, again we are performing in line with our plans. Our costs in Nevada were slightly higher than budget primarily due to higher cost for diesel, cyanide, lime and other consumables. The story is essentially the same at Yanacocha in Peru with higher royalties and workers' participation due to higher gold prices also adding pressure to operating costs.

In Australia, New Zealand, our costs were slightly favorable to budget due to the higher-than-anticipated production. We continue to feel the pressure, the strengthening Australian currency although higher grades at Jundee and Tanami are helping to offset cost escalation in the region. As of the end of the second quarter our cost applicable to sales are expected to increase by approximately $3 for every 0.10 change in the Australian dollar exchange rate for the rest of the year. At Batu Hijau, the difference between actual and budget is primarily due to the higher commodity prices and lower production volumes. Potentially legal higher production in the second half of the year could improve our operating costs for the year if we benefit from a normal dry season.

At Ahafo, lower than budgeted costs were the result of higher power availability from the grid versus our assumption of self-generated power and lower labor costs and capitalization of preproduction mining costs. As some of you might be aware the River Authority in Ghana has proposed an increase in its power tariffs to approximately $0.22 per kilowatt hour up from the current rate of approximately $0.10. Our regional management as well the other Ghanan mining companies working through the Chamber of Mines continues to negotiate this rate with the VRA, but as you will see on the next slide, even with the higher rate, we have lowered our cost guidance for the year in Ghana primarily due to higher than expected power availability from the VRA versus our assumptions and greater than expected capitalization of the cost of waste rock placed for the construction of tails, dams and other facilities.

As shown in slide seven, compared to our previous guidance, we expect higher production in Australia due to the strong production from Jundee, as well as lower costs at Ahafo. Even with the higher assumed oil price of $125 per barrel and an Australian dollar foreign exchange rate of 0.95 the remainder of the year, we continue to expect full-year operating performance in line with our original guidance.

And as further highlighted on slide eight, we are decreasing the low end of our range for consolidated capital expenditure guidance to account for the deferral of capital in Indonesia related to ongoing delays of the renewal of the forest use permit. We are also reducing our range for Corporate tax rate to between 22 and 26 from between 28 and 32. This is due to the benefits of tax restructuring opportunities that we realized during the second quarter.

When I became CEO of Newmont slightly over a year ago, I told our employees, our management team and our shareholders that a new day was dawning at Newmont. Since that time, we have renewed our focus on our core gold business, increased our efforts at better planning the business, and constantly monitored our execution against our plans. I believe our focus is beginning to pay out. This is the fourth quarter in a row of strong operating and financial results that are solidly within our planned levels of performance. While renewing our focus on planning and execution, we also remain committed to being a leader in safety, sustainability and environmentally responsible practices. We are now the only gold company to be included in the Dow Jones sustainability index world, and we recently received the GE Eco Imagination award in Nevada for reducing water use and environmental pollutants related to road maintenance on our haul roads.

As shown on slide 10, our first priority is getting our operations right. This means fixing what was broken and restoring confidence that we can deliver on our plans. As an example, Leeville is now running as originally planned at full capacity of 3200 tons a day. Our cost management efforts are also starting to take hold. From where we ended 2007 to the midpoint of our Corporate 2008 guidance, our costs applicable to sales are expected to increase by about 12%, less than half of the projected industry average of approximately 25%.

We also continue to work towards a resolution of our divestiture issues at Batu Hijau. While certain issues pertaining to the divestiture are presently in arbitration, we remain committed to fulfilling the divestiture obligations as defined in the contract of work. We respect the government's decision to resolve these disputed issues through the arbitration process, which is expected to provide clarity on how divestitures should proceed. However, we will not allow the situation to distract us from effectively executing on our plans and managing the other assets in our portfolio.

At our Phoenix mine in Nevada, we have completed our revised plan. We indicated a year ago that we would talk with you about this plan now. We must now focus on executing this plan. From the first six months of 2007 to the first six months of 2008, tons mined are 18% higher, gold ounces sold are 9% higher, copper pounds sold are 141% higher and costs applicable to sales are 54% lower. So how did we accomplish this? The team in Nevada did a terrific job. They drilled 230 new holes on time and under budget. They redefined the ore body. They got a better understanding of the complex metallurgy. We made changes to our drilling and blasting methods that improved fragmentation and helped increase mining, crushing and milling efficiencies. We made improvements in the mill, and we added a new crusher. We are seeing the benefits with year-to-date costs applicable to sales of $378 per ounce.

On the next slide, you can see according to the revised mining plan at Phoenix, we expect the average annual gold production over of the next five years to be between 200,000 and 250,000 ounces of gold, at cost applicable to sales of between $400 and $500 per ounce based on current commodity prices of $900 gold and $360 copper. These projections do not include any benefit from the copper leach project which is currently in stage three of our capital effectiveness program. This project, if approved, would further reduce Phoenix cost by converting waste material to reserves. We expect to make a development decision on this project in 2009.

Moving to project execution during the second quarter, we successfully completed the Yanacocha Gold Mill and the power plant in Nevada, the Gold Mill was placed into commercial production on April 1, and the power plant on May 1. The next 12 months, our primary focus is on delivering Boddington and Australia, defining our develop plans for the Hope Bay deposit and making stage gate decisions on the Conga and [Achine] projects. The gold mill at Yanacocha represents the next generation at Yanacocha. For the past 15 years Yanacocha has produced 100% of its gold from leach pads. Now as we are getting deeper into the ore bodies and into more complex ores, we've added a gold metal to more efficiently increase our production at Yanacocha.

The gold mill went into commercial operation on April 1, ahead of schedule and below our forecasted level of capital expenditure. The transition to operation -- from projects to operations went smoothly, and the ramp-up was well ahead of expectations. This project is a great example of demonstrating one of the things that differentiates Newmont from a number of its smaller competitors. Across the globe, we have a team with a lot of experience in starting up mills and maintaining mills. Our capital effectiveness project got this project right from the beginning. Peer reviews assured us that we have the right operating conditions assumed in how we were going to runt mill into our capital project. We had an operational readiness team that made sure that the mill was ready to operate when it was completed. At the mills ramp-up, we had a combined team of experts from around the world from Nevada, from Denver, from Ghana, from Australia and from Indonesia. On-site, we had experts from around the world to assure a smooth transition from operations -- into operations from construction.

The power plant in Nevada is another success story having achieved commercial production on May 1, and now operating at 100% of design capacity. The final cost of approximately $620 million is at the low end of our forecast and the project was delivered about two months ahead of schedule. This is a 200-megawatt coal-fired plant of which our Nevada operation also consume approximately 130 megawatts. The remaining power will be sold to Sierra Pacific.

In addition to the $120 million we receive annually from our investment in Canadian Oil Sands Trust, this offset further reduces our exposure to high energy and oil prices, the difference between what we were paying to get power from the grid compared to our cost to produce power from our plant will save us approximately $70 million to $80 million per year.

With these projects successfully delivered, we are now focused on delivering Boddington in Australia. At the end of the second quarter the project was 77% complete and remains on schedule to start up at the end of 2008 or early 2009. Our current cost estimate of 1.4 billion to $1.6 billion to Newmont's account continues to be pressured by the strong Australian dollar and industry-wide labor and cost commodity escalation. We will continue to monitor the impact of these factors on the capital cost estimate. We will provide another update during our third quarter conference call. Boddington represents the next generation of our production from Australia. Our share of reserves is approximately 11 million ounces of gold and 1 billion pounds of copper with significant exploration upside. We expect annual average production to our account of approximately 650,000 to 700,000 ounces of gold and 45 million to 50 million pounds of copper.

This next slide illustrates the depth of our project pipeline and where each project sits within our stage gauge framework. I won't go into detail on each of these projects, but I did want to show you that we have several projects at various stages of our valuation. Most of which are gold projects. But we also have some exposure to copper, diamonds and iron-ore as the slide shows. Not all of these projects will make it to the execution stage, but by using a defined, disciplined process, the projects that do reach execution will have a greater probability of being successfully completed on schedule and within budget and delivering the expected results. We will keep you updated on these projects as they advance through the pipeline.

Turning to exploration, the main accomplishment during the past 12 months was our acquisition of the Hope Bay deposit in Canada. We also discovered a new mineralized zone at Cali Deeps near Tanami in Australia and we further have defined turf, a new high grade exploration target next to [Lizo] in Nevada. Looking forward we will be focused on converting additional nonreserved mineralization at Boddington as the exploration potential there continues to be robust. And we have initiated our drilling program at Hope Bay and expect to report non reserve mineralization in 2009. We will also be focused on advancing studies on Nassau, our joint venture in Serna.

Going through those individually, in the next slides in Nevada, we continue to focus exploration on the discovery of additional high-grade zones at Leeville and Turf. At Turf our geologists have discovered about twice as much mineralization as we originally predicted based on surface drilling as shown on this cross section. We are currently driving a drift over the top of the target from Leeville where we will continue to drill on 30-meter intervals. We believe there is significant high-grade potential here and the infrastructure at Leeville is already in place.

In Australia earlier this year, our geologists discovered a new mineralized zone at Auron and Asok as shown in the cross section on this slide. Some of the mineralization occurs as free gold and some as sulfides. Metallurgical testing is in progress with encouraging initial results. The Callie Deeps project was recently advanced to stage 3 and is focused on increase in reserves at Tanami and developing new processing facilities and infrastructure to reduce operating costs and support a longer mine life.

The Nassau project is in Suriname where we have partnered with Alcoa. Newmont is the operator of the joint venture and we currently have a 50% ownership interest but are earning up to 80%. Nassau is currently in our stage two, which we expect to be completed by the end of 2008. To date, we have discovered on the order of 280 million tons of mineralized rock at about 1 gram per ton gold with 60 million to 90 million tons at grades of approximately 1.4 to 1.3 grams per ton. The project appears to be minable using open pit mining and simple milling processing methods. We hope to convert some of this target into NRM this year and will spend approximately $11 million this year to do so.

In Canada our focus at Hope Bay is on augmenting our project development team, assessing development options, advancing drilling, geotechnical and related stage two studies, and improving site and camp infrastructure. This year, we are spending $30 million for drilling and exploration that is targeting conversion of resources to NRM in 2009. We are also conducting a $40 million stage two study that is expected to be completed in 2009. On the financial front, in the last 12 months, we have eliminated 100% of our remaining hedge book when gold was trading at approximately $650 per ounce. We monetized our royalty portfolio for 1.3 billion, and notably, we are approaching completion of a five-year intensive capital reinvestment campaign.

We also made the decision to retain our investment in Canadian Oil Sands Trust which now generates annual cash distributions of $120 million and has an unrealized gain of approximately $1.3 billion. And although we can't report the benefit of these distributions as a credit to our cost applicable to sales, on a cash flow basis the distributions cover approximately 25% of our total oil exposure. Together, the cash flows from Canadian Oil Sands Trust and the savings I referred to earlier from the power plant will cover approximately 1.4 million barrels of exposure or approximately 40% of our global annual consumption of diesel.

In that context over the next 12 months, we will continue to focus on delivering gold price leverage to our shareholders. This means staying unhedged on the revenue side and continuing to aggressively manage our operating and capital costs. And finally, we will take advantage of having significantly lower capital spending requirements for the next one to three years that generate substantial operating cash flows. Essentially, we are focused on the continued execution of our plans.

This next slide illustrates some what if scenarios around our costs applicable to sales. Starting from our reported costs applicable to sales for the second quarter of $440 per ounce of gold, if we used our copper revenue as a byproduct credit, our costs applicable to sales would decrease to $383 per ounce for the quarter. Taking this a step further, if we reduced our cost by the cash distributions from our investment in Canadian Oil Sands Trust, our cost applicable to sales would drop to $362 per ounce in the second quarter. You can also see the year-to-date numbers in this slide showing a net cost of $281 per ounce.

Turning to the next slide, we like to use the good work of others to accentuate an important point. Our superior leverage to gold price on a per share basis. By having full exposure to rising gold prices and executing on our plans, Newmont offers the highest leverage to gold prices per share amongst our peers.

In closing, our continued focus on operational and project execution is beginning to pay off. The second quarter marks the fourth consecutive quarter of successful operating and project execution. We continue to deliver on our plans, and we have demonstrated our ability to bring new projects online like the Yanacocha Gold Mill and the power plant in Nevada. We are the largest unhedged gold Company, and we see significant operating cash flow generation from margin expansion. We have a global portfolio of world-class assets with production from five continents and at least one major new project on four of those five continents. This ensures operational flexibility and the opportunity to optimize the total value of our portfolio. Finally, we continue to demonstrate our leadership in sustainability and environmentally responsible practices which will open doors for Newmont in other areas. With that I'd like to thank you all for listening and open it up for

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from John Hill. You may ask your question and please state your company name.

John Hill, Citigroup. Thanks. Good morning and congrats on a strong result, everyone. I was just wondering if we could get a bit more color on Batu Hijau? It sounds interesting that we are aggressively pursuing dewatering. There has obviously been some questions about the dewatering shaft. I would be interested to know whether that is starting up again? And as well, the impact of any of these -- the practical on-the-ground impact of the forest permit and waste rock issues?

Hello, John. A couple of answers. first with respect to dewatering, basically we added some pumping capacity, optimized the pumps we have out there, kept them online maybe better than we originally anticipated. We have made no progress on the pit water shaft other than we took it to the end of stage gate three, and we are going to hold. And we are going to hold until we get the [Pinyin Pacai]. Because without the Pinyin Pacai we will not be doing enough pre stripping to actually utilize the benefits of that pit water shaft for a long period of time to get a payback. We continue to wait for the Pinyin Pacai, there's really been no news on that and with respect to divestiture, I said, we are in arbitration, we really don't have a lot more to say about it, continue to look at options as we work through this process with the government.

Great perspective. Great perspective. Just as a follow-up, on Ahafo, the capitalized waste rock moving and mining and such. Can we quantify those impacts?

John, it was about $60 an ounce for the quarter.

Is that expected to continue for a while?

It won't continue for much longer. We were doing self-construction rather than bringing in a contractor. We just move those costs from operating to capital and that's why you see the reduction despite the increase in power in Ghana for the year or the suspected increase at least. About $60, $65 for the quarter.

Thanks, Dick, thanks, Russ, everyone

Thank you our next question is from John Bridges. Ask your question and state your company name.

John Bridges, JPMorgan. Hi, Dick, everybody. With the Phoenix new plan, is there a more detailed breakdown of how this thing looks anywhere? Will you be accomplishing that?

John, we are at a stage -- this is Russ, sorry. We are at a stage with Phoenix that we are basically taking it -- we have take it out of the new management structure if you want of Nevada and we are about to roll it back in. Our intent going forward is not report Phoenix separately. We believe that we have over the last year have brought the -- or the operation along to a level where we are just going to report it as part of our ongoing business in Nevada. I will say that when you look at the life of mine plan of Phoenix which, again, changes based on metal price assumption and cost and everything else, we did lose a little on the gold side, but we picked up at least an equal amount on the copper side when you look at it from an NAV or a cash flow perspective going forward. So the nature of Phoenix has changed a little bit from a -- call it 80% to 85% gold to somewhere around 60% to 65% gold. This is copper and silver on a revenue and NAV basis?

John, I'd just add to that that we have given some five-year projections which is we don't normally do to just give some highlight into what we expect out of Phoenix. And then notably, I would say that this is a mine that still has, as Russ says, that the current projection of prices somewhere between a 20 and 25-year life. So this is going to be around with us for a long period of time and we will be happy to have you all out there and get you some more details at some point?

Okay. The copper that you expect in the first five years?

I am sorry, John, I missed that.

How many pounds of copper in the first five years?

20 million a year and again it varies depending on which parts of the ore body, it is not like Batu. It has some higher grade and lower grade zones and you see more variability on a year in, year out basis.

Okay. Just as an aside, the power plant is probably one of your higher yielding projects. I seem to remember there's some spare capacity there. Given the potential to make money there, is there any way of expanding that plant?

Well, a couple of things. One, we do have some excess capacity but we are still on Sierra Pacific's grid. Of the excess capacity, I mentioned, we use about 130 mgs. Of the balance, about half of that goes to Sierra in exchange for the other set of power requirements that we need including black starts, spinning reserves, auxiliary power, all the rest of that. So we have about the remaining portion left to sell into the market which we share with Sierra Pacific any profits with that. I will say going forward that if power plants can be built again in Nevada, we do have a site right next to the one that we have which can certainly have another power plant next to it. We have water and air shed availability there. So it is something that in the longer term -- again if coal plants are environmentally acceptable in the regimes going forward, we could do something there. Not in our current plans.

Okay, that's helpful. Then just looking at the move by Barrick to follow your lead on buying oil exposure, might they come up with a way of, factoring that into the cash costs that might work for you? Is there anything they can do that you can't do because of the Canadian domicile?

John, Russ. You will have to ask Jamie on that one, but from our perspective, just given the lack of a significant correlation between our distributions on CAS and our oil price exposure, again it's a function of their performance prices as well and their cash flow coming out. We don't believe we can account for it as an accounting edge, but, again, that's part of why we put the slide up really to show the economic hedge. It is in the other income line versus CAS for us I believe.

Okay. Well-done, guys. I was pleased to see the progress there.

Thanks, John

Thank you. Victor Flores, you may ask your question and please state your company name.

Hi, Victor Flores from HSBC, good morning. My questions go to some of the development stage projects and I was hoping you could perhaps spend a couple of minutes talking about what some of the sort of key decision or key inputs into the decision making for the go ahead on Conga at the end of this year and potentially further work on Akyem and Hope Bay?

Hi, this is Guy Lansdown. How are you doing?

Good, how are you?

Good. The process we're busy going through, Akyem is in stage two, is currently headed for the gate. It will go to peer review and after that time we will look at it as -- as management and decide on what we are going to do going forward. And obviously report back to folks like yourselves towards the end of the year, early next year. But as -- as it relates to Akyem, we are still working on permits and power challenges that we have got out there.

On the Conga project, we are busy in stage three with engineering, and we are looking to complete that toward the end of the year at which time we would go through the same process of peer reviewing it, taking it to the gates and then making a decision and communicating on that. As far as Hope Bay goes, Dick mentioned, we were looking to take it into NRM or shooting for NRM next year. It is currently in stage two. We are undergoing drilling programs, metallurgical testing, we are looking at a number of options for optimizing the value off that asset and that would head in toward the gate some time next year.

Also mention the revamp of the camp.

Yes. We actually have two programs going on. One is the studies which is the stage two work that I have just mentioned to you. We also have got what we call an infrastructure program. And there we are really setting ourselves up to develop the project from an exploration standpoint, provide infrastructure for better exploring the area, and so that we are in a good position when we do go into project development. And the type of work that we are doing out there is upgrading the jetty. Rebuilding air strips, rebuilding roads, and we have a camp that we have just put in again to better set ourselves up for an infrastructure perspective.

Great. Thanks. Could I just ask a follow-up question on two projects. First of all, with respect to Conga, other than what we know are increasing capital and operating costs, has there been any major change to the development plan for this project relative to some of the things that have been said to the past about throughput rates and grades and recoveries and so on?

At this point, there have been no changes to things like recovery reserves, anything else like that. We continued to be on that line for development.

Yes, we continue to try to optimize it which is part of the process we are going through at the moment, but apart from escalating costs, there is nothing untoward that we see at present?

Victor, it is Russ. At a high level, it is important to realize even when these are on stage two and three, we do spend significant more dollars on these, both internal and external before we take into the gate that we have done historically. When we talk about taking a project to a gate four decision which is essentially full fund approval, we will be at 30% engineering versus historically somewhere around an 8% engineering level. So if you look at that, that work is front-end loaded into stage two and three. While we talk about stage two and three, it is a lot more work. They are dedicated teams. For example, as soon as it goes into stage three, a dedicated team is put on it and we do spend significant more dollars up front than we put at risk. While it don't get a full go decision, we are spending more money than we would have done historically up-front putting it at risk so we have a much better understanding of the project and ultimately what a scheduling and cost would look like.

Fair enough. Thanks, Russ. Just finally on Hope Bay. At what point do you think you will be in a position or how long will it take to be in a position to get it to, I guess, stage four.

Difficult to tell at the moment because it really depends on permitting and what option we ultimately go for so we're busy going through the process of analyzing a number of options at present.

Fair enough. Great. Thank you very much.

Thanks, Victor

Thank you, Oscar Cabrera, you may ask your question and please state your company name.

Yes, Oscar Cabrera, Goldman Sachs. Good morning, everyone. Just, I see that you have increased your assumptions in oil prices. Within that context -- and it is about $35-a-barrel increase, we haven't seen changes in the -- in the outlook for your costs or CapEx for the year. So, basically two things. First, can you provide a little bit more color as to how you see the cash cost control that you are having. And secondly, what can we expect for CapEx inflation or cost inflation for next year.

Oscar, let me start and then Russ can add some color to this. First off, it is important to understand we went into the year as I hope would you expect with a conservative view of where we thought costs were going to go. That is sort of the first pillar upon which you could say the reason that we are able to absorb some higher oil prices and still keep guidance is we started with a fairly conservative plan. Second thing is, it is fair to say that with the higher oil price, some of our costs are actually going into stockpile and inventory and some of these costs will be realized over the next several years as they come out of inventory into production. Now that doesn't mean that we are sub optimizing here to control costs. Actually, the contrary. It means that we're putting the highest grade through as we always do and some of those other costs will stay in stockpile for a bit.

The other thing to note is around the A dollar and some of our other costs, we have been systematically over the last year and a half -- actually the last year, been putting hedges in place to help reduce some of our exposure, so the combination of those three things, conservatism, inventory, and also just some of our hedging activities have helped us to reduce our operating costs from where we thought we would be.

With respect to capital, again, we had a capital budget which was probably more aggressive or i.e. conservative in terms of would we spend it all than we probably would otherwise have had coming into the year. When we go through those capital expenditures which we do every month, we are always looking for opportunities to optimize and reduce or defer as is the case at Batu Hijau. And using our capital effectiveness process to offset some of the embedded inflation. Now we have said previously at Boddington earlier this year, that we did revise our estimates for Boddington based on higher inflation and escalation. So we have already done that on that project.

With respect to the other two projects, we completed a power plant and the Gold Mill. Luckily I think we ordered material. We got people on the ground. We were ahead of schedule on both of those projects, ahead of the schedule of higher inflation anyway and I think we realized benefits by getting those projects done in a little earlier time frame. Guy or Russ, would you add to that?

Oscar, just to your last question, I'd say industry wide we're seeing 15% to 25% CapEx inflation annually and again that is a function of what region you are in. I will say as a mention to Victor earlier, we do a far more rigorous job in the early stages in the stage gate process to simulate scenarios for capital costs. So we build their contingency up front which has served us well as Dick said. A little more conservative approach to capital. One other aspect on operating cost that shouldn't be ignored is we do produce a bit of silver particularly down in Peru and in Nevada and the higher silver prices have helped offset some of those cost pressures on the CAS side whether it is steel or the grinding or diesel for that matter. We do see some byproduct kick in and particularly in Phoenix the numbers you saw do reflect, obviously a higher copper price year on year.

No, that is a great answer. Thank you. And then if I could just add one more. In terms of your tax rate, I have seen the original guidance at the beginning of the year was between 30% and 34%. We are at 22%, 26%. Can you talk about what is impacting that and what should w be looking forward next year or years going forward? Thanks.

Sure, Oscar, I am going to have Dave Gutierrez, our VP of Tax and Accounting step you through that.

In the second quarter based upon our continuing process to simplify our worldwide corporate structure we were able to convert a Canadian corporation to a US partnership for US tax law purposes. That generated a capital loss which you see for the quarter of giving us a fairly well effective tax rate. As that tax rate -- as that capital loss gets layered in throughout the whole year, we believe our effective tax rate will be between 22% and 26% for the year. The other reason you are seeing a low rate too, is because of the high gold prices for depletion purposes in the US we're getting a much larger amount of depletion than we otherwise budgeted for.

And Oscar, just on a go-forward bases, somewhere around 30 to 32% is a good number to use and also just going back to the second-quarter adjustment, this isn't just a deferred tax adjustment. We will see approximately $150 million in cash, about $60 million this year and $90 million next year through the tax restructuring that Dave Gutierrez and his team led. That was a once-off event if you want, in the second quarter, that's why we backed it out in our earnings schedule from the GAAP reported number to the normalized number if you want, but it is cash, and, again, look for it somewhere between 30 and 32 on our long-term basis.

Okay. Great. Thank you very much, guys.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is from John Tumazos. You may ask your question and please state your company name.

John Tumazos, John Tumazos Very Independent Research. Can you give us an update on the drilling in the Hope Bay district to occur this year and next, specifically about how many of the holes are intended to be confirmatory to verify the Miramar resources and how many of the holes are new ground to explore and expand resources? And any other details you are able to provide, please.

Yes, John. This is Steve Enders. The main purpose of the drilling really over the next year -- say between the start of this year towards the middle of next year is focused on two things. On the Geotechnical aspects that we need to do to confirm project parameters around the design for the pits and the copper dams that may be needed. So that is a big component of the drilling that is going on right now is to support stage two studies.

The rest of the drilling is really focused on infill and step out from the known resources Honduras and Madrid and Boston, to support the work we have to do around modeling and mine planning to be able to declare nonreserve mineralization at the end of stage two. That is a lot of work actually between now and some time the middle of next year. There is work that is going on in exploration around the district, but it is really a much smaller amount. As we focus on the core assets. But in the meantime, what we are doing is additional geologic studies to determine what those other targets are so in due course, we explore those in a way that -- that effectively fits into the project.

Thank you.

Thank you. Our next question is from Patrick Chidley. You may ask your question and please state your company name.

Hi, it is Patrick Chidley with Barnard Jacobs Mellet. Just a question about Boddington. I wonder if you could maybe give us a bit more detail on -- just an update on what the plan is in terms of tonnage throughput and strip ratios et cetera? Some more detail there would be good.

Patrick, Russ, could you repeat the question, we just missed the last half of it.

Sorry, just wanted to get more detail on the Boddington project in terms of strip ratios and how much tonnage throughput you are intending to produce there and also what the copper credit might be in terms of your percentage copper that you will be putting through in the first couple of years.

This is Guy Lansdown again. As far as through putgoes, the plant is designed for round about a 35 ton per annum. But on a big plant like this, there is actually a one-year ramp-up period to achieve full production. I think that answers part of your question. The other one, what is a strip ratio. We are looking at around 1.3 to 1.5 to 1 strip ratio. We gave the gold and copper production figures. We are looking at I think 650,000 to 700,000 ounces per annum for the first five years bearing in mind that there's a one-year ramp-up and that is on an equity basis so we are not going to achieve that in the first year, but that is what we would anticipate to achieve over the first five years.

Right, and I think the copper grade average is about -- what, 0.11% there. Is that likely to be the same in the first few years or higher?

It is of that order.

Okay.

You are in the right ballpark.

Patrick, it will vary some but that is the sort of ballpark we are looking at.

Copper about 30,000 tons a year on a 100% basis.

Okay. Thanks. I guess that just about it does it. I think all my questions have been answered. Thanks

Thank you. Our next question is from Terence Ortslan. You may ask your question and please state your company name.

Terry Ortslan, TSO & Associates. Given the magnitude of the investment and also the skill of the operations and of the previous history of Yanacocha, do you think there is any room or leverage to negotiates a long-range social maybe investment agreement per se to try to isolate some of the future uncertainties? Because you will be entering a new phase and I think everything started very nicely but then kind of deteriorated to a couple of years ago. That is the question.

Terry, the question if I believe I understood it correctly, was that Yanacocha a long-term stabilization agreement?

Yes. In the sense that if you can revisit the whole issues of the area, the town, the expectations and all and kind of anticipate the uncertainty because more money is going to go in there. It's going to be different scale of operations and as well as different costs.

Okay, let me try to answer that just big picture. We have been in Yanacocha for -- 15 years. We successfully worked our way through a number of issues with the community. Some of those issues of our own creation quite frankly. What we see today is a Yanacocha which is absolutely involved in the community and trying to do the right things to continue the development at the right pace, making sure that we constantly look at how we are interfacing with the community.

And as an example of that, earlier this year, the President of Peru is on-site at Yanacocha, and he was there to dedicate a facility that we had put in place where we mined a pit, and are collecting water during the rainy part of the year and provisioning that water through existing canal systems to the farmers in the area. And the President was basically suggesting to the community as well as the broader Peruvian community that mining was a valuable part of the economy in Peru. That so long as the mining companies do their jobs in environmentally and socially responsible ways that we will continue to have a license ar and in his administration, he intended to see mining grow in its contribution to the Peruvian economy.

So I think the fact that the President was on-site, the President was supportive of what we were doing, the community is supportive. Year-round provisioning of water for the first time in many of these people's lifetime allowed them to produce more goods and services and sell those into the market, and I think as a result of that, we are a valued member of the community. What will that do for us going forward? Hopefully it will allow us to move although in a slightly different district, we will be able to move forward on Conga, and I think we will continue to be a contributing member in Peru of the economy for a long time to come.

Okay. Fair enough. That's -- that is a good answer. Thank you.

Thank you. Our next question is from Brian MacArthur. You can ask your question and please state your name.

Brian MacArthur, UBS. I just want to go back to Phoenix for a minute. You made a statement about the value on an NAV basis changing from 80, 85% gold to 60, 65% copper and you've given us 200,000 to 250,000 ounces of gold production over the first five years. Can I just have the copper price and production that you have done to come up with those statements?

Brian, I think on a NAV basis we were running 900 and 360 and 17 odd silver just -- when we revisited the project with our Board yesterday. Those are the numbers of which we based the relative contribution. So it will move with that.

Sorry, just the copper production the first five years?

It averages about 20, Brian.

20?

Million pounds.

Great, thanks very much.

Sure.

Thank you. Our final question today is from John Doody. Ask your question and state your company name.

Thanks and congratulations on a good quarter guys, it's John Doody at Gold Stock Analysts. I want to congratulate you on giving more color to the copper production, and I guess by the questions that have been on the call other people like it too. I am a little bit confused though as to how you are going to be reporting going forward. It appears that Phoenix is now being reported as a byproduct but at Batu Hijau and I am not sure how you are going to do Boddington, is that going to be as co-product basis?

John, that's a good question. Let me give you a rule of thumb -- it's not codifying the air, but it's an understanding where the SEC is. Where your byproduct revenue is more than 10% you will generally go to a co-product type of accounting. So when you look at Batu it's roughly two-thirds copper and one-third goal. We are a co-product. In Nevada we treat Phoenix as part of the overall Nevada operation and the copper production relative to the roughly 2 million ounces in Nevada is de minimus and we show it as a byproduct along with silver in Nevada. In Boddington, depending on your assumption it's about a 10% copper credit, again, based on your long-term assumptions and we will be reporting it net so we will treat copper as a byproduct down there. So what we really have to look at, John, when we decide how we're accounting is the relative contribution. If it is de minimus which is roughly 10% of revenue we treat it as a byproduct. If it is more we will go to co-product accounting.

So what kind of detail will you be giving us going forward on that?

At which operation? Well, at all three.

Yes, well, in Nevada we will show it net so you will see a net CAS. In Batu, you will get both gold and copper, so you'll have a cents per pound and a dollar per ounce. In Boddington you'll get a dollar per ounce which will be net of the silver, copper and any malibdinum we produce down the road. Great, that helps.

All right, so thank you very much for your attention on the call today. And the last thing I would like to say for any Newmont employees who are on the phone, we truly appreciate your contribution throughout the last year as we have moved the Company forward. You all have done a great job. Thanks. Keep it up. And thanks to all the analysts out there and holders of the stock, we continue to focus on doing what we say we are going to do, and we will tell you more about that in the third quarter.

Thank you. This concludes today's conference. Thank you for participating. You may disconnect at this time.