紐蒙特黃金公司 (NEM) 2013 Q3 法說會逐字稿

Good morning and welcome to Newmont Mining third-quarter 2013 earnings conference call.

(Operator Instructions)

Today's conference is being recorded. If anyone has any objection, please disconnect at this time.

I'd now like to turn the call over to Mr. John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Sir, you may begin.

Thank you, operator.

And good morning, everybody. Welcome to Newmont's third-quarter 2013 earnings conference call. With us in the room today are Gary Goldberg, President and CEO; Laurie Brlas, Executive Vice President and CFO; Chris Robison, Executive Vice President Operations and Projects; and other members of our executive team who will be available at the end of the call for questions.

Turning to our cautionary statement on slide 2, we will be discussing forward-looking information, which is subject to a number of risks, as further described in our SEC filings, which can be found on our website at newmont.com.

And now I'll turn the call over to Gary.

Thanks, John. And thanks to our callers who are joining us this morning.

Newmont turned in very strong third-quarter performance across all aspects of the business. This starts with safety. And I'm pleased to report that our team achieved its lowest total injury rate on record this quarter. Even more important, our performance is steadily improving. Since 2011, we have reduced our total injury rate by 33%, and our lost time injury rate by 66%.

We are also delivering some of our best performance at two projects that recently reached commercial production -- Akyem in Ghana and Phoenix Copper Leach in Nevada where we built and commissioned a new solvent extraction electrowinning plant without a single lost time injury. Our ultimate goal is to eliminate all injuries at Newmont. And we will continue to work towards that goal. This commitment to continuous improvement is at the heart of our underlying strategy.

Turning to slide 4, the first element of our strategy is to secure the gold franchise. By this we mean maximizing the value, rather than the volume, we deliver from our existing assets. Our cost and efficiency improvement programs are aggressive and they are gaining momentum. By the end of the third quarter, we have lowered our consolidated spending by $700 million compared to 2012.

And we're just getting started. The second aspect of our strategy is to strengthen the portfolio. Market conditions are challenging but they also create opportunities. We are working to improve the value, longevity and cost position of our portfolio through prudent investments and acquisitions in both gold and copper.

Finally, we are working to enable our strategy by building on the capabilities that give us a competitive advantage. These range from maintaining a strong talent pipelines and high technical standards to taking a more progressive approach to how we engage with host governments and communities.

This gives you a sense of our objectives. Now I'd like to turn to slide 5 to look at our progress in meeting them. The numbers speak for themselves. Looking at the third quarter of 2013 versus the prior year's quarter, consolidated spending is down 13%, or $700 million. All-in sustaining costs are down 16% at $993 per ounce. Gold costs applicable to sales are down 6%. Attributable gold production is up 4% and we remain on track to meet guidance.

Capital expenditures are down 36%. And as a result we have lowered our capital expenditure guidance by a total of $400 million since the beginning of the year. And, finally, we are creating value by optimizing our portfolio. We sold our interest in Canadian Oil Sands this past quarter, and we are currently engaged with interested parties to sell our Midas operation in Nevada.

Let's look at production on slide 6. Our Australian and New Zealand teams took the lead in improved gold production in the third quarter, mainly through productivity improvements. Nevada operations also had a strong quarter as they continued to make up for a challenging first half. In Africa production was boosted by higher metal recovery. Copper production was lower than the third quarter of 2012, due mainly to processing lower-than-expected grade ore at Batu Hijau.

On a positive note this month, we produced our first copper cathodes at our Verde Bioleach project in Peru and our new Phoenix solvent extraction electrowinning plant in Nevada. I had the opportunity last week to visit in Nevada and see firsthand this facility. And, as some of you would have seen, we announced yesterday that Phoenix reached commercial production safely and efficiently.

Summing it up, we remain on track to meet our gold production outlook of between 4.8 million and 5.1 million ounces. For copper, we've revised our production outlook downward to between 135 million to 145 million pounds.

Chris Robison will share more operational and project details in a few minutes. But first I'll turn it over to Laurie Brlas, our new Executive Vice President and CFO, to look at our financial performance. Laurie joined us in September and brings a wealth of mining experience to her new role, most recently serving as Executive Vice President and President of Global Operations for Cliffs Natural Resources. She has also served in financial leadership roles for more than 20 years across a wide variety of industries. She's assimilated to Newmont in record time, and it's really great to have her on our team.

Laurie, over to you.

Thanks, Gary. And thanks to everyone for joining us on the call this morning.

This is my eighth week with Newmont and I'm very happy to be here. So far I've had the opportunity to visit our operations in Peru, and get to know the team here in Denver. I'm excited about the business and our prospects, and look forward to working with the team to raise our game.

As you will see from the results we reported last night, our actions to optimize costs are helping to offset the effects of double-digit price decreases. Comparing Q3 2013 with the prior-year quarter, we delivered revenue of $2 billion, down 20% due to lower commodity prices.

Net income from continuing operations of $429 million, up approximately 7% due to the gain from the sale of our investment in Canadian Oil Sands, and strong cost control offset by the decline in pricing that I mentioned. Consolidated spending of $1.4 billion was down 20% primarily through cost and efficiency improvements, and adjusted net income of $227 million, or $0.46 per share. This figure is net of nonrecurring items, including the $243 million gain on the Canadian oil sands sale.

So let's turn to slide 8 to take a closer look at these savings. Nearly 70% of our $700 million in savings is the result of reducing our sustaining capital expenditures. It is important to note that these are really sustainable improvements, not just deferrals. For instance, in Nevada, Australia and New Zealand, we have upgraded our asset management and maintenance practices. And this has paid off in the form of significantly extended life and lower spending on process and mining equipment.

Finally, we've reduced our overhead spending by over $230 million compared to last year's third quarter. This includes advanced projects, exploration, general and administrative costs and other expenses. I'll also point out that we have kept our costs applicable to sales essentially flat at around $3 billion year to date, excluding stockpile write-downs. These are not one-off events. They're trends we intend to build upon, as you will see on slide 9.

As we mentioned, our gold costs applicable to sales are down 6% from the prior-year quarter. The primary driver of this is the outstanding results in our region to lower input costs as a result of operating our mines and mills more efficiently. These efficiencies lowered CAS by $65 per ounce. We did experience stockpile and ore on leach pad write-downs of $22 per ounce, primarily at Yanacocha and Boddington, due to lower of cost or market type adjustments.

This trend of continuous improvement also shows up in our all-in sustaining costs, which you will see on slide 10. All-in sustaining cost is a relatively new metric, which continues to evolve, but we think it reflects the real cash cost required to produce an ounce of gold. The goal in the industry is to enable better understanding and comparability. Detailed information explaining how we calculate this metric can be found in our 10-Q.

Third-quarter all-in sustaining costs were $993 per ounce, a reduction of 16% compared to last year. Major drivers include a 45% reduction in sustaining capital expenditures, which accounts for approximately $119 per ounce, lower costs applicable to sales and reduced spending on advanced projects and exploration. The savings more than offset a slight increase in other expenses, which were mainly associated with adjustments related to our social programs in Peru. This solid performance is fundamental to our ability to preserve financial flexibility across price cycles.

Now turning to slide 11, you can see our debt profile. Maintaining liquidity and an investment grade credit rating is a very big priority for us at Newmont. Most of our debt is long dated, with favorable terms, and we have about $5 billion in available liquidity. An important metric for us, and one that I know is important to you, is free cash flow, which we define as cash from operations minus capital spending.

I am very pleased to report that we generated positive free cash flow of approximately $30 million in the third quarter. And this is the first quarter in two years that we have generated free cash flow. This is something we will continue to focus on and manage our operations to.

Our existing revolver capacity provides downside production against lower metal prices in the near term. As metal prices rise, we would look to deploy additional capital to pursue project development, return capital to shareholders, or strengthen the balance sheet by paying down debt.

Wrapping things up, our approach to cost containment is aggressive, but our assumptions for the near term are conservative, which you will see on slide 12. For planning purposes, from 2014 through 2016 we are using a conservative gold price assumption of $1,200 per ounce, and a copper price of $3 per pound to reflect current market conditions. We believe this is the right backdrop to sharpen our focus on value over volume. We are now escalating our costs annually by about 3% for planning purposes and expect to develop ongoing cost and efficiency improvements so that we are more than offsetting inflation on an annual basis.

Finally, we consider a range of macroeconomic scenarios for longer-term planning purposes. These different scenarios have different pricing assumptions which allow us to evaluate projects across a wide variety of outcomes. While we continue to believe that the outlook for gold and copper will improve in the medium term, we think it is critical to evaluate projects and spending in a manner that protects our balance sheet and free cash flow.

And with that, I'll turn it over to Chris Robison to walk you through our operational performance, starting on slide 13.

Thanks, Laurie. And good morning to everyone.

Our operations turned in a very solid third quarter. Before I talk about each region, I will give you a few highlights. As Gary mentioned, we turned in our lowest recordable injury rate on record. We delivered strong gold production in Australia, New Zealand, North America and Africa than the prior-year quarter and we achieved significant and sustainable cost reductions at all our operations. We also brought two new projects into full operation in October. And, just as important, we did it safely, on time and on budget.

Transitioning to slide 14, let's look at North America. The headline in Nevada is that we are regaining ground on production, primarily through higher leach volumes at Carlin, and higher grades and throughput at Twin Creeks and the Phoenix Mills. Our cost position also continues to improve. All-in sustaining costs for the region were $772 per ounce for the third quarter, or 24% lower than the prior-year quarter. This was mainly due to increased gold production, efficiency improvements, and lower royalty payments.

Also, as Gary mentioned earlier, we reached commercial production at our new copper SX-EW plant at Phoenix. And we completed the project on schedule, on budget and with no reportable injuries. We expect to produce about 20 million pounds of copper a year, treating ore that was previously classified as waste.

I was just out in Nevada last week and am pleased with the progress the team is making on the turf vent shaft. It is progressing well and is on schedule and on budget. We continue to progress our studies at Long Canyon, and recently reached a water agreement with the local city municipalities. And in Mexico we expect La Herradura operations to end the year at the lower end of production and the higher end of costs guidance, as Fresnillo works through some permitting issues there.

Turning to South America on slide 15, our South American team is doing a great job containing costs, proving efficiencies, and advancing our best options for the future. We were slightly ahead of our internal production targets for the quarter. But, as expected, we produced less gold than we did in the third quarter of 2012. We continue to chip away at our all-in sustaining costs, despite slightly higher costs associated with the startup of production at the Cerro Negro and the El Tapado Oeste pits.

Our first copper cathode was produced at the Verde bioleach facility in late September. This is an important milestone in our efforts to develop the extensive sulfide ore deposit that lies beneath the oxide deposit at Yanacocha. Finally, our overall capital spend in Peru has been reduced. This reflects the very measured approach we are taking to build social acceptance for our Conga project.

Now moving to Surinam, we continue to work to secure certain government approvals, and to finalize our mineral agreement before we reach our next decision point on the Merian project.

Now let's go out to our Australian and New Zealand operations on slide 16. We are seeing some great performance down under. Our teams at Tanami and Waihi emerged as our best sites in a recent safety audit. And their operational performance has been equally impressive. Looking at third-quarter results for the region, gold production increased 18% over prior-year quarter.

The biggest contributor is Tanami, where we have improved grades through better dilution control and implemented a range of other productivity improvements. At Boddington, production increased on the back of higher throughput and recoveries. Copper production at Boddington continues to be affected by lower mill availability in 2013. But we are working to eliminate that bottleneck by next year. Putting it all together, we expect the region to end the year at the higher end of production and the lower end of gold CAS guidance.

Now turning to slide 17, let's look at Indonesia. Our Phase 6 stripping campaign continues at Batu Hijau. And we anticipate reaching higher-grade ore at the end of 2014. Looking at our third-quarter performance, copper and gold production is slightly behind target due to lower than planned grades, but we are seeing improved recoveries with the introduction of fresh ore. Our all-in sustaining costs were $1,071 per ounce, down 36% over prior-year quarter due to lower CAS per ounce.

Finally, we are engaging with the Indonesian government to address the proposed export ban. We remain firm in our belief that our contract of work protects our right to export copper concentrate. We will continue to drive towards a mutually beneficial solution before the July 12, 2014 deadline. But we will also have developed a contingency plan if this is not possible.

We will end our tour with a look at our Africa operations on slide 18. We had a very good quarter in Ghana, and I will touch on a few highlights. Gold production at Ahafo increased 10% over the prior-year quarter, due to higher mill recoveries. Our all-in sustaining costs were $836 per ounce, down 22% over the prior-year quarter, due to higher production and lower capital expenditures. We have rescheduled our expansion at Ahafo, partly due to permitting delays and partly because we want to take the time to better understand the various options that will improve the project economics.

Finally, we announced commercial production at Akyem this week. Our newest operation was delivered safely, on schedule and about $38 million below budget. We will produce between 350,000 and 450,000 ounces of gold at Akyem annually over the first five years.

With that, I will hand it over to Gary to wrap up.

Thanks, Chris.

Our commitment is to maximize value over the near term and to position the business to thrive as conditions improve over the medium term. While we cannot control metal prices we are managing what we can control. First is improving our operational costs and efficiencies. We've made a strong start by reducing consolidated spending by 13% year to date, and all-in sustaining cost by 16% for the quarter. And we have solid plans in place to continue this trajectory.

We remain focused on raising our technical standards, and advancing only our most profitable projects. We delivered on that commitment by bringing Akyem and Phoenix Copper Leach to commercial production safely and efficiently. Finally, market conditions create opportunities, not just challenges. And we will continue to preserve the financial flexibility we need to make the most of them.

Thanks very much for your time. I'll ask the operator to open the floor to questions now.

(Operator Instructions)

David Haughton, BMO Capital Markets.

Thank you. Good morning, Gary and team.

Two new projects to add to the portfolio. For Akyem, we'd be looking for some commercial production this quarter, as announced. But what sort of grade have you been seeing there? And how does it reconcile compared to what you were expecting?

Thanks, David. Actually, we've gone through, and through the whole business, been looking through our whole process on reconciliations. At Akyem we are seeing grades right around what we expected versus the plan. So that is coming through well. As we built some stockpiles in advance of beginning of processing, we've actually been able to stockpile a little bit higher grade here at the start. So we have a better start here this quarter. But, as the numbers showed, we will be in average grade through the first five years, as normal.

Okay. I see your cost expectation and all-in sustaining costs, what kind of millions of dollars are we looking at for your ongoing CapEx at Akyem?

At Akyem we are coming in just a little bit under budget for constructing the plant. And sustaining capital is going to be fairly low in the beginning years because we spent most of the money really to put in place new equipment. So I don't know the exact number, but I would guess it is around $50 million a year.

Okay. And then over to Phoenix, you had mentioned in your release yesterday or the day before what the incremental production was expected, in the order of 2 million pounds, thereabouts. What would you expect as the total contribution coming out of Phoenix for copper, including the SX-EW?

SX-EW will be about 20 million pounds a year, David. And from the rest of the Phoenix operation in concentrate it is another about 20 million pounds a year.

Okay. So looking around about 40 million all-up from both sources then?

That's correct.

And that's just going to be expressed as a byproduct credit? We won't see that broken out in future?

At this point that is how we account for it, correct.

We are still evaluating. As that grows that could change.

And then over to another copper production you've got, looking at Verde, what expectations do you have for its production going forward? Is it still in a trial mode? Or would it really be considered into a commercial role?

Yes, David, it is very much a pilot plant operation. We're still testing out. As Chris said, we produced first copper there just over a month ago. Right now it is good early indications, but if this was to pan out then we've got to go through and work out how we would develop the leach pads, and work out a broader program for development of the sulfides at Yanacocha. So it's not anything that has near-term implications or contributions to production, but something we see more in the medium to long term.

Okay. And switching to Australia, Tanami seems to have had a significant turnaround as far as what is coming out of it, mainly driven by grade. But the tonnage was up, as well. Is that tonnage and grams sustainable, do you think?

From my standpoint, David, where we were a year ago we had not had some of the backfill we needed in place. We were working around some of the fringes of the ore body. And I think we have done a good job of getting the mining and the efficiencies back where they need to be. So we would see the grades and the tonnages sustained.

Okay, thank you very much, Gary.

Patrick Chidley, HSBC.

Hello, Gary and everybody. I just wanted to ask a question focused on financing and flexibility. You mentioned that you obviously see opportunities out there. And you want to maintain financial flexibility. It is good to see you cutting costs and hopefully improving the free cash flow scenarios you've run into 2014. But would you see the need to issue any more shares? Or would you want to issue more debt at this stage, given your outlook on the gold price?

I think at this stage, Patrick, and as we've looked at some preliminary views of our '14 plan, we see the cost reductions that we have been delivering this year carrying through into 2014. And we see a cash flow profile in 2014 at the plant assumptions that Laurie reviewed here earlier to still look quite robust.

So, at this stage, we do not have any plans to issue any further debt or to issue equity. We do have some debt coming due next year and it will really depend on how performance is, and how we go about addressing that at the time.

Yes, we have a lot of options, whether it's draw on the revolver or refinance that debt. But we will look at that depending on gold prices and our free cash flow to date as we get closer to that.

Great, thanks for the clarity there. Just one little follow-up question to David's question on Akyem, can you give us a bit more accuracy, a bit more clarity on where Akyem's production will pan out in the initial couple of years of that five-year period? For example, throughput -- are you going to go through a period of very soft store, close to the surface there that might go through the plant quicker? And could we see a higher amount of production in the early years as a result?

No, I don't think we see that physical characteristic with the ore there, Patrick. We are expecting about 400,000 ounces a year here in the front four to five years.

Got it, okay. Thanks very much.

Jorge Beristain, Deutsche Bank.

Good morning. I just wanted to follow up on the guidance question. You guys had put forward a target of $1,025 for AISC by 2015. You clearly beat that number in your third-quarter results. So is there any flow-through effect to the 2015 goals? Should we think about carrying the difference forward? Or are you expecting that this is a bit of a dip in costs and we might see a rise in the second half and into 2014?

It's a good question Jorge. We have not come out with guidance yet for 2014 going forward. We will do that here within another month or two, and can give more clarity on it. But what I can say is the $700 million in cost reductions from last year we do see, and expect to see, that carried forward into 2014 going forward. And we'll give more clarity around what that looks like for 2014 and 2015 here in another couple months. But right now we're pretty confident about how things are carrying through.

Jorge, as always, you're going to see some fluctuation from quarter to quarter, but this is, obviously, an outstanding trend.

And what I'm also trying to understand is, from your own internal planning purposes, were you aware that the third quarter was going to beat this much on cost or is it a nice surprise? I'm just trying to understand, in terms of the guidance goal you gave for 2015 how you can be at that run rate so soon. And was it partly currency driven, for example, in Australia? I get the grade issues, as well, at Tanami. But I'm just trying to understand, is there a one-off currency impact, as well, happening here?

No, it is not really related to currency, Jorge. The guidance that we gave back with investor day, and with the Denver gold show when we updated it, of the $500 million to $750 million a year in savings through our full potential and our operating model changes, and work we could do to drive improved efficiencies and cost reductions. Those were targets we set, but we don't stop there. I think the key is, we're starting to see the benefit flow through early, which is good. And that sets us up well for 2014 and beyond.

And, as I said, a lot of this savings in the all-in sustaining costs came from the capital side. And that is something that is going to continue year in year out with the changes that Chris and the team have made.

Okay. Thank you.

Paretosh Misra, Morgan Stanley.

Hello, good morning. One question on Indonesia. Could you elaborate as to what kind of contingency plans you are looking at there if export ban indeed kicks in?

Thank you.

At this stage, and what we have done, is engaged and made sure that the local communities and workforce are aware of the situation. We believe, and I would reiterate the point that Chris made, that we believe under our contract of work that we do have the right to produce and export concentrate. That said, I can certainly understand the desire in Indonesia to want to have processing done in-country. And we have been in discussions, actually for quite some time, with both the government and other parties about the potential to build a smelter.

From our standpoint, smelting is not a core competency. It's not something we're going to get involved in building. We would support it if someone came through with that. We are in discussions and will continue to be in dialogue with the government to look for a way to work through that makes sense for the government and for the business going forward. In fact, I will be out in Indonesia here in another week to have those discussions.

Got it. And your contract of work there does not require you to build any refining capacity in the country, right?

No. If you read through the details, it doesn't require us to build. It does require us to assess and be supportive. And we have. We do supply about 20% of our concentrate to the Gresik smelter each year. And, in fact, that varies depending on how Freeport's been supplying to the Gresik smelter. But that is one area we already have been supplying.

Okay. Last question. At Merian, is it possible that we may not see any capital spending on the project next year? Because I see there is no longer any target year for initial production. I think it used to be 2016.

With regard to Merian, we continue, we are in discussions with the governor around reaching agreement on both the mineral agreement and a number of other agreements that tie into that, that would allow us to consider moving forward with the project. We continue to assess the project in the current price environment.

And, much like we have done with the rest of the operating business, we are looking at ways to minimize and reduce costs in the operation that we would project going forward. So, at this stage, subject to all of those things that are still being addressed, we have not set a date that we would start. We are going to continue to do work, more or less minimal work on the ground, to continue doing exploration and to continue to progress the things I just discussed.

Thank you, Gary.

Brian MacArthur, UBS.

Good morning, Gary. Can I just follow-up on the comment, 20% of your con was going to Gresik? Is that a five-year average number? Because obviously your productions vary a fair bit over the time, and, obviously, Freeport's does too.

That is correct. It varies. Sometimes when Freeport's been down, we've directed concentrate there, so the number has gone higher. But that is more of an average number. And it's what we expect here within the next year at our lower production rates. And as we get to the end of '14 when production goes up, that percentage overall would be a little bit smaller.

Right. But you don't have a right -- do you have a right to that? Or is it just a fill-up thing? That's, in fact, the point I'm trying to get at, because that obviously, as you go way back up and you start producing ore, and let's just say they were very difficult, would you have a right to at least have some of your stuff in Gresik and therefore it would not be subject -- it would already be in-country process, if you see what I am saying?

Yes. We have a contract with the smelter to provide a certain amount. And it's not necessarily a right, and there's a variety of things that flex on that in terms of how much would go. But we do have a contract with the smelter to supply concentrate. But not at a fixed percentage or amount.

Great, thanks. And just one other thing. And I apologize if I didn't hear you correctly. I think you mentioned the Ahafo mill expansion, you'd put that on hold. And I thought the feasibility study was still ongoing. If that is true, can you just maybe remind me what the profile of the grade looks like going forward, say, if it was delayed out a few years, the mill expansion?

The mill expansion, we are still studying it. So, let's be clear. That work is ongoing. And we are looking at the cost-effectiveness of bringing that forward. So that work is going on. I think what we had in our plans originally this year would have seen that coming on sooner. And that's been pushed out because we are continuing the study work. In terms of grades, really, the mill expansion actually allows us to process some lower-grade material, at the end of the day but obviously increase our overall production. So, as we look and provide more information on guidance for '14 and beyond, we can give you a little bit more detail on how that looks.

Great, thanks very much.

Garrett Nelson, BB&T Capital Markets.

Looking out to 2014, I realize you are in the budgeting process right now, but directionally how should we think about next year's total CapEx relative to 2013?

I think in terms of sustaining capital you've seen us come off from about the $1.3 billion, $1.4 billion range down to about $1 billion roughly this year. And I think that is a good area to think about for 2014 at this stage.

Okay. And then on the growth side, is there anything material there?

The growth, really, we've got the turf vent shaft work that is going on. That is really the major project with completion of Akyem and completion of Phoenix Copper Leach at this stage. We continue the department capital but at a much lower rate at Conga and, as mentioned, Ahafo mill expansion in Merian.

Yes, it will be less than it was this year. And we will give that information when we give our full 2014 plan information.

Okay, that is helpful. And then you mentioned you are in the process of selling the Midas operation in Nevada. Are there any other assets you are currently considering divesting? And would you consider other options, such as bringing in joint venture partners at some of your operations, or possibly entering JVs yourself maybe as a way to increase your copper exposure?

In fact, JVs, we've worked quite successfully with other JV partners at several areas, when you look at Peru, Indonesia and also in Australia. So, yes, JV partners would be another way to do it potentially. It really depends on what they bring and how that fit works. But at this stage Midas is the one area that we have announced. We continue to review our whole portfolio. But, as I've said before, we are really focused on making sure we control what we do control, getting the costs of our existing operations down, and just assess opportunities as they may come up.

Okay. Thank you very much.

John Bridges, JPMC.

Good morning, Gary, everybody. Well done on the results. Just wanted to dig a bit deeper into the Verde thing. I know you say it's quite a ways out. But I thought that was going to be gold and copper? What is that likely to be? How is the gold going to be coming out?

There is actually a couple different things, John. And thanks for acknowledging that. There is the copper that you can produce from a solvent extraction leaching process that comes from that type of ore.

There is also a copper-gold concentrate that you could produce from the sulfides, but that would require not just producing a concentrate but then having a different processing. We've looked at autoclave potentially to process that because of the higher arsenic that's in the concentrate. That would then produce the copper and gold. So that is really the two main parts that would come from that ore body that we are assessing along the way.

So, at the moment, you're just going after the copper? Or is there some gold there, as well?

At the moment the process with the solvent extraction just recovers the copper. There could be ways down the road to look at different way. Once you leach the copper you could go back after the gold. But I am not sure whether that is economic. But those are some of the other things the team are looking at.

Is this coming from the enhanced copper zone that's underneath one of the pits?

I am not familiar with the term enhanced copper zone. But this is coming from the area right adjacent to the oxide pits. It is the next layer, I guess you could call it, as you go into the ore body, past the primary oxide zone.

There is an enriched zone there that was one of the opportunities at the site. Okay. The expiration development line, you've under-spent on your budget on that. Where do you think that is going to be at the end of the year? Because there is a big number in the budget there.

A couple of things just to finish. That enriched zone is much deeper than right near the surface. That is why it is -- just to finish up on that part -- it is in the plans as we assess that. In regards to exploration, we have reduced exploration, and that is basically in line with our plans.

Some of the numbers that you see also include, because of how we account some of the exploration work that has been done at Temak. So that comes through into the exploration number that's reported. But we have scaled back from two years ago. And, Grigore and his team, as we go through we list things by priority, and he is working on the key things where we see the best prospectivity.

Okay. Are you likely to change your guidance, then, for exploration and development?

For 2013 we have not changed our guidance, and we are still on track with that. And we'll come out with our 2014 number when we give our full guidance for 2014.

Okay. Thanks a lot.

But I think a key point, John, exploration is still a key part, from my standpoint, of the front end of the business. And in our business in particular, that we need to have a good healthy look at what is done out there, but do it in a prudent manner.

Yes, absolutely. There's a tension between cutting costs and performing on a quarter-by-quarter basis, and having a business in a couple years time, right?

Exactly. We are here for the long term.

Sounds good. Thank you.

Andrew Quail, Goldman Sachs

Hello. Congratulations on a very strong quarter. Most of my questions have been asked. But a couple -- at Batu, obviously the high grade is going to kick in 2015. Is that from the start or is that more of a mid year thing?

With regards to Batu Hijau, we're back into just, really, the fringes of the ore body now. So we have primary ore going through the mill, but it is fairly low grade. We'll get back into the higher-grade portions of that towards the end of 2014. And then you'd see the higher production increases in 2015, 2016, and tailing off in 2017, as we then look to develop Phase 7, and would have Phase 7 ore coming after that.

Great. And just one follow-up on the CapEx. I know you're going to probably release it early next year. But Conga -- is it going to be less than this year, or in line?

I would say it would be less than this year just because we have ramped down. In this year's cost you had still some of the ramping down of engineering, final purchase of some of the different equipment. And you still had some of the construction costs in there of completing Chailhuagon reservoir and the roads in this year. Next year we look to continue that sort of work but you won't have all the equipment and those final engineering costs coming through.

Great. And last one, just in Nevada, what are you guys seeing cost per ton basis? What is the trend? Is it flat? Or are you guys seeing it coming off -- I'm talking labor, mining consumables. Just total mine site cost per ton.

I think what you've seen and what's reflected in the all-in sustaining cost is reflected in what we see in lower cost per ton. Being out there last week, and having a chance to see how the team is doing. Our Twin Creeks operation, for instance, in terms of tire life, a key consumable cost, they are achieving a sustained over 10,000-hour tire life at Twin.

And I know it causes a little friendly competition. I know their cousins over at Phoenix are seeing numbers that aren't quite up to that, and that is helping to drive a little competition. What is resulting, and what you're seeing in the lower all-in sustaining costs, is really reflected in lower per unit costs in mining.

Okay. Thanks.

Patrick Chidley, HSBC.

Hello again. Just a quick follow-up, just in terms of looking for opportunities that you might want to pursue. There's been much talk about, or much indication, that you might want to move into copper. Have you come across any significant opportunities? And what opportunities would you be looking at there? Would it be greenfields, brownfields, or existing operations? And would you be trying to create more high-quality business there, in terms of not chasing maybe some larger projects that are maybe not the most profitable?

Thanks, Patrick. From our standpoint, and as I've been saying, I think, at the Denver Gold Forum and at our Investor Day, we are broadening our horizon to look not just at gold but also at copper. We have three copper operations, as we mentioned, and spent quite a bit of time talking about here the solvent extraction and the potential for copper recovery at Yanacocha.

As we look at it, though, it's not just to get into more copper, or to get into more gold, for that matter. We are looking at does it add value, does it reduce our overall cost, position on the cost curve, does it add to mine life, and does it have both technical and social-political risks that we can manage well. So, those are really the factors. It's not the key and, as we have been saying, it's not about adding volume, it is about making sure it is adding value to the business.

Could it be more of a longer-term slower growth type initiative in copper there, rather than, say, a big bang?

We are not pressing for a big bang or anything at this point. It has got to have -- and as market conditions change, it changes what might be out there for opportunities. We are always really looking across the spectrum. But back to those four key points on value, mine life, cost, and risk that we can manage.

All right. Great. Thanks very much and congratulations on the quarter.

Thanks very much. And, everyone, thanks very much for joining us today. I'm very pleased with the business performance trajectory and to see the progress that has been made on improving cost and efficiency across the business. Thanks very much. Enjoy your day and your weekend.

That does conclude today's conference. Thank you for participating. You may disconnect at this time.